/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/220929.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, September 29, 2022, Vol. 23, No. 189 Headlines G E R M A N Y SC GERMANY 2022-1: Fitch Assigns 'B-(EXP)' Rating on Cl. F Notes I R E L A N D CVC CORDATUS XVI: Fitch Affirms 'B' Rating on Class F Notes L U X E M B O U R G AURIS LUXEMBOURG II: Fitch Affirms B- LongTerm IDR, Outlook Stable P O R T U G A L GAMMA STC: Fitch Assigns 'BB+(EXP)sf' Rating on Class D Debt S P A I N IM BCC CAPITAL 1: Fitch Hikes Rating on Class D Notes to 'B-sf' U N I T E D K I N G D O M AVONSIDE: NatWest Lost GBP9MM+ Following Administration CUSTOM HOUSE: Enters Liquidation, Owes More Than GBP500,000 FARFETCH LIMITED: Fitch Assigns 'B-(EXP)' LongTerm IDR LOWER BUCK: Blames Pandemic Impact for Liquidation PEOPLECERT WISDOM: Fitch Hikes LongTerm IDR to 'B+' POLLEN: Former US-Based Employee Files Suit Over Unpaid Wages SYNC: Enters Administration, Trusolv Manages Affairs WOODMACE LTD: Owed More Than GBP13MM at Time of Administration WORCESTER WARRIORS: MP Robin Walker Comments on Administration - - - - - ============= G E R M A N Y ============= SC GERMANY 2022-1: Fitch Assigns 'B-(EXP)' Rating on Cl. F Notes ---------------------------------------------------------------- Fitch Ratings has assigned SC Germany S.A., Compartment Consumer 2022-1's (SCGC 2022-1) notes expected ratings. The final ratings are contingent upon receipt of the final documents and legal opinions conforming to the information already received. Debt Rating ---- ------ SC Germany S.A., Compartment Consumer 2022-1 Class A XS2482884850 LT AAA(EXP)sf Expected Rating Class B XS2482885071 LT AA-(EXP)sf Expected Rating Class C XS2482886046 LT A(EXP)sf Expected Rating Class D XS2482886475 LT BBB(EXP)sf Expected Rating Class E XS2482886558 LT BB(EXP)sf Expected Rating Class F XS2482886632 LT B-(EXP)sf Expected Rating Class G XS2482886806 LT NR(EXP)sf Expected Rating TRANSACTION SUMMARY SCGC 2022-1 is a securitisation of unsecured consumer loans originated by Santander Consumer Bank AG (SCB, A-/Stable/F2). The transaction features a 12-month revolving period. The class A to E notes will then pay down pro rata until a performance or other trigger is breached. The class F notes are paid sequentially afterwards while also benefiting from a turbo amortisation through excess spread via the interest priority of payments. This is the eighth public unsecured consumer loan transaction from SCB and the third that Fitch has rated. KEY RATING DRIVERS Default Expectations Above Recent Vintages: Fitch has set its default base cases at 4.5%, which is lower than that determined for the predecessor transaction in November 2021, but above recent vintages. There is uncertainty with regard to economic dynamics in Germany due to looming shortages of energy supply, the persistence of supply chain disruptions, weakening international trade, as well as higher inflation. The combination of these factors could impair borrowers' ability to service debt. However, the base case setting recognises the originator's prudent risk management over recent years. A buffer above the pre-pandemic default vintages is built into the base case, which appropriately reflects our expectation of a more challenged economy over the next 12-18 months. Pro Rata Length Key to Notes Repayment: In Fitch's cash-flow modelling, the full repayment of senior notes is dependent on the length of the pro rata attribution of principal funds. Fitch finds the three-month rolling average dynamic net loss ratio to be the most effective trigger to stop the pro rata period in the event of performance deterioration. This makes the transaction less sensitive to cumulative loss assumptions during the replenishment period than for most other recently encountered pro rata structures in EMEA ABS. Counterparty Risks Addressed: The transaction has a fully funded liquidity reserve for payment interruption and reserves for commingling and set-off risk, which will be funded if the seller or Santander Consumer Finance, S.A. (A-/Stable/F2) is downgraded below 'BBB' or 'F2'. All reserves are adequate to cover their respective exposures, in line with our Structured Finance and Covered Bonds Counterparty Rating Criteria. Replacement criteria for the servicer, account bank and swap counterparty are adequately defined and the relevant ratings are above our criteria thresholds. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: Downside risks have increased and Fitch has published an assessment of the potential rating and asset performance impact of a plausible, but worse-than-expected, adverse stagflation scenario on Fitch's major structured finance and covered bond sub-sectors (see What a Stagflation Scenario Would Mean for Global Structured Finance). Fitch expects the EMEA ABS unsecured sector in the assumed adverse scenario to experience a "Medium Impact" on asset performance, and a "Mild to Modest Impact" on rating performance, indicating a low risk of rating changes. Transactions with exposure to non-prime borrowers may experience increased negative pressure on their sub-investment-grade tranches in the adverse case. Fitch found the most stressful scenario for all notes to be one in which interest rates remain negative, prepayments are high and defaults are clustered later in the transaction's life. This is mostly due to the pro rata mechanism. The senior notes are particularly affected by this mechanism. If defaults come in late in the transaction's life, i.e. are recognised later, excess spread, which would have been available to cure defaults is lost and the sequential payment triggers may be hit later. Prepayments have a similar effect. With a faster repayment of the assets, excess spread is lost that would otherwise be applied to repay principal. Expected impact on the notes' ratings of increased defaults (class A/B/C/D/E/F) Increase default rate by 10%: 'AA+sf'/'A+sf'/'A-sf'/'BBB-sf'/ 'BB-sf'/'CCCsf' Increase default rate by 25%: 'AAsf'/'Asf'/'BBB+sf'/'BB+sf'/ 'Bsf'/'NRsf' Increase default rate by 50%: 'A+sf'/'BBB+sf'/'BBB-sf'/'BBsf'/ 'CCCsf'/'NRsf' Expected impact on the notes' ratings of decreased recoveries (class A/B/C/D/E/F) Reduce recovery rates by 10%: 'AA+sf'/'AA-sf'/'A-sf'/'BBBsf'/ 'BBsf'/'B-sf' Reduce recovery rates by 25%: 'AA+sf'/'AA-sf'/'A-sf'/'BBB-sf'/ 'BBsf'/'CCCsf' Reduce recovery rates by 50%: 'AA+sf'/'AA-sf'/'A-sf'/'BBB-sf'/ 'BBsf'/'CCCsf' Expected impact on the notes' ratings of increased defaults and decreased recoveries (class A/B/C/D/E/F) Increase default rates by 10% and decrease recovery rates by 10%: 'AA+sf'/'A+sf'/'BBB+sf'/'BBB-sf'/'BB-sf'/'CCCsf' Increase default rates by 25% and decrease recovery rates by 25%: 'AAsf'/'Asf'/'BBBsf'/'BB+sf'/'Bsf'/'NRsf' Increase default rates by 50% and decrease recovery rates by 50%: 'A+sf'/'BBB+sf'/'BB+sf'/'BB-sf'/'NRsf'/'NRsf' Factors that could, individually or collectively, lead to positive rating action/upgrade: Actual defaults lower and losses smaller than assumed. Reduction in inflationary pressure on food and energy and brightening growth prospects for western European economies due to resolution of the Ukrainian war. 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. 