/raid1/www/Hosts/bankrupt/TCREUR_Public/221102.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
Wednesday, November 2, 2022, Vol. 23, No. 213
Headlines
A U S T R I A
SCHUR FLEXIBLES: Bank Debt Trades at 61% Discount
A Z E R B A I J A N
INTERNATIONAL BANK OF AZERBAIJAN: Fitch Hikes LongTerm IDR to 'BB-'
B O S N I A A N D H E R Z E G O V I N A
HIDROGRADNJA: Bankruptcy Trustee to Auction Assets on Nov. 30
F R A N C E
LABORATOIRE EIMER: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
G E R M A N Y
SC GERMANY 2022-1: Moody's Gives B2 Rating to EUR26MM Cl. F Notes
I R E L A N D
BOSPHORUS CLO VII: Fitch Assigns 'B-sf' Rating on Class F Notes
CONTEGO CLO X: S&P Assigns B-(sf) Rating on Class F Notes
PALMER SQUARE 2022-3: Fitch Assigns 'BBsf' Rating on Class E Notes
I T A L Y
BPER BANCA: Moody's Assigns (P)Ba1 Rating to EMTN Programme
K A Z A K H S T A N
KAZAKHSTAN UTILITY: Fitch Affirms Foreign Currency IDR at 'B+'
MANGISTAU REGIONAL: Fitch Affirms Foreign Currency IDR at 'B+'
L U X E M B O U R G
NORTHPOLE NEWCO: EUR100M Bank Debt Trades at 57% Discount
M A C E D O N I A
TOPLIFIKACIJA SKOPJE: To Sell 99.98% Skopje Sever Stake Today
S W E D E N
[*] SWEDEN: Company Bankruptcies Hit Highest Level Since Pandemic
T U R K E Y
RONESANS GAYRIMENKUL: Fitch Affirms 'B' LongTerm IDR, Outlook Neg.
U N I T E D K I N G D O M
CINEWORLD: Bankruptcy Settlement Reached with Landlords, Lenders
FARFETCH LIMITED: Fitch Assigns 'B-' LongTerm IDR, Outlook Stable
GENESIS SPECIALIST: Bank Debt Trades at 63% Discount
MADE.COM: Shares Suspended, Intends to Appoint Administrators
MCCOLL'S: Morrisons Plans to Close 132 Loss-Making Stores
- - - - -
=============
A U S T R I A
=============
SCHUR FLEXIBLES: Bank Debt Trades at 61% Discount
-------------------------------------------------
Participations in a syndicated loan under which Schur Flexibles
GmbH is a borrower were trading in the secondary market around 39
cents-on-the-dollar during the week ended Fri., October 28, 2022,
according to Bloomberg's Evaluated Pricing service data.
The EUR475 million facility is a term loan. The loan is scheduled
to mature in September 2028. As of October 28, 2022, the amount
was fully drawn and outstanding.
Schur Flexibles GmbH provides packaging products. The Company
offers shrink films, laminates, wicket bags, tobacco pouches, and
bread bags. Its headquarters is located in Wiener Neudorf,
Austria.
===================
A Z E R B A I J A N
===================
INTERNATIONAL BANK OF AZERBAIJAN: Fitch Hikes LongTerm IDR to 'BB-'
-------------------------------------------------------------------
Fitch Ratings has upgraded OJSC International Bank of Azerbaijan's
(IBA) Long-Term Issuer Default Rating (IDR) to 'BB-' from 'B'. The
Outlook is Stable. Fitch has also upgraded the bank's Viability
Rating to 'bb-' from 'b'.
The two-notch upgrade captures the decisive resolution of legacy
risks at IBA, following the elimination of its substantial short
open-currency position, which Fitch had previously viewed as a
significant drag on the bank's ratings.
KEY RATING DRIVERS
IBA's ratings are driven by its intrinsic credit strength, as
measured by its VR of 'bb-'. IBA's VR captures the bank's solid
balance-sheet structure, which translates into satisfactory
financial metrics. The VR also reflects the bank's strong domestic
franchise, which benefits from its close ties with the state.
The rating strengths are balanced with IBA's exposure to the
emerging, oil-dependent and heavily dollarised Azerbaijani economy,
which may result in significant cyclicality in the bank's asset
quality and performance.
Legacy Currency Risks: In July, IBA closed its long-standing
short-currency position (1Q22: USD470 million or 60% of regulatory
capital) through purchases of foreign-currency liquidity from the
Central Bank of Azerbaijan (CBA), thereby eliminating significant
legacy currency risks. Fitch views the elimination of currency
risks as the final step in a decisive resolution of the legacy
issues that had previously weighed on IBA's credit profile.
Robust Asset Structure: IBA's net loan book, which Fitch views as
the primary source of credit risk, equalled a low 27% of its total
assets at end-2Q22, while non-loan exposures mostly comprise cash,
sovereign bonds and bank placements of at least 'BB+' credit
quality. This asset structure translates into stable asset quality
and earnings and a stronger liquidity profile than the sector
average. For these reasons, Fitch rates IBA's IDR and VR one notch
above its 'b+' operating environment score.
Reasonable Loan Quality Ratios: IBA's impaired loans (Stage 3 loans
under IFRS 9) equalled a low 4.1% of gross loans at end-2Q22 and
were 1x covered with reserves. Stage 2 loans added another 3.4% of
gross loans. Fitch sees no unrecognised problem loans among IBA's
largest corporate exposures. IBA's largest loans are generally of
moderate-to-low credit risk in the local context, although industry
concentrations are high, with 28% of corporate lending exposed to
construction and real estate.
Strong Profitability: IBA's recurring annual pre-impairment profit
is equal to a high 10% of average gross loans, translating into
considerable loss absorption capacity. Since 2017 profitability has
additionally been supported by loan recoveries, stemming from some
work-outs of legacy problem loans. Fitch expects the bank's return
on average equity to be around 15% in 2022-2023, supported by wide
margins and a pick-up in loan growth (Fitch expects at least 25% in
2022 and about 15% in 2023).
High Capital Ratios: IBA's Fitch core capital ratio was a high 32%
at end-2Q22. Regulatory capital ratios are lower, with a total
capital ratio of 19.9%, due to some deductions from regulatory
capital and a higher risk-weighted assets (RWAs)/total assets
ratio. Fitch expects capital ratios to remain comfortable in the
medium term, but for them to trend down on considerable dividend
pay-outs (IBA paid around 85%-90% of net profit in 2020-2022) amid
higher RWAs growth.
Concentrated Funding but Ample Liquidity: IBA is mostly
deposit-funded (87% of total liabilities at end-2Q22). Deposit
concentration is very high, with an outsized contribution from
state-owned corporates (56% of end-2Q22 liabilities), although
Fitch views the largest depositors as core for IBA. Its liquidity
buffer is substantial in both foreign and local currencies, as
expressed by a low 37% gross loans/deposits.
Large State-Owned Bank: IBA is the largest bank in Azerbaijan with
19% and 28% shares in sector loans and deposits, respectively. The
bank is 96% owned by the Republic of Azerbaijan.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
IBA's ratings have considerable near-term headroom due to large
buffers. However, in the longer term the ratings could be
downgraded due to a combination of (i) renewed asset quality
pressure, if it results in impaired loan ratio of above 10% or
significant unrecognised problem loans on IBA's balance sheet; and
(ii) a change in IBA's balance structure so that the loan book
becomes materially larger relative to total assets or capital.
Downside pressure on ratings may also stem from a reduction of the
bank's Fitch Core Capital ratio to below 22%, which is the
threshold for a 'bb' capitalisation-and-leverage score in a 'b'
operating environment under its criteria. Such a reduction could
occur over the medium-to-long term due to a combination of rapid
growth, higher dividend pay-outs and weaker profitability.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
An upgrade of IBA's ratings would require both (i) an improvement
of the Azerbaijani economic environment translating into an upward
revision of its operating environment score for Azerbaijani banks
from 'b+', and (ii) an extended record of reasonable quality of new
lending and stable performance.
An upgrade of Azerbaijan's sovereign rating (BB+/Positive) will not
directly trigger an upgrade of IBA's ratings.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
IBA's senior unsecured debt is rated 'BB-', in line with the bank's
Long-Term IDR, as the likelihood of default on these obligations
reflects that of the issuer.
Government support is not factored into IBA's IDRs, following the
bank's default in 2017. Accordingly, despite IBA's state ownership
and high systemic importance as the largest bank in the country
with a 28% share in sector deposits, Fitch has affirmed IBA's
Government Support Rating (GSR) at 'no support'.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The senior unsecured debt rating is sensitive to changes in IBA's
Long-Term IDR.
An upgrade of the GSR would be contingent on a positive change in
its view of Azerbaijan's propensity to support domestic
systemically-important banks, which could result from a consistent
record of government support.
VR ADJUSTMENTS
The operating environment score of 'b+' is below the 'bb' category
implied score because of the following adjustment reasons:
regulatory and legal framework (negative) and financial market
development (negative).
The asset quality score of 'bb' is above the 'b' category implied
score because of the following adjustment reason: non-loan
exposures (positive).
ESG CONSIDERATIONS
Fitch has revised IBA's ESG relevance score for Governance
Structure to '3' from '4', because in its view the bank's state
ownership and the nature of its business with state-owned entities
no longer has a significant impact on the credit profile or the
ratings of the bank.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Prior
----------- ------ -----
OJSC International
Bank of Azerbaijan LT IDR BB- Upgrade B
ST IDR B Affirmed B
Viability bb- Upgrade b
Gov’t Support ns Affirmed ns
senior unsecured LT BB- Upgrade B
===========================================
B O S N I A A N D H E R Z E G O V I N A
===========================================
HIDROGRADNJA: Bankruptcy Trustee to Auction Assets on Nov. 30
-------------------------------------------------------------
Dragana Petrushevska at SeeNews reports that the bankruptcy trustee
of Bosnia and Herzegovina's construction materials producer
Hidrogradnja said it will offer for sale the company's assets at an
auction, with the starting price set at BAM88.1 million (US$44.8
million/EUR45 million).
The auction will be held on November 30, the bankruptcy trustee
said in a public call published on local bankruptcy registry
Stecaj, SeeNews relates.
According to SeeNews, the prospective buyer must commit to
continuing the operations of the company and retaining the
employees.
Hidrogradnja is in bankruptcy proceedings since 2017, SeeNews
discloses.
===========
F R A N C E
===========
LABORATOIRE EIMER: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
-----------------------------------------------------------------
Fitch Ratings has affirmed Laboratoire Eimer Selas's (Lab Eimer)
Long-Term Issuer Default Rating (IDR) at 'B' with a Stable Outlook.
