/raid1/www/Hosts/bankrupt/TCREUR_Public/220930.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
Friday, September 30, 2022, Vol. 23, No. 190
Headlines
B E L G I U M
VILLA DUTCH: Moody's Rates New EUR425MM Senior Secured Notes 'B2'
G E O R G I A
CARTU BANK: S&P Affirms 'B/B' Issuer Credit Ratings, Outlook Stable
I R E L A N D
BOSPHORUS CLO VII: Moody's Gives (P)B3 Rating to EUR4.1MM F Notes
CARLYLE GLOBAL 2016-1: Moody's Affirms B2 Rating on Cl. E-R Notes
CLONTARF PARK: S&P Affirms B-(sf) Rating on Class E Notes
CVC CORDATUS XXIV: S&P Assigns B-(sf) Rating on Class F Notes
EIRCOM HOLDINGS: Moody's Alters Outlook on 'B1' CFR to Negative
FIDELITY GRAND 2022-1: S&P Assigns B-(sf) Rating on Cl. F Notes
MADISON PARK VI: Moody's Affirms B3 Rating on EUR12.8MM F Notes
L U X E M B O U R G
NEPTUNE HOLDCO: Moody's Affirms B3 CFR & Alters Outlook to Negative
M A C E D O N I A
TOPLIFIKACIJA: Adora Enginering to Sell Assets for EUR9.3 Million
S P A I N
TDA CAM 4: Moody's Affirms C Rating on EUR29.3MM Class D Notes
S W I T Z E R L A N D
VERISURE HOLDING: Moody's Rates Benchmark-Sized Secured Notes 'B1'
T U R K E Y
ANADOLU EFES: S&P Lowers ICR to 'BB+', Outlook Negative
COCA-COLA ICECEK: S&P Lowers LongTerm Issuer Credit Rating to 'BB+'
U N I T E D K I N G D O M
BEAUMONT MORGAN: Salford Quays Investors Left in Limbo
HCT GROUP: Goes Into Administration, Halts Trading
JOULES GROUP: Mulls Company Voluntary Arrangement
NU-TRACK: Enters Administration, More Than 60 Jobs Affected
TRAFFORD CENTER: Moody's Cuts Rating on 2 Tranches to 'Ba2'
VALE OF MOWBRAY: Enters Administration, 171 Jobs Affected
WORCESTER WARRIORS: Players Left in Limbo After Administration
X X X X X X X X
[*] BOOK REVIEW: Transnational Mergers and Acquisitions
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B E L G I U M
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VILLA DUTCH: Moody's Rates New EUR425MM Senior Secured Notes 'B2'
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Moody's Investors Service has assigned B2 instrument rating to the
EUR425 million backed senior secured notes issued by Villa Dutch
Bidco B.V. (House of HR or the company). The rest of the ratings
and outlook at Villa Dutch Bidco B.V. remain unchanged. The backed
senior secured notes are part of a refinancing following the
acquisition of the company from Bain Capital. The action is
dependent on the successful refinancing of House of HR's capital
structure.
All instrument ratings and outlook at both House of HR NV and House
of Finance N.V. (The) will be withdrawn following the closing of
this transaction.
RATINGS RATIONALE
The new backed senior secured notes due 2029 are rated at the same
level as Villa Dutch Bidco B.V.'s existing B2 corporate family
rating, reflecting Moody's assumption of a 50% recovery rate as is
customary for capital structures including notes and bank debt.
The B2 instrument rating assigned to the new backed senior secured
notes also reflects their pari passu ranking with Villa Dutch Bidco
B.V.'s EUR1,020 million senior secured first lien term loan B,
EUR125 million senior secured first lien delayed drawn term loan,
EUR250 million senior secured multi-currency revolving credit
facility (RCF) while the EUR310 million senior secured second lien
term loan is rated Caa1.
House of HR's operating performance has so far been strong since
the pandemic and it has a track record of operating as a larger
entity after having completed several acquisitions in the last two
years. The company also benefits from a flexible cost structure,
mainly consisting of candidate salaries and their ability to pass
through wage increases to clients, including through automatic
contractual mechanisms which will protect its margins.
However, the company operates in a cyclical industry and has high
exposure to small and medium-sized enterprises ("SMEs"). This makes
the company vulnerable to downside risk given Moody's expectation
of a weakening economic environment that could result in high
unemployment rates, surplus labour supply and low vacancy rates
that could weaken House of HR's revenue and EBITDA. In contrast,
the focus on white-collar and specialised blue-collar workers is a
credit positive as hiring trends are less cyclical in these
segments.
OUTLOOK RATIONALE
The stable outlook reflects Moody's expectation that House of HR's
leverage, as measured by Moody's adjusted debt/EBITDA, will be well
below 6x in the next 12-18 months supported by continuous
improvement in earnings. The company's limited capex requirements
(c.1% of revenues) will also support FCF/debt of around 3%.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Positive rating pressure though unlikely at this stage could arise
if the company's: (1) strong operating performance continues both
in terms of sales and EBITDA margin; (2) leverage, as measured by
Moody's-adjusted debt/EBITDA, decreases sustainably below 4.5x; (3)
FCF/ debt rises sustainably above 5% and liquidity remains strong.
Negative rating pressure could arise if the company's: (1)
operating performance were to deteriorate and deviate materially
from Moody's expectations; (2) leverage, as measured by
Moody's-adjusted debt/EBITDA, increases above 6x; (3) free cash
flow turns negative for a prolonged period and liquidity concerns
arise.
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
House of HR is a Belgium-based provider of human resource solutions
with a focus on SMEs. The company predominantly operates in
Belgium, the Netherlands, Germany and France, and serves two
segments: (1) Specialized Talent Solutions - general temporary and
permanent staffing services of candidates with technical profiles
and (2) Engineering and Consulting (EC) — secondment of engineers
and highly skilled technicians, consultants and lawyers. On a pro
forma basis, the company reported revenue of EUR2,634 million and
company adjusted EBITDA of EUR318 million for the last twelve
months ending June 30, 2022.
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G E O R G I A
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CARTU BANK: S&P Affirms 'B/B' Issuer Credit Ratings, Outlook Stable
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S&P Global Ratings affirmed its 'B/B' long- and short-term issuer
credit ratings on Cartu Bank JSC. The outlook is stable.
S&P said, "We believe Georgia's macroeconomic growth prospects for
2022 have improved and are favorable, but the medium-term outlook
is less certain. We raised our forecast for Georgia's economic
growth in 2022 to 8.0% from 5% previously, supported by the influx
of migrants since the onset of the Russia-Ukraine war and a wider
tourism recovery. This follows an already strong 2021 during which
output expanded 10.4% in real terms. For 2021-2022, Georgia's GDP
growth rates are by far the highest among peers. That said, we
consider that economic prospects for 2023 will weaken, with some
migrants possibly leaving and Georgia facing increasing headwinds
from slowing global economic momentum. Consequently, we expect a
marked slowdown in GDP growth to 3% next year.
"We expect strong macroeconomic growth will translate into a
favorable operating environment for Georgian banks. We expect
credit in the Georgian banking system to expand about 5%-10%
annually in 2022-2023, taking into account exchange rate
adjustments, and that private sector debt will remain at stable
levels. In 2021, Georgian banks released provisions, which the
National Bank of Georgia asked them to create upfront in first-half
2020, and the cost of risk for the system was negative 50 basis
points (bps). We expect the cost of risk will normalize at about
0.5%-0.6% in 2022-2023, underpinned by loan growth and favorable
macroeconomic growth prospects. We expect nonperforming loans
(NPLs) will remain relatively stable at about 5.0%-5.3% of total
loans in 2022-2023 compared with 4.8% at mid-year 2022, 5.2% at
year-end 2021, and 8% at year-end 2020. Nevertheless, we believe
that the main vulnerability to credit risk could come from a very
high share of lending in foreign currency." Although it has
progressively decreased to 49% as of mid-year 2022 from about 70%
at year-end 2010, including to unhedged individuals and companies,
the share remains the highest in the region.
The Georgian banking system's exposure to the Russia-Ukraine
conflict is contained. It is limited only to Georgian corporates
selling goods to Russia. Loans and deposits of the sanctioned VTB
Bank PJSC subsidiary in Georgia were transferred to other banks at
the start of the conflict, and VTB announced its exit from Georgia.
S&P understands that Georgian banks do not hold any Russian
government or corporate securities on their balance sheets and have
minimized their corporate relationships with Russian banks.
S&P said, "The affirmation of our ratings on Cartu Bank balances
our view that the bank will maintain sound capital metrics with our
opinion that its asset quality remains significantly weaker than
that of peers. We forecast that our risk-adjusted capital (RAC)
ratio for the bank will remain at about 14%-15% over the next 12-24
months, compared with 13.9% at year-end 2021, supported by reduced
economic risks in the Georgian banking system. Our forecast is
based on lower-than-system-average credit growth and weaker
profitability, and a cost of risk of about 1%. We note that the
shareholder remains supportive to the bank and provided it with $10
million of capital by converting Tier 2 subordinated debt into
perpetual debt in April 2021. This offset pressure on the bank's
capital position from weaker profitability.
"Nevertheless, our ratings on the bank remain constrained by its
asset quality, which we consider weaker than most of its domestic
and international peers. The bank's Stage 3 and purchased or
originated credit impaired loans were 38% at year-end 2021, which
is considerably higher than the system average of about 5% and
international peers' metrics. Although we note that the bank has
made little progress in tackling legacy problem loans in the past
two years, we expect that the stock of NPLs will gradually decrease
over the next two years. Despite the expected progress, legacy
problem loans will remain a burden for Cartu bank and are likely to
constrain its ability to expand and improve its profitability
compared to domestic peers.
"In addition, we see downside risks to the sustainability of Cartu
Bank's business model. This because the Georgian banking system is
dominated by the top two banks, which have more than 70% market
share in key business segments. In our opinion, Cartu Bank lacks a
cohesive growth strategy and exhibits weaker corporate governance
and a less-developed digitalization strategy than peers."
Outlook
The stable outlook on Cartu Bank reflects S&P's opinion that it
will maintain strong capitalization and a stable funding profile
over the next 12 months. S&P also expects a gradual recovery of the
bank's asset quality, which, nevertheless, will remain weak
compared with the system average.
Downside scenario
A negative rating action could follow over the next 12 months, if
S&P sees signs that Cartu Bank's business stability in the Georgian
banking system is diminishing due to a lack of new business
generation and development of a digitalization strategy, stagnation
in the recovery of problem loans, or weakened corporate governance.
Reduced customer confidence, resulting in a material withdrawal of
funds, could also trigger a negative rating action.
Upside scenario
In S&P's view, a positive rating action is unlikely in the next 12
months. However, it could consider a positive rating action if
Cartu Bank materially cleans up its legacy problem loans to levels
comparable with domestic peers' and maintains strong
capitalization.
Ratings Score Snapshot
TO FROM
Issuer credit rating B/Stable/B B/Stable/B
SACP b b
Anchor bb bb-
Business position Moderate (-1) Moderate (-1)
Capital and earnings Strong (+1) Strong (+1)
Risk position Constrained (-3) Constrained (-2)
Funding Average Average
and liquidity Adequate (0) Adequate (0)
Comparable ratings analysis 0 0
Support 0 0
ALAC support 0 0
GRE support 0 0
Group support 0 0
Government support 0 0
Additional factors 0 0
SACP--Stand-alone credit profile.
ALAC--Additional loss-absorbing capacity.
GRE--Government-related entity.
ESG credit indicators: E-2, S-2, G-3
TO FROM
BICRA group 7 8
Economic risk 7 8
Economic resilience High risk Very high risk
Economic imbalances High risk High risk
Credit risk in the economy Very high risk Very high risk
Trend Stable Stable
Industry risk 7 7
Institutional framework Intermediate risk Intermediate risk
Competitive dynamics High risk High risk
Systemwide funding Very high risk Very high risk
Trend Stable Stable
Banking Industry Country Risk Assessment (BICRA) economic risk and
industry risk scores are on a scale from 1 (lowest risk) to 10
(highest risk).
Ratings List
RATINGS AFFIRMED
CARTU BANK JSC
Issuer Credit Rating B/Stable/B
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I R E L A N D
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BOSPHORUS CLO VII: Moody's Gives (P)B3 Rating to EUR4.1MM F Notes
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Moody's Investors Service announced that it has assigned the
following provisional ratings to notes to be issued by Bosphorus
CLO VII Designated Activity Company (the "Issuer"):
EUR242,000,000 Class A Secured Floating Rate Notes due 2034,
Assigned (P)Aaa (sf)
EUR46,000,000 Class B Secured Floating Rate Notes due 2034,
Assigned (P)Aa2 (sf)
EUR20,200,000 Class C Secured Deferrable Floating Rate Notes due
2034, Assigned (P)A2 (sf)
EUR23,550,000 Class D Secured Deferrable Floating Rate Notes due
2034, Assigned (P)Baa3 (sf)
EUR25,200,000 Class E Secured Deferrable Floating Rate Notes due
2034, Assigned (P)Ba3 (sf)
EUR4,100,000 Class F Secured Deferrable Floating Rate Notes due
2034, Assigned (P)B3 (sf)
RATINGS RATIONALE
The rationale for the ratings is based on a consideration of the
risks associated with the CLO's portfolio and structure as
described in Moody's methodology.
