/raid1/www/Hosts/bankrupt/TCREUR_Public/221025.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 25, 2022, Vol. 23, No. 207
Headlines
F I N L A N D
RENTA GROUP: S&P Assigns 'B' Issuer Credit Rating, Outlook Stable
G E R M A N Y
IHO VERWALTUNGS: Fitch Affirms LongTerm IDR at 'BB', Outlook Stable
RED & BLACK AUTO: S&P Assigns BB+(sf) Rating on Class D Notes
ROEHM HOLDING: Fitch Affirms LongTerm IDR at 'B-', Outlook Stable
[*] GERMANY: Some Hospitals May Go Bankrupt Due to Energy Crisis
I R E L A N D
SHAMROCK RESIDENTIAL 2022-2: S&P Gives (P)B- Rating on Cl. G Notes
I T A L Y
NAPLES: Fitch Alters Outlook on 'BB' LongTerm IDRs to Positive
K A Z A K H S T A N
ASTANA GAS: Fitch Affirms LongTerm IDR at 'BB', Outlook Stable
L U X E M B O U R G
EUROPEAN MEDCO 3: Fitch Affirms LongTerm IDR at 'B', Outlook Stable
P O L A N D
SYNTHOS SPOLKA: Fitch Affirms LongTerm IDR at 'BB', Outlook Stable
T U R K E Y
TURKIYE PETROL: Fitch Alters Outlook on 'B' LongTerm IDRs to Stable
U N I T E D K I N G D O M
DEKANIA EUROPE III: Fitch Affirms 'Csf' Rating on 2 Tranches
GAUGHAN GROUP: Director Gets 12-Year Disqualification
GREAT HALL 1 2007-2: Fitch Upgrades Rating on 2 Tranches to 'BB+sf'
NMC HEALTH: EY's UK Business Denies Negligence in Audits
TECHNIPFMC PLC: S&P Affirms 'BB+' ICR, Outlook Stable
WM MORRISON: S&P Assigns 'B' LongTerm ICR, Outlook Stable
[*] UK: Dramatic Spike in Company Insolvencies Hasn't Peaked Yet
[*] UK: Inflation to Prompt Rising Insolvency Levels Among SMEs
- - - - -
=============
F I N L A N D
=============
RENTA GROUP: S&P Assigns 'B' Issuer Credit Rating, Outlook Stable
-----------------------------------------------------------------
S&P Global Ratings assigned its 'B' long-term issuer credit and
issue ratings to Finland-based rental equipment company Ren10
Holding AB (Renta Group) and its EUR350 million senior secured
floating-rate notes.
S&P said, "The stable outlook reflects our expectation that the
group will achieve about 8% organic revenue growth in 2022 (more
when considering the pro forma effect of M&A) and S&P Global
Ratings-adjusted EBITDA margins of about 35%. At the same time, we
expect the company to maintain an adjusted debt-to-EBITDA ratio of
less than 4x and positive free operating cash flow (FOCF) from
2023."
Renta Group) was acquired by financial sponsor IK Partners for an
enterprise value of approximately EUR750 million.
Renta Group was formed in 2016 and through acquisitions and solid
organic growth has established itself as a solid No. 2 in the
Finnish, No. 3 in the Swedish and in the Norwegian rental equipment
markets. In the six months ended June 30, 2022, it generated
revenue of EUR169 million and reported EBITDA of EUR59 million.
S&P said, "The acquisition of Renta by IK Partners closed broadly
as presented to us at the time of assigning preliminary ratings,
and operating performance and credit metrics for 2022 are
comfortably in line with our previous expectations.IK Partners
acquired Renta Group for an enterprise value of approximately
EUR750 million. To finance this, the group issued EUR350 million in
senior secured notes and a EUR75 million super senior revolving
credit facility (RCF). Shareholders also participated in the
acquisition though an approximately EUR310 million equity
contribution (common shares). The proceeds repaid all debt issued
by Renta Group before the transaction. We forecast revenue organic
growth at year-end 2022 of about 8% (45% including the
acquisitions), adjusted EBITDA margins of about 35%, and adjusted
debt to EBITDA of about 4.0x. In 2023, we forecast 4%-7% revenue
growth, with similar margins and lower leverage of 3.6x-3.8x. FOCF
should remain positive in 2023, since we estimate Renta Group will
reduce acquisition spending compared with 2022. We forecast funds
from operations (FFO) cash interest will remain comfortable, at
about 5x in 2022 and 2023.
"After several acquisitions through 2022, our base-case scenario
does not factor in that Renta Group will issue additional debt or
make any sizable debt-funded acquisitions in the next 12 months,
although this is difficult to predict.The group undertook four
acquisitions in Norway, Poland, the Baltics, Sweden, and Denmark
through a new equity shareholders' contribution, cash, and RCF use.
At June 30, Renta Group has about EUR29 million on its balance
sheet. On the EUR75 million super senior RCF, only EUR40 million
remains available. We expect its debt, as adjusted by S&P Global
Ratings, will be about EUR538 million as of year-end 2022. This
includes the proposed EUR350 million senior secured notes, adjusted
by adding about EUR146 million financial and operating lease
obligations and the EUR35 million RCF drawn. In our base-case
scenario, we do not expect Renta Group to make any further
significant debt-funded acquisitions. It spent EUR45 million for
acquisitions in 2021 and EUR75 million year-to-date 2022. In our
base-case scenario, we expect the group to undertake further
acquisitions and continue to invest in its existing and new service
areas, but the timing and quantum of M&A are difficult to predict,
so we do not include any M&A spending because none is formally
contracted.
"The size of operations and geographic scale versus those of rated
peers constrain our business risk assessment. Most of the company's
earnings--about 48% of revenue--stem from Sweden. More than 95% of
revenue is by the Nordic area (Finland, Sweden, and Norway), and
the group therefore has less geographical diversification than some
peers, such as Loxam SAS or Boels Topholding B.V. Furthermore, the
market size of Finland and Norway is relatively small compared with
other European countries like France. Nevertheless, we see
positively the geographical expansion strategy of the group into
countries like Poland (2020) and Denmark (2021). Although Renta
Group's geographic diversification is more concentrated than some
rated peers' and focused on the Nordics, we view positively the
group's local footprint through its numerous depots and
establishing itself as a strong player in its main markets. We
think it will sustain those positions thanks to its focus on
digitalization, which gives the group a competitive advantage and
enables it to penetrate its markets quickly. At the same time,
Renta Group continues to improve its product range by further
expanding into value-added services. Following Loxam's acquisition
of Ramirent and Boels' acquisition of Cramo, Renta Group is the No.
2 player in Finland behind Loxam, with a market share of about 11%
in 2020, and the No. 3 player in Sweden, with a market share of
about 5% in 2020. In Norway, it holds the No. 3 position, with
about 4% of the market. The European industrial and construction
equipment rental market is led by Loxam, followed by Boels-Cramo
(No. 2) and Kiloutou (No. 3). Renta Group's direct peers are more
geographically diversified. For example, Loxam generates about 40%
of its revenue in France and the rest across Europe, and it is
about 10 times the size of Renta Group by revenue and EBITDA.
Kiloutou generates about 85% of revenue from France, with a
presence in Poland, but benefits from the French market's size.
Renta Group operates in a number of end markets that could be
sensitive to economic cycles, including the construction and
industrial sectors. S&P said, "However, this is partly offset
because we see the equipment rental industry as less prone to
market shocks because companies tend to rent more during times of
uncertainty. We note positively that Renta Group--like other
equipment rental companies--has significant flexibility in
adjusting its investments to adapt to market conditions rather
swiftly." About 75% of Renta Group's revenue is generated from the
new construction (including both commercial and residential),
renovation, and infrastructure segments.
In the asset-heavy European equipment rental industry, the ability
to increase capex to fuel volumes or quickly reduce it to preserve
cash flows in a downturn is key to financial stability. Over
2018-2021, Renta Group cumulatively invested about EUR377 million
in capex (of which about EUR150 million was capex related to M&A).
This strategy allowed the group to create and expand its rental
fleet, as demonstrated by a relatively young average fleet age of
about four years. Loxam, Boels, and Kiloutou have followed the
strategy to renew its fleet from 2017-2019. S&P said, "We estimate
the group will continue spending its total capex relative to sales
and that annual capex will be EUR75 million-EUR95 million in
2022-2023 to support the growth and demand. This would result in
negative FOCF for 2022, then turning positive in 2023. Given the
young age of the group and the fleet, we forecast maintenance capex
will remain low, at EUR10 million-EUR15 million for 2022 and
2023."
S&P said, "Our rating on Renta Group factors in the group's
private-equity ownership. Although we forecast that adjusted
leverage will be comfortably under 5x in 2022, we also factor into
our assessment that the group is owned by financial sponsor. The
group's new majority owner, IK Partners, might pursue a
shareholder-friendly financial policy that could include further
debt issuance to fund shareholder returns or M&A, resulting in
leverage that could rise above the 4x level we assumed in our
base-case scenario.
"The comparison of Renta Group with capital goods peers limits our
rating assessment. It reflects the relatively lower size, scale,
scope, and less entrenched market positions of Renta Group versus
direct peers Loxam, Boels, and Kiloutou, of which we have a longer
track record with respect to strategy, budget execution, and
financial policy.
"The stable outlook reflects our expectation that Renta Group will
achieve good organic revenue growth through 2023 and S&P Global
Ratings-adjusted EBITDA margins of above 35%. At the same time, we
expect an adjusted debt-to-EBITDA ratio of less than 4x and
positive FOCF.
"We could lower the ratings if the company demonstrated weaker
revenue and margins amid unfavorable market conditions or
heightened competition, or if it burned sizable cash without
reducing capex in a timely manner. Credit metrics, such as FFO to
debt of less than 12% and debt to EBITDA exceeding 5x for a
prolonged period due to significant acquisitions, with no prospects
of recovery, would put downward pressure on the ratings as well.
"We could raise the ratings if the group further diversified its
geographic footprint and product and service portfolio, as well as
gaining further market shares in its existing service areas while
maintaining its EBITDA margins above 35%. At the same, we would
expect Renta Group to build a track record of maintaining adjusted
debt to EBITDA sustainably below 4x and positive FOCF of above
EUR25 million."
Environmental, Social, And Governance
ESG credit indicators: E-2, S-2, G-3
S&P said, "Governance factors are a moderately negative
consideration in our credit rating analysis of Renta Group, because
we view financial sponsor-owned companies with aggressive financial
risk profiles as demonstrating corporate decision-making that
prioritizes the interests of the controlling owners, typically with
finite holding periods and a focus on maximizing shareholder
returns. Environmental and social factors are an overall neutral
consideration in our credit rating analysis. Despite the
construction sector exposure, long-term growth prospects are
supported by the structural shift toward equipment rental instead
of each customer owning its own fleet, with equipment reused for
five-to-seven years on average. This allows the company's customers
to meet their corporate social responsibility targets in terms of
compliance with regulations, safety, and carbon footprint
reduction. In our view, Renta Group will comfortably meet the capex
required for a new fleet that meets rising demand from its
customers for more environmentally sustainable rental equipment."
=============
G E R M A N Y
=============
IHO VERWALTUNGS: Fitch Affirms LongTerm IDR at 'BB', Outlook Stable
-------------------------------------------------------------------
Fitch Ratings has affirmed Schaeffler AG's Long-Term Issuer Default
Rating (IDR) at 'BB+' with a Stable Outlook. Schaeffler's senior
unsecured instrument rating has been affirmed at 'BB+' with a
Recovery Rating of 'RR4'. Fitch has also affirmed Schaeffler's
immediate parent and 75.1% owner, IHO Verwaltungs GmbH's (IHO-V)
IDR at 'BB' with a Stable Outlook. IHO's senior secured rating has
been affirmed at 'BB' with a Recovery Rating of 'RR4'.
The affirmation reflects Fitch's expectation of Schaeffler's
financial profile to be resilient even considering an extended
period of gas rationing in the coming winter. Fitch forecasts the
credit metrics to only marginally weaken as a result of potential
gas shortage-induced operating disruption which will be partially
offset by mitigating measures already initiated.
The consolidated group combines the standalone accounts of IHO-V,
the full consolidation of Schaeffler's accounts with the dividend
stream from IHO-V's 36% direct holding in Continental AG, which is
included within its funds from operations (FFO). The credit profile
of the consolidated group incorporates the Standalone Credit
Profile (SCP) of Schaeffler.
The affirmation also reflects Fitch's view that reduced dividend
payments from Continental AG under a gas rationing scenario would
not materially alter the credit profile of the combined group.
Nevertheless, the reduced upstreaming of dividends would pressure
the leverage metric at least for year 2023 and prolong the group's
deleveraging path.
KEY RATING DRIVERS
Resilient Schaeffler Standalone Credit Profile: Fitch expects
Schaeffler's standalone credit metrics to remain solid, assuming an
interruption of three-to-four months at the gas production
facilities of the affected countries in early-2023. Fitch forecasts
the automotive segment's operating margin and group free cash flow
margin to weaken by around 1% and 0.5% respectively for 2023 and
2024, leading to only a slightly elevated leverage. This would
still be comfortably within our rating sensitivities, and
profitability could rebound to pre-pandemic levels in late 2024
given the restructuring programme.
Consolidated Group More Affected, but Manageable: Fitch believes
the credit profile of the consolidated group will be more affected
than Schaeffler's SCP by gas rationing. This is due to its
expectation of lower dividends upstreaming from Continental AG, in
which IHO holds 36% shares. It constrains IHO's deleveraging
capacity and Fitch forecasts the total net debt/operating EBITDA to
reach 3.6x in 2023, compared to its rating sensitivity 3.5x.
Nevertheless, Fitch expects the leverage metric to return below 3x
by 2024, provided the dividend payout from Continental improves.
Diversification Support Growth: Schaeffler's operating
profitability and cash flow generation are stronger than at
pure-play auto suppliers owing to its exposure to the industrial
and automotive aftermarket, which currently represents around 40%
of annual sales. Both divisions have relatively stable double-digit
operating margins because of a less cyclical and more diversified
customer base. Healthy margins from both segments have historically
offset the profitability erosion seen in Automotive Technologies
(AT) and will continue to be an important pillar in times of
stress.
Near-Term Earnings under Stress: Schaeffler's near-term earnings
will likely be under pressure amid the inflationary environment and
volatile energy prices. Contractual pass-through mechanisms, price
negotiations with OEMs, and an immediate catalogue price
adjustments due to higher raw material costs are expected to only
partly restore profitability, and with a significant time lag for
AT. Inflated energy bills, particularly for European production
sites, logistics and labour expenses will need to be absorbed
internally.
Mitigants to Minimise Gas Rationing Impact: Schaeffler has set out
energy efficiency initiatives for its European plants in accordance
with industry association and local authority suggestions. Other
mitigants include shifting production to unaffected manufacturing
sites through its global footprint to the extent possible. To
minimise the financial impact from the energy crisis, Schaeffler
has sought to largely secure energy purchases at agreed prices one
year in advance. Energy costs account for a low single digit
percentage of sales.