The 'B' IDR of Lab Eimer, which owns the France-based lab-testing
company Biogroup (Biogroup), balances its aggressive leverage with
a defensive social infrastructure-like healthcare business model.
The high leverage, which is the result of a predominantly
debt-funded, opportunistic acquisitive business strategy, is
supported by superior operating and free cash flow (FCF) margins,
which Fitch regards as among the highest in the sector.
The Stable Outlook reflects its expectation that, due to currently
good headroom, Biogroup's operating and financing profiles will not
be undermined by potential revisions to France's market cap
reimbursement mechanism or acquisitions. Fitch believes the company
will pursue acquisitions with a consistent financial policy that
would be compatible with Fitch's total adjusted gross debt at
around 7.0x EBITDAR (pro-forma for acquisitions) until end-2026.
KEY RATING DRIVERS
Tariff Cut in 2023: The French government has requested the medical
biologist industry to accept a lower reimbursement for 2023
currently indicating a EUR250 million cut, after three years of
excessive budgetary outlays during the pandemic, and amid the
material windfall profits generated by private lab-testing
companies during that time. While no details about a possible
agreement for the medium term are available and the impact is still
difficult to quantify, Fitch estimates a mid-single-digit reduction
of Biogroup's revenues from routine activity in 2023 and near zero
organic growth from 2024.
Increased Execution Risks: Biogroup is facing increased execution
risks amid current regulatory pressure, unknown terms of the next
triennial agreement and inflation risks. Fitch believes that the
company has some leeway to mitigate inflation to maintain its
operating profitability target; however, it remains exposed to the
uncertainties of the medium-term regulatory framework. The latter
may also include closer scrutiny over the sector's profitability
and growing market power of the top six lab-testing groups, leading
to more stringent reimbursement terms, in its view.
Financial Policy Drives IDR: The IDR is strongly driven by its view
of Lab Eimer's predictable financial policy and funding mix, which
support its highly acquisitive growth strategy. Fitch assumes free
cash flow (FCF) will be fully reinvested in bolt-on M&A, with
mid-scale acquisitions funded with a mix of own cash and fresh
debt, and larger M&A in excess of EUR500 million would also include
equity co-funding. Based on these assumptions, Fitch projects
adjusted gross debt/EBITDAR will return to 7.0x-7.5x from 2023,
after a temporary reduction to 4.0x-6.0x during 2020-2022 on the
back of incremental earnings generated from Covid-19 testing.
High Leverage but Deleveraging Potential: Based on its M&A (and
funding) assumptions and steady organic performance hinging on the
continuation of market cap-based reimbursement after the expiry of
the current triennial agreement in 2022, Fitch projects total
adjusted debt/EBITDAR to remain at around 7.0x-7.5x (pro-forma for
acquisitions) until end-2026, supporting the Stable Outlook. For
2022, Fitch forecasts low leverage of 5.7x, driven by high but
falling contribution of Covid-19 testing to 30% from the peak of
50% seen in 2021. Deleveraging potential is supported by Biogroup's
strong internal cash generation, although increasing cash reserves
will likely be reinvested in M&A instead of reducing debt.
Receding Contribution from Covid-19 Testing: Fitch projects
Covid-19 testing activity to fall by 50% year-on-year from 2022.
EBITDA and funds from operations (FFO) will consequently reduce
markedly, further affected by windfall taxes and exceptionally
higher pay-outs to biologists employed, on the back of strong
trading in 2021. A potential inclusion of Covid-19 testing in the
reimbursement envelope for routine tests, thus turning it into a
regulated activity, would reduce its medium-term profitability.
However, given its projection of a rapidly declining share of
Covid-19 testing in Biogroup's earnings, this would not have a
material impact on profitability.
Tightening Financial Flexibility: Higher cash debt service
requirements due to rising interest rates and assumed resumption of
debt-funded M&A from 2024 at a higher cost of debt would reduce
EBITDAR/interest and rents to below 2.5x, which Fitch views as
tight for the rating. This, together with persistently high
leverage and weakening FCF, could put the ratings under pressure.
Healthy Cash Flow Generation: Fitch projects sustained strong FCF
margins in low double digits over the next four years, which is
solid for the rating. This reflects healthy operating margins,
contained trade working capital and low capex intensity. Strong
cash-flow profitability remains a key factor, mitigating periods of
excessive leverage.
Defensive Business Model: Lab Eimer's business model is defensive
with stable, non-cyclical revenues and high and resilient operating
margins. The company benefits from scale-driven operating
efficiencies and proven M&A execution and integration processes, in
addition to high barriers to entry as it operates in a highly
regulated market. Acquisitions in other geographies reduce the
impact of adverse regulatory changes in any single country.
M&A Poses Event Risks: M&A remains a cornerstone of Lab Eimer's
business strategy, and uncertainty over its magnitude and funding
continues to pose event risk. Its rating case assumes around EUR500
million of M&A each year funded by FCF, the use of a revolving
credit facility (RCF) or fresh term debt, while larger acquisitions
would also be co-funded by equity, as was the case in 2019 and
2020. Departure from the established asset selection and
integration practices, or more aggressive financial policies would
weigh on the ratings.
DERIVATION SUMMARY
Similar to other sector peers, such as Synlab AG (BB/Stable) and
Inovie Group (B/Stable), Lab Eimer benefits from a defensive,
non-cyclical business model with stable demand, given the
infrastructure-like nature of lab-testing services. This has been
reinforced by strongly improved trading during the pandemic. Lab
Eimer's high and stable operating and cash flow margins are the
highest among peers, which Fitch largely attribute to the
particularities of the French regulatory regime and the company's
exposure to the private lab-testing market.
The lab-testing market in Europe has attracted significant private
equity investment, leading to highly leveraged financial profiles.
The three-notch rating difference between Lab Eimer and Inovie
Group against Synlab is due to the latter's more conservative
financial risk profile after an IPO, leading to leverage at less
than half of its 'B' rated peers'.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Routine sales decreasing in organic terms by 5% in 2023, as a
6.5% decrease in tariffs from the French regulator offsets
increased routine testing resulting from reduced Covid-19 activity
- Covid-19 activity in 2022 estimated at around 50% of 2021
revenues, normalising gradually in the following years (20% in
2023, 10% in 2024 and 7% afterwards)
- M&A of EUR400 million-EUR500million per year in 2022-2025,
funded with a mix of FCF and additional debt (up to 60% - at
Fitch's forecast base-rate at 2% in 2022 and 2023, and 1.75% for
2024 + an estimated 600bp margin)
- Recurring and general expenses (before FFO) of EUR15 million and
M&A-driven transaction fees outflows of EUR10 million a year until
2026
- Normalisation of working capital in parallel to decreasing
Covid-19 activity in 2022-2023, before turning neutral in 2024
- Excluding Covid-19 activity, EBITDA margin deterioration in 2023
due to a decrease in tariffs and pressures on energy prices and
wages, before recovering from 2024
- Capex at 4% of sales in 2022 and around 2% per year to 2026
- No dividend payments
Recovery Ratings Assumptions:
- Fitch follows a going-concern (GC) approach over balance-sheet
liquidation given the quality of Biogroup's network and strong
national market position
- Expected GC EBITDA at a 30% discount to projected EBITDA,
adjusted for a 12-month contribution of all 2021 acquisitions, as
well as additional Covid-19 testing activity at normalised
sustained levels over the medium term
- Distressed enterprise value (EV)/EBITDA multiple of 6.0x, which
reflects Lab Eimer's strong market position, as well as product and
geographic diversification
- Structurally higher-ranking debt of around EUR167 million at
operating companies to rank on enforcement ahead of RCF, term loan
B (TLB) and senior secured notes (SSN)
- The senior secured TLB and SSN together at around EUR2.9 billion
and RCF of EUR271 million, which Fitch assumes to be fully drawn
upon distress, rank pari passu among themselves after
higher-ranking debt. Senior unsecured bond ranks third in priority
- After deducting 10% for administrative claims from the estimated
post-restructuring EV, its waterfall analysis generates a ranked
recovery for the senior secured debt in the Recovery Rating 'RR3'
band, leading to a senior secured rating of 'B+' with a waterfall
generated recovery computation (WGRC) of 57%. For the senior
unsecured notes, Fitch estimates their recovery in the 'RR6' band
with a WGRC of 0%, corresponding to a 'CCC+' senior unsecured
rating
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- A larger scale, increased product/geographical diversification,
full realisation of contractual savings and synergies associated
with acquisitions or voluntary prepayment of debt from excess cash
flow
- Maintaining double-digit FCF margins
- Total adjusted debt/EBITDAR (pro-forma for acquisitions) below
5.0x and FFO adjusted gross leverage below 6.0x on a sustained
basis
- EBITDAR/interest + rents (pro-forma for acquisitions) trending
above 3.0x and FFO fixed charge cover trending above 2.5x on a
sustained basis
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Weak operating performance with flat to negative like-for-like
sales growth and declining EBITDA margins due to a delay in M&A
integration, competitive pressures or adverse regulatory changes
- Total adjusted debt/EBITDAR above 7.0x or FFO adjusted gross
leverage above 8.0x on a sustained basis
- FCF margin reducing towards mid-single digits such that
FCF/total debt declines to low single digits
- EBITDAR/interest + rents below 2.5x and FFO fixed charge cover
below 2.0x (pro forma for acquisitions) on a sustained basis
LIQUIDITY AND DEBT STRUCTURE
Comfortable Liquidity: Fitch views Lab Eimer's liquidity as
comfortable. This is based on a projected high freely available
cash balance of around EUR400 million (net of EUR50 million that
Fitch treats as the minimum cash required in daily cash operations
and unavailable for debt service), at end-2022. In addition, the
company has EUR271 million in undrawn committed bank facilities
maturing in 2027 and no other debt maturities until 2028.
Fitch forecasts adequate liquidity for 2022-2026 based on strong
FCF generation. Fitch includes annual M&A activity of EUR400
million-EUR500 million funded by cash until end-2023, and by cash
and fresh debt from 2024.
ISSUER PROFILE
Lab Eimer is one of Europe's largest providers of routine
diagnostic tests in the private lab-testing market.
