/raid1/www/Hosts/bankrupt/TCREUR_Public/221018.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 18, 2022, Vol. 23, No. 202
Headlines
G E R M A N Y
DIC ASSET: S&P Affirms 'BB+' ICR & Alters Outlook to Negative
FLENDER INT'L: Fitch Alters Outlook on 'B+' LongTerm IDR to Neg.
G R E E C E
FRIGOGLASS SAIC: S&P Lowers LongTerm ICR to CC, Outlook Negative
I R E L A N D
CARLYLE EURO 2018-2: Fitch Affirms B-sf Rating on Class E Notes
I T A L Y
MONTE DEI PASCHI: Launches Share Sale to Fund Turnaround Plan
TELECOM ITALIA: S&P Lowers LongTerm Rating to 'B+', Outlook Neg.
K A Z A K H S T A N
SAMRUK-KAZYNA CONSTRUCTION: Fitch Alters Outlook on IDRs to Stable
N E T H E R L A N D S
BRIGHT BIDCO: S&P Rates $175MM Debtor-In-Possession Term Loan 'B+'
DRYDEN 32 EURO 2014: Fitch Affirms 'B+sf' Rating on Class F-R Notes
R O M A N I A
ONIX ASIGURARI: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
S P A I N
NATURGY ENERGY: S&P Affirms BB+ Ratings on Jr. Sub. Hybrid Notes
S W I T Z E R L A N D
TRANSOCEAN LTD: S&P Upgrades ICR to 'CCC', Outlook Negative
U N I T E D K I N G D O M
BCP V MODULAR III: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
BRITISH AIRWAYS: Fitch Affirms LongTerm IDR at 'BB', Outlook Neg.
CANADA SQUARE 7: S&P Assigns B+(sf) Rating on Class E-Dfrd Notes
CHOOSE CHILLI: Director Gets Seven-Year Disqualification Over BBL
EUROSAIL-UK 2007-6: Fitch Affirms 'CCsf' Rating on Class D1a Notes
EVE SLEEP: Commences Administration Process, Seeks Buyer
FROST BURGERS: Enters Administration, Halts Trading
INTERNATIONAL PERSONAL: Fitch Affirms 'BB-' IDR, Outlook Stable
ROCHESTER FINANCING 3: Fitch Hikes Rating on Class X Notes to 'BB+'
WASPS: Goes Into Administration, 167 Jobs Affected
[*] UK: Fifty Pubs Closing Every Month in England and Wales
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G E R M A N Y
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DIC ASSET: S&P Affirms 'BB+' ICR & Alters Outlook to Negative
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S&P Global Ratings revised its outlook on DIC Asset AG to negative
from stable and affirmed its 'BB+' long-term issuer credit rating
S&P also affirmed the 'BB+' issue rating on DIC's senior unsecured
bond, and kept the recovery rating at '3', which indicates its
estimate of 60% recovery in a default.
The negative outlook reflects S&P's view that the company may not
be able to restore its credit metrics in line with the current
rating level within the next 12 months, with debt to debt plus
equity remaining above 55%, and address its funding needs in 2024
in a timely manner.
Tougher market conditions will likely delay DIC's deleveraging
progress following its takeover of VIB Vermogen AG (VIB). At the
beginning of 2022, DIC took over logistic real estate player VIB
Vermögen AG and currently holds about 61% of VIB, fully
consolidated into DIC's financial statements as of June 30, 2022.
The transaction was funded by a bridge loan of EUR500 million and
available cash of about EUR281 million. S&P said, "We anticipated
leverage would temporarily increase beyond our rating thresholds
for a short period, but we expected DIC to perform a 10% equity
increase and dispose of assets to stabilize its credit metrics by
year-end 2022, in line with its strategy. As of June 30, 2022, S&P
Global Ratings-adjusted ratio of debt to debt plus equity stood at
58.9% (versus 52.2% at year-end 2021) and its rolling-12-months
EBITDA interest coverage at 2.7x (versus 3.3x at year-end 2021).
Debt to EBITDA spiked to 20.1x, strongly distorted by the take-over
of VIB, with only three months of EBITDA contribution. Given the
current difficult market environment, we have revised our base case
and expect our adjusted ratio of debt to debt plus equity to exceed
our downside threshold of 55% in 2022 and that DIC will deleverage
to below this level most likely only within the following year.
While we now assume equity issuances will remain challenging for
the next few months, our base case still includes that the company
should be able to dispose of sufficient assets over the next six to
nine months to reduce leverage in line with its financial policy,
with a medium-term loan-to-value target of below 45% (if including
only the owned yielding commercial portfolio it translates into S&P
Global Ratings-adjusted debt to debt plus equity of about 50%).
Including the recent interest rate hike by the European Central
Bank, which will increase future funding costs for corporations, we
forecast that the company's capacity to cover its interest expenses
will remain comfortably above 2.4x and that debt to annualized
EBITDA will stabilize around 13.0x-14.0x by year-end 2023. That
said, DIC's credit metrics would have little headroom within the
current rating level, and we believe there is a one-in-three chance
that the company will fail to achieve those ratios in a timely
manner."
DIC's funding and liquidity profile remains adequate for the next
12 months, but large refinancing needs emerge in 2024. As of June
30, 2022, DIC had unrestricted cash available of about EUR453
million. This should comfortably cover its upcoming limited
short-term debt maturities of about EUR294 million for the next 12
months. In July 2022, the company issued EUR100 million of
promissory notes at 3.56% and with an average debt maturity of 3.6
years. It used the proceeds to pay down its outstanding bridge loan
due in the first quarter of 2024 to EUR400 million from EUR500
million. Average cost of debt stood at only 1.8% at the end of July
2022. S&P said, "Our base case assumes the cost of debt will
gradually increase and new funding will range between 3.5% and 4.5%
by the end of 2023. The company's weighted average debt maturity is
currently about 4.2 years. That said, the company has a total of
approximately EUR800 million of debt maturities in 2024, which we
expect it to address in a timely manner, so that the average debt
maturity remains above our three-year requirement and sufficient
liquidity sources are available to cover upcoming financial
obligations for a 12-month period. We understand that the company
had adequate headroom under its financial covenants as of June 30,
2022, and we expect them to maintain solid headroom. That said,
DIC's bond covenants for loan-to-value are set at 60%, and headroom
has tightened since the takeover of VIB (we understand, the lowest
headroom is 13% as of June 30, 2022). That said, we expect the
headroom to widen again and remain well above 10% with the expected
reduction in leverage."
Despite DIC's enhanced scale and scope, and increased portfolio
diversification, the commercial real estate sector faces headwinds
amid economic challenges. The acquisition of VIB has benefited the
company's scale and scope, as well as its portfolio
diversification. As of June 30, 2022, the fair value of its
commercial portfolio, which includes only owned yielding assets,
stood at EUR4.5 billion, comprising 208 properties. The company's
total assets under management increased to EUR14.2 billion from
11.9 billion at year-end 2021. The share of logistics properties
increased to 39% from 2% in the commercial portfolio with the share
of office properties diluting to 34% from 68% and enhancing its
segment diversification. The European Real Estate Association
(EPRA) vacancy stood at only 4.2% for the combined entities. DIC
managed a solid like-for-like rental growth of 3.7% in the first
half of 2022, mostly benefiting from lease indexations. The growing
inflationary environment, forecast at 8.4% growth in Germany in
2022 and 7% for 2023, is expected to benefit DIC's rental income,
as the majority of its rental contracts are linked to the consumer
price index (CPI). However, a potential economic recession,
combined with cost-saving initiatives and potential reduction of
required office space, represents a high threat for further
operational growth for the office real estate landlords, and
slowing demand could impact occupancy levels and rental income over
the next two to three years. REITs might also invest less in
further acquisitions, partially driven by increasing construction
raw materials and energy supply prices, leading to lower asset
rotations and flat-to-negative property portfolio valuation trend.
The negative outlook reflects S&P's view that DIC may not restore
its credit metrics in line with the current rating level amid
uncertain market conditions within the next 12 months. This could
result if the company is not able to take sufficient steps to
reduce leverage in a timely manner, such as further delays to
perform a 10% equity increase and dispose of assets to stabilize
its credit metrics.
S&P could lower the rating if:
-- DIC fails to improve debt to debt plus equity to below 55%;
-- Debt to annualized EBITDA deviates strongly from our forecast;
or
-- Its EBITDA interest coverage declines to below 2.4x.
S&P could also lower its rating on DIC if the company's liquidity
deteriorates, in particular if the company does not address its
upcoming bulk of maturities in 2024 well in advance.
S&P could revise its outlook back to stable if DIC continues to
generate stable and predictable cash flows, including maintaining
occupancy levels high and takes steps to delever in line with its
strategy, so that:
-- Debt to debt plus equity falls below 55%;
-- Debt to EBITDA decreases in line with our base case; and
-- The interest coverage ratio remains above 2.4x.
ESG credit indicators: E-2, S-2, G-2
FLENDER INT'L: Fitch Alters Outlook on 'B+' LongTerm IDR to Neg.
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Fitch Ratings has revised the Outlook on German gearbox and
generator manufacturer Flender International GmbH's Long-Term
Issuer Default Rating (IDR) to Negative from Stable and affirmed
the IDR at 'B+'. Fitch has also affirmed the existing senior
secured term loan's rating at 'BB-'/'RR3'.
The revision of the Outlook reflects its expectation of a
challenging wind market outlook, which is further pressured by
increasing inflationary pressures and supply chain issues. Fitch
believes that the working capital buildup of the issuer is not
likely to improve before wind original equipment manufacturers'
(OEM)s operating environment and deliveries normalise. Fitch
forecasts that Flender's funds from operations (FFO) gross leverage
will remain above its negative sensitivity of 6.5x for the next
18-24 months, before gradually improving towards end 2024. Fitch
could take negative rating action if macro-economic conditions keep
leverage metrics above its negative sensitivities longer than
previously anticipated.
KEY RATING DRIVERS
Operating Profitability Under Pressure: Fitch believes that ongoing
supply chain issues and increased prices for raw materials in 2022
and 2023 will pressure Flender's profitability. Flender's key
customers, large wind turbine producers, have higher bargaining
power and their profitability is currently under huge compression.
Accompanied by expected deterioration of business activity in 2023,
this will erode Flender's orders intake, primarily in the wind
end-market, and put pressure on the EBITDA and EBIT margins.
Fitch expects Flender's EBIT margin to decrease to about 7.6% in
FY22 (ending 30 September) and fall further to about 6.0% in FY23,
versus 8.6% reported in FY21. Forecast higher interest rates will
also constrain the group's FFO margin, which Fitch forecasts to
decrease to about 4.4% in FY23 from an expected 5.7% in FY22.
High Leverage: Constrained profitability accompanied by the
increased debt amount under Flender's term loan results in higher
leverage than Fitch previously expected. Fitch forecasts a
single-digit decrease of revenue in FY22 and FY23 due to the
negative macroeconomic environment, resulting in a deterioration of
absolute cash flow generation. As a result, Fitch expects FFO gross
leverage to be above 6.5x, its previous negative sensitivity, while
the debt/EBITDA ratio will be slightly above 6x during FY22-FY24,
peaking during FY23. Fitch expects negative rating action is very
likely if Flender is not able to improve its debt service capacity
beyond FY23.
Manageable Energy Risk: Flender has a wide global network of
production facilities, making the group less vulnerable to
potential energy rationing than small industrial players that
operate in Western Europe or Germany only. The company has limited
exposure to gas usage in production and has substantially hedged
electricity costs for FY23.
FCF Under Pressure: Fitch conservatively forecasts higher working
capital outflow in FY22 of about -EUR29 million due to growing raw
material prices and supply chain issues. Together with higher capex
in FY22 and FY23, primarily attributed to construction of the plant
in India, this will erode Flender's free cash flow (FCF)
generation. Fitch forecasts FCF to be marginally negative in FY22
and to gradually improve from FY23 reaching 1.0% in FY24 and 2.3%
in FY25. Fitch expects gradual normalisation of working capital
volatility during FY23-FY25.
Solid Market Position: Flender has leading positions in its niche
markets for gearboxes and generators. Technological capabilities
and long-term cooperation with major wind OEMs provides the company
with moderate barriers to entry. Gearboxes are a critical component
of wind turbines, and reliability is very important given its
impact on downtimes due to the difficulty of access and cost
increases. Nevertheless, in-house OEM production and Chinese
producers remain a major competitive threat for suppliers in the
long term.
Limited Business Profile: Flender has narrow product
diversification as a gearbox and generator manufacturer. The group
is primarily focused on the wind industry (about 64% of revenue in
FY21 and about 59% in the nine months ending June 2022). Due to the
nature of the industry, the group has a concentrated customer base
focusing on major wind OEMs, which is not necessarily a credit
weakness. However, as a manufacturer that is focused on a single
part of the manufacturing process, Fitch views Flender's business
profile as limited compared with peers.
The business profile limitations are mitigated by good geographical
diversification that compares well with higher rated peers. About
45% of revenue is generated in EMEA, 33% in China and 12% in US.
Good Level of Service Revenue: Fitch views positively the presence
of aftermarket and service revenue as a source of cash flow
generation as it typically provides industrial companies with more
profitable and less cyclical earnings. About 17% of Flender's
revenue in FY21 was attributed to service revenue. This supports
the group's operating profitability margins and FCF margins.
