/raid1/www/Hosts/bankrupt/TCREUR_Public/220825.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Thursday, August 25, 2022, Vol. 23, No. 164
Headlines
G E R M A N Y
SCHAEFFLER AG: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable
I R E L A N D
ACCUNIA EUROPEAN I: Fitch Affirms B+sf Rating on Class F Debt
ANCHORAGE CAPITAL 6: Fitch Assigns B-sf Rating to Class F Debt
MADISON PARK V: Fitch Affirms B+sf Rating on Class F Debt
PALMERSTON PARK: Fitch Affirms B+sf Rating to Class E Debt
U K R A I N E
UKRAINE: Fitch Hikes LongTerm Foreign Currency IDR to 'CC'
U N I T E D K I N G D O M
BARINGS EURO 2014-1: Fitch Affirms B+sf Rating on F-RR Debt
BEALES: Unsecured Creditors to Get Less Than 2 Pence in the Pound
GOODWINS CONSTRUCTION: Construction Begins on Eccles Development
ICELAND VLNCO: Moody's Cuts CFR to B3 & Alters Outlook to Negative
KARL THOMAS: Goes Into Liquidation, Owes GBP64,857 to Creditors
NEWGATE FUNDING 2007-2: Fitch Hikes Class F Debt Rating to B+sf
TOWD POINT 2020: Fitch Affirms B-sf Rating on Class XA Debt
UK: M&E Firms Comprise 43% of Construction Administrations
UNITED KINGDOM: Number of CVAs by Businesses Down 47% to 110
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G E R M A N Y
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SCHAEFFLER AG: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable
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Fitch Ratings has affirmed Schaeffler AG's Long-Term Issuer Default
Rating (IDR) at 'BB+' with a Stable Outlook. Fitch has also
affirmed Schaeffler's immediate parent and 75.1% owner, IHO
Verwaltungs GmbH's (IHO-V) IDR at 'BB' with a Stable Outlook. IHO's
senior secured rating has been affirmed at 'BB' with a Recovery
Rating of 'RR4'.
The affirmation reflects Schaeffler's sound 2021 results and
resilient 1H22 earnings, despite challenging conditions from supply
chain issues and inflationary pressures. Schaeffler's resilient
operating performance reflects low double-digit margins from its
less cyclical Automotive Aftermarket (AA) and Industrial Division
(ID), which have been able to pass cost inflation on to a large
extent. This is offset by profitability pressures in the Automotive
Technology (AT) division, due to rising input costs and lack of
pass-through mechanisms. Schaeffler recently completed price
negotiations with most carmakers to obtain price adjustments that
at least partially reflect the inflationary environment.
The consolidated group combines the standalone accounts of IHO-V
and the full consolidation of Schaeffler's accounts, and we include
the dividend stream from IHO-V's 36% direct holding in Continental
AG, in funds from operations (FFO). The consolidated group's credit
profile incorporates Schaeffler's Standalone Credit Profile (SCP).
We expect moderate deleveraging over the rating horizon, providing
that IHO-V continues to benefit from dividends from Continental AG
and Schaeffler's operations are not materially disrupted by gas
deliveries or recessionary demand.
KEY RATING DRIVERS
Diversification Support Earnings: Schaeffler's operating
profitability and cash flow generation are stronger than pure-play
auto suppliers due to its exposure towards the industrial and
automotive aftermarket, which currently represent around 40% of
annual sales. Both divisions have relatively stable double-digit
operating margins due to a less cyclical and more diversified
customer base, which allows inflation pass-through to a large
extent, with little time lag. Healthy margins from both segments
also offset the profitability erosion seen in Automotive
Technologies (AT) during the last 12 months.
Automotive Technologies Earnings Under Stress: Supply chain issues
and increasing input costs burdened AT's operating margins during
the last 18 months. Schaeffler recently completed negotiation with
most of its original equipment manufacturers (OEMs) to adjust
prices. Price increases, or avoidance of contractual price
reductions, will fully kick in from 2H22 and be partially applied
retrospectively to 1H22 orders. Fitch believes that price revision
will only partly restore AT's profitability, since negotiations do
not typically include inflation in indirect areas such as
logistics, labour and energy. The Chinese lockdown in 2Q22 and
volatile production schedules increased the burden on
profitability. We expect AT's profitability to bottom in 2022 and
moderately recover from 2023 when inflationary pressures should
start to ease.
Exposure to Gas Interruption: Fitch expects a full gas delivery
stoppage would have a significant impact on Schaeffler's earnings
and cash flow, given the supply chain and customer demand would be
severely impaired. A sudden gas delivery stoppage is likely to
result in certain production lines stoppages or worsened supply
chain issues. Schaeffler's energy bill accounts for a low single
digit percentage of sales. The company has secured a significant
portion of the gas prices for 2022 and has contingency plans in
place. At present it is unknown how authorities will prioritise gas
utilisation in case of rationing. Schaeffler is confident it can
run operations to a certain extent with a reduced gas supply.
In the absence of supply issues and providing that energy prices
remain at current levels, Schaeffler will face significant energy
cost inflation in 2023 as the company typically secures a
significant portion of its energy needs in advance for the whole
year.
E-Mobility Business Ramp-up: Schaeffler revised its operating model
within AT, separating mature technologies in relation to legacy
powertrain systems from the portfolio and establishing an
E-mobility unit dedicated to electrification. The company reported
strong growth of E-mobility, with 1H22 order intake already
exceeding the FY22 target. In anticipation of accelerated ramp-up,
Schaeffler has opened a new plant in Hungary. Before there is
meaningful volume to completely absorb fixed costs, the E-mobility
and Chassis divisions are margin-dilutive for the group, but heavy
investments are necessary for winning new business and maintaining
the competitive advantage.
On-going M&A Activities: Fitch expects Schaeffler to remain active
with its M&A strategy. Targets are typically small and mid-sized
companies in Schaeffler's existing divisions and or those that
would increase product or geographic diversification. The Ewellix
acquisition of July 2022 expanded Schaeffler's product offering
towards less cyclical and more profitable areas than AT such as
robotics, medical technologies and mobile machinery. Our forecasts
include EUR200 million of acquisitions per year between 2023 and
2025.
Marketable Assets Support Ratings: IHO-V's 36% equity stakes in
Continental and Vitesco (valued at about EUR5.4 billion at 16
August 2022) are significant assets. Only the dividends received
are explicitly reflected in Fitch's credit metrics. However, Fitch
expects that IHO-V could sell part of these shareholdings quickly,
allowing it to repay a portion of its gross debt. This potential
source of liquidity somewhat mitigates the consolidated group's
weak leverage metrics.
Parent-Subsidiary Linkage Established: Schaeffler's 'BB+' rating
incorporates a one-notch uplift from the consolidated group (IHO-V)
rating of 'BB', due to Schaeffler's higher underlying SCP of 'bbb-'
and the porous linkage between Schaeffler and IHO-V. Limited
documentary constraints on upstreaming of dividends do not
ring-fence Schaeffler from additional leverage at IHO-V. Fitch
expects dividend payments to remain predictable, and to support
modest deleveraging at Schaeffler.
No Notching Uplift from IHO's IDR: Fitch has not notched IHO-V's
senior secured debt rating above the company's IDR. The debt is
secured by a pledge on common shares and not by a pledge on readily
saleable hard assets or intangible assets. We note that the current
value of pledged shares exceeds the first-lien debt amount.
However, the pledge is partly made of common shares of Schaeffler,
the sole controlled assets of IHO-V, which is the main driver of
IHO-V's IDR.
Financial stress at IHO-V would likely be linked to financial
stress at Schaeffler and therefore to a lower value of the pledged
shares. IHO-V's indebtedness is also structurally subordinated to
Schaeffler Group's indebtedness, potentially impairing recovery
prospects of IHO-V's creditors.
DERIVATION SUMMARY
Schaeffler's business profile compares adequately with auto
suppliers in the 'BBB' rating category. Schaeffler benefits from
stronger business and customer diversification than peers in
Fitch's portfolio of publicly rated auto suppliers, outranked only
by Robert Bosch GmbH (F1+) and Continental. Like other large and
global suppliers, including Continental and Aptiv PLC (BBB/Stable),
Schaeffler has a broad and diversified exposure to large
international OEMs. However, the share of its aftermarket business
is smaller than tyre manufacturers such as Compagnie Generale des
Etablissements Michelin (A-/Stable), but greater than Faurecia S.E.