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. ============= I R E L A N D ============= CVC CORDATUS XVI: Fitch Affirms 'B' Rating on Class F Notes ----------------------------------------------------------- Fitch Ratings has affirmed CVC Cordatus Loan Fund VI DAC's and CVC Cordatus Loan Fund XVI DAC's notes. The Outlooks are Stable. Debt Rating Prior ---- ------ ----- CVC Cordatus Loan Fund XVI DAC A-1 XS2078646093 LT AAAsf Affirmed AAAsf A-2 XS2078646689 LT AAAsf Affirmed AAAsf B XS2078647497 LT AAsf Affirmed AAsf C-1 XS2078647901 LT Asf Affirmed Asf C-2 XS2078648545 LT Asf Affirmed Asf D XS2078649436 LT BBBsf Affirmed BBBsf E XS2078649782 LT BBsf Affirmed BBsf F XS2078650103 LT Bsf Affirmed Bsf CVC Cordatus Loan Fund VI DAC A-R XS1803164935 LT AAAsf Affirmed AAAsf B1-R XS1803165239 LT AA+sf Affirmed AA+sf B2-R XS1803165585 LT AA+sf Affirmed AA+sf C-R XS1803165825 LT A+sf Affirmed A+sf D-R XS1803166559 LT BBB+sf Affirmed BBB+sf E-R XS1803164182 LT BB+sf Affirmed BB+sf F-R XS1803164265 LT B+sf Affirmed B+sf TRANSACTION SUMMARY CVC Cordatus Loan Fund VI and CVC Cordatus Loan Fund XVI are cash flow collateralised loan obligations (CLO) mostly comprising senior secured obligations. The transactions are actively managed by CVC Credit Partners Group Limited. CVC Cordatus Loan Fund VI is out of its reinvestment period and CVC Cordatus Loan Fund XVI will exit its reinvestment period in June 2024. KEY RATING DRIVERS Fitch Test Matrix Update: The manager has recently updated the Fitch test matrix and the definition of 'Fitch Rating Factor' and 'Fitch Recovery Rate' in line with Fitch's updated CLOs and Corporate CDOs Rating Criteria. The updated criteria, together with the transaction's stable performance, has had a positive impact on the ratings. As a result of the matrix amendment, the collateral quality test for the weighted average recovery rate (WARR) has been lowered to be in line with the break-even WARR, at which the current ratings would still pass. 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 commensurate with their ratings. Stable Asset Performance: The transactions are passing all collateral quality, portfolio profile and coverage tests. Exposure to assets with a Fitch-derived rating of 'CCC+' and below is reported by the trustee at 4.10% for CVC Cordatus Loan Fund VI and 2.90% for CVC Cordatus Loan Fund XVI, as of the latest investor report compared with the 7.50% limit. 'B'/'B-' Portfolio: Fitch assesses the average credit quality of the obligors to be at the 'B'/'B-' rating level. The Fitch-calculated weighted average rating factor is 25.37 for CVC Cordatus Loan Fund VI and 25.14 for CVC Cordatus Loan Fund XVI under the updated criteria. High Recovery Expectations: Senior secured obligations comprise 97.80% of the portfolio for CVC Cordatus Loan Fund VI and 98.75% for CVC Cordatus Loan Fund XVI. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The WARR, as calculated by Fitch, was 61.41% for CVC Cordatus Loan Fund VI and 62.03% for CVC Cordatus Loan Fund XVI. Diversified Portfolio: The portfolio is well-diversified across obligors, countries and industries. The largest issuer and largest 10 issuers in Fitch's current portfolio analysis represent 2.1% and 16.36% of the portfolio for CVC Cordatus Loan Fund VI and 1.85% and 14.88% for CVC Cordatus Loan Fund XVI. 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 of the current portfolio of CVC Cordatus Loan Fund VI would have no impact on the class A notes, and would lead to downgrades of two to four notches for the class B to F notes. The same scenario for CVC Cordatus Loan Fund XVI would have no impact on the class A and B notes, and would lead to downgrades of one to three notches for the class C to F notes. Based on the current portfolio, downgrades may occur if the loss expectation is larger than initially assumed, due to unexpectedly high levels of default and portfolio deterioration. As CVC Cordatus Loan Fund VI has better metrics, the class B and E notes display a rating cushion of one notch while the class D and F notes display a two- and three-notch rating cushion, respectively. Should the cushion between the current portfolio and the stress portfolio be eroded due to either manager trading or negative portfolio credit migration, a 25% increase of the mean RDR across all ratings and a 25% decrease of the RRR across all ratings of the stressed portfolio would lead to downgrades of up to three notches for the rated notes. For CVC Cordatus Loan Fund XVI, the class B and F notes display a rating cushion of two notches, while the class C, D and E notes display a one-notch rating cushion. Should the cushion between the current portfolio and the stress portfolio be eroded either due to manager trading or negative portfolio credit migration, a 25% increase of the mean RDR across all ratings and a 25% decrease of the RRR across all ratings of the stressed portfolio would lead to downgrades of up to three notches for the rated notes. 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 of Fitch's stress portfolio for CVC Cordatus Loan Fund VI would lead to an upgrade of up to three notches for the rated notes, except for the 'AAAsf' rated notes, which are at the highest level on Fitch's scale and cannot be upgraded. It would lead to upgrades of four notches for CVC Cordatus Loan Fund XVI's notes. During the reinvestment period, based on Fitch's stress portfolio, upgrades may occur on better-than-expected portfolio credit quality and a shorter remaining weighted average life test, allowing the notes to withstand larger than expected losses for the remaining life of the transaction. After the end of the reinvestment period, upgrades may occur in case of stable portfolio credit quality and deleveraging, leading to higher credit enhancement and excess spread available to cover for losses on the remaining portfolio. 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 CVC Cordatus Loan Fund VI DAC, CVC Cordatus Loan Fund XVI DAC Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. The majority of the underlying assets or risk presenting entities have ratings or credit opinions from Fitch and/or other Nationally Recognized Statistical Rating Organizations and/or European Securities and Markets Authority registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk presenting entities. Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action 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. =================== L U X E M B O U R G =================== AURIS LUXEMBOURG II: Fitch Affirms B- LongTerm IDR, Outlook Stable ------------------------------------------------------------------ Fitch Ratings has affirmed Auris Luxembourg II S.A.'s (WSA) Long-Term Issuer Default Rate (IDR) at 'B-' with a Stable Outlook. Fitch has also affirmed Auris Luxembourg III S.a.r.l.'s term loan B's (TLB) and revolving credit facility's (RCF) senior secured ratings at 'B' with Recovery Ratings of 'RR3'. The 'B-' IDR balances WSA's aggressive financial policy, with total debt/EBITDA projected to remain at 8.0x-9.0x until FYE24 (financial year end September), with a strong business profile supported by a meaningful market position as the third largest manufacturer in the global, non-cyclical, hearing aid market. The Stable Outlook reflects WSA's limited but stable liquidity headroom, which Fitch estimates will be sufficient to service its first- and second-lien debt. It also factors in prospects of deleveraging to 7.0x by FYE25 to facilitate a timely debt refinancing in 2025. KEY RATING DRIVERS Limited but Stable Liquidity Headroom: Fitch maintains a Stable Outlook despite tightened liquidity headroom compared with its previous forecasts and which Fitch estimates at EUR150 million until FY25. This is based on its expectation of freely available cash of EUR50 million and at least EUR100 million available under its committed RCF due in August 2025 over the rating horizon to FY26. Projected total liquidity will be sufficient to service debt interest and principal payments through to FY25. Inability to control cash costs leading to reduced organic cash generation and a growing reliance on the RCF would result in negative rating action. Macroeconomic Challenges and Inflation: Recessionary pressures in WSA's main markets in Europe and the US and growing inflation may affect sales and profitability in FY23. Fitch assumes customers will delay purchases of expensive hearing-aid devices or opt for more affordable models. This may temporarily lead to an adverse change in the product mix and lower business volumes. Cost inflation, only partially recovered through price increases, may also hit operating profitability. A stabilising macro-economic environment from FY24 should help reverse the product mix, which along with scale-driven operating efficiencies, should lead to high single-digit sale growth and return EBITDA margins to 18%-19%. FCF to Remain Break-Even: Fitch has reduced its free cash flow (FCF) expectations to break-even from mid-single digits as a share of sales, following projected lower earnings and higher cost of debt amid rising interest rates. WSA has some flexibility