M&A Activities: Fitch expects Schaeffler to remain active with its
M&A strategy. Targets are typically small and mid-sized companies
in Schaeffler's existing divisions and or those that would increase
product or geographic diversification. The Ewellix acquisition of
July 2022 expanded Schaeffler's product offering towards less
cyclical and more profitable areas than AT such as robotics,
medical technologies and mobile machinery. Its forecasts include
EUR200 million of acquisitions a year between 2023 and 2025.
Marketable Assets Support Ratings: IHO-V's 36% equity stakes in
Continental and Vitesco (valued at about EUR5.4 billion at 16
August 2022) are significant assets. Only the dividends received
are explicitly reflected in Fitch's credit metrics. However, Fitch
believes IHO-V could sell some of this shareholding quickly,
allowing it to repay a portion of its gross debt. This potential
source of liquidity mitigates the consolidated group's weak
leverage metrics.
Parent-Subsidiary Linkage Established: Schaeffler's 'BB+' rating
incorporates a one-notch uplift from the consolidated group (IHO-V)
rating of 'BB', due to Schaeffler's higher underlying SCP of 'bbb-'
and the porous linkage between Schaeffler and IHO-V. Limited
documentary constraints on the upstreaming of dividends do not
ring-fence Schaeffler from additional leverage at IHO-V. Fitch
expects dividend payments to remain predictable, and to support
modest deleveraging at Schaeffler.
No Notching Uplift from IHO's IDR: Fitch has not notched IHO-V's
senior secured debt rating above the company's IDR. The debt is
secured by a pledge on common shares and not by a pledge on readily
saleable hard assets or intangible assets. The current value of
pledged shares exceeds the first-lien debt amount. However, the
pledge is partly made of common shares of Schaeffler, the sole
controlled assets of IHO-V, which is the main driver of IHO-V's
IDR.
Financial stress at IHO-V would likely be linked to financial
stress at Schaeffler and therefore to a lower value of the pledged
shares. IHO-V's indebtedness is also structurally subordinated to
Schaeffler Group's indebtedness, potentially impairing recovery
prospects for IHO-V's creditors.
DERIVATION SUMMARY
Schaeffler's business profile compares adequately with auto
suppliers in the 'BBB' rating category. Schaeffler benefits from
stronger business and customer diversification than peers in
Fitch's portfolio of publicly rated auto suppliers, outranked only
by Robert Bosch GmbH (A/F1+) and Continental. Like other large and
global suppliers, including Continental and Aptiv PLC (BBB/Stable),
Schaeffler has a broad and diversified exposure to large
international OEMs. However, the share of its aftermarket business
is smaller than tyre manufacturers such as Compagnie Generale des
Etablissements Michelin (A-/Stable), but greater than Faurecia S.E.
(BB+/Negative).
Schaeffler also has stronger operating margins than a typical
auto-supplier that does not benefit from exposure to the tyre
businesses. However, Schaeffler's free cash flow (FCF)and financial
structure is moderately weaker than peers in the 'BBB' rating
category. Fitch used its "Parent and Subsidiary Linkage" criteria
to derive Schaeffler's ratings. No Country Ceiling or operating
environment aspects affect the rating.
KEY ASSUMPTIONS
- A four month gas interruption at central European production
facilities from late 2022 to early 2023
- Revenue CAGR of 5.2% (4.5% organic) in 2021-2025, sustained by
post-pandemic car production recovery and price increases. In 2023
Fitch sees top line growing at a higher pace due to the first-time
consolidation of Ewellix.
- Operating EBIT margin of Automotive Technologies to remain at
low-single digits over 2022 to 2024 before recovering to mid-single
digit by 2025.
- Average operating EBIT margin of 13% and 12% at Aftermarket and
Industrial segments.
- Dividends from Continental AG at EUR66 million and EUR147 million
in 2023 and 2024.
- Net Working Capital to increase in 2022 to maintain safety stock
and ensure seamless production. Investments to moderate from 2023.
- Capex slightly above Schaeffler´s 2022 guidance, and slightly
above 6% of sales between 2023-2025.
- Schaeffler Dividend payout of at around 44% over the rating
horizon, in line with the company dividend policy.
- IHO-V average dividend of around EUR 130 million a year to 2025.
- Schaeffler 2023-2025 average acquisition of EUR200 million a
year
RATING SENSITIVITIES
IHO-V
Factors that could, individually or collectively, lead to positive
rating action/upgrade (BB+):
- FFO net leverage below 3.5x and net debt to EBITDA below 2.5x
Factors that could, individually or collectively, lead to negative
rating action/downgrade (BB-):
- FFO net leverage above 4.5x and net debt to EBITDA above 3.5x
- Weakening of formal linkage ties between Schaeffler and IHO-V
without adequate deleveraging
- A reduction in IHO-V's stake in Continental without adequate
deleveraging
Schaeffler AG
Factors that could, individually or collectively, lead to positive
rating action/upgrade (BBB-):
- Positive rating action on IHO-V combined with an EBIT margin
above 8%, FCF margin of more than 1.5%, FFO net leverage below 2.5x
and net debt to EBITDA below 2.0x
- Weakening of formal linkage ties between Schaeffler and IHO-V
combined with an EBIT margin above 8%, an FCF margin of more than
1.5%, FFO net leverage below 2.5x and net debt-to-EBITDA below
2.0x
Factors that could, individually or collectively, lead to negative
rating action/downgrade (BB):
- Negative rating action on IHO-V
- EBIT margin below 6%
- FCF neutral to negative
- FFO net leverage above 3.0x and net debt to EBITDA above 2.5x
- Strengthening of formal linkage ties between Schaeffler and
IHO-V
LIQUIDITY AND DEBT STRUCTURE
Healthy Liquidity: Schaeffler's liquidity is supported by readily
available cash of around EUR1.8 billion at end-December 2021
including Fitch's adjustment of around EUR350 million. The company
has EUR1.8 billion committed and undrawn revolving credit
facilities (RCF) and bilateral credit lines of EUR138 million. In
addition, Schaeffler has a fully undrawn and uncommitted commercial
paper programme of EUR1 billion and a factoring programme of EUR200
million (EUR150 million drawn as of December 2021). Schaeffler's
healthy cash flow generation further supports liquidity. Following
the acquisition of Ewellix, Schaeffler could draw available credit
lines or access the debt capital market in 2022 to partly fund the
takeover.
IHO-V's liquidity is also healthy, benefiting from the absence of a
material maturity before 2025 and access to a an EUR800 million
committed RCF (EUR260 million drawn at year end) available until
December 2024. IHO's liquidity headroom will further increase in
2022 following dividend inflows from Continental and Schaeffler.
The financing and the treasury of IHO-V and Schaeffler are strictly
separated.
Secured Debt Structure for IHO-V:
The debt structure remains secured. It mainly consists of three
euro-denominated notes and three dollar-denominated notes for a
total outstanding amount of around EUR3.5 billion at year end 2021.
The nearest maturity of the notes is May 2025. In 2021, IHO
converted the EUR400 million term loan maturing in 2024 into a
drawn committed RCF. Also in 2021, IHO used EUR140 million of
available cash to reduce RCF utilisation to EUR260 million.
Unsecured Debt Structure for Schaeffler:
Schaeffler's debt profile is diversified and consists mainly of
five euro-denominated notes of EUR3.5 billion outstanding. In 1Q22,
Schaeffler repaid a EUR545 million bond maturing in March 2022.
Consequently, the company has no immediate refinancing concerns as
the next bond is due in March 2024. Schaeffler also raised debt
through four unsecured Schuldschein loans of EUR298 million
outstanding as at end-December 2021.
ISSUER PROFILE
Schaeffler is a leading global automotive and industrial supplier.
At end-2021, the company employed almost 83,000 people in 90 plants
and campus location and 20 R&D centres. Europe remains the core
market but APAC and China represent a significant proportion of
revenues.
ESG CONSIDERATIONS
IHO-V has an ESG Relevance Score of '4' for Governance Structure,
reflecting the limited number of independent directors as a
constraining factor for board independence and effectiveness. This
has a negative impact on the credit profile, and is relevant to the
rating in conjunction with other factors.
Schaeffler AG has an ESG Relevance Score of '4' for Governance
Structure, reflecting concentrated ownership and the lack of voting
rights for minority shareholders. This has a negative impact on the
credit profile, and is relevant to the rating in conjunction with
other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Schaeffler AG LT IDR BB+ Affirmed BB+
senior unsecured LT BB+ Affirmed RR4 BB+
IHO Verwaltungs GmbH LT IDR BB Affirmed BB
senior secured LT BB Affirmed RR4 BB
RED & BLACK AUTO: S&P Assigns BB+(sf) Rating on Class D Notes
-------------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Red & Black Auto
Germany 9 UG (haftungsbeschrankt)'s (Red & Black Auto 9's)
asset-backed floating-rate class A, B, C, and D notes. At closing,
Red & Black Auto 9 also issued unrated class E notes.
This is Bank Deutsches Kraftfahrzeuggewerbe GmbH's (BDK's) ninth
German publicly placed ABS transaction. The underlying collateral
comprises German loan receivables for new, used, and newly used
cars. BDK originated and granted the loans to its private
customers. Of the pool, 69.92% of the current principal balance on
contracts amortize with a final balloon payment.
The transaction amortizes from closing and has separate interest
and principal waterfalls. The interest waterfall features a
principal deficiency ledger mechanism, by which the issuer can use
excess spread to cure principal losses.
A combination of excess spread, subordination, and the cash reserve
provide credit enhancement. The liquidity reserve is used to pay
any senior expenses, swap payments, and interest shortfalls. Any
excess of the reserve over the required amount will flow through
the interest waterfall and will be available to cure any principal
deficiency ledger (PDL).
Societe Generale S.A. funds a reserve to mitigate setoff risk and
commingling risk, if its long-term issuer credit rating is lowered
below 'BBB', or if BDK becomes insolvent. In our view, the reserve
fully mitigates the seller risks.
The assets pay a monthly fixed interest rate, and the notes pay
one-month Euro Interbank Offered Rate (EURIBOR) plus a margin
subject to a floor of zero. Consequently, the rated notes benefit
from an interest rate swap until the legal final maturity date.
S&P's ratings address timely payment of interest and ultimate
payment of principal on the class A, B, C, and D notes.
S&P's structured finance sovereign risk criteria and its
operational risk criteria do not constrain its ratings in this
transaction. Counterparty risk is adequately mitigated in line with
its counterparty criteria.
Ratings
CLASS RATING* AMOUNT (MIL. EUR)
A AAA (sf) 567.300
B AA (sf) 7.500
C A (sf) 9.600
D BB+ (sf) 12.600
E NR 3.000
Sub loan NR 13.731
NR--Not rated.
ROEHM HOLDING: Fitch Affirms LongTerm IDR at 'B-', Outlook Stable
-----------------------------------------------------------------
Fitch Ratings has affirmed Roehm Holding GmbH (Roehm)'s Long-Term
Issuer Default Rating (IDR) at 'B-' with a Stable Outlook and its
senior secured rating at 'B-' with a Recovery Rating of 'RR4'.
The affirmation and Stable Outlook reflect its view that Roehm's
prudent natural gas procurement policy, robust cash buffer and
geographical diversification of production assets will allow funds
from operations (FFO) gross leverage to remain within its rating
sensitivities, albeit at a high level.
Fitch also expects the company's credit metrics to withstand a
stress scenario of a temporary plant shutdown with a leverage
increase in 2023, before it falls below its negative sensitivity
from 2024.
Roehm's IDR reflects its position as a leading European producer of
methyl methacrylate (MMA) and its derivatives, and its
diversification by geography and end-market. The rating is
constrained by a highly leveraged capital structure, execution risk
and Roehm's exposure to commodity-based products, high gas costs as
well as cyclical end-markets.
KEY RATING DRIVERS
Margins Hedged, Volumes under Pressure: Roehm's prudent natural gas
procurement strategy is protecting its margins in Europe, which
mitigates the impact of decreasing volumes. Fitch expects lower
production at its German plants from 2H22 to extend into 2023 due
to weaker demand, in particular from the coating and construction
sectors. Roehm also faces competition from producers in low-cost
regions while it faces rising gas prices, assumed by Fitch at
USD55/mcf in 2023. Fitch understands that regional competitors'
production is curtailed in greater proportion than Roehm's, which
highlights the quality of assets and execution.
Leverage, Capex Peak in 2023: Fitch forecasts EBITDA to decline to
EUR294 million in 2022 and EUR266 million in 2023, from EUR339
million in 2021, due to high natural gas prices in Europe limiting
production, and a weakening global economy affecting demand and MMA
prices. As this coincides with the bulk of capex at its new LiMA
project in the US, Fitch expects FFO gross leverage to increase to
7.9x, which is within the negative rating leverage sensitivity of
8x,
Swift Deleveraging Capacity: Fitch expects FFO gross leverage to
decrease to 6.5x in 2024 when LiMA produces additional volumes at a
competitive gas cost. However, Fitch estimates that a stress
scenario of a potential gas rationing in Germany and a temporary
plant shutdown by Roehm, which is not its base case, would further
hit EBITDA and drive FFO gross leverage well above 8x in 2023. But
even in this scenario Fitch expects Roehm to quickly deleverage to
below its negative rating sensitivity from 2024.
LiMA Execution Risk: Fitch sees Roehm's investment in an
ethylene-based MMA production plant in the US as positive for its
cost position as it will provide it with a large-scale and
cost-advantaged capacity in a market tightened by the closure of a
competitor's plant in 2021. However, the project exposes Roehm to
significant execution risk due to the size of the investment and
the uncertainty related to its proprietary technology that has
never been used on a commercial scale.
Roehm is mitigating these risks by building the plant on its
partner's site (OQ Chemical) in Bay City, and through extensive
testing. Fitch conservatively assumes a slow production ramp-up and
5% cost overrun.
Flexible Capex, LiMA Prioritised: Roehm will prioritise LiMA over
other growth capex due to the strategic importance of this project,
although it could also delay LiMA capex to preserve liquidity. The
phasing of the capex has shifted, with the bulk now concentrated in
2023. LiMA's total expected capex has increased as it pays for some
of the project's infrastructure costs, and the strengthened US
dollar relative to the euro.
Diversified Despite Germany Exposure: Gas supply disruption and
recession risks in Germany could affect Roehm's largest assets,
which Fitch estimates account for about 60% of revenue.
Nevertheless, this is mitigated by its industrial footprint in
other regions, as demand remains relatively stronger in the US for
example. Beyond key cyclical end-markets construction and
automotive, which account for around 60% of the company's sales,
some of its products are used in a broad range of sectors, such as
medical, packaging, lighting, or electronics.
Commodity, Automotive Exposure: Roehm's upstream bulk monomers
division remains the main contributor to consolidated EBITDA, even
although the company is vertically integrated and generates 60% of
its revenue from its downstream division. Falling MMA prices can
have a dramatic impact on profitability, especially when coupled
with weak demand for high-margin automotive uses, as seen in 2019
and 1H20. Roehm is expanding its downstream capacity in Europe and
China, which will support more steady margins, but MMA prices are
still expected to remain a significant driver of profitability.
