/raid1/www/Hosts/bankrupt/TCREUR_Public/221130.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Wednesday, November 30, 2022, Vol. 23, No. 233
Headlines
F R A N C E
POSEIDON BIDCO: S&P Assigns 'B+' Rating, Outlook Stable
G E O R G I A
SILKNET JSC: Fitch Hikes LongTerm IDR to 'B+', Outlook Stable
G R E E C E
EUROBANK ERGASIAS: Fitch Publishes 'B-(EXP)' Sub Tier 2 Note Rating
I R E L A N D
BARINGS EURO 2022-1: Fitch Assigns 'B-sf' Rating on Class F Notes
BARINGS EURO 2022-1: S&P Assigns B- (sf) Rating on Class F Notes
ICON PLC: S&P Alters Outlook to Positive, Affirms 'BB+' ICR
I T A L Y
CASSA CENTRALE: Moody's Cuts LT Issuer Ratings to Ba2, Outlook Neg.
L U X E M B O U R G
TI LUXEMBOURG: Moody's Withdraws 'B2' CFR Following Debt Repayment
P O R T U G A L
ELECTRICIDADE DOS ACORES: Moody's Affirms Ba1 CFR, Outlook Stable
R O M A N I A
DIGI COMMUNICATIONS: Moody's Confirms 'Ba3' CFR, Outlook Stable
[*] ROMANIA: Number of Companies Going Into Liquidation Up 10.68%
S W I T Z E R L A N D
ORIFLAME HOLDING: Moody's Lowers CFR to B3, Outlook Remains Stable
SPORTRADAR GROUP: S&P Assigns 'BB-' ICR, Outlook Stable
T U R K E Y
TURK HAVA: Moody's Affirms 'B3' CFR, Outlook Remains Stable
U N I T E D K I N G D O M
BEAUMONT ABS: Goes Into Liquidation
CARILLION PLC: KPMG Missed Multiple Red Flags in Audits
DE LA RUE: In Dispute with Auditors Over Going Concern Warning
ENTAIN HOLDINGS: Moody's Rates New EUR500MM Sec. Term Loan 'Ba1'
JOLLY JACKS: Put Into Creditors Voluntary Liquidation
KELLY PROPERTY: Goes Into Liquidation, Owes More Than GBP144,000
PCB ELECTRICAL: Owed More Than GBP500,000 at Time of Collapse
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F R A N C E
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POSEIDON BIDCO: S&P Assigns 'B+' Rating, Outlook Stable
-------------------------------------------------------
S&P Global Ratings rated payment terminal provider Poseidon BidCo
S.A.S. (Ingenico) and the EUR1.05 billion senior secured term loan
at 'B+'.
The stable outlook indicates that leverage is likely to trend below
5.5x and FOCF to debt to be 7%-8% in 2023.
On Sept. 30, 2022, Apollo-affiliated investment funds acquired from
Worldline S.A. its point of sale (POS) hardware and related
software and services business (Ingenico, previously known as
Worldline TSS) for a consideration of EUR2.1 billion, through its
holding company, Poseidon BidCo S.A.S. The transaction was funded
by a EUR1.05 billion senior secured term loan and sponsor equity.
S&P said, "The changes to the final structure since our preliminary
rating analysis are relatively minor. The main difference is the
introduction of a EUR200 million nonrecourse factoring facility,
which caused an increase in our forecast for adjusted leverage. Due
to the delay in closing the acquisition, Ingenico secured this
facility to manage liquidity until the EUR250 million revolving
credit facility (RCF) was in place. When the transaction closed,
EUR95 million had been drawn from the facility as cash. Cash on the
balance sheet therefore stood at EUR250 million on closing. That
said, we do not include cash on the balance sheet in our adjusted
leverage ratio because the company is owned by a financial sponsor.
At year-end 2022, we expect adjusted leverage to be 5.7x, up by
about 0.4x. However, net leverage has not changed since our
previous base case. We understand that the facility will be used as
an additional source of liquidity, covering working capital needs
and supporting growth through smaller mergers and acquisitions
(M&A). We do not anticipate that the company will make any further
drawings on the facility during our forecast period to the end of
2024."
The acquisition of Ingenico from Worldline closed on Sept. 30,
2022, with the consideration to be paid for in two tranches. The
first payment (EUR1.05 billion) was made upon closing and
represents 85% of the shares; the second payment (EUR0.35 billion)
will be made on Jan. 1, 2023, and represents the remaining 15%.
After Jan. 1, 2023, Worldline will no longer hold common equity,
but it will hold preferred shares in the company. Those could
result in additional proceeds of EUR600 million-EUR900 million,
depending on Ingenico's performance at the time when the Apollo
funds sell their combined stake in Ingenico.
S&P said, "The ratings are in line with our preliminary ratings,
which we assigned on Aug 15, 2022. There were no material changes
to the financial documentation compared with our original review
and the company has generally been trading in line with our
previous forecast. For a more detailed rationale."
Ingenico is the carved-out perimeter of Worldline S.A.'s
(BBB/Stable/A-2) POS hardware business and the related software and
services business. In our view, Ingenico's business risk profile is
still based on its position as the global POS leader. It benefits
from a broad, high-quality product portfolio; high diversification
and barriers to entry; growth opportunities supported by its new,
more-recurrent business model; and a stable cash flow profile, with
high cash flow conversion.
S&P siad, "The stable outlook indicates that we expect the shift
toward recurring revenue to boost Ingenico's overall revenue. Our
base case assumes that adjusted debt to EBITDA will be just above
5.5x in 2023, and will then decline toward 5.0x in 2024. At the
same time, FOCF to debt will trend toward 7.0%."
S&P could lower the rating if Ingenico's leverage remained above
5.5x for a prolonged period. This could occur if:
-- The company used debt to fund acquisitions or shareholder
distributions, or made additional drawing under the factoring
facility.
-- EBITDA projections weakened due to higher-than-expected
restructuring costs, a decline in demand, inflationary pressures,
or supply-chain blockages.
-- If operating performance were to strengthen, such that FOCF to
debt were above 7.5%, leverage could increase to 6x before S&P's
considered a downgrade.
Rating upside is unlikely over the next 12 months, but S&P's could
consider an upgrade over the longer term if the company reduces
leverage below 4.5x, and pursued a financial policy that supported
keeping leverage at this level, with FOCF to debt exceeding 10%.
ESG credit indicators: E-2, S-2, G-3
S&P said, "Governance factors are a moderately negative
consideration in our credit rating analysis of the company. Our
assessment of the company's financial risk profile as highly
leveraged reflects corporate decision-making that prioritizes the
interests of the controlling owners, which is the case for most
rated entities owned by private equity sponsors. Our assessment
also reflects financial sponsors' generally finite holding periods
and focus on maximizing shareholder returns."
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G E O R G I A
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SILKNET JSC: Fitch Hikes LongTerm IDR to 'B+', Outlook Stable
-------------------------------------------------------------
Fitch Ratings has upgraded JSC Silknet's Long-Term Issuer Default
Rating (IDR) to 'B+' from 'B'. The Outlook is Stable. Fitch has
also upgraded Silknet JSC's USD300 million senior unsecured notes'
rating to 'B+' from 'B' with a Recovery Rating of 'RR4'.
The upgrade reflects Silknet's broadly sustained market position as
a strong number two telecoms operator, improved free cash flow
(FCF) generation and leverage on the back of post-Covid-19 recovery
and broader economic growth in Georgia. Fitch expects an overall
close to 5% real GDP growth per year on average in 2023-2024 with
continuing tourism recovery, which would provide opportunities for
further revenue growth and support the Stable Outlook. However, the
company's small absolute size is a weakness while a record of
related-party transactions entails the risk of a less predictable
operating and financial strategy.
KEY RATING DRIVERS
Significant Deleveraging: Silknet achieved significant deleveraging
to below 2.5x FFO net and EBITDA net leverage. Fitch believes it
can be sustained at this level, while providing flexibility to
finance gradual 5G and fibre network upgrades, and make shareholder
distributions. Fitch expects net EBITDA leverage at 2.2x at
end-2022 (3.0x at end-2021) and 2.3x FFO net leverage (2.9 at
end-2021). Any excessive shareholder distributions or large
related-party transactions would be viewed as an event risk.
Strong Cash Flow: Deleveraging flexibility is supported by strong
FCF generation, which Fitch expects to be maintained in the range
of high single-digit to low-teens as a percentage of revenue.
Stronger pricing flexibility and reduced focus on premium content
costs should help preserve margins.
Mobile Market Share Maintained: Silknet has been able to broadly
maintain its market share in the key mobile segment, which accounts
for more than 50% of the Georgian telecoms market. Fitch expects
the mobile market structure to remain largely unchanged, with key
competitors following each other's moves.
