/raid1/www/Hosts/bankrupt/TCREUR_Public/221011.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
Tuesday, October 11, 2022, Vol. 23, No. 197
Headlines
C R O A T I A
VIRO: Widens Net Loss to HRK225 Million in First Nine Months
F R A N C E
FINANCIERE TOP: Fitch Hikes LongTerm IDR to 'B+', Outlook Stable
G E R M A N Y
GHD VERWALTUNG: S&P Lowers LT ICR to 'CCC+', Outlook Stable
I R E L A N D
CONTEGO X: Fitch Assigns 'B-(EXP)sf' Rating on Class F Notes
DRYDEN 73: Fitch Affirms 'B-sf' Rating on Class F Notes
I T A L Y
MONTE DEI PASCHI: Set to Proceed with EUR2.5-Bil. Share Sale
N E T H E R L A N D S
NOBIAN HOLDING 2: Fitch Cuts LongTerm IDR to 'B', Outlook Stable
UNIT4 GROUP: Fitch Affirms LongTerm IDR at 'B', Outlook Stable
P O R T U G A L
CONSUMER TOTTA 1: Fitch Assigns 'B+sf' Rating on Class D Notes
T U R K E Y
TURK HAVA: S&P Affirms 'B' Issuer Credit Rating, Outlook Stable
U N I T E D K I N G D O M
DETRAFFORD CITY GARDENS: Economic Challenges Prompt Administration
ENTAIN PLC: Fitch Alters Outlook on 'BB' LongTerm IDR to Stable
MAISON BIDCO: Fitch Affirms LongTerm IDR at 'BB-', Outlook Stable
MAKER&SON: Blames Creditor for Administration
PETROFAC LIMITED: Fitch Affirms 'B+' LongTerm IDR, Outlook Negative
QUALIA CARE: Goes Into Administration
STUDIO RETAIL: FRC Commences Investigation of Mazars Audit
TRANSFORM HOSPITAL: 300 Jobs Saved Following Pre-Pack Deal
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C R O A T I A
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VIRO: Widens Net Loss to HRK225 Million in First Nine Months
------------------------------------------------------------
Annie Tsoneva at SeeNews reports that Croatian holding company Viro
said it widened its net loss to HRK225 million (US$29 million/EUR30
million) in the first nine months of this year from HRK2.9 million
in the same period of last year due to million kuna write-offs of
its subsidiaries.
The net loss is a result of the completion in the second quarter of
this year of pre-bankruptcy procedures at Sladorana and Slavonija
Zupanja, in which Viro was a main creditor, which resulted into
write-off of 259 million kuna for Viro, Viro said in a filing to
the Zagreb bourse on Oct. 7, SeeNews relates.
Viro's operating revenue amounted to some HRK5 million in the
period from January to September, compared to HRK3.3 million in the
same operiod of last year, SeeNews discloses.
The Zagreb commercial court opened pre-bankruptcy proceedings
against Viro in December 2020 due to a persistent lack of
liquidity, SeeNews recounts.
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F R A N C E
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FINANCIERE TOP: Fitch Hikes LongTerm IDR to 'B+', Outlook Stable
----------------------------------------------------------------
Fitch Ratings has upgraded Financiere Top Mendel SAS's Long-Term
Issuer Default Rating (IDR) to 'B+' from 'B'. The Outlook is
Stable. Fitch has also upgraded to 'BB-'/'RR3' from 'B+'/'RR3' the
secured debt issued by direct subsidiary Financiere Mendel SAS,
which directly owns Ceva Sante Animale S.A. (Ceva), the
France-based manufacturer of animal health products.
The upgrade reflects Ceva's strong deleveraging of its balance
sheet since 2019, with steady volume growth across product
segments, alongside a well-managed cost base. This has led to
consistent growth in earnings above Fitch's expectations and solid
free cash flow generation, including through the pandemic
disruption period.
The 'B+' IDR balances Ceva's robust business profile, with a
diversified portfolio of pharmaceutical and biological animal
therapeutic solutions, supported by product innovations and global
market presence, against its LBO-like financial policy. Fitch
expects financial leverage to remain between 4.5x-5.5x until 2025.
The Stable Outlook is supported by its expectations of steadily
growing sales and limited impact from inflationary pressures,
leading to stable EBITDA margins of around 27% and neutral to
positive free cash flow (FCF) generation after investments, leading
to gradual deleveraging and aligning Ceva's financial risk with the
'B+' IDR.
KEY RATING DRIVERS
Robust Business Model: Fitch views Ceva's business model as robust,
given its well-diversified product portfolio across species,
balanced geographic footprint with good representation in developed
and emerging markets and entrenched market positions in
well-defined niche product areas. This is reflected by Ceva's
ability to deliver positive organic sales and solid operating
margins through the cycle. However, in a global context, Ceva ranks
among niche scale pharmaceutical companies benefiting from robust
EBITDA and strong funds from operations (FFO) margins projected at
around 17% through 2025.
Strong Deleveraging Capacity: The group has proven its ability to
de-lever the balance sheet organically via consistent growth in
earnings, from 7.8x (total debt/EBITDA) following the latest
refinancing in 2019 to around 5.5x by end-2022 (Fitch's
expectation). Based on the group's well diversified source of
earnings, alongside the well-managed cost base, Fitch projects the
group will continue to de-lever towards 4.5x in 2025, supporting
the 'B+' rating.
Excess Cash Flow to be Reinvested in Business: Fitch expects Ceva
to maintain high levels of investment activity through the rating
case (2022-2025), with annual capex between EUR200 million-EUR230
million, in order to capitalise on growth opportunities in the
animal healthcare market and sustain high levels of top-line
growth. Consequently, Fitch expects FCF to remain in the low single
digits (as a percentage of sales), as Fitch expects excess cash
flows to be reinvested in the business rather than accumulate on
the balance sheet. Excluding growth investments, Fitch believes
that underlying FCF generation remains strong and consistent with
the rating.
Avian Flu and ASF Risks Limited: In order to control the spread of
avian flu in the UK and African Swine Fever (ASF) in Germany and
parts of Europe, quarantines and culls of livestock as well as
import bans have been implemented, which have affected Ceva's
poultry and swine businesses in Europe. Although at an individual
product and country level the impact can be significant, at the
overall group level the impact is generally limited. This
demonstrates the value of the group's strong diversification,
across geography and animal end-market.
Supportive Market Fundamentals: Ceva benefits from supportive
market trends driving long-term demand and market propensity for
accelerated consolidation. The animal health market offers many
growth avenues, backed by the rising consumption of animal-based
proteins linked to an expanding global population, increasing
incomes in emerging markets, greater awareness of animal health and
wellbeing in developed countries shifting the focus from cure to
prevention, and advanced farming methods requiring innovative
animal therapies.
M&A and Re-leveraging Risk: The animal health market offers
considerable scope for consolidation, with accelerated formation of
global sector champions and disposal of animal health assets by
large pharmaceutical companies following strategic reviews of their
product portfolios. Pre-2019, Ceva participated in the market
consolidation, a strategy which may continue in the long term.
The IDR supports a limited amount of bolt-on acquisition activity
(up to EUR20 million per year), which Fitch expects to be funded by
Ceva's internal cash flow plus available on-balance-sheet cash.
Fitch understands from the company that larger M&A targets would
also be supported by shareholders' equity contributions. However,
larger scale debt-funded M&A or a re-leveraging of the balance
sheet in 2024-2025 before debt maturities come due in 2026
represents event risk and could put Ceva's ratings under pressure.
DERIVATION SUMMARY
Fitch rates Ceva according to its global Ratings Navigator for
Pharmaceutical Companies. Under this framework, Ceva's operations
benefit from a diversified product range, strong product innovation
and broad geographic presence across developed and emerging
markets. However, in the global context Ceva's operations are
constrained by its niche business scale, which combined with
product diversity and innovation would position the company's
unlevered profile on the lower end of the BB' rating category. The
rating is affected by Ceva's high leverage, albeit with a healthy
deleveraging trajectory from a post-refinancing total debt/EBITDA
level of around 9.0x in 2019 to below 5.5x projected in 2022, which
has supported the upgrade of the IDR.
Ceva's two-notch lower IDR than its direct peer Elanco Animal
Health Incorporated (BB/Negative) reflects the former's much
smaller scale. The leverage profiles of both companies are
projected to remain equal under 5.5x in 2022, while Elanco's rating
is heavily under pressure driven by its ability to return to below
4.5x on debt/EBITDA basis after transformational M&A completed in
2020.
Other 'BB' rated peers such as Grunenthal Pharma GmbH & Co.
Kommanditgesellschaft (BB/Stable) reflect primarily their more
conservative financial policies, combined with versatile product
portfolios and strong FCF generation.
In the 'B' rating category, which is typically populated by small,
generic businesses with concentrated product portfolios and levered
balance sheets, Ceva 's business model shows similarities with
Nidda BondCo GmbH (Stada; B/Negative) and Roar Bidco AB (Recipharm,
B/Stable), although Ceva's comparative lack of scale against Stada
is balanced by greater geographic reach and materially lower
leverage.
Other asset-intensive pharma peers such as European Medco
Development 3 Sarl (B/Stable) and ADVANZ PHARMA HoldCo Limited.
(B/Stable) have weaker business models given their exposure to
higher product concentration and execution risks, in combination
with higher leverage metrics. The asset-light pharma companies
Cheplapharm Arzneimittel GmbH (B+/Stable) and Pharmanovia Bidco
Limited, (B+/Stable) show more conservative leverage metrics, but
stronger operating profitability and FCF generation, which
neutralise the companies' limited scale and greater portfolio
concentration risks.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- organic sales growth of around 7% in 2022, followed by 5-6%
annual growth in 2023-2025
- EBITDA margins stable at around 27% supported by higher sales
volumes and some price increases
- trade working capital outflows averaging EUR50 million per year
to support sales growth
- high capex intensity at around 15% of sales in 2022,
normalising at 12-13% in 2023-2025
- no bolt-on acquisitions in 2022, EUR20 million per year in
2023-2025 funded by internal cash generation (Fitch's assumption)
- No cash return to shareholders through to 2025
RECOVERY ASSUMPTIONS
- The recovery analysis assumes that Ceva would be restructured
as a going concern rather than liquidated in a hypothetical event
of default given the company's brand, quality of product
portfolio and established global market position;
- Ceva would have post-reorganisation, going-concern EBITDA of
around EUR250 million, which Fitch estimates would be required
for the business to remain a going concern with potential
distress most likely resulting from product contamination or
similar compliance issues, or due to infectious disease outbreaks
affecting various species in several regions akin to ASF;
- A distressed enterprise value/EBITDA multiple of 6.5x has been
applied to calculate a going-concern enterprise value. This
multiple reflects the group's strong organic growth potential,
high underlying profitability and protected niche market
positions;
- After deducting 10% for administrative claims, its principal
waterfall analysis generated a ranked recovery in the 'RR3' band
for the all-senior secured capital structure, comprising the term
loan B of EUR2 billion, the fully drawn capex/acquisition
facility of EUR50 million and all of the EUR100 million revolving
credit facility (RCF), which Fitch assumes will be fully drawn
prior to distress in accordance with its methodology with all
facilities ranking pari passu. Fitch excludes from the senior
secured creditor mass bilateral facilities of around EUR195
million as these are unsecured financial obligations of the
group;
- Its assumptions result in a 'BB-'/RR3 instrument rating for the
senior secured debt with a waterfall generated recovery
computation output percentage of 68% (previously 61%) based on
current metrics and assumptions
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Further increase in scale with turnover growing at high single
digit rates alongside EBITDA margins maintained above 26%;
- Reduction in total debt/EBITDA below 4.0x or FFO leverage below
4.5x on a sustained basis;
- Commitment to more conservative financial policy;
- FCF margins sustained in mid- to high- single digits.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Evidence of weakening operating performance, operational
breakdowns (product issues/non-compliance) or M&A missteps
leading to EBITDA margins declining towards 24%;
- Total debt/EBITDA at or above 5.5x or FFO leverage at or above
6.0x on a sustained basis;
- Opportunistic shareholder distributions constraining Ceva's
ability to invest in business and grow organically at mid-single
digit rates;
- Deterioration in underlying FCF generation.