The Issuer is a managed cash flow CLO. At least 92.5% of the
portfolio must consist of senior secured obligations and up to 7.5%
of the portfolio may consist of senior unsecured obligations,
second-lien loans, mezzanine obligations and high yield bonds. The
portfolio is expected to be 80% ramped as of the closing date and
to comprise of predominantly corporate loans to obligors domiciled
in Western Europe. The remainder of the portfolio will be acquired
during the five months ramp-up period in compliance with the
portfolio guidelines.
Cross Ocean Adviser LLP will manage the CLO. It will direct the
selection, acquisition and disposition of collateral on behalf of
the Issuer and may engage in trading activity, including
discretionary trading, during the transaction's 1 year reinvestment
period. Thereafter, subject to certain restrictions, purchases are
permitted using principal proceeds from unscheduled principal
payments and proceeds from sales of credit impaired obligations or
credit improved obligations.
In addition to the six classes of notes rated by Moody's, the
Issuer will issue EUR37.5 million of Subordinated Notes which are
not rated.
The transaction incorporates interest and par coverage tests which,
if triggered, divert interest and principal proceeds to pay down
the notes in order of seniority.
Methodology underlying the rating action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3 of
the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in December 2021.
Moody's used the following base-case modeling assumptions:
Par Amount: EUR400,000,000
Diversity Score: 45
Weighted Average Rating Factor (WARF): 2850
Weighted Average Spread (WAS): 4.10%
Weighted Average Coupon (WAC): 4.00%
Weighted Average Recovery Rate (WARR): 44.75%
Weighted Average Life (WAL)*: 5.5 years
*The covenanted base case weighted average life is 6 years, however
Moody's have assumed a WAL of 5.5 years as according to the
transaction documents, the weighted average life will step down to
4.5 years at the end of the 1 year reinvestment period and decrease
linearly thereafter.
Moody's has addressed the potential exposure to obligors domiciled
in countries with local currency ceiling (LCC) of A1 or below. As
per the portfolio constraints and eligibility criteria, exposures
to countries with LCC of A1 to A3 cannot exceed 10% and obligors
cannot be domiciled in countries with LCC below A3.
CARLYLE GLOBAL 2016-1: Moody's Affirms B2 Rating on Cl. E-R Notes
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Moody's Investors Service has upgraded the ratings on the following
notes issued by Carlyle Global Market Strategies EUR CLO 2016-1
Designated Activity Company:
EUR11,200,000 Class A-2-A-R Senior Secured Floating Rate Notes due
2031, Upgraded to Aa1 (sf); previously on Sep 7, 2020 Affirmed Aa2
(sf)
EUR20,000,000 Class A-2-B-R Senior Secured Fixed Rate Notes due
2031, Upgraded to Aa1 (sf); previously on Sep 7, 2020 Affirmed Aa2
(sf)
EUR9,300,000 Class A-2-C-R Senior Secured Floating Rate Notes due
2031, Upgraded to Aa1 (sf); previously on Sep 7, 2020 Affirmed Aa2
(sf)
EUR12,500,000 Class B-1-R Senior Secured Deferrable Floating Rate
Notes due 2031, Upgraded to A1 (sf); previously on Sep 7, 2020
Affirmed A2 (sf)
EUR17,000,000 Class B-2-R Senior Secured Deferrable Floating Rate
Notes due 2031, Upgraded to A1 (sf); previously on Sep 7, 2020
Affirmed A2 (sf)
EUR21,900,000 Class C-R Senior Secured Deferrable Floating Rate
Notes due 2031, Upgraded to Baa1 (sf); previously on Sep 7, 2020
Confirmed at Baa2 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR269,700,000 Class A-1-R Senior Secured Floating Rate Notes due
2031, Affirmed Aaa (sf); previously on Sep 7, 2020 Affirmed Aaa
(sf)
EUR30,000,000 Class D-R Senior Secured Deferrable Floating Rate
Notes due 2031, Affirmed Ba2 (sf); previously on Sep 7, 2020
Confirmed at Ba2 (sf)
EUR13,000,000 Class E-R Senior Secured Deferrable Floating Rate
Notes due 2031, Affirmed B2 (sf); previously on Sep 7, 2020
Confirmed at B2 (sf)
Carlyle Global Market Strategies EUR CLO 2016-1 Designated Activity
Company, issued in May 2016 and refinanced in May 2018, is a
collateralised loan obligation (CLO) backed by a portfolio of
mostly high-yield senior secured European loans. The portfolio is
managed by CELF Advisors LLP. The transaction's reinvestment period
will end in November 2022.
RATINGS RATIONALE
The rating upgrades on the Notes are primarily a result of the
short time remaining before the end of the reinvestment period and
WARF improvement of the underlying portfolio since the trustee
report dated in August 2021 [1].
In light of reinvestment restrictions during the amortisation
period, and therefore the limited ability to effect significant
changes to the current collateral pool, Moody's analysed the deal
assuming a higher likelihood that the collateral pool
characteristics would maintain an adequate buffer relative to
certain covenant requirements.
The credit quality has improved as reflected in the improvement in
the average credit rating of the portfolio (measured by the
weighted average rating factor, or WARF) and a decrease in the
proportion of securities from issuers with ratings of Caa1 or
lower. According to the trustee report dated August 2022 [2], the
WARF was 3099, compared with 3226 in the August 2021 [1] report.
Securities with ratings of Caa1 or lower currently make up
approximately 3.7% of the underlying portfolio, versus 7.6% in
August 2021.
The key model inputs Moody's uses in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers.
In its base case, Moody's used the following assumptions:
Performing par and principal proceeds balance: EUR426.8m
Defaulted Securities: EUR2.5m
Diversity Score: 55
Weighted Average Rating Factor (WARF): 3001
Weighted Average Life (WAL): 3.86 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.625%
Weighted Average Coupon (WAC): 4.31%
Weighted Average Recovery Rate (WARR): 45.07%
Par haircut in OC tests and interest diversion test: None
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties using the methodology "Moody's Approach to
Assessing Counterparty Risks in Structured Finance" published in
June 2022. Moody's concluded the ratings of the notes are not
constrained by these risks.
Factors that would lead to an upgrade or downgrade of the ratings:
This transaction is subject to a high level of macroeconomic
uncertainty, which could negatively affect the ratings on the
notes, in light of uncertainty about credit conditions in the
general economy. In particular, the length and severity of the
economic and credit shock precipitated by the global coronavirus
pandemic will have a significant impact on the performance of the
securities. CLO notes' performance may also be impacted either
positively or negatively by: (1) the manager's investment strategy
and behavior; (2) divergence in the legal interpretation of CDO
documentation by different transactional parties because of
embedded ambiguities.
Additional uncertainty about performance is due to the following:
Portfolio amortisation: The main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales by the collateral manager or
be delayed by an increase in loan amend-and-extend restructurings.
Fast amortisation would usually benefit the ratings of the notes
beginning with the notes having the highest prepayment priority.
Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Moody's analysed
defaulted recoveries assuming the lower of the market price or the
recovery rate to account for potential volatility in market prices.
Recoveries higher than Moody's expectations would have a positive
impact on the notes' ratings.
CLONTARF PARK: S&P Affirms B-(sf) Rating on Class E Notes
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S&P Global Ratings raised its credit ratings on Clontarf Park CLO
DAC's class A-2A1, A-2A2, A-2B, B, C, and D notes. At the same
time, S&P affirmed its ratings on the class A-1 and E notes.
The rating actions follow the application of its global corporate
CLO criteria and our credit and cash flow analysis of the
transaction based on the July 2022 trustee report.
Since S&P's previous rating action in 2018:
-- The weighted-average rating of the portfolio has changed to 'B'
from 'B+'.
-- The portfolio has become more diversified, as the number of
performing obligors has increased to 129 from 124.
-- The portfolio's weighted-average life has decreased to 3.44
years from 5.79 years.
-- The percentage of 'CCC' rated assets has increased to 8.42%
from 0.00%.
-- Following the deleveraging of the senior notes, the class A-1
to E notes benefit from higher levels of credit enhancement
compared with our previous review in 2018.
Credit Enhancement
CLASS CURRENT AMOUNT CURRENT (%) AT PREVIOUS REVIEW
(MIL. EUR) IN 2018 (%)
A-1 149.14 51.64 39.90
A-2A1 20.00 34.45 26.63
A-2A2 23.00 34.45 26.63
A-2B 10.00 34.45 26.63
B 21.00 27.64 21.37
C 20.50 20.99 16.24
D 25.00 12.89 9.98
E 10.75 9.40 7.29
Sub Notes 43.30 N/A N/A
The scenario default rates have decreased for all rating scenarios
due to increased diversity in the portfolio and a reduction in the
weighted-average life since our previous review (3.44 years from
5.79 years).
Portfolio Benchmarks
CURRENT AT PREVIOUS REVIEW
IN 2018
SPWARF 2,914.13 2441.096*
Default rate dispersion (%) 676.00 629.802
Weighted-average life (years) 3.435 5.794
Obligor diversity measure 103.934 104.398
Industry diversity measure 20.331 18.431
Regional diversity measure 1.230 1.454
*Calculated using the portfolio at reset and applying current CLO
criteria to derive an SPWARF for the comparison of portfolio credit
quality.
SPWARF-S&P Global Ratings weighted-average rating factor.
On the cash flow side:
-- The reinvestment period for the transaction ended in August
2021.
-- The class A-1 notes have deleveraged by EUR90.86 million
-- No class of notes is currently deferring interest.
-- All coverage tests are passing as of the July 2022 trustee
report.
Transaction Key Metrics
CURRENT AT PREVIOUS REVIEW
IN 2018
Total collateral amount
(mil. EUR)* 308.39 399.36
Defaulted assets (mil. EUR) 0.00 0.00
Number of performing obligors 129 124
Portfolio weighted-average rating B B+
'AAA' SDR (%) 58.88 64.96
'AAA' WARR (%) 36.91 36.61
*Performing assets plus cash and expected recoveries on defaulted
assets.
SDR--scenario default rate.
WARR--Weighted-average recovery rate.
S&P said, "Based on the improved scenario default rates and higher
credit enhancement available to the notes, we have raised our
ratings on the class A-2A1, A-2A2, A-2B, B, C and D notes. At the
same time, we have affirmed our ratings on the class A-1 and E
notes.
"The transaction has continued to amortize since the end of the
reinvestment period in August 2021. However, we have considered
that the manager may still reinvest unscheduled redemption proceeds
and sale proceeds from credit-impaired and credit-improved assets.
Such reinvestments (as opposed to repayment of the liabilities) may
therefore prolong the note repayment profile for the most senior
class of notes.
"Our credit and cash flow analysis indicates that the available
credit enhancement for the class E notes could withstand stresses
commensurate with a higher rating level than that assigned. In our
affirmation of our rating on the class E notes, we have considered
the current macroeconomic environment, the increase in the
percentage of 'CCC' rated assets since our previous review, and the
seniority of this class of notes.
"In our view, the portfolio is granular in nature, and
well-diversified across obligors, industries, and asset
characteristics when compared to other CLO transactions we have
rated recently. Hence, we have not performed any additional
scenario analysis.
"Following the application of our structured finance sovereign risk
criteria, we consider the transaction's exposure to country risk to
be limited at the assigned ratings, as the exposure to individual
sovereigns does not exceed the diversification thresholds outlined
in our criteria."
Counterparty, operational, and legal risks are adequately mitigated
in line with S&P's criteria.
Ratings List
CLASS RATING TO RATING FROM
RATINGS RAISED
A-2A1 AA+ (sf) AA (sf)
A-2A2 AA+ (sf) AA (sf)
A-2B AA+ (sf) AA (sf)
B AA (sf) A (sf)
C A (sf) BBB (sf)
D BB+ (sf) BB (sf)
RATINGS AFFIRMED
A-1 AAA (sf)
E B- (Sf)
CVC CORDATUS XXIV: S&P Assigns B-(sf) Rating on Class F Notes
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S&P Global Ratings assigned credit ratings to the class A to F
European cash flow CLO notes issued by CVC Cordatus Loan Fund XXIV
DAC. At closing, the issuer also issued unrated subordinated
notes.
The ratings reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior-secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which is bankruptcy remote.
-- The transaction's counterparty risks, which is in line with
S&P's counterparty rating framework.