VEON Georgia, the mobile market challenger, has failed to
significantly push the positions of leaders Silknet and Magticom,
holding approximately 25% subscriber market share and a lower share
of revenue, with no or little improvement since 2015. Silknet holds
a strong number two position in this market with 35% revenue share,
compared with 47% by Magticom in 2021.
5G Not A Risk: Fitch believes the forthcoming upgrade to 5G
technology is likely to be gradual, without triggering a
significant spike in capex or leverage, with spectrum payment the
largest investment call. Fitch expects Silknet to participate in
the forthcoming auction for 5G spectrum that the regulator guided
would be held in 2022 but may slip into 2023. The terms of the
auction are not likely to be onerous as the regulator hinted that
the auction price would be offered at a discount, and Fitch
believes wide and fast coverage requirements are unlikely.
Moderate Attrition in Broadband, Pay-TV: Silknet has experienced
moderate market share attrition in the smaller broadband, and to a
lesser degree, an even smaller pay-TV market, but both segments are
likely to remain rational dominated by the two large players.
Silknet shed approximately 3% broadband revenue market share since
2018 to 34.2% in 2021, and approximately 1.5% in the pay-TV
segment. Its market positions remain strong in territories where it
has ubiquitous coverage.
Milder Regulation: The Georgian Communications Commission repealed
partial pricing regulation in 2021, which removed obstacles for
operators to increase prices. Fitch least in line with inflation,
which is currently over 10% in Georgia. The regulator is also
likely to relax its stance on imposing mobile virtual network
operator requirements.
Macroeconomic Tailwinds: A strong influx of Russians and
accompanying growth in money transfers to Georgia following the
Ukrainian conflict has been a strong tailwind for GDP expansion and
the lari strengthening but also positively contributed to
subscriber base growth for telecoms operators. Fitch expects
Silknet to retain its strengths even if this positive impact
subsides.
High FX Mismatch: Silknet has a high foreign currency-exchange (FX)
exposure, which makes its leverage sensitive to fluctuations in the
lari exchange rate. All of its post-refinancing debt and above 80%
of its capex are foreign-currency-denominated, while most of its
revenue is in local currency. With hedging being almost
prohibitively expensive, Fitch does not expect the company to
heavily use it other than keeping some cash in foreign currency.
Substantial FX risk is reflected in tighter leverage thresholds
relative to peers.
Dominant Shareholder Influence: Silknet's ultimate parent Silk Road
Group can exercise significant influence on the company. This is
demonstrated by the latter bypassing formal restrictions on
dividends when it guaranteed GEL35 million of its shareholder's
loan in 2016, a land plot acquisition from a related party for
USD20 million in 2019-2020, and the recent USD18 million guarantee
provided to the company's parent with respect to a put option held
by Silknet's current CEO. This option gives the CEO the right to
sell its 5% equity stake to Silknet Holding.
This shareholder's influence is reflected in its ESG Relevance
score of '4' for Governance Structure. Silknet's governance is
commensurate with the 'B' rating category. Its outstanding Eurobond
documentation has some restrictions on both shareholder
distributions and shareholders' access to Silknet's cash flows,
which Fitch nevertheless believes offer some creditor protection.
Silk Road Group does not publicly disclose its financial results.
DERIVATION SUMMARY
Silknet's peer group includes emerging-markets telecom operators
Kazakhtelecom JSC (BBB-/Stable), Kcell JSC (BB+/Stable), Turkcell
Iletisim Hizmetleri A.S.'s (B/Negative) and Turk Telekomunikasyon
A.S. (B/Negative).
Silknet benefits from its established customer franchise and the
wide network of a fixed-line telecoms incumbent, combined with a
growing mobile business similar to Kazakhtelecom's and Turk
Telecomunikasyon. However, Silknet is smaller in size, faces high
FX risks and is only the second-largest telecoms operator in
Georgia. Its corporate governance is shaped by dominant shareholder
influence.
Similar to Turkcell and Turk Telecomunikasyon, Silknet's FX risk
also results in tighter leverage thresholds for any given rating
level compared with that of other rated companies in the sector.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Around 10% revenue growth in 2022, followed by low-to-mid
single-digit percentage growth in 2023-2025
- Fitch-defined EBITDA margin of 52% in 2022, declining to 50% in
2023 and 49% in 2024-2025, with content-cost amortisation treated
as an operating cash expense, reducing both EBITDA and capex
- Cash capex at around 19-20% in 2022 and 2024-2025, rising to 30%
in 2023 on Fitch's assumption of 5G spectrum payment
- Dividends of around USD10 million a year in 2022-2025
- Stable GEL/USD rate at 3.0 over 2022-2025
KEY RECOVERY RATING ASSUMPTIONS
- The recovery analysis assumes that Silknet would be deemed a
going-concern (GC) in bankruptcy and that it would be reorganised
rather than liquidated
- USD211 million of unsecured debt outstanding at end-September
2022 following buying back a portion of the USD300 million bond
- A 10% fee for administrative claims
- GC EBITDA estimate of GEL170 million reflects Fitch's view of a
sustainable, post-reorganisation EBITDA upon which Fitch bases the
valuation of the company
- An enterprise value (EV)/EBITDA multiple of 4.0x is used to
calculate a post-reorganisation valuation, reflecting a
conservative post-distressed valuation
The Recovery Rating for Georgian issuers is capped at 'RR4' and
hence the rating of Silknet's senior unsecured instrument is
equalised with the Long-Term IDR of 'B' with 'RR4', although the
underlying recovery percentage is higher than the 50% implied by
'RR4'.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Strong market leadership in key segments in Georgia while
maintaining positive FCF generation, comfortable liquidity and a
record of improved corporate governance
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- FFO net leverage or EBITDA net leverage rising above 3.0x on a
sustained basis without a clear path for deleveraging in the
presence of significant FX risks
- A significant reduction in pre-dividend FCF generation driven by
competitive or regulatory challenges
- A rise in corporate-governance risks due to, among other things,
related-party transactions or up-streaming excessive distributions
to shareholders
LIQUIDITY AND DEBT STRUCTURE
Comfortable Liquidity: Silknet had a comfortable liquidity position
at end-June 2022, supported by around GEL116 million of cash and
cash equivalents and expected positive FCF averaging GEL53 million
in 2022-2025. Silknet's only debt instrument is USD300 million
Eurobond (USD233 outstanding at end-June 2022) maturing in 2027.
ISSUER PROFILE
Silknet is the incumbent telecoms operator in Georgia with an
extensive backbone and last-mile infrastructure across the country
but with little fixed-line presence in capital Tbilisi. The company
holds sustainably strong market shares above 30% in the mobile,
fixed-voice, fixed-broadband and pay-TV segments, but is only the
second-largest after Magticom, its key rival.
ESG CONSIDERATIONS
Silknet has an ESG Relevance score of '4' for Governance Structure
reflecting the dominant majority shareholder's influence over the
company and related-party transactions. This has a negative impact
on the credit profile, and is relevant to the rating in conjunction
with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Silknet JSC LT IDR B+ Upgrade B
senior
unsecured LT B+ Upgrade RR4 B
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G R E E C E
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EUROBANK ERGASIAS: Fitch Publishes 'B-(EXP)' Sub Tier 2 Note Rating
-------------------------------------------------------------------
Fitch Ratings has published Eurobank Ergasias Services and Holdings
S.A.'s (HoldCo) upcoming 10NC5 subordinated Tier 2 notes, which
have an anticipated size of EUR300 million, expected long-term
rating of 'B-(EXP)' with a Recovery Rating of 'RR6'. The notes will
be issued under the HoldCo's EUR5 billion euro medium-term note
programme and will qualify as Tier 2 regulatory capital.
The assignment of the final rating is contingent on the receipt of
final documents conforming to information already reviewed.
All other issuer and debt ratings are unaffected.
KEY RATING DRIVERS
The notes will constitute direct, unsecured, unconditional and
subordinated obligations of the HoldCo.
The rating of the notes is notched off twice from the HoldCo's 'b+'
Viability Rating (VR) for loss severity given their junior ranking.
No notching is applied for incremental non-performance risk because
write-down of the notes will only occur once the point of
non-viability is reached and there is no coupon flexibility before
non-viability. Poor recovery prospects given default are reflected
in the Recovery Rating of 'RR6'.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
The notes would be upgraded if the HoldCo's VR is upgraded. The
HoldCo's VR is sensitive to change in the VR of Eurobank S.A., the
group's main operating company and core bank.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
The notes would be downgraded if the HoldCo's VR is downgraded.
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
----------- ------ --------
Eurobank Ergasias
Services and Holdings
S.A.
subordinated LT B-(EXP) Publish RR6
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I R E L A N D
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BARINGS EURO 2022-1: Fitch Assigns 'B-sf' Rating on Class F Notes
-----------------------------------------------------------------
Fitch Ratings has assigned Barings Euro CLO 2022-1 DAC final
ratings, as detailed below.