(BB+/Negative).
Schaeffler also has stronger operating margins than a typical
auto-supplier that does not benefit from exposure to the tyre
businesses. However, Schaeffler's free cash flow (FCF) and
financial structure is moderately weaker than peers in the 'BBB'
rating category. Fitch used its "Parent and Subsidiary Linkage"
criteria to derive Schaeffler's ratings. No Country Ceiling or
operating environment aspects affect the rating.
KEY ASSUMPTIONS
2021-2025 Revenue CAGR of 5.2% (4.5% organic), sustained by
post-pandemic car production recovery and price increases. In 2023,
we expect the top line to grow more quickly due to the first-time
consolidation of Ewellix.
Fitch EBIT/margin declining at mid-single digit in 2022 and 2023
due to input cost inflationary pressures. We expect the automotive
aftermarket and industrial business to maintain double digit
margins over the rating horizon while automotive technologies will
be affected by only partial recovery of cost inflation.
Dividends received from Continental averaging EUR165 million per
year to 2025.
Net working capital to increase in 2022 to maintain safety stock
and ensure seamless production. Investments to moderate from 2023.
Capex slightly above Schaeffler's 2022 guidance. Slightly above 6%
of sales between 2023-2025.
Schaeffler dividend payout of at around 44% over the rating
horizon, in line with the company's dividend policy.
IHO-V average dividend of around EUR130 million per year to 2025.
Schaeffler 2023-2025 average acquisition of EUR200 million per
year.
RATING SENSITIVITIES
IHO-V
Factors that could, individually or collectively, lead to positive
rating action/upgrade (BB+):
- FFO net leverage below 3.5x and net debt to EBITDA below 2.5x
Factors that could, individually or collectively, lead to negative
rating action/downgrade (BB-):
- FFO net leverage above 4.5x and net debt to EBITDA above 3.5x
- Weakening of formal linkage ties between Schaeffler and IHO-V
without adequate deleveraging
- A reduction in IHO-V's stake in Continental without adequate
deleveraging
Schaeffler AG
Factors that could, individually or collectively, lead to positive
rating action/upgrade (BBB-):
- Positive rating action on IHO-V combined with an EBIT margin
above 8%, FCF margin of more than 1.5%, FFO net leverage below
2.5x and net debt to EBITDA below 2.0x
- Weakening of formal linkage ties between Schaeffler and IHO-V
combined with EBIT margin above 8%, FCF margin of more than
1.5%, FFO net leverage below 2.5x and net debt to EBITDA below
2.0x
Factors that could, individually or collectively, lead to negative
rating action/downgrade (BB):
- Negative rating action on IHO-V
- EBIT margin below 6%
- FCF neutral to negative
- FFO net leverage above 3.0x and net debt to EBITDA above 2.5x
- Strengthening of formal linkage ties between Schaeffler and
IHO-
LIQUIDITY AND DEBT STRUCTURE
Healthy Liquidity: Schaeffler's liquidity is supported by readily
available cash of around EUR1.8 billion at end-December 2021
including Fitch's adjustment of around EUR350 million. The company
has EUR1.8 billion committed and undrawn revolving credit
facilities (RCF) and bilateral credit lines of EUR138 million. In
addition, Schaeffler has a fully undrawn and uncommitted commercial
paper programme of EUR 1 billion and a factoring programme of
EUR200 million (EUR150 million drawn as of December 2021).
Schaeffler's healthy cash flow generation further supports
liquidity. Following the acquisition of Ewellix, Schaeffler could
draw available credit lines or access the debt capital market in
2022 to partly fund the takeover.
IHO-V's liquidity is also healthy, benefiting from the absence of a
material maturity before 2025 and access to a an EUR800 million
committed RCF (EUR260 million drawn at year end) available until
December 2024. IHO's liquidity headroom will further increase in
2022 following dividend inflows from Continental and Schaeffler.
The financing and the treasury of IHO-V and Schaeffler are strictly
separated.
Secured Debt Structure for IHO-V: The debt structure remains
secured. It mainly consists of three euro-denominated notes and
three dollar-denominated notes for a total outstanding amount of
around EUR3.5 billion at year end 2021. The nearest maturity of the
notes is May 2025. In 2021, IHO converted the EUR400 million term
loan maturing in 2024 into a drawn committed RCF. Later in the
year, IHO used EUR140 million available cash to reduce RCF
utilisation to EUR260 million.
Unsecured Debt Structure for Schaeffler: Schaeffler's debt profile
is diversified and consists mainly of five euro-denominated notes
for EUR3.5 billion outstanding. In 1Q22, Schaeffler repaid a EUR545
million bond maturing in March 2022. Consequently, the company has
no immediate refinancing concerns as the next bond is due in March
2024. Schaeffler also raised debt through four unsecured
Schuldschein loans for EUR298 million outstanding as at
end-December 2021.
ISSUER PROFILE
Schaeffler is a leading global automotive and industrial supplier.
At end-2021, the company employed almost 83,000 people in 90 plants
and campus location and 20 R&D centres. Europe remains the core
market but APAC and China represent a significant portion of
revenues.
ESG CONSIDERATIONS
IHO-V has an ESG Relevance Score of '4' for Governance Structure,
reflecting the limited number of independent directors as a
constraining factor for board independence and effectiveness. This
has a negative impact on the credit profile, and is relevant to the
rating in conjunction with other factors.
Schaeffler AG has an ESG Relevance Score of '4' for Governance
Structure, reflecting concentrated ownership and the lack of voting
rights for minority shareholders. This has a negative impact on the
credit profile, and is relevant to the rating 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.
Rating Prior
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Schaeffler AG LT IDR BB+ Affirmed BB+
senior unsecured LT BB+ Affirmed BB+
IHO Verwaltungs GmbH LT IDR BB Affirmed BB
senior secured LT BB Affirmed RR4 BB
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I R E L A N D
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ACCUNIA EUROPEAN I: Fitch Affirms B+sf Rating on Class F Debt
-------------------------------------------------------------
Fitch Ratings has affirmed Accunia European CLO I DAC (Accunia I)
and Accunia European CLO III DAC's (Accunia III) notes and revised
the Outlooks on the class B through F notes to Stable from
Positive.
Rating Prior
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Accunia European CLO I DAC
A XS1966591452 LT AAAsf Affirmed AAAsf
B-1 XS1966593151 LT AA+sf Affirmed AA+sf
B-2 XS1966595016 LT AA+sf Affirmed AA+sf
C XS1966596683 LT A+sf Affirmed A+sf
D XS1966598382 LT BBB+sf Affirmed BBB+sf
E XS1966599430 LT BB+sf Affirmed BB+sf
F XS1966599869 LT B+sf Affirmed B+sf
Accunia European CLO III DAC
A XS1847612204 LT AAAsf Affirmed AAAsf
B-1 XS1847612972 LT AA+sf Affirmed AA+sf
B-2 XS1847613608 LT AA+sf Affirmed AA+sf
C XS1847614242 LT A+sf Affirmed A+sf
D XS1847614911 LT BBB+sf Affirmed BBB+sf
E XS1847615132 LT BB+sf Affirmed BB+sf
F XS1847615561 LT B+sf Affirmed B+sf
TRANSACTION SUMMARY
Accunia I and III are cash flow collateralised loan obligations
(CLO) backed by portfolios of mainly European leveraged loans and
bonds. The transactions are actively managed by Accunia
Fondsmæglerselskab A/S. Accunia I exited its reinvestment period
on May 15, 2021 and Accunia III exits reinvestment this month.
KEY RATING DRIVERS
Transactions Outside Reinvestment Period: The transactions have
exited their reinvestment periods. The manager can still reinvest
unscheduled principal proceeds and sale proceeds from credit
improved and credit risk obligations as long as the reinvestment
criteria are satisfied. Both transactions were reinvesting as of
their last monthly reports in July 2022.
Given the manager can still reinvest, Fitch has assessed the
transactions based on a stressed portfolio analysis running the
following collateral quality tests at their covenanted limits:
Fitch weighted average rating factor (WARF), Fitch weighted average
recovery rate (WARR), weighted average spread and fixed asset
limit. For both transactions, the stressed weighted average
recovery rate (WARR) covenants are haircut by 1.5%, to reflect the
old recovery rate definition in the transaction documents, which
can result in on average a 1.5% inflation of the WARR relative to
Fitch's latest CLO Criteria.