Supportive Long-term Demand: Fitch expects underlying demand for
wind turbines to grow over the long term, taking into account
global goals for CO2 emissions reduction. The demand for renewables
is further boosted in particular in Europe amid the current energy
crisis and high gas prices. Fitch believes this should provide the
group with sustainable order intake and revenue visibility over the
long term.
DERIVATION SUMMARY
Flender compares well with other high-yield diversified industrials
rated by Fitch. Similar to Ammega Group B.V. (B-/Stable), INNIO
Group Holding GmbH (B/Stable), TK Elevator Holdco GmbH (B/Stable)
and ams-OSRAM AG (BB-/Positive), Flender has good global
geographical diversification. Nevertheless, Flender's business
profile is limited due to a narrow product range, similar to INNIO,
and due to its primary focus on one core end-market of wind power.
Limited end-markets and product diversification is also typical for
Siemens Gamesa Renewable Energy S.A. (BBB-/Stable) and Vestas (NR),
one of Flender's key customers, which is the function of the
industry.
Flender's EBITDA margin is lower versus than reported by Ammega,
INNIO and ams-OSRAM and is comparable with TK Elevator.
Historically, Flender reported sustainably positive FCF generation,
which is also typical for ams-OSRAM and INNIO. Flender's FCF
generation is better than that reported by Ammega.
Flender's leverage profile with debt/EBITDA ratio of 4.1x as at end
FY21 is stronger than that of TK Elevator (9.0x) while TK Elevator
is almost 4x times bigger in terms of revenue and has a larger
share of service revenue, which provides more resilient cash flow
generation. Flender's leverage is comparable with INNIO (5.9x at
end-2021) but is higher than ams-OSRAM (3.5x at end-2021).
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Mid single-digit deterioration of the revenue in FY22 and
FY23. Recovery of revenue with high single-digit growth
in FY24 and FY25
- Slightly deteriorated EBITDA margin in FY22 and further
pressure on profitability in FY23 with the EBITDA margin
around 9.3%. Subsequent smooth gradual recovery towards
10.7% in FY25
- Working capital outflow of about EUR29 million in FY22;
more normalised changes in working capital in further years
- Capex of about EUR180 million during FY22 and FY23; capex
at about 3.5% in FY24 and FY25.
- No material M&A
- No dividends payments
Key Recovery Rating Assumptions
- The recovery analysis assumes that Flender would be deemed
a going concern (GC) in bankruptcy and that it would be
reorganised rather than liquidated
- Its GC value available for creditor claims is estimated
at about EUR1 billion, assuming GC EBITDA of EUR200 million.
GC EBITDA incorporates a loss of a major customer, a
deterioration in demand and reduced order intake. The
assumption also reflects corrective measures taken in
reorganisation to offset the adverse conditions that
trigger default
- A 10% administrative claim
- An enterprise value (EV) multiple of 5.0x EBITDA is
applied to the GC EBITDA to calculate a post-reorganisation
EV. The multiple is based on Flender's strong market
position globally, good geographical diversification,
long-term cooperation with customers and good supplier
diversification, expected sustainably positive FCF
generation. At the same time, the EV multiple reflects
the company's concentrated customer diversification and
limited range of products.
- Fitch estimates the total amount of senior debt claims
at EUR1.6 billion, which includes an EUR1.32 billion
senior secured term loan B (TLB), EUR205 million senior
secured revolving credit facility (RCF) and EUR75
million of ancillary facilities
- The allocation of value in the liability waterfall
results in recovery corresponding to 'RR3'/'57%' for
the TLB
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- FFO gross leverage below 5.5x
- Gross debt/EBITDA below 5.0x
- Increased product and end-market diversification
- Increase of service revenues to above 25% of total revenues
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- FFO gross leverage maintained above 6.5x
- Gross debt/EBITDA above 6.0x
- FCF margin below 1% on a sustained basis
- Aggressive shareholder friendly policies, or acquisitions
leading to further increase in leverage
LIQUIDITY AND DEBT STRUCTURE
Good Liquidity Position: As at end-June 2022, Flender reported
Fitch-defined readily available cash of EUR46 million, which was
adjusted for EUR50 million to cover intra-year working-capital
needs. Following the carve-out transaction from Siemens in 2021,
Flender has no material scheduled debt repayments until 2028.
Short-term debt as at end-June 2022 of EUR75 million comprised
drawn ancillary facilities.
An available undrawn RCF of EUR205 million supports Flender's
liquidity position. While Fitch expects marginally negative FCF
generation in FY22, Fitch forecasts the group will return to
positive FCF generation from FY23, which provides the group with a
cash cushion.
Flender's source of funding are concentrated and represented by a
TLB of EUR1.32 billion due March 2028.
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.
Entity/Debt Rating Recovery Prior
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Flender
International GmbH LT IDR B+ Affirmed B+
senior secured LT BB- Affirmed RR3 BB-
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G R E E C E
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FRIGOGLASS SAIC: S&P Lowers LongTerm ICR to CC, Outlook Negative
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S&P Global Ratings lowered to 'CC' from 'CCC' its long-term issuer
and issue-level credit ratings on Greek cooler manufacturer
Frigoglass SAIC and its notes due February 2025 issued by financing
subsidiary, Frigoglass Finance B.V.
The negative outlook reflects S&P's expectation that it will lower
the issuer and issue level credit ratings to 'SD' (selective
default) once the proposed agreement becomes effective, or in the
absence of such, a conventional default occurs.
S&P assesses the announced proposal as distressed in nature and
tantamount to selective default. The proposal was submitted by a
select noteholder committee, representing 56.9% of the principal
amounts (EUR260 million) of its senior secured notes due February
2025, and includes the following elements:
-- The committee's participating lenders' commitment to provide
new 12-month super senior financing of EUR30 million for liquidity
and general corporate purposes that will include cash and
payment-in-kind interest payments;
-- No interest payments for the 2025 notes on the two payment
dates scheduled for Feb. 1, 2023, and Aug. 1, 2023; and
-- Support for a broader capital restructuring, on terms that will
be negotiated simultaneously with the preceding two elements by
Frigoglass, the noteholders, and Frigoglass' majority owner,
private investment holding Truad Verwaltungs A.G (48.55% of share
capital).
The proposal's implementation is subject to further lender
negotiation and agreement. Although S&P notes the
cross-jurisdictional nature of Frigoglass' operations--which could
play a part in the overall resolution process--under Dutch law,
where the notes issuer Frigoglass Finance B.V. is domiciled, a
suspension of payments is binding for all unsecured and
nonpreferential creditors if a simple majority of creditors (at
least 50%) agree to the proposal. Subsequently, this needs to be
ratified by a court. Based on the current composition of the
noteholder committee, the company will likely need to obtain close
to 67% agreement from all noteholders to reach the threshold
required under Dutch law. The final agreement is subject to the
completion of certain long-form documentation, compliance by
Frigoglass with customary restrictive covenants, and the granting
of customary monitoring, reporting, and information rights for the
benefit of the noteholder committee. Frigoglass has said it is in
advanced negotiations with the committee. S&P views the proposed
transaction as distressed and tantamount to selective default
because the standstill coupon payment and further envisaged capital
restructuring will likely result in noteholders receiving less than
originally promised. In addition, S&P's assessment of the company's
weak liquidity position and ongoing disruptions to the European ice
cooler business (about 53% of total sales in 2021) from the
Russia-Ukraine conflict suggests a virtual certainty of a
conventional default in absence of the acceptance the proposed
agreement or significantly favorable changes in the issuer's
circumstances.
Since May 2022, Frigoglass has worked with advisors to evaluate its
strategic options, including capital restructuring, to improve its
liquidity position and capital structure. This is in light of the
large disruption to its European ice cooler manufacturing business.
S&P expects Frigoglass to largely continue servicing its customers
out of its Russian plant until first-half 2023 when it expects the
Romanian ice cooler plant to once again be fully operational,
following the fire incident in June 2021. The announced proposal
does not affect the company's short-term bank facilities (EUR75.5
million as of June 30, 2022, including accrued interest) at
operating subsidiary levels (mostly Nigeria, Russia, and India),
which the company continues to service and normally rolls over
annually for working capital purposes.
S&P said, "The negative outlook reflects our expectations that we
will lower our long-term issuer and issue level credit ratings on
Frigoglass and its EUR260 million senior secured notes due February
2025, issued by Frigoglass Finance B.V., to 'SD' upon the proposed
agreement becoming effective. At present, considering the ongoing
discussions between the lenders and the company's advisors, and
also cross-jurisdictional nature of the operations, we believe it
could take several months to resolve.
"We would lower the ratings once the proposed agreement becomes
effective. In addition, we would also lower the ratings if a
conventional default occurs.
"We consider any upside to the ratings as highly unlikely because,
even in the absence of an agreement, we believe there is a
realistic possibility that Frigoglass will be subject to a
conventional default given the severe disruption to its ice cooler
operations in Europe, and our assessment of its liquidity position
as weak."
ESG credit indicators: E-2, S-2, G-3
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I R E L A N D
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CARLYLE EURO 2018-2: Fitch Affirms B-sf Rating on Class E Notes
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Fitch Ratings has revised the Outlook on Carlyle Euro CLO 2018-2
DAC class A-2A through E notes to Stable from Positive, while
affirming its notes as detailed below.
Debt Rating Prior
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Carlyle Euro CLO 2018-2
DAC
A-1A XS1852487559 LT AAAsf Affirmed AAAsf
A-1B XS1852487807 LT AAAsf Affirmed AAAsf
A-2A XS1852488102 LT AA+sf Affirmed AA+sf
A-2B XS1852488441 LT AA+sf Affirmed AA+sf
A-2C XS1856085813 LT AA+sf Affirmed AA+sf
B-1 XS1852488870 LT A+sf Affirmed A+sf
B-2 XS1856094997 LT A+sf Affirmed A+sf
C XS1852489092 LT BBB+sf Affirmed BBB+sf
D XS1852486742 LT BB+sf Affirmed BB+sf
E XS1852486312 LT B-sf Affirmed B-sf
TRANSACTION SUMMARY
Carlyle Euro CLO 2018-2 DAC is a cash flow collateralised loan
obligation (CLO) backed by a portfolio of mainly European leveraged
loans and bonds. The transaction is actively managed by CELF
Advisors LLP and will exit its reinvestment period on 28 November
2022.
KEY RATING DRIVERS
Reinvestment Period Near Close: Following the expiry of the
reinvestment period, the manager can still reinvest unscheduled
principal proceeds and sale proceeds from credit improved and
credit risk obligations as long as the reinvestment criteria are
satisfied.
Fitch believes that the manager will be able to reinvest post
reinvestment period and as such has assessed the transaction by
stressing to their covenanted limits for Fitch-calculated weighted
average rating factor (WARF), Fitch-calculated weighted average
recovery rate (WARR), weighted average spread and fixed-asset
limit. Fitch has applied a haircut of 1.5% to the stressed WARR
covenant to reflect the old recovery rate definition in the
transaction documents, which can result in on average a 1.5%
inflation of the WARR relative to Fitch's latest CLO Criteria.
Stable Outlook: The Stable Outlooks on all notes reflect the
uncertain macroeconomic environment, and its expectation that
deleveraging will be limited since the transactions can still
reinvest.
Stable Asset Performance: The transaction's metrics indicate stable
asset performance. The transaction is passing all the tests
(collateral-quality, coverage and portfolio-profile tests).
Exposure to assets with Fitch-derived ratings of 'CCC+' and below
is 3.5%, as calculated by the trustee.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the obligors for the transactions at 'B'/'B-'. The Fitch-calculated
WARF of the current portfolio as reported by the trustee was 34.07.
The Fitch-calculated WARF of the current portfolio using the latest
criteria definitions was 25.6.
High Recovery Expectations: Senior secured obligations comprise
99.1% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets. The Fitch-calculated WARR of the current
portfolio as reported by the trustee was 66.2%. The
Fitch-calculated Fitch WARR for the portfolio using the latest
criteria WARR definitions was 63.8%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration is 14.6% of the portfolio balance and no obligor
represents more than 1.6%.
Cashflow Modelling: Fitch used a customised proprietary cash-flow
model to replicate the principal and interest waterfalls and the
various structural features of the transaction, and to assess their
effectiveness, including the structural protection provided by
excess spread diverted through the par- value and interest-coverage
tests.
Deviation from Model-implied Ratings: The class E notes' rating are
lower than their model-implied rating (MIR) by two notches. The
deviation reflects the limited cushion on the stressed portfolio at
the MIR and the uncertain macro-economic backdrop.
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-1A and
A-1B notes and would lead to downgrades of no more than three
notches for the class A-2A, A-2B, A-2C, B-1, B-2, C, D and E
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 than the
stressed portfolio, the class A-2A, A-2B and A-2C notes display a
rating cushion of one notch while the class C and E notes display a
two- and three-notch rating cushion, respectively.
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-stressed
portfolio would lead to upgrades of up to five notches for the
rated notes, except for the 'AAAsf' rated notes. Upgrades may also
occur, except for the 'AAAsf' notes if the portfolio's quality
remains stable and the notes start to amortise, leading to higher
credit enhancement across the structure.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations 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.
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: Launches Share Sale to Fund Turnaround Plan
-------------------------------------------------------------
Valentina Za at Reuters reports that Italy's Monte dei Paschi di
Siena launched on Oct. 17 a new share sale, its seventh in 14
years, seeking to raise up to EUR2.5 billion (US$2.4 billion) to
fund its latest turnaround plan.
MPS, which is owned by the state following a 2017 bailout, is
offering shareholders 374 new shares for each three shares owned at
a price of 2 euros each.