Entity/Debt Rating Prior
----------- ------ -----
Barings Euro CLO
2022-1 DAC
A-1 Loan LT AAAsf New Rating AAA(EXP)sf
A-1 Note XS2506083067 LT AAAsf New Rating AAA(EXP)sf
A-2 XS2506083224 LT AAAsf New Rating AAA(EXP)sf
B-1 XS2506083570 LT AAsf New Rating AA(EXP)sf
B-2 XS2506083737 LT AAsf New Rating AA(EXP)sf
C XS2506083901 LT A+sf New Rating A+(EXP)sf
D XS2506084206 LT BBB-sf New Rating BBB-(EXP)sf
E XS2506084545 LT BB-sf New Rating BB-(EXP)sf
F XS2506085195 LT B-sf New Rating B-(EXP)sf
Sub XS2506085278 LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
Barings Euro CLO 2022-1 DAC is a securitisation of mainly senior
secured loans (at least 90%) with a component of senior unsecured,
mezzanine, and second-lien loans. The note proceeds are being used
to fund an identified portfolio with a target par of EUR300
million. The portfolio is managed by Barings (U.K.) Limited. The
CLO envisages a one-year reinvestment period and a seven-year
weighted average life (WAL).
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors in the 'B' category. The Fitch
weighted average rating factor (WARF) of the identified portfolio
is 23.6.
Strong Recovery Expectation (Positive): At least 90% of the
portfolio will comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate (WARR) of the identified portfolio is 63.7%
Diversified Portfolio (Positive): At closing, the matrix is based
on a top 10 obligors limit of 20%, and maximum fixed-rate asset
limit of 15%.
The transaction also includes various concentration limits,
including the maximum exposure to the three largest (Fitch-defined)
industries in the portfolio at 40%. These covenants ensure that the
asset portfolio will not be exposed to excessive concentration.
Portfolio Management (Neutral): The transaction includes
reinvestment criteria similar to those of other European
transactions. Fitch's analysis is based on a stressed-case
portfolio with the aim of testing the robustness of the transaction
structure against its covenants and portfolio guidelines.
Cash flow Modelling (Neutral): The WAL used for the transaction's
stressed-case portfolio and matrices analysis is 12 months less
than the WAL covenant. This is to account for structural and
reinvestment conditions after the reinvestment period, including
the satisfaction of the over-collaterlisation (OC) test and Fitch
'CCC' limit, together with a progressively decreasing WAL covenant.
These conditions would in the agency's opinion reduce the effective
risk horizon of the portfolio during stress period.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings
would result in downgrades of up to two notches for the class A-1
to E notes, and over two notches for the class F notes.
Downgrades, which are based on the current portfolio, may occur if
the loss expectation is larger than initially assumed, due to
unexpectedly high levels of defaults and portfolio deterioration.
Due to the better metrics of the current portfolio than the
Fitch-stressed portfolio the rated notes display a rating cushion
to downgrades of up to two notches.
Should the cushion between the current portfolio and the
Fitch-stressed portfolio erode due to manager trading or negative
portfolio credit migration, a 25% increase of the mean RDR across
all ratings and a 25% decrease of the RRR across all ratings of the
Fitch-stressed portfolio would result in downgrades of the class C
notes of two notches, the class B, D and E notes of one notch and
the class F notes of more than two notches.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings would result in upgrades of
up to three notches for the class B and D notes, five notches for
the class E and F notes and no impact on the class C notes. For
'AAAsf' rated notes they are at the highest rating on Fitch's scale
and cannot be upgraded.
During the reinvestment period, upgrades based on the
Fitch-stressed portfolio may occur on better-than-expected
portfolio credit quality and a shorter remaining WAL test, leading
to the ability of the notes to withstand larger-than-expected
losses for the remaining life of the transaction. After the end of
the reinvestment period, upgrades, except for the 'AAAsf' notes,
may occur on stable portfolio credit quality and deleveraging,
leading to higher credit enhancement and excess spread available to
cover losses in the remaining portfolio.
DATA ADEQUACY
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
BARINGS EURO 2022-1: S&P Assigns B- (sf) Rating on Class F Notes
----------------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Barings Euro CLO
2022-1 DAC's A-1 loan, and class A-1, A-2, B-1, B-2, C, D, E, and F
notes. At closing, the issuer issued unrated subordinated notes.
The 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 is bankruptcy remote.
-- The transaction's counterparty risks, which are in line with
S&P's counterparty rating framework.
Portfolio Benchmarks
CURRENT
S&P weighted-average rating factor 2,731.88
Default rate dispersion 606.28
Weighted-average life (years) 4.76
Obligor diversity measure 96.59
Industry diversity measure 19.22
Regional diversity measure 1.24
Transaction Key Metrics
CURRENT
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 3.67
Covenanted 'AAA' weighted-average recovery (%) 36.91
Covenanted weighted-average spread (%) 4.05
Covenanted weighted-average coupon (%) 4.10
Under the transaction documents, the rated notes will pay quarterly
interest unless a frequency switch event occurs. Following this,
the rated notes will switch to semiannual payments. The portfolio's
reinvestment period will end one year after closing.
S&P said, "We consider that the portfolio on the effective date
will be well-diversified, primarily comprising broadly syndicated
speculative-grade senior-secured term loans and senior-secured
bonds. Therefore, we have conducted our credit and cash flow
analysis by applying our criteria for corporate cash flow CDOs.
"In our cash flow analysis, we used the EUR300 million target par
amount, the covenanted weighted-average spread (4.05%), the
reference weighted-average coupon (4.10%), and the covenanted
minimum 'AAA' weighted-average recovery rate (36.91%) as indicated
by the collateral manager. 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.
"Under our structured finance sovereign risk criteria, we consider
that the transaction's exposure to country risk is sufficiently
mitigated at the assigned ratings.
"The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under our current counterparty criteria.
"The transaction's legal structure and framework is bankruptcy
remote, in line with our legal criteria.
S&P said, "Following our analysis of the credit, cash flow,
counterparty, operational, and legal risks, we believe our ratings
are commensurate with the available credit enhancement for the A-1
Loan and class A-1, A-2, B-1, B-2, C, D, and E notes. Our credit
and cash flow analysis indicates that the available credit
enhancement for the class B-1, B-2, D, and E notes could withstand
stresses commensurate with the same or higher ratings than those we
have assigned. However, as the CLO will be in its reinvestment
phase starting from closing, during which the transaction's credit
risk profile could deteriorate, we have capped our ratings assigned
to these notes.
"The class F notes' current breakeven default rate (BDR) cushion is
a negative cushion at the current rating level. Nevertheless, based
on the portfolio's actual characteristics and additional overlaying
factors, including our long-term corporate default rates and recent
economic outlook, we believe this class is able to sustain a
steady-state scenario, in accordance with our criteria. S&P's
analysis further reflects several factors, including:
-- The class F notes' available credit enhancement, which is in
the same range as that of other CLOs S&P has rated and that has
recently been issued in Europe.
-- S&P's model-generated portfolio default risk, which is at the
'B-' rating level at 25.21% (for a portfolio with a
weighted-average life of 4.76 years) versus 14.76% if it was to
consider a long-term sustainable default rate of 3.1% for 4.76
years.
-- Whether the tranche is vulnerable to nonpayment in the near
future.
-- If there is a one-in-two chance for this note to default.
-- If S&P envisions this tranche to default in the next 12-18
months.
s&p SAID, "Following this analysis, we consider that the available
credit enhancement for the class F notes is commensurate with the
assigned 'B- (sf)' rating.
"Taking the above factors into account and following our analysis
of the credit, cash flow, counterparty, operational, and legal
risks, we believe that our ratings are commensurate with the
available credit enhancement for all of the rated classes of
notes.
"In addition to our standard analysis, to provide an indication of
how rising pressures among speculative-grade corporates could
affect our ratings on European CLO transactions, we have also
included the sensitivity of the ratings on the class A to E notes
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."
The transaction securitizes a portfolio of primarily senior-secured
leveraged loans and bonds, and is managed by Barings (U.K.) Ltd.
Environmental, social, and governance (ESG) credit factors
S&P regards 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 certain activities,
including, but not limited to the following: An obligor involved
in:
-- The marketing, manufacturing or trade of illegal drugs or
narcotics;
-- The marketing, manufacturing or distribution of opioids;
-- The use of child or forced labor;
-- Payday lending;
-- Providing storage facilities or services for oil or other
infrastructure;
-- Tobacco production;
-- Trading, for commercial purposes, endangered, or critically
endangered species; or
-- The development of genetic engineering or genetic
modification.
Accordingly, since the exclusion of assets from these industries
does not result in material differences between the transaction and
S&P's ESG benchmark for the sector, no specific adjustments have
been made in S&P's rating analysis to account for any ESG-related
risks or opportunities.