in general operating expenditure, as well as the ability to scale back capex to preserve cash at times of slower economic activity. This reduces the risk of prolonged severe cash burns. However, the combination of break-even FCF and tight liquidity headroom leave no headroom under the 'B-' rating. High Leverage but Deleveraging Prospects: Fitch estimates leverage will remain high, with total debt/EBITDA at close to 9.0x in FY22 and FY23 amid a weaker macro-economic environment. However, Fitch sees prospects of deleveraging, gradually towards 7.0x by FY25 from 10.0x in FY21. This is based on a return to stronger market growth of around 7% from FY24, supporting EBITDA expansion in excess of EUR500 million by FY25. This deleveraging trajectory underpins the Stable Outlook, and is critical to WSA's expected refinancing in 2025. Long-Term Growth Continues: The global hearing aid industry has shown resilience through the cycle, despite its predominantly discretionary spending nature. Fitch expects the sector's customer base to expand, driven by stronger penetration in sizeable markets such as the US, China and south America, demographic shifts in advanced economies with a higher percentage of hearing-impaired individuals adopting the device, as well as advancements in hearing aid technology and diagnostics. WSA's extensive footprint, diverse product portfolio, and its solid competitive position should allow the company to capitalise on such growth trends, albeit with some likely slowdown in FY23. Regulation Credit-Neutral to Positive: The introduction of RAC0 hearing aid regulation in France last year, alongside FDA approval for hearing aids to be sold over-the-counter (OTC) without a prescription from October 2022 in the US, support market growth, increasing both the take-up of hearing aids and overall hearing aid awareness. However, Fitch also sees potential pricing and margin pressure on WSA stemming from the OTC channel. Occasionally regional regulation can reduce demand for hearing aids, as in Australia where the recommended replacement cycle was recently extended. DERIVATION SUMMARY WSA is one of the top manufacturers and distributors in the hearing aid industry, benefitting from significant scale, a large portfolio of brands and widespread geographical coverage. The business profile is a crossover between a strong medical device manufacturer, supported by resilient health-driven demand, and a consumer goods company. Worldwide state- and private insurance-led reimbursement regimes are rapidly developing; however, the majority of the expense for such devices remains discretionary and requires co-payment by customers. WSA's business profile is assessed at a solid 'BB' rating, but its tight liquidity headroom and FCF, high leverage and an aggressive financial policy constrain the credit profile to 'B-'. Since the merger between Sivantos and Widex in 2019, its total debt/EBITDA has improved to around 9.0x in FY22 from over 10.0x in FY21, with prospects for further deleveraging towards 7.0x in FY25, which will be critical to facilitating a refinancing. These credit metrics are weaker than that of manufacturers and retail entities in sectors that share WSA's traits of healthcare and consumer products, such as Sunshine Luxembourg VII S.a.r.l. (Galderma, B/Stable) and Afflelou S.A.S. (B/Stable). These entities' business models are also dependent on marketing and distribution of an R&D-led product with a healthcare profile. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer: - Sales growth of 10% in FY22, before slowing towards 5% in FY23 on weaker consumer spending amid high inflation. Sales growth to pick up to 6%-7% in FY24-FY25 - Fitch-adjusted EBITDA margin of 18.7% in FY22, decreasing towards 17.8% in FY23 on subdued volume growth and cost inflation. EBITDA margin to recover towards 18.5% in FY24 and 19.3% in FY25 - Capex at EUR150 million in FY22, EUR165 million in FY23 and EUR170 million-EUR180 million in FY24-FY25, averaging 6.5%-7% of sales - Working-capital outflow of around EUR80 million in FY22 before normalising to EUR10 million-EUR15 million to FY25 - No M&A to FY25 - No dividends paid until FY25 KEY RECOVERY ASSUMPTIONS - The recovery analysis assumes that WSA would be considered a going concern (GC) in bankruptcy, and that it would be reorganised rather than liquidated, given the inherent value behind its product portfolio, brands, retail network and clients - Fitch assesses WSA's GC EBITDA at about EUR300 million, which after undertaking corrective measures, should allow the company to generate moderately positive FCF - Financial distress, leading to a restructuring process, may be the result of new technologies in the hearing aid market or a widespread diffusion of value-for-money devices, both potentially leading to a loss of pricing power across WSA's portfolio, reducing gross margins and overall profitability - Fitch believes that, given WSA's high leverage, restructuring will primarily be triggered by an increase in leverage associated with financial distress, leading to above-average debt multiples. This is likely to materialise at EBITDA levels still potentially able to generate mildly positive or neutral FCF. - An enterprise value (EV) multiple of 6.5x EBITDA is applied to the GC EBITDA to calculate a post-reorganisation EV. The multiple is at the high-end of the range of multiples used for other healthcare-focused credit opinions and ratings in the 'B' category, reflecting WSA's strong global market position in the hearing aid market as well as scale. - Its waterfall analysis generated a ranked recovery in the 'RR3' band, indicating a 'B' instrument rating for the senior secured TLB1 and TLB2 and RCF. The latter ranks pari passu with the TLBs, and which Fitch assumes to be fully drawn upon default. The waterfall analysis based on current metrics and assumptions yields recoveries of 52% for the senior secured debt (unchanged from previous review). RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Funds from operations (FFO) interest coverage above 2.0x or EBITDA interest cover over 2.2x on a sustained basis - FCF margin in mid-single digits on a sustained basis - FFO gross leverage below 7.5x or total debt/EBITDA below 7.0x on a sustained basis Factors that could, individually or collectively, lead to negative rating action/downgrade: - Lack of visibility that FFO gross leverage is reducing towards 8.5x or total debt/EBITDA towards 8.0x by expected refinancing in 2025 - FFO interest coverage or EBITDA interest coverage below 1.5x - Liquidity deterioration along with neutral to negative FCF LIQUIDITY AND DEBT STRUCTURE Limited Liquidity: Fitch said, "We have revised down our liquidity assessment of WSA to limited from satisfactory given the negative FCF forecast in FY22 and low FCF generation thereafter. We estimate WSA's FYE22 freely available cash of around EUR50 million (excluding EUR60 million of restricted cash we deem to be unavailable for debt service), supported by an unutilised RCF of around EUR110 million out of a total committed amount of EUR260 million." WSA has concentrated funding with RCF and TLBs maturing in August 2025 and February 2026 respectively, followed by a second-lien facility due in February 2027. 