Stable Outlook: The Stable Outlooks on all notes reflect the
uncertain macroeconomic environment, and our expectation that
deleveraging will be limited since both transactions can still
reinvest. Scheduled repayment of assets is limited in the next
12-18 months and Fitch expects limited prepayment in this uncertain
macroeconomic environment.
Stable Asset Performance: The transactions' metrics indicate stable
asset performance. Although Accunia I is 60bp below par and is
failing the weighted average life test, it has already started
deleveraging. Accunia III has not started to deleverage yet and is
currently 1.3% above par. All other tests (collateral quality,
coverage and portfolio profile tests) are passing for both
transactions. Exposure to assets with Fitch-derived ratings of
'CCC+' and below is 5.1% and 1.2% for Accunia I and III,
respectively, as calculated by the trustee. Neither transaction
reports exposure to defaulted assets.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the obligors for both transactions at 'B'/'B-'. The Fitch WARF of
the current portfolio as reported by the trustee was 33.43 and
33.64 for Accunia I and III, respectively. The Fitch-calculated
WARF of the current portfolio using the latest criteria definitions
was 25.90 and 26.11 for Accunia I and III, respectively.
High Recovery Expectations: Senior secured obligations comprise
92.7% and 96.7% of the portfolios for Accunia I and III,
respectively. Fitch views the recovery prospects for these assets
as more favourable than for second-lien, unsecured and mezzanine
assets. The Fitch WARR of the current portfolio as reported by the
trustee was 64.7% and 65.2% for Accunia I and III, respectively.
The Fitch-calculated Fitch WARR for the two portfolios using the
latest criteria WARR definitions are 62.9% and 62.99% for Accunia I
and III, respectively.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration is 21.3% and 15.4%, and no obligor represents more
than 3% and 2% of the portfolio balance, for Accunia I and III
respectively.
Cashflow Modelling: Fitch used a customised proprietary cash-flow
model to replicate the principal and interest waterfalls and the
various structural features of the transaction, and to assess their
effectiveness, including the structural protection provided by
excess spread diverted through the par- value and interest-coverage
tests.
Deviation from Model-implied Rating: Accunia I's class B-1, B-2 and
F notes and Accunia III's class B-1, B-2, D and F notes' ratings
deviate from the model-implied ratings (MIR) by one to three
notches. The deviation reflects the limited cushion relative to the
ratings on the stressed portfolio at the MIR, the limited credit
enhancement build-up since the end of the reinvestment period, and
the uncertain macro-economic backdrop.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
An increase of the default rate (RDR) at all rating levels by 25%
of the mean RDR and a 25% decrease of the recovery rate (RRR)
across all ratings would result in downgrades of up to four notches
for Accunia I and three notches for Accunia III. While not Fitch's
base case, downgrades may occur if the loss expectation is larger
than initially assumed, due to unexpectedly high levels of default
and portfolio deterioration.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
A reduction of the RDR at all rating levels by 25% of the mean and
a 25% increase in the RRR at all rating levels would result in
upgrades of up to three notches depending on the notes, except for
the class A notes, which are already at the highest rating on
Fitch's scale and cannot be upgraded. Upgrades may also occur if
the portfolios' quality remains stable and the notes start to
amortise, leading to higher credit enhancement across the
structures.
ANCHORAGE CAPITAL 6: Fitch Assigns B-sf Rating to Class F Debt
--------------------------------------------------------------
Fitch Ratings has assigned Anchorage Capital Europe CLO 6 DAC final
ratings.
Anchorage Capital Europe CLO 6 DAC
A XS2500008128 LT AAAsf New Rating
B-1 XS2500008474 LT AAsf New Rating
B-2 XS2500008714 LT AAsf New Rating
C XS2500008805 LT Asf New Rating
D XS2500008987 LT BBB-sf New Rating
E XS2500009449 LT BB-sf New Rating
F XS2500009365 LT B-sf New Rating
Subordinated Notes
XS2500009522 LT NRsf New Rating
TRANSACTION SUMMARY
Anchorage Capital Europe CLO 6 DAC is a securitisation of mainly
senior secured obligations (at least 90%) with a component of
senior unsecured, mezzanine, second-lien loans and high-yield
bonds. Note proceeds are being used to fund a portfolio with a
target par of EUR400 million. The portfolio is actively managed by
Anchorage CLO ECM, L.L.C. The collateralised loan obligation (CLO)
has a two-year reinvestment period and a seven-year weighted
average life test (WAL).
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch places the
average credit quality of obligors at 'B'/'B-'. The
Fitch-calculated weighted average rating factor (WARF) of the
identified portfolio is 24.85.
High Recovery Expectations (Positive): At least 90% of the
portfolio will comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch-calculated
weighted average recovery rate (WARR) of the identified portfolio
is 59.52%.
Diversified Asset Portfolio (Positive): The transaction includes a
Fitch test matrix corresponding to the top 10-obligor concentration
limit of 20%, fixed-rate asset limit at 15% and a seven-year WAL.
The transaction also includes various other concentration limits,
including the maximum exposure to the three-largest Fitch-defined
industries in the portfolio at 42.5%. These covenants ensure that
the asset portfolio will not be exposed to excessive
concentration.
Portfolio Management (Neutral): The transaction has a two-year
reinvestment period and includes reinvestment criteria similar to
those of other European transactions. Fitch's analysis is based on
a stressed-case portfolio with the aim of testing the robustness of
the transaction structure against its covenants and portfolio
guidelines.
Cash Flow Modelling (Neutral): Fitch's analysis is based on a
stressed-case portfolio with a six-year WAL. The WAL used for the
transaction stressed-case portfolio was 12 months less than the WAL
covenant to account for structural and reinvestment conditions
after the reinvestment period, including passing the
over-collateralisation and Fitch 'CCC' limitation tests, among
others. Fitch believes these conditions would reduce the effective
risk horizon of the portfolio during the stress period.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings
would result in downgrades of up to four notches across the
structure. Downgrades may occur if the loss expectation is larger
than initially assumed, due to unexpectedly high levels of default
and portfolio deterioration.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings would result in upgrades of
no more than three notches across the structure, apart from the
class A notes, which are already at the highest rating on Fitch's
scale and cannot be upgraded. Upgrades, except for the class A
notes, may occur on better-than-expected portfolio credit quality
and deal performance, leading to higher credit enhancement and
excess spread available to cover losses in the remaining
portfolio.
MADISON PARK V: Fitch Affirms B+sf Rating on Class F Debt
---------------------------------------------------------
Fitch Ratings has affirmed Madison Park Euro Funding V DAC's
notes.
Rating Prior
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Madison Park Euro Funding V DAC
Class A-R XS2339509809 LT AAAsf Affirmed AAAsf
Class B1 XS1578108398 LT AA+sf Affirmed AA+sf
Class B2-R XS2339510484 LT AA+sf Affirmed AA+sf
Class C XS1578108638 LT A+sf Affirmed A+sf
Class D-R XS2339511292 LT BBB+sf Affirmed BBB+sf
Class E XS1578109362 LT BB+sf Affirmed BB+sf
Class F XS1578109289 LT B+sf Affirmed B+sf
TRANSACTION SUMMARY
Madison Park Euro CLO V DAC is a cash flow CLO mostly comprising
senior secured obligations. The portfolio is managed by Credit
Suisse Asset Management and the reinvestment period ended in May
2022.
KEY RATING DRIVERS
Reinvestment Period Over: Madison Park Euro CLO V DAC exited its
reinvestment period in May 2022 but the manager is able to reinvest
unscheduled principal proceeds and sale proceeds from credit-risk
obligations.
Given the manager's flexibility to reinvest, Fitch analysis is
based on a stressed portfolio where the weighted average rating
factor (WARF), weighted average recovery rate (WARR), weighted
average spread, weighted average life and fixed-rate exposure have
been stressed to their current limits. Fitch's stressed portfolio
for Madison Park Euro CLO V DAC is based on a WAL of five years.
The shorter WAL covenant incorporated in Fitch's stressed portfolio
analysis compared with previous reviews, together with the
transaction's stable performance led to the affirmation of the
notes.
The Stable Outlooks reflect Fitch's expectation of sufficient
credit protection to withstand potential deterioration in the
credit quality of the portfolio in stress scenarios at their
current ratings. The Outlooks also reflect the small amount of
scheduled repayment due in the next 12-18 months and our
expectation that prepayment is limited, given the uncertain
macro-economic environment.