Environmental, social, and governance (ESG) corporate credit
indicators
S&P said, "The influence of ESG factors in our credit rating
analysis of European CLOs primarily depends on the influence of ESG
factors in our analysis of the underlying corporate obligors. To
provide additional disclosure and transparency of the influence of
ESG factors for the CLO asset portfolio in aggregate, we've
calculated the weighted-average and distributions of our ESG credit
indicators for the underlying obligors. We regard this
transaction's exposure as being broadly in line with our benchmark
for the sector, with the environmental and social credit indicators
concentrated primarily in category 2 (neutral) and the governance
credit indicators concentrated in category 3 (moderately
negative)."
Corporate ESG Credit Indicators
ENVIRONMENTAL SOCIAL GOVERNANCE
Weighted-average credit indicator* 2.08 2.18 2.89
E-1/S-1/G-1 distribution (%) 0.33 0.00 0.00
E-2/S-2/G-2 distribution (%) 76.40 73.50 19.90
E-3/S-3/G-3 distribution (%) 6.77 4.83 57.60
E-4/S-4/G-4 distribution (%) 0.00 5.17 1.33
E-5/S-5/G-5 distribution (%) 0.00 0.00 4.67
Unmatched obligor (%) 15.27 15.27 15.27
Unidentified asset (%) 1.24 1.24 1.24
*Only includes matched obligor.
Ratings List
CLASS RATING AMOUNT INTEREST RATE (%) CREDIT
(MIL. EUR) ENHANCEMENT (%)
A-1 AAA (sf) 78.20 3mE + 1.99 38.00
A-1 Loan AAA (sf) 92.80 3mE + 1.99 38.00
A-2 AAA (sf) 15.00 4.87 38.00
B-1 AA (sf) 22.50 3mE + 4.32 28.30
B-2 AA (sf) 6.60 7.27 28.30
C A+ (sf) 15.30 3mE + 5.02 23.20
D BBB (sf) 18.60 3mE + 6.79 17.00
E BB- (sf) 12.00 3mE + 8.03 13.00
F B- (sf) 10.50 3mE + 9.97 9.50
Subordinated NR 30.00 N/A N/A
NR--Not rated.
N/A--Not applicable.
3mE--Three-month Euro Interbank Offered Rate.
ICON PLC: S&P Alters Outlook to Positive, Affirms 'BB+' ICR
-----------------------------------------------------------
S&P Global Ratings revised its outlook on ICON PLC to positive from
stable and affirmed the 'BB+' issuer credit rating. S&P also
affirmed its 'BB+' issue rating, with a '3' recovery rating, on
ICON's senior secured debt.
The positive outlook reflects the possibility of an upgrade if ICON
deleverages below 3x S&P Global Ratings-adjusted debt to EBITDA,
strengthens its funds from operations (FFO) to debt to around 30%,
and maintains these levels over the coming few years.
S&P said, "ICON's stronger operational performance in 2021 and
year-to-date 2022 has supported greater deleveraging than we
anticipated. Robust revenue growth, synergy realization, and cash
flow enabled the company to lower S&P Global Ratings-adjusted
leverage to 5.6x at end-2021 from the 6.2x we anticipated
previously. This trend has continued in 2022, prompting us to
expect full-year revenue of about $7.8 billion, realizing $110
million in cost-synergies versus the company's initially planned
$45 million, and $800 million of debt repayment (of which $200
million will be repaid in fourth-quarter 2022). As a result, we
estimate adjusted debt to EBITDA of 3.0x at end-2022 versus the
3.5x we projected previously."
The successful integration of PRA Health Sciences has solidified
ICON's No. 2 position in the clinical research organization (CRO)
market. ICON acquired PRA in July 2021 for about $12 billion,
funded through a mix of equity, cash, and debt. S&P said,
"Cost-synergies materialized faster than expected, underpinning
improvements in ICON's 2022 margin, as adjusted by S&P Global
Ratings, to above 18%, and we expect the margins to strengthen
further to around 19%, alongside other benefits, in 2023. We also
anticipate that these cost efficiencies will offset the impact of
wage increases given ICON's highly skilled workforce." Complicated
access to funding in the biotech sector has challenged new business
wins. Nevertheless, the momentum around new business remains strong
in the large pharma sector. Furthermore, the PRA acquisition has
upped diversification of product and client offerings. It also
continues to support request for proposal (RFP) wins and
contributes to the overall growth in the contract backlog quarter
over quarter.
S&P said, "ICON's financial policy supports potential ratings
upside in the longer term, in our view. The company has prioritized
deleveraging since the close of the PRA acquisition. It made $1.114
billion of voluntary repayments by Sept. 30, 2022, and is poised to
repay an additional $200 million by year-end. The company has
expressed an intention to continue to forgo any material mergers,
acquisitions, or share buybacks to focus on deleveraging, targeting
about $1 billion in repayments each year until 2026. We therefore
anticipate a S&P Global Ratings-adjusted debt-to-EBITDA ratio of
about 2.5x at end-2023 and funds from operations (FFO) to debt of
approximately 30%. We assume ICON will maintain these credit
metrics around these levels and that the company's intention to
hedge a portion of its floating interest rate exposure on its term
loan B facility will not restrict further planned debt repayment.
"The positive outlook reflects the possibility of an upgrade if
ICON deleverages below 3x, strengthens FFO to debt to about 30%,
and maintains these debt metrics over the coming few years.
"We could revise the outlook to stable if credit metrics were to
deteriorate from current levels, such that leverage stayed above 3x
and FFO to debt below 30%. Additionally, rating pressure might stem
from any financial policy changes that lead us to believe the
company is no longer committed to deleveraging.
"We could consider raising the ratings if ICON generates strong
free operating cash flow (FOCF) and expands its margins, supporting
the reduction of adjusted net debt to EBITDA comfortably below 3x,
with FFO to debt increasing to around 30%. An upgrade would also
depend on the company being committed to sustaining these metrics
in the longer term."
ESG credit indicators: E-2, S-2, G-2
=========
I T A L Y
=========
CASSA CENTRALE: Moody's Cuts LT Issuer Ratings to Ba2, Outlook Neg.
-------------------------------------------------------------------
Moody's Investors Service downgraded Cassa Centrale Banca S.p.A.'s
(CCB) long-term deposit ratings to Baa2 from Baa1 and long-term
issuer ratings to Ba2 from Ba1.
Furthermore, Moody's affirmed all other ratings and assessments
including the bank's Baseline Credit Assessment (BCA) and Adjusted
BCA of ba1.
The rating outlook on the long term deposit and issuer ratings
remains negative.
RATINGS RATIONALE
DOWNGRADE OF THE LONG-TERM DEPOSIT AND ISSUER RATINGS
The downgrade of CCB's long-term deposit and issuer ratings
reflects the on-going reduction in outstanding long-term senior
unsecured debt at the level of Gruppo Cassa Centrale ("Group")
which, according to Moody's advanced Loss Given Failure (LGF)
analysis, exposes junior depositors and bondholders to greater
losses than it was previously assumed.
Owing to higher-than-anticipated capital generation in the past
quarters that reduced the need for debt issuance in order to meet
its Minimum Requirement of Eligible Liabilities and Own Funds
(MREL), CCB has not been issuing the amount of senior unsecured
debt it had initially planned. As a result, a lower volume of
outstanding senior unsecured bonds results in very low expected
losses for junior depositors, leading to a two-notch uplift for the
long-term deposit ratings from CCB's BCA from three previously. For
the same reason senior bondholders would incur high losses, leading
to a long-term issuer rating one notch below CCB's current BCA.
AFFIRMATION OF THE BCA AND ADJUSTED BCA
The assessment of CCB's creditworthiness is based on the Group's
consolidated accounts given the legally binding solidarity
mechanism amongst all affiliated members. The affirmation of CCB's
ba1 BCA reflects improved solvency as well as Moody's anticipation
of more difficult operating conditions in the foreseeable future,
which will weigh on the bank's activity, including asset quality,
and profitability.
The Group is materially exposed to Italian small and medium-sized
companies, which Moody's considers to be more vulnerable to an
economic recession. Moody's currently forecasts Italy's GDP to
decrease by 1.4% in 2023. However, Moody's expects CCB and its
affiliated banks to continue the on-going disposals and
securitizations of nonperforming loans. The Group reported an
improving nonperforming loan ratio of 5.4% as of June 2022, which
was materially above the Italian average of 2.6%. The Group's
nonperforming loan ratio was 7.3% as of December 2020 and 9.6% as
of December 2019.
The sound capitalization will help the Group to cope with
deteriorated operating conditions. The Group reported a Common
Equity Tier 1 ratio of 22.6% as of December 2021. Moody's preferred
key capital ratio, tangible common equity (TCE)/risk-weighted
assets, stood at 13.7% at the same date. This lower ratio stems
from the risk weight Moody's applies to the Group's main
investments in government bonds i.e., 50% compared with 0% as
currently applied by Italian banks. The bank's total exposure to
the Italian sovereign represented more than 4.5 times the bank's
common equity tier 1 at year-end 2021.