European Market and Cost Leader: Roehm is the clear leader in the
European market for the production of MMA and its derivatives. Its
integrated plants in Germany are the most competitive in the
region. The group is number two worldwide after Mitsubishi
Chemicals, with a presence in China, where its cost position is
average, and in the US, where its Fortier plant is less
competitive.
The industry is consolidated and has high barriers to entry
including technological knowledge and raw material access. However,
higher European natural gas price than in other regions reduces the
competitiveness of European producers compared with global
competitors.
DERIVATION SUMMARY
Root Bidco Sarl (Rovensa, B/Stable) has similar ownership and
leverage profile to Roehm, significantly weaker scale and
diversification, but more stable markets with better growth
prospects supporting its deleveraging capacity.
Nobian Holdings 2 Sarl (Nobian, B/Stable) is a European salt,
chlor-alkali and chloromethanes producer with high leverage since
the carve-out from Nouryon Holding B.V. (B+/Stable) in 2021. Nobian
has weaker geographical diversification and similar exposure to
cyclical sectors, but stronger profit margins and higher barriers
to entry based on its dominant position in high-purity salt and
pipeline supply of chlorine to large off-takers with effective
pass-through mechanisms.
Lune Holdings S.a.r.l. (Kem One, B/Stable) is a regional polyvinyl
chloride (PVC) producer. It is smaller and less geographically
diversified than Roehm. They are both exposed to cyclical
end-markets but Roehm is significantly more leveraged than Kem
One.
Nitrogenmuvek Zrt (B-/RWN) is a smaller fertiliser producer with
high exposure to gas prices, weaker diversification and
single-plant operations, but has less debt and benefits from
barriers to entry in landlocked Hungary.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Volumes sold decreasing to about 660 thousand tonnes (kt) in
2022, 630 kt in 2023, before growing above 700 kt from 2024
- EBITDA margin of about 15% in 2022, 19% in 2023, 20% in 2024, 21%
in 2025
- No dividend or M&A in 2022-2025
- Average annual capex of EUR260 million in 2022-2025, peaking in
2023
- Year-end euro per US dollar of 1 from end-2022
KEY RECOVERY ANALYSIS ASSUMPTIONS
The recovery analysis assumes that Roehm would be reorganised as a
going-concern in bankruptcy rather than liquidated.
Post-restructuring going-concern EBITDA is estimated at EUR230
million, reflecting a situation where significant capacity
additions in Roehm's markets drive MMA spreads lower for a
prolonged period. This would outpace demand growth, with high gas
prices putting further pressure on EBITDA followed by a moderate
recovery.
Fitch used a distressed enterprise value (EV) multiple of 4.5x,
which reflects the company's scale, market position and growth
prospects.
Fitch expects Roehm to use EUR100 million of factoring, which will
be replaced by an equivalent super-senior facility. Fitch also
assumes its EUR300 million revolving credit facility (RCF) to be
fully drawn.
After deducting 10% for administrative claims, its waterfall
analysis generated a waterfall-generated recovery computation
(WGRC) in the 'RR4' band, indicating a 'B-' senior secured rating.
The WGRC output percentage on current metrics and assumptions was
46%.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- FFO gross leverage below 6.5x for a sustained period
- FFO interest coverage above 2.5x on a sustained basis
- Normalisation of European natural gas prices
- Progress with the construction of LiMA in line with its
expectations and a reduction of execution risk related to this
project
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Unsustainably high natural gas prices or gas rationing leading to
protracted production disruptions or material delays and cost
overruns in the LiMA project resulting in FFO gross leverage above
8.0x on a sustained basis
- FFO interest coverage below 1.5x on a sustained basis
- Operating EBITDA margin durably below 15% and negative FCF
generation on a sustained basis
LIQUIDITY AND DEBT STRUCTURE
Comfortable Cash for Capex: As at 30 June 2022, Roehm's liquidity
stood at about EUR523 million, consisting of EUR223 million cash
and a fully undrawn EUR300 million RCF due in 2026. This provides a
comfortable cushion ahead of the expected increase in capex in 2023
related to the construction of the LiMA project.
Fitch expects Roehm to partly draw on the RCF in 2023 in its base
case due to its downward revision of EBITDA forecast for next year,
but believe that Roehm will maintain liquidity above EUR150 million
until 2025. Roehm has no significant debt maturities until its term
loans B comes due in 2026.
ISSUER PROFILE
Roehm is a vertically integrated manufacturer of MMA and its
derivatives, owned by Advent International since 2019. It has the
production capacity for 580 thousand tonnes of MMA across its
plants in Germany, the US and China.
SUMMARY OF FINANCIAL ADJUSTMENTS
- Depreciation of rights-of-use assets and lease-related interest
expense reclassified as cash operating costs. Lease liabilities
removed from debt
- Receivables and financial debt increased by amount of factoring
use on the balance sheet. Changes in factoring use reclassified to
cash flow from financing from cash flow from operations
- Classified EUR5 million cash as restricted to account for cash
held in jurisdictions where it cannot be made readily available for
debt repayment at group level
- Preferred equity certificates are classified as shareholder
loans, and are excluded from financial debt
- Nominal value of the term loans and RCF is used for the
calculation of financial 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.
Debt Rating Recovery Prior
---- ------ -------- -----
Roehm Holding GmbH LT IDR B- Affirmed B-
senior secured LT B- Affirmed RR4 B-
[*] GERMANY: Some Hospitals May Go Bankrupt Due to Energy Crisis
----------------------------------------------------------------
Anadolu Agency reports that some German hospitals could go bankrupt
because of the energy and inflation crisis, the nation's health
minister warned on Oct. 16.
"If we do not react there quickly and also really drastically,
there will be closures," Karl Lauterbach told public broadcaster
ARD, adding that he will negotiate with Finance Minister Christian
Lindner about more government aid for hospitals.
However, he could not give "any order of magnitude" regarding the
amount of aid until then, he added.
On calls for there to be some kind of "special fund" for hospitals
in Germany, similar to the special EUR100 billion (US$97.4 billion)
fund for the military, Mr. Lauterbach reacted negatively, Anadolu
Agency relates. "We cannot introduce a special fund for every
area," he said. After all, Lauterbach continued, "everything has to
be paid off."
According to the German Hospital Association, the financing gap for
material costs and energy adds up to around EUR15 billion in 2022
and 2023, Anadolu Agency notes.
The inflation rate in Germany rose to 10.9% in September, Anadolu
Agency discloses. The Federal Statistical Office (Destatis)
explained that the inflation rate had thus reached "a historic high
since German reunification." The reasons are "enormous price
increases" for energy products and food, Anadolu Agency states.
Leading German economists have been warning for some time that
rising gas prices could push the EU's largest economy into
recession, Anadolu Agency relays.
=============
I R E L A N D
=============
SHAMROCK RESIDENTIAL 2022-2: S&P Gives (P)B- Rating on Cl. G Notes
------------------------------------------------------------------
S&P Global Ratings assigned preliminary ratings to Shamrock
Residential 2022-2 DAC's (Shamrock 2022-2) class A to G-Dfrd Irish
RMBS notes. At closing, the transaction will also issue unrated
class RFN, Z1, Z2, X, and Y notes.
Shamrock 2022-2 is a static RMBS transaction that securitizes a
portfolio of EUR522.01 million loans (of which EUR3.90 million are
subject to potential write-off), which consist of owner-occupied
and buy-to-let (BTL) primarily reperforming mortgage loans secured
over residential properties in Ireland.
The securitization comprises four purchased portfolios, Bass (26.5%
of the pool), Prodigal (22.0%), Peacock (14.0%), and Cannes
(38.0%). The loans in the Bass portfolio were originated by
Permanent TSB PLC and the loans in the Prodigal subpool were
originated by GE Capital Woodchester Home Loans Ltd. and Leeds
Building Society. The Cannes and Peacock portfolios aggregate
assets from nine different originators.
S&P's preliminary rating on the class A notes addresses the timely
payment of interest and the ultimate payment of principal. Our
preliminary ratings on the class B to G-Dfrd notes address the
ultimate payment of interest and principal. The class B to G-Dfrd
notes can continue to defer interest even when they become the most
senior class outstanding. Interest will accrue on any deferred
interest amounts at the respective note rate.
The timely payment of interest on the class A notes is supported by
the liquidity reserve fund, which will be fully funded at closing
to its required level of 2.0% of the class A notes' balance.
Furthermore, the transaction will benefit from regular transfers of
principal funds to the revenue item (through 2.50% yield supplement
overcollateralization) and the ability to use principal to cover
certain senior items. The class B to G-Dfrd notes are supported by
a non-liquidity reserve fund, which will be available to cover any
interest shortfalls and principal deficiency ledger (PDL) amounts
outstanding.
Pepper Finance Corporation (Ireland) DAC and Start Mortgages DAC,
the administrators, are responsible for the day-to-day servicing.
At closing, the issuer will use the issuance proceeds to purchase
the beneficial interest in the mortgage loans from the seller. The
issuer grants security over all its assets in favor of the security
trustee. S&P considers the issuer to be bankruptcy remote under its
legal criteria.
Preliminary Ratings
CLASS PRELIM. RATING CLASS SIZE (%)
A AAA (sf) 68.00
B-Dfrd AA- (sf) 7.25
C-Dfrd A (sf) 4.75
D-Dfrd BBB (sf) 3.75
E-Dfrd BB (sf) 4.50
F-Dfrd B (sf) 1.25
G-Dfrd B- (sf) 4.00
RFN NR 2.00
Z1 NR 1.25
Z2 NR 5.25
X NR N/A
Y NR N/A
NR--Not rated.
N/A--Not applicable.
=========
I T A L Y
=========
NAPLES: Fitch Alters Outlook on 'BB' LongTerm IDRs to Positive
--------------------------------------------------------------
Fitch Ratings has revised the City of Naples' Outlook to Positive
from Stable, while affirming the Italian city's Long-Term Foreign-
and Local-Currency Issuer Default Ratings (IDRs) at 'BB'.
The Positive Outlook reflects increased state support of EUR440
million channelled through the recently implemented Pact for Naples
for 2022-2025, which complements the EUR610 million transfers
Naples received in 2021-2023 to meet its outstanding net payables
(EUR0.6 billion in 2020).
The material reduction of outstanding net payables removes the
asymmetric risk on Naples's IDR. Fitch further expects that
additional transfers and fiscal revenue under the pact should
improve the city's overall fiscal performance in the medium term
and the city's Standalone Credit Profile (SCP) to above the current
level of 'b-'.
KEY RATING DRIVERS
Risk Profile: 'Low Midrange'
The 'Low Midrange' risk profile reflects Fitch's view of a
moderately high risk that Naples' ability to cover debt service
with its operating balance may weaken unexpectedly over 2022-2026.
This may be due to lower-than-expected revenue,
higher-than-expected expenditure, or an unexpected rise in
liabilities or debt-service requirements.
Revenue Robustness: 'Midrange'
Naples' Fitch-adjusted operating revenue increased about 14% in
2021 to a peak of EUR1.3 billion, driven by a recovery of
own-source revenue (taxes and fees) and increased transfers from
the national government (up 13%) to meet outstanding net payables
and pandemic-related costs.
As Italian cities' tax base is mostly non-cyclical, Fitch expects
stable property and waste-disposal tax revenue across its rating
case. Complementing the city's tax base, the Pact for Naples has
introduced an increase of the personal income tax (PIT) surcharge
of 0.9% (0.1% above the legal limit of 0.8%) and a fixed charge on
airport passengers from 2022-2023 that collectively will increase
the city's tax revenue by about 5%. This will contribute to the
city's comprehensive tax revenue growth of 1.8% in 2022-2026.
Medium-term revenue growth is inflated by government transfers to
address excessive budget deficits and by the Pact for Naples for a
total of EUR1.2 billion over 20 years. The latter transfers are
concentrated in the first few years (EUR670 million in 2022-2025)
before gradually reducing to around EUR50 million per year from
2026.
Fitch expects operating revenue, net of difficult-to-collect
revenue, to normalise at around EUR1.2 billion by 2026 under its
rating case of extended economic stagnation. Fitch views the
national equalisation fund as a revenue stabiliser, since it
accounts for over 25% of Naples' operating revenue and mitigates
the city's weak tax-and-fee collection rate of about 75%.
Revenue Adjustability: 'Weaker'
Naples is under a recovery plan since 2014, which requires raising
taxes and fee charges up to their legal limits. Fitch believes that
Naples's revenue-raising flexibility relies on widening its tax
base by tackling the city's large shadow economy and in improving
own-source revenue collection rates. Naples plans to reinforce its
tax and fee collection through the partial outsourcing of
collection services, with tangible results expected after 2025.
Fitch views Naples's lower-than-national average socio-economic
standards, such as an unemployment rate consistently above 20% and
a GDP per capita of EUR19,600 (Italy: EUR27,700), as a constraint
on the city's revenue adjustability.
Expenditure Sustainability: 'Midrange'
Fitch views Naples's expenditure structure as fairly predictable
and generally non-cyclical as the city's main responsibilities are
civil registry, urban maintenance, waste collection, transportation
and childcare.
Naples regularly delays payments on less urgent liabilities under
the country's preferential payment mechanism, which prioritises
staff, debt service and essential services expenditure. The city
generates about EUR40 million-EUR50 million of off-balance
liabilities annually.
The city has continued to cut operating expenditure, to below EUR1
billion in 2021, with a cumulated decline of 3.4% from 2017 to
2021, driven in particular by staff reduction of 30% over the last
five years. For 2022-2026, Fitch expects the operating expenditure
trend to reverse by increasing 2%, driven in particular by
inflation in 2022, while planned new hires will increase staff
costs to around EUR250 million (close to 2019 level) from 2023.
Expenditure Adjustability: 'Weaker'
Fitch does not expect further curtailments of public spending,
given the city's low level of existing services following repeated
spending cuts to cope with decades of financial distress.
Naples' historical debt service coverage with recurring resources
at below 1x indicates substantial non-compliance with national
prudential budget rules, constraining expenditure adjustability.
Fitch expects the city's capex plan to materially increase towards
EUR1.8 billion, mostly funded with state and EU transfers mainly
for transportation and urban renovation, limiting the scope for
adjusting expenditure, if needed.
Liabilities & Liquidity Robustness: 'Stronger'
Under national prudential regulation Naples can only borrow for
capex as long as interest expenses do not exceed 10% of operating
revenue, with an amortising debt structure, and only in local
currency. Cassa Depositi e Prestiti (BBB/Stable), the lender of
last resort for Italian local and regional governments (LRGs), and
the national government together account for about 85% of Naples'
long-term debt, while bonds represent a modest 9%. Almost the
entire stock of Naples' loans carries fixed interest rates,
reflecting a low risk appetite and a low risk of direct debt
servicing increasing sharply.
