/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/221122.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Tuesday, November 22, 2022, Vol. 23, No. 227 Headlines F I N L A N D MULTITUDE SE: Fitch Rates Sr. Unsecured Bond B+(EXP) I R E L A N D BERG FINANCE 2021: S&P Affirms 'BB- (sf)' Rating on Class E Notes BLACKLOUGH CONSTRUCTION: High Court Appoints Interim Examiner TIKEHAU CLO VIII: S&P Assigns Prelim B- (sf) Rating to Cl. F Notes I T A L Y MULTIVERSITY SPA: S&P Assigns 'B+' Long-Term Issuer Credit Rating L U X E M B O U R G EP BCO SA: S&P Affirms 'BB-' ICR on Solid Performance, Outlook Neg. N E T H E R L A N D S NCR NEDERLAND: Fitch Alters Rating Watch on 'BB-' LT IDR to Neg. U N I T E D K I N G D O M CLUB LA COSTA: Shifts Into Creditors Voluntary Liquidation JOULES: TFG London Among Potential Bidders MH PROPERTY: Director Gets 10-Year Disqualification Order NOTTINGHAM CASTLE: Begins Liquidation Process PELLO CAPITAL: Goes Into Administration Following Ban PING PONG LIMITED: Sold to AJT Dimsum Via Pre-pack Administration ROLLS-ROYCE PLC: S&P Alters Outlook to Positive, Affirms 'BB-' ICR ROLLS-ROYCE: Fitch Affirms LT IDR at 'BB-', Alters Outlook to Pos. TOGETHER FINANCIAL: S&P Upgrades LT ICR to 'BB', Outlook Stable X X X X X X X X [*] Simpson Thacher Elevates 36 Attorneys to Partner - - - - - ============= F I N L A N D ============= MULTITUDE SE: Fitch Rates Sr. Unsecured Bond B+(EXP) ---------------------------------------------------- Fitch Ratings has assigned Multitude SE's senior unsecured bond an expected long-term rating of 'B+(EXP)' with a Recovery Rating of 'RR4'. Fitch expects the amount of the bond to be between EUR50 million and EUR100 million, which can be increased to EUR150 million by a subsequent issuance. The bond's expected rating is based on the draft bond documentation reviewed by Fitch. The final rating of the senior unsecured bond is contingent on the receipt of final documents conforming to information already received. KEY RATING DRIVERS Multitude's senior unsecured bond is rated in line with its Long-Term Issuer Default Rating (IDR). The rating alignment reflects Fitch's expectation of average recovery prospects. The bond to be issued will constitute a direct and unsecured senior obligation of Multitude and rank pari passu with all present and future senior unsecured obligations of the company. The bond proceeds will be predominantly used to refinance EUR96.8 million of debt, issued by Ferratum Capital Germany, which matures in April 2023. The maturity of the planned bond issue is three years. Multitude is an online-focused consumer and SME finance company operating predominantly in the high-cost credit sector with an international footprint in 19 countries (mostly in Europe), including a strong presence in its domestic market Finland. The company is listed on the prime standard segment of the Frankfurt Stock Exchange and incorporates a Malta-domiciled bank (Multitude Bank p.l.c.) under its wider franchise. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: The senior unsecured notes' rating is primarily sensitive to changes in Multitude's Long-Term IDR. Inability to refinance the bond, issued by Ferratum Capital Germany, if that results in less diversified and stable funding with negative implications on business profile, profitability and liquidity, could put negative pressure on the rating. Changes to Fitch's assessment of recovery prospects for senior unsecured debt in default (eg the introduction of debt obligations ranking ahead of the senior unsecured debt notes or a material increase in the proportion of customer deposits leading to a weakening of notes' recovery prospects) would result in the senior unsecured notes' rating being notched below the IDR. Factors that could, individually or collectively, lead to positive rating action/upgrade: The senior unsecured notes' rating is primarily sensitive to changes in Multitude's Long-Term IDR. ESG CONSIDERATIONS Multitude has an ESG Relevance Score of '4' for exposure to social impacts as a result of its exposure to the high-cost consumer lending sector. As the regulatory environment evolves (including a tightening of rate caps), this has a moderately negative influence on the credit profile via its assessment of Multitude's business model and is relevant to the rating in conjunction with other factors. Multitude has an ESG Relevance Score of '4' for customer welfare, in particular in the context of fair lending practices, pricing transparency and the potential involvement of foreclosure procedures, given its focus on the high-cost consumer credit segment. This has a moderately negative influence on the credit profile via its assessment of risk appetite and asset quality 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 ----------- ------ -------- Multitude SE senior unsecured LT B+(EXP) Expected Rating RR4 ============= I R E L A N D ============= BERG FINANCE 2021: S&P Affirms 'BB- (sf)' Rating on Class E Notes ----------------------------------------------------------------- S&P Global Ratings raised its credit ratings on the class B through D notes issued by Berg Finance 2021 DAC to 'AA (sf)', 'A+ (sf)', and 'BBB+ (sf)', respectively. At the same time, S&P affirmed its 'AAA (sf)' and 'BB- (sf)' ratings on the class A and E notes, respectively. Rating Rationale The rating actions follow S&P's review of the transaction's credit and cash flow characteristics. The prepayment of the Big Mountain loan and the partial prepayment of the Sirocco loan have been applied almost entirely pro rata to the notes, therefore only marginally increasing credit enhancement. The class A credit enhancement is now 48.6%, up from 45.8%. However, because the asset sales in the Sirocco loan were subject to a release premium of 119.35%, the loan deleveraged significantly and now has a loan-to-value (LTV) ratio of 55.7%, down from 63.5% (the properties have not been revalued since closing). The S&P LTV has reduced to 83.3% from 92.5%, despite S&P's S&P Value on the remaining properties being down slightly. Also, because of the smaller loan size and the lower leverage, the advance rates under our criteria are now higher at all rating levels. Originally, the Sirocco loan received a negative adjustment of 1.5% for all-in leverage and a negative adjustment of 2% for loan size. Based on the new metrics, S&P has made no more adjustments, and the recovery is therefore higher across all rating categories. The loan has a three-year term with an initial maturity date of April 2024, followed by two one-year extension options. Its interest-only period expired on the October 2022 interest payment date (IPD) and the loan will now start amortizing at 0.25% of the loan balance on each IPD. Based on the S&P net cash flow (NCF) and the current capped interest rate of 1.75% (plus margin), the ICR for the loan is 1.46x and the debt service coverage ratio (DSCR) is 1.23x. Current three-month Euro Interbank Offered Rate (EURIBOR) is 1.79%. S&P said, "We believe that the loan may be unable to secure a new interest rate cap at its maturity in 18 months given the low debt service coverage. If the borrower cannot enter into a new cap agreement, an extension will not be granted and the loan amount would become immediately due and payable. We are therefore giving credit for amortization only through to the initial maturity date." The weighted-average lease term to first break option (WALTB) exceeds the remaining loan term and income strength is strong given the diversified rent roll. Amortization credit is therefore 100%. It will be applied pro rata to the notes. At closing, S&P had given more amortization credit (through to the extended maturity date). However, the lower amortization credit is outweighed by the lower leverage and transaction size that resulted from the prepayments. Transaction Overview The transaction closed in 2021 and is a pan-European CMBS transaction, which was originally secured by two loans. One loan—the Sirocco loan—remains, which has also partially prepaid because the borrower sold two of the four properties. The remaining two buildings in the transaction are in Vienna, Austria, and Rotterdam, the Netherlands. The transaction is backed by one senior loan. Goldman Sachs arranged and underwrote the Sirocco loan to facilitate the refinancing of a portfolio of four office properties located in Austria, Finland, Germany, and the Netherlands. The loan had a cut-off loan balance of EUR150.8 million, indicating an original LTV ratio of 63.5%. Its loan balance is now EUR90.5 million following the sale of the Finnish and the German asset. S&P said, "At closing, we underwrote the two remaining properties to a slightly higher occupancy rate than in-place, giving credit for lease ups. This has not materialized to the same extent. Our vacancy rate at closing was 14.4%, current economic vacancy is 16.1% (physical is 15.3%) and we have now applied a 16.1% vacancy rate." Green Street reports a market vacancy of 4.5% for Vienna as a whole. However, the property is not in a central business district location and hasn't shown significant improvements in vacancy recently. Average market gross rent is reported as EUR160 per square meter (psqm) p.a., which compares with an in-place rent of EUR164 psqm. Knight Frank reports office availability of 10.5% and a rental range of EUR140-235psqm p.a. for Rotterdam Center, where the property is located, which compares to actual vacancy of 5.8% and gross rent of EUR166 psqm. The weighted-average market vacancy for the two assets is 6.5%. On a like-for-like basis, occupancy at the properties has only marginally increased since closing--to 84.3% from 82.6%. However, rental income has improved significantly. Effective gross income is up by 7.4%. Because non-recoverable expenses are now also higher, reported NCF increased by only 3.8% since closing, according to the July investor report. The two buildings have a diversified rent roll with 43 unique tenants from various industries including real estate, IT, healthcare, consulting, and government bodies. Approximately 75% of the space is office, followed by retail (3.4%). The rest is parking and other space such as storage. Vacancy is concentrated in the Vienna property, where 20.5% of the office space is empty, whereas the Rotterdam office space is only 5.8% vacant. The top five tenants account for about 40% of the space. Since closing, our S&P Value has declined by 1.3% to EUR108.7 million from EUR110.2 million. This is because we have assumed a higher vacancy and expenses are also up by almost 30%, which is only partially offset by higher rental income. S&P has kept its cap rate unchanged at 6.33%. Table 1 Loan And Collateral Summary REVIEW AS OF AT ISSUANCE OCTOBER 2022 APRIL 2021 Data as of July 2022 April 2021 Senior loan balance (mil. EUR) 90.5 150.8 Senior loan-to-value ratio (%) 55.7 63.5 Contractual rental income per year 8.5 7.9* (mil. EUR) Net rental income per year (mil. EUR) 7.2 6.9* Vacancy rate (%) 15.3 17.4* Market value (mil. EUR) 162.6 162.6* *For the Vienna and the Rotterdam property only. Table 2 S&P Global Ratings' Key Assumptions REVIEW AS OF AT ISSUANCE OCTOBER 2022 APRIL 2021 S&P Global Ratings vacancy (%) 16.1 14.4 S&P Global Ratings expenses (%) 15.6 12.1 S&P Global Ratings net cash flow (mil. EUR) 7.2 7.3 S&P Global ratings value (mil. EUR) 108.7 110.2 S&P Global Ratings cap rate (%) 6.3 6.3 Haircut-to-market value (%) 33.1 32.2 S&P Global Ratings loan-to-value ratio(before recovery rate adjustments; %) 83.3 92.5 *For the Vienna and the Rotterdam property only. Other analytical considerations S&P said, "We also analyzed the transaction's payment structure and cash flow mechanics. We assessed whether the cash flow from the securitized assets would be sufficient, at the applicable rating, to make timely payments of interest and ultimate repayment of principal by the legal maturity date of the floating-rate notes, after considering available credit enhancement and allowing for transaction expenses and external liquidity support. "Given the low interest coverage and the higher interest rate environment, our cash flow analysis now shows that interest shortfalls may occur and principal may not be repaid in full in rating categories commensurate with the outcome of the credit analysis alone for all classes except the class A notes. We therefore ran our cash flow analysis at lower rating categories (and with the associated lower cash flow stresses) until the cash flow analysis outcome passed for both the timely interest and ultimate repayment of principal components." Moreover, the class E tranche does not benefit from liquidity support and can therefore not withstand as much stress as a class that does have this