On Friday, Oct. 14, Italian market regulator Consob set the shares'
reference price at 2.0630 euro each, stripping out a theoretical
price for subscription rights of 7.8371 euros each.
The stock rose sharply in early trade on Monday, Oct. 17,
triggering an automatic trading suspension. By 0704 GMT it gained
7.6% at 2.219 euros each.
The rights failed to trade and were indicated down at 6.27 euros
each.
The stock has more than halved in value over the past five days,
bringing the overall drop so far this year to nearly 90%, Refinitiv
data showed.
Given the high risk of unsold stock, MPS has struggled to secure
underwriters, managing to sign a guarantee contract only at the
very last minute.
To secure backing it agreed to pay EUR125 million in fees and had
to find investors who agreed to buy half of the up to EUR900
million portion of the capital increase which cannot be covered by
the state.
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.
TELECOM ITALIA: S&P Lowers LongTerm Rating to 'B+', Outlook Neg.
----------------------------------------------------------------
S&P Global Ratings lowered its long-term rating on Telecom Italia
SpA (TIM) to 'B+' from 'BB-'.
The negative outlook reflects that S&P could lower its rating to
'B' if the company's EBITDA decline does not materially slow,
reported FOCF after leases is more negative than currently planned,
or liquidity deteriorates.
Visibility on TIM's operating turnaround and planned deleveraging
from 2023 have reduced. S&P said, "Since we downgraded TIM to
'BB-/Negative' in March 2022, the macroeconomic environment has
worsened. We believe slower GDP growth, booming inflation and
energy costs, and increasing unemployment could hit TIM's retail
and business-to-business operations as demand elasticity from
customers with lower-than-average discretionary incomes contracts,
or because enterprises scale back or delay their project spending.
Moreover, we believe rising interest rates and jittery debt markets
are currently an additional hurdle considering the EUR8 billion of
maturities the company has over the next 24 months."
TIM has adequate liquidity over the next 12 months but heavy
maturities of about EUR8 billion over the next 24 months. S&P said,
"We believe TIM has sufficient available cash and undrawn
facilities to cover its liquidity uses over the next 24 months from
June 30, 2022. However, it faces EUR8 billion of debt maturing over
the next 24 months in a rising interest rate environment with more
challenging debt markets. In our view, upcoming maturities will
test TIM's ability to proactively tap the debt markets to maintain
an adequate liquidity buffer and keep its cost of debt in check. We
are mindful that the company will face the compounding effects of
fierce competition, rising energy and interest expenses, sizeable
capex to roll out its fiber network (albeit partly offset by about
EUR2 billion of cash grants as part of Italy's national recovery
and resilience plan over 2024 and 2027), and completion of a
massive organic restructuring plan."
Negative reported FOCF after leases and high adjusted leverage in
2022 and 2023 continue to weigh on the rating. S&P said, "In our
base case for TIM, we continue to expect S&P Global
Ratings-adjusted debt to EBITDA will stay elevated at about 5.2x in
2022 and 5.0x in 2023, with substantial negative FOCF (after
leases). In line with management's slightly revised guidance at the
second-quarter earnings release, we now forecast a
high-single-digit organic EBITDA decline in 2022 (from
low-double-digit in our previous base case). Italy remains a
competitive market, which will weigh on TIM's domestic revenue and
EBITDA, alongside higher-than-expected costs associated with
football broadcasting, the launch of some digital companies
(fueling revenue growth, but at a lower margin than the more
traditional telecommunications activities), and the corporate
reorganization and restructuring that are further pressuring
Italian operations and earnings. We note early signs of cooling
competition, with all players having increased prices for some
consumer offerings during second- and third-quarter 2022. That
said, while TIM's subscriber contraction, churn rate, and average
revenue per user (ARPU) improved during second-quarter 2022, we
have yet to see if this will translate into a more structural shift
alleviating competitive pressure. Capex to sales will remain
elevated in 2022 at 26%-27% and there will be one-off cash outflows
associated with the acquisition of Oi Mobile in Brazil (about
EUR1.2 billion) and 5G spectrum in Italy and Brazil (about EUR2.2
billion). This will weigh on TIM's adjusted leverage in 2022, which
we forecast at about 5.2x, with negative reported FOCF of about
EUR675 million." In 2023, a planned EBITDA recovery--although still
below 2021 levels--combined with lessening capex intensity toward
24%-26% of sales, should translate into still-negative but
improving reported FOCF after leases of about EUR275 million, and
still-high but strengthening adjusted leverage toward 5.0x.
S&P said, "We have not yet incorporated TIM's strategic separation
plan in our forecasts.Our base case for TIM continues to focus on
the current integrated group and does not factor in the strategic
plan to separate its activities into a service company (ServiceCo),
on which it would refocus, and a network company (NetCo), to be
disposed of, with proceeds used to reduce ServiceCo debt. At this
stage, we understand the plans remain tentative given only a
memorandum of understanding was signed in May 2022 related to the
TIM and Open Fiber network integration project and no binding offer
has been received. Moreover, on Oct. 10, 2022, TIM communicated
that CDP Equity, Macquarie, and Open Fiber have requested an
extension of the initial timeline, also considering the new
government's nomination will only be effective by the end of
October. If such a plan goes ahead, TIM's final capital structure
will depend on the financial parameters of the NetCo separation
(including asset valuation, use of proceeds, and full
deconsolidation or sale of minority interests) and the eventual
sale of other assets, for instance, a minority stake in TIM's
enterprise business."
The negative outlook reflects downside risks stemming from the
combination of materially negative reported FOCF after leases in
our 2022-2023 forecasts, still-challenging conditions in the
domestic telecom market, heavy debt maturities, and a worsening
macroeconomic environment. Operational, investment, and refinancing
risks could further widen the company's FOCF deficit, potentially
compromising its ability to deleverage.
S&P could lower the rating if it forecasts more negative reported
FOCF after leases, a diminishing chance of sustainable EBITDA
stabilization, or any emerging liquidity concerns. This could stem
from a return to unsustainable mobile competition that depresses
ARPU or causes a spike in customer attrition, or from longer-term
fixed-line deterioration under wholesale pressure from Open Fiber
and retail pressure from Iliad. S&P could also lower the rating if
TIM is materially affected by tougher refinancing conditions and is
unable to consistently maintain adequate liquidity.
S&P could revise the outlook to stable if we expect FOCF to debt
will strengthen toward 5% on a stronger-than-expected EBITDA
rebound amid easing competition in the domestic market and
continued strong performance from the Brazilian subsidiary. A
stable outlook would also require the company to proactively
address upcoming maturities with no difficulty in accessing the
debt markets and a limited hit from rising interest rates on its
interest burden, cash flow, and adjusted leverage. Furthermore, we
would expect TIM to maintain S&P Global Ratings-adjusted debt to
EBITDA of currently less than 5.5x."
ESG credit indicators: E-2, S-3, G-3
===================
K A Z A K H S T A N
===================
SAMRUK-KAZYNA CONSTRUCTION: Fitch Alters Outlook on IDRs to Stable
------------------------------------------------------------------
Fitch Ratings has revised Samruk-Kazyna Construction JSC's (SKCN)
Outlook to Stable from Positive, while affirming its Long-Term
Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BB'.
The Outlook revision to Stable reflects limited potential for
upward reassessment of state support for SKCN given its unchanged
role and assigned mandates. It also reflects 'Moderate' financial
implications of default since it repaid its rouble-denominated
private debt in September 2022. SKCN's operating environment
remains prone to sudden abrupt changes in operating revenue,
expenditure and debt dynamics, constraining its Standalone Credit
Profile (SCP) at 'b'.
KEY RATING DRIVERS
Status, Ownership and Control: 'Strong'
SKCN is a joint-stock company indirectly owned by the government
via the fully state-owned Sovereign Wealth Fund Samruk-Kazyna JSC
(Samruk-Kazyna, BBB/Stable). Operating and financing activities are
controlled by the government and SKCN coordinates its operations
with Sovereign Wealth Fund Samruk-Kazyna JSC, Ministry on
Investment and Development and the National Bank of Kazakhstan.
Support Track Record: 'Strong'
SKCN has historically received substantial state funding in the
form of subsidised loans to implement state-housing programmes.
State-originated funding composed 85% of SKCN's total debt at
end-2020. eliance on state funding fell to about 75% at end-March
2021, from 85% at end-2020, following the issuance of bonds to
finance SKCN's own investment projects in residential and
commercial estates in Kazakhstan. At end-September 2022 the share
of state funding rose to 100% after SKCN repaid its non-state
originated debt, which justifies our 'Strong' assessment of its
support track record.
Socio-Political Implications of Default: 'Strong'
In Fitch's view, a default by SKCN would undermine the government's
and its parent company Samruk-Kazyna's reputation, given SKCN's
involvement in urban development projects that carry both social
and economic importance. Since its inception, SKCN has been
involved in state programmes that are focused on providing
affordable housing, infrastructure development and regional growth
support. As part of the state's housing programme, SKCN manages a
large rental-housing portfolio, which Fitch believes would make the
company difficult to substitute in the short term.
Since 2018, SKCN also implemented state projects for the
construction of social-infrastructure facilities in Kazakhstan. In
April 2021, the government mandated SKCN to manage the construction
of plants and production facilities under its recently approved
roadmap for the development of the construction industry in
Kazakhstan for 2021-2025. Over the longer term SKCN plans to become
the government arm in the construction sector of Kazakhstan. In
Fitch's view, a financial destress of SKCN would jeopardise the
implementation of the state's programmes, leading to material
economic repercussions.
Financial Implications of Default: 'Moderate'
SKCN is not a large and regular participant in debt-capital
markets. It relies on state-originated funding. In 2021 SKCN raised
RUB2.5 billion debt via a special-purpose company SKCN Finance with
a debut bond on Moscow Stock Exchange. Fitch therefore views a
default would have only a modest impact on the availability and
cost of financing for the government and other government-related
entities (GREs).
Standalone Credit Profile
SKCN's 'b' SCP reflects its forecast net debt/EBITDA at close to 9x
in 2026 (4.6x at end-2021), 'Midrange' revenue defensibility and
'Weaker' operating risk.
Revenue Defensibility: 'Midrange'
SKCN's revenue defensibility is supported by high demand for
affordable housing in Kazakhstan that exceeds supply, due to rapid
urbanisation and population growth. The company receives steady
rental payments from housing tenants, which has proved to be a
stable source of revenue. Rental proceeds contributed about half of
operating revenue in 2021. This was mitigated by higher-risk
revenue flows from real-estate sales and by rental rates being
largely subject to the government's discretion, with limited
autonomy from SKCN.
Operating Risk: 'Weaker'
SKCN has material exposure to construction operations, where
volatility of costs is high in an evolving Kazakh housing market
and where SKCN's ability to manage costs is limited. Its
construction operations are exposed to risks of cost overruns due
to project delays, accelerating inflation and local-currency
volatility, given a large share of imported main construction
materials. Its year-to-year cost structure is unstable. The cost of
sold residential and commercial properties contributed about 75% of
operating expenditure in 2020 but only 1% in 2021. It is likely
that costs will rise again.
Financial Profile: 'Weaker'
SKCN's net debt/EBITDA declined to 4.6x at end-2021 from 14x in
2019, but remained high due to capital-intensive construction
works. Fitch's rating case forecasts the ratio rise to 9x at
end-2026.
Derivation Summary
Fitch rates SKCN using a top-down approach under its GRE Criteria
and links the entity's ratings to the sovereign's, via parent
company Samruk-Kazyna's, given SKCN's important public mission in
providing affordable housing and support to private developers,
plus its increasing role in the development of the construction
sector in Kazakhstan. This results in a GRE support score of 25.
Combined with SKCN's 'b' SCP, which is assessed based on our Public
Sector Entities-Revenue Supported Criteria, this leads to SKCN's
'BB' IDR, three notches below the sovereign's 'BBB' IDR.
Liquidity and Debt Structure
SKCN has historically relied on state funding provided via its
parent Samruk Kazyna and earmarked for state housing programmes. In
2021 SKCN's debt stabilised at KZT93.7 billion, of which 72% was
owed to Samruk-Kazyna.
SKCN's debt maturity is stretched to 2034, due to long-term loans
from Samruk-Kazyna, although repayments are concentrated in 2022,
when about one third of its debt stock is due. This exposes SKCN to
refinancing risk, which is mitigated by a historically sufficient
cash balance (2021: KZT40.8 billion).
Summary of Financial Adjustments
Fitch classifies loans from Samruk-Kazyna as long-term debt, in
line with the contracted maturity even though the parent may
request early repayment of the loans.
Issuer Profile
SKCN is a GRE of Kazakhstan that provides public services in the
housing and construction sectors, such as affordable housing,
construction of social infrastructure, support to private
developers and overall development of the construction sector.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Dilution of state support would lead to negative rating action.
Negative rating action on the Republic of Kazakhstan would also be
reflected in SKCN's ratings.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Positive rating action on the sovereign's IDRs would lead to a
similar action on SKCN's ratings, provided that the company's links
to the government are unchanged. Tighter integration with the state
could also be positive for the company.
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.
Entity/Debt Rating Prior
----------- ------ -----
Samruk-Kazyna
Construction JSC LT IDR BB Affirmed BB
ST IDR B Affirmed B
LC LT IDR BB Affirmed BB
Natl LT A+(kaz) Affirmed A+(kaz)
=====================
N E T H E R L A N D S
=====================
BRIGHT BIDCO: S&P Rates $175MM Debtor-In-Possession Term Loan 'B+'
------------------------------------------------------------------
S&P Global Ratings assigned Netherlands-based lighting solutions
producer Bright Bidco B.V.'s $175 million debtor-in-possession
(DIP) term loan its 'B+' rating.