Moody's expects the Group's profitability to reduce from its
current level. The Group reported a good return on assets of 0.9%
as of June 2022. While the Group will benefit from rising interest
rates, weaker economic growth in Italy and high inflation will have
a bearing on its activities and result in additional loan loss
provisions and higher operating costs.
Moody's also factors in CCB's large retail funding which comes from
the group's local banks. The repayment of the European Central
Bank's longer-term refinancing operations (TLTROs) which will take
place in 2023 and 2024 is likely to be counterbalanced to some
degree by additional deposits.
NEGATIVE OUTLOOK
The outlook on CCB's long-term deposit and issuer ratings remains
negative reflecting the risk that the bank's creditworthiness could
be materially affected by a weakening of the operating environment
in Italy.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade of CCB's ratings is unlikely as long as the outlook
remains negative. However, CCB's BCA could be upgraded in case the
Group were to reduce recourse to market funding.
CCB's long-term deposit and issuer ratings could also be upgraded
following a material increase in more subordinated loss absorbing
liabilities.
Conversely, CCB's ratings could be downgraded following a downgrade
of the bank's BCA. CCB's BCA could be downgraded if the Group
reported material capital-eroding losses and/or experienced a
material deterioration in asset quality and liquidity position.
LIST OF AFFECTED RATINGS
Issuer: Cassa Centrale Banca S.p.A.
Downgrades:
Long-term Bank Deposits, downgraded to Baa2 from Baa1, outlook
remains Negative
Long-term Issuer Ratings, downgraded to Ba2 from Ba1, outlook
remains Negative
Affirmations:
Long-term Counterparty Risk Ratings, affirmed Baa1
Short-term Counterparty Risk Ratings, affirmed P-2
Short-term Bank Deposits, affirmed P-2
Long-term Counterparty Risk Assessment, affirmed Baa2(cr)
Short-term Counterparty Risk Assessment, affirmed P-2(cr)
Short-term Issuer Ratings, affirmed NP
Baseline Credit Assessment, affirmed ba1
Adjusted Baseline Credit Assessment, affirmed ba1
Outlook Action:
Outlook remains Negative
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks
Methodology published in July 2021.
===================
L U X E M B O U R G
===================
TI LUXEMBOURG: Moody's Withdraws 'B2' CFR Following Debt Repayment
------------------------------------------------------------------
Moody's Investors Service has withdrawn the B2 long-term corporate
family rating and the B2-PD probability of default rating of TI
Luxembourg S.A. (Tractel). Concurrently, Moody's has also withdrawn
the B2 ratings on Tractel's EUR210 million senior secured term loan
B1 and $81.17 million senior secured term loan B2, both due in
February 2025 and on the EUR45 million senior secured revolving
credit facility due April 2024. The stable outlook has been
withdrawn.
RATINGS RATIONALE
Moody's has decided to withdraw the ratings of Tractel because its
debt, previously rated by Moody's, has been fully repaid following
the acquisition of the company by Alimak Group AB on November 21,
2022. Alimak Group AB is a leading provider of sustainable premium
height solutions, listed on Nasdaq OMX Stockholm.
COMPANY PROFILE
Headquartered in Luxembourg, Tractel is a global specialist
provider of working-at-height solutions and safety products. The
company operates 13 manufacturing facilities located in Europe,
North America and Asia, and employs around 1,100 people. In 2021,
Tractel generated sales of around EUR187 million.
===============
P O R T U G A L
===============
ELECTRICIDADE DOS ACORES: Moody's Affirms Ba1 CFR, Outlook Stable
-----------------------------------------------------------------
Moody's Investors Service has affirmed the Ba1 long-term corporate
family rating of EDA - Electricidade dos Acores, S.A. (EDA).
Concurrently, Moody's has also affirmed EDA's ba1 Baseline Credit
Assessment (BCA). The outlook remains stable.
The rating action follows Moody's affirmation of the Ba1 rating of
the Autonomous Region of Azores ("RAA") and change in outlook to
negative from stable, on November 25, 2022.
RATINGS RATIONALE
The rating affirmation with a stable outlook reflects Moody's view
that EDA will likely maintain a financial profile commensurate with
the current rating at least over medium term. In the context of the
negative outlook on the RAA, its main (50.1%) shareholder, it also
anticipates that EDA could be rated a notch above the RAA if the
latter's negative outlook were to lead to a downgrade. This takes
into account governance arrangements, EDA's strong business risk
profile that insulates revenues from economic conditions in RAA, a
regulatory framework set at the national level, and a liquidity
position underpinned by funding sources located outside the RAA.
EDA's BCA continues to reflect as positives: (1) the company's
position as the dominant vertically integrated utility in the RAA;
(2) the fully regulated nature of the company's activities in the
context of a relatively well-established and transparent regulatory
framework; and (3) a relatively sound financial profile against the
background of a gradually improving regional economy.
However, EDA's credit quality is constrained by: (1) the small size
of the company and a large investment plan for 2022-25 to shift its
generation mix from thermal to renewables sources; (2) the costs
and challenges associated with operating in a small, relatively
remote archipelago; (3) the tightened efficiency factors during the
2022-25 regulatory period; and (4) some working capital volatility
arising mainly from oil price movements, although this is likely to
decrease following the balancing of EDA's generation mix between
thermal and renewable generation.
With the RAA holding 50.1% of EDA's share capital, the company
falls under Moody's Government-Related Issuers Methodology (GRI)
published in February 2020. The company currently receives no
uplift from the assigned BCA under the methodology, given the
rating of the RAA.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects Moody's expectation that EDA will
achieve and maintain metrics consistent with the assigned Ba1
rating.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
EDA's rating could be upgraded if (1) EDA's standalone credit
quality improved as evidenced by FFO/debt at least in the
low-twenties, in percentage terms, on a sustainable basis; (2) the
company demonstrated significant availability under long-term
liquidity facilities. Any upgrade would be conditional upon an
improvement in the credit quality of the RAA.
EDA's rating could be downgraded if (1) EDA's credit profile
weakened, whether because of failure to reach efficiency targets,
faster than expected capital investment, or high dividend
distributions, such that FFO/debt was likely to fall in the
mid-teens in percentage terms; (2) a change in the company's
financial policy appeared to favor shareholders over creditors; (3)
following a deterioration in EDA's liquidity position; or (4) there
was a deterioration in the credit quality of RAA.
The methodologies used in these ratings were Government-Related
Issuers Methodology published in February 2020.
EDA is the dominant vertically integrated utility in Azores, 50.1%
owned by the Autonomous Region of Azores. In the year to December
2021, the company's consolidated revenues and EBITDA amounted to
EUR219 million and EUR52 million respectively.
=============
R O M A N I A
=============
DIGI COMMUNICATIONS: Moody's Confirms 'Ba3' CFR, Outlook Stable
---------------------------------------------------------------
Moody's Investors Service has confirmed the Ba3 corporate family
rating and the Ba3-PD probability of default rating of Digi
Communications N.V. ("Digi" or "the company"), the parent company
for RCS & RDS S.A. ("RCS&RDS"). At the same time, Moody's has
confirmed the Ba3 rating on the EUR850 million backed fixed rate
senior secured notes (split into two tranches, EUR450 million due
2025 and EUR400 million due 2028) issued by RCS&RDS. The outlook
has been changed to stable from ratings under review.
This rating action concludes the review for downgrade initiated by
Moody's on June 9, 2022, following the publication of the
preliminary 2021 report, which included a qualified audit opinion.
Compliance and reporting is a governance consideration under
Moody's General Principles for Assessing Environmental, Social and
Governance Risks Methodology for assessing ESG risks.
"Moody's have confirmed the ratings at Ba3 with a stable outlook
because the company has released its final 2021 audited accounts
with no material qualification," says Agustin Alberti, a Moody's
Vice President–Senior Analyst and lead analyst for Digi.
RATINGS RATIONALE
On November 16, 2022, Digi released the 2021 audited Dutch
statutory consolidated financial statements. The accounts include
minor restatements when compared to the preliminary ones published
at the end of May with no material difference to credit metrics.
The company has been able to clear the majority of the
qualifications contained in the preliminary accounts. The final
statements contain one qualification, as flagged by the company in
previous public communications to the market. The qualification
relates to the lack of available information on the lease
liabilities of Digi's Hungarian subsidiary, which sale was
completed in January 2022. Moody's considers this qualification to
be minor when compared to overall metrics and without impact since
the asset has been divested.
Moody's considers that final accounts provide enough completeness
and availability of key information. The company is also
implementing internal changes to strengthen internal controls and
reporting consistency, like the hiring of a new co-CFO to join the
company in December, and the appointment of an independent Board
member as head of the Audit Committee.