LIQUIDITY AND DEBT STRUCTURE
Comfortable Liquidity: Fitch said, "We regard Ceva's liquidity
position over the rating horizon as comfortable. As of end-June
2022, cash on balance sheet was EUR325 million (excluding
Fitch-defined restricted cash of EUR25 million deemed necessary for
daily operations). We project freely available cash balances to
stay around EUR300-EUR350 million over the rating horizon,
supported by inherently cash generative operations, with the RCF
remaining undrawn. We forecast most cash flow to be reinvested in
the business with Fitch projected annual capex spend averaging
EUR210 million over 2022-2025, rather than cash accumulating on
balance sheet."
The company has contractual debt maturities due 2026 for term loan
B/capex facilities and 2025 for the RCF.
ISSUER PROFILE
Ceva is an animal health company that develops, manufactures and
distributes a large portfolio of pharmaceutical products and
vaccines for poultry, swine, ruminants and companion animals.
ESG CONSIDERATIONS
Financiere Top Mendel SAS has an ESG Relevance Score of '4' for
Customer Welfare - Fair Messaging, Privacy & Data Security due to
due to regulatory interventions and end-consumer preferences away
from the use of antibiotics in feed for animals, which has a
negative impact on the credit profile, and is relevant to the
rating[s] in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Financiere Mendel
S.A.S.
senior secured LT BB- Upgrade RR3 B+
Financiere Top
Mendel SAS LT IDR B+ Upgrade B
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G E R M A N Y
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GHD VERWALTUNG: S&P Lowers LT ICR to 'CCC+', Outlook Stable
-----------------------------------------------------------
S&P Global Ratings lowered its long-term issuer credit rating on
GHD Verwaltung GesundHeits GmbH Deutschland (GHD) to 'CCC+' from
'B-'.
S&P said, "The stable outlook indicates our expectation of
sufficient liquidity over the next 12 months, supported by the
absence of refinancing risk, and anticipation of gradual margin
improvement.
"The rating action reflects our view that GHD's operations are
still suffering from pandemic-induced disruptions and a structural
shortage of medical personnel. GHD's operations in homecare are
still pressured by disruptions of the health care market in the
aftermath of COVID-19. Given a high rate of infection of medical
staff caused by the omicron variant, we continue observing a delay
in recovery of plannable surgeries. In addition, we observe that
access to nursing homes and hospitals is still somewhat
constrained, affecting the company's patient base, after it was hit
by high death rates linked to the pandemic. Furthermore, we see
GHD's performance as undermined by the structural shortage of
medical personnel and stiff competition from regional players,
which ultimately affect the company's solid position as the leading
player in homecare in Germany. As a result, we expect sales in 2022
to remain flat, with a positive contribution from Wholesale and For
Life (both expected to expand by high-single-digits) only partially
offsetting the negative impact from other business lines.
"Given the challenging operating environment, the company's capital
structure could become unsustainable. The decline in revenue
expected from homecare services, coupled with some inflationary
pressure, will weigh on the company's operating performance in
2022. We expect S&P Global Ratings-adjusted margins to deteriorate
to 4.5%-5.5%, translating into a debt-to-EBITDA ratio (on an S&P
Global Ratings-adjusted basis) to remain elevated at above 20x
(above 10x excluding the shareholder loan). We also estimate that
the company's funds from operations (FFO) to cash interest coverage
will remain tight, below 2x. Key credit metrics for 2022 are
expected to be significantly weaker than our previous base case
scenario.
"For 2023, we assume the company will stabilize its operations in
homecare and revise prices for direct-selling products. We expect
the group to post low-single-digit revenue growth and margins to
improve to about 6.0%-6.5%, on an S&P Global Ratings-adjusted
basis, subject to the company's ability to right-size its
operation, attract and retain medical staff, and improve access to
clinics to increase its patient base. We believe the company's
ability to generate EBITDA also depends on favorable conditions of
the healthcare market and progressive recovery of elective
surgeries to pre-pandemic levels.
"We now forecast the group's credit metrics will stabilize in 2023
but remain weak. We expect adjusted leverage (excluding the
shareholder loan) to decline to about 10x and EBITDA interest
coverage to stabilize at about 2x. Overall, we believe that the
level of debt in the capital structure is currently unsustainable
because it was designed for a larger-scale business, a goal that
the company has not been able to achieve due to external
operational challenges out of the company's control.
"GHD can rely on its cash balance and EUR80 million revolver to
cover its liquidity needs. We anticipate GHD will continue to
preserve cash by reducing its capital expenditures and focusing on
working capital management. We expect the company will rely on its
cash balance of about EUR38 million as of June 30, 2022, and
availability of EUR76.8 million under its revolving credit facility
(RCF) to fund fixed charges for the next 12 months. Although we
think the company has flexibility at the moment on its liquidity,
we believe there is risk of a shortfall should GHD's operations be
further disrupted by delays in elective surgeries or unforeseen
circumstances creating sizable demand for additional liquidity.
"The stable outlook reflects our expectation that GHD will post
some EBITDA growth in 2023, and we anticipate the company's
adjusted debt-to-EBITDA ratio will remain at about 10x (excluding
the shareholder loan). The stable outlook reflects the lack of
refinancing risks, given the group's first maturity will be in
2026. Additionally, we do not foresee short-term liquidity issues
as the company can use at least 40% of its fully undrawn EUR80
million RCF before triggering a covenant test.
"We could lower our ratings on GHD if we believe there is risk the
company liquidity position could deteriorate and become
insufficient to cover its cash needs over the next 12 months,
translating into a breach of financial covenants or any other issue
that could be viewed as a negative credit event.
"We could raise the rating if the company can deleverage decisively
from the current very high level of above 20x adjusted leverage
(above 10x excluding the shareholder loan). This could occur if the
company's core market recovers steeply and disruptions stemming
from the pandemic ease more quickly than expected. Similarly, if
the company realizes significant cost savings, allowing it to be
better address some of its operational challenges and leading to
significant margin expansion, we could see lower pressure
mechanically taken off the current capital structure. A positive
rating action would also be contingent on GHD's liquidity profile,
its ability to self-fund operations and to freely access its EUR80
million RCF."
ESG credit indicators: E-2, S-2, G-3
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I R E L A N D
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CONTEGO X: Fitch Assigns 'B-(EXP)sf' Rating on Class F Notes
------------------------------------------------------------
Fitch Ratings has assigned Contego CLO X DAC expected ratings, as
detailed below.
Debt Rating
---- ------
Contego CLO X DAC
A LT AAA(EXP)sf Expected Rating
B-1 LT AA(EXP)sf Expected Rating
B-2 LT AA(EXP)sf Expected Rating
C LT A(EXP)sf Expected Rating
D LT BBB-(EXP)sf Expected Rating
E LT BB-(EXP)sf Expected Rating
F LT B-(EXP)sf Expected Rating
Subordinated Notes LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
Contego CLO X DAC is a securitisation of mainly senior secured
obligations (at least 90%) with a component of senior unsecured,
mezzanine, second-lien loans and high-yield bonds. Note proceeds
will be used to fund a portfolio with a target par of EUR300
million. The portfolio will be actively managed by Five Arrows
Managers LLP. The collateralised loan obligation (CLO) will have a
4.5-year reinvestment period and an 8.5-year weighted average life
(WAL).
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors to be in the 'B' category. The
Fitch weighted average rating factor (WARF) of the identified
portfolio is 24.83.
High Recovery Expectations (Positive): At least 90% of the
portfolio will comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate (WARR) of the identified portfolio is
60.82%.
Diversified Portfolio (Positive): The transaction has one matrix
effective at closing correspond to the 10-largest obligors at 21%
of the portfolio balance and fixed-rate assets limit at 10% of the
portfolio. There is one forward matrix corresponding to the same
top 10 obligors and fixed-rate assets limits, which will be
effective one year after closing, provided that the adjusted
collateral principal balance (defaults at Fitch collateral value)
is at least at the target par.
The transaction also includes various concentration limits,
including the maximum exposure to the three-largest Fitch-defined
industries in the portfolio at 40%. These covenants ensure that the
asset portfolio will not be exposed to excessive concentration.
Portfolio Management (Neutral): The transaction has a 4.5-year
reinvestment period and includes reinvestment criteria similar to
those of other European transactions. Fitch's analysis is based on
a stressed-case portfolio with the aim of testing the robustness of
the transaction structure against its covenants and portfolio
guidelines.
Cash Flow Modelling (Positive): The WAL used for the transaction
stress portfolio and matrices analysis is 12 months less than the
WAL covenant, to account for structural and reinvestment conditions
after the reinvestment period, including the over-collateralisation
tests and Fitch 'CCC' limitation passing after reinvestment, among
others. This ultimately reduces the maximum possible risk horizon
of the portfolio when combined with loan pre-payment expectations.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings of
the identified portfolio would lead to a downgrade of two notches
for the class E notes, to 'CCCsf' or below for the class F notes
and no impact for the other notes.
Based on the identified portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration. Due to the
better metrics and shorter life of the identified portfolio, the
class B, D and E notes display a rating cushion of two notches.
There is a one-notch rating cushion for the class C and no rating
cushion for the class A and F notes. Should the cushion between the
identified portfolio and the stress portfolio be eroded due to
manager trading or negative portfolio credit migration, a 25%
increase of the mean RDR across all ratings and a 25% decrease of
the RRR across all ratings of the stressed portfolio would lead to
downgrades of up to four notches for the notes.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings of the Fitch's stress
portfolio would lead to upgrades of up to three notches, except for
the 'AAAsf' rated notes, which are at the highest level on Fitch's
scale and cannot be upgraded.
During the reinvestment period, based on Fitch's stress portfolio
upgrades may occur on better-than-expected portfolio credit quality
and a shorter remaining WAL test, meaning the notes are able to
withstand larger than expected losses for the transaction's
remaining life. After the end of the reinvestment period, upgrades
may occur in case of stable portfolio credit quality and
deleveraging, leading to higher credit enhancement and excess
spread available to cover losses on the remaining portfolio.
DATA ADEQUACY
Contego CLO X DAC
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
DRYDEN 73: Fitch Affirms 'B-sf' Rating on Class F Notes
-------------------------------------------------------
Fitch Ratings has affirmed Dryden 73 Euro CLO 2018 DAC's notes. The
Outlooks are Stable.
Debt Rating Prior
---- ------ -----
Dryden 73 Euro
CLO 2018 DAC
A-1 XS2063331974 LT AAAsf Affirmed AAAsf
A-2 XS2063332600 LT AAAsf Affirmed AAAsf
B-1 XS2063333244 LT AAsf Affirmed AAsf
B-2 XS2063333913 LT AAsf Affirmed AAsf
C-1 XS2063334481 LT Asf Affirmed Asf
C-2 XS2063335298 LT Asf Affirmed Asf
D XS2063335702 LT BBBsf Affirmed BBBsf
E XS2063336429 LT BBsf Affirmed BBsf
F XS2063336346 LT B-sf Affirmed B-sf
TRANSACTION SUMMARY
Dryden 73 EURO CLO 2018 DAC is cash flow collateralised loan
obligations (CLO) mostly comprising senior secured obligations. The
transaction is actively managed by PGIM Limited and will exit its
reinvestment period in July 2024.