Portfolio Benchmarks
CURRENT
S&P weighted-average rating factor 2,974.54
Default rate dispersion 471.53
Weighted-average life (years) 5.14
Obligor diversity measure 114.41
Industry diversity measure 22.18
Regional diversity measure 1.20
Transaction Key Metrics
CURRENT
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 3.66
Covenanted 'AAA' weighted-average recovery (%) 35.25
Covenanted weighted-average spread (%) 4.05
Covenanted weighted-average coupon (%) 4.23
Rating rationale
Under the transaction documents, the rated notes pay quarterly
interest unless a frequency switch event occurs. Following this,
the notes will switch to semiannual payments.
The portfolio's reinvestment period will end approximately one year
after closing, as will the non-call period.
The portfolio is well-diversified, primarily comprising broadly
syndicated speculative-grade senior-secured term loans and
senior-secured bonds. Therefore, S&P has conducted its credit and
cash flow analysis by applying its criteria for corporate cash flow
CDOs.
Under the transaction documents, the issuer can purchase loss
mitigation obligations, which are assets of an existing collateral
obligation held by the issuer offered in connection with
bankruptcy, workout, or restructuring of an obligation, to improve
the related collateral obligation's recovery value.
S&P said, "In our cash flow analysis, we used the EUR355 million
target par amount, the covenanted weighted-average spread (4.05%),
the covenant weighted-average recovery of 35.25% at the 'AAA'
rating, and the actual weighted-average recovery rates calculated
in line with our CLO criteria for all other ratings. We applied
various cash flow stress scenarios, using four different default
patterns, in conjunction with different interest rate stress
scenarios for each liability rating category."
The transaction also features a principal redemption mechanism for
the class F notes (turbo redemption). Via the turbo redemption, 20%
of remaining interest proceeds available before equity distribution
are used to pay down principal on the class F notes. S&P has not
given credit to turbo redemption in our cash flow analysis,
considering some of the senior payments in the waterfall and the
ability to divert interest proceeds to purchase workout loans.
S&P said, "Our credit and cash flow analysis shows that our ratings
are commensurate with the available credit enhancement for the
class A to E notes. Our credit and cash flow analysis indicates
that the available credit enhancement for the class B-1, B-2, and C
notes could withstand stresses commensurate with higher ratings
than those we have assigned. However, as the CLO will be in its
reinvestment phase starting from closing, during which the
transaction's credit risk profile could deteriorate, we have capped
our ratings assigned to the notes.
"For the class F notes, our credit and cash flow analysis indicates
that the available credit enhancement could withstand stresses that
are commensurate with a lower rating. However, we have applied our
'CCC' rating criteria resulting in a 'B- (sf)' rating on this class
of notes." The ratings uplift (to 'B-') reflects several key
factors, including:
-- The available credit enhancement for this class of notes is in
the same range as other CLOs that S&P rates, and that has recently
been issued in Europe.
-- The portfolio's average credit quality is similar to other
recent CLOs.
-- S&P's model generated break-even default rate at the 'B-'
rating level of 26.60% (for a portfolio with a weighted-average
life of 5.14 years), versus if it was to consider a long-term
sustainable default rate of 3.1% for 5.14 years, which would result
in a target default rate of 15.93%.
-- The actual portfolio is generating higher spreads versus the
covenanted thresholds that S&P has modelled in its cash flow
analysis.
S&P said, "For us to assign a rating in the 'CCC' category, we also
assess (i) whether the tranche is vulnerable to non-payments in the
near future, (ii) if there is a one in two chance of this tranche
defaulting, and (iii) if we envision this tranche to default in the
next 12-18 months. Following this analysis, we consider that the
available credit enhancement for the class F notes is commensurate
with a 'B- (sf)' rating.
"Under our structured finance sovereign risk criteria, we consider
that the transaction's exposure to country risk is sufficiently
mitigated at the assigned ratings."
Until the end of the reinvestment period on Sept. 23, 2023, the
collateral manager may substitute assets in the portfolio for so
long as S&P's CDO Monitor test is maintained or improved in
relation to the initial ratings on the notes. This test looks at
the total amount of losses that the transaction can sustain as
established by the initial cash flows for each rating, and it
compares that with the current portfolio's default potential plus
par losses to date. As a result, until the end of the reinvestment
period, the collateral manager may through trading deteriorate the
transaction's current risk profile, as long as the initial ratings
are maintained.
The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under S&P's current counterparty criteria.
The transaction's legal structure is bankruptcy remote, in line
with S&P's legal criteria.
Considering the abovementioned factors and following S&P's analysis
of the credit, cash flow, counterparty, operational, and legal
risks, it believe its ratings are commensurate with the available
credit enhancement for each class of notes.
The transaction securitizes a portfolio of primarily senior secured
leveraged loans and bonds, and is managed by CVC Credit Partners
Investment Management Ltd.
S&P said, "In addition to our standard analysis, to provide an
indication of how rising pressures among speculative-grade
corporates could affect our ratings on European CLO transactions,
we have also included the sensitivity of the ratings on the class A
to E notes to five of the 10 hypothetical scenarios we looked at in
our publication "How Credit Distress Due To COVID-19 Could Affect
European CLO Ratings," published on April 2, 2020.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
Environmental, social, and governance (ESG)
S&P said, "We regard the exposure to ESG credit factors in the
transaction as being broadly in line with our benchmark for the
sector. Primarily due to the diversity of the assets within CLOs,
the exposure to environmental credit factors is viewed as below
average, social credit factors are below average, and governance
credit factors are average." For this transaction, the documents
prohibit assets from being related to certain activities,
including, but not limited to the following:
-- Any obligor where any revenue is derived from the manufacture
or marketing of weapons (nuclear, biological, chemical, etc.);
-- Any obligor where over 10% of its revenue is involved in the
manufacturing of civilian firearms;
-- Any obligor where any revenue is derived from tobacco
production;
-- Any obligor that derives over 10% of its revenue from the
mining of thermal coal;
-- Any obligor that derives over 10% of its revenue from oil sands
extraction;
-- Any obligor that primarily provides predatory payday lending;
and
-- Oil and gas producer that derives less than 40% of its revenue
from natural gas or renewables.
Accordingly, since the exclusion of assets from these industries
does not result in material differences between the transaction and
its ESG benchmark for the sector, S&P has not made any specific
adjustments in our rating analysis to account for any ESG-related
risks or opportunities.
Ratings List
CLASS RATING AMOUNT INTEREST RATE CREDIT
(MIL. EUR) ENHANCEMENT (%)
A AAA (sf) 211.20 3mE + 1.20% 40.51
B-1 AA (sf) 27.10 3mE + 3.51% 28.00
B-2 AA (sf) 17.30 4.79% 28.00
C A (sf) 21.30 3mE + 4.56% 22.00
D BBB- (sf) 20.20 3mE + 6.15% 16.31
E BB- (sf) 15.30 3mE + 7.47% 12.00
F B- (sf) 10.40 3mE + 11.02% 9.07
Subordinated NR 24.10 N/A N/A
NR--Not rated.
N/A--Not applicable.
3mE--Three-month Euro Interbank Offered Rate.
EIRCOM HOLDINGS: Moody's Alters Outlook on 'B1' CFR to Negative
---------------------------------------------------------------
Moody's Investors Service has changed to negative from stable the
outlook on the ratings of eircom Holdings (Ireland) Limited ("eir",
or "the company"), the parent company of Eircom Ltd, the Irish
integrated telecommunications provider. Concurrently, Moody's has
affirmed the company's B1 corporate family rating, its B1-PD
probability of default rating, the B2 backed senior secured ratings
at eircom Finance Designated Activity Company, and the B2 backed
senior secured term loan B (TLB) at eircom Finco S.a.r.l.
"The change in outlook to negative from stable takes into account
eir's weaker than expected operating performance owing to increased
operating costs and lower customer volumes. As result, leverage has
increased, positioning the company weakly in the B1 rating
category," says Ernesto Bisagno, a Moody's Vice President-Senior
Credit Officer and lead analyst for eir.
"However, we have affirmed the B1 CFR, balancing the company's
sustained positive free cash flow generation against its track
record of significant shareholder distributions," adds Mr Bisagno.
RATINGS RATIONALE
eir reported weaker than expected first half 2022 results, with
revenue and EBITDA (both on an underlying basis, excluding the
impact from disposals) declining by 2.1% and 9.3%. The weak results
were mostly driven by a reduction in the number of customers which
has led to sustained market share losses in both fixed and mobile,
increased pressures on the B2B segment, a decline in ARPU, and
higher operating costs also reflecting higher marketing
investments. Despite lower earnings, Moody's adjusted free cash
flow before shareholder distributions was positive for the half
year, at EUR41 million (or EUR106 million for the last twelve
months ending June 2022).
Because of the lower EBITDA, Moody's adjusted debt to EBITDA ratio
increased to 5.2x at June 2022 from 5.1x at December 2021, and
Moody's expects it to increase towards 5.4x by year end 2022, that
will also depend on how much debt is repaid. This ratio is well
above the 4.75x maximum tolerance level for the B1 rating category.
While the use of proceeds from the equity sale of the 49% stake in
Fibre Network Ireland (FibreCo) has not yet been determined,
Moody's believes that the most likely use of proceeds (net of
reinvestment in FibreCo) will be a shareholder distribution, in
line with recent transactions such as the disposal of towers
completed in 2020.
Moody's anticipates that eir's EBITDA will improve sequentially in
the second half 2022, owing to a combination of (1) price increases
applied from August 2022, (2) growth in fiber connections with more
customers migrating from copper to FTTH and FTTC, and (3) improved
go-to-market capabilities.
While a continuation of the same trends should help to stabilize
EBITDA in 2023, visibility is lower than in the past, as it would
depend on the company's ability to regain market shares and offset
higher inflation, in particular with regard to energy costs and
staff costs, in a context of a slowing macroeconomic environment.
In addition, additional marketing expenses to support future
customer and top line growth will limit any EBITDA improvement, so
Moody's now forecasts a flattish EBITDA in 2023 relative to 2022.
Moody's has assumed capital spending in line with the company's
guidance of 21%-23% of revenue, with a significant part of it
related to the development of the FTTH broadband network in
Ireland. Free cash flow before shareholder distributions and
spectrum payments should remain positive at around EUR150 million
each year, although the company's appetite for shareholder
distributions will constrain the pace of leverage reduction.
The B1 rating reflects (1) the company's integrated business model
and improving network quality, (2) its leading position in the
fixed line market as Ireland's incumbent operator; (3) its position
as the third-largest operator in the mobile segment; and (4) its
positive free cash flow generation (FCF). The rating also reflects
(1) eir's moderate leverage and its appetite for material
shareholder distributions, (2) its exposure to the highly
competitive environment in the Irish market, which results in
persistent revenue pressure and decline in market shares; (3) and
its progressive transition to an asset light business model, which
increases both its business risk and the complexity of its group
structure.
LIQUIDITY
eir's adequate liquidity is supported by its high cash balance
following the disposal of a 49.9% stake in FibreCo, and the new
EUR765 million debt facility at FibreCo level; and Moody's
expectation of FCF (before shareholder distributions) of around
EUR150 million each year over 2022-2023.
In addition, the company has access to a EUR50 million undrawn
revolving credit facility expiring in October 2023 (with a
springing financial covenant for drawings above 40%, based on net
senior secured leverage below 7.5x); a new EUR35 million undrawn
revolving credit facility due in 7 years with no financial
covenants; and a new EUR200 million capex facility also due in 7
years, both at FibreCo level.
The company has no debt maturities until November 2024, when the
EUR350 million backed senior secured bond matures.
STRUCTURAL CONSIDERATIONS
The backed senior secured TLB and the existing backed senior
secured notes are rated B2, one notch below the CFR, which mostly
reflects the fact that the new debt at FibreCo level is closer to
the higher quality assets of the group, with higher recovery
expectations for lenders than the TLB and senior secured notes.
RATIONALE FOR NEGATIVE OUTLOOK
The negative outlook reflects the weakened operating performance
and the ongoing appetite for significant shareholder distributions.
The negative outlook also reflects Moody's expectations that
Moody's adjusted debt to EBITDA will remain above 5.0x over
2022-2023, barring a significant improvement in operating
performance, or a change in financial policy resulting in a
leverage reduction.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure on the rating is unlikely given the company's
financial policy that targets a net reported leverage between 3.5x
and 4.0x (equivalent to a Moody's adjusted leverage of around
5.0x). However, overtime it could develop if the company operates
under a more conservative financial policy, and operating
performance improves such that eir's adjusted debt/EBITDA remains
below 4.0x and retained cash flow/debt remains above 15%, both on a
sustained basis.
The company is weakly positioned in the rating category and further
downward pressure could develop if its operating performance does
not improve, with Moody's adjusted debt/EBITDA remaining
sustainably above 4.75x, and retained cash flow/debt remaining
consistently below 10% with sustained negative FCF.