The 'B+' rating on the DIP term loan reflects S&P's view of the
credit risk borne by the DIP term loan lenders:
-- The company's ability to meet its financial commitments during
bankruptcy as reflected in our debtor credit profile (DCP)
assessment;
-- Prospects for full repayment through reorganization and
emergence from Chapter 11 reflected in S&P's capacity for repayment
at emergence (CRE) assessment; and
-- The potential for full repayment in a liquidation scenario as
reflected in our additional protection in a liquidation scenario
(APLS) assessment.
S&P said, "Our 'b-' DCP assessment reflects our view of Lumileds'
weak business risk profile and highly leveraged financial risk
profile. We exclude Lumileds' prepetition debt in our calculation
of key credit metrics because the DIP term loan is senior on a lien
and priority basis. The prepetition debt is also subject to a stay
on collection and enforcement actions and is subject to loss as
part of the reorganization process. Our adjusted debt figure
includes only the initial $175 million DIP term loan because the
$100 million delayed draw DIP facility was not used before
expiration on Sept. 30. In addition, we still incorporate our
standard debt adjustments because we believe that Lumileds will
continue to operate as a viable business through the bankruptcy
period and at emergence. Our adjusted debt figure of $317 million
includes $29 million of debt issued at non-debtor entities
(Lumileds Singapore and Lumileds Malaysia), $81 million of lease
liabilities, $20 million of asset retirement obligations, and $12
million of pension liabilities, in line with their value as of Dec.
31, 2021.
"Based on an adjusted EBITDA of $84 million for the annualized
September-October period, we calculate leverage of 3.5x-4.0x
through the bankruptcy, representing a material decline from
pre-petition levels of well above 10x. Our final DCP assessment is,
however, constrained by limited near-term free operating cash flow
(FOCF), due to a contraction in the company's operating margins
stemming from volatile end-market demand, sharp cost inflation not
immediately passed through to customers, and supply chain
disruptions caused by component shortages and renewed lock-down in
Asia. We project FOCF to be negative over the two-month bankruptcy
annualized period, with the primary purpose of the DIP being to
fund one-time administrative expenses of about $30 million,
negative working capital of up to $100 million, and sustained
capex, and R&D requirements.
"We assess Lumileds' capacity to repay the DIP debt at emergence as
strong, with coverage above 250%. Our assessment of Lumileds'
capacity for repayment at emergence (CRE) contemplates a
reorganization and addresses whether the company could likely
attract sufficient third-party financing at the time of emergence
to repay the DIP debt in full. The coverage ratio of about 280%
suggests the ability to attract sufficient third-party financing to
repay the DIP debt at emergence. This is supported by the company's
relatively modest amount of DIP debt and other claims we view as
priority compared with our $625 million estimated enterprise value
at emergence (based on a run-rate EBITDA multiple approach). This
results in a two-notch rating uplift from the DCP.
"Our assessment of the Lumileds' additional protection in a
liquidation scenario (APLS) suggests full repayment of the DIP
loan, even if the company is unable to reorganize.Our DIP
methodology considers Lumileds' ability to fully repay DIP debt,
even in a scenario where it cannot reorganize under bankruptcy
protection and is forced to either liquidate its assets or enter
into a forced sale as a going concern under distressed conditions.
Using a distressed valuation of the business as a going concern
under a forced sale scenario, we estimate coverage at about 141%,
above the 125% threshold to achieve an additional notch
enhancement. It indicates Lumileds' ability to repay the DIP debt
in a liquidation scenario and results in a one-notch uplift from
the DCP.
"The automatic conversion of the DIP debt into a larger pari-passu
exit facility constrains our issue rating. The restructuring
support agreement contemplates a roll-over of the $175 DIP term
loan into a $300 million exit first-lien term loan. This facility
will also include a $125 million takeback term loan (conversion of
the pro-rated pre-petition first-lien claims) that will rank pari
passu with the DIP claims. We believe the takeback term loan
represents a substantial amount of pari passu non-DIP debt in the
exit capital structure and reflect this ranking risk by adjusting
our final DIP issue rating down by one notch to 'B+'.
"We attribute Lumileds' voluntary bankruptcy filing on Aug. 29,
2022, to prolonged difficult market conditions, structural changes
in its revenue and earnings base, and its highly leveraged
pre-petition balance sheet."
S&P believes that Lumileds' Chapter 11 filing reflected various
business and financial challenges including:
-- A slow recovery in global auto production since the sharp
2019-2020 decline, with prolonged supply chain bottlenecks and
lockdowns in Asia further disrupting end-market demand and the
company's production this year.
-- Severe cost inflation not immediately passed through to auto,
smartphone, and general illumination customers, ultimately
impacting Lumileds' profitability.
-- The transition toward LED automotive solutions from
conventional lighting and Lumileds' loss of a sole-sourcing
position with a key smartphone maker, which caused both revenue and
profit attrition since 2018.
-- The company's high pre-petition reported debt load of about
$1.7 billion that became unsustainable in light of its adjusted
EBITDA base declining below $100 million in 2019-2020, and again in
2022, from above $250 million in 2018 and before.
S&P said, "We believe the contemplated financial restructuring at
emergence will allow Lumileds to restore a more viable capital
structure, comprised of significantly lower debt. We anticipate
auto production will continue to recover from the trough levels
achieved in 2020, supporting Lumileds revenue as original equipment
manufacturers continue to adopt LED systems in new car platforms.
We also anticipate the company will progressively achieve some
recovery for the cost inflation it has faced in all segments,
supporting a progressive improvement in profitability. The several
restructuring initiatives implemented since 2019 have also lowered
the company's fixed cost base, which should support the operating
margin when end markets recover more firmly."
DRYDEN 32 EURO 2014: Fitch Affirms 'B+sf' Rating on Class F-R Notes
-------------------------------------------------------------------
Fitch Ratings has revised Dryden 32 Euro CLO 2014 B.V.'s Outlook to
Stable from Positive, while affirming its notes.
Debt Rating Prior
---- ------- ------
Dryden 32 Euro CLO
2014 B.V.
A-1-R XS1864488553 LT AAAsf Affirmed AAAsf
A-2-R XS1864488801 LT AAAsf Affirmed AAAsf
B-1-R XS1864489106 LT AA+sf Affirmed AA+sf
B-2-R XS1864489445 LT AA+sf Affirmed AA+sf
C-1-R XS1864489874 LT A+sf Affirmed A+sf
C-2-R XS1864913196 LT A+sf Affirmed A+sf
D-1-R XS1864490294 LT BBB+sf Affirmed BBB+sf
D-2-R XS1864913519 LT BBB+sf Affirmed BBB+sf
E-R XS1864490534 LT BB+sf Affirmed BB+sf
F-R XS1864490617 LT B+sf Affirmed B+sf
TRANSACTION SUMMARY
Dryden 32 Euro CLO 2014 B.V is a cash flow CLO comprising mostly
senior secured obligations. The transaction is actively managed by
PGIM Limited and will exit its reinvestment period in November
2022.
KEY RATING DRIVERS
Reinvestment Period Near Close: Although the transaction will exit
its reinvestment period in November 2022 the manager can reinvest
unscheduled principal proceeds and sale proceeds from credit-risk
obligations also after the reinvestment period, subject to
compliance with the reinvestment criteria. Given the manager's
ability to reinvest, Fitch analysis is based on a stressing the
portfolio to their covenanted limits of Fitch-calculated weighted
average life (WAL), Fitch-calculated weighted average rating factor
(WARF), Fitch-calculated weighted average recovery rate (WARR),
weighted average spread (WAS) and fixed-rate asset share.
Limited Deleveraging Prospects: The Stable Outlooks on all notes
reflect an uncertain macroeconomic environment and limited
deleveraging prospects as long as the deal can still reinvest.
Stable Asset Performance: The transaction's metrics indicate stable
asset performance. The transaction is passing all coverage,
collateral-quality tests (excluding the WAL test) and
portfolio-profile tests that have a bearing on Fitch's rating
analysis. Exposure to assets with a Fitch-derived rating (FDR) of
'CCC+' and below is 2.83%, excluding non-rated assets, as
calculated by Fitch.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the obligors at 'B'/'B-'. The reported WARF of the current
portfolio was 33.19 as of 31 August 2022, against a covenanted
maximum of 35.5.
High Recovery Expectations: Senior secured obligations comprise
92.82% of the portfolio as calculated by the trustee. Fitch views
the recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch WARR
reported by the trustee for the current portfolio was at 62.4% as
of 31 August 2022, compared with the covenanted minimum of 62.03%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top-10 obligor
concentration is 20.5%, as calculated by Fitch, and no single
obligor represents more than 2.77% of the portfolio balance, as
reported by the trustee.
Cash Flow Analysis: Fitch used a customised proprietary cash flow
model to replicate the principal and interest waterfalls and the
various structural features of the transaction, and to assess their
effectiveness, including the structural protection provided by
excess spread diverted through the par-value and interest-coverage
tests.
Deviation from Model-implied Ratings: The class B-1-R notes'
'AA+sf' rating and the class D-1-R notes' 'BBB+sf' ratings are
respectively one and two notches below their model-implied ratings
(MIRs), reflecting the limited cushion on these of notes under the
Fitch-stressed portfolio.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings
would result in downgrades of two notches for the class E-R and F-R
notes.
Downgrades may occur if the loss expectation of the current
portfolio is larger than initially assumed, due to unexpectedly
high levels of defaults and portfolio deterioration. Due to the
better metrics and shorter life of the current portfolio, the class
B-1-R, B-2-R, and F-R notes display a rating cushion of one notch
while the class D-1-R and D-2-R notes display a three-notch rating
cushion, respectively.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
A 25% reduction of the mean RDR and a 25% increase in the RRR
across all ratings of the Fitch-stressed portfolio would result in
upgrades of no more than three notches across the structure, apart
from the 'AAAsf' class A notes. Upgrades, except for the class A
notes, may occur on better-than-expected portfolio credit quality
and deal performance, leading to higher credit enhancement and
excess spread available to cover losses in the remaining
portfolio.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations 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.
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.
=============
R O M A N I A
=============
ONIX ASIGURARI: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
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Fitch Ratings has affirmed ONIX Asigurari S.A.'s (ONIX) Insurer
Financial Strength (IFS) Rating at 'BB' and Issuer Default Rating
(IDR) at 'BB-'. The Outlooks are Stable.
The ratings of ONIX reflect its small scale and franchise compared
with larger, more diversified insurers' and its weak
risk-mitigation policies. These weaknesses are offset by ONIX's
sound capitalisation and strong financial performance.
KEY RATING DRIVERS
'Least Favourable' Company Profile: ONIX is a small Romania-based
non-life insurer that operates predominantly in Spain and, to a
lesser extent, in Italy, Poland, Portugal, Greece and, since 2022,
Romania. It focuses largely on surety business for medium-sized to
large corporations operating predominantly in the construction and
energy industries.
Fitch assesses ONIX's business profile as 'Least Favourable'
compared with larger, more diversified peers due to the company's
small size and limited product diversification. In 2021, ONIX had
EUR37 million in equity (2020: EUR24 million) and wrote EUR31
million in gross premiums (GWP; 2020: EUR33 million). Fitch
assesses ONIX's business profile as its key rating weakness.
Lack of Reinsurance Protection: ONIX does not make significant use
of reinsurance protection and ceded only 3% of GWP in 2021. While
this high retention supports its strong profitability, Fitch
believes that it exposes the company's capital to large external
shocks.
Adequate Capitalisation, No Leverage: ONIX's sound capitalisation
is reflected in an adequate credit exposure-to-equity score of 22%
in 2021 (2020: 26%). Fitch categorised ONIX's guarantee portfolio
as 'medium risk' due to the company's predominant focus on the
civil engineering and renewal energy sectors in Spain and Italy.
ONIX's Solvency II coverage ratio, calculated under the standard
formula, was strong at 197% at end-2021, albeit down from 243% at
end-2020, as a result of dividend distribution. The absence of
financial debt is a favourable rating factor.
Strong Profitability: Its assessment of ONIX's profitability is
driven by the company's record of very profitable underwriting
results, due to effective underwriting discipline. This is
reflected in a combined ratio of 54% at end-2021 (2020: 58%). Its
net income return-on-equity (ROE) was very strong at 40% in 2021
(2020: 37%). Fitch expects ONIX to continue to report very strong
technical results. However, due to its small scale, net income is
subject to potential volatility.
Moderate Asset Risk: Fitch views ONIX's investment and liquidity
risk as moderate for the ratings. Exposure to Romanian sovereign
debt (BBB-/Negative) was moderate at 0.8x shareholders' equity at
end-2021 (2020: 1.1x). The company holds a highly liquid portfolio,
approximately half of which is invested in cash or term deposits
with Spanish and Romanian banks, some of which are small-scale and
with a modest franchise. Fitch considers term deposits held with
small-scale banks in its calculation of ONIX's risky
assets-to-equity ratio. As a result, ONIX's risky assets ratio,
which measures risky assets as a share of capital, was moderate at
71% at end-2021.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- A weakening of ONIX's business profile driven, for example, by
lower premium volumes
- Deterioration in ONIX's capital position, as evident in a
Solvency II coverage ratio of less than 120%
- A two-notch downgrade of Romania's Long-Term Local-Currency
IDR is likely to lead to a one-notch downgrade of ONIX's
ratings
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- A significant improvement of ONIX's business profile
through profitable growth and greater product diversification
- A strengthening in ONIX's risk-mitigation practices as
evident in, for example, greater reinsurance utilisation
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.