KEY RATING DRIVERS
Fitch Test Matrix Update: The manager has recently updated the
Fitch test matrix and the definition of 'Fitch Rating Factor' and
'Fitch Recovery Rate' in line with Fitch's updated CLOs and
Corporate CDOs Rating Criteria. The updated criteria, together with
the transaction's stable performance, has had a positive impact on
the ratings. As a result of the matrix amendment, the
collateral-quality test for the weighted average recovery rate
(WARR) has been lowered to be in line with the break-even WARR, at
which the current ratings would still pass.
The Stable Outlooks on the class A to F notes reflects Fitch's
expectation of sufficient credit protection to withstand potential
deterioration in the credit quality of the portfolio in stress
scenarios commensurate with their ratings.
Stable Asset Performance: The transaction is passing all collateral
quality, portfolio profile and coverage tests. Exposure to assets
with a Fitch-derived rating of 'CCC+' and below is reported by the
trustee at 2.56% as of the latest investor report compared with the
7.50% limit.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the obligors to be at the 'B'/'B-' rating level. The
Fitch-calculated weighted average rating factor is at 25.02 under
the updated criteria.
High Recovery Expectations: Senior secured obligations comprise
90.39% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets. The WARR, as calculated by Fitch, is 59.55%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The largest issuer and largest
10 issuers in Fitch's current portfolio analysis represent 2.80%
and 20.49% of the portfolio, respectively.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings of
the current portfolio would have no impact on the class A, B and C
notes, and would lead to downgrades of one to two notches for the
class D to F notes.
Based on the current portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration. Due to the
better metrics and shorter life of the current portfolio, the class
C and E notes display a rating cushion of one notch while the class
B, D and F notes display a rating cushion of two notches. Should
the cushion between the current portfolio and the stress portfolio
be eroded either due to manager trading or negative portfolio
credit migration, a 25% increase of the mean RDR across all ratings
and a 25% decrease of the RRR across all ratings of the stressed
portfolio would lead to downgrades of up to four notches for the
rated notes.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings of Fitch's stress portfolio
would lead to upgrades of up to three notches for the notes, except
for the 'AAAsf' rated notes, which are at the highest level on
Fitch's scale and cannot be upgraded.
During the reinvestment period, based on Fitch's stress portfolio,
upgrades may occur on better-than-expected portfolio credit quality
and a shorter remaining weighted average life test, allowing the
notes to withstand larger than expected losses for the remaining
life of the transaction. After the end of the reinvestment period,
upgrades may occur in case of stable portfolio credit quality and
deleveraging, leading to higher credit enhancement and excess
spread available to cover for losses on the remaining portfolio.
DATA ADEQUACY
Dryden 73 Euro CLO 2018 DAC
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
=========
I T A L Y
=========
MONTE DEI PASCHI: Set to Proceed with EUR2.5-Bil. Share Sale
------------------------------------------------------------
Sonia Sirletti, Alessandra Migliaccio, and Luca Casiraghi at
Bloomberg News reports that Banca Monte dei Paschi di Siena SpA is
set to proceed with a planned EUR2.5 billion (US$2.4 billion) share
sale as banks arranging the deal are close to an agreement with the
Italian lender, a person familiar with the matter said.
All the pieces needed for the capital increase are falling into
place, the person said, adding that involved parties will be
working through the night to start the share sale next week,
Bloomberg relates.
According to Bloomberg, Paschi's directors are set to meet today,
Oct. 11, to review the capital increase details, the person said,
asking to not be named because the process is private.
Paschi Chief Executive Officer Luigi Lovaglio and the Italian
Treasury made a last-ditch effort to convince arranger banks to go
ahead with the capital increase and secure funds in advance from a
range of investors, Bloomberg discloses. Italy's finance ministry
will subscribe 64% of the proposed offering, in line with its share
of the bank, Bloomberg states.
The executive has been seeking to convince Paschi's partners,
financial institutions as well as Italian banking foundations, to
invest in the capital hike, Bloomberg notes. Axa SA and Anima
Holding SpA held talks for a possible participation, people with
knowledge of the matter said last month, Bloomberg recounts.
The rights offering is the latest in a long line of attempts to
revamp Paschi, which was first bailed out in 2009, Bloomberg
relays. The troubled lender canceled a previous cash call at the
end of 2016 in a last-minute move, in favor of a rescue package
from the state, Bloomberg states. Talks on another capital hike
started in late 2020.
Bank of America Corp., Mediobanca SpA, Citigroup Inc. and Credit
Suisse Group AG, along with Banco Santander SA, Barclays PlC,
Societe Generale SA and Stifel Europe Bank AG, have signed a
pre-underwriting agreement subject to market conditions and
investor feedback, Bloomberg discloses.
Mr. Lovaglio, Bloomberg says, is seeking to revamp the historic
bank and restore capital buffers after the Italian government
failed to comply with a European Union requirement that it exit its
stake in the lender by the end of last year. The CEO's plan also
involves cutting about 4,000 jobs in an effort to restore
profitability, Bloomberg notes.
About Banca Monte dei Paschi di Siena
Banca Monte dei Paschi di Siena SpA -- http://www.mps.it/-- is an
Italy-based company engaged in the banking sector. It provides
traditional banking services, asset management and private banking,
including life insurance, pension funds and investment trusts. In
addition, it offers investment banking, including project finance,
merchant banking and financial advisory services. The Company
comprises more than 3,000 branches, and a structure of channels of
distribution. Banca Monte dei Paschi di Siena Group has
subsidiaries located throughout Italy, Europe, America, Asia and
North Africa. It has numerous subsidiaries, including Mps Sim SpA,
MPS Capital Services Banca per le Imprese SpA, MPS Banca Personale
SpA, Banca Toscana SpA, Monte Paschi Ireland Ltd. and Banca MP
Belgio SpA.
In February 2017, Italy's lower house of parliament approved a
government bid to increase public debt by up to EUR20 billion
(about US$21.3 billion) to fund a rescue package for Monte dei
Paschi di Siena (MPS) and other ailing banks. The move comes after
the European Union approved in December 2016 the Italian
government's move to rescue MPS, the country's third-largest lender
and the world's oldest bank.
=====================
N E T H E R L A N D S
=====================
NOBIAN HOLDING 2: Fitch Cuts LongTerm IDR to 'B', Outlook Stable
----------------------------------------------------------------
Fitch Ratings has downgraded Nobian Holding 2 B.V .'s (Nobian)
Long-Term Issuer Default Rating (IDR) to 'B' from 'B+'. The Outlook
is Stable. Fitch has also downgraded Nobian Finance B.V.'s senior
secured rating to 'B+' from 'BB-'. The Recovery Rating is 'RR3'.
The downgrade reflects Fitch's expectation that sustained high
energy costs related to the gas crisis in Europe and a weak demand
outlook in end-markets due to a worsening economic outlook will hit
Nobian's EBITDA from 4Q22. This will lead to funds from operations
(FFO) gross leverage remaining above the previous negative
sensitivity of 6x in 2022 and 2023 at least. It also incorporates
risks of production shutdowns or curtailments in case of potential
energy rationing at its operations or those of its customers, given
the group's energy-intensive operations and geographic
concentration in Europe.
The IDR balances Nobian's high leverage as a result of its spin-off
from Nouryon Holding B.V. (B+/Stable) with its regional leadership
in high-purity salt, caustic soda, chlorine and chloromethanes in
Europe, cost competitiveness, long-term customer relationships and
robust pricing power.
KEY RATING DRIVERS
Rising Energy Costs, Declining Demand: Fitch said, "We have revised
down our EBITDA forecasts for 2022-2025 as we believe that Nobian's
energy-intensive operations fully based in Europe will be affected
by prolonged high energy prices and reduced economic prospects.
Fitch has recently cut its growth forecast for eurozone and expects
GDP to decline across 3Q22-1Q23. In 1H22, Nobian was successful in
passing on increased energy costs to customers through contractual
clauses in salt and chlorine contracts alongside surcharges and
hedging strategies. However, we believe that demand will weaken,
which will pressure margins and reduce the expected benefit of its
capacity expansions."
Deleveraging Delayed: Fitch now anticipates funds from operations
(FFO) gross leverage to rise to 7.5x in 2022 and 8.7x in 2023,
which are high and above the previous negative sensitivity for 'B+'
rating. This contrasts with its previous expectations of FFO gross
leverage decreasing below 6x from 2023. However, Fitch expects
leverage to decline to 5.5x in 2025 as the economic environment in
Europe improves, gas and electricity prices moderate and growth
capex supports EBITDA growth.
Interest-Rate Rise Mitigated: About two third of Nobian's EUR1.5
billion debt either has fixed interest rates or has been hedged
until end-2024, which mitigates the impact of rising interest
rates. Fitch forecasts FFO interest coverage at about 3x-4x in
2022-2025.
European Chlor-Alkali Leader: Nobian's 43% share of the European
merchant salt market for chemical transformation provides pricing
power, especially since a switch to membrane technology in Europe
in 2017, which requires higher-purity salt. Nobian is also the
largest and second-largest merchant producer, respectively, for
chlorine and caustic soda in Europe and the largest chloromethane
producer. Capacity increases in the coming three years will
reinforce its regional leadership in markets that are already
highly concentrated.
Customer Inter-Dependency: Nobian supplies chlorine or salt to few
large captive customers under long-term contracts, including some
with take-or-pay clauses. Chlorine is supplied by pipeline within
the same chemical parks, and Nobian is by far the main supplier of
high-purity salt in Europe. Consequently, Fitch sees minimal
supplier substitution risk due to the lack of cost-effective and
reliable alternatives for Nobian's customers, as evident in its
stable customer base. However, this exposes Nobian to production
disruptions within its clusters, especially in Rotterdam, and its
growth depends on its customers' growth strategy.
Strong Backward Integration: Fitch views Nobian's 100% salt and 50%
energy/steam self-sufficiency, which together account for 70% of
chlor-alkali costs, as a competitive advantage given the higher
margins captured by its business model as well as the security of
supply that is critical for key customers. Unlike its competitors,
Nobian has no vertical integration into polyvinyl chloride (PVC),
but uses about 20% of its chlorine for its captive chloromethanes
products, which ultimately results in lower exposure to the
cyclical construction sector than typical downstream-integrated
chlor-alkali manufacturers. However, chloromethane production uses
natural gas as raw material, which exposes the segment to the gas
crisis in Europe.
Capex Will Support Higher Margins: Fitch believes that Nobian's
projects, which have short paybacks, as well as cost
rationalisation will drive EBITDA margin towards 27% in 2025 from
19% in 2021, although Fitch revised down EBITDA level over
2022-2025 due to project delays and the deterioration of the
economic environment. Nobian is expanding capacity in salt,
chlor-alkali and chloromethanes to fulfil demand from its key
customers. Additional projects, such as the high-margin secondary
use of its salt caverns for energy storage, will provide
incremental EBITDA. As about 30% of capex is growth-related, Nobian
can scale back or delay spending should cash flow pressure
materialise.
DERIVATION SUMMARY
Nobian competes in the chlor-alkali value chain with Ineos Quattro
Holdings Limited (BB/Stable) and Lune Holdings S.a.r.l. (Kem One,
B/Stable). Ineos Quattro is significantly larger, more diversified
in activity and geography, and less leveraged than Nobian. Kem
One's regional focus is similar to Nobian's and its operations are
also vertically integrated. However, Kem One is smaller, has a
weaker cost position given that one of its two chlor-alkali plants
is not yet using the membrane technology and has yet to establish a
record of continuous high utilisation rates. Moreover, Nobian's
leading position in the European high purity salt merchant market
has higher barriers to entry than Kem One's PVC activities.
Nobian's regional focus and vertical integration are comparable
with Synthos Spolka Akcyjna's (BB/Stable) but its FFO gross
leverage on average is expected to be much higher. Root Bidco Sarl
(B/Stable) has similar margin stability but is smaller and has
similar FFO gross leverage.