ESG CONSIDERATIONS
Lab Eimer has an ESG Relevance Score of '4' for Exposure to Social
Impacts due to a high risk of tightening healthcare regulation
constraining its ability to maintain operating profitability and
cash flows. This has a negative impact on its 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
----------- ------ -------- -----
Laboratoire Eimer
Selas LT IDR B Affirmed B
senior
unsecured LT CCC+ Affirmed RR6 CCC+
CAB societe d
exercice liberal par
actions simplifiee
senior secured LT B+ Affirmed RR3 B+
=============
G E R M A N Y
=============
SC GERMANY 2022-1: Moody's Gives B2 Rating to EUR26MM Cl. F Notes
-----------------------------------------------------------------
Moody's Investors Service has assigned the following definitive
ratings to Notes issued by SC Germany S.A., Compartment Consumer
2022-1:
EUR756M Class A Floating Rate Notes due October 2036, Definitive
Rating Assigned Aaa (sf)
EUR44M Class B Floating Rate Notes due October 2036, Definitive
Rating Assigned Aa1 (sf)
EUR55M Class C Floating Rate Notes due October 2036, Definitive
Rating Assigned A1 (sf)
EUR40M Class D Floating Rate Notes due October 2036, Definitive
Rating Assigned Baa3 (sf)
EUR51M Class E Floating Rate Notes due October 2036, Definitive
Rating Assigned Ba3 (sf)
EUR26M Class F Floating Rate Notes due October 2036, Definitive
Rating Assigned B2 (sf)
Moody's has not assigned a rating to the EUR28M Class G Fixed Rate
Notes due October 2036.
RATINGS RATIONALE
The Notes are backed by a 12-month revolving pool of German
consumer loans originated by Santander Consumer Bank AG (A2/P-1
Deposits, A1(cr)/P-1(cr)) ("SCB Germany").
The definitive portfolio consists of 57,213 loans granted to
obligors in Germany, for a total of approximately EUR1 billion as
of the September 30, 2022 pool cut-off date. The average loan
balance is EUR17,479, the weighted average interest rate is 5.6%,
and weighted average seasoning is 6 months. The portfolio, as of
the pool cut-off date, did not include any loans in arrears.
Moody's analysis focused, amongst other factors, on: (i) an
evaluation of the underlying portfolio of loans at closing and
incremental risk due to loans being added during the 12-month
revolving period; (ii) the historical performance information of
the total book; (iii) the credit enhancement provided by
subordination, the liquidity reserve and excess spread; (iv) the
liquidity support available in the transaction including the
liquidity reserve; and (v) the overall legal and structural
integrity of the transaction.
According to Moody's, the transaction benefits from several credit
strengths such as the granularity of the portfolio, the
securitisation experience of SCB Germany and excess spread.
However, Moody's notes that the transaction features a number of
credit weaknesses, such as a complex structure including pro-rata
payments on Class A to E Notes from the first payment date after
the end of the revolving period. These characteristics, amongst
others, were considered in Moody's analysis and ratings.
Hedging: The interest rate mismatch between fixed rate loan
portfolio and floating rate Class A to F Notes is hedged with an
interest rate swap. The transaction benefits from an interest rate
swap, with Banco Santander S.A. (Spain) as swap counterparty, where
the issuer will pay a fixed swap rate and will receive one-month
EURIBOR on a notional linked to the outstanding balance of the
Class A to F Notes.
MAIN MODEL ASSUMPTIONS
Moody's determined the portfolio lifetime expected defaults of
4.3%, expected recoveries of 15% and Aaa portfolio credit
enhancement ("PCE") of 15% related to borrower receivables. The
expected defaults and recoveries capture Moody's expectations of
performance considering the current economic outlook, while the PCE
captures the loss Moody's expect the portfolio to suffer in the
event of a severe recession scenario. Expected defaults and PCE are
parameters used by Moody's to calibrate its lognormal portfolio
loss distribution curve and to associate a probability with each
potential future loss scenario in the ABSROM cash flow model.
Portfolio expected defaults of 4.3% are in line with the EMEA
Consumer Loan ABS average and are based on Moody's assessment of
the lifetime expectation for the pool. Moody's primarily based
Moody's analysis on the historical cohort performance data that the
originator provided for a portfolio that is representative of the
securitised portfolio. Moody's stressed the results from the
historical data analysis to account for: (i) the expected outlook
for the German economy in the medium term; (ii) the fact that the
transaction is revolving for 12 months and that there are portfolio
concentration limits during that period; and (iii) benchmarks in
the German consumer ABS market.
Portfolio expected recoveries of 15% are in line with the EMEA
Consumer Loan ABS average and are based on Moody's assessment of
the lifetime expectation for the pool taking into account: (i)
historic performance of the loan book of the originator; (ii)
benchmark transactions; and (iii) other qualitative
considerations.
PCE of 15% is lower than the EMEA Consumer Loan ABS average and is
based on Moody's assessment of the pool which is mainly driven by:
(i) evaluation of the underlying portfolio, complemented by the
historical performance information as provided by the originator;
and (ii) the relative ranking to originator peers in the EMEA
Consumer loan market. The PCE level of 15% results in an implied
coefficient of variation ("CoV") of 39.2%.
The principal methodology used in these ratings was "Moody's
Approach to Rating Consumer Loan-Backed ABS" published in July
2022.
Factors that would lead to an upgrade or downgrade of the ratings:
Significantly different loss assumptions compared with Moody's
expectations at close, due to either a change in economic
conditions from Moody's central scenario forecast or idiosyncratic
performance factors would lead to rating action. For instance,
should economic conditions be worse than forecast, higher defaults
and loss severities resulting from greater unemployment, worsening
household affordability and a weaker housing market could result in
a downgrade of the ratings. A deterioration in the Notes' available
credit enhancement could result in a downgrade of the ratings,
while an increase in credit enhancement could result in rating
upgrades. Additionally, counterparty risk could cause a downgrade
of the ratings, due to a weakening of the credit profile of
transaction counterparties. Finally, unforeseen regulatory changes
or significant changes in the legal environment may also result in
changes of the ratings.
=============
I R E L A N D
=============
BOSPHORUS CLO VII: Fitch Assigns 'B-sf' Rating on Class F Notes
---------------------------------------------------------------
Fitch Ratings has assigned Bosphorus CLO VII DAC final ratings.
Entity/Debt Rating Prior
----------- ------ -----
Bosphorus CLO
VII DAC
A LT AAAsf New Rating AAA(EXP)sf
B LT AAsf New Rating AA(EXP)sf
C LT Asf New Rating A(EXP)sf
D LT BBB-sf New Rating BBB-(EXP)sf
E LT BB-sf New Rating BB-(EXP)sf
F LT B-sf New Rating B-(EXP)sf
Sub-Notes LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
Bosphorus CLO VII DAC is a securitisation of mainly senior secured
obligations (at least 92.5%) with a component of senior unsecured,
mezzanine, second-lien loans and high-yield bonds. Note proceeds
have been used to purchase a portfolio with a target par of EUR400
million. The portfolio is actively managed by Cross Ocean Adviser
LLP. The collateralised loan obligation (CLO) has a one-year
reinvestment period and a six-year weighted average life test
(WAL).
KEY RATING DRIVERS
Above Average Portfolio Credit Quality (Positive): Fitch places the
average credit quality of obligors in the 'B' category. The Fitch
weighted average rating factor of the identified portfolio is
24.5.
High Recovery Expectations (Positive): At least 92.5% of the
portfolio comprises senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate of the identified portfolio is 65.0%.
Diversified Asset Portfolio (Positive): The transaction has a
concentration limit for the 10 largest obligors of 20%. The
transaction also includes various concentration limits, including
the maximum exposure to the three largest (Fitch-defined)
industries in the portfolio at 40%. These covenants ensure the
asset portfolio will not be exposed to excessive concentration.
Portfolio Management (Neutral): The transaction has a one-year
reinvestment period and includes reinvestment criteria similar to
those of other European transactions. Fitch's analysis is based on
a stressed-case portfolio with the aim of testing the robustness of
the transaction structure against its covenants and portfolio
guidelines.
Cash Flow Modelling (Positive): The WAL used for the transaction's
stress portfolio analysis was reduced by six months to 5.5 years.
This reduction to the risk horizon accounts for the strict
reinvestment conditions envisaged after the reinvestment period.
These conditions include passing the coverage tests, the Fitch
'CCC' maximum limit after reinvestment and a WAL covenant that
progressively steps down over time, both before and after the end
of the reinvestment period. In Fitch's opinion, these conditions
reduce the effective risk horizon of the portfolio during the
stress period.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings of
the identified portfolio would have no impact on the class A notes
and would lead to downgrades of one to three notches for the other
notes.
Based on the identified portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration. Due to the
better metrics and shorter life of the identified portfolio, the
class F notes display a rating cushion of three notches and the
class D and E notes two notches. There is a one-notch rating
cushion for the class B and C notes and no rating cushion for the
class A notes.
Should the cushion between the identified portfolio and the stress
portfolio be eroded due to manager trading or negative portfolio
credit migration, a 25% increase of the mean RDR across all ratings
and a 25% decrease of the RRR across all ratings of the stressed
portfolio would lead to downgrades of up to four notches for the
notes.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings of the Fitch's stress
portfolio would lead to upgrades of up to five notches for the
notes, except for the 'AAAsf' rated notes, which are at the highest
level on Fitch's scale and cannot be upgraded.
During the reinvestment period, based on Fitch's stress portfolio
upgrades may occur on better-than-expected portfolio credit quality
and a shorter remaining WAL test, meaning the notes are able to
withstand larger than expected losses for the transaction's
remaining life. After the end of the reinvestment period, upgrades
may occur in case of stable portfolio credit quality and
deleveraging, leading to higher credit enhancement and excess
spread available to cover losses on the remaining portfolio.
CRITERIA VARIATION
The stress portfolio was modelled with a 5.5 year WAL, which is six
months below the 6.0 year WAL floor envisaged in the CLOs and
Corporate CDOs criteria to account for strict structural and
reinvestment conditions post reinvestment period. The variation is
motivated by the further step down of the WAL test by nine months
to 4.25 years from five years on the reinvestment period end date,
in addition to the strict reinvestment criteria post reinvestment
period.
The WAL of the identified portfolio is 5.1 years and Fitch views
the construction of a portfolio that maxes out the six-year WAL
covenant at closing as unlikely, given the low supply of primary
issuance in the current leveraged loan and high yield market
conditions and sourcing from the secondary market tends to have a
shorter remaining tenor. The impact of the criteria variation is
one notch higher for the class B, C and E notes, with no rating
impact on the other tranches.
DATA ADEQUACY
Bosphorus CLO VII DAC
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
CONTEGO CLO X: S&P Assigns B-(sf) Rating on Class F Notes
---------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Contego CLO X
DAC's class A, B-1, B-2, C, D, E, and F notes. At closing, the
issuer also issued unrated subordinated notes.