LIST OF AFFECTED RATINGS
Affirmations:
Issuer: eircom Holdings (Ireland) Limited
Probability of Default Rating, Affirmed B1-PD
LT Corporate Family Rating, Affirmed B1
Issuer: eircom Finance Designated Activity Company
BACKED Senior Secured Regular Bond/Debenture, Affirmed B2
Issuer: eircom Finco S.a.r.l.
BACKED Senior Secured Bank Credit Facility, Affirmed B2
Outlook Actions:
Issuer: eircom Holdings (Ireland) Limited
Outlook, Changed To Negative From Stable
Outlook, Changed To Negative From Stable
Issuer: eircom Finco S.a.r.l.
Outlook, Changed To Negative From Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was
Telecommunications Service Providers published in January 2017.
COMPANY PROFILE
eircom Holdings (Ireland) Limited is the parent company of Eircom
Ltd, an integrated telecommunications provider that offers
quad-play bundles, including high-speed broadband, and mobile, TV
and sports content, over its convergent fixed and mobile networks.
eir is the principal provider of fixed-line telecommunications
services in Ireland. As of June 2022, the company had a 40.2% share
of the Irish retail fixed-line revenue market and 27.3% of retail
fixed-line broadband market (66% of total fixed-line broadband
market) (according to ComReg). eir also provides access to its
network via its wholesale division (at a lower margin than retail).
The group is the third-largest mobile operator in Ireland, with a
subscription market share of around 15.1%. In 2021, the company
reported revenue of EUR1,264 million and EBITDA of EUR632 million.
FIDELITY GRAND 2022-1: S&P Assigns B-(sf) Rating on Cl. F Notes
---------------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Fidelity Grand
Harbour CLO 2022-1 DAC's class A Loan and class A, B-1, B-2, C, D,
E, and F notes. At closing, the issuer also issued unrated
subordinated notes.
The class F notes is a delayed drawdown tranche, which is unfunded
at closing. The class F notes have a maximum notional amount of
EUR12 million, and a spread of three/six-month Euro Interbank
Offered Rate (EURIBOR) plus 10.50%. The class F notes can only be
issued once and only during the reinvestment period with an
issuance amount totaling EUR12 million. The issuer will use the
full proceeds received from the sale of the class F notes to redeem
the subordinated notes. Upon issuance, the class F notes' spread
could be subject to a variation and, if higher, is subject to
rating agency confirmation.
Under the transaction documents, the rated notes will pay quarterly
interest unless there is a frequency switch event. Following this,
the notes will switch to semiannual payment.
This transaction has a 1.5 year non-call period and the portfolio's
reinvestment period will end approximately 4.5 years after
closing.
The ratings reflect S&P's assessment of:
-- The diversified collateral pool, which consists primarily of
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization (OC).
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
Portfolio Benchmarks
CURRENT
S&P Global Ratings weighted-average rating factor 2,786.91
Default rate dispersion 503.10
Weighted-average life (years) 5.29
Obligor diversity measure 104.08
Industry diversity measure 19.96
Regional diversity measure 1.31
Transaction Key Metrics
CURRENT
Total par amount (mil. EUR) 340.00
Defaulted assets (mil. EUR) 0
Number of performing obligors 114
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 1.86
'AAA' target portfolio weighted-average recovery (%) 36.68
Covenanted weighted-average spread (%) 4.13
Covenanted weighted-average coupon (%) 4.50
Rating rationale
S&P said, "Our ratings reflect our assessment of the collateral
portfolio's credit quality, which has a weighted-average rating of
'B'. We consider that the portfolio primarily comprises broadly
syndicated speculative-grade senior secured term loans and senior
secured bonds. Therefore, we conducted our credit and cash flow
analysis by applying our criteria for corporate cash flow CDOs.
"In our cash flow analysis, we modelled the EUR340 million par
amount, the covenanted weighted-average spread of 4.13%, the
covenanted weighted-average coupon of 4.50%, and the covenanted
weighted-average recovery rates. We applied various cash flow
stress scenarios, using four different default patterns, in
conjunction with different interest rate stress scenarios for each
liability rating category.
"The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under our counterparty criteria.
"Following the application of our structured finance sovereign risk
criteria, we consider the transaction's exposure to country risk to
be limited at the assigned ratings, as the exposure to individual
sovereigns does not exceed the diversification thresholds outlined
in our criteria.
"The transaction's legal structure is bankruptcy remote, in line
with our legal criteria.
"Our credit and cash flow analysis indicate that the available
credit enhancement for the class B-1 to E notes could withstand
stresses commensurate with higher rating levels than those we have
assigned. However, as the CLO is still in its reinvestment phase,
during which the transaction's credit risk profile could
deteriorate, we have capped our assigned ratings on these notes.
The class A Loan and class A and F notes can withstand stresses
commensurate with the assigned ratings.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe that our ratings are
commensurate with the available credit enhancement for the class A
Loan and class A, B-1, B-2, C, D, E, and F notes.
"In addition to our standard analysis, to provide an indication of
how rising pressures among speculative-grade corporates could
affect our ratings on European CLO transactions, we have also
included the sensitivity of the ratings on the class A to E notes
to five of the 10 hypothetical scenarios we looked at in our
publication.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
Environmental, social, and governance (ESG) factors
S&P siad, "We regard the exposure to ESG credit factors in the
transaction as being broadly in line with our benchmark for the
sector. Primarily due to the diversity of the assets within CLOs,
the exposure to environmental credit factors is viewed as below
average, social credit factors are below average, and governance
credit factors are average. For this transaction, the documents
prohibit assets from being related to the following industries:
controversial weapons, conventional weapons, firearms, tobacco and
tobacco-related products, thermal coal extraction, unregulated
gaming industry, fraudulent and coercive loan origination and/or
highly speculative financial operations. Accordingly, since the
exclusion of assets from these industries does not result in
material differences between the transaction and our ESG benchmark
for the sector, no specific adjustments have been made in our
rating analysis to account for any ESG-related risks or
opportunities."
The manager will provide an ESG monthly report that will include:
-- The portfolio's average ESG score; and
-- The list of obligors that have been added or removed as a
result of material ESG factors or changes including disposals of
ESG ineligible obligations.
Fidelity Grand Harbour CLO 2022-1 DAC is a European cash flow CLO
securitization of a revolving pool, comprising euro-denominated
senior secured loans and bonds issued mainly by speculative-grade
borrowers. FIL Investments International will manage the
transaction.
Ratings List
CLASS RATING AMOUNT SUB (%) INTEREST RATE*
(MIL. EUR)
A AAA (sf) 151.50 40.74 Three/six-month EURIBOR
plus 2.10%
A Loan AAA (sf) 50.00 40.74 Three/six-month EURIBOR
plus 2.10%
B-1 AA (sf) 25.20 29.50 Three/six-month EURIBOR
plus 3.75%
B-2 AA (sf) 13.00 29.50 6.25%
C A (sf) 17.40 24.38 Three/six-month EURIBOR
plus 4.39%
D BBB- (sf) 22.00 17.91 Three/six-month EURIBOR
plus 6.03%
E BB- (sf) 13.70 13.88 Three/six-month EURIBOR
plus 7.08%
F§ B- (sf) 12.00 10.35 Three/six-month EURIBOR
plus 10.50%
Sub NR 40.30 N/A N/A
* The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
§ The class F notes is a delayed drawdown tranche, which is
unfunded at closing.
EURIBOR -- Euro Interbank Offered Rate.
NR -- Not rated.
N/A -- Not applicable.
MADISON PARK VI: Moody's Affirms B3 Rating on EUR12.8MM F Notes
---------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by Madison Park Euro Funding VI DAC:
EUR34,800,000 Class B-1 Senior Secured Floating Rate Notes due
2030, Upgraded to Aaa (sf); previously on Nov 24, 2021 Upgraded to
Aa1 (sf)
EUR10,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2030,
Upgraded to Aaa (sf); previously on Nov 24, 2021 Upgraded to Aa1
(sf)
EUR25,400,000 Class C Senior Secured Deferrable Floating Rate
Notes due 2030, Upgraded to Aa3 (sf); previously on Nov 24, 2021
Upgraded to A1 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR237,300,000 Class A Senior Secured Floating Rate Notes due
2030, Affirmed Aaa (sf); previously on Nov 24, 2021 Affirmed Aaa
(sf)
EUR22,400,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2030, Affirmed Baa1 (sf); previously on Nov 24, 2021
Upgraded to Baa1 (sf)
EUR29,400,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2030, Affirmed Ba2 (sf); previously on Nov 24, 2021
Affirmed Ba2 (sf)
EUR12,800,000 Class F Senior Secured Deferrable Floating Rate
Notes due 2030, Affirmed B3 (sf); previously on Nov 24, 2021
Affirmed B3 (sf)
Madison Park Euro Funding VI DAC, issued in June 2015 and
refinanced in April 2021, is a collateralised loan obligation (CLO)
backed by a portfolio of mostly high-yield senior secured European
loans. The portfolio is managed by Credit Suisse Asset Management
Limited. The transaction's reinvestment period ended in October
2021.
RATINGS RATIONALE
The rating upgrades on the Class B-1, Class B-2 and Class C Notes
are primarily a result of improvement in over-collateralisation
ratios since the last rating action in November 2021. According to
the trustee report dated August 2022 [1] the Class A/B, Class C,
Class D and Class E OC ratios are reported at 142.0%, 130.3%,
121.4% and 111.5% compared to October 2021 [2] levels of 141.1%,
129.5%, 120.7% and 110.8%, respectively.
In light of reinvestment restrictions during the amortisation
period, and therefore the limited ability to effect significant
changes to the current collateral pool, Moody's analysed the deal
assuming a higher likelihood that the collateral pool
characteristics would maintain an adequate buffer relative to
certain covenant requirements.
The key model inputs Moody's uses in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers.
In its base case, Moody's used the following assumptions:
Performing par and principal proceeds balance: EUR400.0m
Defaulted Securities: EUR0.6m
Diversity Score: 60
Weighted Average Rating Factor (WARF): 2853
Weighted Average Life (WAL): 4.18 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.72%
Weighted Average Recovery Rate (WARR): 43.50%
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties, such as account bank, using the
methodology "Moody's Approach to Assessing Counterparty Risks in
Structured Finance" published in June 2022. Moody's concluded the
ratings of the notes are not constrained by these risks.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.
Additional uncertainty about performance is due to the following:
Portfolio amortisation: The main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales by the collateral manager or
be delayed by an increase in loan amend-and-extend restructurings.
Fast amortisation would usually benefit the ratings of the notes
beginning with the notes having the highest prepayment priority.
Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Moody's analysed
defaulted recoveries assuming the lower of the market price or the
recovery rate to account for potential volatility in market prices.
Recoveries higher than Moody's expectations would have a positive
impact on the notes' ratings.
===================
L U X E M B O U R G
===================
NEPTUNE HOLDCO: Moody's Affirms B3 CFR & Alters Outlook to Negative
-------------------------------------------------------------------
Moody's Investors Service has affirmed Neptune Holdco S.a.r.l.
(Armacell)'s B3 corporate family rating and a B3-PD probability of
default rating. Concurrently Moody's has affirmed the B3 instrument
rating to the EUR710 million guaranteed senior secured term loan B
and EUR110 million guaranteed senior secured revolving credit
facility (RCF) borrowed by Neptune Bidco S.a.r.l. and co-borrowed
by Armacell Insulation United States Holding Inc., both
subsidiaries of Neptune Holdco S.a.r.l. The outlook on the ratings
of both entities has been changed to negative from stable.
RATINGS RATIONALE
The rating action reflects Moody's expectations that (i) Armacell's
gross leverage will remain around 8.0x over the next 12-18 months
(8.6x as of June 2022), (ii) increasing interest rates will
materially weaken the company's interest cover and constrain its
ability to improve cash flow generation. As a result, the rating
agency believes Armacell is very weakly positioned in its current
rating category with no capacity for prolonged operational
underperformance.
Armacell will also fund the acquisition of Austroflex using RCF
drawings, which will weaken the company's liquidity position. This
is viewed as an aggressive financial policy decision in the context
of the company's volatile free cash flow generation, cost inflation
and increasing interest payment.
The rating action also reflects the risk that lower gas flows to
Europe might reduce Armacell's production volumes in EMEA (around
38% of revenue in 2021) as gas is a key input in the company's
production process, albeit being just 1% of its cost of goods sold.
This risk materializes at a time when Armacell's credit metrics are
already weak, increasing downside risks and negative rating
pressure.
At the same time, the rating continues to be supported by
Armacell's long track record and resilient performance through
economic cycles, good geographical diversification, as well as
positive underlying market fundamentals for its products including
growing demand for energy efficiency, tightening technical
regulations and the trend toward flexible foams for applications
such as heating and refrigeration.
LIQUIDITY PROFILE
Armacell's liquidity profile is adequate. Liquidity is supported by
around EUR38 million of available cash (excluding restricted cash),
as well as around EUR86 million available under its EUR110 million
guaranteed revolving credit facility (RCF). This is more than
enough to cover basic cash needs including working capital swings
and debt repayment. Moody's also expects the amount of restricted
cash to reduce to around EUR10 million by the end of the year
compared to EUR28 million as of June 2022, which will further
support the company's liquidity profile. The rating agency expects
Armacell will partly draw its RCF to fund the Austroflex
acquisition and that the company will progressively repay this
facility through 2023.