Compared with Nouryon, from which it was separated, Nobian is
smaller, with exposure to more commoditised chemicals and lacks
Nouryon's global presence. However, Nobian's EBITDA margin is
stronger and expected to increase faster than Nouryon's. Nobian is
more backward-integrated than its peers.
KEY ASSUMPTIONS
- Chlor-alkali volumes stable in 2022, declining in 2023, then
growing from 2024 on capacity expansion
- Growth of salt volumes from 2024 due to capacity expansion
- EBITDA margin decreasing to 15% in 2022, before growing to 27%
by 2025
- Total cumulative capex of about EUR670 million from 2022 until
2025, peaking in 2023
- No dividends
Key Recovery Analysis Assumptions
The recovery analysis assumes that Nobian would be reorganised as a
going-concern (GC) in bankruptcy rather than liquidated.
Its GC EBITDA estimate reflects Fitch's view of a sustainable,
post-reorganisation EBITDA level upon which Fitch base the
enterprise valuation (EV).
The GC EBITDA of EUR230 million reflects a combination of low
caustic soda prices and demand or production-related pressure on
sales volumes, as seen in 2020-2021, but also considers corrective
measures taken to offset adverse conditions.
Fitch uses a multiple of 5x to estimate a GC EV for Nobian because
of its leadership position, solid sector growth trends, as well as
higher barriers to entry and profit margins than peers', but also
the volatile cash flow of its commodity-like products as well as
its concentrated exposure to Europe.
Fitch assumes its revolving credit facility (RCF) to be fully drawn
and to rank pari passu with its term loan B (TLB) and the senior
secured notes.
After deducting 10% for administrative claims, Fitch's analysis
resulted in a waterfall-generated recovery computation (WGRC) for
the senior secured instruments in the 'RR3' band, indicating a 'B+'
instrument rating. The WGRC output percentage on current metrics
and assumptions was 61%.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- FFO gross leverage below 5.5x and total debt/EBITDA
below 4.5x on a sustained basis
- EBITDA margin sustained above 20%, and positive free
cash flow (FCF)
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- FFO gross leverage above 7.5x and total debt/EBITDA
above 6.5x on a sustained basis
- FFO interest cover below 2.5x on a sustained basis
- EBITDA margin below 15% and negative FCF
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: As of end-2Q22, Fitch estimates Nobian's
liquidity at EUR317 million, composed of EUR117 million cash on the
balance sheet and an EUR200 million undrawn RCF maturing in early
2026. No meaningful mandatory debt repayment is expected until 2026
when the term loan and bonds are due.
Fitch believes that Nobian will maintain adequate liquidity over
the next four years despite negative FCF in 2022 and 2023 in our
revised forecasts. This takes into account high energy costs,
weakening demand in end-markets, and high expansion capex peaking
in 2023.
ISSUER PROFILE
Nobian is a fully vertically integrated European leader in the
production of salt, chlor-alkali (chlorine and its co-product
caustic soda) and chloromethanes.
SUMMARY OF FINANCIAL ADJUSTMENTS
For 2021:
- Lease liabilities of EUR104 million excluded from financial
debt; depreciation of right-of-use assets (EUR31 million) and
lease-related interest expense (EUR4 million) deducted from EBITDA
and cash flow from operations
- Added back EUR26 million to EBITDA and to FFO to remove
non-recurring cash costs
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Debt Rating Recovery Prior
---- ------ -------- -----
Nobian Holding 2 B.V. LT IDR B Downgrade B+
Nobian Finance B.V.
senior secured LT B+ Downgrade RR3 BB-
UNIT4 GROUP: Fitch Affirms LongTerm IDR at 'B', Outlook Stable
--------------------------------------------------------------
Fitch Ratings has affirmed Unit4 Group Holding B.V.'s (formerly
Bock Capital Bidco B.V.) Long-Term Issuer Default Rating (IDR) at
'B' with a Stable Outlook. Fitch has also affirmed the 'B+'/'RR3'
instrument rating on the company's secured loan facilities.
Fitch expects Unit4's Fitch-defined funds from operations (FFO)
leverage to be high, ending 2022 at 8.3x, with deleveraging to
around 7.5x at end-2023 on the back of cost-efficiency initiatives,
moderate price increases and positive contribution from bolt-on
M&A. Deleveraging flexibility is supported by strong free cash flow
(FCF) generation with robust (operating cash flow minus
capex)/total debt metrics.
KEY RATING DRIVERS
High Leverage: Fitch projects Unit4's FFO leverage will be a high
8.3x on a pro-forma basis at end-2022, an increase from 7.7x at
end-2021 on the back of lower profitability and sluggish revenue
growth. Cost-cutting initiatives should start producing results
from 2023 while EBITDA will be supported by bolt-on acquisitions,
leading to deleveraging on a gross debt basis. Fitch projects
leverage to stabilise at around 7.5x on a FFO gross basis at
end-2023. Slow progress in leverage improvement is likely to put
the ratings under pressure.
Spending internally generated and on-balance-sheet cash on
EBITDA-accretive acquisitions has a positive impact on gross
leverage metrics. Fitch primarily relies on gross metrics, given
the lack of any covenanted restrictions on shareholder
distributions. The payment-in-kind note meets Fitch's criteria to
be treated outside of the rated perimeter.
Macroeconomic Headwinds: Fitch expects higher macroeconomic
uncertainty to result in a longer decision-making process for
customers looking for IT upgrades. This is likely to lead to slower
revenue growth for Unit4 in 2022-2023, particularly after the post
Covid-19 lockdown pent-up demand has been largely exhausted. Fitch
projects organic revenue growth in the low-to-mid single-digit
territory in 2022-2023, with M&A support likely improving pro-forma
growth to high-single-digits.
Cost Inflation: Fitch expects Unit4 to face significant cost
pressures in 2022-2023 on the back of high wage inflation in the IT
segment. This will erode margins but may also be a factor for
slower revenue growth if accompanied by IT personnel shortages. The
company is likely to address this with cost-efficiency initiatives
with any positive impact likely to start materialising in 2023.
Enduring Customer Relationship: Unit4 benefits from good revenue
visibility and low earnings volatility driven by typically stable
and long-term customer relationships. Enterprise resource planning
(ERP) software is essential for day-to-day operations. Customers
usually face a prohibitively high risk of operating disruption when
switching their ERP provider.
Unit4's annual customer churn is about 6%, which is broadly
comparable with other ERP providers catering for small and
medium-sized companies, such as TeamSystem Holding S.p.A.
Expanding but Fragmented Market: The overall ERP software market is
huge and expanding, which provides potential ample growth
opportunities for all ERP providers including Unit4. However, the
market is fragmented and intensely competitive, with a slew of
players of all sizes and market positioning, from full ERP suite
providers to single functionality specialists. This diversity makes
market share dominance less important, bringing service
capabilities to the fore.
Service Is Key: Unit4's capabilities to offer a good level of
support services is an important success factor for catering to its
targeted audience of people-centric organisations. Along with
offering customisable up-to-date ERP software products, Fitch view
it as key for maintaining niche competitiveness.
New Cloud-based Product: New ERPx product positions Unit4 as a
strong competitor in the segment of cloud-based ERP software and
should allow it to increase recurring cloud-based revenues.
However, a mass deployment of the new product would also likely
require additional marketing cost and continuing investments in
finessing the product features. A rapid replacement of on-premises
products with cloud-based ones in sales is likely to be
margin-dilutive in short to medium term, until cloud operations
achieve a larger scale, leading to higher profitability.
Growing Recurring Revenue: Rapidly growing cloud-revenue increases
the proportion of recurring revenues in the total, which Fitch
views as credit positive in the longer term, with recurring
revenues being intrinsically less volatile. Fitch estimates the
share of recurring cloud and maintenance services revenues at close
to 70% in 1H22.
Good Geographic Diversification: Unit4's good geographic
diversification across the Nordics, Continental Europe and
UK/Ireland, with some inroads into APAC and the US, leads to more
resilient revenue generation compared with single country-focused
providers.
Strong Cash Flow: Unit4's asset-light business model with a
Fitch-defined EBITDA margin in the low to mid-20s and capex of
around 2% of revenue is intrinsically strongly cash
flow-generative, in our view. Fitch expects Unit4's pre-dividend
FCF margin in a high single digit to low-teen percentage range. The
company's typically early billing should lead to consistently
positive working capital inflows. Fitch treats capitalised R&D as
operating cash costs on par with key US and EMEA tech peers, which
reduces reported EBITDA.
DERIVATION SUMMARY
The closest Fitch-rated peer is TeamSystem (B/Stable), a leading
(about 40% market share) Italian accounting and ERP software
company with over 75% of recurring revenue in total, slightly ahead
of Unit4. TeamSystem holds stronger market shares in its home
market, but Unit4 has better geographic diversification. TeamSystem
primarily caters to the SME sector with a churn rate in the 6%-10%
range, comparable to Unit4's.
A stronger segment peer is Dedalus SpA (B/Stable), a leading
pan-European healthcare software company, with a lower churn rate
(below 1%) and a more supportive industry trend with EU-wide rising
healthcare digitalisation.
Unit4's operating profile is broadly comparable to Fitch-covered
technology peers with 'B' category ratings. Unit4 has
stronger-than-average cash flow generation but the company's
leverage is higher than for many of its tech peers, which is a key
factor that places it at the 'B' rating.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Organic revenue growth in the low to mid-single-digit yoy
percentage range in 2022-2024, with 2022 revenue supported by
bolt-on acquisitions on a pro-forma basis
- Modestly improving EBITDA margins after a dip to around 22.5% in
2022
- An increase in cash interest in line with Fitch's global
economic outlook projections for European benchmark interest rates
- Capex at around 2% of revenue
- No shareholder distributions.
KEY RECOVERY RATING ASSUMPTIONS
- The recovery analysis assumes that Unit4 would be reorganised as
a going-concern (GC) in bankruptcy rather than liquidated given the
intellectual know-how within the group and a wide and
low-churn-rate customer base.
- Fitch estimates that the post-restructuring EBITDA would be
about EUR78 million. Fitch would expect a default to come from
higher competitive intensity leading to revenue losses or overspend
on new products. The EUR78 million EBITDA is about 17% lower than
Fitch's forecast of pro-forma FY22 EBITDA.
- An enterprise value (EV) multiple of 6.0x is applied to the GC
EBITDA to calculate a post-reorganisation EV. The multiple is in
line with that of other similar software companies with a
low-churn-rate subscriber base exhibiting strong pre-dividend FCF
generation.
- 10% of administrative claims taken off the EV to account for
bankruptcy and associated costs.
- The total amount of first-lien secured debt for claims includes
EUR675 million senior secured term loan and a multi-currency EUR100
million pari passu ranked revolving credit facility (RCF), which
Fitc assumes to be fully drawn.
- Fitch estimates the expected recoveries for senior secured debt
at 54%. This results in the senior secured debt instrument being
rated 'B+'/'RR3', one notch above the 'B' IDR.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- FFO gross leverage below 6x broadly corresponding to 5x
debt/EBITDA;
- Interest coverages sustained above 2.5x on an FFO basis and 3x
on an EBITDA basis;
- Disciplined M&A with limited additional debt; and
- Maintenance of healthy operating performance, with an increasing
contribution of cloud revenues and robust FFO margins.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- FFO gross leverage persistently above 7.5x, broadly
corresponding to 6.5x debt/EBITDA or low progress deleveraging to
below this level including due to shareholder distributions;
- Interest coverage persistently below 2x on an FFO basis and 2.5x
on an EBITDA basis; and
- Failure to improve profitability and maintain robust revenue
growth from cloud services leading to the FCF margin declining to a
low single-digit range.