benefit. As of the October 2022 IPD, the available liquidity reserve is EUR3.6 million. There have been no drawings. S&P's analysis also included a full review of the legal and regulatory risks, operational and administrative risks, and counterparty risks. Its assessment of these risks remains unchanged since closing and is commensurate with the ratings. Rating actions S&P said, "Our ratings in this transaction address the timely payment of interest, payable quarterly, and the payment of principal no later than the legal final maturity date in April 2033. "The transaction's overall credit quality has improved due to the deleveraging, which has followed the partial prepayments. The S&P Global Ratings LTV ratio has declined to 83.3% (from 92.5%). However, rising cash flow risks in the transaction constrain the ratings. We therefore raised our ratings on the class B through D notes to 'AA (sf)', 'A+ (sf)', and 'BBB+ (sf)', respectively. We affirmed our 'AAA (sf)' and 'BB+ (sf)' ratings on the class A and E notes." BLACKLOUGH CONSTRUCTION: High Court Appoints Interim Examiner ------------------------------------------------------------- Aodhan O'Faolain at Independent.ie reports that the High Court has appointed an interim examiner to a construction company which is currently building over 360 social housing units at five different sites. Blacklough Construction Ltd sought the protection of the courts from its creditors as it is insolvent on a cash-flow basis and unable to pay its debts, Independent.ie relates. Blacklough is currently working on developments for the Respond Housing Association in Carrickmines, Channel College, Malahide Road, both Dublin, Athboy Road, Navan Co Meath, Charlestown, Mullingar Co Westmeath and Dublin Road, Dundalk, Co Louth. According to Independent.ie, the court heard that despite its current predicament, an independent expert's report has stated that the company has a reasonable prospect of survival if certain steps are taken. The steps would include the appointment of an examiner who would seek to agree a survival plan with the firm's creditors, Independent.ie notes. Counsel for Blacklough, Ross Gorman Bl, said that the firm's difficulties have largely been caused by the unprecedented 33% rise in the cost of building materials the industry has experienced since 2020, Independent.ie relays. A potential problem regarding planning permission had arisen regarding the development the firm is working on in Carrickmines, counsel said, according to Independent.ie. Mr Justice Michael Quinn, as cited by Independent.ie, said he was satisfied to appoint chartered accountant and insolvency expert Joe Walsh as interim examiner to the company. The company has 48 employees and also engages subcontractors. The court heard the examiner will also deal with the company's employees, subcontractors and its trade creditors who are owed over EUR3 million, Independent.ie discloses. According to Independent.ie, independent expert Cormac Mohan had stated in his report that the firm's creditors would do better in a successful examinership than if the company went into liquidation. Seeking the appointment of an examiner, counsel said that the company was set up in 2010, has been successful at building residential units, and had been profitable until quite recently, Independent.ie relates. TIKEHAU CLO VIII: S&P Assigns Prelim B- (sf) Rating to Cl. F Notes ------------------------------------------------------------------ S&P Global Ratings assigned preliminary credit ratings to Tikehau CLO VIII DAC's class A to F European cash flow CLO notes. At closing, the issuer will issue unrated subordinated notes. Under the transaction documents, the rated notes will pay quarterly interest unless a frequency switch event occurs. Following this, the notes will permanently switch to semiannual payments. The portfolio's reinvestment period will end four years after closing, while the non-call period will end two years after closing. The preliminary ratings reflect S&P's assessment of: -- The diversified collateral pool, which primarily comprises broadly syndicated speculative-grade senior-secured term loans and bonds that are governed by collateral quality tests. -- The credit enhancement provided through the subordination of cash flows, excess spread, and overcollateralization. -- The collateral manager's experienced team, which can affect the performance of the rated notes through collateral selection, ongoing portfolio management, and trading. -- The transaction's legal structure, which S&P expects to be bankruptcy remote. -- The transaction's counterparty risks, which S&P expects to be in line with its counterparty rating framework. Portfolio Benchmarks CURRENT S&P weighted-average rating factor 2,806.31 Default rate dispersion 492.37 Weighted-average life (years) 4.92 Obligor diversity measure 114.91 Industry diversity measure 21.32 Regional diversity measure 1.35 Transaction Key Metrics CURRENT Portfolio weighted-average rating derived from S&P's CDO evaluator B 'CCC' category rated assets (%) 2.13 'AAA' weighted-average recovery (%) 34.73 Floating-rate assets (%) 95.06 Weighted-average spread (net of floors; %) 4.10 S&P said, "The current portfolio contains a larger proportion of assets that have yet to be ramped up compared to what we would typically see in other European CLO transactions at pricing. By closing, we expect ramped up assets to be more in line with what is commonly seen in European CLO transactions. We understand that at closing the portfolio 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." Asset priming obligations and uptier priming debt Under the transaction documents, the issuer can purchase asset priming (drop down) obligations and/or uptier priming debt to address the risk of a distressed obligor either moving collateral outside the existing creditors' covenant group or incurring new money debt senior to the existing creditors. S&P said, "In our cash flow analysis, we used the EUR400 million target par amount, the covenanted weighted-average spread (4.10%), and the covenanted weighted-average coupon (4.30%) as indicated by the collateral manager. We have assumed the actual weighted-average recovery with a 1% cushion at the 'AAA' rating, and the actual weighted-average recovery rates for all other ratings. We applied various cash flow stress scenarios, using four different default patterns, in conjunction with different interest rate stress scenarios for each liability rating category. "Our credit and cash flow analysis show that the class B-1, B-2, C, D, E, and F notes benefit from break-even default rate (BDR) and scenario default rate cushions that we would typically consider to be in line with higher ratings than those assigned. However, as the CLO is still in its reinvestment phase, during which the transaction's credit risk profile could deteriorate, we have capped our preliminary ratings on the notes. The class A notes can withstand stresses commensurate with the assigned preliminary ratings. "Until the end of the reinvestment period on Dec. 15, 2026, the collateral manager may substitute assets in the portfolio for so long as our CDO Monitor test is maintained or improved in relation to the initial ratings on the notes. This test looks at the total amount of losses that the transaction can sustain as established by the initial cash flows for each rating, and compares that with the current portfolio's default potential plus par losses to date. As a result, until the end of the reinvestment period, the collateral manager may through trading deteriorate the transaction's current risk profile, if the initial ratings are maintained. "Under our structured finance sovereign risk criteria, we consider that the transaction's exposure to country risk is sufficiently mitigated at the assigned preliminary ratings. "At closing, we expect that the transaction's documented counterparty replacement and remedy mechanisms will adequately mitigate its exposure to counterparty risk under our current counterparty criteria. "We expect the transaction's legal structure and framework to be bankruptcy remote, in line with our legal criteria. "Following our analysis of the credit, cash flow, counterparty, operational, and legal risks, we believe our preliminary ratings are commensurate with the available credit enhancement for the class A to F notes. "In addition to our standard analysis, to indicate 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 based on four hypothetical scenarios. "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. Primarily due to the diversity of the assets within CLOs, the exposure to environmental credit factors is viewed as below average, social credit factors are below average, and governance credit factors are average. For this transaction, the documents prohibit assets from being related to the following industries: nuclear weapon programs; carbon intensive electrical utilities; prostitution; payday lending; and non-sustainable palm oil and palm fruit products." Specifically, the documents prohibit assets from: -- Any obligor involved in the development, product, maintenance of weapons of mass destruction. -- Any obligor that is involved in the trade of illegal drugs or narcotics, including recreational cannabis. -- Any obligor that generates any revenues from manufacture or trade in pornographic materials or content, or prostitution-related activities. -- Any obligor that generates any revenues from trade in endangered wildlife; -- Any obligor that generates any revenue from payday lending. -- Any obligor which is an electrical utility where carbon intensity exceeds [100]gCO2/kWh, or where carbon intensity is not disclosed, it generates more than (i) [1]% of its electricity from thermal coal, (ii) [10]% of its electricity from liquid fuels (oils), (iii) [50]% of its electricity from natural gas, or (iv) [0]% of its electricity from nuclear generation. Any utilities with expansion plans that would increase their negative environmental impact are also excluded. -- Any obligor that generates more than [5]% of revenues from (i) sale or extraction of thermal coal or coal based power generation; (ii) sale or extraction of oil sands; or (iii) extraction of fossil fuels from unconventional sources (including Artic drilling, shale oil, and shale gas--or other fracking activities). -- Any obligor that generates more than [5]% of revenues from the sale or production of civilian firearms. -- Any obligor that generates more than [5]% of revenues from the sale or manufacture of tobacco or tobacco products, including e-cigarettes, or any obligor that is classified as "tobacco" by S&P Global Ratings. -- Any obligor that generates more than [50]% of its revenue from trade in, production or marketing of opioid manufacturing and distribution. -- Any obligor that derives any of its revenues from the production, use, storage, trade, or ensures the maintenance, transport, and financing of banned pesticides or hazardous chemicals or components. Accordingly, since the exclusion of assets from these industries and areas does not result in material differences between the transaction and our ESG benchmark for the sector, S&P has made no specific adjustments 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 (see "The Influence Of Corporate ESG Factors In Our Credit Rating Analysis Of European CLOs," published on April 20, 2022). 