The Ba3 CFR reflects the company's track record of solid operating
performance; strong market position in Romania as a result of its
superior network quality; success as a challenger in the Spanish
market, resulting in accelerating revenue growth; the growth
opportunities stemming from its planned expansion into the
Portuguese and Belgium markets; and solid financial profile, with
Moody's-adjusted leverage remaining at around 3.0x in 2022.
The rating also reflects Digi's negative free cash flow (FCF)
because of high capital spending; its geographical concentration,
mainly in Romania; the high execution risks related to its
expansion in Portugal and Belgium; the foreign-exchange risk
associated with the company's exposure to the Romanian leu; and its
exposure to M&A event risk because there is potential for further
consolidation in the Romanian market.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects Moody's expectation that Digi will
maintain a good operating performance in terms of moderate revenue
and EBITDA growth and credit metrics in line with the parameters
defined for the Ba3 rating. The stable outlook also reflects
Moody's assumption that Digi will maintain a conservative financial
policy and assumes continued compliance with reporting
obligations.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure on the rating could develop if Digi (1) increases
its scale and diversification, (2) reports solid operating
performance such that its Moody's-adjusted debt/EBITDA remains well
below 2.5x; and (3) the company generates positive FCF (after
capital spending and dividends) on a sustained basis. Upward
pressure will also require a stronger track record of governance,
including compliance and reporting considerations.
Conversely, downward pressure could be exerted on the rating if (1)
Digi's operating performance weakens such that its Moody's-adjusted
debt/EBITDA rises above 3.5x on a sustained basis, (2) the company
embarks in a debt financed organic or inorganic growth strategy, or
(3) the company's liquidity profile weakens (including a reduction
in headroom under financial covenants). Evidence of further
weakness in governance, including failure to comply with reporting
obligations, could also lead to downward pressure on the rating.
LIST OF AFFECTED RATINGS
Confirmations:
Issuer: Digi Communications N.V.
Probability of Default Rating, Confirmed at Ba3-PD
LT Corporate Family Rating, Confirmed at Ba3
Issuer: RCS & RDS S.A.
BACKED Senior Secured Regular Bond/Debenture, Confirmed at Ba3
Outlook Actions:
Issuer: Digi Communications N.V.
Outlook, Changed To Stable From Rating Under Review
Issuer: RCS & RDS S.A.
Outlook, Changed To Stable From Rating Under Review
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Pay TV
published in October 2021.
COMPANY PROFILE
Digi Communications N.V. is the parent company of RCS & RDS S.A., a
leading pay-TV and communications services provider in Romania. The
company completed an IPO in May 2017 and is listed on the Bucharest
Stock Exchange. In 2021, it generated revenues of around EUR1.5
billion and reported EBITDA of EUR525 million (including IFRS16 and
Hungary). Digi is ultimately controlled by Romanian entrepreneur
Zoltan Teszari, president of the board and founder of the company.
[*] ROMANIA: Number of Companies Going Into Liquidation Up 10.68%
-----------------------------------------------------------------
Mirea Andreea at stiripesurse.ro reports that the number of
commercial companies and PFA registered sole traders going into
liquidation in Romania increased by 10.68% in the first ten months
of 2022, y-o-y, with 5,387 insolvencies being registered, according
to data posted on the website of the National Companies Registry
Office (ONRC), told Agerpres.
Most of the insolvencies were in Bucharest, 920, up 2.91% y-o-y,
stiripesurse.ro discloses.
According to stiripesurse.ro, in October 2022, 620 insolvencies
were recorded, of which 93 are in Bucharest City.
The largest number of insolvencies was recorded in wholesale and
retail trade as well as repair of motor vehicles and motorcycles,
at 1,470, up 3.3% y-o-y; construction - 1,041 (+ 27.57 %), and
manufacturing 690 (+ 14.05%), stiripesurse.ro states.
=====================
S W I T Z E R L A N D
=====================
ORIFLAME HOLDING: Moody's Lowers CFR to B3, Outlook Remains Stable
------------------------------------------------------------------
Moody's Investors Service has downgraded to B3 from B2 the
Corporate Family Rating and to B3-PD from B2-PD the Probability of
Default Rating of Oriflame Holding Limited ("Oriflame"), a producer
and distributor of beauty and wellness products. Concurrently,
Moody's has downgraded to B3 from B2 the rating of the backed
senior secured notes due 2026 and issued by Oriflame Investment
Holding Plc, a fully owned subsidiary of Oriflame Holding Limited.
The outlook for both entities remains stable.
"The downgrade to B3 reflects the weaker than expected operating
performance and credit metrics, driven by a continuous decline in
the number of sales representatives, the subsequent decrease in
volumes, and the inflationary headwinds that have strained
profitability," says Michel Bove, a Moody's Assistant Vice
President-Analyst and lead analyst for Oriflame.
"Despite the weaker trends and metrics, the company decided to pay
a dividend, reflecting a more aggressive financial policy than what
Moody's had originally factored in the rating," added Mr Bove.
Financial strategy and risk management is a governance
consideration under Moody's General Principles for Assessing
Environmental, Social and Governance Risks Methodology for
assessing ESG risks.
RATINGS RATIONALE
The downgrade to B3 from B2 reflects Moody's view that the
company's operating performance will remain weaker than originally
assumed when the rating was downgraded in March 2022, resulting in
a deterioration in the company's credit metrics for the next 12-18
months.
For the first nine months of 2022, the company reported revenue
decrease of 11% driven by a decline in the number of sales
representatives, which shrunk to 1.9 million in 3Q22 from 2.5
million in FYE21, resulting in a 20% volume decrease, partially
compensated by positive price and product mix of 4% and favourable
foreign exchange impact.
The Russian - Ukraine conflict and pandemic related restrictions in
China, one of its largest markets, has affected the recruitment and
retention of sale representatives, but the negative trend in sales
representatives was already visible in the last three years, due to
structural and competitive factors associated with the direct
selling business model.
In addition, cost inflation and delays in transferring price
increases to costumers, as well as higher selling and marketing
expenses, to promote new live events and conventions to reverse the
negative trend in the number of sale representatives, has weighed
in the company's profitability.
Following the Russian invasion of Ukraine, the company designated
its Russian operations as unrestricted subsidiaries under, and in
accordance with, the indenture governing the senior secured notes
due 2026. The company manages the Russian operations as financially
independent subsidiaries and is currently conducting a strategic
review of these assets. As a result, Moody's excludes any
contribution from the Russian perimeter for analytical purposes.
The Russian operations contributed close to 17% of the consolidated
revenue for the first nine months of the year.
Moody's expects Oriflame's Moody's-adjusted EBITDA, excluding
Russia, to decline below EUR80 million in 2022 leading to a
material deterioration in credit metrics, with leverage estimated
at 10x. Moody's forecasts that Oriflame's operating performance and
credit metrics will gradually improve starting in 2023, supported
by price increases, and cost savings from the restructuring
program, although any improvement is highly dependent on the
company's ability to revert the declining trend in sales
representatives. The company reported close to EUR14 million of
restructuring costs during the first nine months of 2022 to adjust
its cost base and expects the savings from this program to
materialize by twice this amount starting in 2023. Nevertheless,
leverage will only gradually reduce to 8x in 2023 and towards 6x in
2024.
However, operational improvement remains subject to execution risk
since the company's strategy is aimed at expanding in mature
markets, such as Germany, in order to reduce the inherent
volatility of its emerging market exposure. In addition, the
current macroeconomic uncertainty and contraction in consumer
discretionary spending could further delay the recovery. Moody's
also highlights that Oriflame's results have benefited from the
euro depreciation against the emerging country currencies where the
company operated, and a reversion could further impact the
company's results.
Moody's forecasts free cash flow generation to be negative in 2022
and 2023 driven by the Board of Director's decision to reinstate
the dividend payment of EUR31 million in 2022 despite the weakening
operating trends and credit metrics.
More positively, Moody's notes that Oriflame's flexible cost
structure and asset-light business model has allowed the company to
maintain its cash generation even during difficult trading
conditions. Additionally, the company's successful hedging strategy
has mitigated the impact of the current high interest environment.
Oriflame's B3 CFR continues to be supported by the company's (1)
good positioning in the beauty and personal care market, and its
high digitalization; (2) global presence, although with a high
exposure to emerging markets, and solid long-term growth prospects;
(3) flexible cost structure and asset-light business model, which
allow the company to generate cash flow even during difficult
trading conditions; (4) successful hedging strategy, which
mitigates the exposure to the current high interest rate
environment; and (5) adequate liquidity supported by cash on
balance sheet, access to EUR100 million undrawn revolving credit
facility and long term maturity profile.
However, the rating is constrained by (1) the company's high
leverage estimated to be at around 10x in 2022, though expected to
decline over the next 12-18 months; (2) Oriflame's emerging market
exposure resulting in foreign-currency fluctuation and volatility
of earnings; (3) execution risks related to the company's mature
market expansion; (4) small size compared with that of its global
competitors in the beauty and personal care sector; (5) inherent
difficulties in operating an organisation that requires capturing
and retaining sales representatives; and (6) the track record of
decline in revenues and EBITDA after reaching a peak in 2017.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
Governance risk considerations are material to the rating action.