LIQUIDITY AND DEBT STRUCTURE
Sufficient Liquidity: Fitch views Unit4's liquidity situation as
satisfactory. The company had EUR86 million of cash on its balance
sheet at end-2021. This is supported by positive strong internal
cash flow generation and EUR100 million RCF, which is likely to be
only partially tapped due to acquisitions. Unit4's debt has a
maturity in 2028.
ISSUER PROFILE
Unit4 is strategically focused on providing ERP solutions for
medium-size people-centric organisations such as non-profit and
project-driven organisations and public finance entities. The
company is migrating its customer base to a cloud-based platform
with a stronger contribution of recurring revenue and higher
pricing but currently lower margins. Margins should improve once
the company achieves larger cloud scale.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Debt Rating Recovery Prior
---- ------ -------- -----
Unit4 Group Holding
B.V. LT IDR B Affirmed B
senior secured LT B+ Affirmed RR3 B+
===============
P O R T U G A L
===============
CONSUMER TOTTA 1: Fitch Assigns 'B+sf' Rating on Class D Notes
--------------------------------------------------------------
Fitch Ratings has assigned Gamma, STC S.A. / Consumer Totta 1 final
ratings.
Debt Rating Prior
---- ------ -----
Gamma, STC S.A. / Consumer Totta 1
A PTGAMFOM0019 LT AAsf New Rating AA(EXP)sf
B PTGAMGOM0018 LT AA-sf New Rating AA-(EXP)sf
C PTGAMHOM0025 LT Asf New Rating A(EXP)sf
D PTGAMIOM0024 LT BB+sf New Rating BB+(EXP)sf
TRANSACTION SUMMARY
The transaction is a 12-month revolving securitisation of a
portfolio of unsecured consumer loans originated in Portugal by
Banco Santander Totta S.A. (BBB+/Stable/F2). Totta is ultimately
owned by Banco Santander, S.A. (A-/Stable/F2). Obligors are private
individuals.
KEY RATING DRIVERS
Asset Assumptions Reflect Totta's Book: Fitch has assumed base case
lifetime default and recovery rates of 4.0% and 40.0%,
respectively. This is based on the historical data provided by the
originator on the consumer loan book, Portugal's economic outlook
and the originator's underwriting and servicing strategy. It also
incorporates Fitch's expectations that performance may deteriorate
amid rising inflation in Portugal, eroding consumers' purchasing
power. The securitised portfolio has no eligibility criteria based
on the purpose of the loans.
Revolving Period Risk Mitigated: The transaction has a maximum
12-month revolving period. The combination of early amortisation
triggers, the short length of the revolving period, the eligibility
criteria and available credit enhancement (CE), mitigate the risk
introduced by the revolving period. Fitch accounted for the
presence of the revolving period when setting its 'AAsf' default
multiple assumption at 4.25x. The agency has also stressed the
potential decrease in the portfolio's average interest rate as a
consequence of its replenishment.
Pro Rata Amortisation: After the revolving period, the class A to E
notes will amortise pro rata unless a sequential amortisation event
occurs, including cumulative defaults on the portfolio in excess of
certain thresholds. Under a base case scenario, Fitch views the
switch to sequential amortisation as unlikely, given the portfolio
performance expectations compared to the triggers. The tail risk
posed by the pro rata paydown is mitigated by the mandatory switch
to sequential when the portfolio balance falls below 10% of its
initial balance.
Servicing Disruption Risk Mitigated: Fitch views payment
interruption risk caused by a servicer disruption mitigated by the
liquidity provided in the form of a cash reserve equal to 1% of the
class A to E notes' outstanding balance, which will cover senior
costs and interest on these notes for more than three months.
Moreover, servicing disruption risk is mitigated by the standard
assets included in the portfolio, which can easily be taken over by
a substitute servicer if needed.
Interest Rate Risk Mitigated: The transaction benefits from an
interest rate swap agreement hedging the interest rate mismatch
arising from 97% of the portfolio balance paying a fixed interest
rate and 100% of the notes paying floating. The interest rate swap
is based on the dynamic notional amount of fixed-rate loans. The
SPV pays a fixed coupon and receives 3M Euribor.
Sovereign Cap: The class A notes' rating is limited to 'AAsf' by
the cap on Portuguese structured finance transactions of six
notches above Portugal's Issuer Default Rating (IDR,
BBB/Positive/F2). The Outlook mirrors that on Portugal's IDR.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
For the class A notes, a downgrade of Portugal's Long-Term IDR that
could decrease the maximum achievable rating for Portuguese
structured finance transactions.
Long-term asset performance deterioration such as increased
defaults and delinquencies or reduced portfolio yield, which could
be driven by changes in portfolio characteristics, macroeconomic
conditions, business practices or the legislative landscape. For
example, a simultaneous increase of the default base case by 25%
and a decrease of the recovery base case by 25% would lead to
downgrades of up to two notches for the class A to D notes.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
For the class B to D notes, CE ratios increase as the transaction
deleverages able to fully compensate the credit losses and cash
flow stresses commensurate with higher rating scenarios.
The notes could only be upgraded up to 'AAsf', six notches above
the current Portuguese IDR. Changes to the sovereign IDR could
increase or decrease the maximum achievable ratings for the notes.
An unexpected decrease of the frequency of defaults or increase of
the recovery rates could produce smaller losses lower than our base
case. For example, a simultaneous decrease of the default base case
by 25% and an increase of the recovery base case by 25% would lead
to an upgrade of one notch for the class B notes, and of up to
three notches for the class C and D notes.
DATA ADEQUACY
Gamma, STC S.A. / Consumer Totta 1
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Fitch reviewed the results of a third party assessment conducted on
the asset portfolio information, and concluded that there were no
findings that affected the rating analysis.
Fitch conducted a review of a small targeted sample of the
originator's origination files and found the information contained
in the reviewed files to be adequately consistent with the
originator's policies and practices and the other information
provided to the agency about the asset portfolio.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
===========
T U R K E Y
===========
TURK HAVA: S&P Affirms 'B' Issuer Credit Rating, Outlook Stable
---------------------------------------------------------------
S&P Global Ratings affirmed its 'B' issuer credit rating (ICR) on
Turk Hava Yollari A.O. (Turkish Airlines). Its rating on Turkish
Airlines is capped by the rating on the sovereign because S&P views
the airline as a government-related entity (GRE), which would not
be sufficiently protected from extraordinary negative government
intervention. S&P also affirmed its 'B(sf)' issue rating on Turkish
Airlines' 2015-1 enhanced equipment trust certificates.
S&P said, "We raised our stand-alone credit profile (SACP) on
Turkish Airlines to 'bb-' from 'b'. This is because our base-case
forecast indicates that the airline's S&P Global Ratings-adjusted
funds from operations (FFO) to debt will improve to above 30% in
2022, thanks to a surge in passenger revenue, continued
extraordinarily strong cargo business, and relatively low operating
costs. Furthermore, we assume that the ratio should remain above
20% in 2023, compared with our 'B' rating threshold of at least
6%."
The stable outlook mirrors that on the sovereign.
On Sept. 30, 2022, S&P Global Ratings lowered its unsolicited
long-term sovereign credit rating on Turkiye to 'B' from 'B+'.
S&P said, "The rating affirmation is based on the 'B' sovereign
rating on Turkiye, which caps our ICR on Turkish Airlines. This is
because we view Turkish Airlines as a GRE, which would not be
sufficiently protected from extraordinary negative government
intervention. Most importantly, the airline has a strong link with
the Turkish government. Turkish Airlines is the country's top
service exporter and generator of foreign currency earnings. It is
49.12% owned by Turkiye Wealth Fund, one Class C share is held by
Turkiye's Ministry of Treasury and Finance Privatization
Administration, and the remaining 50.88% of shares are publicly
traded, with some being held by other GREs.
"We forecast significantly stronger credit measures than previously
expected thanks to record-high revenue and EBITDA and resulting
improved free operating cash flow generation. Turkish Airlines'
revenue increased above pre-pandemic (2019) levels by 28% in the
first half of 2022. Its EBITDA was 156% higher, supported by a
surge in passenger revenue, still-elevated cargo revenue, and
relatively low operating costs. We forecast that the airline will
maintain a similar revenue growth rate over the rest of 2022. We
think that a strong third quarter will be offset by a softer fourth
quarter, because of key factors like the steeply rising cost of
living and dwindling disposable income that might dampen consumer
confidence and the propensity to travel. We forecast that Turkish
Airlines' adjusted EBITDA will be $3.8 billion-$4.0 billion in
2022, about 60% higher than in 2019. As a result, the airline's
adjusted FFO to debt will improve to 30%-33% in 2022, compared with
our December 2021 forecast of 10%-12%. We assume in our base case
that EBITDA will subsequently decline by about 15% in 2023,
constrained by moderating cargo revenue and higher nonfuel costs,
resulting in adjusted FFO to debt of 23%-26%, which is well in line
with the rating. That said, we believe that EBITDA generation and
credit measures are highly susceptible to both the building
inflationary pressure (with the recent surge in food and energy
prices) and potential setbacks from rising interest rates, adding a
significant degree of uncertainty to our forecasts. As a result, we
apply a negative volatility adjustment and arrive at an aggressive
financial risk profile on Turkish Airlines.
"Buoyant air passenger and cargo demand, and a relatively low
cost-base, drive Turkish Airlines' strong operating performance in
2022. We forecast that passenger revenue will nearly double in 2022
versus 2021, meaning it will exceed pre-pandemic levels by 10%-15%.
This reflects passenger traffic increasing to slightly above 2019
levels, supported by the removal of pandemic-related restrictions,
a weaker Turkish lira making Turkiye a more attractive travel
destination, Turkiye being one of the few countries that still
allows direct flights from Russia, and an expansion in the number
of European countries that can travel to Turkiye visa-free. It also
reflects the airline's outstanding operational readiness, compared
with some European peers, to ramp up capacity to meet the surge in
demand. This is partly due to Turkish Airlines' strategy not to cut
on personnel during the pandemic. This means that, unlike some
competitors, it has not been understaffed. Higher passenger revenue
in 2022 also incorporates our assumption of a 12%-13% higher yield
than last year, reflecting the buoyant demand for travel and
willingness to pay higher prices, combined with a shift toward more
international passengers. In addition, we forecast that cargo
revenue will remain elevated in 2022 at about 225% of 2019 levels,
declining by only a modest 5% due to softer air cargo yields and
volumes in the second half of 2022. Air cargo demand remained
strong in the first half of the year partly due to continued supply
chain bottlenecks in maritime transportation and land-based
logistics. We also forecast that Turkish Airlines' personnel costs
in 2022 will be lower than in 2019, despite higher capacity
deployment. This because it pays most of its staff in Turkish lira,
which has sharply depreciated, only partly offset by
inflation-linked wage increases. We also forecast that higher jet
fuel prices in 2022 will be partly mitigated by 30% hedging.
"We anticipate a decline in cargo revenue and higher costs in
2023.We believe that cargo revenue will moderate and forecast a
drop of about 20% in 2023, driven by a shift in global trade
patterns with maritime and land-based supply chain bottlenecks
easing, and macroeconomic pressures weighing on global e-commerce
volumes. We also forecast only modest passenger revenue growth of
up to 2%, resulting in overall revenue decline of about 3%. In
terms of costs, we assume that lower fuel costs (on the back of
easing Brent oil prices according to our current price deck) will
be more than offset by significantly higher personnel, marketing,
and sales costs, which we expect will return to pre-pandemic levels
relative to available seat capacity. We assume this will result in
overall EBITDA decline of about 15% in 2023, with potential
downside risks considering that passenger air travel demand is
subject to mounting uncertainties."