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 ---- ------ -------- ----- Auris Luxembourg II S.A. LT IDR B- Affirmed B- Auris Luxembourg III S.a.r.l senior secured LT B Affirmed RR3 B =============== P O R T U G A L =============== GAMMA STC: Fitch Assigns 'BB+(EXP)sf' Rating on Class D Debt ------------------------------------------------------------ Fitch Ratings has assigned Gamma, STC S.A. / Consumer Totta 1 expected ratings. The assignment of final ratings is contingent on the receipt of final documents conforming to information already received. Debt Rating ---- ------ Gamma, STC S.A. / Consumer Totta 1 A LT AA(EXP)sf Expected Rating B LT AA-(EXP)sf Expected Rating C LT A(EXP)sf Expected Rating D LT BB+(EXP)sf Expected Rating TRANSACTION SUMMARY The transaction is a 12-month revolving securitisation of a portfolio of unsecured consumer loans originated in Portugal by Banco Santander Totta S.A. (BBB+/Stable/F2). Totta is ultimately owned by Banco Santander, S.A. (A-/Stable/F2). Obligors are private individuals. KEY RATING DRIVERS Asset Assumptions Reflect Totta's Book: Fitch has assumed base case lifetime default and recovery rates of 4.0% and 40.0%, respectively. This is based on the historical data provided by the originator on the consumer loan book, Portugal's economic outlook and the originator's underwriting and servicing strategy. The securitised portfolio has no eligibility criteria based on the purpose of the loans. Revolving Period Risk Mitigated: The transaction has a maximum 12-month revolving period. The combination of early amortisation triggers, the short length of the revolving period, the eligibility criteria and available credit enhancement (CE), mitigate the risk introduced by the revolving period. Fitch accounted for the presence of the revolving period when setting its 'AAsf' default multiple assumption at 4.25x. The agency has also stressed the potential decrease in the portfolio's average interest rate as a consequence of its replenishment. Pro Rata Amortisation: After the revolving period, the class A to E notes will amortise pro rata unless a sequential amortisation event occurs, including cumulative defaults on the portfolio in excess of certain thresholds. Under a base case scenario, Fitch views the switch to sequential amortisation as unlikely, given the portfolio performance expectations compared to the triggers. The tail risk posed by the pro rata paydown is mitigated by the mandatory switch to sequential when the portfolio balance falls below 10% of its initial balance. Servicing Disruption Risk Mitigated: Fitch views payment interruption risk caused by a servicer disruption mitigated by the liquidity provided in the form of a cash reserve equal to 1% of the class A to E outstanding balance, which will cover senior costs and interest on these notes for more than three months. Moreover, servicing disruption risk is mitigated by the standard assets included in the portfolio, which can be easily taken over by a substitute servicer if needed. Interest Rate Risk Mitigated: The transaction will benefit from an interest rate swap agreement that will hedge the interest rate mismatch arising from 97% of the portfolio balance paying a fixed interest rate and 100% of the notes paying floating. The interest rate swap is based on the dynamic notional amount of fixed-rate loans. The SPV will pay a fixed coupon and will receive 3M Euribor. Sovereign Cap: The class A notes' rating is limited to 'AAsf' by the cap on Portuguese structured finance transactions of six notches above Portugal's Issuer Default Rating (IDR, BBB/Positive/F2). The Outlook mirrors Portugal's IDR. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: For the class A notes, a downgrade of Portugal's Long-Term IDR that could decrease the maximum achievable rating for Portuguese structured finance transactions. Long-term asset performance deterioration such as increased defaults and delinquencies or reduced portfolio yield, which could be driven by changes in portfolio characteristics, macroeconomic conditions, business practices or the legislative landscape. For example, a simultaneous increase of the default base case by 25% and a decrease of the recovery base case by 25% would lead to downgrades of up to two notches for the class A to D notes. Factors that could, individually or collectively, lead to positive rating action/upgrade: For the class B to D notes, CE ratios increase as the transaction deleverages able to fully compensate the credit losses and cash flow stresses commensurate with higher rating scenarios. The rated notes could only be upgraded up to 'AAsf', six notches above the current Portuguese IDR. Changes to the sovereign IDR could increase or decrease the maximum achievable ratings for the notes. An unexpected decrease of the frequency of defaults or increase of the recovery rates could produce smaller losses lower than our base case. For example, a simultaneous decrease of the default base case by 25% and an increase of the recovery base case by 25% would lead to an upgrade of one notch for the class B notes, and of up to three notches for the class C and D notes. 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 Gamma, STC S.A. / Consumer Totta 1 Form ABS Due Diligence-15E was not provided to, or reviewed by, Fitch in relation to this rating action. 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. ========= S P A I N ========= IM BCC CAPITAL 1: Fitch Hikes Rating on Class D Notes to 'B-sf' --------------------------------------------------------------- Fitch Ratings has upgraded IM BCC Capital 1, FT's (IM BCC) class D notes and affirmed the class A to C notes. The Outlooks are Stable. Debt Rating Prior ---- ------ ----- IM BCC Capital 1, FT Class A ES0305386007 LT AAAsf Affirmed AAAsf Class B ES0305386015 LT A-sf Affirmed A-sf Class C ES0305386023 LT BBB-sf Affirmed BBB-sf Class D ES0305386031 LT B-sf Upgrade CCCsf TRANSACTION SUMMARY The transaction is a securitisation of a static portfolio of Spanish SME and self-employed loans originated by Cajamar Caja Rural, Sociedad Cooperativa de Credito (not rated). KEY RATING DRIVERS Robust Performance and Stable Outlook: The rating actions reflect the broadly stable asset performance outlook as shown in the low share of loans in arrears between 60 and 90 days and gross cumulative defaults (% of the initial portfolio balance), which were both 0.1% as of the latest reporting date, and the updated macro-economic outlook for Spain. Fitch has maintained the default rate expectations on the obligors (self-employed and SME borrowers) as those assigned at transaction closing, supported by the strong performance record. Large Credit Enhancement and Pro-Rata Amortisation: The notes are protected by robust credit enhancement (CE) ratios that mitigate the credit and cash flow stresses commensurate with prevailing stresses, compatible with the rating actions. Fitch's rating analysis is linked to the weakest pool composition permitted during the pro-rata period, which includes a principal deficiency of 4.5% of the portfolio balance among other features. Amortisation of the notes will switch to sequential upon the occurrence of a sequential trigger event or when the portfolio balance is less than 10% of its initial amount. Industry Concentration Risk: The portfolio is exposed to industry concentration, as 56% of its current balance is linked to agricultural activities, slightly higher than the 49% exposure as of closing date in 2018. Fitch´s criteria address this concentration risk, by applying higher default correlation within an industry that implies a higher default rate expectation than diversified portfolios. In terms of single obligor concentration risk, the portfolio remains granular with only five obligors representing more than 50bp of the current portfolio balance, and the top 10 obligors account for 4.4% of current portfolio balance compared with 3.4% on the prior review. Migration to Secured Portfolio: Fitch expects the portfolio composition will gradually migrate towards a majority of real estate secured loans, as most of the unsecured loans will mature by 2025. Currently, around 46% of the portfolio balance is secured by first-lien real estate assets versus 28% at closing. The recovery analysis for secured loans uses market value declines or collateral haircuts assumptions in accordance with the agency SME Balance Sheet Securitisation Rating Criteria. For unsecured positions, a cap on recovery rates applies in the range between 30% and 5% at 'B' and 'AAA' rating scenarios. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: For the class A notes, a downgrade of Spain's Long-Term Issuer Default Rating (IDR) that could reduce the maximum achievable rating for Spanish structured finance transactions. This is because the class A notes are rated at the maximum achievable rating, six notches above the sovereign IDR. CE ratios cannot fully compensate the credit losses and cash flow stresses associated with the current rating scenarios, all else being equal. Factors that could, individually or collectively, lead to positive rating action/upgrade: The class A notes are rated at the highest level on Fitch's scale and cannot be upgraded. CE ratios increase as the transaction deleverages, able to fully compensate the credit losses and cash flow stresses commensurate with higher rating scenarios, all else being equal. 