The Board of Director's decision to reinstate the dividend payment
signals a more aggressive financial policy which favours
shareholders over creditors at a time of operational
underperformance and uncertain macroeconomic environment. Financial
policy has been one of the drivers of the rating action and results
in the company's Financial Strategy and Risk Management score
moving to 4 from 3, the Management Credibility and Track Record
score moving to 4 from 3, the governance issuer profile score (IPS)
moving to G-4 from G-3 and the Credit Impact Score (CIS) moving to
CIS-4 from CIS-3.
LIQUIDITY
Oriflame's liquidity is adequate, supported by EUR97 million of
cash as of September 2022, and by a fully undrawn EUR100 million
committed revolving credit facility (RCF). The company has no
short-term debt maturities, with the senior secured note maturing
in 2026 and the RCF maturing in 2025. Thanks to the refinancing
exercise completed in 2021, the company not only pushed debt
maturities to 2026, but also significantly lowered its cost of
debt. In addition, the company hedged its interest rate exposure.
The business is moderately seasonal through the year, with the
Christmas season being stronger, which results in working capital
fluctuations of up to EUR20 million- EUR25 million between
quarters. On a normalised basis, Oriflame generates constant
positive FCF because of low capital spending needs (around EUR25
million per year, including leases).
The RCF contains a springing financial covenant, based on super
senior net leverage, tested only if its drawn, net of cash, by at
least 35%.
STRUCTURAL CONSIDERATIONS
The B3 rating assigned to the EUR250 million and $550 million
senior secured notes is in line with the company's CFR, reflecting
the fact that the notes represent most of the financial debt. While
the notes rank junior to the EUR100 million super senior RCF, its
size is not enough to cause a notching down of the notes.
Moody's has used a 50% family recovery rate, as is standard for
capital structures that include both bonds and bank debt. The bonds
and the RCF benefit from the same security package (but with
different priorities), consisting mainly of share pledges,
intercompany loans and, solely for Swiss guarantors, intellectual
property, including all brands, trademarks and patents.
The RCF and the bonds are guaranteed by all material subsidiaries
in those jurisdictions in which this is allowed. Guarantor coverage
has further weakened following the designation of the Russian
subsidiaries as unrestricted entities. Guarantors represent less
than 50% of operating profit. However, this weakness is mitigated
by the fact that there is no financial debt and only modest
operating liabilities at non-guarantor subsidiaries.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects the expectation that liquidity will
remain adequate and that the company will gradually improve its
operating performance supported by price increases and cost
savings, although this improvement is highly dependent on the
company's ability to revert the declining trend in sales
representatives. The company is weakly positioned in the rating
category because of the very high leverage, with very limited
headroom for deviation in terms of operating performance, but the
rating assumes deleveraging towards 8.0x in 2023 and towards 6.0x
in 2024.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade is unlikely in the short term and would be conditional
upon (1) Oriflame's operating performance quickly recovering driven
by higher recruitment of sale representatives, such that its
Moody's-adjusted gross leverage remains below 6.0x; and (2)
Oriflame demonstrating a track record of prudent financial policy.
Downward pressure on the ratings could arise because of (1)
sustained underperformance relative to expectations leading to
failure to reduce Moody's adjusted gross leverage to well below
8.0x in the next 12-18 months; (2) free cash flow remaining
negative for an extended period; or (3) liquidity deteriorating
from current adequate levels.
LIST OF AFFECTED RATINGS
Downgrades:
Issuer: Oriflame Holding Limited
Probability of Default Rating, Downgraded to B3-PD from B2-PD
LT Corporate Family Rating, Downgraded to B3 from B2
Issuer: Oriflame Investment Holding Plc
BACKED Senior Secured Regular Bond/Debenture, Downgraded to B3
from B2
Outlook Actions:
Issuer: Oriflame Holding Limited
Outlook, Remains Stable
Issuer: Oriflame Investment Holding Plc
Outlook, Remains Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Consumer
Packaged Goods published in June 2022.
COMPANY PROFILE
Headquartered in UK and Switzerland, Oriflame is a producer and
distributor of beauty and wellness products, with presence in more
than 60 countries globally. The company operates under a direct
selling model, through a network of around 1.9 million active
representatives. Oriflame reported revenue of EUR1 billion and
operating profit of EUR145 million in 2021.
Oriflame Holding Limited is controlled by the members of the af
Jochnick family and closely related parties, who are the founders
of Oriflame.
SPORTRADAR GROUP: S&P Assigns 'BB-' ICR, Outlook Stable
-------------------------------------------------------
S&P Global Ratings assigned its 'BB-' issuer credit rating to
Sportradar Group AG and withdrew the rating from Sportradar Holding
AG.
S&P said, "We also revised our issue-level rating on the term loan
B facility to 'BB' from 'B' and the recovery rating to '2' from '3'
on the back of the leverage reduction. We expect this to be repaid
in the coming weeks.
"The stable outlook reflects our base case that in the next 12
months, Sportradar will have minimal leverage thanks to no
outstanding term debt and ample pro forma liquidity of about EUR500
million (including a EUR220 million revolving credit facility
[RCF]), and can in our view maintain organic revenue growth of
above 20% and generate free operating cash flow (FOCF) of above
EUR70 million in 2023." The outlook does not reflect a potential
point-in-time event risk--for example, a sizable debt-funded
opportunistic M&A transaction, where likelihood and timing is
uncertain.
Sportradar's significant deleveraging is the upgrade's primary
factor. Sportradar opted to voluntarily repay EUR200 million of its
outstanding EUR420 million senior secured term loan B in July 2022
and announced further repayment of the remaining outstanding loan
by the end of 2022. The repayment is in part sourced from the
proceeds of its EUR546 million primary equity raise, which was
previously earmarked for acquisitions. However, in the absence of a
material acquisition opportunity, the group has opted to repay the
outstanding term loan B debt, and the early repayment would save
about EUR20 million in annual interest costs. S&P said, "With no
outstanding term debt forecast at year-end 2022, we forecast the
group's S&P Global Ratings-adjusted leverage will be 0.5x, compared
with 5.3x in 2021. Moreover, we expect Sportradar to continue to
grow organically as the demand for sports data, live odds, and its
marketing capabilities remains robust, allowing the group to
generate FOCF of about EUR70 million."
S&P said, "Our rating partially incorporates the risk of a
re-leveraging event, such as a sizable debt-funded acquisition.The
group's IPO prospectus states that its near-term strategy is
focused on growth, and that it does not intend to pay dividends. In
our view, the risk of weakening credit quality arising from
shareholder distributions is likely limited in the short term,
given the value the group can probably add from strategic growth.
However, the group has no publicly stated leverage policy, so we
cannot rule out a re-leveraging arising from debt-funded,
strategically important acquisitions. Acquisition multiples within
Sportradar's markets can vary depending on the size, growth
profile, and opportunity associated with any given company;
however, they can often be over 15x. While the group currently has
the option to use its common equity shares to satisfy a purchase
consideration, its leverage could quickly increase if this
consideration were to be debt-financed.
Sportradar has adequate liquidity and rating headroom to maintain
its rating in an inflationary and recessionary environment. Pro
forma for the remaining loan repayment, the group will still have
about EUR275 million of cash, EUR220 million of undrawn RCF, and
minimal capital expenditure (capex) needs (excluding sports right
acquisitions), which will support the group's operations through
the recessionary environment. Sportradar has reported strong
revenue growth, in part because of its product offerings relying on
in-play betting, with customers' greater adoption of higher-fee
products such as live odds and managed betting services (MBS). A
decline in the consumer's discretionary spending power represents a
risk to our 2023 forecast, but the overall revenue growth stems
from improved penetration in the U.S., where sports betting is
still in a nascent stage.
S&P said, "Sports rights inflation remains a risk, but we expect
the group to improve margins in the medium term. We anticipate that
Sportradar will sustain its historically strong revenue growth and
generate a double-digit sales increase in 2023, supported by
continued customer upselling, clients' base expansion on the back
of continued acquisitions, and the underlying betting market growth
in the U.S., as more states adopt betting legalization. We forecast
Sportradar's adjusted 2022 EBITDA to be about EUR90 million-EUR100
million (after deducting exceptional costs of EUR10 million and
capitalized development costs of EUR15 million). This year, loss of
earnings from the regions affected by the Russia-Ukraine conflict
and expansion in the lower-margin advertising business have
contributed to margin dilution. Sports rights costs, a major
contributor to the group's cost base, are expected to grow next
year, both from inflationary pressure and portfolio expansion. At
the same time, we expect the group will offset the costs growth
through operational leverage benefits and EBITDA margin
strengthening in the U.S. division, which turned profitable in
third-quarter 2022. Overall, we estimate that Sportradar will
expand its adjusted EBITDA margin above 2022 levels.