The class F notes is a delayed draw tranche, which has a maximum
notional amount of EUR15 million and a spread of three/six-month
Euro Interbank Offered Rate (EURIBOR) plus 8.50%. The class F notes
can only be issued once and only during the reinvestment period
with an issuance amount totaling EUR15.00 million. The issuer will
use the full proceeds received from the sale of the class F notes
to redeem the subordinated notes. Upon issuance, the class F notes'
spread could be subject to a variation and, if higher, is subject
to rating agency confirmation.
This is a European cash flow CLO transaction, securitizing a pool
of primarily syndicated senior secured loans or bonds. The
portfolio's reinvestment period ends approximately four and half
years after closing, and the portfolio's maximum average maturity
date is eight and half years after closing. Under the transaction
documents, the rated notes pay quarterly interest unless there is a
frequency switch event. Following this, the notes will switch to
semiannual payment.
S&P said, "We consider that the portfolio on the effective date
will be well-diversified, primarily comprising broadly syndicated
speculative-grade senior secured term loans and senior secured
bonds. Therefore, we have conducted our credit and cash flow
analysis by applying our criteria for corporate cash flow CDOs."
Portfolio Benchmarks
CURRENT
S&P Global Ratings weighted-average rating factor 2,875.71
Default rate dispersion 372.42
Weighted-average life (years) 4.997
Obligor diversity measure 128.10
Industry diversity measure 18.11
Regional diversity measure 1.32
Transaction Key Metrics
CURRENT
Total par amount (mil. EUR) 300
Defaulted assets (mil. EUR) 0
Number of performing obligors 142
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.00
Covenanted 'AAA' weighted-average recovery (%) 34.37
Weighted-average spread net of floors (%) 3.95
S&P said, "In our cash flow analysis, we modeled the EUR300 million
target par amount, the covenanted weighted-average spread of 3.85%,
the covenanted weighted-average coupon of 4.60%, and the covenanted
weighted-average recovery rates for all rated notes. We applied
various cash flow stress scenarios, using four different default
patterns, in conjunction with different interest rate stress
scenarios for each liability rating category.
"Following the application of our structured finance sovereign risk
criteria, we consider the transaction's exposure to country risk to
be limited at the assigned ratings, as the exposure to individual
sovereigns does not exceed the diversification thresholds outlined
in our criteria.
"The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigates its exposure to counterparty risk
under our current counterparty criteria.
"The transaction's legal structure is bankruptcy remote, in line
with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe that our ratings are
commensurate with the available credit enhancement for the class A,
B-1, B-2, C, D, E, and F notes. Our credit and cash flow analysis
indicates that the available credit enhancement for the class B-1,
B-2, C, D and E notes is commensurate with higher ratings than
those we have assigned. However, as the CLO will have a
reinvestment period, during which the transaction's credit risk
profile could deteriorate, we have capped our assigned ratings on
these notes.
"The class F notes' current break-even default rate (BDR) cushion
is negative at the 'B-' rating level. Based on the portfolio's
actual characteristics and additional overlaying factors, including
our long-term corporate default rates and recent economic outlook,
we believe this class is able to sustain a steady-state scenario,
in accordance with our criteria." S&P's analysis reflects several
factors, including:
-- The class F notes' available credit enhancement is in the same
range as that of other CLOs we have rated and that have recently
been issued in Europe.
-- S&P's BDR at the 'B-' rating level is 21.34% versus a portfolio
default rate of 15.50% if it was to consider a long-term
sustainable default rate of 3.1% for a portfolio with a
weighted-average life of 5.00 years.
-- Whether the tranche is vulnerable to non-payment in the near
future.
-- If there is a one-in-two chance for this note to default.
-- If S&P envisions this tranche to default in the next 12-18
months.
Following this analysis, S&P considers that the available credit
enhancement for the class F notes is commensurate with a 'B- (sf)'
rating assigned.
S&P said, "In addition to our standard analysis, to provide an
indication of how rising pressures among speculative-grade
corporates could affect our ratings on European CLO transactions,
we have also included the sensitivity of the ratings on the class A
to E notes to five of the 10 hypothetical scenarios we looked at in
our publication, "How Credit Distress Due To COVID-19 Could Affect
European CLO Ratings," published on April 2, 2020.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
Environmental, social, and governance (ESG) factors
S&P said, "We regard the exposure to ESG credit factors in the
transaction as being broadly in line with our benchmark for the
sector (see "ESG Industry Report Card: Collateralized Loan
Obligations," published on March 31, 2021). Primarily due to the
diversity of the assets within CLOs, the exposure to environmental
credit factors is viewed as below average, social credit factors
are below average, and governance credit factors are average. For
this transaction, the documents prohibit/limit the manager from
investing in activities related to extraction of thermal coil and
fossil fuels, oil sands and pipelines, restricted weapons,
endangered species, pornography, adult entertainment or
prostitution, tobacco, payday lending, opioids, food commodity
derivatives, palm oil and palm fruit products, any unlicensed and
unregistered financing, hazardous chemicals, ozone-depleting
substances, and casinos or gambling. Since the exclusion of assets
related to these activities does not result in material differences
between the transaction and our ESG benchmark for the sector, no
specific adjustments have been made in our rating analysis to
account for any ESG-related risks or opportunities."
Environmental, social, and governance (ESG) corporate credit
indicators
S&P said, "The influence of ESG factors in our credit rating
analysis of European CLOs primarily depends on the influence of ESG
factors in our analysis of the underlying corporate obligors. To
provide additional disclosure and transparency of the influence of
ESG factors for the CLO asset portfolio in aggregate, we've
calculated the weighted-average and distributions of our ESG credit
indicators for the underlying obligors. We regard this
transaction's exposure as being broadly in line with our benchmark
for the sector, with the environmental and social credit indicators
concentrated primarily in category 2 (neutral) and the governance
credit indicators concentrated in category 3 (moderately
negative)."
Corporate ESG Credit Indicators
ENVIRONMENTAL SOCIAL GOVERNANCE
Weighted-average credit indicator* 2.05 2.07 2.95
E-1/S-1/G-1 distribution (%) 1.33 0.67 0.00
E-2/S-2/G-2 distribution (%) 73.34 75.15 10.98
E-3/S-3/G-3 distribution (%) 5.47 2.67 64.17
E-4/S-4/G-4 distribution (%) 0.00 1.67 2.67
E-5/S-5/G-5 distribution (%) 0.00 0.00 2.34
Unmatched obligor (%) 13.61 13.61 13.61
Unidentified asset (%) 6.24 6.24 6.24
*Only includes matched obligor
Ratings List
CLASS RATING AMOUNT SUB (%) INTEREST RATE*
(MIL. EUR)
A AAA (sf) 175.50 41.50 Three/six-month EURIBOR
plus 2.00%
B-1 AA (sf) 20.80 31.23 Three/six-month EURIBOR
plus 3.40%
B-2 AA (sf) 10.00 31.23 6.50%
C A (sf) 18.00 25.23 Three/six-month EURIBOR
plus 4.50%
D BBB- (sf) 19.50 18.73 Three/six-month EURIBOR
plus 5.83%
E BB- (sf) 15.00 13.73 Three/six-month EURIBOR
plus 7.92%
F§ B- (sf) 15.00 8.73 Three/six-month EURIBOR
plus 8.50%
Sub NR 32.00 N/A N/A
*The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
§The class F notes is a delayed drawdown tranche, which is not
issued at closing.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
PALMER SQUARE 2022-3: Fitch Assigns 'BBsf' Rating on Class E Notes
------------------------------------------------------------------
Fitch Ratings has assigned Palmer Square European Loan Funding
2022-3 DAC's notes final ratings, as listed below.
Entity/Debt Rating
----------- ------
Palmer Square European
Loan Funding 2022-3 DAC
A XS2531943087 LT AAAsf New Rating
B XS2531943244 LT AAsf New Rating
C XS2531943590 LT Asf New Rating
D XS2531943756 LT BBB+sf New Rating
E XS2531943913 LT BBsf New Rating
Subordinated
XS2531944309 LT NRsf New Rating
TRANSACTION SUMMARY
Palmer Square European Loan Funding 2022-3 DAC is an arbitrage cash
flow collateralised loan obligation (CLO) that is being serviced by
Palmer Square Europe Capital Management LLC. Net proceeds from the
issuance of the notes have been used to purchase a static pool of
primarily secured senior loans and bonds, with a target par of
EUR400 million.
KEY RATING DRIVERS
'B+/B' Portfolio Credit Quality (Neutral): Fitch places the average
credit quality of obligors in the 'B+'/'B' category. The Fitch
weighted average rating factor (WARF) of the current portfolio is
22.88.
High Recovery Expectations (Positive): Senior secured obligations
make up close to 100% of the portfolio. Fitch views the recovery
prospects for these assets as more favourable than for second-lien,
unsecured and mezzanine assets. The Fitch weighted average recovery
rate of the current portfolio is 65.18%.
Diversified Portfolio Composition (Positive): The largest three
industries comprise 36.03% of the portfolio balance, the top 10
obligors represent 10.41% of the portfolio balance and the largest
obligor represents 1.25% of the portfolio.
Static Portfolio (Positive): The transaction does not have a
reinvestment period and discretionary sales are not permitted.
Fitch's analysis is based on the current portfolio and stressed by
applying a one-notch reduction to all obligors with a Negative
Outlook (floored at 'CCC'), which is 10.64% of the indicative
portfolio. After the Negative Outlook adjustment, the WARF of the
portfolio would be 23.60.
Deviation from MIR: The class B, D and E notes are rated one notch
below their model. The one-notch deviation reflects the limited
cushion on the Negative Outlook portfolio at the MIR and uncertain
macro-economic conditions that increase end risk.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings of
the identified portfolio would lead to a downgrade of up to three
notches for the rated notes.
Based on the actual portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration. Due to the
better WARF of the identified portfolio compared with the Negative
Outlook portfolio, the class B, C and E notes display a rating
cushion of one notch.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings of the Fitch's portfolio
based on Negative Outlook stress would lead to upgrades of up to
four notches for the rated notes, except for the 'AAAsf' rated
notes, which are at the highest level on Fitch's scale and cannot
be upgraded.
Upgrades may occur in case of a stable portfolio credit quality and
deleveraging, leading to higher credit enhancement and excess
spread available to cover for losses on the remaining portfolio.