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 IM BCC Capital 1, FT 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 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. =========================== U N I T E D K I N G D O M =========================== AVONSIDE: NatWest Lost GBP9MM+ Following Administration ------------------------------------------------------- Jon Robinson at BusinessLive reports that NatWest lost more than GBP9 million after the UK's largest roofing contractor collapsed into administration, it has been revealed. Reports started circulating towards the start of September about the imminent failure of Heywood-based Avonside Group before restructuring firm Begbies Traynor was appointed as administrator on Wednesday, Sept. 7, BusinessLive relates. According to BusinessLive, in a statement issued at the time, the firm said Avonside "experienced a period of disrupted trading during the pandemic" and had operated 39 branches across its three divisions. It added that the group "has been unable to secure the necessary funding from existing stakeholders, or third parties, to effect the required turnaround and enable continuation of trade in the current form". Jobs were lost after the group entered administration but 79 were saved after nine Avonside Roofing branches were sold while more than 100 were also secured when a former investor in the likes of restaurant chain Little Chef acquired Avonside Energy, BusinessLive discloses. Now, for the first time BusinessLive can report how much Avonside owed to its creditors as it entered administration, BusinessLive states. Avonside Group Services owed GBP9.9 million to NatWest through an overdraft and loans, BusinessLive relays, citing newly-filed documents. Begbies Traynor said the bank has received GBP807,000 following the sale of Avonside Energy, BusinessLive notes. It added that no further distributions to the bank are anticipated. The firm added that Avonside owed GBP3.4 million to its unsecured creditors and that there will be insufficient funds available to repay them, BusinessLive relays. CUSTOM HOUSE: Enters Liquidation, Owes More Than GBP500,000 ----------------------------------------------------------- William Telford at PlymouthLive reports that a company which ran Plymouth's well-known Custom House bar and wedding venue has gone bust with unpaid debts of more than GBP500,000. Custom House Plymouth Ltd refurbished and reopened the Grade II* listed Barbican building in 2019 but has now gone into liquidation without paying back a Covid loan, PlymouthLive relates. According to PlymouthLive, the North Hill-based company's statement of affairs reveals cash is owed to Lloyds Bank plc, Plymouth City Council and the taxman. Documents filed at Companies House show it had just GBP6,000 in the bank and it is estimated that debts of GBP525,810 will be unpaid, PlymouthLive discloses. The Custom House is still open and trading, however, PlymouthLive notes. It is now run as a bar, restaurant and private hire venue by a completely separate company, called The Customs House Plymouth Ltd, which has no connection to the business that has gone under, PlymouthLive states. Custom House Plymouth Ltd called a meeting of creditors in August 2022 and appointed liquidators at Plymouth's Brailey Hicks a month later, having passed a resolution to be wound up voluntarily, PlymouthLive recounts. Documents filed at Companies House reveal the company had just GBP6,000 in assets and owed HM Revenue and Customs GBP96,208 in VAT and income tax, so GBP90,208 will remain unpaid, according to PlymouthLive. In addition, a total of GBP435,502 is being claimed by unsecured creditors, but it is highly unlikely any of them will get their money, PlymouthLive states. The largest claim is from Kamaie Properties Ltd, which has Mr. Kamaie as a director, which is owed GBP308,291, PlymouthLive notes. FARFETCH LIMITED: Fitch Assigns 'B-(EXP)' LongTerm IDR ------------------------------------------------------ Fitch Ratings has assigned Farfetch Limited an expected Long-Term Issuer Default Rating (IDR) of 'B-(EXP)'. The Outlook is Stable. Fitch has also assigned Farfetch US Holdings, Inc.'s planned term loan B (TLB) an expected senior secured rating of 'BB-(EXP)' with a Recovery Rating of 'RR1'. The assignment of final ratings is conditional on receipt of final documents conforming to the information already reviewed. The IDR reflects Farfetch's fairly weak financial profile with Fitch-projected negative EBITDAR in 2022 negative free cash flow (FCF) over 2022-2023. However, the rating is supported by Farfetch's leading position in the global e-commerce personal luxury market. It is well-placed to capture strong growth opportunities due to its established and geographically diversified online marketplace platform for its wide and growing portfolio of leading global luxury brands. The Stable Outlook reflects our expectations of sufficient liquidity post-TLB placement to fund growth and Farfetch's put-option liabilities over 2022-2024 should they be exercised in cash. The company has some discretion over how to finance the exercise of such put options. KEY RATING DRIVERS Profitability to Improve: The IDR is predicated on management's commitment to achieving sustainable profitability. Fitch expects EBITDAR margin to improve to above 5% from 2024 (2021: 0.1%), driven by growing economies of scale, improving commissions and provision of additional services provided to brand owners. Disciplined control of general & administrative as well as R&D costs are also key to Farfetch's delivery of its target profitability. A change to this commitment or underperformance that would delay reaching a sustainably positive margin will be detrimental to the 'B-' rating. Leading Market Position: The rating is supported by Farfetch's position as a leading global platform for the luxury fashion industry, underpinned by good geographical diversification and an established presence in fast-growing markets. Farfetch's wide and growing portfolio of leading global luxury brands creates a strong competitive strength which, together with a sophisticated digital infrastructure, enables the company to reach a global online audience and ensure resilient customer traffic. The platform is also equipped to service third parties by providing tailored D2C solutions for luxury brand producers and retailers, underlining Farfetch's strong in-house capabilities. Meaningful Execution Risks: Fitch sees large execution risk to Farfetch's plan to scale up its business, due to continued upfront investment in customer acquisition and its technology platform. Fitch views retention of customers as central to delivering the company's high organic growth targets over the long term. Deteriorated operating environment in some of the key markets, including weaker sales in China and exit from Russia in 2022, may also delay recovery in profitability. Manageable Exposure to Event Risks: Its rating case does not incorporate large M&As or shareholder returns, which - should they materialise - would expose the rating to event risks. These challenges are partially offset by a high liquidity balance post-TLB of around USD1 billion, which would be sufficient to absorb negative FCF over 2022-2023. Well-Positioned for Growth: Fitch views Farfetch's business model as well-placed to capture the continuing shift of luxury consumers to online channels. Online orders for luxury goods are expected to increase to around 30% of total orders in 2025, from 22% in 2021 (according to Bain-Altagamma Luxury Goods worldwide market study, June 2022), driven by continued growth in demand for luxury goods and an increasing share of global millennial and generation Z consumers. Additionally, Farfetch is likely to benefit from its positions in Asian markets, including in China, where the industry is likely to see above-average global growth. Platform