Liabilities & Liquidity Flexibility: 'Weaker'
Fitch views Naples' liquidity as fully earmarked for payables
settlement. The city has a long record of longstanding payables
that expose it to litigation. Fitch expects government transfers to
alleviate the pressure of outstanding payables on the city's
liquidity, supporting a material reduction of commercial debt and a
normalisation of days payables outstanding from historical levels
of above 200 days. Such improvements could lead to a reassessment
of liquidity and liabilities flexibility to 'Midrange'.
The city can rely on committed liquidity lines from its treasurer,
Intesa Sanpaolo (BBB/Stable) that can extend for up to EUR280
million cash advances per year by Fitch's calculation (3/12 of
operating revenue, which has temporarily been increased to 5/12 or
EUR470 million), covering debt service by more than 1x.
Debt Sustainability: 'bb category'
Under Fitch's rating case for 2022-2026, Naples's net adjusted debt
is expected to slightly decline towards EUR2.7 billion (2021:
EUR2.9 billion) as the amount of government transfers envisaged for
2022-2025 reduces the scope for bank or inter-governmental
borrowings.
Once state transfers normalise from 2026, Naples's operating
balance should stabilise at around EUR120 million-EUR125 million.
This will improve the city's debt sustainability to 'bb' category
from 'b' category as the payback ratio remains below 25 years.
Fitch expects debt to remain above 200% of operating revenue and
debt service coverage at below 1x, suggesting that timely debt
service will continue to be ensured by the use of the preferential
payment mechanism.
DERIVATION SUMMARY
Naples' Low Midrange' risk profile, combined with 'bb' debt
sustainability, leads to an SCP in the 'b' category. Debt service
coverage at below 1x and a debt burden above 200% lead to an SCP at
'b-'.
Supported Ratings
Fitch reflects the overall state support to the city, in ad-hoc
transfers, taxes and inter-governmental loans, in an enhanced
payback ratio of around 11 years by 2026, which results in an IDR
of 'BB'.
The Pact for Naples represents a tangible form of support, as it
ensures cash revenue in the form of transfers and additional taxes
that carry little collection risk. Before the Pact, Naples had
received EUR1.3 billion subsidised loans to pay down its commercial
liabilities, which Fitch views as junior to market financial debt
in case of financial distress, as Fitch assumes the national
government would allow its repayment to be subordinated to market
debt.
KEY ASSUMPTIONS
Qualitative assumptions and assessments:
Risk Profile: 'Low Midrange, Unchanged with Low weight'
Revenue Robustness: 'Midrange, Unchanged with Low weight'
Revenue Adjustability: 'Weaker, Unchanged with Low weight'
Expenditure Sustainability: 'Midrange, Unchanged with Low weight'
Expenditure Adjustability: 'Weaker, Unchanged with Low weight'
Liabilities and Liquidity Robustness: 'Stronger, Unchanged with Low
weight'
Liabilities and Liquidity Flexibility: 'Weaker, Unchanged with
Medium weight'
Debt sustainability: 'bb, Raised with High weight'
Support (Budget Loans): 'N/A, Unchanged with Low weight'
Support (Ad Hoc): '4, Unchanged with Low weight'
Asymmetric Risk: 'N/A, Lowered with High weight'
Sovereign Cap: 'N/A, Unchanged with Low weight'
Sovereign Floor: 'N/A, Unchanged with Low weight'
Quantitative assumptions - Issuer Specific
Fitch's rating case is a "through-the-cycle" scenario, which
incorporates a combination of revenue, cost and financial-risk
stresses. It is based on 2017-2021 figures and 2022-2026 projected
ratios. The key assumptions for the scenario include:
- Average 1.3 % decrease in operating revenue in 2022-2026,
as a 4.8% average decrease in state transfers offset
average tax revenue growth of 1.8%; high weight
- Average 2% increase in operating spending; high weight
- Net adjusted debt at EUR2.7 billion by 2026; high weight
- Inter-governmental lending of EUR1.3 billion by 2026; high
weight
- Preferential payment mechanism supporting timely debt service;
high weight
Quantitative assumptions - Sovereign Related
Figures as per Fitch's sovereign actual for 2021 and forecast for
2023, respectively (no weights and changes since the last review
are included as none of these assumptions was material to the
rating action):
- GDP per capita (US dollar, market exchange rate):
34,737; 31,444
- Real GDP growth (%): 6.6; -0.7
- Consumer prices (annual average % change): 1.9; 5.3
- General government balance (% of GDP): -7.2; -5.7
- General government debt (% of GDP): 150.8; 152.3
- Current account balance plus net FDI (% of GDP): 2.7; -1.3
- Net external debt (% of GDP): 48.8; 49.3
- IMF Development Classification: Developed Markets
- CDS Market-Implied Rating: 'BBB-'
Liquidity and Debt Structure
Naples's EUR3 billion direct debt at end-2021 carried little risk
as it was almost all at fixed interest rates with an amortising
repayment profile and was fully euro-denominated. Fitch deducts
EUR156 million of undrawn facilities to derive the adjusted debt.
The city had a cash position of EUR744 million at end-2021, which
Fitch deems restricted for payables and future commitments.
Summary of Financial Adjustments
Adjustments to 2021 data
Reclassified EUR247 million one-off revenue to capital revenue from
current transfers
Reclassified EUR326 million equalization fund to transfers from
taxes
Removed from taxes EUR106 million difficult-to-collect revenue
Removed from fees EUR118 million difficult-to-collect revenue
Issuer Profile
Naples has one million inhabitants and is the largest city and main
economic hub in the south of Italy, with a fairly diversified
economy. Fitch classifies the city as a 'Type B' local government,
as it covers debt service from cash flow on an annual basis.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- The Outlook may be revised to Stable if the enhanced debt
payback remains at around 11 years on a sustained basis
- The ratings could be downgraded if the if the enhanced debt
payback reaches 13 years on a sustained basis or if the
preferential payment mechanism protecting financial lenders
is removed or undermined by regulatory changes
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- The IDRs could be upgraded if the consolidation of the
operating performance drives the enhanced debt payback to
around nine years on a sustained basis. The IDR could also
be upgraded if the risk profile is revised to 'Midrange'.
ESG Considerations
Naples has an ESG Relevance Score of '4' for Creditor Rights due to
the presence of longstanding payables that expose the city to
outstanding or pending litigation, which has a negative impact on
the credit profile, and is relevant to the rating[s] in conjunction
with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Discussion Note
Committee Minute Summary
Committee date: 11 October 2022
There was an appropriate quorum at the committee and the members
confirmed that they were free from recusal. It was agreed that the
data was sufficiently robust relative to its materiality. During
the committee no material issues were raised that were not in the
original committee package. The main rating factors under the
relevant criteria were discussed by the committee members. The
rating decision as discussed in this rating action commentary
reflects the committee discussion
Entity Rating Prior
------ ------ -----
Naples, City of LT IDR BB Affirmed BB
ST IDR B Affirmed B
LC LT IDR BB Affirmed BB
senior unsecured LT BB Affirmed BB
===================
K A Z A K H S T A N
===================
ASTANA GAS: Fitch Affirms LongTerm IDR at 'BB', Outlook Stable
--------------------------------------------------------------
Fitch Ratings has affirmed JSC Astana Gas KMG's (AG) Long-Term
Issuer Default Rating (IDR) at 'BB' and National Long-Term Rating
at 'A(kaz)'. The Outlooks are Stable.
RATING RATIONALE
The affirmation reflects the project's unchanged strong linkage to
the ultimate sponsor, the Republic of Kazakhstan (BBB/Stable).
Under Fitch's "Government-Related Entities Criteria" (GRE
Criteria), Fitch classifies AG as an entity with strong links to
its ultimate sponsor, the Republic of Kazakhstan, based on state
funding, policy support, and indirect full state ownership and
control via Sovereign Wealth Fund Samruk-Kazyna JSC (BBB/Stable,
50%) and JSC National Management Holding Baiterek (BBB/Stable,
50%).
Fitch believes the state's incentive to support AG in case of a
default is held back by the limited usage of the pipeline project
until grid connections are finalised and the project's funding,
which is only moderately reliant on international sources.
As a result, the GRE Criteria lead to a
top-down-minus-three-notches approach, which leads to AG's 'BB'
rating versus Kazakhstan's 'BBB', based on Fitch's combined
assessment of the strength of linkage to the government and its
incentive to support.
KEY RATING DRIVERS
Status, Ownership and Control - 'Strong'
Fitch views Kazakhstan as the company's ultimate parent. It
indirectly owns 100% of AG via Samruk and Baiterek. Both holding
companies have special status, are granted quasi-fiscal functions
and manage strategic state assets. Government officials monitored
and controlled the project's construction via monthly reports to
the Minister of Energy and to technical and financial special
working groups.
The government provided Samruk with special crisis funds, which are
an important source of capital injections. These funds were
initially channeled in 2009-2010 from the state budget to Samruk as
an emergency liquidity buffer in the wake of the global financial
crisis. The government granted Samruk an option to reuse the funds,
but only for strategic projects, such as AG. After commissioning,
the gas pipeline became a strategic national asset, which entails
restrictions on security and privatisation. Disposal of such assets
requires a government decree.
Support Track Record and Expectations - 'Very Strong'
AG has received significant cash support from the government to
build the pipeline. Kazakhstan provided a capital injection via
Samruk and Baiterek of KZT80.3 billion, which constitutes 30% of
the total project cost. State-related creditors provided the
remaining 70%. In 2018, Kazakhstan's State Pension Fund purchased
KZT85 billion bonds maturing in 2033, which are guaranteed equally
by Samruk and Baiterek. Eurasian Development Bank (EDB, 66% owned
by Russia and 33% by Kazakhstan) provided KZT102 billion via the
purchase of another bond issue in 1H19.
EBD received an earmarked KZT51 billion loan from Development Bank
of Kazakhstan JSC (DBK, BBB/Stable; 100% owned by Baiterek) to
purchase 50% of the bonds. Therefore, EDB effectively acts as a
pass-through agent by channelling part interest payments from AG
bonds to service DBK's loan. In addition to financial support, the
state introduced favourable legislation via a nationwide cost-based
gas transportation tariff framework. This confirms a stable record
of state support and Fitch expects AG to continue to receive
tangible financial support from the government or its agents.
Socio-Political Implications of Default - 'Weak'
Fitch does not expect any socio-political implications in case of a
default. The project is newly built, but remains under-utilised as
it is not yet fully connected to retail networks. Therefore, a
default would not affect provision of any public services, but
rather delay gasification of the capital city Astana while current
suppliers would cover energy needs.
Financial Implications of Default - 'Moderate'
The financial implications of a default are limited, due to the
mostly private and local nature of the project's funding. However,
Fitch sees some financial repercussions because 40% of funds are
provided by EDB, an international financial institution, which has
loaned USD4.8 billion for 92 projects in Kazakhstan (38% of EDB's
total portfolio), mostly in the core sectors of the country's
economy, ie mining, transportation and energy, including gas
distribution networks.
Therefore a default would cause reputational damage, increase the
cost of finance to other GREs and decrease availability of funding
from other international financial institutions active in
Kazakhstan.
Standalone Credit Profile (SCP) Assessment
Fitch has not assigned an SCP to AG because of limited visibility
on the revenue framework and its predictability as its rent
agreement with Intergas Central Asia JSC (ICA, BBB-/Stable) and
tariff framework does not cover 100% of AG's costs. Fitch
understands from management that this is now under discussion with
governmental bodies, shareholders and ICA. Meanwhile, AG is able to
cover all the costs from its available cash.
PEER GROUP
AG's closest peer is JSC Samruk-Energy (BB/Positive), which is
rated using the same GRE-based approach and notching, but it has a
different structure of rating drivers. Most significantly, a
default by Samruk Energy would have more notable socio-political
and financial implications although it has less ongoing cash
support from the state.
Another peer is Kazakhstan Electricity Grid Operating Company
(KEGOC, BBB-/Stable), which is rated higher, due mostly to its
strong standalone profile, and also because a significant share of
KEGOC's debt is guaranteed by the government.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A downgrade of Kazakhstan's sovereign rating.
-- A reduction in implied support and commitment from the
government, as well as importance of AG's project to Kazakhstan.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- An upgrade of Kazakhstan's sovereign rating
-- Clear allocation of funds to cover all project costs resulting
in a SCP assessment four notches or less from the sovereign IDR
TRANSACTION SUMMARY
AG is a recently built domestic gas pipeline. It has been designed
to transport natural gas more than 1,000 kilometres from fields in
western Kazakhstan to 2.7 million people in the capital and to 170
smaller towns along the pipeline route. Once grid connections are
finalised, the provision of gas will allow many to switch from
using coal or fuel oil for their energy needs and will improve air
quality.
The project cost is KZT267 billion (USD0.73 billion). Construction
started in 4Q18 and was completed by end-2019. Initial designed
capacity is 2.2 billion cubic metres a year with an option to
increase it to 3.7 billion cubic metres with additional compressor
stations.
CREDIT UPDATE
To date the pipeline remains significantly under-utilised due to
delays to both the construction of the retail gas networks, slow
progress in switch of central heating to gas and modernisation of
Astana's central heating plant no. 3.
The new gas transportation tariff for 2022-2026 was adopted in
November 2021. As a result, AG and ICA switched from a one-year to
a five-year contract, which was signed for 2022-2026.
Social unrest in Kazakhstan in January 2021 did not have a direct
impact on AG but in general significantly slowed tariff growth.
Kazakh tenge FX fluctuations also did not affect AG as all revenues
and debt are in local currency.
ESG CONSIDERATIONS
Fitch does not provide ESG scores for AG as its ratings and ESG
scores are derived from its parent, the Kazakhstani sovereign.
Entity/Debt Rating Prior
----------- ------ -----
JSC Astana Gas KMG LT IDR BB Affirmed BB
Natl LT A(kaz) Affirmed A(kaz)
===================
L U X E M B O U R G
===================
EUROPEAN MEDCO 3: Fitch Affirms LongTerm IDR at 'B', Outlook Stable
-------------------------------------------------------------------
Fitch Ratings has affirmed European Medco Development 3 S.a.r.l.'s
(EMD 3) Long-Term Issuer Default Rating (IDR) at 'B' with a Stable
Outlook. Fitch has also affirmed the rating of the senior secured
debt issued by European Medco Development 4 S.a.r.l. at 'B+' with a
Recovery Rating of 'RR3'.
EMD 3 indirectly owns PharmaZell, the Germany-based manufacturer of
active pharmaceutical ingredients (APIs).
The 'B' IDR reflects PharmaZell's sustainable business model as a
contract development and manufacturing organisation (CDMO), the
operations of which have grown significantly following its merger
with Novasep, in April 2022. Post-merger, the combined group also
benefits from improved diversification, but remains mid-scale for
the sector, with some product concentrations and limited
scalability given its asset- and capital-intensive nature.
Rating strengths are the group's well-entrenched market positions
in specialty active pharmaceutical ingredients (API), long-standing
customer relationships and its conservative leverage profile
relative to that of other sponsor-backed peers in the
pharmaceutical sector.
The Stable Outlook encapsulates organic growth prospects and steady
operating profit margins despite cost inflation and temporarily
negative free cash flows (FCF) in FY23-FY24 (financial year ending
March). It also factors in conservative gross debt/EBITDA, which
Fitch expects to remain at 4.0x-5.0x to FY26.