DATA ADEQUACY
Palmer Square European Loan Funding 2022-3 DAC
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
=========
I T A L Y
=========
BPER BANCA: Moody's Assigns (P)Ba1 Rating to EMTN Programme
-----------------------------------------------------------
Moody's Investors Service has assigned provisional long-term
foreign and local currency (P)Ba1 junior senior unsecured ratings
to BPER Banca S.p.A. ("BPER")'s Euro Medium-Term Note (MTN)
programme (also commonly referred to as senior non-preferred).
The senior non-preferred programme ratings are ranked junior to
other senior unsecured obligations, including senior unsecured
debt, and senior to the bank's subordinated debt issuances.
All other ratings of BPER are unaffected by the rating action.
RATINGS RATIONALE
The (P)Ba1 junior senior unsecured MTN programme ratings reflect:
(i) the bank's Baseline Credit Assessment (BCA) of ba1; (ii)
moderate loss-given-failure as per Moody's Advanced Loss Given
Failure analysis (LGF), which results in no adjustment from the
BCA; and (iii) a low probability of government support that Moody's
typically apply to junior senior unsecured instruments, which
results in no uplift.
BPER's ba1 BCA reflects the bank's good capitalisation in spite of
the acquisition of Banca Carige S.p.A. (Baa2/Ba1 negative, ba1).
BPER's ba1 BCA also factors in its weak but improving asset quality
on the back of significant problem loan disposals, as well as its
ample liquidity.
The outcome of the LGF analysis on the senior non- preferred
programme ratings incorporates Moody's forward-looking view of the
evolution of the bank's balance sheet as well as the level loss
absorbing obligations protecting these notes in case of failure.
Ratings assigned to junior senior unsecured programmes or
securities do not carry an outlook.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The junior senior unsecured MTN ratings could be upgraded if the
amount of subordinated debt were to significantly increase above
Moody's expectations.
An upgrade of BPER's junior senior unsecured MTN ratings stemming
from a higher BCA is unlikely as long as the issuer outlook remains
negative. This negative outlook reflects the risk that the bank's
creditworthiness could be affected by the weakening of the
operating environment in Italy.
However, BPER's BCA could be upgraded if the worsening of the
economic environment in Italy were less acute than currently
expected and which would prompt a lower-than-expected level of
problem loans, a stronger profitability and higher capitalization.
Conversely, BPER's junior senior unsecured MTN ratings could be
downgraded if the bank's BCA was downgraded. The BCA could be
downgraded if the bank's solvency or liquidity position were to
deteriorate given the expected worsening economic environment in
Italy.
Last, the junior senior unsecured MTN ratings could be downgraded
if the amount of subordinated debt were to decrease more than
Moody's currently expects.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks
Methodology published in July 2021.
===================
K A Z A K H S T A N
===================
KAZAKHSTAN UTILITY: Fitch Affirms Foreign Currency IDR at 'B+'
--------------------------------------------------------------
Fitch Ratings has affirmed Kazakhstan-based utility Limited
Liability Partnership Kazakhstan Utility Systems' (KUS) Long-Term
Foreign-Currency Issuer Default Rating (IDR) at 'B+'. The Outlook
is Stable.
The affirmation and Stable Outlook reflect Fitch's expectations
that funds from operations (FFO) interest cover will remain within
Fitch's rating sensitivities in 2022-2025, reflecting the
unfavourable interest rate environment, despite low leverage for
the rating. The affirmation also considers material FX risk and
limited liquidity position. The rating continues to be constrained
by weak corporate governance and evolving regulatory framework.
KEY RATING DRIVERS
Low Leverage: Fitch projects FFO leverage to average 2.2x in
2022-2025, which is low for the rating. Fitch also expects healthy
FFO, averaging KZT36.6 billion over the same period. Fitch
continues to treat financial interest-free aid received from
affiliated companies (about KZT6 billion) as debt. Fitch now
excludes YDD Corporation's debt of KZT24.1 billion from KUS's
off-balance-sheet debt for the forecast period, following the
release of its asset pledge against YDD's debt in 2022.
Low leverage is mitigated by its expectations that the FFO interest
cover will deteriorate towards the negative sensitivity of 3.5x by
2025, reflecting the higher interest-rate environment.
Material FX Risk: KUS is exposed to significant FX risk as revenue
is generated in Kazakhstani tenge (KZT), while a large share of its
debt is in Russian roubles (78% of total debt at end-June 2022).
The tenge depreciation against the rouble (48% in 1H22) inflated
KUS's rouble-denominated debt by around KZT31 billion in 1H22.
Substituting FX debt with local-currency debt will improve the
company's financial flexibility, but may worsen coverage metrics,
due to higher interest rates.
Long-Term Generation Tariffs: Electricity generation tariffs are
approved until end-2025, which adds visibility to the company's
cash flows. From July 2022, electricity generation tariffs have
been further revised upwards for KUS's generation companies,
Karaganda Energotsentr (12%) and Ust-Kamenogorskaya TPP (11%).
Fitch expects tariffs to grow at below inflation thereafter on the
back of rising fuel costs.
Long-Term Distribution Tariffs: Electricity distribution tariffs
for Mangistau Regional Electricity Network Company (MRENC;
B+/Stable) and Karaganda Zharyk (KZh) are approved until 2025.
MRENC's distribution tariffs were revised upwards by about 7% for
legal entities in 2022, following a 25% increase in 2021. Legal
entities account for about 90% of total distributed electricity
volumes. For the remaining customers, including households and
utilities companies, tariff increases were approved at 2%-5%
annually over 2022-2025.
Vertical Integration; Small Scale: KUS's business profile benefits
from vertical integration and its strong position in electricity
generation, distribution and supply in the highly populated central
Kazakhstan (Karaganda region), the south and eastern regions, and
from a near-monopoly position in electricity transmission and
distribution in the region of Mangistau, one of Kazakhstan's
strategic oil- and gas-producing regions, which in total account
for 35% of the country's population.
The business profile is constrained by KUS's small scale of
operations relative to Kazakh peers such as JSC Samruk-Energy
(BB/Positive) and Kazakhstan Electricity Grid Operating Company
(KEGOC; BBB-/Stable).
Weak Corporate Governance: Fitch continues to view KUS's corporate
governance as weak, reflecting a non-transparent ownership
structure, and sizeable related-party and third-party transactions
with limited disclosure and uncertain economic benefit to KUS. As a
result, KUS has an ESG Relevance Score of '4' for Governance
Structure and '4' for Group Structure.
DERIVATION SUMMARY
KUS's closest peers are Kazakhstan-based utility holding JSC
Samruk-Energy and transmission operator KEGOC. These peers have
larger operations and wider geographical presences within
Kazakhstan. KUS has a weaker corporate governance that
Samruk-Energy and KEGOC due to credit-negative related-party
transactions. KUS's financial profile is similar to that of
Samruk-Energy, but weaker than that of KEGOC.
KUS is rated on a standalone basis. Samruk-Energy is rated three
notches below the sovereign under its Government-Related Entities
(GRE) Criteria. KEGOC is rated one notch below the sovereign under
the GRE Criteria.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Average GDP growth of 3.6% and CPI of 8.6% annually in 2022-2025
- Electricity generation and distribution volumes to grow at low
single-digit percentages in 2022-2025; flat heat generation volumes
over the same period
- Electricity generation tariffs to increase below inflation rates
in 2023-2025; capacity tariffs to increase to KZT885k/MW in 2023
from KZT590k/MW
- Electricity distribution tariff growth below inflation rates, as
approved by the regulator until 2025
- Cost inflation slightly below expected CPI
- Capex averaging KZT32 billion per year over 2022-2025, in line
with KUS's management guidance
- Dividend payments of around KZT1 billion per year from 2023
- No repayment of loans by third parties is assumed over 2022-2025
- Cost of new debt at 15%
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Increased transparency of the ownership structure and generally
stronger corporate governance, with significantly reduced
related-party transactions
- Improved credit metrics, with FFO gross leverage persistently
below 3x and FFO interest coverage above 4.5x
- Long-term predictability of the regulatory framework, with less
political interference and a stronger operating environment
- Improved overall liquidity position with better spread of debt
maturities
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Deterioration of corporate governance (e.g. a significant
increase in loans and guarantees to companies outside the company)
leading to weaker-than-expected financial performance or aggressive
M&A, resulting in FFO gross leverage persistently higher than 4x
and FFO interest coverage below 3.5x
- Worsening overall liquidity position
LIQUIDITY AND DEBT STRUCTURE
Weak Liquidity: At end-June 2022 KUS had about KZT5.9 billion of
cash and cash equivalents and available uncommitted credit lines of
around KZT5 billions with an availability period over one year.
This, combined with expected positive FCF of around KZT6.8 billion
over the next 12 months, is insufficient to fully cover scheduled
short-term debt maturities of around KZT22.6 billion.
Debt mostly comprised secured loans from local banks, which are
raised at both holdco and opco level and bonds at MRENC level. The
largest creditors are Sberbank (KZT98.4 billion) and EBRD (KZT13.3
billion). Around 78% of debt is in Russian roubles, with the
remainder raised in tenge and US dollars.
ISSUER PROFILE
KUS is an integrated utility, with operations in electricity
generation, distribution, and supply, across four regions in
Kazakhstan, which in total account for 35% of the country's
population.
SUMMARY OF FINANCIAL ADJUSTMENTS
YDD Corporation loan included in off-balance-sheet debt at end-2021
as KUS's assets were pledged against this loan.
Interest-free short-term loan from related parties for
working-capital needs reclassified to debt from other accounts
payable.
Cash with restricted use reclassified to restricted cash from other
current assets.
ESG CONSIDERATIONS
Limited Liability Partnership Kazakhstan Utility Systems has an ESG
Relevance Score of '4' for Governance Structure and '4' for Group
Structure due to non-transparent ownership structure and sizeable
related party and third-party transactions. These factors have a
negative impact on the credit profile and are relevant to the
rating, in conjunction with other rating factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Prior
----------- ------ -----
Limited Liability
Partnership Kazakhstan
Utility Systems LT IDR B+ Affirmed B+
LC LT IDR B+ Affirmed B+
Natl LT BBB(kaz) Affirmed BBB(kaz)
MANGISTAU REGIONAL: Fitch Affirms Foreign Currency IDR at 'B+'
--------------------------------------------------------------
Fitch Ratings has affirmed Kazakhstan-based Mangistau Regional
Electricity Network Company's (MRENC) Long-Term Foreign-Currency
Issuer Default Rating (IDR) at 'B+'. The Outlook is Stable.