Stable Asset Performance: The transaction's metrics indicate stable
asset performance. The transaction is currently 1.44% above par and
is passing all collateral-quality tests, coverage and
portfolio-profile tests. Exposure to assets with a Fitch-derived
rating (FDR) of 'CCC+' and below as calculated by the trustee is
6.37%. There are no defaulted assets in the portfolio.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the obligors at 'B'/'B-'. The Fitch WARF of the current portfolio
reported by the trustee was 34.49 as of 20 July 2022 compared with
the covenanted value of 35.00.
High Recovery Expectations: Senior secured obligations comprise
94.68% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets. The Fitch WARR of the current portfolio reported
by the trustee is 59.1% compared with the covenanted value of
59.1%.
Diversified Portfolio: The portfolios are well-diversified across
obligors, countries and industries. The top 10 obligor
concentration calculated by Fitch is 14.79%, and no obligor
represents more than 1.62% of the portfolio balance as calculated
by Fitch.
Cash-flow Modelling: Fitch used a customised proprietary cash-flow
model to replicate the principal and interest waterfalls and the
various structural features of the transaction, and to assess their
effectiveness, including the structural protection provided by
excess spread diverted through the par- value and interest-coverage
tests.
Deviation from Model-implied Rating: The class B-1/B-2R, D-R and F
notes' ratings are one notch below the model implied rating (MIR).
The deviation by minus one notch reflects the limited cushion on
the stress portfolio at the MIR.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
An increase of the default rate (RDR) at all rating levels by 25%
of the mean RDR and a decrease of the recovery rate (RRR) by 25% at
all rating levels will result in downgrades of no more than three
notches depending on the notes. While not Fitch's base case,
downgrades may occur if build-up of the notes' credit enhancement
following amortisation does not compensate for a larger loss
expectation than initially assumed due to unexpectedly high levels
of defaults and portfolio deterioration.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
A reduction of the RDR at all rating levels by 25% of the mean RDR
and an increase in the RRR by 25% at all rating levels would result
in upgrades of up to four notches depending on the notes except for
the class A-R notes, which are already at the highest rating on
Fitch's scale and cannot be upgraded. Upgrades may also occur if
the portfolio's quality remains stable and the notes continue to
amortise, leading to higher credit enhancement across the
structure.
PALMERSTON PARK: Fitch Affirms B+sf Rating to Class E Debt
----------------------------------------------------------
Fitch Ratings has affirmed Palmerston Park CLO DAC.
Rating Prior
------ -----
Palmerston Park CLO DAC
A-1AR XS2068992630 LT AAAsf Affirmed AAAsf
A-1BR XS2068993281 LT AAAsf Affirmed AAAsf
A-2A XS1566961618 LT AA+sf Affirmed AA+sf
A-2B XS1566962269 LT AA+sf Affirmed AA+sf
B-1R XS2068993950 LT A+sf Affirmed A+sf
B-2R XS2068994503 LT A+sf Affirmed A+sf
C XS1566964125 LT A-sf Affirmed A-sf
D XS1566965106 LT BB+sf Affirmed BB+sf
E XS1566965015 LT B+sf Affirmed B+sf
TRANSACTION SUMMARY
Palmerston Park CLO DAC is a cash flow CLO mostly comprising senior
secured obligations. The portfolio is managed by Blackstone Ireland
Limited and its reinvestment period ended in April 2021.
KEY RATING DRIVERS
Transaction Outside Reinvestment Period: Despite having exited its
reinvestment period in April 2021 the transaction's manager can
reinvest unscheduled principal proceeds and sale proceeds from
credit-risk obligations. The trade date principal cash balance was
at EUR9.06 million as of the 10 May 2022 investor report, and the
transaction has begun deleveraging with the class A-1 notes having
amortised by EUR34 million since July 2021.
Given the manager's flexibility to reinvest, Fitch analysis is
based on a stressed portfolio where the weighted average rating
factor (WARF), recovery rate (WARR), spread (WAS), life (WAL) and
fixed-rate exposure have been stressed to their current limits.
Fitch's stressed portfolio is based on a WAL of 4.17 years. The
shorter WAL covenant incorporated in Fitch stressed portfolio
analysis than in previous reviews, together with the satisfactory
performance of the transaction to date, led to the affirmation of
all the notes.
The Stable Outlooks on all notes reflect Fitch's expectation of
sufficient credit protection to withstand potential deterioration
in the credit quality of the portfolio in stress scenarios at their
current ratings. The Outlook also reflects the small amount of
scheduled repayment due in the next 12-18 months and Fitch's
expectation of limited prepayment given an uncertain macro-economic
environment.
Stable Asset Performance: The transaction's metrics indicate stable
asset performance. The transaction is currently 0.19% above par and
is passing all collateral-quality, coverage and portfolio-profile
tests. Exposure to assets with a Fitch-derived rating (FDR) of
'CCC+' and below is 4.88% as calculated by the trustee. The
portfolio has no defaulted assets.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the obligors at 'B'/'B-'. The Fitch-calculated weighted WARF of the
current portfolio as reported by the trustee was 33.47 as of 10 May
2022 compared with a covenanted maximum of 34.72.
High Recovery Expectations: Senior secured obligations comprise
99.19% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets. The Fitch WARR of the current portfolio reported
by the trustee was 65.1% as of 10 May 2022 compared with a
covenanted minimum of 63.79%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top- 10 obligor
concentration is 14.6%, and no obligor represents more than 2.2% of
the portfolio balance as calculated by Fitch.
Cash Flow Modelling: Fitch used a customised proprietary cash flow
model to replicate the principal and interest waterfalls and the
various structural features of the transaction, and to assess their
effectiveness, including the structural protection provided by
excess spread diverted through the par- value and interest-coverage
tests.
Deviation from Model-implied Rating: The class A-2A/A-2 and C
ratings of 'AA+sf' and 'A-sf', respectively, are below their
model-implied ratings (MIR) of 'AAAsf' and 'Asf' respectively. The
deviation by one notch reflects limited cushion in the stressed
portfolio at their MIRs.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
An increase of the default rate (RDR) at all rating levels by 25%
of the mean RDR and a decrease of the recovery rate (RRR) by 25% at
all rating levels will result in downgrades of no more than three
notches depending on the notes. While not Fitch's base case,
downgrades may occur if build-up of the notes' credit enhancement
following amortisation does not compensate for a larger loss
expectation than initially assumed due to unexpectedly high levels
of defaults and portfolio deterioration.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
A reduction of the RDR at all rating levels by 25% of the mean RDR
and an increase in the RRR by 25% at all rating levels would result
in upgrades of up to four notches depending on the notes except for
the class A-1 notes, which are already at the highest rating on
Fitch's scale and cannot be upgraded. Further upgrades, except fot
the class A-1 notes, may occur if the portfolio's quality remains
stable and notes continue to amortise, leading to higher credit
enhancement across the structure.
=============
U K R A I N E
=============
UKRAINE: Fitch Hikes LongTerm Foreign Currency IDR to 'CC'
----------------------------------------------------------
Fitch Ratings has upgraded Ukraine's Long-Term Foreign-Currency
(LTFC) Issuer Default Rating (IDR) to 'CC' from 'RD' (restricted
default).
Fitch typically does not assign Outlooks for sovereigns with a
rating of 'CCC+', or below.
EU CALENDAR DEVIATION DISCLOSURE
Under EU credit rating agency (CRA) regulation, the publication of
sovereign reviews is subject to restrictions and must take place
according to a published schedule, except where it is necessary for
CRAs to deviate from this in order to comply with their legal
obligations. Fitch interprets this provision as allowing us to
publish a rating review in situations where there is a material
change in the creditworthiness of the issuer that Fitch believes
makes it inappropriate for us to wait until the next scheduled
review date to update the rating or Outlook/Watch status. The next
expected review date would have been within six months from
Ukraine's previous regular sovereign review completed on July 22,
2022 but Fitch believes that developments in the country warrant
such a deviation from the calendar and Fitch's rationale for this
is set out in the High weight factors of the Key Rating Drivers
section below.