Turkish Airlines' business risk profile is well-placed in the fair
category. SP notes that Turkish Airlines demonstrated a stronger
resilience, in terms of revenue and profitability, during the
pandemic than many of its European peers and did not need any
extraordinary government support. The airline is also seeing a
stronger rebound in traffic than peers after the lifting of
pandemic-related restrictions. The cargo business' strong
performance was essential to the airline's resilience and continued
outperformance. Turkish Airlines' cargo business is now ranked
fourth in the world by sales tonnage, with a market share of close
to 5% in June 2022, up from 10th and a market share of about 3% in
2017, according to World Air Cargo Data. Turkish Airlines' business
risk profile is also supported by its clear leading position at its
primary hub in Istanbul Airport where it has a market share of
about 80%. Istanbul Airport is one of Europe's busiest airports and
benefits from its geographic location that connects a large
proportion of Europe, the Middle East, Central Asia, and Africa.
These strengths are offset by the susceptibility of earnings to
European and global economic cycles, oil price fluctuations, high
capital intensity, and unforeseen geopolitical, health, and
security events.
The stable outlook mirrors that on the sovereign.
S&P said, "It also reflects our forecast that Turkish Airlines will
generate FFO to debt of above 30% in 2022 and above 20% in 2023,
thanks to revenues exceeding pre-pandemic levels and solid
profitability.
"We would lower the rating on Turkish Airlines if we lower the
sovereign rating on Turkiye.
"We could also lower the rating if Turkish Airlines' adjusted FFO
to debt falls below 6% on a sustainable basis. We view this as
unlikely, due to the airline's ample headroom under this trigger.
Nonetheless, it could potentially result from an unexpected
significant decline in passenger revenue if inflationary pressures
dampen demand for travel; a steeper than expected decline in cargo
revenue; or significantly higher than expected fuel and labor costs
with only a limited ability to pass through higher costs to
customers."
S&P would raise the rating on Turkish Airlines if we raise the
sovereign ratings on Turkiye.
An upgrade would also depend on whether Turkish Airlines' SACP is
supportive of a higher rating.
ESG credit indicators: To E-3, S-3, G-2 From E-3, S-4, G-2
S&P said, "Social factors are now only a moderately negative
consideration in our credit rating analysis of Turkish Airlines.
While the pandemic underlined the sensitivity of airlines to health
and safety risk, we note that Turkish Airlines has recovered faster
than its European peers after the lifting of pandemic-related
restrictions. We estimate that its passenger traffic in 2022 will
slightly exceed 2019 levels."
Environmental factors are a moderately negative consideration,
similar to the broader airline industry, reflecting pressures to
reduce GHG emissions. This is why Turkish Airlines has a strong
incentive to continuously renew its fleet with more fuel-efficient
aircrafts, which translates to high capex. Turkish Airlines' fleet
age is eight to nine years, younger than Deutsche Lufthansa's 12
years and IAG's 11 years.
===========================
U N I T E D K I N G D O M
===========================
DETRAFFORD CITY GARDENS: Economic Challenges Prompt Administration
------------------------------------------------------------------
Dan Whelan at North West Place reports that the vehicle behind the
completed 174-apartment City Gardens in Manchester has entered
administration, the third group company to do so in the last six
weeks.
Administrator BDO, appointed by lender the scheme's lender Maslow
Capital, said DeTrafford City Gardens Ltd collapsed due to
"economic challenges", North West Place relates.
According to North West Place, a spokesperson for the joint
administrators said: "Due to the wider economic challenges, City
Gardens faced difficulties in realising the remaining unsold
apartments.
"We will now be taking all necessary steps to maximise returns for
the benefit of all creditors in accordance with our legal duties."
It is understood that 144 of the 174 apartments have been sold,
with 30 remaining, North West Place discloses.
ENTAIN PLC: Fitch Alters Outlook on 'BB' LongTerm IDR to Stable
---------------------------------------------------------------
Fitch Ratings has revised Entain plc's (Entain) Outlook to Stable
from Positive, and affirmed the Long-Term Issuer Default Rating
(IDR) at 'BB'. Fitch has also affirmed its senior secured
instrument rating at 'BB+' with a Recovery Rating of 'RR2'.
The Outlook revision to Stable reflects its expectation that Entain
would fund its growth strategy with debt, resulting in higher than
previously forecast leverage, rather than deleveraging towards its
medium-term target. Its rating case assumes debt-funded acquisition
of SuperSport.
The 'BB' rating encapsulates Entain's strong business profile, its
retail and digital offerings, diversification, sound profit margins
and good cash-generation ability. However, Entain's financial
flexibility is somewhat limited, driven by low fixed charge cover
ratios, expected drawings under its revolving credit facility RCF
to part-fund M&A and some refinancing risks on its GBP400 million
Ladbrokes notes due in 2023, along with its EUR1.125 billion term
loan B (TLB) due in March 2024.
The future rating trajectory will depend on Entain's ability to
maintain financial discipline while balancing its external growth
strategy. A material unmitigated cash impact from an HMRC
investigation, further regulatory settlements or fines or a
larger-than-expected regulatory impact would be negative for the
rating.
KEY RATING DRIVERS
Acquisitions Drive up Net Leverage: Fitch expects Entain's net
adjusted debt / EBITDAR at around 4.0x during the next two years,
which is in line with its current rating. This follows materially
higher acquisition spend - around GBP1 billion in 2022 - than
expected under the previous rating case. However, the latest
acquisitions are EBITDA-accretive and will help improve the group's
geographic diversity.
Financial Discipline Key to Rating: Fitch expects Entain to operate
near their 3.0x leverage soft cap to support its growth ambitions.
Its rating case incorporates continued bolt-on M&As, earn-outs and
continued investments in the US amounting to around GBP640 million
over 2023-2025, in addition to around GBP700 million capex, and
some dividends. Larger acquisitions, higher capex or friendlier
shareholder policies could be negative for the rating.
Manageable Execution Risks: Fitch sees limited execution risks
around integration of bolt-on M&As, given Entain's successful
record with acquisitions. Execution risk around the HMRC
investigation remains; therefore, an unmitigated large regulatory
impact would be negative for the rating.
Post-pandemic Normalisation: Fitch forecasts incorporate around a
5% decline in online revenue in 2022, which is more than
compensated by post-pandemic recovery in retail revenue. Fitch
assumes a slower decline in 2H22, following a 7% reduction in 1H22,
due to the Netherlands closure impact tailing off from 4Q.
Subsequently we expect low- to mid-single-digit growth for its
existing online business, with regulation supressing its structural
growth. Fitch expects revenue from the retail segment to reach
around 90% of pre-pandemic levels by end-2022 and then remain
broadly flat. This, combined with recent acquisitions, underpins
mid-single-digit growth in revenue to 2025.
Sound Profitability: Fitch said, "We forecast EBITDAR to exceed
GBP1 billion in 2024, up from around GBP0.9 billion in 2022. We
continue to expect good profitability, mapping to 'bbb' metrics,
with an average EBITDAR margin of 22% to 2025. Our forecasts
incorporate 200bp lower gross margin for the online segment, which
is partly offset by recovery in retail operations in 2022. We also
expect some operating cost pressure in retail, reflecting higher
labour and energy costs, while margin improvement would be aided by
Entain's cost-saving programme, under which it expects GBP20
million incremental EBITDA savings in 2023. Average free cash flow
(FCF) margin of around 4.5% over 2023-2025 is sound, albeit
slightly lower than under the previous rating case due to larger
debt and higher interest rates."
UK Gambling Act Review Uncertainty: Its rating case incorporates a
17% reduction in online revenue from the UK (around GBP1 billion
revenue in 2021). This will shave around GBP45 million off EBITDA
by 2023 against 2021, mainly from implementation of responsible
gaming measures ahead of the delayed UK Gambling Act review. This
compares with an GBP118 million negative impact from the fixed-odds
betting terminal maximum GBP2 stake introduction in 2019. The
outcome from UK Gambling Act review is yet to be seen; a materially
higher-than-expected EBITDA impact could be negative for the IDR
but is deemed an event risk.
Strong Business Profile: Entain is one of the world's leading
gaming operators, albeit smaller than Flutter following its merger
with The Stars Group in 2020. Entain benefits from its proprietary
technology, multiple leading brands that provide betting and gaming
services across over 30 regulated markets in Europe, Latin America
and Australia, and its commitment to operating solely in regulated
markets by end-2023. Its retail presence provides a competitive
advantage by granting higher visibility to its online operations,
which drive the growth of the business.
Diversification Helps: Diversification into growing and regulating
markets should help reduce reliance on and regulatory impact from
Entain's main online markets - the UK, Australia, and Italy, which
contributed around 70% of revenue in 1H22. Fitch expects Entain to
continue investing in its 50:50 joint venture with MGM Resorts
International in the US and have assumed around GBP300 million
investment but no dividend inflow over the rating horizon. Fitch
anticipates US operations to turn profitable in 2024. This is
neutral to funds from operations (FFO) under our Corporate Rating
Criteria.
Immaterial Inflation or Stagflation Pressure: Gaming companies have
limited exposure to inflationary pressure on their retail
operations (Entain: 30% of 1H22 revenue). They are well-equipped to
pass on increased costs to customers. Also, gaming operators have
previously demonstrated resilience against economic downturns -
gaming expenses tend to account for an insignificant part of
household expenses and are less discretionary than some other forms
of leisure. Therefore, Fitch does not incorporate deterioration in
revenue per customer from factors other than regulatory changes.
DERIVATION SUMMARY
Entain's business profile is commensurate with a higher rating
category, supported by its sound profitability and large scale. Its
close peer Flutter Entertainment Plc (BBB-/Negative) is larger and
better diversified than Entain, following its merger with The Stars
Group. Flutter has a leading position in the US, lower exposure to
UK and wider business & customer segment diversification via higher
exposure to peer-to-peer platforms, including poker and betting
exchange, as well as lottery.
Its peer 888 Holdings Plc (888, BB-/Negative) similarly has strong
brands, retail presence in the UK (via acquired William Hill
operations) but smaller scale and slightly weaker diversification
than Entain.
Entain's expected EBITDAR margin at around 21% over the next two
years is solid at the midpoint of 'BBB' rating, and above 888's but
slightly below Flutter's, when deconsolidating its US operations
for comparability. Entain has weaker profitability than Allwyn
International a.s. (previously, SAZKA Group a.s., BB-/Stable), and
is more exposed to increasingly stringent regulation of sports
betting and online betting, but has better diversification.
Entain's FFO adjusted net leverage is expected at above 4.0x,
higher than Flutter's, once the latter deleverages post-Sisal
acquisition to around 3.5x by 2024, towards its more conservative
net debt/EBITDA target 1.0x-2.0x vs Entain's medium target of 2.0x.