The affirmation reflects continued alignment of MRENC's rating with
that of Limited Liability Partnership Kazakhstan Utility Systems
(KUS, B+/Stable), the majority shareholder, reflecting their strong
ties, including KUS's guarantees for around 80% of MRENC's debt at
end-2021.
Fitch assesses MRENC's Standalone Credit Profile (SCP) at 'b+',
reflecting the company's near-monopoly position in electricity
transmission and distribution in the Region of Mangistau, one of
Kazakhstan's strategic oil-and gas-producing regions. This is
balanced by the company's small size, industry and customer
concentrations, and an evolving regulatory framework.
KEY RATING DRIVERS
Long-term Distribution Tariffs: Electricity distribution tariff
increases are approved until end-2025, at around 2.5% on average
for 2022-2025 for legal entities, which account for 90% of
electricity distribution volumes (following a 25% increase in
2021). For the remaining customers, including households and
utilities companies tariffs increases were approved at 2%-5% on
average over the same period. The approval of long-term tariffs
provides greater visibility to the company's cash flows and
favourable tariff increases support the company's credit metrics.
Ratings Aligned with Parent: KUS owns 50.19% of equity or 52.63% of
ordinary shares in MRENC and provided guarantees for around 80% of
MRENC's outstanding debt at end-2021. Fitch expects the share of
KUS-guaranteed debt to remain material over the rating horizon.
This indicates strong legal ties between the companies and supports
MRENC's rating alignment with the parent under Fitch's "Parent and
Subsidiary Rating Linkage Criteria". This implies the same 'B+'
rating for MRENC, which also reflects its view of MRENC's
standalone profile. Fitch views the strategic and operational
incentives to support MRENC by the parent as moderate.
'b+' SCP: MRENC's SCP of 'b+' reflects improved credit metrics and
revenue visibility following the approval of five-year tariffs. The
rating is also supported by MRENC's near-monopoly position in
electricity transmission and distribution in one of Kazakhstan's
strategic oil- and gas-producing regions, high customer quality and
prepayment terms under which the company operates. The SCP is
constrained by the company's high exposure to a single industry,
small size and evolving regulation.
Limited FX Exposure: The repayment of the US dollar-linked bond in
2021 improved MRENC's exposure to foreign-exchange (FX)
fluctuations. At end-2021 about 10% of its total debt was linked to
the Kazakhstani tenge/US dollar exchange rate compared to 30% at
end-2020. In contrast, all its revenue is local-currency
denominated. Substituting FX debt with local-currency debt will
improve the company's financial flexibility, but may worsen
coverage metrics, due to higher interest rates.
DERIVATION SUMMARY
MRENC is a small electricity distribution company in western
Kazakhstan. It has a weaker business profile than Kazakhstan
Electricity Grid Operating Company (KEGOC, BBB-/Stable), which
operates nationwide, and has greater geographic diversification and
lower volume risk. MRENC, like other utilities in Kazakhstan, is
subject to regulatory uncertainties influenced by macroeconomic
shocks and possible political interference.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- GDP growth of 3.2% and CPI of 8.6% on average in 2022-2025
- Electricity distribution volumes to grow at low single-digit
percentages in 2022-2025
- Electricity distribution tariffs for legal entities to increase
at a low single-digit percentage in 2022-2025, as approved by the
regulator
- Cost inflation slightly below expected CPI to reflect the
company's cost control efforts
- Capex of around KZT4 billion on average annually in 2022-2025
- Dividend payments averaging 50% of IFRS net income in 2023-2025
- Cost inflation slightly below expected CPI
- Cost of new debt at 15%
KEY RECOVERY RATING ASSUMPTIONS
- The recovery analysis assumes that MRENC would be a going concern
in bankruptcy and that the company would be reorganised rather than
liquidated
- Fitch assumes a 10% administrative claim.
- The going-concern EBITDA estimate of KZT6.3 billion reflects
Fitch's view of a sustainable, post-reorganization EBITDA level
upon which Fitch bases the valuation of the company
- Fitch assumes an enterprise value multiple of 4x.
- These assumptions result in a recovery rate for the senior
unsecured debt at 'RR1'. However, this was capped at 'RR4'/50% due
to the application of a country cap for Kazakhstan. This is
explained in its "Country-Specific Treatment of Recovery Ratings
Criteria".
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Positive rating action on KUS, assuming the links remain strong
- Enhancement of the business profile, such as greater
diversification and scale with FFO gross leverage below 3x and FFO
interest coverage above 4.5x on a sustained basis, would be
positive for the SCP, but not the Issuer Default Rating
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Negative rating action on KUS
- A weaker financial profile leading to FFO gross leverage
persistently higher than 4x and FFO interest coverage below 3.5x,
which would be negative for the SCP, but may not lead to negative
rating action on the Issuer Default Rating, if a significant share
of debt continues to benefit from KUS's guarantees.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: At end-June 2022 MRENC's cash and cash
equivalents of KZT2.2 billion together with expected positive FCF
one year ahead around KZT0.9 billion are sufficient to cover
short-term debt of about KZT2.8 billion. MRENC's debt is mostly
comprised of loans from the European Bank for Reconstruction and
Development of around KZT14.5 billion and tenge bonds of around
KZT3.1 billion maturing in 2023-2024. Around 10% of debt is in US
dollar, with the remainder raised in tenge.
ISSUER PROFILE
MRENC has a near-monopoly position in electricity transmission and
distribution in the Region of Mangistau, one of Kazakhstan's
strategic oil-and gas-producing regions.
SUMMARY OF FINANCIAL ADJUSTMENTS
Capitalised interest was reclassified from capex to interest
expense.
Cash with restricted use was reclassified to restricted cash from
other current assets.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
MRENC's rating is aligned with that of KUS.
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
----------- ------ -------- -----
Mangistau Regional
Electricity Network
Company JSC LT IDR B+ Affirmed B+
ST IDR B Affirmed B
LC LT IDR B+ Affirmed B+
Natl LT BBB(kaz)Affirmed BBB(kaz)
senior
unsecured LT B+ Affirmed RR4 B+
===================
L U X E M B O U R G
===================
NORTHPOLE NEWCO: EUR100M Bank Debt Trades at 57% Discount
---------------------------------------------------------
Participations in a syndicated loan under which NorthPole Newco
Sarl is a borrower were trading in the secondary market around 43
cents-on-the-dollar during the week ended Fri., October 28, 2022,
according to Bloomberg's Evaluated Pricing service data.
The EUR100.9 million facility is a term loan. The loan is
scheduled to mature in March 2025. As of October 28, 2022,
EUR83.3 million of the amount was drawn and outstanding.
The Company is a cybersecurity software provider based in
Luxembourg.
=================
M A C E D O N I A
=================
TOPLIFIKACIJA SKOPJE: To Sell 99.98% Skopje Sever Stake Today
-------------------------------------------------------------
Monika Stojanovska at SeeNews reports that a package of 77,414
ordinary shares, representing 99.98% interest in North Macedonia's
heating supplier Skopje Sever will be offered for sale at a price
of MKD780 (US$13/EUR13) per share at a public auction on the
Macedonian Stock Exchange (MSE) today, Nov. 2, the bourse said.
The MSE said in a notice on Oct. 28 the auction will be held under
the all-or-nothing principle, SeeNews relates.
The seller is heating utility Toplifikacija Skopje which is in
bankruptcy, SeeNews discloses.
===========
S W E D E N
===========
[*] SWEDEN: Company Bankruptcies Hit Highest Level Since Pandemic
-----------------------------------------------------------------
Niclas Rolander at Bloomberg News reports that bankruptcies for
Swedish companies rose to their highest level since the start of
the pandemic as prices are soaring and the country's central bank
is raising borrowing costs to quell inflation.
In September, 635 companies in the largest Nordic nation went
bankrupt -- the highest level since May 2020 -- increasing by 38%
from a year earlier, Bloomberg relays, citing data from credit
reference agency UC.
"Since summer, bankruptcies in all those sectors have increased and
are now at record high levels," Bloomberg quotes UC economist
Johanna Blome as saying in a statement. "The perfect storm that we
have talked about for some time, which combines effects of the war
with inflation, rates and energy prices, is now striking at full
force."
Bankruptcies in the wholesale sector jumped by 72% in September
from a year earlier, while hotel and restaurant bankruptcies rose
by 66% and retail industry defaults increased by 45%, Bloomberg
discloses.
UC said while surging electricity prices have mainly afflicted
business owners in the southern parts of Sweden, the number of
bankruptcies have increased more in the north, Bloomberg notes.
===========
T U R K E Y
===========
RONESANS GAYRIMENKUL: Fitch Affirms 'B' LongTerm IDR, Outlook Neg.
------------------------------------------------------------------
Fitch Ratings has affirmed Turkish property company Ronesans
Gayrimenkul Yatirim A.S.'s (RGY) Long-Term Issuer Default Rating
(IDR) at 'B' and senior unsecured rating at 'B'/'RR4'. The Outlook
on the IDR is Negative.
The Negative Outlook reflects high refinancing risk. RGY needs to
refinance a USD300 million bond maturing in April 2023. Although a
significant amount, RGY has positioned itself to manage the
refinancing having already purchased 30% of the bonds. Related
parties hold another 50%. The company expects to receive loans from
related parties to repay this portion. The company also has
sufficient hard-currency cash to repay the 20% held by external
investors. Currency risk is high as 87% of RGY's debt is US dollar-
or euro-denominated, while revenue is generated solely in the
highly volatile Turkish lira.
The Negative Outlook also reflects ongoing economic volatility,
with RGY operating solely in Turkey.
The company operates a portfolio of 13 properties, mainly retail
malls, in prime locations in eight of the country's largest cities.
Operations have recovered well from the pandemic with occupancy
reaching 97% (1H22) and tenant sales outpacing inflation.
KEY RATING DRIVERS
Eurobond Refinancing Risk: RGY's revenue is in lira, which has
depreciated almost 20% in 1H22 alone compared with the US dollar,
which the Eurobond is denominated in, compounding the challenge of
refinancing. However, RGY holds USD90 million of the bond, which
will not need to be repaid. Third parties hold about USD60 million,
which can be repaid with cash. The company holds more than EUR80
million of liquidity. The remaining USD150 million is held by
related parties. RGY expects to receive loans from related parties
to settle this. The terms of the loans have not yet been agreed.
Ongoing Economic Deterioration Expected: Fitch expects high
inflation to continue, averaging 71% in 2022 and 57% in 2023.