Entity/Debt Rating Prior
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ONIX Asigurari S.A. LT IDR BB- Affirmed BB-
Ins Fin Str BB Affirmed BB
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S P A I N
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NATURGY ENERGY: S&P Affirms BB+ Ratings on Jr. Sub. Hybrid Notes
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S&P Global Ratings affirmed the 'BBB/A-2' long- and short-term
issuer credit ratings on Naturgy Energy Group S.A. At the same
time, S&P affirmed its 'BBB' issue ratings on the group's senior
unsecured debt and its 'BB+' ratings on its junior subordinated
hybrid instruments. S&P has removed all ratings from CreditWatch
negative, where we placed them on Feb. 18, 2022.
The current challenges in Europe's energy environment make the
split of Naturgy into two entities, MarketsCo and NetworksCo,
unlikely over 2022-2023, which prolongs the uncertainty surrounding
Naturgy's strategic direction.
The negative outlook reflects S&P's view that Naturgy's strategy is
not clear enough to provide long-term visibility on its business
prospects, and that the recurrent changes in strategic direction
hinder a transformation of its asset portfolio, which is heavily
gas dependent.
S&P said, "Our expectation that the Gemini transaction will be
delayed reiterates the uncertainties surrounding Naturgy's
strategic direction, which -- coupled with our view of a
shareholder-friendly financial policy -- persistently hinders
Naturgy's focus on executing and delivering sustainable growth, in
our opinion.In November 2020, Naturgy announced a portfolio
rotation strategy, aiming to divest assets in riskier
jurisdictions. In July 2021, it unveiled a 2021-2025 strategic plan
aimed at accelerating organic growth while preserving existing
assets and an integrated structure. Then, on Feb. 10, 2022, it
announced project Gemini to split the group into NetworksCo and
MarketsCo. We believe that Naturgy's frequent changes in strategic
direction prolong the uncertainty about its long-term prospects,
constraining the group's creditworthiness. We now believe that the
uncertainty surrounding Naturgy's strategy will take longer to
dissipate because of the unclarity on the timing and feasibility of
the execution of project Gemini. We believe the project will likely
be delayed beyond 2023, owing to the ongoing European energy
crisis, as well as Spanish general elections in 2023 reducing
prospects for swiftly gaining the necessary government support. In
our view, the lingering uncertainty regarding the perimeter of
operations, the capital structure, and the strategic goals -- for
both the group and the potential entities NetworksCo and MarketsCo
-- makes an acceleration of Naturgy's strategy implementation more
complex. Nevertheless, we understand that in either scenario,
Naturgy as a constant perimeter or the emerging entities as a split
perimeter, the aim is generally to adhere to the 2021-2025
strategic plan.
"The negative outlook on the group captures our view that the
uncertainties surrounding Naturgy's strategic direction currently
overshadow our expectation of a strong financial performance over
2022-2023.We expect Naturgy will post strong financial performance
in 2022-2023 (on constant perimeter), mainly off its open positions
within its wholesale gas and international LNG business, which
benefits from widening Henry Hub-Dutch TTF spreads. We expect funds
from operations (FFO) to debt comfortably above our downside
trigger for the rating in 2022, even if the 1.2% tax on revenue
proposed by the Spanish government applied, and higher procurement
prices retroactively applied in 2022 under the 5 billion cubic
meter per year gas contract with Sonatrach, following the
contract's renegotiation as of Oct. 6, 2022. Our metric also
incorporates capital expenditure (capex) close to EUR3 billion in
2022 and 2023 on constant perimeter, assuming the company sticks to
the levels laid out in the 2021-2025 strategic plan, annual
dividends of EUR1.6 billion-EUR1.7 billion annually in the next two
years, and our assumption of the redemption of all EUR1.5 billion
of the outstanding hybrids. We expect the metric to further improve
in 2023 as gas contracts on the supply side are renegotiated at
higher prices. Despite these favorable trends, lacking clarity on
Naturgy's strategic direction limits rating upside, as does our
view that 2022-2023 earning levels from wholesale gas and the
international LNG businesses are unsustainable over the long term
and are prone to fluctuate significantly depending on gas price
volatility.
"We assess Naturgy's decision to call and not replace the EUR500
million 4.125% non-call 2022 notes as reflective of an aggressive
financial policy, because it restricts the company's ability to use
this instrument in the future. When assigning intermediate equity
content to an issuer's hybrid instruments, we expect hybrids will
remain a permanent layer of its capital structure. On Oct. 13,
2022, Naturgy announced its intention to call the non-call 2022
hybrid, and we understand that the company does not intend to
replace it, which is inconsistent with our former expectation.
Consequently, we are revising to minimal the equity content of
Naturgy's hybrids, including the EUR500 million 3.375% perpetual
non-call 2024 notes, issued in the context of the CGE Chile
acquisition in 2014 (divested by Naturgy in 2020), and EUR500
million 2.374% 5.25-year non-call deeply subordinated guaranteed
fixed-rate reset securities issued in November 2021, while the
unchanged 'BB+' ratings on these securities continue to reflect one
notch each for subordination and payment flexibility, because
Naturgy can indefinitely defer interest payments without triggering
an event of default.
"We are not considering the redemption of the hybrid under the
context of a transformative event. Our methodology considers the
redemption of hybrid capital as immaterial in the context of a
transformative event if such transaction has minimal or no negative
impact in the issuer's creditworthiness. However, because we
understand that the Gemini project is indefinitely delayed, we are
not looking at Naturgy's decision through this lens. In fact, when
assigning equity content to a hybrid instrument, we expect an
issuer will keep or replace it, so as to keep the option of
preserving cash when needed, such as under the ongoing challenging
scenario for hybrid issuances and the European energy sector."
The revision of the equity content to minimal will result in a
EUR750 million increase of our adjusted debt calculation, which the
company can comfortably absorb at the level of the current rating.
Because of Naturgy's strong performance in 2022, the hybrids
redemption and our revision in equity content minimally impact
credit metrics.
S&P said, "The negative outlook reflects that the uncertainties
surrounding Naturgy's strategic direction may take longer to
resolve than we expected, since we believe that the ongoing
European energy crisis will complicate the execution of project
Gemini. In our view, Naturgy lacks a strategic plan which provides
long-term visibility on its business prospects, and the recurrent
changes in strategic direction hinder the transformation of its
asset portfolio, which is heavily gas dependent.
"We would downgrade Naturgy if we believed that its delay in
strategy implementation would result in a lagging position within
the sector in a way that it weakens its business position, even
within the strong category.
"We could revise the outlook to stable once the company's strategic
direction is clarified, including perimeter of operation, capital
structure, and strategic ambitions. The outlook revision would be
conditional on a track record of implementation, coupled with our
assessment that such execution will protect Naturgy's earnings
quality and long-term business visibility."
ESG credit indicators: E-3, S-2, G-4
S&P believes that Naturgy's abrupt and frequent changes in
strategic direction result in persistent uncertainty about the
group's long-term prospects, implying weaker-than-peers'
governance, which is a negative consideration in its rating
analysis.
S&P believes generous shareholder remuneration and relatively lower
investments over recent years have put the company at a
disadvantage in the context of the energy transition. Furthermore,
it believes the proposed split of the company would mostly benefit
shareholders above the rest of Naturgy's stakeholders.
Environmental factors remain a moderately negative consideration in
S&P's credit rating analysis of Naturgy. The company's asset
portfolio is concentrated in carbon-intensive activities, with more
than 60% of its EBITDA stemming from gas-related businesses.
Because of the uncertainties surrounding strategy implementation
and given the group's historical underinvestment, S&P believes the
company will remain behind peers in the short term.
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S W I T Z E R L A N D
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TRANSOCEAN LTD: S&P Upgrades ICR to 'CCC', Outlook Negative
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S&P Global Ratings raised the issuer credit rating on
Switzerland-domiciled offshore drilling contractor Transocean Ltd.
to 'CCC' from 'SD'. At the same time, S&P raised the issue-level
ratings on Transocean's secured debt to 'B-' from 'CCC+' (recovery
rating: '1'), on its super priority guaranteed unsecured debt to
'CCC+' from 'CCC' (recovery rating: '2'), on its priority
guaranteed unsecured debt to 'CCC+' from 'CCC' (recovery rating:
'2'), and on its senior unsecured debt to 'CCC' from 'CCC-'
(recovery rating: '3').
S&P said, "We also raised the issue-level rating on the rated notes
involved in the debt exchange, the 7.25% senior guaranteed
unsecured notes due 2025, to 'CCC+' from 'D'.
"At the same time, we assigned a 'CCC+' issue-level rating
(recovery rating: '2') to the newly issued 4.625% senior guaranteed
exchangeable notes due 2029, and 'CCC+' issue-level ratings
(recovery rating: '2') to the 4.0% super priority guaranteed
exchangeable bonds due 2025 and the 2.5% super priority guaranteed
exchangeable bonds due 2027.
"The negative outlook reflects the potential that the company could
enter into a debt exchange or balance sheet restructuring that we
would view as distressed over the next 12 months."
The upgrade reflects Transocean's enhanced liquidity runway.
Since July, Transocean has extended its secured credit facility by
two years to June 2025, exchanged $73 million of exchangeable bonds
due Jan. 2023 for exchangeable bonds due 2029, and issued an
incremental $188 million of exchangeable bonds due 2029. However,
the size of the credit facility was reduced from $1.3 billion to
$774 million through June 2023, and to $600 million through June
2025 (with a $250 million accordion feature).
However, the company still faces the risk of a distressed debt
exchange or balance sheet restructuring over the next 12 months.
S&P said, "Pro forma for the near-term debt exchanges and debt
repurchases, and incorporating the portion of its restricted cash
earmarked for debt service, we estimate that Transocean has about
$533 million of amortization payments and debt maturities over the
next 12 months, as well as about $820 million of capital
expenditures, including $675 million to $700 million of newbuild
capex. We estimate total sources of liquidity will cover these
uses, however with a very limited cushion. Thus we think the
company may seek to issue incremental debt or equity over the next
year to bolster its liquidity position."
Transocean has added over $1.4 billion of contracted backlog since
July 25, with another $437 million contingent on government
approvals.
Transocean continues to hold the highest backlog in the offshore
drilling industry, with $6.2 billion as of July 25, 2022. Since
then, the company has added over $1.4 billion in contract backlog
for its rigs, with contracts ranging in duration from one well
(assumed 60 to 90 days) to 5.8 years, at dayrates between $395,000
and $440,000. It was also awarded a contract worth up to $437
million for the harsh environment Transocean Norge, contingent on
government approval of the wells.
The negative outlook on Transocean reflects its unsustainable
leverage, heavy debt maturity schedule, significant capex, and the
potential that it will undertake a distressed debt exchange or debt
restructuring over the next 12 months.
S&P said, "We would lower our rating on Transocean if it announced
a debt exchange or debt restructuring we viewed as distressed, or
if it missed an interest or principal payment.
"We could raise our rating on Transocean if we no longer viewed a
distressed exchange or debt restructuring as a high probability
over the next 12 months, which would most likely occur in
conjunction with a stronger and more rapid recovery in offshore
drilling activity than we anticipate."
ESG credit indicators: E-4, S-3, G-3
S&P said, "Environmental factors are a negative consideration in
our credit rating analysis of Transocean Ltd. due to our
expectation that the energy transition will result in lower demand
for offshore drilling rigs and services as accelerating adoption of
renewable energy sources lowers demand for fossil fuels. In
addition, the industry faces an increasingly challenging regulatory
environment, both domestically and internationally, that has
included limits on drilling activity in certain jurisdictions, as
well as the pace of new and existing well permits. Given its
deepwater exposure, Transocean faces greater environmental risks
relative to onshore rig contractors, in our opinion, which could
contribute to more onerous regulatory standards and higher costs.
Social factors are a moderately negative consideration in our
credit ratings of Transocean because, in our view, deepwater
operations are more prone to major event and headline risk given
the inherent challenges of operating offshore. Governance factors
are also a moderately negative consideration, due to lack of
financial transparency given the company's multilayered and highly
complex capital structure."
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U N I T E D K I N G D O M
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BCP V MODULAR III: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
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Fitch Ratings has affirmed BCP V Modular Services Holdings III
Limited's (Modulaire) Long-Term Issuer Default Rating (IDR) at 'B'
with a Stable Outlook.
Fitch has also affirmed the senior secured debt ratings of BCP V
Modular Services Finance II PLC (BCP Finance II) and BCP V Modular
Services Holdings IV Limited (BCP IV) at 'B+'/RR3 and the senior
unsecured debt rating of BCP V Modular Services Finance PLC's (BCP
Finance) at 'CCC+'/RR6.
The affirmations follow Modulaire's announcement of plans to add
EUR140 million to BCP IV's existing term loan B due 2028,
increasing it to EUR1.65 billion. Fitch expects use of funds to
include future bolt-on acquisitions.
Modulaire is a leading European modular space leasing company,
owned since December 2021 by private equity funds managed by
Brookfield Capital Partners. BCP Finance II, BCP IV and BCP Finance
are finance-raising entities within the Modulaire group. Modulaire
has a record of organic and inorganic growth, supported by
significant leverage.