Entain's leverage is lower than 888's after the latter's
debt-funded acquisition of William Hill International. Fitch
expects 888 to deleverage to just below 6.5x by 2024.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Medium-single digit online revenue decline in 2022, driven by
rollout of
responsible gaming measures, followed by middle single-digit
growth to 2025
- UK online revenue to decline 13% in 2022 and further 5% in 2023
- Retail reaching 90% of pre-pandemic revenue in 2022, followed by
flat
trend in 2023-2025
- EBITDA margin of 19.3% in 2022, a 70bp decline on 2021's, as an
expected
200bp decrease in online gross margin is offset by strong rebound
in retail
profitability
- US operations becoming profitable in 2024, after a one-year lag
to
management assumptions with no dividends over the rating horizon
- Neutral working capital to 2025
- Capex at around 5% from revenue to 2025
- Investment in US operations of GBP300 million in total over
2022-2024
- Dividends of around GBP50 million in 2022 and around GBP100
million-
GBP120 million in 2023-2025
- Acquisition spend of around GBP1 billion in 2022, followed by an
average
of around GBP170 million for bolt-on M&As & earnouts per year to
2025
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Continued strong profitability with diversification helping to
offset
tighter gaming regulation, and realisation of planned synergies
resulting
in an EBITDAR margin above 22%
- FFO-adjusted net leverage trending towards 4.0x or adjusted net
debt/EBITDAR trending towards 3.5x on a sustained basis
- FFO fixed-charge coverage above 3.0x
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Weaker than forecast profitability due to increased competition
or more
material impact from regulation leading to an EBITDAR margin at or
below
18%
- FFO-adjusted net leverage or adjusted net debt/EBITDAR above
4.5x
- Maintaining shareholder-friendly financial policies that limit
deleveraging prospects
- FFO fixed-charge coverage below 2.5x along with a deteriorating
liquidity
buffer
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: Entain's liquidity was comfortable at end- 2021
with GBP281 million of available cash (net of GBP206 million cash
held on behalf of customers that is treated as restricted by Fitch)
and GBP590 million available under RCF. The debt documentation
includes a springing covenant, which is tested when the facility is
40% drawn, and set at a maximum net debt/EBITDA of 6.0x until July
2023, before reducing to 5.5x until July 2025 and to 5.0x until
maturity in 2026.
Fitch expects Entain's financial flexibility to reduce as it draws
on its RCF in 2022 to part-fund M&A. Fitch understands that Entain
has repaid GBP100 million of Ladbrokes bonds that were due in
September 2022, but it is exposed to refinancing of its GBP400
million fixed-rate bonds due in September 2023, along with its
EUR1.125 billion TLB due in March 2024 in what will be a higher
interest-rate environment.
Generic Approach for Senior Secured Instruments: Fitch rates
Entain's senior secured instrument ratings at 'BB+' in accordance
with Fitch's Corporates Recovery Ratings and Instrument Ratings
Criteria, under which Fitch applies a generic approach to
instrument notching for 'BB' rated issuers. Entain's capital
structure is characterised by an all-senior debt structure. All
debt ranks pari passu, and includes cross-guarantees and share
pledges from key group subsidiaries representing at least 75% of
group EBITDA.
ESG CONSIDERATIONS
Entain has an ESG Relevance Score of '4' for Customer Welfare -
Fair Messaging, Privacy & Data Security due to increasing
regulatory scrutiny on the sector, amid greater awareness around
the social implications of gaming addiction and increasing focus on
responsible gaming. This factor has a negative impact on the credit
profile and is relevant to the rating in conjunction with other
factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Entain plc LT IDR BB Affirmed BB
senior secured LT BB+ Affirmed RR2 BB+
Ladbrokes Group
Finance plc
senior secured LT BB+ Affirmed RR2 BB+
Entain Holdings
(Gibraltar) Limited
senior secured LT BB+ Affirmed RR2 BB+
MAISON BIDCO: Fitch Affirms LongTerm IDR at 'BB-', Outlook Stable
-----------------------------------------------------------------
Fitch Ratings has affirmed Maison Bidco Limited's (trading under
the name of Keepmoat) Long-Term Issuer Default Rating (IDR) at
'BB-' with a Stable Outlook, and affirmed its senior secured rating
at 'BB+'/RR2. Fitch has also affirmed Maison Finco Plc's GBP275
million senior secured notes at 'BB+'/RR2. These notes are
guaranteed by Maison Bidco Limited, Keepmoat Homes Limited and
other key group entities.
The affirmation reflects Keepmoat's solid business profile, which
benefits from established collaborative business partnerships with
local authorities and registered providers (RPs) in sourcing land
and delivering mixed-tenure residential developments. Similar to
housebuilder peers, Keepmoat's average selling price (ASP)
increases have so far offset the rise in building costs and enabled
the company to preserve its profitability. Fitch expects leverage
metrics to remain within its rating sensitivities over the coming
years in the absence of material, unexpected dividend
distributions.
KEY RATING DRIVERS
Regional Affordable Homes: Keepmoat focusses on delivering
affordable homes in the north, the Midlands and part of Scotland.
The products offered are typically two- to four-bedroom homes aimed
at first-time buyers (79% of total private sales in the year to
end-October 2021 (FY21) and social landlords, with most of the
residential schemes built on brownfield sites (69% of FY21
completions). The ASP of Keepmoat's homes in FY21 was GBP179,000
(FY20: GBP165,000) well below the UK ASP of GBP268,000 as at
October 2021.
Capital-Light Business Model: Keepmoat's business model as a
partnership-focused housebuilder, entails working closely with
Homes England, local authorities and RPs from the early stages of a
development, including the identification and sourcing of suitable
land and its project planning. The lower land value in brownfield
areas and deferred land payments limit Keepmoat's initial capital
requirements. In residential schemes commissioned by RPs (a third
of sales) staged payments enhance the project's cash flow cycle for
Keepmoat compared with traditional housebuilders.
Rising Interest Rates: Interest rate rises by the Bank of England
and the end of cheap mortgages may result in a contraction of
volumes traded and ultimately limit the company's ability to
increase ASPs. Fitch believes that the price point of Keepmoat's
homes, their affordable positioning and the inherent undersupply of
houses should help mitigate a steep decline in its volumes, and RP
volumes are less interest-rate sensitive. Despite this potential
reduction in the company's profits, the ability to defer land
investments should create working capital inflows to help preserve
the group's cash flow generation.
Solid Trading Performance: In the nine months to end-July 2022,
Keepmoat reported strong business performance with 2,576 homes
completed in the period (ASP: GBP199,000). The ASP increase offset
the building cost inflation to date and enabled the company to
slightly improve its operating profits. Sales visibility is good,
with the order book standing at 2,787 units. This equates to over
eight months of sales coverage based on the current trading figures
of around 4,000 units per year. The land bank pipeline of around
23,500 plots is healthy and represents nearly six years of
production.
Housing Shortage Underpins Demand: The UK housing market continues
to be under-supplied. In the year to end-March 2021, the annual
housing supply in England amounted to 216,490 net additional
dwellings (2020: 243,770). This supply is significantly lower than
the government's expectations of 300,000 new homes per year. The
underlying need for quality affordable homes is beneficial for
Keepmoat, especially in regions away from London where the
structural housing need is conducive to a less volatile market.
DERIVATION SUMMARY
Keepmoat is a UK partnership-focused housebuilder operating within
the affordable end of the market. Relative to traditional
housebuilding, the partnership model has lighter demands on
capital, as the land acquired is generally cheaper and can be
acquired through deferred payment terms. Its geographic focus on
the north and the Midlands, and away from London, is similar to
that of Castle UK Finco PLC (trading as Miller Homes; B+/Stable).
Both companies offer predominantly standardised single-family
homes, although Miller Homes' ASP in 2021 was higher, at GBP275,000
compared with Keepmoat's GBP179,000. Both are owned by financial
sponsors. However, Miller Homes's gross leverage at 4.5x following
its acquisition by Apollo is higher and constraints the IDR at
'B+'.
Berkeley Group Holdings plc (BBB-/Stable) also focuses on
housing-led schemes on brownfield sites like Keepmoat. However,
Berkeley's geographical focus on London and the south east, its
typical product (mainly large multi-family condominiums) and an ASP
of more than GBP650,000 in the past four years differentiate its
business model from Miller Homes's and Keepmoat's.
Spanish housebuilders AEDAS Homes SA (BB-/Stable), Neinor Homes SA
(BB-/Stable) and Via Celere Desarrollos Inmobiliarios, S.A.U.
(BB-/Stable) focus on their most affluent domestic areas. These
companies offer mid-to-high value units of large multi-family
condominiums, although the scale of each project is generally much
smaller than that of Berkeley.
KEY ASSUMPTIONS
- FY22 volumes similar to FY21 (3,915 units) and around 4,000 in
FY23
- ASP in the next four years at GBP200,000 per unit
- Disciplined land acquisition and measured working capital
requirements, guided by the number of units completed
- Operating profits to slightly decrease, assuming no further ASP
increase
- No dividends payments and M&A activity
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- FFO net leverage below 2.0x (net debt/EBITDA below 1.5x)
- Positive free cash flow
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- FFO net leverage above 3.5x (net debt/EBITDA above 3.0x)
- A change in the partnership model approach indicating an
increase in speculative development or land purchases
- Unexpected distribution to shareholders that would lead to a
material reduction in cash flow generation and slower
deleveraging
LIQUIDITY AND DEBT STRUCTURE
Good Liquidity: Liquidity at 3Q22 was healthy, comprising GBP54.1
million of cash and the GBP47.5million undrawn portion of the
super-senior revolving credit facility (RCF). Fitch expects
liquidity to improve further by end-October 2022. In the final
quarter of FY22, most of the investment in land and construction
work, constituting the bulk of the intra-year working capital
movements, typically reverses as a large number of units are
delivered.
At end-3Q22 Keepmoat's gross debt comprised the drawn portion of
the RCF (GBP22.5 million) and GBP275 million senior secured
fixed-rate notes maturing in 2027.
ISSUER PROFILE
Keepmoat is a UK partnership-focused homebuilder operating within
the affordable end of the market.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Debt Rating Recovery Prior
---- ------ -------- -----
Maison FinCo plc
senior secured
LT BB+ Affirmed RR2 BB+
Maison Bidco Limited
LT IDR BB- Affirmed BB-
senior secured
LT BB+ Affirmed RR2 BB+
MAKER&SON: Blames Creditor for Administration
---------------------------------------------
Paul Farley at Furniture News reports that the trading company
behind Maker&Son, the British furniture brand founded by father and
son, Alex Willcock and Felix Conran in 2018, was placed into
administration.
The development, upon which the brand has blamed a creditor,
closely follows the brand's sale to Manchester-founded business
group, Inc & Co, on Aug. 4, in a "multi-million-pound" share
purchase deal.
"The group had paid down large debts as well as cash flow to
support the business, restart manufacturing and fulfil all
customers orders," explains a spokesperson for Maker&Son.
"A strategic financial plan was put in place by the board to manage
creditors over a short period of time -- however, one creditor has
not been forthcoming with our plan, despite our full commitment to
fulfil all creditor obligations within a reasonable period, and
therefore they placed the company into administration.
"Although this has forced a restructure of the business, we are
extremely confident in the future of Maker&Son, are fully committed
and behind the brand, and this new change will not affect
customers' orders or manufacturers. With the brand and business
now stable, with jobs saved and no plans for redundancies, we're
excited for the new growth potential in the business with the full
support from all the team."
FRP Advisory was appointed to manage the administration.
PETROFAC LIMITED: Fitch Affirms 'B+' LongTerm IDR, Outlook Negative
-------------------------------------------------------------------
Fitch Ratings has affirmed engineering and construction (E&C)
services provider Petrofac Limited's Long-Term (LT) Issuer Default
Rating (IDR) at 'B+'. The Outlook remains Negative. Fitch has also
affirmed the group's USD600 million senior secured notes rating at
'BB-' with a Recovery Rating of 'RR3'.
Petrofac's ratings reflect a continued weak order backlog in the
E&C segment and expected high near-term leverage metrics due to
subdued operating profitability. The rating is mainly supported by
a still solid business profile including a strong overall market
position and healthy geographic diversification.
The group's financial profile benefits from sufficient liquidity
and a long-dated debt maturity profile limiting short-term
refinancing risk. Fitch assumes that its strong pipeline of
opportunities will gradually translate into increased E&C
profitability leading to an improved leverage profile.
The Negative Outlook reflects low revenue visibility in the E&C
segment due to continued delays to new awards. Downside risk is
exacerbated by continued supply-side challenges, the lingering
impact of the pandemic on profitability and a still uncertain
market environment notwithstanding higher commodity prices.