Neptune Bidco S.a.r.l. has not imminent refinancing risk with its
RCF and guaranteed senior secured Term Loan B due in 2026 and 2027,
respectively.
OUTLOOK
The negative outlook reflects Moody's expectation that debt/EBITDA
will remain above 8.0x in 2023 and will reduce towards 8.0x in
2024. These forecasts assume slightly lower demand for Armacell's
products in EMEA, partly offset by more stable performance in the
Americas and APAC, and that raw material prices will remain at
current elevated levels through 2023 at least. The negative outlook
also reflects the rating agency expectation of EBITA/Interest
declining towards 1.2x-1.0x over the next 12-18 months due to rate
hikes, as well as breakeven FCF over the next 2 years.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade over the next 12-18 months is unlikely given the current
very weak rating positioning. However, Moody's would consider
upgrading Armacell's rating if the company's Moody's adjusted gross
leverage would decrease to below 6x and if Moody's adjusted EBITA
margin would consistently remain above 12%. Furthermore, an upgrade
would require positive FCF generation on a consistent basis.
Moody's would consider downgrading the rating if Moody's adjusted
gross leverage would remain materially above 7x for a prolonged
period of time; prolonged periods of negative FCF or other factors
would lead to a deterioration in the company's liquidity profile;
EBITA/Interest would reduce towards 1.0x.
ESG CONSIDERATIONS
Moody's take into account the impact of ESG factors when assessing
companies' credit quality. Environmental and social risks are not
material in the case of Armacell. In terms of governance, the
company is owned by a consortium led by PAI Partners and KIRKBI
A/S, which has demonstrated tolerance for high leverage and related
financial risks since the takeover in 2020, which is constraining
the rating.
STRUCTURAL CONSIDERATIONS
The EUR710 million guaranteed senior secured term loan B and EUR110
million RCF are rated B3, in line with the CFR, reflecting their
pari passu ranking and the fact that they share the same security
package and guarantor package. The facilities are borrowed by
Neptune Bidco S.a.r.l. and guaranteed by operating subsidiaries
representing at least 80% of group EBITDA.
Neptune Holdco S.a.r.l.'s capital structure also contains around
EUR89 million of preferred equity certificates, which Moody's
treats as equity and hence are not considered in Moody's liability
waterfall.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Manufacturing
published in September 2021.
COMPANY PROFILE
Neptune Holdco S.a.r.l. (Armacell) is an intermediate holding
company for the Armacell group, headquartered in Capellen,
Luxembourg. Armacell is a global market leader in the technical
equipment insulation market and a leading provider of engineered
foams for high-tech and lightweight applications. Its applications
are principally sold in the commercial and residential equipment
markets, and the transportation, sports and leisure, energy and
general industrial end markets. In the 12 months that ended June
2022, the company generated around EUR731 million in revenue and
employed more than 3,200 people globally. Neptune Holdco S.a.r.l.
is owned by PAI Partners (60% ownership) and KIRKBI A/S (40%).
=================
M A C E D O N I A
=================
TOPLIFIKACIJA: Adora Enginering to Sell Assets for EUR9.3 Million
-----------------------------------------------------------------
Monika Stojanovska at SeeNews reports that earlier this month,
local construction company Adora Engineering, announced that is
selling the assets of bankrupt local heating utility Toplifikacija
for EUR9.3 million (US$9 million) -- the same price at which it
bought them earlier.
As reported by the Troubled Company Reporter-Europe on Oct. 21,
2021, bne IntelliNews said that the Assembly of Creditors of North
Macedonia's heating utility Toplifikacija, which is in bankruptcy,
accepted the offer of local construction firm Adora Engineering to
acquire Toplifikacija's heating plants East and West for EUR9.3
million. Toplifikacija's total assets are estimated at EUR30
million, according to bne IntelliNews. Toplifikacija has been in
bankruptcy since 2018, bne IntelliNews noted.
=========
S P A I N
=========
TDA CAM 4: Moody's Affirms C Rating on EUR29.3MM Class D Notes
--------------------------------------------------------------
Moody's Investors Service has upgraded the rating of one note in
FTPYME TDA CAM 4, FTA. The rating action reflects the increased
level of credit enhancement for the affected note.
EUR38M C Notes, Upgraded to Aa1 (sf); previously on Jan 24, 2022
Upgraded to Aa2 (sf)
Moody's affirmed the ratings of the notes that had sufficient
credit enhancement to maintain their current ratings.
EUR66M B Notes, Affirmed Aa1 (sf); previously on Jan 24, 2022
Affirmed Aa1 (sf)
EUR29.3M D Notes, Affirmed C (sf); previously on Jan 24, 2022
Affirmed C (sf)
Maximum achievable rating is Aa1 (sf) for structured finance
transactions in Spain, driven by the corresponding local currency
country ceiling of the country.
RATINGS RATIONALE
Revision of Key Collateral Assumptions:
As part of the rating action, Moody's reassessed its default
probability and recovery rate assumptions for the portfolio
reflecting the collateral performance to date.
The performance of the transactions has continued to be stable
since last rating action in January 2022. Total delinquencies have
decreased in the past year, with 90 days plus arrears currently
standing at 0.38% of current pool balance. Cumulative defaults
currently stand at 8% of original pool balance up from 7.9% a year
earlier.
For FTPYME TDA CAM 4, FTA, the current default probability is 21.5%
of the current portfolio balance and the assumption for the fixed
recovery rate is 52.5%. Moody's has decreased the CoV to 41.8% from
41.9%, which, combined with the revised key collateral assumptions,
corresponds to a portfolio credit enhancement of 26%.
Increase in Available Credit Enhancement
Sequential amortization led to the increase in the credit
enhancement available in this transaction.
For instance, the credit enhancement for the Class C notes
increased to 48.8% from 42.1% since the last rating action.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating SME Balance Sheet Securitizations" published in
July 2022.
Counterparty Exposure
The rating actions took into consideration the notes' exposure to
relevant counterparties, such as servicer, account banks or swap
providers.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors or circumstances that could lead to an upgrade of the
ratings include (1) performance of the underlying collateral that
is better than Moody's expected, (2) an increase in available
credit enhancement and (3) improvements in the credit quality of
the transaction counterparties and (4) a decrease in sovereign
risk
Factors or circumstances that could lead to a downgrade of the
ratings include (1) an increase in sovereign risk, (2) performance
of the underlying collateral that is worse than Moody's expected,
(3) deterioration in the notes' available credit enhancement and
(4) deterioration in the credit quality of the transaction
counterparties.
=====================
S W I T Z E R L A N D
=====================
VERISURE HOLDING: Moody's Rates Benchmark-Sized Secured Notes 'B1'
------------------------------------------------------------------
Moody's Investors Service has assigned a B1 rating to the planned
Euro benchmark-sized backed senior secured notes issuance by
Verisure Holding AB. Verisure Midholding AB's (Verisure or the
company) B2 corporate family rating, B2-PD probability of default
rating and Caa1 senior unsecured ratings are unaffected. The rating
agency also said that the existing backed senior secured B1 ratings
of Verisure Holding AB are unaffected by the planned issuance. The
outlook is stable.
RATINGS RATIONALE
The planned transaction is largely leverage neutral with proceeds
from the issuance used to primarily repay EUR500 million of
existing backed senior secured notes due in May 2023. Moody's
adjusted gross debt / EBITDA for the last twelve months to June 30,
2022, pro forma for the planned issuance, is around the 7x level.
The company continues to perform in line with Moody's expectations
although the operating environment is becoming more challenging as
inflationary pressures increasingly weighs on profitability.
The new planned backed senior secured notes issuance is rated B1,
and will have the same ranking, security, guarantees, and covenants
as the existing backed senior secured notes.
STRUCTURAL CONSIDERATIONS
The EUR2.8 billion backed senior secured term loans, the EUR2.65
billion backed senior secured notes and the EUR700 million backed
senior secured RCF all rank pari passu and share the same security
package. They are all rated B1 which is one notch above Verisure's
B2 CFR to reflect their ranking ahead of the Caa1 rated EUR1.32
billion equivalent guaranteed senior unsecured notes.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) CONSIDERATIONS
Moody's has factored into its assessment the following social and
governance considerations.
Governance risks Moody's takes into consideration in Verisure's
credit profile include its ownership by private equity sponsors,
who have pursued aggressive financial policies favouring high
leverage and shareholder-friendly policies such as dividend
recapitalisations and the pursuit of acquisitive growth.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects Moody's expectation of sustained
deleveraging through EBITDA growth whilst cancellation rates remain
stable. Moody's expect the subscriber base to grow leading to
improved cash flow on a steady-state basis before growth in new
subscribers. Moody's also anticipate no further material
debt-financed dividends until the company has achieved further
substantial deleveraging.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Positive rating pressure could develop if Verisure:
-- demonstrates and commits to more balanced financial policies,
and limits additional debt financing to fund growth and dividend
payments
-- sustains Moody's-adjusted gross debt/ EBITDA below 5.5x, and
-- increases steady-state free cash flow (before growth spending)
to debt to 10%, with free cash flow (after growth spending)
becoming positive, and
-- maintains strong operating performance, including stable
cancellation rate
Downward rating pressure could develop if:
-- Moody's-adjusted gross debt/ EBITDA is sustained above 7x for a
prolonged period, or
-- steady-state FCF generation trends towards zero, or if
liquidity concerns were to arise or
operating performance weakens materially
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Business and
Consumer Services published in November 2021.
PROFILE
Headquartered in Versoix, Switzerland, Verisure Midholding AB
(Verisure) is the leading provider of professionally monitored
alarm solutions in Europe. It designs, sells and installs alarms,
and provides ongoing monitoring services to residential and small
businesses across 16 countries in Europe and Latin America. The
Company is also the leading provider of connected video
surveillance systems in Europe through Arlo Europe. The company
generates around EUR2.5 billion in annual revenues from its 4.5
million subscribers with a high share of recurring revenues at
approximately 80%, and employs more than 20,000 people. The company
was founded in 1988 as a unit of Securitas AB and is majority owned
by private equity firm Hellman & Friedman.
===========
T U R K E Y
===========
ANADOLU EFES: S&P Lowers ICR to 'BB+', Outlook Negative
-------------------------------------------------------
S&P Global Ratings lowered to 'BB+' from 'BBB-' its long-term
issuer credit rating on Anadolu Efes Biracilik ve Malt Sanayii AS
(Anadolu Efes) and the issue ratings and its outstanding senior
notes due November 2022 and June 2028.
The negative outlook reflects risks to S&P's projections from
challenging operating conditions in Turkey; the beer business'
dependence on Turkey and Kazakhstan to fund operational and
financing needs outside Russia; as well as the final terms of the
likely ABInbev transaction in Russia that is currently not embedded
in our base case.
The downgrade reflects prolonged uncertainty around the final terms
and timeline of Anadolu Efes' likely acquisition of ABI's
participation in the Russia-Ukraine beer business, originally
announced on April 22, 2022. S&P said, "We do not include the
transaction in our current base case, given the uncertainty
regarding its perimeters, financing package, and execution. That
said, we believe the two parties remain in active negotiations. The
transaction--depending on the final terms, including its structure
and funding mix--will likely weigh on our credit metrics, given
that we deconsolidate the Russian operations. We still also
consider that other risks could emerge from the consolidation of
the Russian operations under Anadolu Efes' umbrella, since it would
no longer share operational risks in the country with a larger and
financially stronger international partner. That said, we
understand that ABI remains committed to its stake in Anadolu Efes,
which creates scope for amicable transaction perimeters from
Anadolu Efes' standpoint. Anadolu Efes appears to have been
successful in ensuring the self-sufficiency of its Russian
operations since the outbreak of war in Ukraine, quickly finding
alternative suppliers of key packaging materials from countries
that are not imposing sanctions on Russia. We note that the beer
business was already sourcing key commodity ingredients, notably
barley, for the production of beer from the large local market. We
also continue to believe that Heineken's and Carlsberg's decisions
to exit Russia will reshape the Russian beer market. We believe
Anadolu Efes has the potential to increase its market share in the
country, although this will likely happen gradually as the two
international beer groups take time to wind down existing assets."
Anadolu Efes appears to be the leading player in the Russian beer
market ahead of Baltika Breweries, through which Carlsberg operated
in the country. The premium international brands (notably
Budweiser) that ABI asked Anadolu Efes to suspend the sales of in
Russia account for a relatively small share of the total business,
since the group has a large portfolio, including some well-known
local and national brands with diverse price points. This should
help preserve some volume demand for Anadolu Efes in case local
demand softens in the coming months.