Enabled by Technology: Fitch views Farfetch's in-house digital e-commerce platform and owned well-invested and established digital infrastructure as a fairly high barrier to new entrants achieving similar competitive strength and scale. Fitch believes Farfetch is also, to some extent, protected from competition from online giants, like eBay and Amazon, which are mainly positioned within the "mass-market" price category while Farfetch mainly appeals to customers as a one-stop marketplace destination for major top and exclusive products and with a higher level of customer service. DERIVATION SUMMARY Farfetch is the leading global platform for the luxury fashion industry and shares some traits with consumer goods and non-food retail companies as it sells products online and through directly operated retail stores. Fitch does not rate direct competitors of Farfetch. However, Fitch has considered companies such as Golden Goose and BK LC Lux Finco 1 S.a.r.l. (Birkenstock) in the luxury shoes/sneakers space (versus Farfetch's Stadium Goods), Levi's, Tapestry and Capri Holdings in the branded apparel space (versus Farfetch's New Guards, Browns) and Amazon.com and eBay in the e-commerce space (versus Farfetch Marketplace) for our analysis. Fitch uses its Non-Food Retail Navigator to assess Farfetch similarly to Amazon.com, eBay and Golden Goose. Fitch considered lease-adjusted credit metrics for Farfetch due to its expansion of leasehold store network. Farfetch is rated one and two notches below Golden Goose (B/Stable) and Birkenstock (B+/Stable), respectively. Both Golden Goose and Birkenstock have strong EBITDAR margins (30%) and positive FCF, partially offset by their product and supplier concentration. Birkenstock's higher rating reflects its larger scale and product positioning that is historically less subject to fashion risk. Farfetch's credit profile is weaker than that of Levi Strauss & Co. (BB+/Stable), Capri Holdings (BBB-/Stable) which are much larger in scale, enjoy good EBITDAR margins and positive FCF while maintaining conservative leverage metrics and financial policies. Amazon.com (AA-/Stable) is an investment-grade company with a global e-commerce platform, significant scale, solid diversification in product and geography, and conservative leverage. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer: - High organic growth from Farfetch's Marketplace and e-commerce services as well as YNAP and Richemont Maisons contribution, subject to regulatory approvals among other conditions, with total gross merchandise value increasing to USD14 billion in 2026 from USD4 billion in 2021 - EBITDAR margin turning positive in 2023 and trending mid-to- high single digits over 2022-2026 - Working-capital inflow of USD50 million-USD100 million per annum to 2026 - Capex of USD150 million-USD250 million per annum to 2026 - No dividends or new M&A transactions to 2026 RECOVERY ASSUMPTIONS The recovery analysis assumes that Farfetch would be reorganised as a going concern (GC) in bankruptcy rather than liquidated. Fitch has assumed a 10% administrative claim and the value available to creditors consisting of the sum of Farfetch restricted group's enterprise value (EV). GC Approach Farfetch's GC EBITDA is based on the first year of Fitch-projected positive EBITDA for 2024, at around USD250 million, before applying a 50% discount. Fitch has used a 6.0x EV/EBITDA multiple, which is in line with retail and business services companies' distressed multiple, but which reflects the strong growth of Farfetch's business and its market position. Farfetch's planned USD400 million TLB ranks ahead of its other existing debt, mostly in the form of unsecured convertible debt. After deducting 10% for administrative claims, its principal waterfall analysis generates a ranked recovery for the senior secured debt, in the 'RR1' category, leading to a 'BB-(EXP)' rating for the planned loan, three notches above the IDR. The waterfall analysis output percentage based on current metrics and assumptions is 100%. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Maturing business model, leading to EBITDAR margin above 5% on a sustained basis - Visibility of deleveraging trajectory with total debt/EBITDAR below 6x on a sustained basis Factors that could, individually or collectively, lead to negative rating action/downgrade: - Liquidity shortfalls and insufficient resources to fund operations or fulfil put-options obligations over the next 18 to 24 months - EBITDAR remaining negative over the rating horizon, leading to sustained FCF depletion - Material debt-funded acquisitions or shareholder distribution, leading to a significant erosion of the cash position LIQUIDITY AND DEBT STRUCTURE Limited Liquidity: Despite expected nearly USD1 billion of post-TLB cash balance, Fitch's view Farfetch's liquidity as limited, given its estimates of negative FCF over 2022-2023 and after potential cash outlays related to derivative liabilities in 2024 and in 2026. ISSUER PROFILE Farfetch is the global leading marketplace for personal luxury fashion, including clothes and accessories, with and annual GMV of USD4.2 billion in 2021. ESG CONSIDERATIONS Farfetch has an ESG Relevance Score of '4' for management strategy due to the company's aggressive financial policy in light of its opportunistic M&A record. Farfetch has also an ESG Relevance Score of '4' for governance structure due to potential key-man risk associated with the founder's close involvement in the company's operations and strategy. These factors have a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Debt Rating Recovery ---- ------ -------- Farfetch Limited LT IDR B-(EXP) Expected Rating Farfetch US Holdings, Inc. senior secured LT BB-(EXP) Expected Rating RR1 LOWER BUCK: Blames Pandemic Impact for Liquidation -------------------------------------------------- Sarah McGee at Lancashire Telegraph reports that an East Lancashire pub has gone into liquidation after struggling to bounce back from the pandemic. The Lower Buck Inn in Waddington has gone into liquidation -- but the owners say they aren't closing and are determined to bounce back as a new company, Lancashire Telegraph notes. Owner Oliver Clegg said the Inn, based in Edisford Road, has struggled to recover from a difficult pandemic, where trade and footfall were reduced and they were faced with unexpected PAYE bills following the furlough scheme, Lancashire Telegraph relates. According to Lancashire Telegraph, a spokesperson for the company said: "As a result of challenging trading conditions following the pandemic and related restrictions imposed on the hospitality sector, Joint Liquidators from Begbies Traynor were appointed to administer the Creditors Voluntary Liquidation of Lower Buck Inn Ltd on August 17, 2022. The business and assets were sold to a company called LBINN Limited. "Our latest Red Flag Alert research indicates that almost 10,000 businesses across Lancashire (9,926) were experiencing significant financial distress during the second quarter of 2022, with 375 of them being in the Bars & Restaurant sector. "We expect to see businesses in this sector restructure their operations in order to survive in the current economic climate of rising inflation." PEOPLECERT WISDOM: Fitch Hikes LongTerm IDR to 'B+' --------------------------------------------------- Fitch Ratings has upgraded PeopleCert Wisdom Limited's (PeopleCert) Long-Term Issuer Default Rating (IDR) to 'B+' from 'B'. The Outlook is Stable. Fitch has also upgraded the senior secured notes (SSN) issued by PeopleCert Wisdom Issuer plc to 'BB- ' from 'B+', with a Recovery Rating of 'RR3 '. The upgrade follows the strong current trading of PeopleCert and its material increase in EBITDA and free cash flow (FCF) following its merger with Axelos Ltd. (AXELOS) in 2021. Fitch now expects its funds from operations (FFO) gross leverage to be at 4.2x by end-2022, commensurate a 'B+' rating for a company with PeopleCert's operating profile and scale. Fitch expects the company's FCF to remain strong over the next four years. Additionally, the integration of AXELOS has progressed faster than Fitch had expected, reducing the company's