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 2.09 2.88 E-1/S-1/G-1 distribution (%) 0.00 0.00 0.00 E-2/S-2/G-2 distribution (%) 69.34 67.84 13.25 E-3/S-3/G-3 distribution (%) 4.00 4.50 56.71 E-4/S-4/G-4 distribution (%) 0.00 1.00 2.25 E-5/S-5/G-5 distribution (%) 0.00 0.00 1.13 Unmatched obligor (%) 17.69 17.69 17.69 Unidentified asset (%) 8.97 8.97 8.97 *Only includes matched obligor Ratings List CLASS PRELIM. PRELIM. SUB (%) INTEREST RATE§ RATING* AMOUNT (MIL. EUR) A AAA (sf) 240.00 40.00 3/6-month EURIBOR plus 2.12% B-1 AA (sf) 34.20 30.00 3/6-month EURIBOR plus 3.74% B-2 AA (sf) 5.80 30.00 6.90% C A (sf) 22.00 24.50 3/6-month EURIBOR plus 4.75% D BBB (sf) 24.00 18.50 3/6-month EURIBOR plus 6.16% E BB- (sf) 18.00 14.00 3/6-month EURIBOR plus 8.40% F B- (sf) 14.00 10.50 3/6-month EURIBOR plus 10.43% Sub. notes NR 39.90 N/A N/A *The preliminary ratings assigned to the class A, B-1, and B-2 notes address timely interest and ultimate principal payments. The preliminary ratings assigned to the class C, D, E, and F notes address ultimate interest and principal payments. §The payment frequency switches to semiannual and the index switches to six-month EURIBOR when a frequency switch event occurs. EURIBOR--Euro Interbank Offered Rate. NR--Not rated. N/A—-Not applicable. ========= I T A L Y ========= MULTIVERSITY SPA: S&P Assigns 'B+' Long-Term Issuer Credit Rating ----------------------------------------------------------------- S&P Global Ratings assigned its 'B+' long-term issuer credit rating to Italian higher education services group Multiversity SpA and withdrew its 'B' issuer credit rating on Paganini Bidco SpA. S&P also upgraded the issue rating on the EUR765 million notes from 'B' to 'B+', with an unchanged '3' (55%) recovery rating. The stable outlook reflects S&P's expectation that Multiversity SpA will achieve substantial revenue growth in 2022-2024 and maintain an S&P Global Ratings-adjusted EBITDA margin above 50% and free operating cash flow (FOCF) well in excess of EUR50 million per year, such that adjusted leverage will decline structurally below 5.0x and FOCF to debt stays above 10%. On July 22, 2022, CVC-owned Paganini Bidco SpA and its intermediate holding companies merged into their operating company, Multiversity s.r.l., whose legal form has been changed to Multiversity SpA. Paganini Bidco transferred all its assets and liabilities, including the EUR765 million notes and EUR100 million super senior revolving credit facility (RCF), to Multiversity SpA, while reimbursing its EUR221 million bridge facility with EUR240 million cash present at the intermediate holding companies. The reverse merger and reimbursement of the EUR221 million bridge facility represents the final step of CVC's acquisition of Multiversity. On Oct. 28, 2021, CVC-owned vehicle Paganini Bidco acquired the remaining 50% of Multiversity s.r.l. from the founder Danilo Iervolino, taking control of 100% of the group. The acquisition was financed through EUR765 million of floating rate notes, a EUR221 million bridge to cash facility, and an equity contribution of EUR42 million. On July 22, 2022, in line with the original plan, Paganini BidCo (and its intermediate holding companies WVersity SpA. and Multiversity SpA) reverse-merged into the operating entity Multiversity s.r.l., which changed its legal form from that of a limited liability company (s.r.l.) to that of a joint-stock company (SpA). The accounting and tax effect of the merger were backdated to Jan. 1, 2022. As part of the transaction, Paganini's original EUR221 bridge facility was reimbursed with the cash at intermediate holding companies, equal to EUR236 million as of June 30, 2022. Post-merger, Multiversity SpA remains the only surviving entity of the group, and the issuer of the EUR765 million rated floating notes and unrated EUR100 million super senior RCF. Consequently, S&P assigned its 'B+' issuer credit rating to Multiversity and withdrew our 'B' issuer credit rating on Paganini. At the time of the withdrawal, the outlook on Paganini was positive. Solid business growth will drive S&P Global Ratings-adjusted leverage below 5.0x. At the closure of CVC's acquisition, in October 2021, we estimated that S&P Global Ratings-adjusted leverage was 6.0x. S&P said, "As of Dec. 31, 2021, leverage declined to 5.7x, and we forecast it will reduce further to 4.9x as of December 2022 and to 3.7x-4.2x in 2023. Deleveraging for the group stems from solid business expansion, with total enrolled students passing from about 87,000 in 2020 to about 125,000 as of June 30, 2022, and above 150,000 by 2023, in our base case. This translates to an adjusted EBITDA base growing from EUR94 million in 2020 to EUR142 million in 2021, and exceeding EUR200 million by 2023, in our projections. We expect Multiversity will capitalize on the increasing digitalization of education, as well as the integration of the recently acquired San Raffaele Roma and Aulab, and the new partnership with Sole 24 Ore. We consider education to be a countercyclical sector, and Multiversity's relatively low tuition fees should help preserve demand for their courses amid the mild recession we expect in Italy in 2023." The group is investing excess cash in value-accretive M&A, but long-term financial policy remains a key rating driver. As of June 30, 2022, the group's consolidated cash on balance sheet was EUR283 million, net of the EUR221 bridge loan repaid in July as part of the reverse merger. Multiversity has used about EUR200 million of this cash buffer to fund bolt-on M&A, which largely comprised the EUR177 million acquisition of Universita Telematica San Raffaele Roma, which expands the group's product offering with medical-healthcare professions degrees and provides it with its third online-university license. Additionally, the group announced the acquisition of 60.6% of Aulab, a company offering courses for software developers, and a partnership with leading Italian newspaper Sole 24 Ore, to develop a new executive education program. Another EUR50 million cash was absorbed by a price adjustment paid to founder Danilo Iervolino. S&P said, "We believe these acquisitions strengthen Multiversity's business position, while not weighing on adjusted credit metrics, because we do not net the cash in our leverage calculation. We also expect the group will rapidly rebuild a strong liquidity buffer, based on our forecast of EUR80 million-EUR100 million FOCF in the next 12 months. That said, we consider the group's long-term financial policy to be uncertain given ownership by a financial sponsor. The group could re-leverage within its debt documentation framework and, in our view, private equity ownership focuses on maximizing shareholder returns. Any significant shareholders' distribution or debt-funded M&A could have a material impact on the ratings." Good brand recognition, competitive pricing, and an established network support Multiversity's leading position in its niche market. Multiversity firmly holds the leading position in the niche but fast-growing Italian online university segment, being more than twice the size of the second-largest player. Through its three university brands--Pegaso, Mercatorum, and the recently acquired San Raffaele Roma--as well as its ancillary education services, Multiversity offers 30 bachelor's degrees, 14 master's degrees, and about 100 other higher education courses, at prices well below the average of other private universities. Since its foundation in 2006, the group has built strong brand recognition, thanks to significant marketing investments as well as a physical network of about 100 exam venues and about 3,000 e-learning center points (ECPs), which offer proximity to students despite the virtual business model. ECPs are third-party promoters that offer student orientation services for Multiversity in exchange for a percentage of tuition fees. S&P said, "We believe Multiversity's positioning also benefits from its unique partnership with private and public institutions (such as the Italian Chamber of Commerce) as well as from the internally developed digital platform, where students access lessons, courses, study materials, and exams. The digital business model exposes the company to cyberattacks more than traditional universities, but we understand that the group has established a strong cybersecurity framework and has not been affected to date by any cyber-related issue." A structural shift toward digitalization will increase the penetration of online universities, while regulation limits competition over the medium term. S&P said, "We expect online universities in Italy--which currently account for 7%-10% of total enrolled students--will continue to experience strong growth in the coming years, compared with the sluggish student base of traditional universities. Online universities will benefit from the structural trends toward digitalization of education, which accelerated during the COVID-19 pandemic. We think that online universities could benefit from some Italian country-specific characteristics, such as the territory's rural nature, with a significant portion of the population not living close to a university; and the institutional push to increase the proportion of graduates, which is one of the lowest among developed countries." Although these trends will make the segment attractive to both existing traditional universities and new players, the market has significant regulatory barriers to entry, which we believe will limit the number of new entrants in the medium term. This is because online universities need to be officially recognized by the Italian Ministry of Education through a specific license. Since 2003, the Ministry granted only 11 online-university licenses--including to Pegaso, Mercatorum, and San Raffaele--with no new entrants since 2006, and it is not expected to grant any new permit until at least the next application date in 2024. A low and flexible cost base supports Multiversity's above-average profitability and cash flow generation. S&P said, "We expect Multiversity's adjusted EBITDA margin will remain above 50%, on its digital and easily scalable business model, characterized by its lack of costly physical venues and limited personnel expenses. We estimate that the group's cost base mostly comprises the contribution it pays to ECPs (about 12% of revenue in 2021) and marketing expenses (about 12% of revenue), while educational personnel costs and research account for only about 3% and rent and headquarters about 9%." Notably, contributions paid to ECPs in exchange for their orientation activity are calculated as a percentage of tuition fees and, as such, are fully variable. Strong profitability and lack of significant capital expenditure (capex) needs translate into high cash conversion, with FOCF expected to remain above EUR80 million per year in our forecast horizon. The limited scale of operations and single-country regulatory exposure constrain the rating. With about 125,000 enrolled students as of June 30, 2022, Multiversity is the leading Italian online university; however, it has a market share of only 3.0%-4.0% in the broader university market, including traditional universities. S&P said, "Despite the segment's fast growth, we believe online teaching will remain a niche in a largely fragmented market, because we expect online penetration will likely stabilize in the long term, as virtual platforms will not be able to fully replace traditional universities. Our rating is also constrained by Multiversity's geographical concentration, with 100% of revenue and EBITDA generated in Italy, which makes the company highly dependent on the country's regulatory environment. Although historically supportive, any eventual unfavorable change to the Italian regulatory framework of online universities may have a material impact on Multiversity's business prospects and profitability. The new Ministerial Decree 1154/2021--whose actual implementation is still uncertain, following the appeal to the President of the Republic--may entail a significant margin dilution from 2024, because it requires all universities to increase the ratio of professors to students to a level that is unfavorable for digital universities. Despite the broad product and service offering, Pegaso accounts for about three-quarters of the group's students and revenue, exposing the business to brand concentration, although we expect this will improve in the medium term." S&P said, "The stable outlook reflects our expectation that Multiversity SpA will achieve double-digit revenue growth, driven by a growing student base, while maintaining an adjusted EBITDA margin above 50% in 2022-2024. On the back of strong FOCF generation of well above EUR50 million per year and a growing EBITDA base, we forecast adjusted leverage to decline structurally below 5.0x and FOCF to debt to stay above 10%." S&P could lower the rating if adjusted leverage increased above 5.0x, or if FOCF to debt structurally declined below 10%. This could happen if: -- The company was unable to execute its growth strategy or experienced operating or regulatory setbacks, leading to weaker-than-expected growth, profitability, or FOCF generation; -- The company undertook debt-funded acquisitions or dividend distribution; or -- The company experiences setbacks in integrating the recent acquisitions, such that profitability would be diluted. Although an upgrade is remote over the next 12-18 months, S&P could raise its rating if: -- The company significantly outperformed S&P's base case, increasing its student base, size, and profitability beyond expectations, while improving its geographic and brand diversification; and -- Adjusted leverage structurally declined well below 3.5x, and there was a clear and credible commitment from the sponsor not to re-leverage the business above that level. ESG credit indicators: E-2, S-2, G-3 S&P said, "Governance is a moderately negative consideration in our credit rating analysis of Multiversity. Our assessment of the company's financial risk profile as highly