S&P said, "Excluding the Russian beer business, we see the group's
credit metrics as still strong, but they could deviate materially
depending on the final terms of the ABI transaction in Russia, the
inflationary environment in key markets, and the beer group's
increasing dependence on Kazakhstan and Turkey. We estimate that
outside of Russia, the group's adjusted debt to EBITDA and FFO to
debt (including the soft drinks business through Coca-Cola Icecek
A.S. [CCI]) stood at close to 2.1x and 31% in 2021, below our
downside triggers of above 2.5x and below 30%, respectively. For
2022 and 2023, we forecast adjusted debt to EBITDA and FFO to debt
of 1.5x-2.0x and 35%-45%, respectively. The deleveraging trend is
supported by both the soft drinks business following the
acquisition of the Uzbekistani Coca-Cola license in 2021, and our
expectations that the beer business will also remain FOCF positive
(after lease payments) in its main markets outside Russia, notably
Turkey and Kazakhstan. In our base case, we assume the total
group's FOCF (including CCI) will be about Turkish lira (TRY)2.8
billion-TRY3.0 billion in 2022 and about TRY3.6 billion-TRY3.8
billion in 2023, and we anticipate the company will maintain
prudent management over discretionary expenses. Given the situation
in Russia and Ukraine and the generally very challenging operating
conditions, we see uncertainties around our base-case projections,
particularly in the hyperinflationary environment in the domestic
Turkish market (about 13% of volumes, and close to 20% of revenue
and EBITDA of the beer business), which is among the key reasons
for our negative outlook on the rating." Together with Kazakhstan,
these two countries ensure sufficient debt service coverage for the
beer group, for which virtually all of the debt sits outside Russia
and Ukraine.
Prolonged uncertainty around the regular and predictable cash flow
exchange between the group's Russian and remaining beer business is
the main reason for the deconsolidation of the Russian operations
in our adjusted credit metrics. Russia accounted for about 57% of
revenue and 51% of reported EBITDA for Anadolu Efes' beer
operations in 2021. Together, Russia and Ukraine account for close
to 55% of the reported beer business' EBITDA. Overall, the group's
beer operations account for about 44% of total sales and 34% of
EBITDA for Anadolu Efes. The rest of Anadolu Efes' business
comprises the soft drinks business of Turkish Coca-Cola bottler
CCI, in which it has 50.3% stake. CCI has no exposure to Russia and
Ukraine, as its main markets are in Turkey and Central Asia. The
Russia-Ukraine war and uncertainty around the duration of
international sanctions on Russia as well as capital controls in
both Russia and Ukraine is creating ongoing uncertainty around the
regular and predictable cash flow exchange between the two
countries and remainder of the Anadolu Efes' beer business that
notably comprises Turkey and Kazakhstan. S&P said, "As a result, we
consider the Russian beer operations effectively inaccessible for
group credit purposes and have deconsolidated them from our credit
metrics. That said, we note that the Russian business, comprising
11 breweries and three malt production facilities, is operationally
intact and maintains its well-established manufacturing network
serving a profitable and stable beer franchise. We believe that the
group will explore options for cash extraction from Russia by
year-end, and we see potential for success given the group's
origins and that Turkey still has not imposed sanctions on Russia.
That said, in the ongoing very volatile geopolitical environment,
recurring and more predictable cash flow sharing within the beer
business will remain uncertain and subject to favorable external
conditions beyond management's control, in our view. We consider
this disruption material because the Russian beer business has been
among the key contributors of the beer business' free cash flow
generation over 2020 and 2021. As such, we now see likely
increasing future reliance on the regular proportionate dividends
Anadolu Efes collects from CCI to fund the needs of its beer
business."
S&P said, "The rating is supported by a good liquidity profile with
no near-term refinancing risks thanks to sizeable cash holdings
outside Turkey, which allows the company to comfortably pass our
sovereign stress test on Turkey. The group (including CCI) had
sizeable unrestricted cash balances of about TRY19.8 billion at
June 30, 2022, which equates to close to $1.1 billion based on the
current exchange rate. The cash is evenly split between the beer
and soft drinks businesses. We note that both businesses manage
their finances separately, and therefore service their debt
independently. As of June 30, 2022, the overall group had about
TRY13.1 billion of short-term debt maturing within the next 12
months, equating to about $720 million based on the current
exchange rate. This includes the remaining $180 million (of the
original $500 million) of senior notes at the beer group level due
November 2022, which it will repay at maturity. We note that CCI
and Anadolu Efes' beer group operate a centralized cash pooling
system domiciled in the Netherlands, and manage their financial and
operational exposures to multiple currencies across their
geographically diverse operations. Close to 64% of the group's cash
balances are denominated in hard currency (mostly U.S. dollars),
held both in Turkey, where the outstanding senior unsecured notes
were issued, and in western Europe. As of June 30, 2022, the beer
group's cash balances outside Turkey alone provided ample coverage
for the outstanding $180 million senior notes due November 2022,
with no refinancing risks until 2028 when its $500 million notes
issued in 2021 are due. We anticipate the group will continue to
rollover and manage short-term debt maturities at local operating
subsidiaries in a timely manner, considering the blue-chip status
of both entities in their local markets with sizeable and
diversified geographically operations. Within the Anadolu Efes'
ownership structure, we note the presence of AG Anadolu Grubu
Holding A.S. (not rated), which holds a 43% stake in Anadolu Efes.
Anadolu Grubu is one of the most influential and diversified
holdings in Turkey, and is very well capitalized with prudent debt
levels of well below 2.0x in reported terms. Anadolu Efes' beer
business accounts to close to 20% of the holding's business, and as
such we believe the holding could help Anadolu Efes continue to
enjoy strong local banking relationships. We note that the Russian
beer business is in a strong net cash position currently, and is
free cash flow generative, and Anadolu Efes also enjoys a strong
and diversified banking group relationship with local creditors.
Given the group's liquidity position, and even deconsolidating the
Russian operations, Anadolu Efes comfortably passes our sovereign
stress test, including transfer and convertibility assessment, on
Turkey, which allows us to rate it above our sovereign foreign
currency rating on Turkey (unsolicited B+/Negative/B). The company
can withstand a sovereign foreign currency rating downgrade to 'B',
since we continue to be in a position to rate it up to four notches
above the sovereign foreign currency rating, the maximum allowed
under our criteria.
"Despite challenging operating conditions, the group posted strong
results in first-half 2022, which points to some ability to
mitigate pressures thanks to the strong brand equity of its
portfolio. For the 12 months to June 30, 2022, on a consolidated
basis, including Russian operations, Anadolu Efes' adjusted debt to
EBITDA stood at about 1.2x, compared with 1.8x in 2021. Given that
CCI's adjusted leverage metrics were unchanged at 1.4x, this
indicates strong deleveraging at the beer business. The group's
beer volumes in Turkey for the first half of the year were up 9.5%,
while soft drink volumes at CCI were about 25%, including the
consolidation of the Uzbekistani Coca-Cola license acquisition in
2021 (15.5% on an organic basis). The beer group's gross profit
margins appear to have strengthened by a remarkable 600 basis
points (to about 50%) in first-half 2022, thanks to proactive price
increases across main markets, favorable commodity hedges, and
prudent cost control. CCI, on the other hand, is seeing some
contraction on a 12-month-rolling basis of about 200 basis points
(to about 36%), but EBITDA margin contraction appears contained to
a 100-basis-points decline, in line with guidance for 2022. In
Turkey's hyperinflationary environment (with food inflation
reaching over 90% as of July), Anadolu Efes appears to be
multiplying its price point coverage in beer with the introduction
of the affordable Turkey Bremen 1827 brand in early June, with
reported strong uptake by local consumers. Both Anadolu Efes and
CCI appear proactive in pursuing hedging for key commodity inputs,
notably aluminum covered by 40% for beer and 50% for soft drinks
for 2023 as of June 30, 2022. We see half-year results for 2022 as
an indication of the group's ability to navigate the very
challenging operating environment for global consumer food and
beverages companies. The leading brand equity of its portfolio of
beverages affords the company the ability to proactively price,
particularly in the hyperinflationary domestic Turkish market. We
also anticipate that both the soft drinks and beer businesses will
continue to benefit from positive volume demand at least over the
next 12 months, reflecting the less discretionary nature of the
consumer staples category they are part of. We currently see
potential for more volatility in volume demand across main markets
into 2023, depending on the trajectory of inflation.
"The negative outlook reflects the risks that we see to our
projections, which notably stem from the challenging operating
conditions in Turkey amid very high inflation in the country, and
the beer group's dependence, in our view, on Turkey and Kazakhstan
to fund operational and financing needs outside Russia. In
addition, there is still material uncertainty around the final
terms and timeline of the likely ABI transaction in Russia, which
is currently not embedded in our base case. These factors could
lead to a material deviation in our debt protection metrics over
our forecast horizon.
"We could lower our ratings on Anadolu Efes over the next 12-18
months if we observed our main credit indicators, excluding the
Russian beer operations, weakening such that adjusted debt to
EBITDA exceeded 2.5x and FFO to debt decreasing below 30% with no
prospects for rapid improvement. This could materialize if the
group is unable to offset on an ongoing basis the pressures from
very high cost inflation through effective pricing and cost
control, or if demand for its beverage products faltered,
particularly in the domestic Turkish market. This could also occur
if the final terms, including funding mix, for the likely
acquisition of ABI's stake in the Russian joint venture beer
business prove harmful to Anadolu Efes' current financial
position.
"Alternatively, we could also lower our ratings on Anadolu Efes if
we lowered the sovereign foreign currency rating on Turkey to 'B-'
from 'B+'. This is because, under our criteria, we cannot rate a
company more than four notches above the related sovereign foreign
currency rating.
"We could revise our outlook to stable if we had greater visibility
that the group, excluding the Russian beer operations, would be
able to maintain adjusted debt to EBITDA comfortably below 2.5x and
FFO to debt above 30% on an ongoing basis. This should be combined
with sustained adequate liquidity levels outside Russia such that
cash flows fully cover the beer group's operational and financing
needs. This would stem from Anadolu Efes successfully navigating
the headwinds from the current inflationary environment and the
final terms of the likely acquisition of ABI's stake in the Russian
beer business not weakening its current financial position."
ESG credit indicators: E-2, S-2, G-2
S&P said, "ESG factors are an overall neutral consideration in our
credit rating analysis of Anadolu Efes. In addition of being a soft
drink bottler, Anadolu is part of the regulated alcoholic beverage
sector (45% of EBITDA from its beer operations). As such, it is
exposed to the risk of government intervention (including
restriction of sales, regulation of marketing practices, and higher
taxes) as well as to social concerns related to alcohol abuse and
underage consumption. However, since Anadolu Efes has been
consistent in proactively addressing these concerns (by offering
educational programs, upholding a marketing code of conduct,
maintaining collaborative relationships with communities and
regulatory bodies, etc.), these factors do not weigh on our
analysis. In terms of governance, we note that Anadolu Efes has
maintained its issuer credit ratings above the sovereign rating on
Turkey (currently three notches higher), while the country faced
economic and financial turmoil that translated into hyperinflation
and interest rate hikes. Thanks to broad geographic diversification
providing sizeable revenue in hard currencies, Anadolu Efes enjoys
access to international capital markets. We view geographic
diversification as key for our governance assessment. The company's
generally conservative treasury policy, with on average 60% of cash
on balance being hard currencies, further supports our G-2
assessment."
COCA-COLA ICECEK: S&P Lowers LongTerm Issuer Credit Rating to 'BB+'
-------------------------------------------------------------------
S&P Global Ratings lowered its long-term issuer credit rating on
Coca-Cola Icecek (CCI) and its issue ratings on the company's 2029
senior notes to 'BB+' from 'BBB-'.
The negative outlook mirrors that of its parent.
S&P Global Ratings downgraded CCI's parent company, Anadolu Efes
(AEFES), to 'BB+' from 'BBB-' on Sept. 23, 2022. S&P sees material
risks that AEFES' large Russian beer operations face significant
restrictions on its ability to extract cash to service debt outside
Russia, and potential weaker credit metrics due to the potential
buyout of ABInbev stake in the joint venture in Russia, which is
still in discussion between the two parties.
S&P said, "Our downgrade to CCI mirrors that to parent AEFES. We
lowered our ratings on the Turkey-headquartered beer bottler to
'BB+' from 'BBB-', with a negative outlook, because we anticipate
its large Russian beer operations will face significant
restrictions on their ability to extract cash to service debt
outside Russia, and uncertainties on the financing of ABInbev joint
venture in Russia. AEFES's could show weaker credit metrics
following the buyout of ABInbev's stake in the joint venture in
Russia, which is still being discussed. We view CCI as a core
entity of the AEFES group because we think the parent would likely
provide extraordinary support if needed, even if legally the two
companies are legally separated. This is because we see CCI as a
key asset for AEFES and due to potential reputation risk for AEFES
should CCI found itself in a weak financial position. AEFES holds a
majority stake (50.1%) and therefore effectively controls CCI,
which is a major cash flow contributor (66% of group EBITDA in
first-half 2022) and provides a significant stable dividend income.