KEY RATING DRIVERS
Transformational Merger Complete: The transformational merger
between PharmaZell and Novasep doubled the group's sales and EBITDA
while achieving greater diversification across its value offering
from generic to innovative pharma, product and therapeutic areas.
This is in addition to proprietary manufacturing technologies, with
new API groups benefitting from large addressable markets and a
more balanced regional footprint. The combined API platform raises
PharmaZell's profile as a complex API manufacturer supporting its
sole or preferred supplier status with generic and innovative
pharma companies.
Recovery at Novasep in FY23: Novasep under-performed its
expectations in FY22 due to delays at some production sites,
procurement issues and delayed customer orders. However, Fitch’s
factor in a catch-up in FY23 as previous production issues are
rectified and delayed orders are resumed, supporting its
expectations for 30% growth in revenues at Novasep to around EUR320
million in FY23.
Stable Medium-Term Expectations: PharmaZell performed in line with
our expectations with high single -digit sales growth in FY22.
This, combined with a strong order book for the merged group,
supports its expectations of EUR550 million of sales and EUR120
million of EBITDA (21.9% margin) for the combined group in FY23,
marginally above its previous estimates. In the medium term, Fitch
forecasts mostly volume-driven sales to reach EUR600 million, which
in combination with some price increases, should support stable
EBITDA margins at 22%-23%.
Limited Exposure to Russia Gas Cut-off: Following the merger, the
combined group has two production plants in Germany (Raubling and
Leverkusen) which account for roughly [25%] of the group's overall
production of APIs. Fitch views it unlikely that PharmaZell will
face gas rationing or shortages given the critical nature of its
products for the pharmaceutical industry. However, in the unlikely
event of rationing or shortages, the group has potential
alternative sources of energy at its German sites that it can tap
into, although this may involve additional costs and therefore
weigh on group profitability.
Inflationary Pressures Mitigated: PharmaZell will continue to face
inflationary pressures in energy and logistics costs, which are
rising fast, despite some energy hedging in place. Nevertheless,
Fitch forecasts Fitch-adjusted group EBITDA margins to remain
steady at around 22% in FY23-FY24 (versus 21.4% in FY22 pro-forma
for the merger) as continuous sales growth at PharmaZell, recovery
at Novasep alongside low- to mid-single-digit price rises should
mostly offset operating cost- and-raw material inflation. By FY26,
Fitch estimates group EBITDA margins to improve towards 23%.
Conservative Financial Structure: Post-merger with Novasep, Fitch
expects the combined group's gross debt/EBITDA to fall to 4.7x in
FY23 from 5.6x in FY22. This reflects the conservative acquisition
funding of Novasep with about 75% of the enterprise value funded by
equity or equity-like sources. Fitch anticipates leverage will
remain contained for a sponsor-backed group, at 4.0x-4.7x to FY26,
supporting the group's rating at 'B'. However, Fitch sees
medium-term risk of further debt-funded M&A, which may disrupt the
deleveraging path.
Weaker Near-Term FCF: Over FY23-FY24, Fitch sees high energy and
logistics cost inflation as constraining EBITDA margin to 22%.
Fitch also factor in rising interest costs (debt mostly
floating-rate) and working-capital cash outflows due to a rise in
safety stock and capex of around EUR65 million per year to result
in neutral to negative free cash flow (FCF) across FY23-FY24.
FCF to Turn Positive Medium Term: As inflationary and supply chain
pressures normalise over the medium term, Fitch expects FCF to
return to marginally positive levels from FY24, which is among the
key factors supporting the group's current rating. Inability to
reverse FCF outflows through earnings expansion and rigorous trade
working-capital management amid high capital intensity would point
to increased execution risks and inability to self-fund organic
growth, which may put the ratings under pressure.
Supportive Market Fundamentals: PharmaZell's credit profile
benefits from a supportive sector environment in the broader
pharmaceuticals market due to a growing and ageing population and
increasing access to medical care, with generic drugs receiving
government support as a means of containing rising healthcare
costs.
DERIVATION SUMMARY
Fitch rates PharmaZell according to its global Generic Rating
Navigator. Under this framework, the business profile of PharmaZell
is supported by resilient end-market demand, a continued
outsourcing trend in the pharmaceutical industry and high entry
barriers, with high switching costs and some revenue visibility.
The rating is constrained by its niche scale in a fragmented and
competitive CDMO market, while its financial leverage is
conservative, aided by the recently completed largely equity-funded
acquisition of Novasep.
Fitch regards capital- and asset-intensive businesses such as
Recipahrm (Roar Bidco AB, B/Stable), Ceva Sante (Financiere Top
Mendel SAS, B+/Stable) and privately rated CDMOs as the closest
peers to PharmaZell as they all rely on ongoing investments to grow
at or above market and to maintain operating margins.
PharmaZell is a niche scale but more profitable CDMO than Recipharm
and most privately-rated CDMO peers. This is due to its focus on
speciality APIs backed by proprietary manufacturing know-how.
Recipharm's and Ceva Sante's considerably larger business scale and
diversification support higher debt capacity than the more
specialised PharmaZell, which has around 1.5x-3.0x lower
medium-term leverage (measured as total debt/ EBITDA) compared with
Recipahrm for the same rating, and 0.5x lower leverage compared
with Ceva Sante. The latter's much bigger size, higher operating
profitability and broadly similar financial metrics warrants a
one-notch rating difference.
In Fitch's wider rated pharmaceutical portfolio, Nidda BondCo GmbH
(Stada, B/Negative) is around 6x the size of PharmaZell, but with
total debt/EBITDA projected to remain at 8.0x-9.0x through 2023
(versus less than 5.0x for PharmaZell) with slow deleveraging
prospects and growing refinancing risks as reflected in the
Negative Outlook.
KEY ASSUMPTIONS
- Strong sales growth of 20% in FY23 driven by strong performance
in PharmaZell (up 8%) and catch-up demand in Novasep (up 30%),
followed by normalised mid-single-digit sales growth in FY24-FY26
- Fitch-adjusted EBITDA margin of 22% in FY23, flat in FY24 due to
inflationary pressures, and then gradually improving towards 23% in
FY26
- Capex at 10%-12% of sales driven by investments in production
expansion
- Working-capital outflows of EUR15 million in FY23 and around
EUR5 million per year to FY26
- No significant M&A to FY26
- No shareholder distributions
- Fitch assigns equity treatment to the group's payment-in-kind
(PIK) facility and consequently exclude it from its calculation of
financial leverage and debt service coverage metrics. The
equity-like treatment is supported by the facility being
PIK-for-life with the absence of scheduled cash interest payments.
Cash interest payments are only optional and solely at the
discretion of the PIK facility borrower, minimising the risk of
payment default as long as senior secured debt remains
outstanding.
KEY RECOVERY ASSUMPTIONS
Its recovery analysis assumes that PharmaZell would be restructured
as a going concern (GC) rather than liquidated in a default.
Its estimated GC EBITDA of EUR80 million (unchanged versus last
year) reflects potential distress from declining sales due to
customer losses, production issues or underperformance in selected
product groups given remaining concentration risks post-merger. The
GC EBITDA also incorporates corrective measures, which the business
would implement following distress.
Fitch maintains a EV/EBITDA multiple of 5.5x, which in appropriate
for a mid-scale CDMO company.
After deducting 10% for administrative claims, its principal
waterfall analysis generates a ranked recovery in the 'RR3' band
for the all senior secured capital structure, comprising a term
loan B (TLB) of EUR520 million and a EUR92.5 million revolving
credit facility (RCF), which Fitch assumes to be fully drawn prior
to distress, and ranking equally among themselves. In its debt
waterfall Fitch assumes that around 50% of the group's estimated
EUR50 million of factoring facilities would need to be replenished
in an event of default by similar super-senior debt.
Its analysis results in a 'B+' instrument rating for the senior
secured debt. The waterfall analysis output percentage on current
metrics and assumptions is 61%.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Increasing business scale and product diversification supporting
EBITDA margin expansion above 25%
- FCF margins sustained at high single digits
- Total debt/EBITDA below 4.0x, or FFO gross leverage sustained
below 5.0x
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Declining revenue due to product or production issues,
integration issues, or as a result of customer losses leading to
EBITDA margin declining towards 20%
- Weak-to-neutral FCF on a sustained basis
- Total debt/EBITDA above 5.5x, or FFO gross leverage above 7.0x
- EBITDA/interest paid below 3.0x, or FFO interest coverage below
2.5x, and diminishing liquidity headroom
LIQUIDITY AND DEBT STRUCTURE
Liquidity Remains Satisfactory: Fitch continues to assess liquidity
as satisfactory with cash from operations of EUR70 million-80
million, which will be sufficient to self-fund annual capex
estimated at EUR60 million-EUR65 million. However, Fitch expects
some negative FCF over FY23-FY24 due to rising interest costs and
working-capital requirements.
After deducting EUR10 million deemed as restricted cash to support
intra-year trade working capital, Fitch estimates a sufficient
year-end cash balance of around EUR30 million at FYE23, gradually
improving to EUR45 million in FY26, in addition to the committed
RCF of EUR75 million, which we expect will remain fully undrawn.
PharmaZell has a concentrated debt structure with a TLB due in
2027, which translates into manageable refinancing risk given
moderate leverage and supportive industry dynamics.
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
----------- ------ -------- -----
European Medco
Development 4 S.a.r.l.
senior secured LT B+ Affirmed RR3 B+
European Medco
Development 3 S.a.r.l. LT IDR B Affirmed B
===========
P O L A N D
===========
SYNTHOS SPOLKA: Fitch Affirms LongTerm IDR at 'BB', Outlook Stable
------------------------------------------------------------------
Fitch Ratings has affirmed Poland-based chemicals company Synthos
Spolka Akcyjna's (Synthos) Long-Term Issuer Default Rating (IDR) at
'BB' with a Stable Outlook. Fitch has also affirmed the senior
secured rating at 'BB+' with a Recovery Rating of 'RR2'.
The rating affirmation and Stable Outlook reflect its assumption
that Synthos will adhere to its conservative financial policy and
adjust capex as well as dividends in response to an expected
decline in earnings.
Fitch forecasts that rising energy costs and softening demand in
the insulation material market, coupled with narrowed butadiene
spread, will temporarily drive funds from operations (FFO) net
leverage above its negative rating sensitivity of 3.0x in
2023-2024, before deleveraging takes it to below 3.0x after 2024.
Even in the stress scenario of a temporary shutdown of the plants
in the Czech Republic and the Netherlands, Fitch expects the
leverage increase to be temporary and for leverage to fall below
its negative sensitivity after 2024.
KEY RATING DRIVERS
Lower EBITDA Forecast: Rising electricity and gas prices, coupled
with slowing economic growth and supply constraints, will in its
view translate into declining prices in the styrene market and
tighter butadiene spreads. Due to its strong market position and
competitive products Fitch expects Synthos to maintain high
utilisation rates but pricing pressure may lead to lower EBITDA at
around PLN1.1 billion in 2023 and 2024 compared with PLN1.9 billion
forecast for 2022.
Cost Inflation Partly Mitigated: Its ratings case assumes gas
prices of USD55/mcf in 2023 versus USD16/mcf in 2021, which
together with expected coal price increase, will drive up costs of
energy and steam production in Synthos's combined heat power (CHP)
plants as well as cost of energy supplied by third parties. Fitch
also expects fewer hedging opportunities than in the past although
margins are partly protected by sale of excess electricity from
Synthos's CHP in the Czech Republic and pass-through of raw
materials and energy costs to customers for around 80% of sales
from the rubbers segment, which accounts for 37% of EBITDA.
Rising Leverage: Synthos has reduced its financial flexibility with
a sizable dividend payment of PLN750 million for 2022. This, and
despite strong performance forecast for 2022, is likely to lead to
FFO net leverage temporarily rising to 3.4x in 2023 and 3.2x in
2024, above its negative sensitivity of 3.0x, before it falls to
2.7x in 2025. Even in the stress scenario of temporary plant
closures in the Czech Republic and the Netherlands - due to
potential gas rationing - leading to higher FFO net leverage in
2023-2024 Fitch expects deleveraging to below its negative rating
sensitivity after 2024.
Conservative Financial Policy: Fitch expects Synthos will respond
to deteriorating trading conditions by cutting dividends and
adapting capex to maintain its net debt/EBITDA target of no more
than 2.5x. Its ratings case assumes no dividends in 2023 and 2024.
Niche Leader, Small Scale: Synthos benefits from a strong position
in niche markets and the proximity of manufacturing facilities to
an established and diversified customer base. However, its rating
is constrained by its small-scale operations versus 'BB' category
chemical peers'. Around 78% of sales are derived from Europe, where
Synthos has a leading production capacity of emulsion styrene
butadiene rubber (ESBR) and expandable polystyrene EPS. Following
acquisition of Trinseo assets in Germany Synthos has, in its view,
strengthened its market position by becoming the global leader for
solution styrene-butadiene rubber.
Increasing Capacity, Green Investments: Fitch estimates 2022-2025
capex at PLN2.4 billion versus PLN1.3 billion in 2018-2022, mainly
earmarked for a new CCGT to be commissioned by end-2023 and a new
butadiene plant in Plock. The remaining investments will support
growth across the rubber, styrene and dispersion segments. Fitch
regards remaining CCGT plant capex and capacity expansion projects
totaling PLN0.9 billion and maintenance capex of PLN0.5 billion in
the next four years as committed, but see scope for revision of
uncommitted expenditure, if needed. Fitch estimates the entire
capex plan can be financed from internally generated cash flow,
assuming the CCGT plant is constructed within budget.
Backward Integration: Synthos's competitive position is underpinned
by an integrated production chain, which provides access to
competitively priced feedstock, and self-sufficiency in electricity
and steam in Poland and the Czech Republic, in turn supporting
profitability. Excluding operations in Germany, Synthos sources
approximately 35% of butadiene needs from its joint venture with
Unipetrol and, on average, half of its styrene supply from its
Czech Republic-based subsidiary, Synthos Kralupy, and its
Poland-based subsidiary, Synthos Dwory. A further 19% of butadiene
is supplied by Unipetrol's parent, Polski Koncern Naftowy ORLEN
S.A. (PKN) (BBB-/RWP) and the benefits of integration will increase
with ongoing investment in Plock.
Exposure to Supply Chain: Synthos remains exposed to supply-chain
disruption, despite self-sufficiency in raw materials, as evident
in a force majeure at Unipetrol in 2015. Investments in the
reconstruction of Unipetrol's steam cracker post-force majeure,
strong and long-lasting relationship with external suppliers plus
overcapacity in Europe mitigate the interruption risk of access to
feedstock. However, profitability can still be hit if raw materials
are purchased at market prices should internal sources be
disrupted.