KEY RATING DRIVERS
The upgrade reflects the following key rating drivers and their
relative weights:
HIGH
Completion of Distressed Debt Exchange: The upgrade of Ukraine's
LTFC IDR to 'CC' follows the execution of consent solicitation on
11 August to restructure external debt, which Fitch deems
constitutes completion of a distressed debt exchange (DDE), curing
the 'restricted default'. Near USD6 billion of principal and
interest on Ukraine's Eurobonds has been deferred by 24 months,
alleviating external debt servicing pressure, in the context of
weakening international reserves and acute war-related spending
needs. The restructuring received the consent of 75% of bondholders
(by aggregate principal amount), above the 66.7% minimum required.
Broader Restructuring Probable: Despite this debt servicing relief,
the 'CC' rating reflects unresolved debt sustainability risks
resulting from Russia's attack and Ukraine's highly stressed public
and external finances and macro-financial position. Fitch said, "We
expect the war to extend well into 2023, driving public debt above
100% of GDP, adding to the already huge costs to infrastructure and
economic output, and fuelling inflationary and external pressures,
while deficit financing sources remain uncertain. A broader
restructuring of the government's commercial debt is therefore
probable in our view, although the timing is uncertain. The relief
already provided by the two-year standstill on all Eurobonds, and
the challenge of agreeing a framework for any such restructuring in
such an uncertain macro-environment, could potentially push it into
2024."
Ukraine's ratings also reflect the following rating drivers:
Fundamental Rating Strengths and Weaknesses: The rating reflects
heightened geopolitical and security risk, low and falling external
buffers, very weak public finances, the huge economic and human
cost of the war, high inflation and macro-volatility. The sovereign
benefits from strong multilateral and bilateral support, favourable
human development indicators, and prior to the invasion, a credible
macro-policy framework.
Protracted War: The prospects of a negotiated political settlement
over the war with Russia are weak. The Ukrainian government appears
unlikely to cede any substantial territory lost to Russia, and
Fitch anticipates President Putin will continue to pursue an
objective of undermining the sovereign independence of Ukraine. It
is unclear either side will have sufficient military superiority to
deliver on objectives, which could result in a long-drawn-out
conflict.
Economic Cost, Inflationary Pressure: Fitch forecasts the economy
contracts 33% this year, with a shallow recovery of 4% in 2023. Net
outward migration has risen to 6.1 million people, estimated damage
to infrastructure exceeds USD100 billion (75% of GDP), and the
government projects 10-year reconstruction needs at USD750 billion.
Fitch said, "We project inflation to accelerate from 22.2% in July
to 30.0% at end-2022 due to monetary financing, ongoing supply
chain disruptions, weak monetary policy transmission and the
hryvnia depreciation, and to remain high in 2023, averaging
20.0%."
Declining FX Reserves: International reserves fell USD5.7 billion
to USD22.4 billion in the four months to end-July driven by
financial account outflows. The current account remained in surplus
of USD3.7 billion in 1H22, helped by capital controls and
international grants, but Fitch projects it will return to a
deficit of 1.7% of GDP in 2023, putting further pressure on
international reserves.
Public Finances Severely Stressed: The spike in war-related
expenditure will lead to record-high fiscal deficits. Fitch
forecasts the general government deficit rises to 28.6% of GDP in
2022 and remains large in 2023, at 21.9%, due to the ongoing war
effort and need to replace critical infrastructure. General
government debt is projected to rise to 94% of GDP at end-2022
(excluding government guarantees, of 8% of GDP) and 103% at
end-2023. Additional contingent liability risks have greatly
increased, and our debt projections are subject to exchange rate
risk, given 61% of public debt is FC-denominated, and to a high
degree of uncertainty more generally.
Financing Sources Highly Uncertain: Pledged budget aid for the
remainder of this year totals near USD15 billion, and there will be
ongoing need for financing by the National Bank of Ukraine (NBU),
which accounted for just above half of deficit financing in 1H22.
There is sizeable uncertainty as to whether banks will continue to
roll over domestic debt at near 100%, despite the sector's ample
liquidity (which has been helped by 16% growth in hryvnia deposits
since the war). Ukraine's ability to meet its extremely large
financing need into 2023 largely depends on multilateral and
bilateral support, which is currently uncertain, and we judge that
pre-commitment to commercial debt restructuring is a probable
condition of continued budgetary aid support on such a scale.
Local-Currency IDRs Affirmed: Fitch said, "We do not consider there
has been a material change in the default risk on Ukraine's
local-currency debt since we downgraded the Long-Term
Local-Currency (LTLC) IDR to 'CCC-' on 22 July. The lower default
risk than on foreign-currency debt partly reflects the greater
disincentive for the government to restructure local-currency debt,
given 47% is held by NBU, a further 40% by banks, and just 6% by
non-residents, and the absence of strong international pressure to
bring domestic debt into a restructuring process. Nevertheless,
there is a high degree of liquidity risk, given uncertainty over
the size and sources of deficit financing, and increasing
constraints on continued monetary financing at recent levels in the
context of rising inflation and external stress."
ESG - Governance: Ukraine 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.
These scores reflect the high weight that the World Bank Governance
Indicators (WBGI) have in our proprietary Sovereign Rating Model
(SRM). Ukraine has a low WBGI ranking at the 32nd percentile,
reflecting the Russian-Ukrainian conflict, weak institutional
capacity, uneven application of the rule of law and a high level of
corruption.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- The LTFC IDR would be downgraded on signs that a renewed
default-like process has begun, for example, a formal launch of
a debt exchange proposal involving a material reduction in
terms and taken to avoid a traditional payment default.
- The LTLC IDR would be downgraded to 'CC' on increased signs of
a probable default event, for example from severe liquidity
stress and reduced capacity of the government to access
financing, or to 'C' on announcing restructuring plans that
materially reduce the terms of local-currency debt to avoid a
traditional payment default.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Structural: De-escalation of conflict with Russia that markedly
reduces vulnerabilities to Ukraine's external finances, fiscal
position and macro-financial stability, reducing the
probability of commercial debt restructuring.
SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO)
Fitch's proprietary SRM assigns Ukraine a score equivalent to a
rating of 'CCC+' on the LTFC IDR scale. However, in accordance with
its rating criteria, Fitch's sovereign rating committee has not
utilised the SRM and QO to explain the ratings in this instance.
Ratings of 'CCC+' and below are instead guided by Fitch's rating
definitions.
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 our
criteria that are not fully quantifiable and/or not fully reflected
in the SRM.
ESG CONSIDERATIONS
Ukraine has an ESG Relevance Score of '5' for political stability
and rights as WBGI have the highest weight in Fitch's SRM and are
highly relevant to the rating and a key rating driver with a high
weight. The invasion by Russia and ongoing war severely compromises
political stability and the security outlook. As Ukraine has a
percentile below 50 for the respective governance indicator, this
has a negative impact on the credit profile.
Ukraine has an ESG Relevance Score of '5' for rule of law,
institutional & regulatory quality and control of corruption as
WBGI have the highest weight in Fitch's SRM and in the case of
Ukraine weaken the business environment, investment and reform
prospects; this is highly relevant to the rating and a key rating
driver with high weight. As Ukraine has a percentile rank below 50
for the respective governance indicators, this has a negative
impact on the credit profile.
Ukraine has an ESG Relevance Score of '4[+]' for human rights and
political freedoms as the voice and accountability pillar of the
WBGI is relevant to the rating and a rating driver. As Ukraine has
a percentile rank above 50 for the respective governance indicator,
this has a positive impact on the credit profile.
Ukraine 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 which. Given Ukraine's recent deferral of
external debt payments which Fitch deems a distressed debt
exchange, together with the restructuring of public debt in 2015,
this has a negative impact on the credit profile.
Ukraine has an ESG Relevance Score of '4' for international
relations and trade, reflecting the detrimental impact of the
conflict with Russia on international trade, which is relevant to
the rating and a rating driver with 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.
Rating Prior
------ -----
Ukraine
LT IDR CC Upgrade RD
ST IDR C Affirmed C
LC LT IDR CCC- Affirmed CCC-
LC ST IDR C Affirmed C
Country Ceiling B- Affirmed B-
senior unsecured LT CCC- Affirmed CCC-
senior unsecured LT CC Upgrade D
===========================
U N I T E D K I N G D O M
===========================
BARINGS EURO 2014-1: Fitch Affirms B+sf Rating on F-RR Debt
-----------------------------------------------------------
Fitch Ratings has affirmed Barings Euro CLO 2014-1 DAC's notes and
revised the Outlooks on the class B-1-RR to F-RR notes to Stable
from Positive.