Both companies operate in consumer staples, and share a number of
geographical markets and retail customers, but CCI brings important
product diversification to beer bottling with a portfolio of very
well-known licensed soft drinks brands (such as Coca-Cola, Fanta,
and Sprite), has a long track record of profitable growth, and is
not exposed to Russia.
"We continue to see the group's stand-alone reporting of solid cash
flow and credit metrics as credit positive.CCI continues to perform
well despite a difficult economy (hyperinflation in Turkey, weak
emerging market currencies versus the euro or U.S. dollar, and high
operating cost inflation). In first-half 2022, volume increased 22%
with net sales revenue increasing by 144% due to price increases to
offset very high cost inflation in Turkey and Pakistan notably. On
a trailing 12-month basis, CCI reported a stable profitability,
with an adjusted EBITDA margin of about 20% (versus 22.5% last
year), positive FOCF of Turkish lira (TRY) 1.2 billion (versus
TRY2.3 billion), adjusted debt leverage of 1.4x (versus 0.7x),
funds from operations (FFO) to debt of 50% (versus 114%), and
EBITDA interest coverage of 6.7x (versus 9.1x). Our updated
base-case projections for 2022-2023 assume continued high revenue
growth mostly through price increase but also positive volume
growth: revenue of TRY40 billion-TRY45 billion in 2022 and TRY60
billion-TRY65 billion in 2023, adjusted EBITDA of about TRY9
billion in 2022 (EBITDA margin of 19%) rising to TRY12 billion in
2023 (19%), and FOCF of TRY2 billion in 2022 rising to TRY3 billion
in 2023. Adjusted debt leverage will be 1.5x in 2022 before
declining to 1.0x-1.3x in 2023, with FFO to debt of 45%-50% rising
to 65%-75% and EBITDA interest coverage of 5x-7x.
"Volume growth should continue to mostly come from outside Turkey,
with the continued penetration of sparkling beverages in the
production and distribution in underpenetrated markets like
Uzbekistan. We think profitability should hold up overall with
CCI's track record in raising prices quickly and ability change the
product and packaging mix to increase revenue per unit case.
Finally, we account for the company's ability to realize operating
cost savings. We see higher working capital needs in 2022 but
believe part of it should decrease in second-half 2022 following
prudent stocking up. Credit metrics should continue to see negative
translation effect from the strong U.S. dollar versus the lira but
CCI has partly hedged its 2024 bond, which should limit overall the
effect. CCI is well hedged in 2022 for its main raw materials and
energy costs but cost inflation means working capital and capital
expenditure (capex) will also be higher, limiting FOCF growth in
2022 versus in 2021.
"We continue to expect the group will pursue prudent treasury
policies but think it will continue acquisitions to expand
geographically.CCI continues to pursue its prudent funding policies
by maintaining at all times large cash balances, mostly denominated
in hard currencies (at end-June 2022, more than $400 million of
denominated cash balances), which, together with our projection of
positive FOCF in 2022 and 2023, should fund business needs despite
expected higher working capital needs and higher capex from
inflation and potential supply-chain disruptions. CCI continues to
pass comfortably our stress tests to be rated above the foreign
currency sovereign rating on Turkey (B+/Negative/B). We therefore
believe that CCI, having already issued $500 million of senior
notes in January 2022, faces no major near-term refinancing risks,
with about $180 million of debt due in 2022, $174 million due
(including about $120 million U.S. private placement [USPP]) in
2023, and $244 million (including about $300 million of remaining
senior notes) in 2024. Also, there is strong (greater than 30%)
headroom under the financial covenants on the USPP. Still, we
believe the group will continue to look at acquisitions to expand
its geographical reach and diversify outside Turkey. In 2021, the
group acquired the Coke bottler in Uzbekistan, which we understand
is on track to be fully integrated into the group in the next year.
We believe the group could look to acquire Coke franchises in
neighboring countries in Central Asia or the Middle East. We
nevertheless believe the group will continue to careful in terms of
adjusted debt leverage given the region's volatility. We also
factor the group continuing to pay regularly a cash dividend with a
gradually increasing payout within the policy of up to 50% of net
income, but CCI has no history of paying extraordinary dividends or
share buybacks."
The negative outlook mirrors that of the parent, AEFES.
S&P would lower the ratings most likely if it was to downgrade
AEFES.
S&P could revise its outlook to stable on CCI if it does the same
to the parent.
ESG credit indicators: E-2, S-2, G-2
S&P said, "ESG factors have a neutral influence overall on our
credit analysis of CCI. We believe social risk factors are
mitigated by the lower regulatory pressure and more positive
consumer perception toward high sugar content beverages compared to
mature markets. In addition, limited consumer affordability
restricts the level of individual consumption.
"The company's prudent treasury and debt leverage policies, with at
least 50% of cash balances held at all times in hard currency,
support our governance assessment."
===========================
U N I T E D K I N G D O M
===========================
BEAUMONT MORGAN: Salford Quays Investors Left in Limbo
------------------------------------------------------
Nick Jackson at Manchester Evening News reports that around 150
people who shelled out thousands for deposits on off-plan
apartments at Salford Quays are still left in limbo four years
after they were supposed to be built.
Furious investors are rejecting a request from developer Fortis to
surrender the leases for which they each paid about GBP100,000 --
50% of the asking price of the apartments -- to convert them into
loans, Manchester Evening News discloses.
The apartments in two blocks should have been completed in 2018
after investors from across the globe bought them off-plan,
Manchester Evening News notes. But all that remains on the site
are empty shells. According to Manchester Evening News, in a
letter to the out-of-pocket leaseholders of the 'Herreshoff' and
'Danforth' buildings, Fortis says the deal would allow the funds to
become a loan "enabling us to obtain a new planning consent and
build out a new project".
The letter, seen by the Local Democracy Service, goes on to say:
"This in turn would allow us to repay the funds paid to date by you
on completion of the project. This proposal would only work if a
large percentage of clients agreed to this revised structure and
unfortunately this has been an impossible task due to a number of
factors but mainly the understandable hesitation and concern that
some clients have with the current situation."
However, several investors we spoke to said they would not accept
the offer, with one saying they had "completely lost trust in the
company", Manchester Evening News notes. According to Manchester
Evening News, the Fortis letter says: "As time moves on the
construction industry continues to suffer significant cost
increases which are making the task of finding a suitable
resolution to the current situation more difficult.
"We are continuing to work on finding a viable solution, but a
number of clients are now running out of patience and threatening
to issue winding up proceedings against the company. Whilst we
completely understand everyone's frustration and the financial
strains these issues have caused, we still want to try and get the
best outcome for all the clients.
"If proceedings are issued against the company this will result in
the project going into administration. Once you take out the
administrator costs the residual value to be allocated to the
creditors would be even smaller and creditors would likely get
somewhere close to 10p in the £1 on the funds paid to date.
"This is out of our control and if someone does issue proceedings
against the company then there is nothing we can do. With this in
mind and the imminent potential threat of proceedings we wanted to
try and offer you one final proposal to avoid the worst-case
scenario of administration.
"We have looked at the potential value of the site in the event we
could secure an alternative planning consent in the future. Taking
this into account and all the risks involved we could raise finance
against the asset, subject to being free from charge, which would
allow us to get you a maximum return of 40p in the GBP1."
None of the investors wanted to be identified, but the Local
Democracy Service has seen a list of the 40 Herreshoff investors,
many of whom live overseas and elsewhere in the UK, Manchester
Evening News discloses.
The development hit difficulties in January when Beaumont Morgan
Developments, the company behind plans for 900 apartments in two
blocks on the site of former office buildings at Furness Quay went
into administration, Manchester Evening News recounts. Beaumont
Morgan was the construction arm of Altrincham-based Fortis Group.
According to Manchester Evening News, a spokesperson from Fortis
told the Local Democracy Reporting Service the original development
had run into difficulties with concrete frames in the process of
adding floors to the existing buildings. "We've been trying to find
a solution for two to three years," they said. "The proposals we've
come up with need the agreement of all the leaseholders. Meanwhile,
there have been more and more problems with the site.
"We've submitted a new planning application and we have been in
discussions with Salford city council over a Section 106 agreement
[where developers make a contribution or carry out work in the
local community as part of the planning permission]."
They said that the deal offered to investors to convert their
leases into loans could possibly result in a return on their
investment of an additional 30% "once the apartments have been
built out".
HCT GROUP: Goes Into Administration, Halts Trading
--------------------------------------------------
Route One reports that HCT Group ceased trading and entered
administration on Friday, Sept. 23, bringing an end to the social
enterprise after it "ran out of road."
Neville Side, Martha Thompson and Mark Thornton of BDO LLP have
been appointed joint administrators of the business, Route One
relates.
The collapse followed a period of turmoil for HCT, Route One notes.
Since early August, it had seen the sudden closure and subsequent
entry into administration of its Yorkshire operations, the sale of
Transport for London contracted work to Stagecoach, the closure of
its business in Bristol and the disposal of operations on the
Channel Islands to Kelsian Group, Route One recounts.
According to Route One, writing on LinkedIn, former HCT Group
Communications Director Frank Villeneuve-Smith says that the
organisation "has been rocked by multiple challenges" that date as
far back as difficult trading before COVID-19 and which had been
compounded by a surge in costs and the financial impact of the
pandemic period.
"This has led to unsustainable commercial losses and we see our
situation as irrecoverable," adds Mr. Villeneuve-Smith.
He notes that the sale of some work or the transfer of routes to
other operators has protected the livelihoods of "the overwhelming
majority" of former HCT Group employees and ensured most services
have continued. However, where that has not been the case and
provision has ceased, Mr. Villeneuve-Smith says that he is
"saddened" by the outcome.
"Closure is the last possible outcome we wanted, and is a very sad
day for everyone at HCT Group. Everyone here has worked tirelessly
to put the organisation on a sustainable footing and we have done
everything in our power to prevent this situation, but our position
cannot be sustained any further. We have run out of road."
HCT Group began in 1982 as Hackney Community Transport, later
growing in London and further afield. Mr. Villeneuve-Smith adds
that its demise is not as a result of its status as a social
enterprise, but because of "unique circumstances that we are living
through."
HCT's most recent accounts, for the extended period between April
1, 2019, and September 28, 2020, show a deficit of GBP10.3 million
on an income of GBP123.7 million, Route One discloses. During that
period, it breached covenants on loan facilities but was provided
with waivers by all lenders, Route One relays.
Writing in that report, Chief Executive Lynn McClelland noted that
the group had earlier implemented a "major restructuring programme
to remove costs," adding her belief that "significant efficiencies"
were still to be found within the organisation and that the trading
position to September 2021 had improved considerably.
JOULES GROUP: Mulls Company Voluntary Arrangement
-------------------------------------------------
Shanima A at Reuters struggling British fashion retailer Joules
Group on Sept. 29 said its turnaround plan, focused on boosting
profitability, was making good progress, weeks after Next Plc
abandoned plans to inject funds into the company.
Joules, which sells clothing, footwear and accessories, has been
wrestling with finances as consumers turn cautious about spending
as surging inflation has fed a cost of living crisis.
British inflation was 9.9% in August and expected to rise further,
with the cost of living crunch squeezing households' disposable
spending, Reuters discloses.
According to Reuters, this month, the company said it was no longer
in talks with retailer Next Plc over a potential GBP15 million
(US$16.52 million) equity investment, without disclosing details.
In August, the company warned of an annual loss due to high levels
of discounting, Reuters recounts. It said a shortfall in
full-price sales had squeezed retail margins and it expects to need
a waiver on some debt covenants, Reuters relays. Its outlook for
the full year remained unchanged, Reuters notes.
Earlier in the day, Sky News reported that Joules is considering an
insolvency procedure used by retailers to close loss-making stores
and reduce rents, Reuters discloses.
Shares of the struggling retailer fell 39% on the report adding to
its 95% plunge this year, Reuters states.
Joules is working with advisory firm Interpath Advisory on a
company voluntary arrangement (CVA) that would, if approved, pave
the way for store closures, rent reductions and job cuts, Reuters
relays, citing the report.
Joules in its statement added that Interpath Advisory is assisting
it with an initial assessment of certain elements as part of the
development of its turnaround plan, Reuters notes.
NU-TRACK: Enters Administration, More Than 60 Jobs Affected
-----------------------------------------------------------
Gary McDonald at The Irish News reports that more than 60 workers
are being made immediately redundant at Ballymena manufacturer
Nu-Track, which specialises in producing wheelchair accessible
buses, minibuses, mobile libraries and horse-boxes.
According to The Irish News, in a statement, Nu-Track, which went
into administration, said it is "with profound regret" that workers
were being laid off, and said "every effort has been made to avoid
closure".