leveraged reflects corporate decision making that prioritizes the interests of the controlling owners, in line with our view of the majority of rated entities owned by private-equity sponsors." This also reflects their generally finite holding periods and focus on maximizing shareholder returns. Social factors have an overall neutral influence. As a pure online university, Multiversity's business model was not hindered by COVID-19-related social-distancing measures or mobility restrictions. =================== L U X E M B O U R G =================== EP BCO SA: S&P Affirms 'BB-' ICR on Solid Performance, Outlook Neg. ------------------------------------------------------------------- S&P Global Ratings affirmed its 'BB-' long-term issuer credit and issue ratings on EP Bco S.A. and its first-lien term loan and revolving credit facility (RCF) and its 'B' issue rating on the second-lien term loan. The negative outlook indicates the risk that a failure to achieve EBITDA growth or the company's acquisitive strategy could delay deleveraging, preventing it from moving S&P Global Ratings-adjusted debt to EBITDA toward 6.5x by 2023 and delivering consistent positive free operating cash flow (FOCF). EP Bco S.A., the nonoperating holding company of international port infrastructure operator Euroports Holdings S.a.r.l. (Euroports), continues to deliver solid performance, supported by increasing demand for commodities and a boost in freight forwarding, resulting in our expectation that S&P Global Ratings-adjusted debt to EBITDA could decline toward 6x at year-end 2022, from 6.6x in 2021. S&P said, "We assume EP Bco's adjusted debt to EBITDA could remain below 6.5x over 2023-2024, depending on EBITDA growth amid commodity volatility, the macroeconomic slowdown, and a disciplined financial policy. We expect adjusted debt to EBITDA could improve to about 6.0x in 2022, from 6.6x in 2021, and remain stronger than our previous expectations over 2023-2024, at the high end of the 6.0x-6.5x range with limited headroom. This is spurred by recently completed acquisitions (Hango Stevedoring in Finland, Mira in Turkey, and CLTM in France), terminal investments (largely in Belgium and China), and recent commercial wins (including the ramp-up at Port La Nouvelle and newly secured contracts) that offer opportunities to increase scale and support expected EBITDA growth in 2023-2024. In our view, the deleveraging we assume in our base case could be challenged by the slowing macroeconomic environment, potential volatility in commodities volumes, and the group's pace and size of acquisitions, which we will continue to closely monitor. At the same time, we forecast funds from operations (FFO) to debt will be maintained above 8% despite the expected increase in interest costs on the unhedged floating-rate debt structure (about 95% of total debt), also reflected in strong forecast EBITDA interest coverage remaining higher than 2.5x. "Significant credit stress at an affiliate of EP Bco's ultimate parent, Cycorp, has not tangibly affected EP Bco's credit profile. On Oct. 3, 2022, an affiliate of Cycorp, Metalcorp Group S.A., did not pay its EUR70 million principal maturity (see "Metalcorp Group S.A. Downgraded To 'SD' From 'B' On Principal Nonpayment," published Oct. 6, 2022, on RatingsDirect). Following changes in the group's organizational structure, we now consider Cycorp as EP BCO's ultimate group parent. No cash or assets were diverted from EP Bco to support other group entities and no changes occurred to its governance, which grants veto powers to minority shareholders on EP Bco's strategy and cash flows. Dividend distributions are currently restricted by the company's financial covenants, and we understand the minority shareholders are exercising active oversight and joint decision making. Although the company doesn't currently need to raise debt, which could indicate its unchanged access to credit markets, we notice the stress at Cycorp's affiliate only had a short-term effect on EP Bco's loan trading. There are also no cross-default or debt-acceleration clauses in EP Bco's financial documentation that could be triggered by an insolvency at any entity within the group, and the company maintains separate operations and financials from the group. In the hypothetical scenario of an insolvency at an entity of the group, we don't expect this to trigger EP Bco's insolvency under EU regulation. "We therefore removed any direct linkage between our ratings on EP Bco and its ultimate parent Cycorp.We believe EP Bco is not exposed to a potential negative intervention of the group due to PMV and FPIM's proactive role as minority shareholders. In our view, the above provisions provide sufficient support to de-link our rating on EP Bco from the credit quality of its largest shareholder's ultimate parent (Monaco Resources Group [MRG] indirectly owns a 53.4% stake in EP Bco and is ultimately fully owned by Cycorp). Previously we reflected a two-notch differentiation between our ratings on MRG and EP Bco. Although we do not rate Cycorp, we estimate that it has weaker credit characteristics than EP Bco. We will continue to monitor the market's perception of EP Bco in future financing, but view its liquidity as adequate due to no refinancing risk until 2026, when its EUR365 million term loan B is due. We continue to view the shareholder agreement between MRG (53.4% stake) and PMV and FPIM (23.3% stake each) as supportive. This agreement grants veto powers to PMV and FPIM on reserved matters including EP Bco's budget, dividends, new borrowings, any transaction or agreement with the shareholder, and voluntary bankruptcy. The terms of the shareholder agreement can only be renegotiated with the mutual approval of EP Bco's shareholders, we understand that there is no plan for any amendment to date and assume agreement stability as a relevant rating factor. In addition, there are certain restrictions in the financial documentation, which prevent dividend distributions unless leverage is below 4.75x, which we expect may materialize from 2024 on. We will continue to closely monitor the company's financial policy, including distributions to shareholders and acquisition spending, to assess whether minority shareholders remain able and willing to exercise their rights in support of EP Bco's credit quality." EP Bco's long-term contracts have inflation-linked clauses and its diversified commodity exposure should help mitigate inflationary pressures in the next 12-18 months. S&P said, "In relation to the Russia-Ukraine conflict, total volume impact is lower than 2%, according to the company, and we expect certain commodities to be sourced from alternative markets. Notably, coal is now being imported from South America and the same is true for agribulk previously from Ukraine, due to the essential nature of these commodities. More broadly, we expect that EP Bco's diversification across counterparties and commodities, and that most of its contracts are inflation linked, will help mitigate inflationary pressures. In our base case, we assume negative growth in 2023, reflecting some normalization in the logistics segment and commodities volatility due to the global economic slowdown." At June 30, 2022, revenue and EBITDA were EUR109 million and EUR6 million respectively above the company's budget, mainly fueled by the strong performance of logistics and freight-forwarding services and strong volume trends across all commodities, including higher-than-expected steel and coal demand. This mitigated strikes at UPM's Finnish paper mills, which started in January and lasted 112 days until the end of April, that hit forest product volumes (46% of 2021 revenue). It also helped offset escalated COVID-19 restrictions in China--9% of operating EBITDA as defined under management accounting; before management fees, information technology recharges and nonoperating items--that postponed the benefits from investment in a new warehouse in Gaolan. In total, the negative effect of these events on EBITDA was nearly EUR6 million to date in 2022. The negative outlook reflects S&P's view that exposure to volatile commodities, potential headwinds from the macroeconomic slowdown, and its appetite for debt-funded acquisitions may prevent EP Bco from moving adjusted financial leverage toward 6.5x by 2023-2024, after solid improvements expected in 2022. S&P could lower the rating if: -- S&P believes FFO to debt will fall below 7% and debt to EBITDA will increase above 6.5x on average over 2022-2024. This could result from a setback in operating performance in connection with a shortfall in volumes from key customers, a failure to contain earnings pressures from the current inflationary environment, or higher-than-expected debt-funded acquisitions and investments, not sufficiently compensated by EBITDA growth. -- S&P believes the financial policy is not supporting deleveraging, due to its acquisitive appetite and dividend distributions when allowed under the financial covenants. -- S&P said, "There is any change in the shareholder agreement or governance that could lead us to reassess our rating approach and may not be consistent with EP Bco's credit quality being delinked from that of its parent. We could also lower the ratings if we anticipate that EP Bco's access to capital markets or bank support will diminish, reducing financial flexibility and the company's ability to maintain at least adequate liquidity." -- S&P views of the company's business position weakens, for example, as a result of the underperformance of key sectors, or a failure to continue mitigating its exposure to trade volumes and commodity prices through diversification and contractual agreements. It could also happen due to increased exposure to noninfrastructure business, such as freight-forwarding activities, with their contribution to EBITDA moving closer to 30%. -- There is a risk of a breach of the springing leverage-based financial covenant, which is tested if RCF drawings exceed 40%. S&P could revise the outlook to stable if it believes the company will maintain debt to EBITDA at or below 6.5x, coupled with adjusted FFO to debt above 7% on a sustainable basis. This would likely require it to sustain profitability despite underlying commodities market volatility, as well as a disciplined financial policy. ESG credit indicators: E-4, S-2, G-2 S&P said, "ESG factors are an overall neutral consideration in our credit rating analysis of EP Bco. We believe strong minority shareholders (46.6% combined stake of sovereign wealth funds PMV and FPIM) and their powers under the shareholder agreement protect the company from potential negative intervention from its majority shareholder. From an environmental perspective, EP Bco decreased its exposure to coal to 5%-6% of revenue in 2020-2021 from 16% in 2017, although so far in 2022 coal volumes have increased again amid the energy crisis. Additionally, we do not see climate risk as an imminent consideration for EP Bco's terminals." ===================== N E T H E R L A N D S ===================== NCR NEDERLAND: Fitch Alters Rating Watch on 'BB-' LT IDR to Neg. ---------------------------------------------------------------- Fitch Ratings has revised the Rating Watch for NCR Corporation's Long-Term Issuer Default Rating (IDR), and the IDRs for subsidiary co-borrowers NCR Limited, NCR Nederland B.V., and NCR Global Solutions Limited, as well as the company's senior secured facilities and issue-level ratings, to Negative from Evolving. This action follows recent details NCR has provided on its planned separation into two separate companies. Fitch rates the senior secured revolver and term loans issued by each of the entities 'BB+'/'RR2'. In addition, Fitch rates the senior unsecured bonds and convertible preferred shares issued by NCR Corp. 