Rating Prior
------ -----
Barings Euro CLO 2014-1 DAC
A-RR XS1713462239 LT AAAsf Affirmed AAAsf
B-1-RR XS1713461421 LT AA+sf Affirmed AA+sf
B-2-RR XS1713460704 LT AA+sf Affirmed AA+sf
C-RR XS1713460027 LT A+sf Affirmed A+sf
D-RR XS1713459441 LT BBB+sf Affirmed BBB+sf
E-RR XS1713458807 LT BB+sf Affirmed BB+sf
F-RR XS1713458633 LT B+sf Affirmed B+sf
TRANSACTION SUMMARY
Barings Euro CLO 2014-1 DAC is a cash flow collateralised loan
obligation (CLO) backed by a portfolio of mainly European leveraged
loans and bonds. The transaction is actively managed by Barings
(U.K.) Limited and exited its reinvestment period on 15 July 2022.
KEY RATING DRIVERS
Transaction Outside Reinvestment Period: The transaction exited its
reinvestment period in July 2022 and the manager can still reinvest
unscheduled principal proceeds and sale proceeds from credit risk
obligations. Although another rating agency's test was breached as
of July 5, 2022, Fitch has considered the possibility to reinvest,
given that the manager reported that the test was subsequently met
following one asset upgrade. The trade date principal cash balance
was EUR0.4 million as of the July 5 investor report. No class has
repaid yet since the exit of the reinvestment period.
Given the manager can still reinvest, Fitch has assessed the
transaction based on a stressed portfolio analysis running the
reported collateral quality tests at their covenanted limit (Fitch
weighted average rating factor (WARF), Fitch weighted average
recovery rate (WARR), weighted average spread and fixed asset
limit).
Stable Outlook: The Stable Outlooks reflect Fitch's expectation
that the notes will not deleverage since the deal can still
reinvest. If the deal was subsequently constrained from
reinvesting, deleveraging would remain limited in the next 12-18
months, given the small portion of assets maturing by 2023 and
limited prepayment expectations in the current uncertain
macroeconomic environment.
Stable Asset Performance: The transaction's metrics indicate stable
asset performance. The transaction is currently 0.5% above par and
it is passing all collateral-quality, coverage and
portfolio-profile tests except another rating agency's limit as of
5 July 2022. Exposure to assets with Fitch-derived ratings of
'CCC+' and below is 6.3% as calculated by the trustee. The
portfolio did not report exposure to defaulted assets as of 5 July
but Fitch calculated as of 6 August 2022 an exposure to 'CC' and
below rated obligors of EUR4.7million.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the obligors at 'B'/'B-'. The Fitch-calculated WARF of the current
portfolio was 25.2 (against a covenant of 27.0).
High Recovery Expectations: Senior secured obligations comprise
96.2% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets. The Fitch-calculated WARR of the current
portfolio as reported by the trustee was 63.2%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration is 15.0%, and no obligor represents more than 2.0% of
the portfolio balance.
Deviation from Model-implied Rating: The class B-1, B-2 and D
notes' ratings deviate from the model-implied ratings (MIR) by one
notch. This reflects the limited cushion on the stressed portfolio
at the MIR and the lack of credit enhancement build-up since the
end of reinvestment period.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings in
the current portfolio would result in downgrades of up to two
notches across the structure. While not Fitch's base case,
downgrades may occur if the loss expectation is larger than
initially assumed, due to unexpectedly high levels of default and
portfolio deterioration.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
A 25% reduction of the mean RDR at all rating levels and a 25%
increase in the RRR at all rating levels would result in upgrades
of up to three notches depending on the notes, except for the class
A notes, which are already at the highest rating on Fitch's scale
and cannot be upgraded. Upgrades may also occur if the portfolio's
quality remains stable and notes start to amortise, leading to
higher credit enhancement across the structure.
BEALES: Unsecured Creditors to Get Less Than 2 Pence in the Pound
-----------------------------------------------------------------
Darren Slade at Daily Echo reports that many creditors of the
former Beales department store chain are likely to receive less
than two pence for each pound they are owed, administrators have
said.
Bournemouth-based Beales went into administration in January 2020,
triggering clearance sales which were ended by the first Covid
lockdown, Daily Echo relates.
More than 1,000 jobs were lost when the business and its 23 stores
folded, Daily Echo discloses.
The company -- founded 139 years earlier by John Elmes Beale --
owed GBP12.6 million in loans and had a multi-million pound pension
deficit, Daily Echo states.
Unsecured creditors, who include a long list of fashion and beauty
brands as well as trade suppliers, were owed an estimated GBP17.6
million, Daily Echo notes.
According to Daily Echo, a report by joint administrators Will
Wright and Chris Pole, of Interpath, said: "Based on current
estimates, we anticipate that unsecured creditors should receive a
dividend.
"However, the timing and amount of any dividend are dependent upon
the overall creditor claims.
"Due to the large quantum of liabilities and restricted sums
available, any dividend is estimated to be less than 2p in the
pound."
The business's secured creditors are the finance company Wells
Fargo and the company's own pension scheme.
The administrators' update says: "We anticipate that secured
creditors will suffer a significant shortfall."
Preferential creditors -- including employees owed wages, holiday
pay and pension benefits -- are due around GBP232,753 and should be
paid in full, Daily Echo discloses.
Closing down sales at Beales were so busy that the administrators
had to hire agency staff to cope with the trade. The sales brought
in GBP15.5 million towards paying creditors before they were
brought to an end by Covid, according to Daily Echo.
Most of the chain's remaining stock was later sold for GBP1.6
million as administrators gave up hope of reopening any stores
during the coronavirus crisis, Daily Echo notes.
In their recent update, covering the period January to July this
year, the joint administrators say a series of tribunal claims from
former staff have been settled, Daily Echo discloses.
The administration is currently due to end on Jan. 19 next year,
according to Daily Echo.
GOODWINS CONSTRUCTION: Construction Begins on Eccles Development
----------------------------------------------------------------
PropertyWire reports that construction has begun on the Grade II
listed Lyceum development on Church Street in Eccles, Manchester,
following a GBP14.1 million investment.
According to PropertyWire, the project, which is being delivered by
ethical property developer Integritas Property Group (IPG),
alongside Abrey Construction, will see the sensitive redevelopment
of the Old Palace Theatre building into 82 affordable and
contemporary one-, two- and three-bedroom apartments.
The development was initially sold by sales company Elevace on
behalf of Goodwins Construction, but works were halted when the
project went into administration due to funding issues facing
Goodwins, PropertyWire discloses.
IPG and Elavace, with MD Mitchell Walsh at the helm, were able to
retain investment and buy back the scheme from administrators,
saving the GBP2 million of funds that had already been injected
into the project, PropertyWire notes.
ICELAND VLNCO: Moody's Cuts CFR to B3 & Alters Outlook to Negative
------------------------------------------------------------------
Moody's Investors Service has downgraded the corporate family
rating of Iceland VLNCo Limited (Iceland or the company) to B3 from
B2 and the probability of default rating to B3-PD from B2-PD.
Concurrently, the rating agency has downgraded to B3 from B2
ratings of the outstanding backed senior secured notes issued by
Iceland Bondco plc's (Bondco). The outlook on all ratings was
changed to negative from stable.
The rating action reflects Moody's expectations that Iceland's
credit metrics will deteriorate more than factored in the previous
rating over the next 12-18 months. Moody's views reflect an
increasingly challenging economic environment, with already strong
evidence of high inflation affecting consumer spending even for
groceries, as well as rising input and energy costs, as only partly
mitigated by ongoing initiatives to increase productivity.
The rating action also reflects Moody's view that Iceland's
leverage will increase over the next 12-18 months, its interest
coverage is likely to remain around 1x and that its free cashflows,
already limited, will turn negative, thus increasing the risk of
refinancing execution of the notes due in March 2025.
RATINGS RATIONALE
The B3 rating is supported by the company's niche position in the
food market with a solid share of frozen food products as well as
its ability to differentiate from other discounters through product
innovation and the provision of home delivery and on-line services.
Iceland has been growing share of the market for frozen food in
recent years, a trend that has accelerated during the pandemic
months. The company has also resolved question marks over its
long-term ownership.
Iceland's leverage has increased to 5.8x in fiscal 2022 (ended
March 25), from 5.0x at the end of fiscal 2021, more than
previously factored in Moody's base case. Moody's-adjusted interest
coverage, measured as adjusted EBIT to adjusted interest, has
weakened further to 1.0x from 1.9x previously. Iceland generated
GBP29 million of Moody's adjusted free cash flow in fiscal 2022,
representing only 1.9% of Moody's adjusted gross debt compared to
6.5% in the prior fiscal year.