It cited "several factors that limit the options available to us",
including the decision by a local client to withdraw from a
contract for 130 vehicles and, says Nu-Track, withdrew after
approximately 70 vehicles had been delivered, owing a substantial
debt to the company which it is now pursuing through the courts,
The Irish News relates.
Its statement added: "This, combined with public sector clients
who, despite our requests, were not willing to make any payment
towards their orders prior to delivery of their completed vehicles,
placed an unreasonable strain on cashflow.
"Our inability to fulfil this order without customer funding
resulted in the base vehicles being removed by the client, bringing
an end to our shop floor production, and consequently causing job
losses.
"On reflection we should not have entered imbalanced contracts of
this type, where the customer, although a government body, had no
contribution to the build cost."
The company statement also mentioned increasing component costs,
unprecedented rises in base metal prices, reduced production
volumes and extensive delays in bus chassis supply from
manufacturers as further issues, The Irish News notes.
It added: "We have sought to close our operations at a time when
employee demand within our sector is high in the local area. Care
of our staff being paramount."
TRAFFORD CENTER: Moody's Cuts Rating on 2 Tranches to 'Ba2'
-----------------------------------------------------------
Moody's Investors Service has downgraded the ratings of seven
classes of notes and affirmed one class of notes issued by The
Trafford Centre Finance Limited:
GBP340M (Current outstanding amount GBP235.8M) Class A2 Notes,
Downgraded to Aa3 (sf); previously on Apr 6, 2021 Affirmed Aaa
(sf)
GBP188.5M Class A3 Notes, Downgraded to Aa3 (sf); previously on
Apr 6, 2021 Affirmed Aaa (sf)
GBP120M (Current outstanding amount GBP47.7M) Class B Notes,
Downgraded to Baa1 (sf); previously on Apr 6, 2021 Downgraded to
Aa3 (sf)
GBP20M Class B2 Notes, Downgraded to Baa1 (sf); previously on Apr
6, 2021 Downgraded to Aa3 (sf)
GBP20M Class B3 Notes, Downgraded to Baa1 (sf); previously on Apr
6, 2021 Downgraded to Aa3 (sf)
GBP69.55M (Current outstanding amount GBP29.1M) Class D1(N) Notes,
Downgraded to Ba2 (sf); previously on Apr 6, 2021 Downgraded to
Baa3 (sf)
GBP50M (Current outstanding amount GBP2.7M) Class D2 Notes,
Affirmed Baa3 (sf); previously on Apr 6, 2021 Downgraded to Baa3
(sf)
GBP70M Class D3 Notes, Downgraded to Ba2 (sf); previously on Apr
6, 2021 Downgraded to Baa3 (sf)
RATINGS RATIONALE
The downgrade action reflects a re-assessment of the expected loss
of the underlying loan.
The ratings on the Classes A, B, D1(N) and D3 Notes were downgraded
because of an increase in expected loss due to a higher risk of
default and lower Moody's property value. The rating on the Class
D2 Notes was affirmed because of the expected repayment at legal
maturity in October 2022, which is supported by the transaction's
available cash reserve and liquidity facility.
As of September 2022, the transaction's loan to value (LTV) ratio
was 63.6% based on a reported December 2020 valuation of GBP965
million. This compares to a Moody's LTV ratio of 78.1% which
reflects Moody's property value of GBP785.7 million based on a net
cash flow of GBP55.0 million and a cap rate of 7.00%.
Moody's rating action reflects a base expected loss in the range of
0%-10% of the current balance. Moody's derives this loss
expectation from the analysis of the default probability of the
securitised loan (both during the term and at maturity) and its
value assessment of the collateral.
The action has considered how discretionary retail properties face
outsized risks from the rise in e-commerce and changing consumer
behaviour that presents challenges to brick-and-mortar
discretionary retailers. These trends were accelerated by the
coronavirus pandemic.
Moody's regard the shift in consumers' retail shopping preferences
to online as a social risk under Moody's ESG framework.
DEAL PERFORMANCE
The transaction is secured by a loan backed by a single trophy
asset, the Trafford Centre, a dominant, super-regional shopping
centre in Greater Manchester. The deal benefits from scheduled
amortization and interest rate swaps such that the borrower pays a
fixed interest rate.
Following two years of volatility due to the pandemic, the Trafford
Centre has begun to stabilize, though at levels sharply below that
of 2019. Property cash flows rebounded to GBP62.77 million in 2021,
versus GBP17.25 million in 2020, but recent cash flows were
inflated by the collection of amounts accrued in 2020 when tenants
where not paying rent. Collections have since stabilized at around
98% (versus 54% to 65% during the first four quarters of the
pandemic) and occupancy has stabilized at around 85% (versus 95% as
of December 2019). As of June 2022, the trailing four-quarters of
property cashflow declined modestly to GBP58.88 million. The
latest rent roll indicates that the backlog of tenants under
administration and liquidation has eased.
Footfall has trended upwards since March 2021, and as of December
2021 (the most recent data reported) reached 89% of pre-pandemic
levels. The trend of shopping online has also reversed, but the
percent of sales taking place in physical stores is unlikely to
return to pre-pandemic levels.
Moody's expects net cash flow from the Trafford Centre to benefit
from consumers return to in-person shopping and dining out at the
property's numerous restaurants, but the benefit from a recovery in
footfall will be largely offset by a deteriorating macro-economic
environment in which consumer confidence and discretionary spending
are curtailed by higher inflation. Moody's cash flow of GPB55.0
million is based on the September 2022 rent roll adjusted for
recent leasing and a sustainable level of non-recoverable expenses
which has stabilized at an elevated level post Intu ownership.
Moody's increased its cap rate to 7.00% to account for greater
uncertainty in the property's long-term prospects. It notes that
investors in retail properties are also being more selective, and
this is evident in lower transaction volumes and in rising property
yields.
Based on Moody's cashflow assumption and the debt service payment,
the average Moody's DSCR is 0.96x based on next year's scheduled
debt service. Moody's notes that GBP 90 million of bullet
repayments are due in April 2024 to repay Classes B3 and D3 Notes.
Given Moody's projected cash flow, the repayment of these notes
will depend on the continued support of Canada Pension Plan
Investment Board (CPPIB Aaa stable) which in 2020 acquired the
ownership of the centre via enforcement of its GBP250 million
subordinate debt following Intu's administration and an
unsuccessful sale process. CPPIB has been supporting the
transaction by injecting equity to cover debt service shortfalls.
Given the sponsor's support, neither the cash reserve nor the
liquidity facility were used to make note payments to date. The
transaction benefits from a GBP5.0 million cash reserve and a
further GBP80.0 million liquidity facility covering both the
principal and interest payments of the Notes. The amount available
to the Class D Notes is limited to GBP15.0 million to cover a
shortfall in interest and/or principal on Class D2 Notes and a
shortfall of interest on the Class D1(N) Notes and the Class D3
Notes.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's
Approach to Rating EMEA CMBS Transactions" published in May 2021.
Factors that would lead to an upgrade or downgrade of the ratings:
Main factors or circumstances that could lead to an upgrade of the
ratings are generally: (i) an increase in the property values
backing the underlying loan; (ii) a decrease in default risk
assessment
Main factors or circumstances that could lead to a downgrade of the
ratings are: (i) a decline in the property values backing the
underlying loan; or (ii) an increase in default risk assessment.
VALE OF MOWBRAY: Enters Administration, 171 Jobs Affected
---------------------------------------------------------
Joe Willis at RichmondhsireTODAY reports that Leeming Bar piemaker
Vale of Mowbray has gone into administration with more than 200
staff now facing redundancy.
Staff were told at a meeting on Sept. 28 that they were losing
their jobs at the family-owned firm which was founded in 1795,
RichmondhsireTODAY relates.
Administrators have been appointed to run the company,
RichmondhsireTODAY discloses.
A total of 171 people have been made redundant with a further 48
kept on in the short-term while the assets are sold off,
RichmondhsireTODAY notes.
According to RichmondhsireTODAY, the response included the
statement: "On September 28, 2022, Martyn James Pullin, Mark David
Hodgett and David Frederick Shambrook of FRP Advisory Trading
Limited were appointed Joint Administrators of Vale of Mowbray
Limited ('the Company'). "The affairs, business and property of
the Company are being managed by its Joint Administrators who act
as agents of the Company and without personal liability.
"Martyn James Pullin and David Frederick Shambrook are licensed to
act by the Insolvency Practitioners Association. Mark David
Hodgett is licensed to act by the Institute of Chartered
Accountants of Scotland."
WORCESTER WARRIORS: Players Left in Limbo After Administration
--------------------------------------------------------------
Gerard Meagher at The Guardian reports that Worcester Warriors
players have been left in limbo after receiving conflicting
information over whether they can leave the stricken club
immediately.
After the government put the club into administration, the
expectation was that the players were free to leave, but the Rugby
Players' Association has informed the squad they are still under
contract, The Guardian states.
Players had initially been told that "if the club enters
administration you have the ability to immediately terminate your
contract", The Guardian notes. Accordingly, on Sept. 26, when it
was announced the club was being put into administration after
being suspended from all competitions, the door appeared open for
the players to leave, The Guardian recounts.
However, the RPA clarified the situation and gave the players
different information on Sept. 27 in an email seen by the Guardian,
because while WRFC Trading Limited is in administration, the
company that they are contracted to -- WRFC Players Limited -- is
not, The Guardian relates.
That, in turn, means that rather than being able to leave
immediately, players have to wait to learn if they will be paid
September's wages on Sept. 30, The Guardian discloses. If not,
they can give 14 days' notice of their intention to leave, and in
theory would be obliged to wait another fortnight before doing so,
according to The Guardian.
As a result, the players are in limbo, The Guardian says. Some are
training in groups away from Sixways, others on their own and some
have returned to their home towns, The Guardian relays. All,
however, are contemplating alternatives according to the captain
Ted Hill, amid widespread discussions with clubs over possible
future moves, according to The Guardian.
===============
X X X X X X X X
===============
[*] BOOK REVIEW: Transnational Mergers and Acquisitions
-------------------------------------------------------
Author: Sarkis J. Khoury
Publisher: Beard Books
Softcover: 292 pages
List Price: $34.95
Order your personal copy today at http://is.gd/hl7cni
Transnational Mergers and Acquisitions in the United States will
appeal to a wide range of readers. Dr. Khoury's analysis is
valuable for managers involved in transnational acquisitions,
whether they are acquiring companies or being acquired themselves.
At the same time, he provides a comprehensive and large-scale look
at the industrial sector of the U.S. economy that proves very
useful for policy makers even today. With its nearly 100 tables of
data and numerous examples, Khoury provides a wealth of information
for business historians and researchers as well.
Until the late 1960s, we Americans were confident (some might say
smug) in our belief that U.S. direct investment abroad would
continue to grow as it had in the 1950s and 1960s, and that we
would dominate the other large world economies in foreign
investment for some time to come. And then came the 1970s, U.S.
investment abroad stood at $78 billion, in contrast to only $13
billion in foreign investment in the U.S. In 1978, however, only
eight years later, foreign investment in the U.S. had skyrocketed
to nearly #41 billion, about half of it in acquisition of U.S.
firms. Foreign acquisitions of U.S. companies grew from 20 in 1970
to 188 in 1978. The tables had turned an Americans were worried.
Acquisitions in the banking and insurance sectors were increasing
sharply, which in particular alarmed many analysts.
Thus, when it was first published in 1980, this book met a growing
need for analytical and empirical data on this rapidly increasing
flow of foreign investment money into the U.S., much of it in
acquisitions. Khoury answers many of the questions arising from the
situation as it stood in 1980, many of which are applicable today:
What are the motives for transnational acquisitions? How do foreign
firms plans, evaluate, and negotiate mergers in the U.S.? What are
the effects of these acquisitions on competition, money and capital
markets; relative technological position; balance of payments and
economic policy in the U.S.?
To begin to answer these questions, Khoury researched foreign
investment in the U.S. from 1790 to 1979. His historical review
includes foreign firms' industry preferences, choice of location in
the U.S., and methods for penetrating the U.S. market. He notes the
importance of foreign investment to growth in the U.S.,
particularly until the early 20th century, and that prior to the
1970s, foreign investment had grown steadily throughout U.S.
history, with lapses during and after the world wars.
Khoury found that rates of return to foreign companies were not
excessive. He determined that the effect on the U.S. economy was
generally positive and concluded that restricting the inflow of
direct and indirect foreign investment would hinder U.S. economic
growth both in the short term and long term. Further, he found no
compelling reason to restrict the activities of multinational
corporations in the U.S. from a policy perspective. Khoury's
research broke new ground and provided input for economic policy at
just the right time.
Sarkis J. Khoury holds a Ph.D. in International Finance from
Wharton. He teaches finance and international finance at the
University of California, Riverside, and serves as the Executive
Director of International Programs at the Anderson Graduate School
of Business.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
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Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2022. All rights reserved. ISSN 1529-2754.
This material is copyrighted and any commercial use, resale or
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