KEY RATING DRIVERS
LONG-TERM IDR - MODULAIRE
The proposed term loan B add-on of EUR140 million will add 4% to
Modulaire's existing total debt of around EUR3.2 billion. Under
Fitch's calculation methodology, the agency expects Modulaire's pro
forma gross debt to EBITDA (excluding IFRS 16 lease adjustments) on
completion of the add-on to be approximately 7.0x, or 6.6x
including IFRS 16 adjustments, without assumption of any EBITDA
contribution from acquisitions. On a net debt basis, these ratios
amount to 6.4x and 6.1x, respectively.
Fitch regards Modulaire as having good long-term deleveraging
potential via cash generation from its recurring customer base and
increasing penetration of its value-added products and services.
However, the additional debt removes near-term tolerance for
further borrowings at the current rating level without EBITDA
growth.
Fitch expects EBITDA interest coverage (excluding IFRS 16 impacts)
to reduce following the transaction but to remain above 2x.
Modulaire faces no significant near-term debt maturities, having
recently extended the term of senior secured borrowings to 2028 and
senior unsecured to 2029. Liquidity is further supported by a
EUR350 million multi-currency revolving credit facility, in
addition to operating cash generation.
In 1H22, Modulaire reported EUR243 million in underlying EBITDA, a
EUR33 million increase from the same period last year. Its credit
profile is supported by its established position in the modular
leasing sector, benefiting from good entrenchment in key markets,
notably across Europe but also in APAC. Its franchise has grown in
recent years through a number of accretive bolt-on acquisitions,
including Wexus in Norway, Advante in the UK, and most recently
Balat in Spain.
SENIOR SECURED AND UNSECURED DEBT - BCP FINANCE, BCP FINANCE II AND
BCP IV
Fitch notches the senior secured debt of BCP Finance II and BCP IV
up once from Modulaire's Long-Term IDR to 'B+'/RR3, on the basis of
expected good recoveries in a default scenario.
SENIOR UNSECURED DEBT - BCP FINANCE
Estimated recoveries for BCP Finance's senior unsecured debt are
zero, resulting in a rating two notches below Modulaire's Long-Term
IDR, at 'CCC+'/RR6.
RATING SENSITIVITIES
MODULAIRE
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- A sustained reduction in gross cash flow leverage (gross debt/
EBITDA excluding IFRS 16) towards 5x, or a demonstrated
improvement in the interest cover ratio towards 4x;
- Significantly enhanced franchise or business model
diversification, within the broader modular space sector.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Sustained cash flow leverage (gross debt/ EBITDA excluding
IFRS 16) in excess of 7x;
- Deteriorating pre-tax profitability, e.g. from declining
asset utilisation metrics or rental margins, thereby
undermining debt service and limiting capital accumulation;
- Evidence of increased risk appetite, e.g. from weakening
of the corporate governance framework, dilution of risk
control protocols or prioritisation of upstreaming
earnings over longer-term deleveraging.
BCP FINANCE II and BCP IV - SENIOR SECURED DEBT
- The ratings of the senior secured debt issued by BCP
Finance II and BCP IV are primarily sensitive to a change
in Modulaire's Long-Term IDR, from which they are notched.
- Changes leading to a material reassessment of recovery
prospects, for example movements in equipment valuation,
could trigger a change in the notching either up or down.
- A shift in the balance of Modulaire's total debt between
senior secured and senior unsecured sources, could also
trigger a change in the notching either up or down.
BCP FINANCE - SENIOR UNSECURED DEBT
- The rating of the senior unsecured debt issued by BCP
Finance is primarily sensitive to a change in
Modulaire's Long-Term IDR, from which it is notched.
- Changes leading to a material positive reassessment of
recovery prospects, for example movements in equipment
valuation, or a decline in the proportion of Modulaire's
total debt drawn from higher-ranking senior secured
sources, could reduce the notching between Modulaire's
IDR and BCP Finance's unsecured debt.
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.
Entity/Debt Rating Recovery Prior
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BCP V Modular
Services Finance
II PLC
senior secured LT B+ Affirmed RR3 B+
BCP V Modular
Services Holdings
IV Ltd
senior secured LT B+ Affirmed RR3 B+
BCP V Modular
Services Holdings
III Limited LT IDR B Affirmed B
BCP V Modular
Services Finance
PLC
senior unsecured LT CCC+ Affirmed RR6 CCC+
BRITISH AIRWAYS: Fitch Affirms LongTerm IDR at 'BB', Outlook Neg.
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Fitch Ratings has affirmed British Airways Plc's (BA) Long-Term
Issuer Default Rating (IDR) at 'BB'. The Outlook is Negative.
The IDR affirmation reflects BA's rating benefits from the stronger
consolidated credit profile of its parent, International
Consolidated Airlines Group S.A. (IAG) according to Fitch's Parent
and Subsidiary Linkage (PSL) Rating Criteria. Fitch assesses BA's
Standalone Credit Profile (SCP) as having deteriorated to a level
that is commensurate with 'bb-', which is weaker than the group's
consolidated profile.
Fitch continues to assess the ties between BA and IAG as moderate.
While Fitch no longer assumes equity-like support from IAG in its
forecast, Fitch expects tangible support in case of need given its
strategic importance to the group.
The Negative Outlook reflects limited leverage headroom for BA's
rating and IAG's credit profile. Furthermore, Fitch expects margins
and deleveraging capacity to remain under pressure from a worsened
economic outlook, a rising cost base - from fuel prices, labour
cost and unfavourable foreign-exchange movement - and a large capex
programme. Macroeconomic instability, coupled with high inflation
in Europe, could suppress demand recovery, posing further risk to
yields.
KEY RATING DRIVERS
Weaker SCP: BA's SCP has weakened further and is now commensurate
with 'bb-', weaker than IAG's consolidated credit profile. Fitch
expects BA's total adjusted net debt/operating EBITDAR to recover
to 4.4x in 2024, which is close to its negative sensitivity for
'BB-' of 4.5x, leaving the company with limited headroom. The
weaker SCP is driven by a slow recovery from the pandemic and
higher cost expectation. While Fitch no longer assumes support from
IAG to be equity-like, Fitch views the strength of ties between BA
and its parent as unchanged.
Stronger Parent Benefits IDR: BA's IDR benefits from its assessment
of a stronger parent IAG. This is based on our assessment of 'Low'
legal incentives, 'High' strategic and 'Medium' operating
incentives under its PSL Criteria. Fitch views BA's strategic
importance to the group as stronger than other operating companies
given its stronger business profile and largest contribution to the
group.
Impaired Profitability: Fitch said, "We expect BA's post-lease
EBITDA margin to be in the low-to-mid single-digits (17% in 2019)
for the next three years. This is driven by a substantial increase
in the cost base due to significantly higher fuel prices, other
inflationary cost pressure as well as a weaker pound. We expect the
surge in costs to be partially mitigated by stronger yields,
improved operational efficiency and capacity recovery that will
support revenue and its unit cost."
Fuel Cost Hits Industry: Fitch expects higher fuel costs to weaken
both BA's margins and deleveraging capacity to levels below its
previous forecasts. Fitch forecasts fuel cost to represent around
30% of BA's total operating cost (excluding depreciation). BA has
reduced fuel-cost volatility by hedging 73% and 34% of expected
fuel consumption for 2022 and 2023, respectively. As a result fuel
unit cost in 2Q22 rose 35% versus 2Q19 even as fuel spot prices
increased 150% yoy. Its forecasts assume the rest of BA's cost is
unhedged with oil price staying at about USD85/barrel to end-2025,
after an increase to USD105/barrel in 2022.
Stronger Dollar Pressures Costs: The strengthening of the US dollar
is hurting airlines as a majority of operating costs, capex and
debt (including lease debt) are denominated in US dollars. While
the company's FX hedging policy, which is effective for up to three
years, will mitigate the impact of adverse FX movement, the
stronger dollar will increase BA's cost base in the medium-to-long
term. Fitch expects further depreciation of the pound versus US
dollar in its rating horizon to add pressure to BA's margins, if
not mitigated by higher yields.
Yield Management is Key: BA's strong yield performance in 2022 is
supported by pent-up demand (particularly from transatlantic
markets and premium segments), which offset a delay to capacity
recovery and higher costs incurred. Fitch sees the company's
ability to increase yields as key to its performance in the medium
term. Economic uncertainty, coupled with high inflation in Europe,
could suppress demand and therefore airlines' pricing power. Fitch
expects yields to be weaker in dollar terms, but stronger in pounds
or euros.
Capex-Driven Negative FCF: Fitch said, "We forecast negative free
cash flow (FCF) of around GBP1.6 billion during 2022-2025. We
continue to expect significantly higher capex than its average in
2016-2019 as BA has committed to fleet renewal and resumption of
non-mandatory investments that were deferred during the pandemic.
Planned fleet renewal will enable BA to better meet shifting
customer demand and improve cost efficiency."
Operational Disruptions: The airlines industry has continued to
face challenges with the scaling up of operations and staff
shortages across the sector, which have particularly affected BA's
and its Heathrow operations this year. The company has taken
actions to restore operational resilience with pre-emptive capacity
reductions with limited financial impact. Fitch assumes largely
normalised operations in 2023 based on lower capacity constraints
at airports, strong personnel recruitment and fewer Covid-19 checks
controls. Nonetheless, external bottlenecks issues outside of BA's
control pose risks to its recovery.
Competitive Position in EMEA: Fitch expects BA's cost-cutting
measures will help the company emerge from the crisis and remain a
highly competitive carrier in various markets. Fitch forecasts BA's
cost per available seat kilometers to improve to around USD0.09 by
2024 - similar to its 2019 levels - on the back of improved
operational efficiency, labour-and supplier-cost optimisation,
fleet efficiencies and technological advancement. BA's cost
position is stronger than western European and US network carriers'
but weaker than that of fast-growing ultra-low-cost carriers with
whom BA also competes.
DERIVATION SUMMARY
BA's exposure to the crisis is similar to other major European
network carriers', while the company's liquidity buffer is fairly
strong and comparable to Ryanair Holdings plc's (BBB/Stable) and
Wizz Air Holdings plc's (BBB-/Stable).
BA's recovery has lagged many of its competitors' due to stricter
travel restrictions in the UK and its high exposureon international
traffic and corporate demand, both of which are set to recover
slower than leisure travel and domestic routes. Delay to recovery,
however, has not changed its view on the company's business risk as
BA remains competitive in the broader aviation market through the
cycle. Its weaker financial profile is the key driver of its
current rating and Outlook.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Annual capacity down 30% in 2022 compared with 2019
(2021: down 72% versus 2019), 3% in 2023 before fully
recovering in 2024
- Load factor at 80% in 2022 (2021: 58.3%) and a gradual
increase to about 84% by 2025
- Increasing yields for the next three years compared with
2019-2021, reflecting ability to partially pass on cost
inflation
- Oil price of USD105/bbl in 2022 and USD85/bbl thereafter
- Capex totaling about GBP7.9 billion during 2022-2025
- No dividends during 2022-2025
- Shareholder loan of GBP1.4 billion from IAG accounted as
financial debt
- Depreciation of the pound versus US dollar to 1.15 in
2022-2025
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- The Negative Outlook makes upside unlikely
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Failure to adapt to changing market conditions with mitigation
measures, prolonged economic crisis, weaker-than-expected
yields or more aggressive capex or dividend payments
- Funds from operations (FFO) adjusted gross leverage and total
adjusted gross debt/EBITDAR above 5.5x
- FFO adjusted net leverage and total adjusted net
debt/EBITDAR above 4.5x
- Weakening consolidated credit profile of IAG
LIQUIDITY AND DEBT STRUCTURE
Sufficient Liquidity: As of end-June 2022 BA had cash and cash
equivalents of GBP2.2 billion, committed and undrawn general
facilities for GBP2.1 billion and GBP0.7 billion of undrawn
committed aircraft facilities. Its available liquidity is
sufficient against GBP957 million of short-term debt obligations
and Fitch-expected negative FCF of GBP1.4 billion until 1H23.
ISSUER PROFILE
BA is one of the largest European airlines based on pre-pandemic
passenger-revenue-kilometres and the largest UK international
airline.
Criteria Variation
The BA 2018-transaction varies from one of the qualitative
characteristics for the 'AA' rating category consideration as
specified in Fitch's EETC criteria. The collateral pool of the BA
2018-1 initially comprised 11 aircraft, qualifying it for the 'AA'
rating consideration; however, certain aircraft are scheduled to be
released from the pool prior to the final expected maturity.
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.
CANADA SQUARE 7: S&P Assigns B+(sf) Rating on Class E-Dfrd Notes
----------------------------------------------------------------
S&P Global Ratings has assigned credit ratings to Canada Square
Funding 7 PLC's (CSF 7) class A loan note and class B-Dfrd to
E-Dfrd interest deferrable notes.
CSF 7 is a static RMBS transaction that securitizes a portfolio of
GBP237.4 million buy-to-let (BTL) mortgage loans secured on
properties located in the U.K.
The transaction is a refinancing of Canada Square Funding 2019-1
PLC, which closed in October 2019.
The loans in the pool were originated by Fleet Mortgages Ltd.
between 2016 and 2019.
At closing, the issuer used the issuance proceeds to purchase the
full beneficial interest in the mortgage loans from the seller. The
issuer granted security over all its assets in the security
trustee's favor.