Rising inflation is likely to erode the already thin operating
margins of UK grocers this year as the sector remains very
competitive and companies are cautious to raise prices in order to
preserve market share. One of the main challenges for the industry,
and for Iceland in particular, given its greater focus on
energy-intensive frozen food, is represented by rising energy
costs. Moody's expects that Iceland's electricity bill will more
than double in fiscal 2023, ending March, compared to the prior
year, thus reducing the company's EBITDA and causing leverage to
increase more than previously anticipated. Partly mitigating rising
costs of goods sold, energy costs and personnel expenses, Iceland
continues to simplify processes in its stores and supply chain in
order to reduce costs and preserve margins.
Moody's base case currently anticipates leverage to rise and remain
materially above 6.0x over the next 12-18 months, interest over to
remain around 1x and free cash flow generation to turn negative.
Refinancing risk is also increasing for many highly levered
issuers. Bondco has GBP550 million backed senior secured notes due
March 2025 carrying a coupon of 4.625%, currently trade well below
par, which suggest that the company's cost of debt is likely to
increase after a refinancing. The company's already weak credit
metrics, and in particular its interest cover and free cash flows,
would likely come under more pressure if the company is unable to
refinance at similarly low rates.
Iceland's ESG Credit Impact Score is high (CIS-4). This is due to
the company's exposures to governance risks, including an
aggressive financial strategy reflected in high leverage and a
board of directors with that is effectively controlled by the
owning family. As a specialty grocer, Iceland has moderate
environmental and social risk exposures mainly owing to carbon
transition and customer relations risks.
RATIONALE FOR THE NEGATIVE OUTLOOK
The negative outlook reflects the risk that Iceland's profitability
may remain depressed over the next 12-18 months and that its
currently still adequate liquidity profile could deteriorate driven
by negative free cash flows and the need to refinance outstanding
debt. Failure to refinance the notes at least 12 months ahead of
maturity would likely result in a downgrade.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The company's outlook could be stabilised if Iceland is able to
stabilize earnings in fiscal 2023 compared to fiscal 2022, and
gradually improve its Moody's-adjusted interest coverage improving
towards 1.5x while generating positive free cash flow.
Conversely, further pressure on the company's profits or credit
metrics could lead to a downgrade: quantitatively, with
Moody's-adjusted interest coverage remaining at 1x or below and
negative free cash flow generation or any deterioration in the
company's liquidity profile would also lead to a downgrade,
including failure to refinance the 2025 notes at least 12 months
ahead of maturity.
LIST OF AFFECTED RATINGS
Downgrades:
Issuer: Iceland Bondco plc
BACKED Senior Secured Regular Bond/Debenture, Downgraded to B3
from B2
Issuer: Iceland VLNCo Limited
Probability of Default Rating, Downgraded to B3-PD from B2-PD
LT Corporate Family Rating, Downgraded to B3 from B2
Outlook Actions:
Issuer: Iceland Bondco plc
Outlook, Changed To Negative From Stable
Issuer: Iceland VLNCo Limited
Outlook, Changed To Negative From Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Retail
published in November 2021.
PROFILE
Headquartered in Deeside, Flintshire, UK, Iceland VLNCo Limited is
the parent holding company of the Iceland Foods group. Iceland is a
UK retail grocer, which specialises in frozen and chilled foods,
alongside groceries. Since its creation in 1970, Iceland Foods has
expanded its reach in the UK to become a national operator with
total annual revenue of around GBP3.7 billion in fiscal 2022 and
830 core Iceland and 157 The Food Warehouse stores.
KARL THOMAS: Goes Into Liquidation, Owes GBP64,857 to Creditors
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William Telford at PlymouthLive reports that Crownhill-based Karl
Thomas Flooring Ltd has gone into liquidation with debts of
GBP64,857 which are unlikely to be paid.
The independent floor and wall covering company, which worked
across the whole UK from its Plymouth base, was wound up
voluntarily this month and appointed liquidators at business
consultancy Begbies Traynor, in Exeter, PlymouthLive relates.
Documents submitted to Companies House revealed the company had
just GBP200 in its bank account, and available as assets,
PlymouthLive notes.
But the firm owed the taxman more than GBP6,000 in unpaid VAT and
more than GBP9,000 in Corporation Tax, PlymouthLive discloses. It
also owed its bank, Santander UK Plc, GBP42,488, according to
PlymouthLive. Liquidators said there is likely to be a deficiency
of GBP64,857 for creditors, PlymouthLive notes.
Trade creditors are short of GBP7,307, PlymouthLive states. These
include Mayers Accountants, in Stonehouse, owed GBP1,920, and a
Coventry-based company, Carpet and Flooring (Trading) Ltd, which is
due GBP4,399, according to PlymouthLive.
Its accounts are overdue and there was an attempt to have it
compulsory struck off the Companies House list earlier in 2022,
PlymouthLive discloses. This often happens when accounts are not
filed. The action was suspended in June, however, and two months
later it was decided to wind up the business, PlymouthLive
recounts.
The most recent accounts filed by Karl Thomas Flooring Ltd, for the
year to the end of June 2020, showed it has retained earnings, a
measure of profitability, of just GBP77, PlymouthLive relays. The
company was incorporated in 2016.
NEWGATE FUNDING 2007-2: Fitch Hikes Class F Debt Rating to B+sf
---------------------------------------------------------------
Fitch Ratings has upgraded 17 tranches of the Newgate Funding plc
series and affirmed the remaining six, as detailed below.
Rating Prior
------ -----
Newgate Funding Plc Series 2007-1
Class A3 XS0287753775 LT AAAsf Affirmed AAAsf
Class Ba XS0287757255 LT AA+sf Upgrade AAsf
Class Bb XS0287757412 LT AA+sf Upgrade AAsf
Class Cb XS0287759624 LT Asf Upgrade BBB+sf
Class Db XS0287767304 LT BBBsf Upgrade BB+sf
Class E XS0287776636 LT BBB-sf Upgrade BBsf
Class F XS0287778095 LT BB+sf Upgrade B+sf
Class Ma XS0287755713 LT AAAsf Affirmed AAAsf
Class Mb XS0287756877 LT AAAsf Affirmed AAAsf
Newgate Funding Plc Series 2007-3
Class A2b 651357AF2 LT AAAsf Affirmed AAAsf
Class A3 651357AG0 LT AAAsf Affirmed AAAsf
Class Ba 651357AH8 LT AA+sf Upgrade AA-sf
Class Bb 651357AJ4 LT AA+sf Upgrade AA-sf
Class Cb 651357AK1 LT AA-sf Upgrade Asf
Class D XS0329654312 LT A+sf Upgrade BBB+sf
Class E XS0329655129 LT A+sf Upgrade BBBsf
Newgate Funding Plc Series 2007-2
Class A3 XS0304280059 LT AAAsf Affirmed AAAsf
Class Bb XS0304284630 LT AAsf Upgrade Asf
Class Cb XS0304285959 LT A-sf Upgrade BBB-sf
Class Db XS0304286254 LT BBB-sf Upgrade BB-sf
Class E XS0304280489 LT BB+sf Upgrade Bsf
Class F XS0304281024 LT B+sf Upgrade CCCsf
Class M XS0304280133 LT AAAsf Upgrade AA+sf
TRANSACTION SUMMARY
The three transactions are seasoned true-sale securitisations of
mixed pools containing mainly residential non-conforming
owner-occupied (OO) mortgage loans with a few residential
buy-to-let (BTL) mortgage loans.
KEY RATING DRIVERS
Updated UK RMBS Criteria: Fitch updated its UK RMBS Rating Criteria
on May 23, 2022 (see Fitch Ratings Updates UK RMBS Rating
Criteria), including its sustainable house price, house price
indexation and gross disposable household income for each of the 12
UK regions. The changes represent an increase in the multiple for
all regions other than North East and Northern Ireland. The
sustainable house price is now higher in all regions except
Northern Ireland, which has a positive impact on recovery rates
(RR) and by extension Fitch's expected loss in UK RMBS
transactions.
In addition to updating its sustainable house price assumptions
Fitch also reduced the foreclosure frequency (FF) floors for loan
in arrears for rating categories other than 'AAAsf'. This reduction
aligned Fitch's expected case with observations from rated
transactions and has a positive impact on ratings at the lower end
of the rating scale. The updated criteria contributed to the rating
actions.