execution risk. PeopleCert's ratings are constrained at their current level by the modest scale of the company. KEY RATING DRIVERS Gross Leverage Reduction: Fitch said, "We forecast FFO gross leverage at 4.2x and gross debt/EBITDA at 4.0x by 2022, the first full-year of trading post merger. Both metrics are below our threshold for an upgrade to 'B+'. We forecast leverage to slowly decline thereafter, continuing to benefit from revenue and EBITDA growth. The fixed-rate coupon on most of PeopleCert's debt means that interest coverage ratios should improve with growing EBITDA. We forecast EBITDA/interest paid of over 4.4x for 2022-2024. We do not expect PeopleCert to refinance its debt over the next 18 to 24 months." Sustainable Revenue Growth Path: Fitch said, "We expect 2022 revenue of around GBP102million. This driven by a consistently increasing trend in number of exams taken in both business & IT and languages. We expect a total number of exams sat in excess of 750k in 2022, 11% higher compared to 2021. On an LTM basis at the end of June, this number was 704k. For 2021-2025, we assume exams to grow with a CAGR of 4% for business & IT and 6% for languages. The introduction of compulsory training materials should support revenue growth. The growth in the number of exams taken should be helped by revisions to the curriculum of the ITIL and Prince2 qualifications." Stability in Qualifications Markets: Fitch sees underlying long-term growth in the broader education and qualifications markets. Trends in digital transformation are also likely to support investments in technology and process-management-related qualifications. Fitch expects temporary reductions in corporate budgets over 2023, in particular for those countries and sectors most affected by input cost increases and higher energy prices. However, PeopleCert benefits from wide geographic diversification, and growing demand for qualifications in developing markets. IP and Synergies Increase Profitability: Integration with AXELOS has allowed PeopleCert to save a high amount of royalty payments. This results in a material increase in margins in 2022, the first full-year of trading of the combined entity. Fitch-defined EBITDA margin at about 65% at end-2022, compared with around 63% for LTM 1H22 and for it to remain broadly stable thereafter. The company has completed the implementation of other cost synergies ahead of our initial expectations. Strong FCF: Fitch said, "We expect PeopleCert's FCF margin to be in excess of 25% over the next three years. We assume around GBP3 million of annual outflow from working capital, and capex at around 7% of revenue. We believe capex, mainly IT equipment and purchase of new IP rights, to have a discretionary component, which means part of the investments can be postponed in case of need." Deleveraging-Oriented Financial Policy: PeopleCert is controlled by its founders and is exposed to key-man risk. They leveraged the company to acquire AXELOS in 2021, which was viewed as a highly strategic asset. Growth equity investor FTV Capital also has a minority stake and is represented on the board. Fitch expects the owners to reduce leverage to increase their equity value in the medium term, potentially monetising this through an IPO. However, Fitch expects cash dividends to be paid annually, as permitted under the debt documentation. Fitch assumes annual dividends from 2022 onwards of GBP8 million. DERIVATION SUMMARY PeopleCert is strongly positioned as an examination institute and awards organisation in certain niches related to IT and project-management qualifications. Its revenue base is protected by the ownership of IP rights for several qualification frameworks, while its position in language-testing is one of a market challenger. It competes in European and international markets with highly diversified education content providers such as Pearson and several academic bodies. PeopleCert's ratings are based on the company's market position in certain exam and test niches, as well as strong EBITDA and FCF generation. Also, they reflect PeopleCert's high leverage, albeit with clearer deleveraging prospects than that of 'B' rated peers. PeopleCert's high profitability derives from the ownership of IP rights for certain certifications and from its expansion in the highly profitable language tests. The company compares well with Fitch-rated LBOs and speculative-grade peers in business services and education. Education peers such as Global University Systems Holdings BV (GUSH, B/Stable) and GEMS Menasa (Cayman) Ltd (B/Stable) have larger scale but higher leverage and lower EBITDA margin. Fitch sees some comparison with LBO peers in ERP services including Teamsystem SpA (B/Stable) and Bock Capital Bidco B.V. (Unit 4, B/Stable). Fitch believes that ERP providers' diversified customer base generates lower business risk due to their subscription model. However, both Teamsystem and Unit 4 have higher leverage. PepleCert's IP-driven product offering can evolve towards a similar subscription base, increasing the recurring revenue base. KEY ASSUMPTIONS - Total revenue CAGR of 9% over 2021-2025 - Fitch-defined EBITDA margin around 64% during 2022-2025 - Capex at GBP8 million each year (around 7.5% of revenue) to 2025 - Annual working capital outflows on average EUR3 million to 2025 - Annual dividends of GBP8 million KEY RECOVERY RATING ASSUMPTIONS The recovery analysis assumes that PeopleCert would remain a going-concern in distress and through a balance-sheet restructuring, rather than be liquidated in a default. Most of its value is derived from its portfolio of certification brands, its IP rights and certain goodwill from relationships with clients and training organisations. Its IP rights portfolio is not part of the secured collateral, but negative-pledge clauses are present in the SSN documentation. Its analysis assumes a going-concern EBITDA of around GBP40 million. At this level of going-concern EBITDA, which assumes corrective measures to have been taken, Fitch would expect the company to still generate positive FCF, but for the financial structure to become unsustainable due to increased leverage, making refinancing challenging. A restructuring may arise from financial distress related to increased competition in the qualifications industry by established peers or new entrants. This may include a decline in the international prestige and applicability of qualifications such ITIL or PRINCE2. Under this scenario, a reduction in pricing power may hit both revenue and margins, affecting leverage. Post-restructuring scenarios may involve acquisition by a larger company to combine PeopleCert's IP portfolio and clients within an existing platform. Fitch includes in its recovery calculations PeopleCert's fixed-rate senior secured notes for the sterling- equivalent amount of EUR300 million. PeopleCert's capital structure does not include a revolving credit facility (RCF), unusual for senior secured notes borrowers in Europe. Fitch expects the company to be granted an RCF over the next six to 12 months to strengthen its financial flexibility. Fitch estimates the amount of the RCF to be around EUR50 million, but do not include it in its current recovery calculations. After applying an enterprise value multiple of 5.0x to the post-restructuring going-concern EBITDA, its waterfall analysis generated a ranked recovery in the 'RR3' band after deducting 10% for administrative claims. This indicates a 'BB-'/'RR3'/69% instrument rating for the SSNs. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Increase in EBITDA towards GBP200 million following organic growth or add-on acquisitions - FFO gross leverage below 4.0x or total gross debt/EBITDA lower than 3.5x - FFO interest coverage above 4.0x or EBITDA/interest paid higher than 4.5x - Improvements in business model including acquisition of new IP rights or evolution towards a subscription revenue base Factors that could, individually or collectively, lead to negative rating action/downgrade: - FFO gross leverage above 5.0x, or total gross debt/EBITDA above 4.5x, driven by a lower number of exams taken and weaknesses in pricing affecting profitability - FFO interest coverage below 3.0x or EBITDA/interest paid lower than 3.5x - Reduction in FCF margin to below 10% LIQUIDITY AND DEBT STRUCTURE Satisfactory Liquidity: PeopleCert will benefit, post-merger, from a growing cash buffer on its balance sheet. Fitch forecasts a cash balance of around GBP27 million for 2022, and for it to grow over the next three years. The company does not benefit from an RCF commitment, but Fitch expects it to be an option in the near future. ISSUER PROFILE PeopleCert is an entity incorporated to merge PeopleCert Holdings UK and AXELOS. PeopleCert Holdings UK is an examination and awards body for professional and language certifications, while AXELOS is a manager and developer of IP on business certifications frameworks, including ITIL and PRINCE2 products. 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 ---- ------ -------- ----- PeopleCert Wisdom Limited LT IDR B+ Upgrade B PeopleCert Wisdom Issuer plc senior secured LT BB- Upgrade RR3 B+ POLLEN: Former US-Based Employee Files Suit Over Unpaid Wages ------------------------------------------------------------- Chris Cooke at Complete Music Update reports that a former US-based employee of Pollen -- the ticketing and events company that fell into administration last month -- has filed a class action lawsuit in New York over wages that went unpaid in the month before the firm's collapse. The lawsuit explains how US-based employees at Pollen, which was headquartered in the UK, were paid twice monthly, CMU discloses. The plaintiff, Tayler Ulmer, says that she first experienced problems with her wages at the end of June, with her June 30 salary not being paid until July 15, CMU notes. The subsequent payments due on July 15 and July 30 were never paid, although she claims that she was told on several occasions that that money would be with her imminently, and that normal payment schedules would then resume, CMU states. However, in August, the main Pollen company fell into administration and its US employees were dismissed, CMU recounts. According to CMU, Ulmer's lawsuit also alleges that "Pollen failed to pay insurance premiums for its [American] employees and, as a result, Ulmer's health insurance coverage through Pollen lapsed on July 1, 2022, without her knowledge". If Ulmer's lawsuit is granted class action status, it will also benefit any other people who were still working for Pollen in the US as of June this year, CMU states. It remains to be seen if any other legal action follows in relation to the collapse of the Pollen business, according to CMU. SYNC: Enters Administration, Trusolv Manages Affairs ---------------------------------------------------- Alex Pugh at FinTech reports that London-based open banking app sync. has gone into administration, with Trusolv Business Recovery appointed as joint administrators on September 2, 2022. According to FinTech, while sync. appears to be still operating and continues to be authorised and regulated by the UK's Financial Conduct Authority (FCA), the firm's affairs, business and property are now managed under the auspices of Trusolv. UK-based sync. was set up to help users budget, manage and track their money in one place. It claims to offer a "unique experience" through tailored insights made possible through open banking. The firm had big plans, partnering with TrueLayer and successfully completing an initial funding round, raising GBP5.5 million, in August 2020 with plans to double the size of its workforce from 30 to 60 people, FinTech discloses. The company had planned a March 2020 launch, but the coronavirus pandemic pushed the date back, FinTech states. The start-up said it used the lost time to test its app before moving into a beta in August 2020, FinTech notes. WOODMACE LTD: Owed More Than GBP13MM at Time of Administration -------------------------------------------------------------- Darren Slade at Daily Echo reports that a civil engineering business involved with major developments such as Bournemouth's BH2 building went into administration after being landed with unpaid bills worth millions of pounds. Accoding to Daily Echo, a report reveals Woodmace Ltd and Woodmace Plant Ltd owed more than GBP13 million when they went into administration in July and their assets were sold to a new company bearing the Woodmace name. Unsecured creditors, owed almost GBP10 million, are not expected to see any money, Daily Echo notes. Woodmace Ltd had faced an "unsustainable" number of county court judgements and winding-up petitions, administrators said, Daily Echo relates. "The company began to experience financial difficulties as a consequence of large, tier one main contractors delaying payment and/or withholding payment and running up large differences on accounts running into the millions of pounds," Daily Echo quotes a report by Begbies Traynor, joint administrators, as saying. "The position was exacerbated by extremely volatile cost inflation on materials due to the impact of the Covid-19 pandemic. The company suffered a number of client failures and, as a consequence, a number of unrecoverable bad debts." Restructuring firm Begbies Traynor sought a buyer for the firms, sending anonymised details to 30 parties in the industry and to 95 private equity firms, but had only seven positive responses and received two bids by the deadline, Daily Echo discloses. Finance company Bibby demanded repayment of a GBP1.45 million debt on July 4-5 and Begbies became joint administrators on July 11, Daily Echo recounts. It sold the two companies straight away to Woodmace Concrete Structures for GBP369,000. The pre-pack sale saved around 100 jobs, according to Daily Echo. The new firm was set up by the companies' own founder, John Oak, who had sold the businesses in 2020 to managing director Joshua Eiles-Clarke. The administrators report said Mr. Eiles-Clarke's estimate that the business had enough assets to repay Bibby had proved "optimistic" and that another lender, Highmore Financing, was not expected to see a debt of GBP744,579 repaid, Daily Echo relates. Woodmace Ltd owed GBP1.13 million to HMRC and GBP11 million to unsecured creditors, including a debt of GBP4.1 million to its sister company Woodmace Plant Ltd., Daily Echo discloses. Woodmace Plant Ltd owed GBP403,723 to HMRC and GBP2.75 million to unsecured creditors, Daily Echo states. Unsecured creditors are not expected to receive any money, Daily Echo notes. WORCESTER WARRIORS: MP Robin Walker Comments on Administration -------------------------------------------------------------- Phil Wilkinson-Jones at Worcester News reports that MP Robin Walker has welcomed Worcester Warriors being put into administration in what he called a "deeply worrying" time for the club. The Worcester MP has been calling for administration to take place and raised the plight of the rugby club in Parliament last week, Worcester News relates. He is now calling for ministers to investigate all the transactions that have taken place over the past two years, as well as "the complex network of holding companies in which the assets of the club are being held", Worcester News notes. Speaking on Sept. 27, Mr. Walker, as cited by Worcester News, said: "I am grateful that DCMS have listened to and acted on the concerns of fans, staff and players at the Warriors and the many teams that they support. "Securing the future of Sixways is a priority for us all and I am profoundly grateful for the support of all my Worcestershire colleagues in Parliament, local councils and so many constituents." According to Worcester News, Mr. Walker said he has been in touch with both the consortia who have expressed an interest in buying the club out of administration and urged them to contact the administrators immediately to explore how they can help to accelerate the process. "Rapid action will ensure that all the assets at, and around, Sixways are secured for the club," he added. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2022. All rights reserved. ISSN 1529-2754. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Europe subscription rate is US$775 per half-year, delivered via e-mail. 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