Despite inflation, the economy has been growing strongly, exceeding
2% in 2Q22, driven by strong consumption. Fitch forecasts the
economy will expand by more than 5% in 2022 and 3% in 2023. Despite
the high inflation, the Central Bank recently lowered interest
rates to 12.5% from 14.0%, which follow numerous rate cuts over the
last two years. The government's efforts to maintain high growth
fuels FX demand, pressuring the weak lira.
Covenants Being Met: Since 2021, RGY has refinanced more than
EUR300 million of debt. This has reset secured debt covenants that
were previously under pressure owing to pandemic-related rent
decreases and lira depreciation. All secured debt covenants are now
being met. Eurobond covenants, which were reset in 2021, were
comfortably met in 1H22 (the last test period). Using the bond
calculations, the current LTV was 43% (threshold: 65%), the
combined interest coverage ratio test was 2.3x (1.35x) and the
unencumbered asset ratio was 1.5x (1.2x). Fitch expects good
headroom to remain for the final test period in December 2022.
High Foreign Exchange Risk: The lira has depreciated more than 30%
in 2022 and declined more than 40% in 2021. All leases are in lira,
owing to a government decree in 2018 prohibiting domestic contracts
from being in or linked to foreign currencies. The lira
depreciation means RGY must spend higher amounts of lira to pay
foreign-currency-denominated interest and principle. About 87% of
debt is in euros or US dollars. Given that around 16% is hedged
using FX forwards, and taking into account cash in FX as well as
bonds held by the company, net FX exposure is about 50%. Gross debt
has reduced over the past two years and the proportion of
lira-denominated debt has grown to 13% at 1H22, but lira
depreciation means the nominal amount is growing in lira terms.
Good Operational Recovery: Despite the economic turmoil, operations
have recovered well from the pandemic, especially in 1H22.
Government-imposed restrictions limiting mall capacity were only
fully lifted in July 2021, hindering recovery in that year.
Footfall in 1H22 was approaching pre-pandemic levels, largely
reflecting strong consumer demand and a willingness to buy now
owing to concerns over inflation. Tenant sales outpaced inflation
in 1H22, pushing up rents as RGY can capture higher rents through
fixed-rent indexation, combined with turnover provisions. Occupancy
was a high 97% at 1H22.
Small, Quality Asset Portfolio: RGY owns and operates a portfolio
of 13 assets, mainly shopping centres, valued at around EUR2
billion (at share) at 1H22 in eight of Turkey's largest cities,
including Istanbul. Asset concentration is high with the 10 largest
assets generating more than 90% of rents. Tenant concentration is
relatively low and includes a mix of Turkish and international
companies. The weighted average unexpired lease term (to expiry)
was five years (1H22), although front-ended as more than 20% of
leases expire in the short term. RGY has disposed of around EUR175
million of non-core assets since 2020 at an average premium of
nearly 20% above lira valuations and plans to further sell around
EUR90 million over the next two to three years. RGY has used the
proceeds to mainly repay debt.
Leverage Metrics Expected to Improve: The fall in rents owing to
pandemic restrictions, as well as depreciation of the lira over the
past two years has significantly increased cash flow leverage.
Proportionally consolidated net debt to EBITDA was more than 17.0x
at end-2021 (end-2020:19x). With rents increasing via inflation,
Fitch expects leverage to fall below 12.0x by end-2022 and continue
to decrease afterwards. Interest cover remains tight with EBITDA
net interest cover forecast to fall slightly below 0.8x at end-2022
but strengthening to 1x and above from end-2023 onwards.
Parent Influence Limited by Shareholder Agreement: Group holding
company Ronesans Emlak Gelistirme Holding and Singapore's GIC have
entered into a shareholder agreement that adequately ring-fences
RGY from its parent companies to allow Fitch to assess RGY on a
standalone basis. Both key shareholders must provide consent for
all major decisions, including dividends. RGY retains separate
financing with no cross-defaults or guarantees to the wider holding
group.
DERIVATION SUMMARY
RGY is exposed to far higher foreign-exchange risk than other EMEA
peers. This relates to the significant depreciation of the lira
compared with the euro or US dollar, in which most of its debt is
denominated. The company's rental revenue is generated only in
lira. Central and Eastern European real estate companies, such as
NEPI Rockcastle N.V.'s (BBB/Positive) or Globalworth Real Estate
Limited (BBB-/Stable), are able to link leases to the euro, passing
foreign-currency risk to tenants. RGY's significant mismatch of
debt and rental currencies is not seen in other EMEA peer and
places considerable pressure on the rating.
RGY also operates in a more economically and politically volatile
operating environment than EMEA peers. While inflation is
increasing in most EMEA countries, yearly inflation in 2022 in
Turkey exceeds 80% and remains highly unpredictable, especially
given the central bank's consistent reduction of interest rates at
a time when most advanced economies are tightening monetary
policy.
RGY had a low operating cost ratio of only 10% at 1H22, which is
low compared with many peers. This is down from more than 15% at
end-2018. The low costs help attract tenants and also provides
rental upside.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
Like-for-like rental income to increase by around 75% in 2022 and
55% in 2023, driven by inflation indexation. Inflation rates based
on Fitch's Global Economic Outlook September 2022.
Capex limited to maintenance capex of around TRY40 million to TRY50
million per year from 2022-2023, and TRY30 million for the
re-purposing of Maltepe Park.
Disposals of around TRY1,600 million from 2022-2024, related to the
sale of non-core offices and land.
No dividends paid.
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 RGY 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 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 an
analysis of RGY's receivables and a peer analysis.
Fitch has applied a 40% discount to RGY's unsecured investment
properties based on the assets' quality and a peer analysis.
Fitch has excluded the group's secured debt and related pledged
assets from this senior unsecured debt recovery to reflect the
ability secured creditors would have to capture the assets'
cashflows and to potentially control the monetisation process.
Fitch has assumed secured creditors will recover their debt from
the sales of the secured assets.
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:
Given the Negative Outlook, the rating is unlikely to be upgraded
in the near term. Positive rating action is currently limited by
Turkey's Country Ceiling and the sovereign's Negative Outlook
provided that the company improves its liquidity profile.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Failure to address refinancing risk ahead of debt maturities,
including clarifying the expected currency, interest rate and tenor
of refinanced debt.
Further weakening of Turkish economic conditions or a further
significant depreciation in the lira and downgrade of the sovereign
rating.
Net debt/EBITDA above 11.5x over a sustained period.
Reduced headroom in Eurobond and secured debt covenants leading to
a breach of covenants.
LIQUIDITY AND DEBT STRUCTURE
Weak Liquidity: At end-June 2022, RGY had available cash of TRY1.13
billion, mostly in hard currency. This comfortably covers debt in
2022, especially given the recent refinancing of the EUR184 million
(RGY share, EUR92 million). No material debt remains in 2022, but
repayments in 2023 are more than TRY7 billion, mainly the USD300
million Eurobond maturing in April 2023. Fitch expects the company
to repay the portion of the Eurobonds held by market investors. The
company expects the balance to be refinanced through related party
loans.
Other debt maturing in 2023 is relatively small. As the
availability of long-term debt is limited in Turkey and is
currently prohibitively expensive in the international markets, the
company will need to frequently refinance its debt.
The company has no committed capex. Euro-to-Turkish lira
translations for liquidity used the 30 June 2022 TRY/EUR exchange
rate of 17.5.
ISSUER PROFILE
RGY is a real estate company that owns and operates a portfolio of
13 operational assets, mainly shopping centres, in eight of
Turkey's largest cities.
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
----------- ------ -------- -----
Ronesans
Gayrimenkul
Yatirim A.S. LT IDR B Affirmed B
senior
unsecured LT B Affirmed RR4 B
===========================
U N I T E D K I N G D O M
===========================
CINEWORLD: Bankruptcy Settlement Reached with Landlords, Lenders
----------------------------------------------------------------
Dietrich Knauth at Reuters reports that movie theater chain
Cineworld Group on Oct. 31 announced a bankruptcy settlement with
its landlords and lenders, clearing the way for the company to
borrow an additional US$150 million and make a $1 billion debt
repayment.
According to Reuters, landlords and junior creditors dropped their
opposition to the billion-dollar debt repayment after Cineworld
agreed to pay at least US$20 million in rent that will accrue after
Sept. 30.
Britain's Cineworld, which filed for bankruptcy protection in Texas
in September with less than US$4 million in cash on hand,
previously did not intend to make any post-September rent payments
until the end of its bankruptcy, Reuters notes.
Cineworld, the world's second-largest cinema chain operator, also
agreed to explore a potential sale of the business and allow
creditor input on its business plan, Reuters discloses.
Cineworld attorney Christopher Marcus said in court creditors had
filed 15 objections to the loan in court, and the company resolved
about a dozen more objections before they were filed, Reutersr
relates.
Cineworld, which owns Regal Cinemas, operates more than 9,000
screens across 10 countries and employs around 28,000 people. The
company cited difficult conditions for movie theaters, as well as
high debt stemming from its US$3.6 billion purchase of Regal as
reasons for its bankruptcy filing, Reuters states.
FARFETCH LIMITED: Fitch Assigns 'B-' LongTerm IDR, Outlook Stable
-----------------------------------------------------------------
Fitch Ratings has assigned Farfetch Limited a final Long-Term
Issuer Default Rating (IDR) of 'B-'. The Outlook is Stable. Fitch
has also assigned Farfetch US Holdings, Inc.'s term loan B (TLB) a
final senior secured rating of 'BB-' with a Recovery Rating of
'RR1'.
The IDR reflects Farfetch's fairly weak financial profile, with
Fitch-projected negative EBITDAR in 2022 and negative free cash
flow (FCF) over 2022-2023. However, the rating is supported by
Farfetch's leading position in the global e-commerce personal
luxury market. It is well-placed to capture strong growth
opportunities due to its established and geographically diversified
online marketplace platform for its wide and growing portfolio of
leading global luxury brands.
The Stable Outlook reflects its expectations of sufficient
liquidity post-TLB placement to fund growth and Farfetch's put
option liabilities over 2022-2024, should they be exercised in
cash. The company has some discretion over how to finance the
exercise of the put options.
KEY RATING DRIVERS
Profitability to Improve: The IDR is predicated on management's
commitment to achieving sustained profitability. Fitch expects the
EBITDAR margin to improve to above 5% from 2024 (2021: 0.1%),
driven by growing economies of scale, improving commissions and
provision of additional services provided to brand owners.
Disciplined control of general & administrative as well as R&D
costs are also key to delivery of Farfetch's target profitability.
A change to this commitment or underperformance that would delay
reaching a sustained positive margin would be detrimental to the
'B-' rating.