KEY RATING DRIVERS
Weak E&C Revenue Visibility: The continuing weak order backlog in
E&C remains a key rating risk. Fitch expects its small order book
will continue to hit revenue, profitability and cash flow in 2H22
and 2023. The E&C order intake continues to be affected by project
award delays across the group's end-markets, which is in contrast
to improved activity in the broader (oil and gas and renewable
energy) E&C end-markets. Fitch expects Petrofac's strong pipeline
of opportunities, together with the resolution of the SFO
investigation, will allow a gradual rebuild of new orders to USD3.5
billion-USD3.8billion annually in 2023-2025.
Continuing few new orders for the E&C segment led to a smaller E&C
order backlog of USD1.8 billion at end-1H22 versus USD2.4billion at
end-2021. For the group as a whole however, this was partly offset
by increasing new orders and an improved backlog in the asset
solutions segment.
Increased Leverage: Fitch said, "We expect total debt/EBITDA to
remain higher for longer at significantly above the 4x negative
sensitivity in 2022-2023 due to subdued operating profitability. We
deem the ratio high for the rating and compared with 'B' rated
peers', which limits rating headroom."
Deleveraging Potential: Fitch said, "We expect gross leverage to
decrease to around 3x in 2024-2025, driven by an increasing E&C
order backlog leading to improving operating profitability. The
group's deleveraging potential is supported by its record of
prudent financial policy and reduced total debt quantum. Petrofac
has deleveraged its balance sheet since 2017, partly in response to
a downturn in the oil industry and the SFO investigation. We expect
no dividends up to 2023 when the group is likely to record a
sustained improvement in its new order intake."
Subdued Operating Profitability: Fitch expects weaker operating
profitability in 2022-2023 on subdued revenue, the lingering impact
of the pandemic and unfavourable commercial settlements with
clients mainly related to the pandemic. Fitch anticipates
significant margin recovery in 2024-2025 on expected improvement in
activity from 2023, combined with receding impact from its
commercial settlement in its mature E&C portfolio, which will add
around 3pp-3.5pp to EBITDA margin.
Free Cash Flow to Improve: Fitch said, "We expect
neutral-to-positive free cash flow (FCF) in 2023-2025 following
high cash consumption in 2021-2022. We assume that its cash flow
will benefit from an improving order backlog in 2023-2025 and
increasing operating profitability in 2024-2025. Nonetheless, this
is subject to execution risk and could be limited by
prepayment-structure risks."
Sound Financial Flexibility: Its completed recapitalisation in 2021
improved its liquidity and debt maturity profile, limiting
short-term refinancing risk. This long-term debt structure enables
the group to plan and bid for its typical large-scale, multi-year
E&C projects. It also provides the group with financial and
operating headroom to pursue bidding opportunities with potentially
long lead times.
Solid Business Profile: Petrofac still boasts a solid overall E&C
market position, with a broad range of skills and services covering
onshore and offshore works, delivering projects in upstream and
downstream oil and gas developments. Furthermore, it has
demonstrated its expertise in sustainable energy E&C activities,
which firmly positions it for the growth of this smaller but
increasingly important sub-sector. The business profile remains
mainly limited by weak E&C revenue visibility.
Backlog Quality at Risk: Fitch said, "We expect backlog quality to
remain the key rating driver for Petrofac, given decreased project
diversification and pressure to rebuild its backlog. The group's
ability to maintain its focus on core competencies and to rapidly
adapt to new markets will be critical to project execution and
margin maintenance, given an increasing reliance on new or non-core
markets in the bidding pipeline. We therefore expect this new
operating environment to place pressure on both the group's margins
and ability to extract advance payments in the same manner as
achieved in its core markets."
Shift Towards Growth Markets: Fitch believes that increasing
exposure to growth markets, notably India, the CIS, Thailand and
Malaysia, has a mixed impact on Petrofac's business profile. It
exposes the group to growth opportunities but also higher execution
risk as some emerging markets are more difficult to operate in.
This is partly offset by Petrofac's record of sound bidding
discipline and oversight procedures. Nonetheless, backlog pressures
will force Petrofac to pivot towards these new regions to support
its order book, which will increasingly depend on its ability to
maintain sound bidding discipline, as well as operating
capabilities and margin.
DERIVATION SUMMARY
Petrofac has no close direct peers in the Fitch-rated universe.
Fitch views Petrofac's business profile as weaker than Saipem
S.p.A.'s, Tecnicas Reunidas' and Wood Group's, mainly due to the
group's weak order backlog and revenue visibility, which is
commensurate with a 'B' category E&C company. Petrofac nonetheless
still boasts a solid, albeit weakened market position, sound
geographic diversification and has a record of effective contract
risk management.
Petrofac's financial profile is weaker than Fitch-rated
infrastructure E&C contractor Webuild SpA's (BB/Stable), mainly due
to expected subdued operating profitability in 2022-2023 leading to
increased leverage metrics.
KEY ASSUMPTIONS
- Revenue of around USD2.6 billion in 2022, USD2.9 billion in
2023, and gradually increasing to USD3.8 billion in 2025
- EBITDA margin of 3.1%-3.2% in 2022-2023, increasing to 6% in
2024 and 6.5% in 2025
- Capex at 2.1% of revenue in 2022 and 0.8%-0.9% annually in
2023-2025
- Working-capital outflow at around 5% of revenue in 2022, 7%
working-capital inflow in 2023, 1%-2% working-capital inflow
annually in 2024-2025
- Dividends of about USD90 million in 2024 and USD100 million in
2025. No dividends in 2022-2023
- No acquisitions for the next four years
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Total debt / EBITDA below 3.5x on a sustained basis
- Funds from operations (FFO) gross leverage below 4.5x on a
sustained basis
- Neutral-to-positive FCF on a sustained basis
- Sustained recovery in the order book with no evidence of
deterioration in the new orders' quality or margin dilution
- Improved project diversification
Factors that could, individually or collectively, lead to
downgrade:
- Lack of project wins and effective bidding management
- Weakening financial flexibility
- Total debt / EBITDA above 4.0x on a sustained basis
- FFO gross leverage above 5.0x on a sustained basis
- Inability to generate working-capital inflows
- Negative FCF on a sustained basis
- EBITDA margins weakening as a result of project losses or
poorer project quality
LIQUIDITY AND DEBT STRUCTURE
Sufficient Liquidity: At 30 June 2022, Petrofac's liquidity profile
comprised USD301 million readily available cash (excluding USD129
million deemed not readily available by Fitch, mainly for
intra-year working-capital swings) and access to an USD89 million
undrawn revolving credit facility (RCF, total committed amount of
USD180 million). The main upcoming maturities include about USD100
million term loans due in 4Q23 and an USD91 million RCF drawdown
due in October 2023. Fitch projects modest cash consumption in 2H22
and positive FCF in 2023.
Long-Dated Debt Structure: Petrofac's debt maturity profile
comprises USD600 million senior secured notes due in 2026 and
USD100 million term loans due in 2023. The group has access to an
USD180 million RCF due in October 2023. The long-dated debt
maturity profile supports financial flexibility and limits
refinancing risk.
ISSUER PROFILE
Petrofac is an international E&C service provider to the oil and
gas production and processing industry. The group designs, builds,
operates and maintains oil and gas facilities, delivered through a
range of commercial models (lump-sum, reimbursable and flexible).
ESG CONSIDERATIONS
Petrofac has an ESG Relevance Score of '4' for Governance
Structure, due to the group's admission of its inability to prevent
fraud and the broad negative commercial implication of the SFO
investigation, which has a negative impact on the credit profile,
and is relevant to the ratings in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Debt Rating Recovery Prior
---- ------ ------- -----
Petrofac Limited LT IDR B+ Affirmed B+
ST IDR B Affirmed B
senior secured LT BB- Affirmed RR3 BB-
QUALIA CARE: Goes Into Administration
-------------------------------------
Miran Rahman at TheBusinessDesk.com reports that an administrator
has been appointed for Leeds-headquartered independent social care
provider Qualia Care.
Stephen John Hunt, of Griffins Insolvency Litigation and Forensics,
has been confirmed as administrator of Qualia Care, which is based
in St James House, Park Place, TheBusinessDesk.com relates.
Qualia Care operates 10 care homes, with most of its properties
located in north west England.
The administration of the operating company follows Qualia Group's
property company being placed into administration with Griffins in
August, TheBusinessDesk.com notes.
The current business was formed from a pre-pack sale in 2020 after
Qualia Care Developments Limited and Qualia Care Properties Limited
failed, leaving at least 700 investors owed more than GBP50
million.
According to TheBusinessDesk.com, a spokesman for Griffins
explains: "There was an agreement in place for payments to be made
to investors but that fell into default in December 2021.
"There was an attempt to rescue QCL outside of administration but
it was discovered large sums had been removed from its bank
accounts just prior to our appointment. Attempts to recover those
sums were partially successful but not in time to avoid
administration.
"The recent administration appointments are part of a plan to
restructure the business and make an initial return to investors."
STUDIO RETAIL: FRC Commences Investigation of Mazars Audit
----------------------------------------------------------
Rachel Douglass at FashionUnited reports that Studio Retail, a
British home shopping company, is set to have its financial
statements investigated by a UK watchdog.
According to FashionUnited, the Financial Reporting Council (FRC)
said it has commenced an investigation in relation to the audit
conducted by Mazars LLP of the group's financial statements for the
12-month period ended March 26, 2021.
The accounting firm had overseen the auditing for the struggling
company, which fell into administration in February before being
bought out by businessman Mike Ashley, FashionUnited notes.
According to the retailer, its collapse was due to the increase in
shipping costs, cash flow struggles and supply chain delays,
FashionUnited states.
Ashley's Frasers Group stepped in with a GBP26.8 million rescue
deal, FashionUnited recounts.
Following the acquisition, however, the fashion conglomerate
slammed Studio Retail for the handling of its downfall, stating
that, as a significant shareholder, it had long attempted to push a
strategic review of the retailer, FashionUnited relays.
In a statement through the London Stock Exchange, the group, which
also owns the likes of House of Fraser and Sports Direct, cited
issues with management as a fundamental part of its demise,
according to FashionUnited.
In a release, the FRC, as cited by FashionUnited, said its decision
to launch the investigation was made during a meeting of the firm's
Conduct Committee on Sept. 13.
TRANSFORM HOSPITAL: 300 Jobs Saved Following Pre-Pack Deal
----------------------------------------------------------
Alex Turner at TheBusinessDesk.com reports that a deal has been
agreed for Transform Hospital Group that will save more than 300
jobs but result in the closure of 11 clinics.
According to TheBusinessDesk.com, the closures will see 47 jobs
lost at sites around the country, including Leeds, Birmingham and
Nottingham.
Its two specialist hospitals -- The Pines in Wythenshawe, south
Manchester and Burcot Hall in Bromsgrove, in the West Midlands --
will stay open, TheBusinessDesk.com notes.
The deal safeguards 311 jobs and supports a "significant number" of
self-employed surgeons and healthcare practitioners,
TheBusinessDesk.com states.
The restructuring comes less than two months after Y1 Capital took
over from Transform's previous private equity owner, Aurelius,
TheBusinessDesk.com relays.
Howard Smith and Rick Harrison from Interpath Advisory were
appointed joint administrators of Transform Hospital Group and
agreed a pre-pack deal with Y1 Global Assets FZE and Transform
Healthcare, TheBusinessDesk.com discloses.
Transform was founded in 1974 as a hair treatment business before
expanding, and following its merger with The Hospital Group in 2016
it now generates GBP50 million a year, TheBusinessDesk.com
recounts.
It made a loss of GBP8.3 million in 2019 after a significant
restructuring before Covid disrupted the business further,
according to TheBusinessDesk.com.
However it was able to support the NHS in the early stages of the
pandemic and the period was used to reposition the business as a
"broader-based healthcare and wellbeing provider".
*********
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