Citibank, N.A., London Branch, retains an economic interest in the
transaction in the form of a vertical risk retention (VRR) loan
note accounting for 5% of the pool balance at closing. The
remaining 95% of the pool was funded through the proceeds of the
mortgage-backed rated notes.
S&P considers the collateral to be prime based on the overall
historical performance of Fleet Mortgages Ltd.'s BTL mortgage book,
the conservative underwriting criteria, and the loan performance in
the securitized pool.
Credit enhancement for the rated notes comprises subordination from
the closing date and overcollateralization, which will result from
the release of the liquidity reserve excess amount to the principal
priority of payments.
The class A loan note benefits from liquidity support in the form
of a liquidity reserve, and the class A loan note and class B-Dfrd
through E-Dfrd notes benefit from the ability of principal to be
used to pay interest, provided that, in the case of the class
B-Dfrd to E-Dfrd notes, the respective tranche's principal
deficiency ledger does not exceed 10% unless they are the most
senior class outstanding.
There are no rating constraints in the transaction under S&P's
counterparty, operational risk, or structured finance sovereign
risk criteria. S&P considers the issuer to be bankruptcy remote.
Ratings
CLASS RATING* AMOUNT (GBP)
A loan note AAA (sf) 199,590,000
B-Dfrd AA- (sf) 14,659,000
C-Dfrd A- (sf) 6,766,000
D-Dfrd BBB (sf) 2,819,000
E-Dfrd B+ (sf) 1,692,000
VRR loan note NR 11,869,789.47
S1 certificates NR N/A
S2 certificates NR N/A
Y certificates NR N/A
NR--Not rated.
N/A--Not applicable.
VRR--Vertical risk retention.
CHOOSE CHILLI: Director Gets Seven-Year Disqualification Over BBL
-----------------------------------------------------------------
The Insolvency Service on Oct. 13 disclosed that Abul Kalam, 48,
from Birmingham, has been disqualified as a company director for
seven years after being unable to explain over GBP400,000 of his
restaurant's income and expenditure after his business folded,
including GBP35,000 he claimed through the Bounce Back Loan (BBL)
scheme during the Covid pandemic.
Abul Kalam was the sole director of Choose Chilli Ltd which ran
Mehfil's restaurant in Pembroke's Main Street shopping arcade until
2021.
During the Covid lockdown in 2020, Choose Chilli Ltd applied for
and received a GBP25,000 Bounce Back Loan. These were
government-backed loans introduced to support businesses impacted
by the pandemic. The company received a further GBP10,000 top-up
BBL in March 2021 but ceased trading and went into voluntary
liquidation in July 2021, owing almost GBP70,000.
Investigators at the Insolvency Service discovered that both the
GBP25,000 BBL payment and the GBP10,000 top-up loan had been
transferred into a bank account in Mr. Kalam's name the day after
the money had arrived in Choose Chilli's bank account.
Under the rules of the BBL scheme, money borrowed had to be used
for the economic benefit of the business but Mr. Kalam provided no
evidence that any of the GBP35,000 had been used to support Choose
Chilli, and the amount remained outstanding when the restaurant
went into liquidation.
On further investigation, the company's bank account showed that
more than GBP178,000 -- in addition to the BBL money -- was paid
into the restaurant and more than GBP241,000 was separately paid
out between December 2019 and July 2021 -- a period that included
extended Covid lockdowns and restrictions.
Mr. Kalam was unable to prove that the transactions were legitimate
sales and business expenditure, as he had failed to retain adequate
invoices or records to verify the amounts.
The restaurant-owner's inadequate book-keeping meant investigators
were also unable to establish how much money was owed to HMRC in
tax and national insurance.
The Secretary of State for Business, Energy and Industrial Strategy
accepted a disqualification undertaking from Abul Kalam, after he
didn't dispute that he had caused Choose Chilli Ltd to obtain a
Bounce Bank Loan and a BBL top-up loan totalling GBP35,000 and
failed to ensure the funds were used for the economic benefit of
Choose Chilli's business, which was a breach of the terms of the
BBL.
He also didn't dispute he had failed to ensure Choose Chilli kept
adequate accounting records -- a legal duty of company directors.
His disqualification is effective from September 30, 2022 and will
last for seven years.
The disqualification undertaking prevents Mr. Kalam from directly,
or indirectly, becoming involved in the promotion, formation or
management of a company, without the permission of the court.
Lawrence Zussman, Deputy Head of Company Investigations at the
Insolvency Service, said: "Abul Kalam has justifiably been removed
from the business environment for a significant period and his
disqualification should serve as a reminder to others that the
Insolvency Service will not hesitate in taking appropriate
action."
EUROSAIL-UK 2007-6: Fitch Affirms 'CCsf' Rating on Class D1a Notes
------------------------------------------------------------------
Fitch Ratings issued a correction on a release on Eurosail-UK plc
published on October 4, 2022. It corrects the negative rating
sensitivity.
The amended ratings release:
Fitch Ratings has upgraded one tranche of Eurosail-UK 2007-6 NC plc
(ES07-6) and three tranches of Eurosail-UK 2007-1 NC plc (ES07-1)
and affirmed the others. Fitch has also affirmed Eurosail-UK 2007-5
NP plc (ES07-5). 12 tranches have been removed from Under Criteria
Observation (UCO).
Entity/Debt Rating
----------- ------
Eurosail-UK 2007-6 NC Plc
Class A3a XS0332285971 LT AAAsf Affirmed
Class B1a XS0332286862 LT BBB-sf Upgrade
Class C1a XS0332287084 LT B-sf Affirmed
Class D1a XS0332287597 LT CCCsf Affirmed
Eurosail-UK 2007-1 NC Plc
Class A3a XS0284931853 LT AAAsf Affirmed
Class A3c 298800AJ2 LT AAAsf Affirmed
Class B1a XS0284932315 LT AAAsf Affirmed
Class B1c XS0284947263 LT AAAsf Affirmed
Class C1a XS0284933719 LT A+sf Affirmed
Class D1a XS0284935094 LT BBBsf Upgrade
Class D1c XS0284950994 LT BBBsf Upgrade
Class E1c XS0284956330 LT BBsf Upgrade
Eurosail-UK 2007-5 NP Plc
Class A1a XS0328024608 LT B-sf Affirmed
Class A1c XS0328025241 LT B-sf Affirmed
Class B1c XS0328025324 LT CCCsf Affirmed
Class C1c XS0328025597 LT CCCsf Affirmed
Class D1c XS0328025670 LT CCsf Affirmed
TRANSACTION SUMMARY
The transactions comprise non-conforming UK mortgage loans
originated by Southern Pacific Mortgage Limited (formerly a
wholly-owned subsidiary of Lehman Brothers) and Alliance &
Leicester.
KEY RATING DRIVERS
Off UCO: In the update of its UK RMBS Rating Criteria on May 23,
2022, Fitch updated its sustainable house price for each of the 12
UK regions. The changes increased the multiple for all regions
other than North East and Northern Ireland, updated house price
indexation and updated gross disposable household income. The
sustainable house price is now higher in all regions except
Northern Ireland. This has a positive impact on recovery rates (RR)
and consequently Fitch's expected loss in UK RMBS transactions.
Fitch also reduced its foreclosure frequency (FF) assumptions for
loans in arrears based on a review of historical data from its UK
RMBS rated portfolio. The changes better align the assumptions with
observed performance in the expected case and incorporate a margin
of safety at the 'Bsf' level.
The updated criteria contributed to the rating actions and the
removal of the ratings from UCO.
Lower Than MIR: Asset performance in non-conforming pools may be
subject to performance deterioration as a result of rising
inflation and interest rates. An increase in arrears could result
in a reduction of the model-implied rating (MIR) in future
analysis. In ES07-1 the class C, D and E notes ratings' are
constrained to one notch below the respective MIR. In ES07-6 the
class B notes' rating is one notch below the MIR to account for the
risk.
Sequential Payments to Continue: Fitch expects ES07-1 to continue
amortising sequentially. Pro rata amortisation is being prevented
by number of triggers, such as the cumulative loss trigger, which
cannot be cured. The sequential amortisation and non-amortising
reserve fund has allowed credit enhancement (CE) to build up for
all notes. ES07-6 breached the 90 days plus arrears trigger of
22.5% in June 2020 and given that current arrears are at 23.03%,
the transaction has continued to pay sequentially since then.
Unmitigated Tail Risk: Fitch believes ES07-5 will be exposed to
significant tail risk. In Fitch's back-loaded default distribution
scenarios, the transaction is likely to repay principal on a
pro-rata basis until the aggregate principal amount outstanding of
the notes is less than 10% of the original pool balance. At the
same time, the transaction's reserve fund will amortise and the
fixed senior costs the transaction must pay will deplete any excess
spread available to meet interest payments on the notes, as the
pool balance shrinks.
Change in Arrears Reporting Methodology: The servicer updated its
arrears calculation methodology effective as of 1Q22. Rather than
determining the number of months in arrears by dividing a
borrower's arrears balance by the payment due, the servicer now
refers to number of full monthly payments missed. This resulted in
a reduction of the reported number of months in arrears for some
borrowers and was incorporated into the analysis. Late-stage
arrears have decreased to 22.2% in June 2022 from 25.1% in December
2021 for ES07-1, to 9.5% from 11.9% for ES07-5 and to 18.7% from
20.9% for ES07-6.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
The transactions' performance may be affected by changes in market
conditions and economic environment. Weakening economic performance
is strongly correlated with increasing levels of delinquencies and
defaults that could reduce CE available to the notes.
Additionally, unanticipated declines in recoveries could also
result in lower net proceeds, which may make certain notes
susceptible to potential negative rating action depending on the
extent of the decline in recoveries. Fitch tested a 15% increase in
the weighted average (WA) FF and a 15% decrease in the weighted
average (WA) RR. The results indicate downgrades of up to five
notches.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Stable to improved asset performance driven by stable delinquencies
and defaults would lead to increasing CE levels and potential
upgrades. Fitch tested an additional rating sensitivity scenario by
applying a decrease in the WAFF of 15% and an increase in the WARR
of 15%. The results indicate upgrades of up to five notches.
DATA ADEQUACY
Eurosail-UK 2007-1 NC Plc, Eurosail-UK 2007-5 NP Plc, Eurosail-UK
2007-6 NC Plc
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset
pools and the transactions. Fitch has not reviewed the results of
any third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
Fitch did not undertake a review of the information provided about
the underlying asset pools ahead of the transactions' (Eurosail-UK
2007-1 NC Plc, Eurosail-UK 2007-5 NP Plc, Eurosail-UK 2007-6 NC
Plc) initial closing. The subsequent performance of the
transactions over the years is consistent with the agency's
expectations given the operating environment and Fitch is therefore
satisfied that the asset pool information relied upon for its
initial rating analysis was adequately reliable.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Eurosail-UK 2007-1, 2007-5 and 2007-6 have an ESG Relevance Score
of '4' for Customer Welfare - Fair Messaging, Privacy & Data
Security due to the pool exhibiting an interest-only maturity
concentration among the legacy non-conforming owner-occupied loans
of greater than 40%, which has a negative impact on the credit
profile, and is relevant to the ratings in conjunction with other
factors.
Eurosail-UK 2007-1, 2007-5 and 2007-6 have an ESG Relevance Score
of '4' for Human Rights, Community Relations, Access &
Affordability due to a significant proportion of the pool
containing owner-occupied loans advanced with limited affordability
checks, 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.
EVE SLEEP: Commences Administration Process, Seeks Buyer
--------------------------------------------------------
Ethan Evans at The Scotsman reports that Eve Sleep has confirmed
that it has begun the process of entering administration following
a financial crisis which an executive described as an "economic
tsunami".
The hugely-popular mattress company had initially been in the
process of selling up as they received a number of indicative
offers from interested buyers, The Scotsman discloses.
None had progressed beyond due diligence, including what once were
positive talks with a US investor, leaving Eve Sleep no choice but
to call in administrators in the hope of a rescue deal, The
Scotsman states.
The UK-based e-commerce business has seen its share price slump by
90% over the course of 2022, The Scotsman notes. It has tried to
restructure and reduce the cost of its model, but lacked the scale
to do so.
At one point in 2017, Eve Sleep was valued at over GBP140 million
on the stock market.
Since June, the company has struggled to financially adjust to the
downturn in online home furnishing sales as the cost of living
crisis continues to force cash strapped consumers to prioritise
essential purchases, The Scotsman relates.
The outcome for creditors and shareholders is largely unknown,
however the statement confirms that it is not expected that they
will see any return for their investment in the business, according
to The Scotsman.
Eve Sleep's shares have subsequently been suspended from the London
Stock Exchange as a result of the administration process, The
Scotsman recounts.
FROST BURGERS: Enters Administration, Halts Trading
---------------------------------------------------
Tony McDonough at Liverpool Business News reports that vegan burger
restaurant brand Frost Burgers collapses into administration after
its Liverpool and Manchester outlets ceased trading.
According to LBN, soaring energy and ingredients costs has seen a
popular vegan burger brand collapse into administration.
Frost Burgers was founded in 2018, by social media influencer
Monami Frost. With outlets in Wood Street in Liverpool, and in
Manchester, it offered an 100% plant-based menu, serving burgers,
fries and milkshakes.
Paul Stanley and Jason Greenhalgh of Begbies Traynor were appointed
as joint administrators of Frost Burgers Limited on Oct. 7, LBN
relates. They are now looking for someone to buy the leases and
the assets including ready-made commercial kitchens, LBN
discloses.