Notching for Notes: Fitch rates the senior secured notes using a
generic approach for 'BB' category issuers, which reflects the
relative instrument ranking in the capital structure, in accordance
with its Corporates Recovery Ratings and Instrument Ratings
Criteria. The notes are secured by a share pledge of guarantors
comprising 99% of group adjusted EBITDA as of March 2021 and
mortgage over real estate in Poland. This results in the senior
secured rating being notched up once from the IDR and a Recovery
Rating of 'RR2'.
DERIVATION SUMMARY
Synthos's peers include Ineos Quattro Holdings Limited (BB/Stable)
and Ineos Group Holdings S.A. (BB+/Stable). The company has a
weaker business profile due to its smaller scale, lower
diversification, and weaker global market position, which however
have been strengthened in the synthetic rubber segment by the
acquisition of assets from Trinseo in 2021.
Despite its lower economies of scale, its profitability is largely
comparable to that of Ineos Quattro and Ineos Group, due to its
access to competitively priced feedstock and self-generated
electricity and steam. Fitch forecasts Synthos's FFO net leverage
to be weaker than or in line with that of peers, given its higher
exposure to the energy crisis in Europe.
KEY ASSUMPTIONS
- Butadiene prices correlated with Fitch's oil price deck at
USD100/barrel (bbl) in 2022, USD85/bbl in 2023, USD65/bbl in 2024
and USD53/bbl in 2025
- Flat volumes between 2022 and 2025
- EBITDA margin of around 16% in 2022, around 10%-11% in 2023-2024
and 16% in 2025
- Total capex of PLN2.4 billion over 2022-2025
- Dividends of PLN750 million in 2022, no dividends in 2023 and
2024, followed by PLN700 million in 2025
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- FFO net leverage consistently below 2.0x and net debt/operating
EBITDA sustainably below 1.5x
- Record of adherence to a more conservative financial policy,
including a clearly defined dividend distribution framework
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- FFO net leverage consistently above 3.0x and net debt/operating
EBITDA sustainably above 2.5x due to, among other things,
weaker-than-expected market performance, high gas and energy
prices, excessive dividend payments or sizeable debt-funded
acquisitions
- Decline in EBITDA margin to below 10% for a sustained period
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: Synthos has adequate liquidity and evenly
balanced debt maturities. As of June 2022, Synthos had a cash
balance of around PLN160 million and around PLN1.1 billion
available under a PLN2.3 billion (EUR500 million) revolving credit
facility (RCF) due in 2025.
Excluding the RCF drawings, the company does not have material
short-term debt and its EUR600 million Eurobond matures in 2028.
Fitch expects Synthos's cash flows and the available RCF will be
sufficient to maintain adequate liquidity throughout its growth
capex programme, while assuming flexibility to scale down or to
postpone some projects in case of deterioration in trading.
ISSUER PROFILE
Synthos is a Poland-based, privately-owned, producer of synthetic
rubbers, expandable polystyrene and other chemical products, with
vertical integration into energy, styrene and butadiene.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Debt Rating Recovery Prior
---- ------ -------- -----
Synthos Spolka
Akcyjna LT IDR BB Affirmed BB
senior secured LT BB+ Affirmed RR2 BB+
===========
T U R K E Y
===========
TURKIYE PETROL: Fitch Alters Outlook on 'B' LongTerm IDRs to Stable
-------------------------------------------------------------------
Fitch Ratings has revised the Outlook on Turkiye Petrol
Rafinerileri A.S.'s (Tupras) Long-Term Foreign- and Local-Currency
Issuer Default Ratings (IDR) to Stable from Negative and affirmed
the IDRs at 'B'.
The Outlook revision follows stronger credit profile of Tupras and
the progress made in increasing export sales and cash holdings
abroad. Tupras had reached a net cash position as of end-June 2022.
Export sales accounts for 15% to 20% of its total sales and the UK
trading subsidiary's cash holdings are increasing. The company's
record of implementation of these financial and structural
enhancements and conservative financial policy would support rating
its Long-term Foreign-Currency IDR above Turkiye's Country Ceiling
of 'B'. Currently, Tupras's Long-Term Local-Currency IDR of 'B'
drives its Long-Term Foreign-Currency IDR.
Tupras's rating is supported by the company's leadership in the
Turkish refined product market, the operation of some of the most
complex set of refineries in EMEA, and its ability to access and
process cheaper, heavier and sour crudes from several suppliers.
However, the ratings are volatile due to tight refining margins and
the company's focus on fuels production with limited business
integration. Similar to other Turkish corporates, Tupras relies on
uninterrupted access to local bank funding to support its
liquidity.
KEY RATING DRIVERS
Diesel Crack Spread Widens: Tupras's diesel crack spread was USD35
a barrel (bbl) in 9M22, up from USD6/bbl in 9M21. The jet fuel
crack spread rose to USD32/bbl from USD3/bbl, while the gasoline
crack spread was USD22/bbl (USD11/bbl). Fitch believes that the
diesel and jet fuel crack spreads are likely to remain elevated on
lower export of products to Europe from Russia, which is to further
decrease from February 2023 once EU sanctions on Russian fuel
export come into effect. Higher refinery capacity utilisation and
lower demand due to weaker GDP growth may be negative for gasoline
and overall refining margins in the near term.
Net Capacity Additions: Following net global capacity closures of
300,000 bbl a day (bbl/d) in 2020 and 2021 combined, Tupras expects
net additions of 400,000 bbl/d in 2022 followed by a stronger
increase of 2.1 million bbl/d in 2023. Global refining market has
been tight in 2022 on the back of increasing demand after the
pandemic receded in most regions, earlier closures of refineries
following a difficult 2020 and changes in global trade patterns due
to the Russia-Ukraine war.
Fitch believes that additional capacity expected in 2023 is only
likely to have more impact on global refining market balance in
2024 due to the likely delays and ramp-up issues in the new
refineries given the complexity of starting a new plant.
Turkish Market Still Growing: Despite record high inflation and
weak Turkish lira increasing pump prices, Turkish gasoline demand
increased 17% yoy in 1H22. Jet fuel was up 48% and there was a
fairly small 6% drop in sales of gasoline. The growing market is a
key support for Tupras credit profile.
Net Cash Position: Good financial results in 1H22 and a cautious
financial policy allowed Tupras to reduce leverage and move into a
net cash position by end-June 2022. Fitch believes that with
favourable results in 2H22, Tupras will maintain this net cash
position for the rest of the year. Fitch forecasts that large
dividend payment in 2023 from exceptional 2022 profits and
normalisation of profitability in line with its rating through the
cycle approach will see funds from operation (FFO) net leverage
rising to average 3.0x in 2023-2025, albeit to still low levels for
the rating.
Low Capex, High Dividends: Tupras has low maintenance capex of
about USD200 million a year. Spending will increase due to the
planned energy transition investments, but Tupras plans for a
gradual transition so Fitch expects that overall capex will remain
low compared with peers. Historically, Tupras has paid 90% of net
profit in dividends, but dividends in 2020-2022 were effectively
suspended due to market volatility. Fitch expects dividend payouts
to return to 80% of net profit from 2023, in line with the
company's policy.
Net Zero Emissions in 2050: Tupras announced an update to its
strategic plan in November 2021. It plans to focus on investing in
biofuels, green hydrogen generation and renewables in response to
long-term changes in demand. Tupras expects that a material amount
of vehicle park will only begin running on electricity and hydrogen
in Turkiye in late 2030. The company plans to spend an average of
USD350 million a year on energy transition by 2030.
Fitch views the targets as less ambitious compared to Tupras's
European peers, while noting that demand dynamics for fuels in
Turkiye appear to be more positive than in Europe until 2040
supporting Tupras's more cautious investment plans.
Entek Acquisition Positive: Tupras recently closed the acquisition
of Entek Elektrik from related party Koc Holding. Fitch views the
transaction as long-term positive given Tupras's energy transition
plans. The transaction was funded with new share issuance and
therefore did not result in a cash outflow for Tupras. Entek's
electricity is produced with natural gas (112MW), hydro (264MW) and
wind generation (66MW) assets.
DERIVATION SUMMARY
Tupras's closest EMEA peers are Polski Koncern Naftowy ORLEN S.A.
(PKN) (PKN ORLEN; BBB-/Rating Watch Positive) and MOL Hungarian Oil
and Gas Company Plc (BBB-/Negative). PKN's 894,000 bbl/d downstream
capacity exceeds Tupras's 585,000 bbl/d. Moreover, PKN benefits
from an integrated petrochemical segment, a large retail network
and some exposure to upstream. PKN ORLEN plans to close its merger
with Polskie Gornictwo Naftowe i Gazownictwo SA (PGNiG)
(BBB/Stable) in November 2022, further increasing its scale and
business diversification.
MOL's downstream capacity (417,000 bbl/d) is smaller than Tupras's,
but its credit profile is stronger due to an integrated business
profile with a 100,000 bbl/d of upstream production and sizeable
fuel marketing and petrochemical operations that provides
countercyclical cash flows.
Unlike MOL and PKN, Tupras operates in a deficit fuel market, while
the coastal location of its two principal refineries allows it to
actively manage crude feedstock supplies. Tupras's leverage on a
through the cycle basis is higher than that of MOL and PKN, but the
company has lower capital intensity than its peers, as well as a
lack of diversification.
KEY ASSUMPTIONS
- Brent oil price of USD100/bbl in 2022, USD85/bbl in 2023,
USD65/bbl in 2024, and USD53/bbl in 2025-2026.
- Strong refining margin in 2022 in line with 1H performance and
normalised margin from 2023.
- Growing capex on increasing investment on ESG projects.
- No dividends in 2022 and 80% of net profit from 2023.
Recovery Analysis Assumptions
Its recovery analysis is based on a liquidation value approach,
which yields a higher value than a going-concern approach. It
assumes Tupras will be liquidated in a bankruptcy rather than
reorganised.
The liquidation estimate reflects Fitch's view of the value of
balance-sheet assets that can be realised in a sale or liquidation
conducted during a bankruptcy or insolvency proceedings and
distributed to creditors.
- Fitch has applied a 100% discount to cash held.
- Fitch has applied a 25% discount to account receivables based on
the analysis of Tupras's receivables portfolio and peer analysis.
- Fitch has applied a 25% discount to inventory, lower than the
usual 50% discount as we consider commodities to be more readily
marketable.
- Fitch has applied a 50% discount to net property, plant and
equipment based on the quality of the company's assets and peer
analysis.
- All loans and bonds are unsecured and rank pari passu.
- After a deduction of 10% for administrative claims, and taking
into account Fitch's Country-Specific Treatment of Recovery Ratings
Rating Criteria, its waterfall analysis generated a
waterfall-generated recovery computation (WGRC) in the 'RR4' band,
indicating a 'B' instrument rating. The WGRC output percentage on
current metrics and assumptions was 50%.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- Longer record of maintaining structural enhancements in order to
pierce Turkish Country Ceiling in line with Fitch's criteria.
- Maintenance of a conservative financial profile with FFO net
leverage below 4.5x on a sustained basis.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- FFO net leverage consistently above 6.0x.
- Worsening liquidity.
- Consistently negative free cash flow (FCF).
LIQUIDITY AND DEBT STRUCTURE
Liquidity Subject to Bank Funding: At end-2021, Tupras's liquidity
profile was primarily represented by its unrestricted cash balance
of TRY16.2 billion, of which TRY15.0 billion is time deposit with
maturity less than a month. The liquid assets and solid FCF in 2022
are deemed sufficient to cover the short-term debt of TRY11.4
billion, adjusted for factoring and payable securitisation of
TRY1.0 billion.
Nevertheless, the company's sizeable cash held at local banks in
lira is contingent on credit risk of domestic banks and
foreign-exchange transfer risk under the national economic crisis
of Turkiye coupled with a highly unstable exchange rate. This is
not uncommon among Turkish corporates but exposes the company to
systemic liquidity risk. Tupras also keeps large deposits at a
related-party, Yapi ve Kredi Bankasi A.S. (B-/Negative), of TRY7
billion at end-2021. Fitch believes Tupras has not faced any
difficulties in the past in accessing its liquidity buffer held in
the bank.
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
----------- ------ -------- -----
Turkiye Petrol
Rafinerileri A.S.
(Tupras) LT IDR B Affirmed B
LC LT IDR B Affirmed B
Natl LT A(tur) Affirmed A(tur)
senior unsecured LT B Affirmed RR4 B
===========================
U N I T E D K I N G D O M
===========================
DEKANIA EUROPE III: Fitch Affirms 'Csf' Rating on 2 Tranches
------------------------------------------------------------
Fitch Ratings has upgraded Dekania Europe CDO II Plc's class C
notes and Dekania Europe CDO III Plc's class B notes, and affirmed
the rest.
Debt Rating Prior
---- ------ -----
Dekania Europe CDO II Plc
Class C XS0265871409 LT BBB-sf Upgrade BB+sf
Class D1 XS0265875145 LT CCCsf Affirmed CCCsf
Class D2 XS0266479913 LT CCCsf Affirmed CCCsf
Class E XS0265883164 LT CCsf Affirmed CCsf
Dekania Europe CDO III Plc
Class B XS0298467159 LT BBBsf Upgrade BBsf
Class C XS0298467407 LT CCCsf Affirmed CCCsf
Class D XS0298468637 LT CCsf Affirmed CCsf
Class E XS0298469361 LT Csf Affirmed Csf
Class F XS0298469874 LT Csf Affirmed Csf
TRANSACTION SUMMARY
Dekania Europe CDO II and III are cash flow CDO transactions
managed by Dekania Capital Management, LLC, an affiliate of Cohen &
Company Securities LLC. The notes are backed primarily by
euro-denominated hybrid capital securities and subordinated bonds
issued predominantly by small and mid-sized European insurance
companies and, to a lesser extent, banks.
KEY RATING DRIVERS
Higher Credit Enhancement: The upgrades reflect paydown of an EUR12
million asset in each transaction, increasing credit enhancement
(CE) for the notes. The class C notes of Dekania II paid down by
EUR12.4 million since the last rating action on 28 October 2021.
The CE on the class C notes is now 69.8% and on the class D notes
33.8%, which are 14.6% and 7.4% higher than at the last review.
The class B notes of Dekania III paid down by EUR13.6 million since
the last review. The class B notes now has a CE of 84.1%, class C
notes of 42.7%, and class D notes of 12.4%, which are 18.6%, 10.7%
and 4.6% higher than at the last review.
Rated Assets Supporting Senior Notes: The upgrades reflect that the
senior notes for each of the deals have sufficient assets to
support the same or higher ratings, collateralising the notes. The
portfolio overall has increased obligor concentration due to the
paydown of assets. The performing portfolio comprises six assets
from five obligors for Dekania II and seven assets from six
obligors for Dekania III.
Perpetual Assets/Long Maturity Risks: A high proportion of assets
maturing on or after 2035, including perpetual assets, contributes
to the tail risk that may affect the notes. While the recent
paydown in Dekania III was from a perpetual asset, Fitch may take
rating action on the notes if closer to the legal final maturity
the agency believes that the perpetual assets with ratings at or
higher than the most senior notes are unlikely to pay down prior to
the legal final maturity.