'BB-'/'RR4'. The ratings affect approximately $6.3 billion of gross debt as of September 2022, not including unused capacity on the $1.3 billion senior secured revolving facility, but including $275 million of preferred stock and the $300 million A/R securitization facility. KEY RATING DRIVERS Separation into Two Companies: The Rating Watch reflects uncertainty surrounding the projected 2023 separation of the company into two public companies, with NCR planning to spin-off its ATM-related businesses (ATM SpinCo) to shareholders. NCR provided high-level capitalization frameworks for NCR (RemainCo), but the company still has deleveraging targeted over the next year that could impact final capitalization post spin-off. Fitch believes RemainCo will be solidly positioned in many of its end markets, including retail, hospitality and digital banking. The ATM-related businesses that face long-term secular pressures will be spun-off to shareholders. Fitch expects both companies will generate solid and positive FCF that should enable them each to grow over time. However, the stand-alone cost and FCF generation profile of RemainCo will guide its ability to grow and compete over time. RemainCo Solid Position, but Less Diversified: RemainCo will include its Retail, Hospitality and Digital Banking segments. Fitch believes NCR holds solid positioning in each of these businesses, particularly in retail where it is a market leader with its self-checkout hardware & software and in restaurants with its Aloha software. RemainCo businesses comprised approximately $4.0 billion in revenue and $654 million in EBITDA (~16% margin) on a TTM basis as of September 2022. Fitch estimates normalized FCF could be below $100 million (low-single digit as a percentage of revenue) in 2024 although the final debt profile and related interest expense will be a core driver to cash generation, along with incremental stand-alone and one-time costs. FCF could be constrained in 2023 by deal-related costs. Leverage Profile: NCR signaled it will generate $500 to $800 million of FCF ahead of its planned spin-off, currently projected by YE 2023, and indicated it will use excess FCF to reduce its debt ahead of the spin. Fitch calculates NCR's gross debt/EBITDA in the high-4.0x range at September 2022, or above Fitch's negative rating sensitivity for the current IDR, but leverage should improve by YE 2023. Gross leverage was in the 3.0x-4.0x range prior to the Cardtronics acquisition. Management guided net debt/EBITDA for RemainCo will be in the 3.0x-3.4x range post separation, which Fitch calculates could be mid- to high-3.0x range on a gross debt basis. This level of leverage is manageable for the current 'BB-' IDR, but Fitch is unclear on whether leverage well be sustained at these levels over time and on its future capital allocation policy. CF Lower Post Separation: NCR's FCF profile will be meaningfully lower post the spin-off of its ATM assets, or potentially less than $100 million per year in 2024 per Fitch's estimate although final capitalization and one-time cash expenses will be key variables. NCR historically generated solid FCF in the mid- to high-single digit range as a percentage of sales, but the ATM businesses were more profitable, yet slower growing segments. NCR generated positive FCF in all except two years from 2007-2021, with 2012-2013 being negatively impacted by approximately $800 million of pension contributions (FCF was positive during these years adjusted for these items). The company burned FCF YTD through September 2022 but projects to generate meaningful FCF in 4Q22/1Q23. Recurring Revenue: More than 60% of NCR's revenue today is recurring, including products and services under contract where revenue is recognized over time. This recurring mix is materially lower than other companies Fitch rates in the payments and technology industries, at least partially owed to hardware sales, and is a consideration with respect to the IDR. Management seeks to grow this mix over time, which Fitch believes will come via a combination of internal sales initiatives, growth in payment processing (via its December2018 JetPay acquisition) and incremental M&A. Fitch is uncertain what portion of revenue will be recurring post ATMCo separation. ATM Challenges: Fitch believes ATM sales and network fees could be pressured over the medium/long term as consumer habits shift further away from cash, although increased bank outsourcing could act as an offset. NCR's ATM assets are expected to be spun-off and will no longer be part of RemainCo post completion of the transaction projected by YE 2023. Consumers shifted further away from cash in recent years, particularly in certain markets such as the U.S. The Nilson Report projects cash usage (USD volume) among U.S. consumer payments could decline by 23% from 2020-2025 and cash as a percentage of U.S. payments transactions could shrink to 8%-9% by 2025 versus 17%-18% in 2020. Fitch believes demand for cash/ATMs will have a long tail and NCR, as one of the market leaders in both hardware sales and as an independent network operator (via Cardtronics) will continue to derive material profitability from the business. Competitive End Markets: NCR has meaningful presence in its key end markets, but competition is intense and fragmented in a number of areas. NCR has leading market share in retail point of sale (POS), restaurant software and self-checkout systems and is the #2 vendor in ATM manufacturing with 25%-30% share behind that of Diebold Nixdorf, Inc. It is also the world's largest non-bank ATM operator following its Cardtronics acquisition. However, it faces a range of competition from fintech providers, technology-focused disruptors and others that could limit growth over time. Underfunded Pension: Fitch believes NCR's unfunded pension could be a use of cash in the future. The pension plan is expected to go with the ATMCo spun entity, although it is unclear if there will be a funding requirement pre-separation. Future contributions should be manageable given the company's historic track record of positive FCF generation. NCR's pension obligation was $3.0 billion and was underfunded by $502 million at Dec. 31, 2021. The company has domestic and foreign defined benefit pension and postemployment as well as domestic postretirement plans. DERIVATION SUMMARY Fitch's ratings and Outlook for NCR are supported by the company's market position across its business, diversification of end markets, history of positive FCF generation, and manageable leverage for the rating category. The Rating Watch reflects potential for the IDR to move lower as NCR will be less diversified and have lower FCF upon separation of its ATM businesses in 2023. NCR does not have any direct comparables that compete across all of its segments given the diverse nature of its end markets, but Fitch assesses the rating relative to other payment and technology companies that provide a range of similar software, hardware and service offerings. Unlike other companies Fitch rates in the fintech space, NCR's exposure to payments processing is minimal and the company derives most of its revenue and profitability from software, services and hardware. It operates a meaningfully lower margin business than other Fitch-rated fintech peers due to a higher mix of hardware and services. NCR has a stronger operating position than competitor Diebold Nixdorf Incorporated, which has much higher leverage, lower EBITDA margins (high-single digit percentage versus NCR's in the mid/high-teens) and burned FCF in recent years. Fitch believes the 'BB-' IDR fairly captures the risk profile relative to other companies in Fitch's rated technology and services ratings universe. KEY ASSUMPTIONS - Fitch assumes spin-off of ATMCo occurs at YE 2023; - Organic revenue growth in the low to mid-single digit range in the coming years; - EBITDA margins remain relatively stable, with modest expansion over time, after being negatively impacted in 2022 from supply chain issues and FX; - Capex near 6.5% of revenue for RemainCo; - Excess cash flow used for debt reduction in 2023. Share repurchases resumed in 2023; - Gross leverage decreases from the high-4.0x range at September 2022 to mid-4x range for RemainCo (equivalent to approximately 3.4x net leverage reported by NCR) by YE 2023 upon separation. RATING SENSITIVITIES Fitch expects to resolve the Rating Watch Negative upon execution of the planned spin-off of NCR's ATM business that is projected to occur by YE 2023. Fitch could stabilize NCR's IDR at the current rating or downgrade, dependent upon Fitch's projection for NCR's stand-alone (RemainCo) capitalization and financial policy. Factors that could, individually or collectively, lead to positive rating action/upgrade: - Fitch-defined gross leverage, or debt/EBITDA, sustained at/below 3.5x; - Revenue expected to grow by low-to-mid-single digit percentage (3%-5%) or higher over multiple years, signaling an improved long-term growth profile; Factors that could, individually or collectively, lead to negative rating action/downgrade: - Gross leverage sustained at/above 4.0x; - FCF margins expected to be sustained near 1.0% or below, or below historical levels; - Competitive and/or structural changes to industry that pressure revenue, EBITDA and/or FCF. LIQUIDITY AND DEBT STRUCTURE Sufficient Liquidity: NCR's liquidity is stable and should support its operations, growth and M&A strategy in the coming years although it remains unclear what the liquidity profile will look like upon separation in 2023. Liquidity is supported by: (i) $434 million of cash and equivalents as of September 2022, although much of this ($328 million) was held by foreign subsidiaries and could be taxed if returned to the U.S.; (ii) undrawn capacity on its $1.3 billion senior secured revolver; (iii) FCF generation, which ranged from $223 million-$629 million per year from 2016-2021 (FCF margins of 4%-10%). and (iv) up to $300 million of capacity under its A/R securitization facility. The company burned $44 million of FCF YTD through September 2022, but management expects to be CF profitable for FY 2022 Debt Profile: The majority of NCR's debt is fixed rate, including various senior unsecured notes issuances. Outstanding debt consists of: (i) $1.9 billion on a senior secured term loan facility; (ii) $558 million drawn on its $1.3 billion senior secured revolver; and (iii) $3.3 billion of senior unsecured notes with maturities ranging from 2027-2030. The company has a $1.3 billion senior secured revolver and a $300 million trade receivables securitization facility available for liquidity needs. The company also has $275 million of series A convertible preferred stock outstanding, which Fitch considers to be debt as per Fitch's Corporate Hybrids Criteria. Post spin-off, Fitch expects RemainCo to maintain the majority of its currently outstanding senior notes and to restructure its secured revolver and term loans. ISSUER PROFILE NCR operates as a software, services and hardware enterprise solutions provider, with products targeted at the banking, restaurant and hospitality sectors. Its offerings include digital banking and payment solutions, multivendor connected device services, ATMs, POS terminals and barcode scanners. 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 ----------- ------ -------- ----- NCR Corporation LT IDR BB- Rating Watch Revision BB- senior unsecured LT BB- Rating Watch Revision RR4 BB- preferred LT BB- Rating Watch Revision RR4 BB- senior secured LT BB+ Rating Watch Revision RR2 BB+ NCR Limited LT IDR BB- Rating Watch Revision BB- senior secured LT BB+ Rating Watch Revision RR2 BB+ NCR Nederland B.V. LT IDR BB- Rating Watch Revision BB- senior secured LT BB+ Rating Watch Revision RR2 BB+ NCR Global Solutions Limited LT IDR BB- Rating Watch Revision BB- senior secured LT BB+ Rating Watch Revision RR2 BB+ =========================== U N I T E D K I N G D O M =========================== CLUB LA COSTA: Shifts Into Creditors Voluntary Liquidation ---------------------------------------------------------- As Club La Costa PLC's FRP Advisory administration is officially terminated on November 20, 2022, the process has shifted into a new phase called liquidation (Creditors Voluntary Liquidation, or CVL). ECC has received an update on how things currently stand. This new phase of investigation and asset recovery is still managed by the team at FRP Advisory. What's the difference? Administration is typically utilised when there is a chance of saving a business which is currently experiencing high levels of financial or operational distress. Liquidation is often considered a more appropriate avenue for recouping debt and brings about the end of a company by selling -- or liquidating -- its assets before dissolving it entirely. What does it mean to creditors? As a creditor you will notice no difference. Your documents have been submitted and accepted. They transfer automatically into the liquidation procedure. This conversion from administration to liquidation is routine and legally correct. It has no practical effect on ongoing matters whatsoever. The investigations (and any actions brought subsequently) are seamless and the same. Whilst everyone involved would have preferred a swifter outcome in terms of fund retrieval, it can only be seen as positive that a firm as experienced as FRP Advisory would move forward into the liquidation at this stage. How have FRP Advisory summed up the current position? This report is routine and legally required. As a strategic choice, a firm in FRP's position would generally prefer to publish the minimum information possible, as