"Despite gaining an excellent reputation, Frost Burgers has become
just one of the many businesses within the hospitality sector that
have experienced financial distress," LBN quotes Paul, North West
regional managing partner at Begbies, as saying.
"Restaurants in particular, are struggling to afford raw
ingredients and many are struggling with their energy bills.
"The hospitality sector is also taking a huge hit from labour
shortages as well as debts accrued over lockdowns, including bounce
back loans. It is likely that more restaurants will find
themselves in a similar position as we progress towards the end of
2022.
INTERNATIONAL PERSONAL: Fitch Affirms 'BB-' IDR, Outlook Stable
---------------------------------------------------------------
Fitch Ratings has affirmed International Personal Finance plc's
(IPF) Long-Term Issuer Default Rating (IDR) and senior unsecured
debt rating at 'BB-'. The Outlook on the Long-Term IDR is Stable.
KEY RATING DRIVERS
Low Leverage, High Impairment: IPF's rating captures the company's
low balance-sheet leverage and structurally profitable business
model, despite high impairment charges, supported by a
cash-generative short-term loan book. The ratings remain
constrained by IPF's higher-risk lending focus, evolving digital
business, and vulnerability to regulatory risks. The concentration
of IPF's funding also remains a weakness for its credit profile.
Heightened Asset-Quality Risk: IPF's impairment charges/total
revenue rose to 15% at end-1H22 from 10% at end-2021. However, the
latter represented an all-time low, as IPF lowered its risk
appetite in response to the pandemic, reducing lending and focusing
on the better-quality end of its customer base. A higher impairment
ratio was therefore expected in 2022 as management rebuilt the
scale of its loan book.
IPF's impaired loans (Stage 3 under IFRS 9) ratio (end-1H22: 32%)
remains lower than its historical average of 34% in 2017 -2021, but
in common with other lenders IPF faces near-term pressures as
rising energy prices and living costs weigh on borrowers' repayment
capacity.
Recovering Earnings: IPF's profitability recovered in 2021,
underpinned by normalisation of impairment charges that had pushed
the company into losses in 2020. Its 1H22 pre-tax income/average
assets remained sound at 6.5%. Notwithstanding likely renewed
impairment pressure in 2H22, IPF's profitability remains supported
by its strong net interest margins and by targeting its credit
expansion towards better-quality customers. Fitch believes its
profitability should be sufficient to absorb near-term asset
quality slippages.
Low Leverage: IPF's leverage is a credit strength and moderate for
a lending business focused on high-risk customers and bearing
significant impairment risks. Its gross debt/tangible equity of
2.3x at end-1H22 remains low compared with its average of 2.6x in
2018-2021. However, the ratio is likely to increase again in the
medium term towards the historical average through renewed
expansion of the loan book.
Concentrated Funding Profile: IPF's wholesale-funding profile
exposes it to the risk of changes in creditor sentiment, making
access to funding during market stress either uncertain or
expensive. Greater diversification of borrowings by source and
maturity would improve its assessment of funding.
Notwithstanding the above, IPF's near-term liquidity position
remains sound, underpinned by its cash-generative and short-term
loan portfolio (with average maturity of 12.6 months at end-1H22).
Additionally, IPF had unrestricted non-operational cash balance
stood at GBP44 million at end-1H22, and an undrawn revolving credit
facility of GBP58 million, equivalent in total to 9% of total
assets. IPF has limited near-term bond maturities, with GBP78
million (7% of total assets at end-1H22) in 2023 and GBP37 million
(3% of total assets) in 2024.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- A marked deterioration in asset quality amid macroeconomic
pressures, reflected in weaker collections, higher impairments
or an increase in unreserved problem receivables
- Difficulty in accessing funding markets, leading to material
shortening in its maturity profile or reduction in liquidity
headroom
- An increase in regulatory risks (related to rate caps and
early settlement rebate) with material negative impact on
IPF's capacity to conduct profitable business
- A significant weakening of solvency with gross debt/
tangible equity exceeding 5.5x or depletion of headroom
against the gearing (gross debt/total equity) covenant of
3.75x
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- A material improvement in funding profile via
diversification by source and removing maturity spikes
and
- A reduction of pandemic pressure on the company's
performance, with continuing recovery of its financial
profile through gaining scale and strengthening
profitability
DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS
IPF's senior unsecured notes' rating is in line with its Long-Term
IDR, reflecting Fitch's expectation for average recovery prospects
given that all of IPF's funding is unsecured.
DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES
IPF's senior unsecured debt rating will move in tandem with its
Long-Term IDR
ESG CONSIDERATIONS
IPF has an ESG Relevance Score of '4' for Exposure to Social
Impacts stemming from its business model focused on high-cost
consumer lending, and therefore exposure to shifts of consumer or
social preferences, and to increasing regulatory scrutiny,
including tightening of interest-rate caps. This has a negative
impact on the credit profile, and is relevant to the ratings in
conjunction with other factors.
IPF has an ESG Relevance Score of '4' for Customer Welfare - Fair
Messaging, Privacy & Data Security, driven by an increasing risk of
losses from litigations including early settlement rebates customer
claims. This 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.
Entity/Debt Rating Prior
----------- ------ -----
International Personal
Finance plc LT IDR BB- Affirmed BB-
ST IDR B Affirmed B
senior unsecured LT BB- Affirmed BB-
ROCHESTER FINANCING 3: Fitch Hikes Rating on Class X Notes to 'BB+'
-------------------------------------------------------------------
Fitch Ratings has upgraded Rochester Financing No. 3 except for its
class A notes, which are affirmed. The upgraded tranches have been
removed from Under Criteria Observation.
Debt Rating Prior
---- ------ -----
Rochester Financing No. 3
A XS2348602835 LT AAAsf Affirmed AAAsf
B XS2348603643 LT AA+sf Upgrade AAsf
C XS2348603999 LT Asf Upgrade A-sf
D XS2348604021 LT BBB+sf Upgrade BBBsf
E XS2348604377 LT BBBsf Upgrade BB+sf
F XS2348604534 LT BBB-sf Upgrade BB+sf
X XS2348604963 LT BB+sf Upgrade Bsf
TRANSACTION SUMMARY
Rochester 3 is a securitisation of non-prime owner-occupied (OO)
and buy-to-let (BTL) mortgages previously securitised in Rochester
Financing No.2 and backed by properties in the UK. The mortgages
were originated by DB Bank UK Ltd (68.9%), Money Partners Ltd
(29.4%) and Edeus Mortgage Creators Ltd (1.7%).
KEY RATING DRIVERS
Removed from UCO: The rating actions take into account Fitch's
updated UK RMBS Rating Criteria on 23 May 2022. Under the latest
criteria Fitch updated its sustainable house prices for each of the
12 UK regions. The changes include increased multiples for all
regions other than north east and northern Ireland, updated house
price indexation and updated gross disposable household income. The
sustainable house prices are now higher in all regions except
northern Ireland. This has had a positive impact on recovery rates
(RR) and, consequently, Fitch's expected loss in UK RMBS
transactions.
In addition to updating its sustainable house price assumptions
Fitch also reduced the foreclosure frequency (FF) floors for loan
in arrears for rating categories other than 'AAAsf'. This reduction
aligned Fitch's expected case with observations from rated
transactions and has had a positive impact on ratings at the lower
end of the rating scale.
Removal of Macroeconomic Adjustments: Fitch withdrew the
application of FF macroeconomic adjustments for UK non-conforming
(UKN) asset pools on 23 May 2022. The FF macroeconomic adjustments
were applied from 29 September 2021, when they replaced alternative
assumptions introduced on 1 July 2020 in response to the
coronavirus pandemic. As the macroeconomic adjustment resulted in
higher FF multiples for sub-investment- and low investment-grade
ratings its removal has a had positive impact on those rating
categories.
Risk from Rising Mortgage Costs: Since the last rating action nine
months ago, both three-months plus arrears and one-month arrears
remained stable and have reduced from levels observed during the
Covid-19 lockdowns. However, the transaction performance may be at
risk from inflationary pressures and rising mortgage costs. The
borrowers all pay a floating rate on their mortgages. Increasing
costs have raised the likelihood of increased arrears, which are
further exacerbated by high historical arrears compared with
Fitch's index of non-conforming transactions. Fitch tested adverse
scenarios assuming an increase in defaults. These adverse scenarios
constrained the class C, D, E, F and X notes to their current
ratings.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
The transactions' performance may be affected by adverse changes in
market conditions and economic environment. Weakening economic
performance is strongly correlated to increasing levels of
delinquencies and defaults that could reduce credit enhancement
available to the notes.
Fitch conducted sensitivity analyses by stressing each
transaction's base case FF and recovery rate (RR) assumptions, and
examining the rating implications on all classes of issued notes. A
15% increase in weighted average (WA) FF and a 15% decrease in WARR
indicates downgrades of no more than three notches.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Stable to improved asset performance driven by stable delinquencies
and defaults would lead to increasing credit enhancement and,
potentially, upgrades.
Fitch tested an additional rating sensitivity scenario by applying
a decrease in the WAFF of 15% and an increase in the WARR of 15%.
The results indicate upgrades of up to four notches.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
Prior to the transaction closing, Fitch sought to receive a
third-party assessment conducted on the asset portfolio
information, but none was available for this transaction.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Rochester 3 has an ESG Relevance Score of '4' for Customer Welfare
- Fair Messaging, Privacy & Data Security, due to the high
proportion of interest-only OO mortgages, which could contribute to
tail risk at the end of the transaction as a result of material
bullet payments. This has a negative impact on the credit profile,
and is relevant to the ratings in conjunction with other factors.
Rochester 3 has an ESG Relevance Score of '4' for Human Rights,
Community Relations, Access & Affordability, due to the presence of
legacy OO mortgages with limited affordability checks and
self-certified income. This 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.
WASPS: Goes Into Administration, 167 Jobs Affected
--------------------------------------------------
BBC News reports that Wasps have made 167 players and staff
redundant after becoming the Premiership's second club to go into
administration inside 21 days.
The Coventry-based club were suspended by the Premiership last
week, BBC notes.
It has now been confirmed that they have suffered the same fate as
Midlands rivals Worcester and will be relegated, BBC discloses.
But Arena Coventry Limited, which operates the Wasps-owned Coventry
Building Society Arena, may still avoid going into administration,
BBC states.
While Wasps Holdings Limited are the firm to have actually entered
administration, ACL, also part of Wasps, has filed a new notice of
intention to appoint administrators with the High Court in London,
BBC relates.
That would allow ACL, which holds the Coventry City Council lease
to operate the stadium, a fortnight's grace, which will give time
to find further funding, so that the CBS Arena remains operational,
and stadium tenants Coventry City's Championship home matches can
still be played, BBC notes.
Wasps Holdings Ltd is the holding company for Wasps Men, Wasps
Women, Wasps Netball, the associated coaching and support teams,
and the respective academies and pathways.
According to BBC, Andrew Sheridan and Raj Mittal, partners at
specialist business advisory firm FRP, confirmed in a statement
that Wasps Holdings Limited has ceased trading with immediate
effect -- and that they had been appointed as joint
administrators.
"Regrettably, upon appointment the joint administrators were
required to make 167 employees redundant, including all members of
the playing squads and coaching staff," BBC quotes the statement as
saying.
"A small number of employees have been retained to support with the
orderly wind down of the company and the operation of the CBS
Arena, which is unaffected by this administration and continues to
trade as normal."
Joint administrator Sheridan, as cited by BBC, said: "The board and
many others across the club have worked tirelessly over the last
few weeks to try and find a solution that would allow the club to
move forward, and it is with great regret that there has been
insufficient time to allow this to happen.
"However, we remain in ongoing discussions with interested parties
and are confident that a deal will be secured that will allow Wasps
to continue."
[*] UK: Fifty Pubs Closing Every Month in England and Wales
-----------------------------------------------------------
Hannah Boland at The Telegraph reports that fifty pubs are closing
every month in England and Wales as economic mayhem hits the
hospitality industry.
New figures show that there are now around 39,800 pubs in England
and Wales, with the number of closures accelerating in summer, The
Telegraph discloses.
Between the end of June and September, a total of 150 pubs were
either demolished or turned into homes and offices -- close to the
200 pubs which shut in the whole previous six months, The Telegraph
states
The figures, compiled by analytics company Altus Group based on
government property records, show that Wales and the North West
have been the hardest hit by closures, The Telegraph notes.
It comes amid mounting concern over the future of Britain's pubs.
Tim Martin, chairman of Wetherspoons, warned of a "momentous
challenge" to bring customers back after they stayed at home
drinking supermarket beer during lockdowns, The Telegraph recounts.
Supermarkets pay less VAT than pubs, which Mr. Martin claims has
had a debilitating impact on the industry, The Telegraph says.
The struggle to lure in consumers comes as pubs face pressure from
spiralling ingredient prices, energy bills and labour costs, The
Telegraph discloses. Households are also cutting back to cope with
their own higher utility and food bills.
According to The Telegraph, many pubs have already had to raise
prices, and the recent slump in sterling has raised the prospect of
further increases given that many rely on imported beers and wines.
The trade group UKHospitality estimates that more than 60% of the
industry's food and drink is imported.
Further pressure lies ahead for the pubs which can survive this
winter, given that from next April, they are set to lose their
business rate discount, which has been in place to help them
recover following the pandemic and a series of lockdowns, The
Telegraph states.
They have had a 50% discount on their business rates bills, worth
around GBP9,500 per pub. Support is due to end on March 31,
according to The Telegraph.
*********
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