Assets maturing on or after 2035 comprise 75% of Dekania II's and
98% of Dekania III's performing portfolios. Perpetual assets
comprise around 19% of Dekania II's and 70% of Dekania III's
performing portfolios. Perpetual securities were treated as
long-dated assets as described in Fitch "CLOs and Corporate CDOs
Rating Criteria", whereby they are assumed to be sold and receive
the expected recovery value at the maturity of the CDO notes.
Deterioration in Credit Quality: Due to the paydown of the assets,
the credit quality of both portfolios has deteriorated. The
weighted average rating factor (WARF) for Dekania II has worsened
to 27.8 from 24.6, and for Dekania III to 21.1 from 17.6.
There is one issuer that is under a compulsory winding up order.
The issuer has contributed one asset each of EUR12 million in the
two portfolios. These assets have been excluded from the performing
assets used in the analysis.
Low Excess Spread: As the majority of the portfolios mature on or
after 2035 with some assets being perpetual securities, the
transactions rely partially on excess spread and interest proceeds
to pay down the notes. The over-collateralisation (OC) tests for
Dekania II class E notes, and Dekania III's class E and F notes are
failing, redirecting interest to pay down the senior most notes in
each. In addition, interest from the one perpetual asset in Dekania
II and three perpetual assets in Dekania III reclassified as
principal according to the transaction documents.
Excess spread has been low in the past two years due to senior
notes having paid down and cost of funding having increased.
However, none of the notes rated 'B' and higher have accumulated
further deferred interest during the past 12 months.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
An increase of the default rate (RDR) at all rating levels by 25%
of the mean RDR and a decrease of the recovery rate (RRR) by 25% at
all rating levels will result in downgrades of no more than one
notch of the most senior notes.
Downgrades may occur if the build-up of the notes' CE following
amortisation does not compensate for a larger loss expectation than
initially assumed due to unexpectedly high levels of defaults and
portfolio deterioration.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
A reduction of the RDR at all rating levels by 25% of the mean RDR
and an increase in the RRR by 25% at all rating levels would result
in upgrades of no more than one notch for the most senior notes.
Upgrades may occur in case of better-than-expected portfolio credit
quality and deal performance, and continued amortisation that leads
to higher CE and excess spread available to cover for 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
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 pool[s] ahead of the transactions' initial
closing. The subsequent performance of the transaction[s] 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.
GAUGHAN GROUP: Director Gets 12-Year Disqualification
-----------------------------------------------------
The Insolvency Service on Oct. 21 disclosed that Brendan Michael
Gaughan, 40, from Glasgow has been disqualified as a director for
12 years, after using his companies to take out Bounce Back Loans
totalling GBP135,000 that the companies were not eligible for.
Mr. Gaughan was director of three separate property management
companies, Gaughan Group Ltd, Gaughan Property Ltd, and Rentl
Property Ltd. They were only incorporated in February 2020 and did
no business until April 2020.
As a result, they were not eligible for funds through the Bounce
Back Loan (BBL) scheme, which was available only to firms that had
been doing business on March 1, 2020.
However, in May 2020, Gaughan Group received a BBL of GBP50,000,
Gaughan Property received a BBL also of GBP50,000, and Rentl
Property Ltd received a BBL of GBP35,000.
Gaughan transferred all the funds into a single account and
proceeded to use the money to buy a property worth nearly
GBP160,000 in August 2020. He then sold the property in March 2021
for just over GBP140,000, and on the same day transferred
GBP100,000 of the proceeds to his personal account.
All three companies were put into liquidation on October 11, 2021,
which triggered an investigation by the Insolvency Service.
The Secretary of State accepted disqualification undertakings from
Brendan Michael Gaughan, after he did not dispute that none of his
companies had been eligible for Bounce Back Loans. He has been
banned for 12 years, effective from October 27, 2022.
The disqualification undertakings prevent him from directly, or
indirectly, becoming involved in the promotion, formation or
management of a company, without the permission of the court.
Steven McGinty, Investigation Manager at the Insolvency Service
said:
"Bounce Back Loans were made available for trading companies
adversely affected by the pandemic. Brendan Gaughan should have
known his companies weren't entitled to the loans yet he took them
anyway and used the funds for personal gain.
"We will not hesitate to take action against directors who have
abused Covid-19 financial support like this."
GREAT HALL 1 2007-2: Fitch Upgrades Rating on 2 Tranches to 'BB+sf'
-------------------------------------------------------------------
Fitch Ratings has upgraded 11 tranches of three Great Hall
Mortgages No. 1 plc (GHM) transactions and affirmed 17 others. All
non-'AAAsf' rated tranches have been removed from Under Criteria
Observation (UCO).
Debt Rating Prior
---- ------ -----
Great Hall Mortgages No. 1
plc (Series 2007-1)
Class A2a XS0288626525 LT AAAsf Affirmed AAAsf
Class A2b XS0288627507 LT AAAsf Affirmed AAAsf
Class Ba XS0288628224 LT AAAsf Affirmed AAAsf
Class Bb XS0288628810 LT AAAsf Affirmed AAAsf
Class Ca XS0288629545 LT AAAsf Affirmed AAAsf
Class Cb XS0288630121 LT AAAsf Affirmed AAAsf
Class Da XS0288630394 LT AA-sf Upgrade Asf
Class Db XS0288630550 LT AA-sf Upgrade Asf
Class Ea XS0288630808 LT A-sf Upgrade BBBsf
Great Hall Mortgages No. 1
plc (Series 2007-2)
Class Aa XS0308354504 LT AAAsf Affirmed AAAsf
Class Ab XS0308354843 LT AAAsf Affirmed AAAsf
Class Ac XS0308462141 LT AAAsf Affirmed AAAsf
Class Ba XS0308356970 LT AAAsf Affirmed AAAsf
Class Ca XS0308357358 LT AA+sf Upgrade AAsf
Class Cb XS0308355733 LT AA+sf Upgrade AAsf
Class Da XS0308357788 LT A+sf Upgrade A-sf
Class Db XS0308356111 LT A+sf Upgrade A-sf
Class Ea XS0308357861 LT BB+sf Upgrade BB-sf
Class Eb XS0308356467 LT BB+sf Upgrade BB-sf
Great Hall Mortgages No. 1
plc (Series 2006-1)
Class A2a XS0276086393 LT AAAsf Affirmed AAAsf
Class A2b XS0276092797 LT AAAsf Affirmed AAAsf
Class Ba XS0276086989 LT AAAsf Affirmed AAAsf
Class Bb XS0276093332 LT AAAsf Affirmed AAAsf
Class Ca XS0276087524 LT AAAsf Affirmed AAAsf
Class Cb XS0276093928 LT AAAsf Affirmed AAAsf
Class Da XS0276088506 LT AAsf Upgrade AA-sf
Class Db XS0276095030 LT AAsf Upgrade AA-sf
Class Ea XS0276089223 LT A-sf Affirmed A-sf
TRANSACTION SUMMARY
The transactions comprise UK buy-to-let (BTL) and non-conforming
mortgage loans that were originated before 2007 by Platform
Homeloans Limited and purchased by JPMorgan Chase Bank N.A.
KEY RATING DRIVERS
Tranches Removed from UCO: In its latest UK RMBS Rating Criteria on
23 May 2022, Fitch updated its sustainable house price for each of
the 12 UK regions. This increased the multiple for all regions
other than North East and Northern Ireland, and updated house price
indexation and 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.
Trigger Breaches Boost Credit Enhancement: Following breaches in
cumulative possessions and cumulative loss triggers, the reserve
fund cannot amortise further and a switch to pro-rata amortisation
of the notes is not permitted. As a result, credit enhancement (CE)
has increased steadily for all tranches and Fitch expects this
trend to continue. The build-up in CE contributes to the upgrades.
Uncertain Asset Performance: 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
model updates. Class D and E notes of all three series and Series
2007-2 class C notes' ratings are constrained either one or two
notches below the respective MIR.
Interest-Only Concentration: The redemption profile of the loans
present a significant concentration of owner-occupied interest-only
loans maturing in 2029-2031 (GHM 2006-1 and GHM 2007-1) and
2030-2032 (GHM 2007-2). The pools have between 1.5% and 3.0% of
loans that have passed their maturity date without repaying the
mortgage and these percentages could increase when more loans
approach their maturity date.
At least seven years between the interest-only maturity
concentration and the legal final maturity of the notes are
available to mitigate this risk and no loans are due to mature in
the two years before the notes' final redemption.
Tail risk considerations combined with performance volatility
contributed to ratings of the junior notes to be assigned below
their MIR.
Increased Senior Fees: The transactions have been incurring an
increased level of senior fees in recent years, Fitch believes
these increased fees are predominantly due to litigation and Libor
transition costs. Fitch has made a forward-looking fee assumption
for the transactions by assuming that the costs incurred will
stabilise at a level in line with other similar transactions.
In Fitch's opinion, as well as increasing arrears, more
interest-only loans past maturity and higher senior fees may lead
to MIRs being lower in future model updates.
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.
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 WARR. The results indicate
downgrades of up to four 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 six notches.
DATA ADEQUACY
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' 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
Great Hall Mortgages No. 1 plc (Series 2006-1), Great Hall
Mortgages No. 1 plc (Series 2006-1) and Great Hall Mortgages No. 1
plc (Series 2007-2) has an ESG Relevance Score of '4' for Customer
Welfare - Fair Messaging, Privacy & Data Security due to the pool
exhibiting an IO maturity concentration of legacy non-conforming
owner-occupied loans greater than 20%, which has a negative impact
on the credit profile, and is relevant to the ratings in
conjunction with other factors.
Great Hall Mortgages No. 1 plc (Series 2006-1), Great Hall
Mortgages No. 1 plc (Series 2006-1) and Great Hall Mortgages No. 1
plc (Series 2007-2) has 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.
NMC HEALTH: EY's UK Business Denies Negligence in Audits
--------------------------------------------------------
Michael O'Dwyer at The Financial Times reports that EY's UK
business has denied it was negligent in its audits of NMC Health,
the collapsed former FTSE 100 hospital operator, in a US$2.7
billion court battle that will renew focus on the scope of
auditors' duty to detect fraud.
Abu Dhabi-based NMC entered administration in April 2020 after it
was targeted by short sellers in 2019 and the subsequent discovery
of US$4 billion of debt that had been hidden from its balance
sheet, the FT recounts. The case is one of the biggest frauds ever
alleged at a FTSE 100 company.
The legal claim, filed in London's High Court by NMC's
administrators in May, alleged a string of shortcomings by EY,
including a failure to spot that its client's accounts were
fraudulently misstated and that NMC did not keep proper accounting
records, the FT notes.
The claim also alleged that the Big Four auditor failed to verify
NMC's bank and debt balances, similar to claims against EY in its
role as auditor of collapsed German company Wirecard, the FT
states.
According to the FT, administrators Alvarez & Marsal, tasked with
securing funds to repay NMC's creditors, claimed that more than
$1.5 billion was transferred from the group to its founder BR
Shetty and two of his associates.
Mr. Shetty, himself the subject of a criminal complaint in the UAE,
has claimed he was a victim of the fraud, the FT relays.
In its defence filed this month, EY, as cited by the FT, said
audits were designed to give "reasonable assurance" the accounts
were not materially misstated but they do not guarantee this and do
not absolve company directors of "primary responsibility for the
accuracy of those financial statements".
The firm said the alleged fraud "involved the falsification and
concealment of accounting records and other documents".
It added it was "not aware that there were a large number of
payments to and from Dr Shetty's personal bank accounts" and denied
it should have taken steps that would have revealed manipulated
entries.
EY argued the amount of damages it was ordered to pay to the
administrators should be reduced to reflect NMC's negligence, the
FT discloses. According to the FT, it said "many of those charged
with governance within NMC, including at the most senior levels,
were themselves guilty of perpetrating the fraud (including by
making deliberately false representations to EY)".
The firm's defence also rests on its outsourcing of much of the NMC
audit to its Middle East business, the FT notes. EY UK, which
signed off NMC's group accounts and is the defendant in the legal
case, argued it should not be liable for any failings in so-called
component audits of overseas operations, the FT relates. EY did
not admit any failings by its Middle East business, according to
the FT.
EY UK said it carried out its duties as group auditor by giving
"proper instructions" to overseas auditors, primarily EY Middle
East, and satisfying itself that it could rely on their work, the
FT notes. The firm said it had "no reason to think" EY Middle East
was not carrying out its work properly, the FT relates.
EY, which charged almost GBP14 million for its work since NMC
floated in 2012, said most of the administrators' claims were
invalid because of contractual and statutory limitation periods,
according to the FT.
TECHNIPFMC PLC: S&P Affirms 'BB+' ICR, Outlook Stable
-----------------------------------------------------
S&P Global Ratings affirmed its 'BB+' issuer credit rating on
U.K.-based oilfield services and equipment provider TechnipFMC PLC.
S&P also affirmed its 'BB+' issue-level rating on the company's
unsecured guaranteed notes.
S&P said, "We raised our issue-level rating on the company's
unsecured notes without guarantees to 'BB+' from 'BB' and revised
the recovery rating to '4' from '5', reflecting the improved
recovery expectations given the company's lower outstanding debt
amounts.
"The stable outlook reflects our view that TechnipFMC's cash flow
and leverage metrics will remain appropriate for the rating for the
next 12 to 24 months, with average funds from operations (FFO) to
debt of about 50%."
The 'BB+' issuer credit rating is supported by the company's
improved credit measures and debt repayment.
S&P said, "We raised our cash flow estimates for TechnipFMC
modestly to incorporate stronger first half 2022 performance and
the improved outlook for the recovery in demand for offshore
oilfield services. The recovery in offshore activity has lagged
that of the onshore sector where projects are generally
shorter-cycle and lower cost but is showing greater signs that a
pick-up in activity is underway. We have seen a meaningful increase
in offshore project awards and tendering activity throughout 2022,
with these longer-term commitments likely driven by the tight
global supply and renewed focus on global energy security.
TechnipFMC anticipates it is on track to win up to $7 billion of
inbound orders in 2022, a more than 40% increase from 2021, with
$4.4 billion already awarded in the first half of 2022. The
company's backlog was $9.0 billion as of June 30, 2022, compared
with $7.7 billion as of Dec. 31, 2021. As a result of the improving
market conditions, we anticipate FFO/debt of around 45% in 2022,
improving to the low-50% range in 2023."
TechnipFMC has reduced debt meaningfully, using proceeds from the
sale of Technip Energies.
The company monetized its remaining shares of Technip Energies in
the first half of 2022, raising about $289 million and taking the
total post-spin proceeds to $1.19 billion. The company primarily
used the proceeds to reduce its gross debt, repaying about $530
million in the first half of 2022, and about $1.06 billion total
post-spin. With the Technip Energies position now fully monetized
and the reintroduction of shareholder returns in the third quarter
2022, S&P expects the company's rate of debt reduction to slow but
remain a priority--including repayment of the $170 million credit
facility balance outstanding at midyear and redemption of its $265
million of 3.15% notes closer to their October 2023 maturity.
TechnipFMC announced a $400 million share repurchase program in
July and intends to start paying a base dividend beginning in the
third quarter 2023.