they will be aware that the target company could potentially be gleaning information that in the wrong hands could be used to thwart the efforts of the creditors. FRP Advisory are therefore being professionally guarded with information about the status of investigations, as can be expected. "we hope to be able to provide a more comprehensive update on our investigations in our next report to creditors, however at this stage in order not to prejudice our investigations we are unable to provide any further details." As is usual, in even the most successful and fruitful administrations and liquidations, the language used by FRP Advisory is pointedly vanilla and noncommittal. FRP describe various outcomes as "uncertain" which is standard and traditionally the position right up until the point where funds are hopefully recovered. This only indicates that at present the Office Holders (meaning administrators or liquidators) cannot presently say more. The use of this type of language is standard legalese, and should in no way be considered negative for the creditors. It is a continuance of the same professional tone as the previous report in June of 2022 What the report doesn't say. What the FRP Advisory update does not say, indicate or suggest in any way is that the matter is being brought to an end. It is very much not. Matters are fully ongoing and will necessarily take time due to the very real complexities of the matter. FRP Advisory are one of the most respected firms in their field. They are putting in a lot of work to locate and retrieve the considerable assets of Club La Costa UK PLC on behalf of their lawful creditors. This investigation is exactly where it needs to be. ECC comment Andrew Cooper, CEO of European Consumer Claims added the following comment: "The team at ECC are enthused by the news that the company has now moved into liquidation and remain as positive as ever that substantial funds will be recovered to help pay the creditors. "It would have been the easy option for FRP to simply end the administration process and close matters there, the fact that this has now moved into a liquidation shows there are still matters to investigate and grounds to recover debts. "Creditors will need to be patient a little while longer but should also be optimistic thanks to this latest update." If you would like to discuss the contents of this article in more detail, or have any other questions about the FRP Advisory administration/liquidation, then get in touch with our Customer Services team at ECC, or the M1 Legal Administration team. ECC provides timeshare claims services, expert advice and help E: (for media enquiries): mark.jobling@ecc-eu.com E: (for client enquiries) EUROPE: info@ecc-eu.com USA: info@americanconsumerclaims.com T: EUROPE: +44800 6101 512 / +44 203 6704 616. USA: 1-877 796 2010 Monday to Friday: UK timings: 9am-8pm. Saturday/Sunday closed. USA 9am -8pm EST. Sunday closed JOULES: TFG London Among Potential Bidders ------------------------------------------ Rachel Douglass at Fashion United reports that TFG London, the parent company of Phase Eight, Whistles and Hobbs, is said to be among those considering a bid for struggling fashion and lifestyle group Joules, which fell into administration last week. The retail firm, which is the UK arm of South African lifestyle giant The Foschini Group, had been in discussions with Joules for several weeks about taking a substantial stake in the business, Fashion United relays, citing a report by Sky News. The publication added that TFG London was now examining whether it could take control of Joules from its insolvency practitioner, Interpath Advisory, Fashion United discloses. However, the group is up against a challenge, with the likes of Next, Mike Ashley's Frasers Group and Marks & Spencer also said to be looking into possible bids, Fashion United notes. Joules already sells via Next and Marks & Spencer alongside its 132 owned UK stores, through which it employs over 1,600 people. The retailer was initially in talks with Next about a potential 25% equity stake earlier this year, however, following a profit warning, the high street brand stepped away from discussions, causing Joules' share price to plummet by 50%, Fashion United states. According to Fashion United, in a statement, Will Wright, head of restructuring at Interpath, said Joules was "one of the most recognisable names on the high street". Mr. Wright added that the insolvency firm was continuing to operate all its stores in the lead up to Christmas, while it assessed options for the group, "including a possible sale". MH PROPERTY: Director Gets 10-Year Disqualification Order --------------------------------------------------------- Michael Hansen, 42, from Hebburn has been disqualified as a director for 10 years after overstating the turnover of his engineering firm to claim a GBP40,000 Bounce Back Loan to which his business was not entitled. Mr. Hansen was the sole director of MH Property & Engineering Services Limited, which was incorporated in 2019 and traded as a property and engineering firm from Monkton Lane in Hebburn until it went into liquidation in November 2021. When the company's turnover decreased during the pandemic, Hansen applied for a Bounce Back Loan to help support his business, stating the company's turnover to be GBP160,000. Bounce Back Loans were a government scheme to help businesses to stay afloat during the Covid pandemic. Companies could apply for a loan of between GBP2,000 and GBP50,000, up to a maximum of 25% of their turnover. The money was to be used for the economic benefit of the company, under the rules of the scheme. MH Property and Engineering Limited struggled to recover the custom it lost during the pandemic and went into liquidation, owing more than GBP42,000 and triggering an investigation by the Insolvency Service. Investigators discovered that during the company's first year of trading, up to June 2020, MH Property and Engineering Limited's turnover was GBP8,294 and the company had therefore received nearly GBP38,000 more than it had been entitled to through the Bounce Back Loan scheme. They also found that around GBP14,000 had later been withdrawn or paid out of the company's bank account, followed by a transfer of around GBP24,600 to Hansen himself between November 2020 and August 2021. Mr. Hansen was unable to show investigators that the money had been used for the economic benefit of the company. The Secretary of State for Business, Energy and Industrial Strategy accepted a disqualification undertaking from Michael Hansen after he did not dispute that he had overstated the turnover of MH Property and Engineering Services Limited to gain more than GBP37,900 to which it was not entitled, and had failed to make sure the money was used for the economic benefit of the company. His disqualification started on November 11, 2022, and lasts for 10 years. The ban prevents Hansen from directly or indirectly becoming involved in the promotion, formation or management of a company, without the permission of the court. Mike Smith, Chief Investigator of the Insolvency Service said, "Covid Support Schemes were a lifeline to businesses across the UK protecting jobs and preserving businesses. "We will not hesitate to take action against directors who have abused Covid-19 financial support like this, and Hansen's lengthy ban should serve as a warning to others." NOTTINGHAM CASTLE: Begins Liquidation Process --------------------------------------------- Museums+Heritage Advisor reports that Nottingham Castle Trust, the charity that operated Nottingham Castle on behalf of Nottingham City Council, has announced it has begun the process of appointing liquidators. The Castle had recently reopened in April 2021 after a GBP30 million refit. According to Museums+Heritage Advisor, in a statement, the trust said the decision was a "heartbreaking day for trustees, our staff, visitors, and the city. Despite the immense dedication of staff and volunteers, the Castle is now closed to visitors." Visitors numbers had been improving, it said, but were still "significantly below forecasts", with a "particularly tough summer" adding to its challenges, Museums+Heritage Advisor notes. It said that its own charitable trust model was "no longer workable" given the challenges of the pandemic, the financial crisis and increased energy costs, Museums+Heritage Advisor relates. The Castle's website has been replaced with a statement from the liquidators which advises those with tickets to contact them directly, Museums+Heritage Advisor discloses. Stall holders for the Nottingham Castle Christmas market, which is now cancelled, are to be contacted directly, Museums+Heritage Advisor states. PELLO CAPITAL: Goes Into Administration Following Ban ----------------------------------------------------- Simon Foy at The Telegraph reports that city broker Pello Capital has collapsed into administration after the financial regulator banned it from conducting regulated activities for a second time. The small-cap broker, which helped the serial bankrupt Dominic Chappell raise funds to buy BHS from Sir Philip Green, has appointed Evelyn Partners as administrators following the City watchdog's intervention, The Telegraph understands. According to The Telegraph, the Financial Conduct Authority issued a notice on Nov. 16 that restricted Pello from carrying out regulated activities or taking any action that would diminish the value of its own assets. The regulator declined to comment on its decision to censure the broker, but the move forced Pello Capital to call in administrators, drawing to an end its time as a controversial City broker, The Telegraph notes. The FCA put the broker under similar restrictions last year but lifted the measures after several months, The Telegraph recounts. Pello Capital, which started to accept fee payments in cryptocurrencies earlier this year, was formerly known as Cornhill Capital and was fined GBP210,000 by the London Stock Exchange in 2017 over a share placing fiasco, The Telegraph discloses. Cornhill was acting as a broker for Aim-quoted New World Oil & Gas when an investor bought half the company's shares in his mother's name, according to The Telegraph. It was the first time an LSE member firm had been named and shamed for breaking the exchange's codes of conduct for nearly two decades, The Telegraph states. PING PONG LIMITED: Sold to AJT Dimsum Via Pre-pack Administration ----------------------------------------------------------------- Georgi Gyton at Big Hospitality reports that Ping Pong Limited has been sold to AJT Dimsum Limited in a pre-pack administration, with all six restaurants and staff to transferred to the new owner. The business said the extensive period of uncertainty caused by the global pandemic left it with legacy debts, including sums owed to landlords as a result of pandemic enforced closures, and put it in the position where it would no longer be able to meet those debt repayments when they were demanded, despite having returned to profitability. Ashley Miller and Stephen Katz of Begbies Traynor were appointed as joint administrators to the London dim-sum restaurant on Nov. 18 to conduct the pre-package administration of Ping Pong. ROLLS-ROYCE PLC: S&P Alters Outlook to Positive, Affirms 'BB-' ICR ------------------------------------------------------------------ S&P Global Ratings revised its outlook on Rolls-Royce PLC to positive from stable. S&P also affirmed its 'BB-/B' long- and short-term issuer credit ratings on Rolls-Royce. S&P also affirmed its 'BB-' issue rating on Rolls-Royce's senior unsecured debt. The recovery rating is unchanged at '3' (rounded estimate: 65%). The positive outlook reflects that S&P could raise the ratings in 2023 if it sees evidence of strong and sustainable positive free operating cash flow from 2023, supported by its view that the increasing demand for air travel and growth in the defense and power systems businesses, coupled with a leaner cost structure, will result in Rolls-Royce exhibiting higher revenues, EBITDA generation, and cash flows. S&P said, "Rolls-Royce's operating performance has improved over the first nine months of 2022, supported by increasing engine flying hours, which we expect will increase cash flows, and we expect revenues and profitability will increase. Demand for air travel and, therefore, engine flying hours has recovered gradually year to date, after the COVID-19 pandemic caused a significant reduction and we anticipate this trend will continue for the rest of 2022 and through 2023. Business aviation remains above 2019 levels and freighter demand remains robust. The 36% year-to-date recovery in engine flying hours--to about 62% of 2019 