Leading Market Position: The rating is supported by Farfetch's
position as a leading global platform for the luxury fashion
industry, underpinned by good geographical diversification and an
established presence in fast-growing markets. Farfetch's wide and
growing portfolio of leading global luxury brands creates a strong
competitive strength, which together with sophisticated digital
infrastructure, enables the company to reach a global online
audience and ensure resilient customer traffic. The platform is
also equipped to service third parties by providing tailored D2C
solutions for luxury brand producers and retailers, underlining
Farfetch's strong in-house capabilities.
Meaningful Execution Risks: Fitch sees large execution risk in
Farfetch's plan to scale up its business, due to continued upfront
investment in customer acquisition and its technology platform.
Fitch views retention of customers as central to delivering the
company's high organic growth targets over the long term. A
deteriorated operating environment in some of the key markets,
including weaker sales in China and exit from Russia in 2022, may
also delay recovery in profitability.
Manageable Exposure to Event Risks: Its rating case does not
incorporate large M&A or shareholder returns, which - should they
materialise - would expose the rating to event risks. These
challenges are partially offset by a high liquidity balance
post-TLB of around USD1 billion, which would be sufficient to
absorb negative FCF over 2022-2023.
Well- Positioned for Growth: Fitch views Farfetch's business model
as well-placed to capture the continuing shift of luxury consumers
to online channels. Online orders for luxury goods are expected to
increase to around 30% of total orders in 2025, from 22% in 2021
(according to Bain-Altagamma Luxury Goods Worldwide Market Study,
June 2022), driven by continued growth in demand for luxury goods
and an increasing share of global millennial and generation Z
consumers. Additionally, Farfetch is likely to benefit from its
positions in Asian markets, including in China, where the industry
is likely to see above-average global growth.
Platform Enabled by Technology: Fitch views Farfetch's in-house
digital e-commerce platform and owned well-invested and established
digital infrastructure as a fairly high barrier to new entrants
achieving similar competitive strength and scale. Fitch believes
Farfetch is also protected to some extent from competition from
online giants, like eBay and Amazon. These are mainly positioned
within the "mass-market" price category, while Farfetch mainly
appeals to customers as a one-stop marketplace destination for
major top and exclusive products and with a higher level of
customer service.
DERIVATION SUMMARY
Farfetch is the leading global platform for the luxury fashion
industry and shares some traits with consumer goods and non-food
retail companies as it sells products online and through directly
operated retail stores.
Fitch does not rate direct competitors of Farfetch. However, Fitch
has considered companies such as Golden Goose (B/Stable) and BK LC
Lux Finco 1 S.a.r.l. (Birkenstock; B+/Stable) in the luxury
shoes/sneakers space (versus Farfetch's Stadium Goods), Levi
Strauss & Co. (BB+/Stable) and Capri Holdings (BBB-/Stable) in the
branded apparel space (versus Farfetch's New Guards, Browns) and
Amazon.com (AA-/Stable) in the e-commerce space (versus Farfetch
Marketplace) for its analysis.
Fitch uses its Non-Food Retail Navigator to assess Farfetch
similarly to Amazon.com and Golden Goose. Fitch considered
lease-adjusted credit metrics for Farfetch due to its expansion of
leasehold store network.
Farfetch is rated one and two notches below Golden Goose and
Birkenstock, respectively. Both Golden Goose and Birkenstock have
strong EBITDAR margins (30%) and positive FCF, partially offset by
their product and supplier concentration. Birkenstock's higher
rating reflects its larger scale and product positioning that is
historically less subject to fashion risk.
Farfetch's credit profile is weaker than that of Levi's and Capri
Holdings, which are much larger in scale, enjoy good EBITDAR
margins and positive FCF while maintaining conservative leverage
metrics and financial policies.
Amazon.com is an investment-grade company with a global e-commerce
platform, significant scale, solid diversification in product and
geography, and conservative leverage.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- High organic growth from Farfetch's Marketplace and e-commerce
services as well as YNAP and Richemont Maisons contribution,
subject to regulatory approvals among other conditions, with total
gross merchandise value increasing to USD14 billion in 2026 from
USD4 billion in 2021
- EBITDAR margin turning positive in 2023 and trending mid-to-high
single digits over 2022-2026
- Working-capital inflow of USD50 million-USD100 million per annum
to 2026
- Capex of USD150 million-USD250 million per annum to 2026
- No dividends or new M&A transactions to 2026
Recovery Assumptions
The recovery analysis assumes that Farfetch would be reorganised as
a going concern (GC) in bankruptcy rather than liquidated.
Fitch has assumed a 10% administrative claim and the value
available to creditors consisting of the total of Farfetch
restricted group's enterprise value (EV).
GC Approach
Farfetch's GC EBITDA is based on the first year of Fitch-projected
positive EBITDA for 2024, at around USD250 million, before applying
a 50% discount.
Fitch has used a 6.0x EV/EBITDA multiple, which is in line with
retail and business services companies' distressed multiple, but
that reflects the strong growth of Farfetch's business and its
market position.
Farfetch's USD400 million TLB ranks ahead of its other previously
existing debt, mostly in the form of unsecured convertible debt.
After deducting 10% for administrative claims, its principal
waterfall analysis generates a ranked recovery for the senior
secured debt, in the 'RR1' category, leading to a 'BB-' rating for
the TLB, three notches above the IDR. The waterfall analysis output
percentage based on current metrics and assumptions is 100%.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Maturing business model, leading to EBITDAR margin above 5% on a
sustained basis
- Visibility of deleveraging trajectory with total debt/EBITDAR
below 6x on a sustained basis
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Liquidity shortfalls and insufficient resources to fund
operations or fulfil put options obligations over the next 18 to 24
months
- EBITDAR remaining negative over the rating horizon, leading to
sustained FCF depletion
- Material debt-funded acquisitions or shareholder distribution,
leading to a significant erosion of the cash position
LIQUIDITY AND DEBT STRUCTURE
Limited Liquidity: Despite expected nearly USD1 billion of post-TLB
cash balance, Fitch views Farfetch's liquidity as limited, given
its estimates of negative FCF over 2022-2023 and after potential
cash outlays related to derivative liabilities in 2024 and in
2026.
ISSUER PROFILE
Farfetch is the global leading marketplace for personal luxury
fashion, including clothes and accessories, with an annual gross
merchandise value (GMV) of USD4.2 billion in 2021.
ESG CONSIDERATIONS
Farfetch has an ESG Relevance Score of '4' for management strategy
due to the company's aggressive financial policy in light of its
opportunistic M&A record. Farfetch has also an ESG Relevance Score
of '4' for governance structure due to potential key-man risk
associated with the founder's close involvement in the company's
operations and strategy. These factors have a negative impact on
the credit profile, and is relevant to the ratings in conjunction
with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Farfetch Limited LT IDR B- New Rating B-(EXP)
Farfetch US
Holdings, Inc.
senior secured LT BB- New Rating RR1 BB-(EXP)
GENESIS SPECIALIST: Bank Debt Trades at 63% Discount
----------------------------------------------------
Participations in a syndicated loan under which Genesis Specialist
Care Finance UK Ltd is a borrower were trading in the secondary
market around 36.75 cents-on-the-dollar during the week ended Fri.,
October 28, 2022, according to Bloomberg's Evaluated Pricing
service data.
The EUR400 million facility is a term loan. The loan is scheduled
to mature in October 2025. As of October 28, 2022, the amount was
fully drawn and outstanding.
Genesis Specialist Care Finance UK Limited provides diagnostic and
medical treatments. It is a 100%-owned and guaranteed subsidiary of
GenesisCare.
MADE.COM: Shares Suspended, Intends to Appoint Administrators
-------------------------------------------------------------
BBC News reports that online furniture retailer Made.com has moved
a step closer towards administration after the company's shares
were suspended on Tuesday, Nov. 1.
The firm has stopped taking new orders and is running out of cash,
BBC relates. Talks to find a buyer have so far failed, BBC notes.
It is dramatic change in fortunes for the brand, which boomed in
the pandemic and was valued last year at GBP775 million.
The retailer aims to fulfil orders it has already received but is
not offering refunds at this stage, BBC discloses.
However, a source told BBC the situation around refunds could
change in the coming days, depending on whether the business
appoints administrators or is sold.
The retailer, which sources directly from designers and
manufacturers, gained a loyal base of mostly younger customers and
employed 700 staff at the end last year.
It was one of many companies that saw sales surge during the
pandemic as people bought more furniture and other products online
during lockdown.
Sales at Made.com hit GBP315 million in 2020, then grew by 63% in
the first three months of 2021 to GBP110 million, BBC relays. The
firm was then listed on the London Stock Exchange.
But more recently, the company has hit problems, as households cut
back on big-ticket purchases due to the rising cost of living, BBC
states. Global supply chain issues have also left customers
waiting months for deliveries, according to BBC.
On Tuesday, Nov. 1, Made.com announced that trading in its shares
had been suspended, BBC relates. It also said it intended to
appoint administrators, which means the firm is not in
administration, but heading towards it, BBC notes.
The move gives the company 10 days of breathing space to find new
backers or sell all or part of the business, according to BBC.
Its bosses have warned its cash reserves could run out if fresh
funding cannot be raised, BBC recounts.
In a statement, the firm, as cited by BBC, said it had "received
proposals" from interested parties. However, it also said it was
likely the company would have to be "wound up" and delisted from
the stock exchange before any sale could be agreed, according to
BBC.
MCCOLL'S: Morrisons Plans to Close 132 Loss-Making Stores
---------------------------------------------------------
BBC News reports that Morrisons says it plans to close 132 of its
loss-making McColl's convenience stores, putting 1,300 jobs at
risk.
It comes after the supermarket chain agreed to buy McColl's out of
administration in May, BBC notes.
The grocer said workers who could be made redundant will be offered
jobs elsewhere in the business, BBC relates.
Morrisons now plans to convert all its remaining McColl's stores
into Morrisons Daily shops as it tries to revive the chain's
fortunes, BBC discloses.
There are currently 1,164 McColl's stores trading, 286 of which
operate under the Morrisons Daily brand, BBC states.
According to BBC, Morrisons said all of the stores set to close
were "loss-making" and had "no realistic prospect" of recovering
soon.
Out of the stores that will close, 55 have a Post Office counter,
BBC says.
Morrisons, as cited by BBC, said it would will delay the closure of
these stores until next year to let them serve local communities
during Christmas "and to allow the Post Office additional time to
make alternative arrangements".
*********
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 * * *