Stabilised Asset Performance: Arrears for Newgate 2007-1, 2007-2
and 2007-3 have stabilised from the initial pandemic induced spike
observed in mid-2020. For all three transactions, one-month+
arrears increased considerably in May 2020 and subsequently
steadily declined to reach levels below those observed
pre-pandemic.
As of mid-2022, three-month arrears have continued to decline from
the pandemic-induced peak but still remain above pre-pandemic
levels. As repossessions have not materially increased, Fitch
assumes that most borrowers utilising payment holidays have resumed
making full scheduled payments, reducing the risk of shortfall in
the available funds.
Ratings Lower than Model-implied: The ratings of Newgate 2007-1's
class Cb, Db and E notes and Newgate 2007-3's class Ba, Bb, Cb and
D notes are one notch below their respective model-implied ratings.
This reflects Fitch's view that an increase in arrears could result
in lower model-implied ratings in future analyses.
Back-loaded Default Risks: All pools contain a high share of
interest-only loans and a significant share of borrowers with
self-certified income, resulting in elevated refinancing risks
later in the life of the transactions. This led Fitch to apply a
performance adjustment factor floor at 1 for the non-conforming
sub-pools, in line with its UK RMBS Rating Criteria.
Pro-Rata Amortisation: All three transactions have been repaying
notes on a pro-rata basis, which resulted in the non-amortising
fully funded reserve fund being the sole driver of an increase in
credit enhancement (CE).
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
The transactions' performance may be affected by changes in market
conditions and economic environment. Weakening economic performance
is strongly correlated to increasing levels of delinquencies and
defaults that could reduce credit enhancement available to the
notes.
Fitch conducted sensitivity analyses by stressing each
transaction's base case FF and recovery rate (RR) assumptions, and
examining the rating implications on all classes of issued notes. A
15% increase in weighted average (WA) FF and a 15% decrease in WARR
indicates downgrades of no more than six notches for Newgate
Funding 2007-1, five notches for Newgate Funding 2007-2 and three
notches for Newgate Funding 2007-3.
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 credit enhancement and
potentially 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 upgrades of up to six notches for Newgate
Funding 2007-1, five notches for Newgate Funding 2007-2 and three
notches for Newgate Funding 2007-3.
TOWD POINT 2020: Fitch Affirms B-sf Rating on Class XA Debt
-----------------------------------------------------------
Fitch Ratings has upgraded two tranches of Towd Point Mortgage
Funding - Auburn 13 (A13) and one tranche of Towd Point Mortgage
Funding 2020 - Auburn 14 plc (A14). All other tranches have been
affirmed. A13's class B to E notes and A14's class B to XA notes
have been removed from Under Criteria Observation.
Rating Prior
Towd Point Mortgage
Funding 2020 -
Auburn 14 plc
Class A XS2109385679 LT AAAsf Affirmed AAAsf
Class B XS2109385836 LT AA+sf Affirmed AA+sf
Class C XS2109386057 LT AAsf Upgrade A+sf
Class D XS2109386214 LT BB+sf Affirmed BB+sf
Class E XS2109386487 LT BB-sf Affirmed BB-sf
Class XA XS2109387378 LT B-sf Affirmed B-sf
Towd Point Mortgage
Funding - Auburn 13
A1 XS2053911264 LT AAAsf Affirmed AAAsf
A2 XS2062950584 LT AAAsf Affirmed AAAsf
TRANSACTION SUMMARY
The transactions are static pass through RMBS securitisations of
primarily legacy buy-to-let loans, originated by Capital Home Loans
in England, Wales, Scotland and Northern Ireland.
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 its UK
RMBS rating portfolio. 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. A13's class
E notes and A14's class B, C notes are rated one notch below their
model-implied ratings (MIR) and A14's class E notes are rated three
notches below their MIR, as a modest increase in defaults could
reduce the MIR in future analysis.
Interest Deferral Caps Junior Notes: As per Fitch's criteria, the
ratings of the class D and E notes in both A13 and A14 are capped
at 'BB+sf' as these notes defer interest in Fitch's modelling of
its expected case.
Principal Deficiency Outstanding: Each transaction has an amount
outstanding on its principal deficiency ledger (PDL) being carried
forward. The class D and E notes are currently deferring interest
payments in both transactions. An outstanding PDL effectively
reduces the level of credit enhancement available to the
collateralised notes so is credit negative for the transaction.
This is reflected in the rating actions.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
The transactions' performance may be affected by changes in market
conditions and economic environment. Weakening asset performance is
strongly correlated with increasing levels of delinquencies and
defaults that could reduce credit enhancement available to the
notes.
Additionally, unanticipated declines in recoveries could also
result in lower net proceeds, which may make certain notes
susceptible to negative rating action depending on the extent of
the decline in recoveries. A 15% increase in the weighted average
(WA) FF and a 15% decrease in WARR indicate a negative impact on
A13 and A14 of up to two 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 credit enhancement levels and
potentially upgrades. A decrease in the WAFF of 15% and an increase
in theWARR of 15% indicate a positive impact on A13 of up to three
notches and up to four notches for A14.
ESG CONSIDERATIONS
A13 has an ESG Relevance Score of '4' for Customer Welfare - Fair
Messaging, Privacy & Data Security due to a high proportion of
interest-only (IO) loans in legacy owner-occupied (OO) mortgages,
which has a negative impact on the credit profile, and is relevant
to the ratings in conjunction with other factors.
A14 has an ESG Relevance Score of '4' for Customer Welfare - Fair
Messaging, Privacy & Data Security due to high proportion of IO
loans in legacy OO mortgages, which has a negative impact on the
credit profile, and is relevant to the ratings in conjunction with
other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
UK: M&E Firms Comprise 43% of Construction Administrations
----------------------------------------------------------
Tiya Thomas-Alexander at Construction News reports that a string of
administrations among mechanical and electrical (M&E) firms could
be down to teams entering sites last -- making them more
susceptible to project cancellations, a construction expert has
warned.
Earlier this month, Construction News reported that 43% of
construction firms that went into administration in July
specialised in the M&E sector.
Of the 23 firms that collapsed, 10 were M&E, Construction News
discloses. These included Aberla M&E Limited, CEI Electrical
Limited, Customised Electrical Services Limited, NWP Electrical &
Mechanical Limited and K&F Contracting Limited, Construction News
states.
However, a construction sector specialist has suggested the high
number of M&E collapses in recent months could be down to the time
at which they enter construction sites, Construction News notes.
According to Construction News, Interpath Advisory construction
sector specialist Neil Morley said delays and cancellations were
felt more by contractors involved at the later stages of projects.
This is because those working on the later stages of builds were
more likely not to begin work if schemes were pushed back or
cancelled, Construction News discloses.
Mr. Morley noted that many firms were experiencing a domino effect,
caused by recent cancellations, with firms having their cashflow as
well as their operational planning wrecked by delays, Construction
News relates. Carrying out work after others also meant M&E firms
were far more likely to bear the brunt of claims against a project,
he added, Construction News notes.
Mr. Morley, as cited by Construction News, said labour shortages
had led to wage inflation and that it was expensive to train these
workers. Meanwhile, those that did end up investing in training
were struggling to retain these highly-sought workers. Many are
seeing workers jump ship for better pay, he added.
UNITED KINGDOM: Number of CVAs by Businesses Down 47% to 110
------------------------------------------------------------
Heather Sandlin at Accountancy Today reports that the number of
Company Voluntary Arrangements (CVAs) agreed between businesses and
creditors has reportedly fallen by 47% to 110 in the last 12
months, down from 206 the prior year, according to Mazars.
According to Accountancy Today, the firm warned that as the UK
enters another period of economic difficulty, companies will now
find it "much more difficult" to secure CVAs, and therefore more
companies will find it harder to "stave off" administration or
liquidation.
After a 2020 change in the law, HMRC is now able to reclaim tax
debts for VAT, PAYE, National Insurance ahead of repayments to
other creditors, even in a CVA, Accountancy Today discloses.
Mazars said the impact of this change is that trade creditors and
landlords are likely to receive a lower return and suffer a longer
wait for any payment under a CVA, Accountancy Today relates. It
added this lower return or delay is "likely to result in general
unsecured creditors voting against any CVA proposals", Accountancy
Today notes.
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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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Editors.
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