levels in the first 10 months of 2022--is key to improving Rolls-Royce's profitability and cash flows across the business. As a result, we anticipate Rolls-Royce's civil aerospace business, which contributes about 40% of the group's total revenue, to grow by 10%-15%, supported by the sale of new engines (about 40% of the division's revenues) as well as the associated aftermarket services (about 60%). We expect the business' operating profit to be about breakeven in 2022, after significant negative profits in the last two years. In 2023, we expect revenues for the aerospace division to rise by roughly 10% to above GBP5.1 billion, with positive operating profit of GBP100 million–GBP225 million. "We view positively that Rolls-Royce used the proceeds from the sale of ITP Aero to reduce debt. Rolls-Royce raised about GBP2 billion from the sale of ITP Aero, and AirTanker in 2022 and Bergen and Civil Nuclear I&C in 2021. As we expected, the group used the proceeds to reduce its debt by paying down the GBP2 billion UKEF-backed loan. We forecast adjusted debt to be at about GBP4.5 billion in 2022, down from GBP5.6 billion in 2021. As a result, and supported by the improving absolute EBITDA generation, we forecast adjusted debt to EBITDA of about 3x in both 2022 and 2023, down from 4.1x in 2021. "We estimate that free operating cash flow will be slightly negative in 2022 but turn positive in 2023, driven by improving cash generation in civil aerospace, lower one-off cash costs, and lower capital expenditure (capex) compared with previous years.We forecast in-service cash costs related to the Trent 1000 engine to be up to GBP200 million this year and normalize at this level going forward, after GBP342 million in 2021 and greater than GBP500 million in 2020. The foreign exchange hedge close out cash costs will be GBP326 million this year (GBP452 million in 2021 and GBP186 million in 2020) in line with management's guidance. Pension related cash costs will fall to zero in 2022 and the same is expected in 2023. "We forecast capex for 2022 and 2023 will be similar to that in 2021, about GBP550 million-GBP600 million annually (including capitalized research and development), after a significantly higher spend in prior years. "We expect some negative effects from working capital outflows in 2022, but notably improving on previous fiscal years. The group had working capital related cash outflows of GBP269 million in the first half of the year, and while we expect a large portion of this to unwind in the second half, by reducing inventory levels in the power systems and civil aerospace businesses, we anticipate a slight outflow for full year. Overall, we forecast Rolls-Royce's free operating cash flow will be slightly negative in 2022, although trending toward neutral, before turning positive next year at GBP300 million-GBP500 million." The group has long-term service agreements in place across engine platforms, and cover more than 90% of its engine flying hours for the Trent fleet. These contracts cover Rolls-Royce's main engine platforms (the Trent 7000, Trent 1000, and Trent XWB) as well as for more than 85% of its engine flying hours for the Trent 700. As such, the group should see significant value generation from its operations and the rebound in air travel in the next few years. Rolls-Royce's engine fleet is relatively young and efficient; its fleet of large, new generation engines has an average age of about four years, and most of its Trent 700 engine fleet, installed on A330 aircraft, are between five and 15 years old. This bodes well for the group, given that many airlines are prioritizing their most efficient aircraft's operations as demand ramps up. S&P said, "We anticipate the defense business to illustrate top-line growth in 2022 and 2023 and its margins to improve. Overall, we anticipate revenues in 2022 to rise to GBP11.5 billion-GBP12.0 billion, and toward GBP12.5 billion in 2023. We forecast adjusted EBITDA margins to be 12%-13% in both years. Accounting for about 30% of Rolls-Royce revenues, we expect the defense business to show growth in revenues of 0%-5% in both 2022 and 2023. The division has been relatively unaffected by the pandemic, as long-term contracts, and continued government defense spending support operations. The forecast growth is driven by our expectation that the group will continue to successfully bid on new long-term projects, such as a government contract worth over GBP2 billion in May 2022 for the Dreadnought (nuclear deterrent) program. The order book also already covers a significant portion of revenues over the next 12 months. In the long term, we expect Rolls-Royce will benefit from new contract wins as a result of increased defense spending from governments, particularly in Europe following the Russia-Ukraine conflict, and because leading NATO members have urged their counterparts to increase defense spend toward 2% of national budgets. We expect short-term benefits to be limited and expect operating profit margins to remain at about 10%-12%. "Although the power systems business is exposed to disruption from potential gas supply constraints, at this stage we expect some positive growth in the division's sales and margins. The large footprint in Germany exposes the power systems business to possible gas supply restrictions from Russia, but order intake has continuously improved through 2022. As such, revenues in this division should rise by about 5%-10% in 2022 and 2023, with margins trending above 9%. Whilst there is a risk in terms of wider political and macroeconomic factors, we understand that management has undertaken risk analysis to define how much it can reduce gas consumption without affecting production. Its Friedrichshafen site, which is not highly energy-intensive, has lowered consumption by about one third. Overall, Rolls-Royce has already reduced gas consumption in its power systems segment by about 25%. "The positive outlook reflects our view that the increasing demand for air travel and growth in the defense and power systems businesses, coupled with a leaner cost structure, should support Rolls-Royce's increasing revenues and EBITDA generation. Free operating cash flow generation should also continue to improve in 2022-2023 on higher underlying earnings but also because the group has lower levels of exceptional cash costs and provisions compared with previous years. "We could revise the outlook to stable or lower the ratings if revenues and EBITDA generation were significantly affected by potential reductions in engine flying hours, potential supply chain bottlenecks, or cost inflation, leading to a reduction in adjusted margins below 12% or only break-even free operating cash flow prospects in 2023. We could consider a negative rating action if free operating cash flow were likely to stay significantly negative or leverage were to increase above 4x. "We could raise the ratings on Rolls-Royce if we see evidence of strong positive free operating cash flow generated into 2023 toward GBP500 million and above thereafter. This would need to be supported by signs of improvement in its operational performance, leading to increasing profitability and EBITDA margins sustainably above 12%. We would also need leverage to remain comfortably below 4x." ESG credit indicators: E-2, S-4, G-3 S&P said, "Social factors are a negative consideration in our credit rating analysis of Rolls-Royce. The pandemic resulted in a material decline in air travel and demand for new aircraft, with Airbus and Boeing cutting widebody production rates. This had a significant impact on Rolls-Royce, both because demand for large aircraft engines contracted and because its civil aerospace aftermarket business is highly dependent on engine flying hours. Revenue contracted by about 29% in 2020 and a further 5% in 2021, and the company generated negative GBP1.045 billion of adjusted FCF in 2021. Although air travel is starting to recover, we do not expect widebody flying hours and production rates will recover to 2019 levels until at least 2024. Governance is a moderately negative consideration in our credit rating analysis. Rolls-Royce is still in the process of remediating engineering challenges on the Trent 1000 platform (which will cost about GBP2.4 billion in total once the remediation process is complete) and management will need to navigate the pandemic, complete restructuring, and continue to bolster the company's balance sheet." ROLLS-ROYCE: Fitch Affirms LT IDR at 'BB-', Alters Outlook to Pos. ------------------------------------------------------------------ Fitch Ratings has revised Rolls-Royce & Partners Finance Limited's (RRPF) Outlook to Positive from Stable and affirmed its Long-Term Issuer Default Rating (IDR) at 'BB-'. Fitch has also affirmed RRPF's Short-Term IDR at 'B' and RRPF's and RRPF Engine Leasing Limited's senior secured debt long-term rating at 'BBB-'. The revision of the Outlook follows a similar rating action on RRPF's 50% owner, Rolls-Royce (RR; BB-/Positive; see "Fitch Revises Rolls-Royce's Outlook to Positive; Affirms IDR at 'BB-'"). An upgrade of RRPF's IDR would not result in an upgrade of the senior secured debt rating at RRPF's current rating level (see "Senior Secured Debt" below). KEY RATING DRIVERS Ratings Driven by Stand-alone Creditworthiness: RRPF's IDRs are based on Fitch's assessment of the company's standalone creditworthiness, but the ratings are constrained by the strong correlation between RR and RRPF's risk profiles. Contained leverage, predictable profitability, a staggered funding profile, a sound record of stable utilisation rates and profitable asset disposal underpin RRPF's standalone assessment. The assessment also reflects RRPF's monoline business model, revenue concentration by lessees and the overall modest size and cyclicality of the spare engine lease sector. Cross-acceleration Clause: RRPF's debt includes a clause resulting in an event of default on all RRPF's debt in case of a default of RR's debt. Specifically, should RR's borrowings (more than GBP150 million or 2% of RR's consolidated net worth) be subject to acceleration (due to an event of default at RR being triggered), it would trigger an event of default at RRPF and give noteholders the provision to declare all outstanding notes immediately due and payable. As this applies to all of RRPF's debt, this results in a strong correlation between RR and RRPF's default probabilities and constrains RRPF's Long-Term IDR. Sector Recovery: Air traffic recovery to pre-pandemic levels may be constrained by geopolitical and macroeconomic concerns, which may put pressure on lessees' ability to service leases. However, RRPF's revenue profile benefits from long-dated leases to a diversified lessee base, including original equipment manufacturers (OEMs), which partly protects RRPF's profitability in an uncertain market recovery. Limited Refinancing Risk: RRPF's funding base is secured and reliant on wholesale sources. Upcoming debt maturities are limited to USD300 million in 2023 following the repayment of USD100 million of United States private placement (USPP) notes in 1Q22. RRPF maintains comfortable headroom on debt covenants including its EBITDA/interest expense covenant (set at a minimum of 2.75x versus actual 5.0x in 2021). RRPF Engine Leasing Limited is a fully owned UK-domiciled subsidiary of RRPF. RRPF has provided an unconditional and irrevocable guarantee on the notes issued by RRPF Engine Leasing Limited. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: Given cross-acceleration clauses included in RRPF's debt terms, a downgrade of RR would be likely to lead to a downgrade of RRPF's Long-Term IDR. Absent a downgrade of RR, a significant increase in leverage or a material weakening of RRPF's franchise could also lead to a downgrade. Factors that could, individually or collectively, lead to positive rating action/upgrade: An upgrade of RR's IDR or a removal of the cross-acceleration clause in RRPF's debt terms. DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS SENIOR SECURED DEBT The affirmation of RRPF Engine Leasing Limited's senior secured US private placement notes and RRPF's senior secured revolving credit facility (RCF) reflects Fitch's expectation of outstanding recovery prospects for the RCF and the notes, even under a stress scenario, where engine values drop materially. Under Fitch's criteria, secured debt of issuers with a sub-investment-grade Long-Term IDR can be rated up to three notches above the Long-Term IDR in case of outstanding recovery expectations. Noteholders and RCF counterparties benefit from an identical security package (i.e. direct security interests over spare engines) and financial covenants include a requirement for outstanding debt not to exceed the lower of either the net book value of pledged spare engines or 80% of their externally appraised market value. The asset pool backing the liabilities is also subject to concentration limits regarding engine types, lessees and the proportion of off-lease engines. Fitch's expectations of outstanding recoveries are primarily underpinned by consistently low loan-to-market value ratios (LTV; defined as current market values/outstanding gross debt; broadly unchanged yoy at around 50% at end-2021 and remaining below 60% following the 2008 global financial crisis) and the young average age. This is supported by spare engines' typically better value retention (compared with aircraft assets) and more favourable depreciation profile (in particular during the first phase of their useful economic life). DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES SENIOR SECURED DEBT Factors that could, individually or collectively, lead to positive rating action/upgrade: Under Fitch's criteria, the senior secured debt ratings of issuers with a sub-investment-grade Long-Term IDR are capped at 'BBB-'. Consequently, any upgrade of the notes would be contingent on RRPF achieving an investment grade Long-Term IDR, which in its view is unlikely in the medium term. Factors that could, individually or collectively, lead to negative rating action/downgrade: A downgrade of RRPF's Long-Term IDR. A material increase in RRPF's LTV ratio or changes to the underlying security package indicating weaker recoveries would lead to narrower notching between RRPF's Long-Term IDR and the senior secured debt rating and a downgrade of the senior secured notes. In addition, any indication that projected engine market value declines exceeded Fitch's current expectations would lead to a downgrade of the notes. ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Entity/Debt Rating Prior ----------- ------ ----- Rolls-Royce & Partners Finance Limited LT IDR BB- Affirmed BB- ST IDR B Affirmed B senior secured LT BBB- Affirmed BBB- RRPF Engine Leasing Limited senior secured LT BBB- Affirmed BBB- TOGETHER FINANCIAL: S&P Upgrades LT ICR to 'BB', Outlook Stable --------------------------------------------------------------- S&P Global Ratings raised its long-term issuer credit rating on U.K. specialist lender Together Financial Services Ltd. (Together) to 'BB', and its long-term issuer credit rating on the holding company, Bracken MidCo1 PLC (Bracken), to 'BB-'. The outlook is stable. At the same time, S&P raised to 'BB' from 'BB-' its issue ratings on the senior secured notes (SSNs) issued by Jerrold Finco PLC, a subsidiary of Together, and to 'BB-' from 'B+' the payment-in-kind (PIK) toggle notes issued by Bracken. Together has maintained its resilient performance and comfortable capital position amid a difficult U.K. economic environment. Despite mounting economic pressure in the U.K., Together has continued to record resilient earnings and strong growth in its lending, at the same time as preserving its solid base of tangible capital. S&P said, "Although it expanded its balance sheet to GBP5.3 billion as of June 30, 2022, it remained well-capitalized by our measure, with a risk-adjusted capital (RAC) ratio comfortably above 10% as of June 2022--in line with our expectations and reflective of the group's solid earnings generation, though our base case remains for this measure to fall below 10% in the next 24 months as lending continues at pace. Importantly, lending growth has, and will, remain cautiously underwritten in our view, with an average loan-to-value (LTV) of 51.5% in 2022 unlikely to deteriorate meaningfully." The economic environment in the U.K. looks set to face a period of sustained pressure. S&P said, "We believe that the U.K. economy is entering an economic correction and faces a host of idiosyncratic risks. In our base-case forecast, we expect that the economy has moved into a four-quarter recession, ultimately leading to a 0.5% real GDP contraction in 2023." Although many issues affecting the U.K. are common among global peers--not least elevated inflation and a significant fiscal intervention to mitigate rising energy costs--the U.K. also faces idiosyncratic pressures. Following the U.K. government's fiscal event on Sept. 23, 2022, the cost of external funding for the sovereign has been exceptionally volatile. To this end, on Sept. 30, 2022, S&P Global Ratings revised its outlook on the U.K. to negative. Nevertheless, S&P's view of the U.K. Banking and Industry Country Risk Assessment, which is the starting point for Together's rating, remains stable. This reflects the earnings and balance sheet flexibility of the U.K. banking system as the country enters a turbulent period. At the same time, tighter fiscal and monetary policies combined with soaring energy costs will undermine borrowers' debt repayment capacity. Furthermore, rising interest rates appear to have already cooled demand in the housing market, pushing down prices in September and October 2022. That said, higher interest rates should support interest income yields in Together's primarily variable rate loan book. At the same time, this boost to Together's interest income will be needed to absorb rising funding costs. Together's strong earnings capacity and capital buffer allow headroom to navigate a difficult economic environment. Together is entering a turbulent economic period with solid capital buffers and good credit quality. The bulk of Together's loan portfolio is classified as performing (GBP3.9 billion in stage 1 under International Financial Reporting Standard 9), and nonperforming assets stood at 7.7% of Together's gross lending (GBP412 million of lending under stage 3) at June 30, 2022. These nonperforming exposures are provisioned at a coverage ratio of 20%. The company's collateralized lending business and its loan portfolio's low weighted average LTV help to limit losses in default and explain why the coverage ratio is relatively low, despite relatively high volumes of nonperforming assets. This solid collateralization partly explains why Together's write-offs represented just 0.04% of lending in full year 2022--materially lower than its nonperforming loan ratio. S&P said, "We believe Together will be able to maintain its lending momentum through its direct and indirect distribution channels. Higher funding costs will add pressure on net interest margins, but we expect earnings to remain positive from the increase in net lending. We also expect credit costs to rise moderately from current levels." -- Base-case assumptions for Redhill Famco, Together's ultimate holding company -- Loan book growth of about 20% in fiscal 2023 and accelerating to 20%-25% in fiscal 2024 -- Lower weighted average interest margins of 4.5%-5.0%, before normalizing above 5.0% in fiscal 2024 -- Higher impairment charges as a percentage of average loans, at roughly 50 basis points (bps) for fiscal 2023 -- Comprehensive net income of about GBP100 million -- RAC ratio declining in the next two years closer to 10.0% as brisk loan growth continues Together's funding and liquidity profile is stable. Although funding costs have risen over the past year and the past quarter has seen instability in funding markets, Together has a well-diversified funding base across public securitization markets, private securitizations, senior secured, and PIK funding. Indeed, in the face of difficult market conditions in third-quarter 2022, Together was able to maintain its funding momentum, expanding its revolving credit facility and upsizing one of its private securitization vehicles, reflecting its increasing presence in the well-seasoned U.K. RMBS and CRE markets. Even without this public issuance, Together has sizable headroom under its warehouse facilities of GBP1.4 billion, which it can use to pre-fund its lending. Management forecasts a stable net income for the group in fiscal 2023, despite compressed net interest margins and higher credit costs, thanks to higher lending volumes. S&P said, "Beyond our assessment of Together's funding and liquidity position, and its capital and earnings profile, our 'BB' rating also considers the group's niche role in the U.K. mortgage market and its consistent underwriting standards. We rate three issuances within the consolidated group: the two SSNs issued by Jerrold Finco, and the PIK toggle notes issued by Bracken. We equalize the rating on the SSNs with the broader group credit profile of 'bb'. This captures the guarantee between Together and Jerrold Finco. Since our rating on Together is below investment-grade, we also perform our asset coverage tests to derive the rating on the SSNs. This has no effect on the issue rating. We equalize the rating on the PIK notes with the issuer credit rating on Bracken because we see no further subordination of the notes beyond that captured in our assessment of the issuing entity. The 'BB-' issuer credit rating on Bracken sits one notch below the rating on Together, considering Bracken's structural cash flow subordination. "The stable outlook reflects our view that Together's resilient balance sheet and operating profitability, and solid funding franchise, will help absorb pressures from a difficult U.K. economic environment, and will support the rating over our 12-month outlook horizon. "We could lower our ratings if Together's assets or earnings deteriorate materially above our current base case, leading to high enough credit costs that could lower the company's RAC ratio to below 7% on a sustained basis, or if we observe increased pockets of risks that may signal risk-management deficiencies. Furthermore, while not our base case, we would likely take a negative rating action if Together were unable to access funding for a prolonged period, for example, in the event of system-wide dysfunction or because of reduced investor confidence. "A rating upgrade is unlikely in the short term. Over the medium to long term, an upgrade would require a more stable U.K. economic environment. We would also need to see strong loan book growth in line with our base case while demonstrating resilient asset quality and a relatively stable S&P Global Ratings-RAC ratio sustainably and materially above 10%." ESG credit indicators: -- E-2, S-2, G-2 =============== X X X X X X X X =============== [*] Simpson Thacher Elevates 36 Attorneys to Partner ---------------------------------------------------- Simpson Thacher & Bartlett LLP on Nov. 17 disclosed that it has elevated the following attorneys to Partner, effective January 1, 2023: -- Jessica A. Asrat, Capital Markets (New York) -- Jacqui N. Bogucki, M&A (Houston) -- Adam J. Brunk, Real Estate (London) -- Catherine N. Burns, Banking & Credit (New York) -- Jonathan E. Cantor, Tax (New York) -- Toby Chun, Environmental (Washington, D.C.) -- Beth Cowen, Private Funds (London) -- Ross Ferguson, Litigation / Antitrust (Brussels / London) -- Lucy Gillett, M&A (London) -- Steven Grigoriou, Registered Funds (Washington, D.C.) -- Drew Harmon, Private Funds (New York) -- Marc Hecht, Restructuring (London) -- Steven Homan, Private Funds (New York) -- Sage E. Hughes, Private Funds (New York) -- Bryan Jin, Litigation (Palo Alto) -- Meredith Karp, Litigation (New York) -- Caitlin A. Lucey, Executive Compensation and Employee Benefits (New York) -- Borja Marcos, Latin America / Corporate (New York) -- Johanna Mayer, M&A (New York) -- Jessica A. O’Connell, Private Funds (New York) -- Jonathan S. Pall, Banking and Credit (New York) -- Benjamin S. Persina, Banking and Credit (Washington, D.C.) -- Jodi Schneider, Tax (New York) -- Mark B. Skerry, Litigation / National Security and Regulatory (Washington, D.C.) -- Spencer A. Sloan, Financial Institutions Regulatory (New York) -- William J. Smolinski, Tax (New York) -- Rachel S. Sparks Bradley, Litigation (New York) -- Jonathan G. Stradling, M&A (Tokyo) -- Lia Toback, Capital Markets (New York) -- Chris Vallance, M&A (London) -- Mark C. Viera, M&A (New York) -- Erik Wang, M&A (Hong Kong) -- Alicia N. Washington, Litigation (New York) -- Leanne M. Welds, Real Estate (New York) -- Claire Williams, Banking and Credit (London) -- David Zylberberg, Restructuring (New York) About Simpson Thacher Simpson Thacher & Bartlett LLP -- http://www.simpsonthacher.com-- is one of the world's leading international law firms. The Firm was established in 1884 and has more than 1,000 lawyers. Headquartered in New York with offices in Beijing, Brussels, Hong Kong, Houston, London, Los Angeles, Palo Alto, Sao Paulo, Tokyo and Washington, D.C., the Firm provides coordinated legal advice and transactional capability to clients around the globe. ********* 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 * * *