S&P said, "The stable outlook reflects our view that TechnipFMC's
cash flow and leverage metrics will remain appropriate for the
rating over the next 12 to 24 months, with average FFO to debt in
the 50% range and positive free cash flow, and that it will balance
shareholder returns with further debt reduction.
"We could lower the rating if FFO to debt approached 20% for a
sustained period, which would most likely occur if offshore oil and
gas activity does not improve in line with our expectations or if
the company is unable to improve margins in line with our
expectations.
"We could raise the rating if FFO to debt reached 60% for a
sustained period, which would most likely occur if offshore
activity strengthens ahead of our expectations, leading to stronger
revenue growth and improved margins. In addition, we would expect
the company to maintain a conservative financial policy. We could
also raise the rating if we revised our assessment of TechnipFMC's
business risk profile upward, while the company maintains FFO to
debt well above 45%."
ESG Credit Indicators: E-4, S-3, G-2
S&P said, "Environmental factors are a negative consideration in
our rating analysis on TechnipFMC due to our expectation that the
energy transition will result in lower demand for services and
equipment as accelerating adoption of renewable energy sources
lowers demand for fossil fuels. Additionally, 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 material exposure to the offshore market,
TechnipFMC faces greater environmental risks than onshore service
providers, 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 on
TechnipFMC due to its susceptibility to operational interruptions
and damage to equipment from more challenging operating conditions.
TechnipFMC is targeting a 50% reduction in its scope 1 and 2 GHG
emissions by 2030 (from a 2017 baseline). The company is also
investing in various new energy technologies, including its
partnership with Talos Energy to develop CCS solutions."
WM MORRISON: S&P Assigns 'B' LongTerm ICR, Outlook Stable
---------------------------------------------------------
S&P Global Ratings assigned its 'B' long-term issuer credit rating
on Market Holdco 3 Ltd. (Wm Morrison Supermarkets' parent company),
which is one notch lower than the 'B+' preliminary rating assigned
on April 27, 2022, and reflects the delay in the anticipated
deleveraging. At the same time, S&P assigned its 'B+' issue rating
on the group's senior secured debt (recovery rating remains '2';
rounded estimate: 80%) and its 'CCC+' rating on the senior notes.
S&P said, "The stable outlook reflects our view that the group has
adequate liquidity and rating headroom to accommodate for the
challenging macroeconomic environment while maintaining S&P Global
Ratings-adjusted leverage below 9.0x (8.0x excluding prefs),
EBITDAR coverage of 1.9x, and positive free operating cash flow
(FOCF) after lease payments of about GBP150 million.
"We have downwardly revised our base case for Morrisons given the
recent sharp deterioration in economic conditions and evidence of
tougher operating conditions in the retail industry.
"Morrisons reported weak results for the nine months ending July
31, 2022, with the group's like-for-like sales (excluding fuel)
down by 4.9%. While not directly comparable to our previous
forecast because of the change in the accounting year-end, we
estimate the group's S&P Global Ratings-adjusted EBITDA for the
same period at GBP590 million, which is about 10%-15% lower than
our previous fiscal 2023 expectation. In addition, we expect the
upcoming quarters to be particularly tough in the U.K., with
inflation set to rise to 12% over the winter despite the
government's inflation-curbing energy price guarantee. We have
revised our forecast for the U.K. economy significantly and now
expect a 0.5% GDP contraction for 2023 compared with 1.0% growth
previously. As a result, we have revised downward our base case for
Morrisons and now expect S&P Global Ratings-adjusted leverage over
the next 18 months to be about 8.9x (7.3x excluding prefs), the
threshold of a 'B+' rating."
In November 2021, the funds controlled by financial sponsor
Clayton, Dubilier & Rice LLC (CD&R) and other minority partners
acquired Morrisons' entire equity capital via a new intermediary
company--Market Holdco 3 Ltd.--for an implied enterprise value of
GBP9.7 billion. As of July 31, 2022, Market Holdco's GBP5.97
billion of financial debt consisted of:
-- GBP360 million drawing under its GBP1.0 billion revolving
credit facility due August 2027;
-- GBP1.075 billion 5.5% senior secured notes due November 2027;
-- EUR545 million 4.75% senior secured notes due November 2027;
-- EUR51 million senior secured bridge facility;
-- GBP567 million term loan A due November 2027;
-- EUR1,302 million term loan B1 facility due November 2027;
-- EUR710 million term loan B2 facility due November 2027;
-- GBP500 million term loan B2 facility due November 2027; and
-- GBP82 million rolled over existing notes.
Rising interest rates could depress the group's FOCF further and
the unhedged euro-denominated debt brings additional currency risk
of debt. S&P said, "Since we initially rated Market Holdco 3 in
April 2022, the central banks in the U.K. and the Eurozone have
increased interest rates to stem inflationary pressures. About 47%
of the group's outstanding debt (GBP2.8 billion) is fixed rate. In
addition, the group has hedged the base rate for a EUR1 billion
euro-denominated loan at a 2% cap raising the proportion of fixed
rate debt to 62%. Our current forecast includes cash interest costs
on financial debt of about GBP400 million in fiscal 2023 compared
to GBP310 million in April 2022. Our current 2023 interest forecast
assumes an annual average base rate of 3.47% in the U.K. and 2.44%
in the Eurozone." The base rate forecast is subject to significant
downside risks stemming from uncertainty related to the
Russia-Ukraine conflict and, in particular, volatility in the U.K.
bond and exchange-rate markets. After incorporating the benefit of
the recently executed EUR836 million currency swaps to hedge the
principal portion of debt, Morrisons still has about 25% of its
debt denominated in EUR. With no meaningful euro-currency EBITDA,
Morrisons faces currency risk of debt for the unhedged portion of
its debt and adds volatility in EBITDAR coverage depending on the
movement in the GBP/EUR exchange rate.
Morrisons will need to offer lower prices to maintain its market
share. During the COVID-19 lockdown, discounters' lack of online
channels allowed Morrisons to attract a higher percentage of the
value segment in retail grocery. However, those gains seem to have
reversed as consumers reverted to in-store shopping. According to
Kantar Worldpanel data, Morrisons' market share in retail grocery
declined to 9.0% for the 12 weeks ended Oct. 2, 2022, compared to
9.8% for the same period in 2021. During the same period, Aldi's
market share increased to 9.3% from 8%. However, the market-share
data doesn't consider Morrisons' fuel and wholesale operations,
where discounters have no presence. S&P understands that Morrisons
plans to continue to lower prices on some core lines and are
expanding the range of essential products, as it focuses on the
cost of living pressures its customers face.
The acquisition of McColl's will support Morrisons' expansion into
convenience stores. Prior to the McColl's acquisition, Morrisons
had very few stores within the U.K. convenience segment (typically
smaller than 1,000 square feet) and gained exposure to this segment
via wholesale supply agreements with independent convenience store
operators/newsagents. With its 19 food manufacturing facilities and
eight distribution centers, Morrisons has the scale to offer
wholesale services to convenience store operators. Its wholesale
segment continued to grow over the last 12 months and is one of the
strategic drivers for further growth.
Morrisons acquired McColl's business out of administration in May
2022, but the business is held separately, in line with the initial
enforcement order imposed by the Competition and Markets Authority.
McColl's financials aren't included with Morrisons' yet, but S&P
has consolidated them in its forecast for fiscal 2023 with EBITDA
contribution of about GBP20 million-GBP30 million.
Morrisons' earnings growth is underpinned by improving margins as
it implements cost-efficiency measures. S&P said, "Despite our
modest revenue growth forecast in fiscal 2023, our improved
earnings forecast reflects lower exceptional costs relating to
COVID-19 and supply-chain disruptions along with lost profits
recovered in the cafes and the food-to-go segment. We also factor
in improved efficiencies related to store pick-up operations and
increased automation at manufacturing sites. We forecast S&P Global
Ratings-adjusted margins to improve toward 5.2% in fiscal 2023,
partly reflecting CD&R's track record at its previous and current
U.K. retail investments, such as B&M European Value Retail (listed
in 2014) and Motor Fuel Group."
A large freehold real estate portfolio provides Morrisons with
additional financial flexibility. Morrisons' retail estate
portfolio comprises 421 freehold retail stores, eight distribution
centers, and 19 manufacturing sites. With more than 85% of its
estate portfolio held as freehold, Morrisons stands apart from its
peers, which have freehold ownership of 50%-70%. CBRE values
Morrisons' freehold estate at about GBP9.2 billion. Large freehold
real estate should provide the group with the financial flexibility
to monetize some of its portfolio via sales and leasebacks of
non-core assets to bolster liquidity or to deleverage.
S&P said, "The stable outlook reflects our view that the group has
adequate liquidity and rating headroom to weather the challenging
macroeconomic environment while maintaining S&P Global
Ratings-adjusted leverage below 9.0x (8.0x excluding prefs),
EBITDAR coverage of 1.9x, and positive FOCF after lease payments of
more than GBP150 million. It also incorporates our view that
management's cost-saving initiatives and the McColl's integration
should partly offset inflationary cost pressures and help the group
to achieve an EBITDA margin of above 5%, which we consider average
for this sector.
"We could lower our ratings on Morrisons if the group's operating
performance falls short of our current base case, reflecting a
deterioration in the group's competitive position and leading to
prolonged high leverage and weak credit metrics for an extended
period." Specifically, S&P could take a negative rating action if,
over the next 12 months:
-- Adjusted leverage exceeded 10.0x (8.0x excluding prefs); or
-- Annual FOCF after lease payments were to fall materially.
S&P said, "In addition, we consider a downgrade over the next 12
months if the group doesn't actively pursue hedging of its
floating-rate and foreign currency-denominated debt and we think
that FOCF could deteriorate meaningfully, owing to elevated risk of
rising interest rates and foreign exchange volatility. We could
also downgrade Morrisons if credit metrics deteriorate as it
pursues material sale and leaseback transactions or debt-funded
acquisitions, or if it raises additional debt for shareholder
returns (including prefs repayments), even if the debt
documentation permits such actions."
S&P could raise its ratings on Morrisons if it:
-- Can demonstrate sustained organic growth in the retail business
while improving its S&P Global Ratings-adjusted EBITDA margin above
5%;
-- Achieves a track record of successful implementation of its
strategic plan and S&P Global Ratings-adjusted debt to EBITDA of
less than 9.0x (7.0x excluding prefs) and continues to deleverage
consistently; and
-- Shows sustained improvement in cash flow, with FOCF after lease
payments above GBP200 million annually, while improving its EBITDAR
coverage ratio to at least 2.0x.
ESG credit indicators: E-2, S-2, G-3
S&P said, "Governance factors are a moderately negative
consideration in our credit rating analysis of Market Bidco, as is
the case for most rated entities owned by private-equity sponsors.
We believe the company's highly leveraged financial risk points to
corporate decision-making that prioritizes the interests of the
controlling owners. This also reflects financial sponsors'
generally finite holding periods and focus on maximizing
shareholder returns."
[*] UK: Dramatic Spike in Company Insolvencies Hasn't Peaked Yet
----------------------------------------------------------------
Michael Crossland at The Yorkshire Post reports that a
Yorkshire-based insolvency expert has warned that a dramatic spike
in company insolvencies in England & Wales is the start, not the
peak, of more mid-market business fatalities.
According to The Yorkshire Post, Jonathan Amor, insolvency partner
at Azets, said many businesses are "sleepwalking into a train
crash" under growing financial pressure.
Latest statistics released by The Insolvency Service show the
annual rate of company insolvencies in England & Wales is now the
highest it has been in eight years, The Yorkshire Post discloses.
Mr. Amor, as cited by The Yorkshire Post, said: "The current
economic environment, characterised by rising prices and tighter
financial conditions, is impacting companies' ability to service
debt.
"Economists believe it is a case of 'when' not 'if' the UK
eventually falls into recession.
"It is highly likely that the cost of business will increase,
especially for companies that have taken out non-fixed rate loans.
"Many businesses relied on loans to cope throughout the pandemic,
and consecutive interest rate hikes have come at a critical time
for many who are already struggling to stay afloat.
In the 12 months to August, a total of 20,512 insolvencies were
registered with the Insolvency Service, The Yorkshire Post notes.
The figure is 16% more than any 12-month period since 2019 and 26
per cent higher than any calendar year between 2014-2018, The
Yorkshire Post states.
According to The Yorkshire Post, while number of company
insolvencies reported by the Insolvency Service for August was down
9% from the peak in March 2022, analysis by R3, the trade
association for UK insolvency and restructuring professionals,
shows the upward trend in the 12 monthly rolling numbers.
Starting in April 2021, this upward trend has continued to rise at
the same steady pace, and is now 72% higher than a year ago, The
Yorkshire Post notes.
Mr. Amor predicts this trend will continue, and is urging business
owners to be proactive, with the true impact of the global economic
crisis yet to be felt, The Yorkshire Post discloses.
He noted that businesses have significantly more options available
if they are alert to danger and consult early.
The warning comes as figures from Interpath Advisory revealed that
the number of companies filing for administration across Yorkshire
and the North East has risen by a third in the third quarter of
2022, The Yorkshire Post relays.
Interpath Advisory's figures also show that August of this year saw
the higest number of administrations across the UK since March
2020, according to The Yorkshire Post.
[*] UK: Inflation to Prompt Rising Insolvency Levels Among SMEs
---------------------------------------------------------------
Strategic Risk reports that insolvency rates already "well above
pre-pandemic levels" as companies feel the effects of the
withdrawal of fiscal support.
According to Strategic Risk, inflation has hit double digits in 19
European countries and is likely to prompt rising insolvency
levels, particularly among SMEs.
Long-term inflation expectations in the Eurozone will peak in H1
2023, just above from current levels and then ease gradually,
according to modelling by Oxford Economics, Strategic Risk notes.
In the UK, latest ONS statistics show the inflation has gone up to
10.1%, driven by the increasing cost of food, Strategic Risk
discloses. There are significant implications for businesses,
Strategic Risk relays, citing Tanya Giles, head of SME business at
Atradius.
"The news of inflation returning to record highs will be concerning
for businesses across the UK as they battle to stay above water,"
Strategic Risk quotes Ms. Giles as saying. "Outgoings are soaring
across the board, and many employers will need to make some
difficult decisions in the coming weeks and months to ensure their
organisations have longevity.
"The news of firms becoming insolvent will become more and more
commonplace as we enter 2023. In fact, insolvency rates are
already well above pre-pandemic levels as companies feel the
effects of the withdrawal of government support present throughout
the pandemic.
This year, 16,171 businesses were made insolvent across England and
Wales, 70.5% more than the same period in 2021, Strategic Risk
states.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2022. All rights reserved. ISSN 1529-2754.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers.
Information contained herein is obtained from sources believed to
be reliable, but is not guaranteed.
The TCR Europe subscription rate is US$775 per half-year,
delivered via e-mail. Additional e-mail subscriptions for
members of the same firm for the term of the initial subscription
or balance thereof are US$25 each. For subscription information,
contact Peter Chapman at 215-945-7000.
* * * End of Transmission * * *