"The stable outlook reflects our base case that in the next 12
months, Sportradar will have minimal leverage with no outstanding
term debt, ample liquidity of about EUR500 million, and can
maintain organic revenue growth of above 20% and generate FOCF of
above EUR70 million in 2023. The outlook does not reflect a
potential point-in-time event risk--for example, a sizable
debt-funded opportunistic M&A transaction, where likelihood and
timing is uncertain."
S&P could take a negative rating action in the next 12 months if:
-- S&P said, "Sportradar adopts a more aggressive financial
policy, which we think will result in an enduring debt capital
structure at higher leverage levels than our forecast. In our view,
this could happen if debt funding is used for an acquisition,
leading to leverage increasing materially above 3.5x for a
sustained period;"
-- The group's organic business competitiveness or margins are
pressured; for example, because of competitive pricing to acquire
new content, sports, and data rights, or operating weaknesses
arising from reduced consumer discretionary spend, leading to low
or negative FOCF after lease payments;
-- Liquidity comes under pressure because of material acquisitions
or unforeseen events; or
-- The group undertakes other financial policy actions that depart
from our base case, such as material debt-funded shareholder
distributions or buybacks.
Given that the current rating incorporates minimal leverage in the
forecast period, S&P views an upgrade in the short term as
unlikely. However, S&P could raise its rating on Sportradar if the
group:
-- Publicly commits to maintaining leverage sustainably well below
3.0x in the long term, supported by a track record of the same, and
S&P doesn't see financial sponsors dictating a more aggressive
financial policy;
-- Increases annual FOCF after lease payments above EUR100
million, providing financial flexibility;
-- Maintains a track record of double-digit revenue growth and
improving adjusted EBITDA margins toward 20% while successfully
integrating acquisitions and expanding its products line; and
-- Demonstrates the successful integration and performance of
inorganic acquisitions.
ESG credit indicators: E-2, S-2, G-3
===========
T U R K E Y
===========
TURK HAVA: Moody's Affirms 'B3' CFR, Outlook Remains Stable
-----------------------------------------------------------
Moody's Investors Service has upgraded Turk Hava Yollari Anonim
Ortakligi's ("Turkish Airlines") Baseline Credit Assessment (BCA)
to b3 from caa1. Concurrently, Moody's has affirmed the B3
corporate family rating and B3-PD probability of default rating.
The outlook remains stable.
RATINGS RATIONALE
Turkish Airlines' BCA upgrade to b3 from caa1, CFR affirmation at
B3 and PDR affirmation at B3-PD, reflects the company's continued
strengthening in operating metrics and cash flows during 2022. This
has led to a material reduction in short term debt and total debt
levels as well as an improvement in its liquidity position, which
is considered as a key consideration in Moody's governance
analysis. Turkish Airlines continues to rollover part of its debt
maturities but has reduced Moody's adjusted short term debt by $0.7
billion to $3.7 billion and total debt by $3.4 billion to $13.4
billion levels (including $9.9 billion of lease liabilities) as of
September 2022 from December 2020, in the midst of the covid-19
pandemic.
Turkish Airlines' passenger volume recovery and the number of
flights it offers have been more resilient than EMEA's industry
average because of the company's large network, supportive fleet
mix and favorable geographical location, which makes it easier for
the company to tackle demand in a profitable manner. Total revenue
for the first nine months of 2022 was 37% above the 2019 levels
with passenger revenue 24% above in the same period. Moody's
expects operating performance and financial results to continue
improving as yields remain high, the company grows its operating
fleet and it benefits from the rapid ramp up in capacity during the
last 18 months. However, macroeconomic risks are increasing for the
passenger airline industry as the risk of recession rises and
affect demand volumes. Additionally, there is a risk that current
geopolitical tensions might lead to higher than expected oil prices
during a recession.
The credit fundamentals of Turkish Airlines suggest a higher rating
level and the company for the last 12 months ended September 30,
2022 had Moody's adjusted RCF/Debt of 29.5% and Debt/EBITDA of
2.9x. However, the company's corporate family rating and BCA are
constrained by the Government of Turkiye's B3 rating because the
company is materially exposed to Turkiye's political, legal, fiscal
and regulatory environment. Moody's classifies Turkish Airlines as
a government-related issuer (GRI) because of the Government of
Turkiye's 49.12% ownership stake held through its sovereign wealth
fund. GRI considerations for Turkish Airlines incorporates
'moderate' government support assumption and 'high' dependence
assumption.
Turkish Airlines' B3 CFR continues to reflect the company's scale
and competitive position with a well-diversified passenger revenue
base and its role as the national flag carrier; track record of
managing through challenging operating environments through its
flexible fleet base, capacity management and cost discipline;
growing transit passengers and strong cargo revenues; and
supportive shareholder base with strong relationship with Turkish
banks.
Conversely, the CFR remains constrained by Turkish Airlines' credit
linkages and exposure to the Turkey sovereign and operating
environment; its exposure to an inherently cyclical industry;
sensitivity to global and domestic economic weakness,
foreign-currency volatility; and geopolitical risks.
LIQUIDITY
Moody's liquidity analysis assesses a company's ability to meet its
funding requirements over the next 12-18 months under a scenario of
not having access to new funding unless it is committed and does
not assume the rollover of existing loans. Under this approach,
Turkish Airlines' liquidity is adequate despite the absence of
undrawn long-term committed facilities.
As of September 30, 2022, the airline had about $3.6 billion of
cash balances and $0.8 billion in time deposits relative to short
term debt of $976 million and current portion of long term debt and
leases of $2.8 billion. Of this $3.7 billion total, $0.9 billion is
with the Export Credit Bank of Turkey (Turk Exim), a
government-owned development bank mandated to support the Turkish
economy as part of the government's export-led growth policy. While
these loans are short-term in nature, Moody's believe that the
likelihood of loan rollovers by Turk Exim is very high.
Turkish Airlines does not have any significant undrawn long-term
committed facilities that can provide a solid liquidity buffer to
the company. The airline has strong relationships with local banks,
including state owned banks, and Moody's understand that the
company has access to about $4 billion of available uncommitted
credit lines. In Moody's view, the company has started to reduce
its reliance on short-term loans and increased the cash levels
which has improved its liquidity profile. However, large short term
debt maturities create greater uncertainty in the currently
volatile macroeconomic environment. Moody's liquidity assessment
does not incorporate Turkish Airlines' access to uncommitted credit
lines, which if included in Moody's assessment, would indicate a
stronger liquidity profile.
OUTLOOK
The stable outlook mirrors that on the Government of Turkiye's
rating and reflects Turkish Airlines' exposure to the country's
political, legal, fiscal and regulatory environment. Additionally,
the stable outlook reflects Moody's expectation for improving
operating performance and financial results over the next 12 to 18
months as passenger demand continues to grow while maintaining
adequate liquidity.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings of Turkish Airlines could be upgraded if Turkiye's
government bond rating is upgraded. This would also require no
material deterioration in the company's operating and financial
performance including maintaining an adequate liquidity profile and
with (1) RCF/Debt remaining above 20% and (2) Moody's adjusted
Debt/EBITDA remaining below 6.0x.
Turkish Airlines' ratings could be downgraded in case of a further
downgrade of Turkiye's sovereign rating and a lowering of the
foreign-currency bond ceiling. In addition, downward rating
pressure could arise if there are signs of a deterioration in
liquidity or if any government imposed measures were to have an
adverse impact on corporate credit quality.
PRINCIPAL METHODOLOGY
The methodologies used in these ratings were Passenger Airlines
published in August 2021.
COMPANY PROFILE
Founded in 1933, Turkish Airlines is the national flag carrier of
the Republic of Turkey and is a member of the Star Alliance network
since April 2008. Through the Istanbul Airport acting as the
airline's primary hub since early 2019, the airline operates
scheduled services to 341 international and domestic destinations
across 129 countries globally. It has a fleet of 260 narrow-body,
109 wide-body and 21 cargo planes.
The airline is 49.12% owned by the Government of Turkiye through
the Turkey Wealth Fund while the balance is public on Borsa
Istanbul stock exchange. For the last 12 months ended September 30,
2022, the company reported revenues of $17 billion and a Moody's
adjusted operating profit of $2.9 billion.
===========================
U N I T E D K I N G D O M
===========================
BEAUMONT ABS: Goes Into Liquidation
-----------------------------------
John Hyde at The Law Society Gazette reports that a business linked
with the struggling Metamorph Group has gone into liquidation, it
was confirmed on Nov. 29, as the company's former chief has made a
surprise apparent return.
According to the Gazette, a notice in the London Gazette stated
that Beaumont ABS Ltd appointed liquidators earlier this month,
following agreement by the firm's creditors.
The liquidation is being handled by Michael Sanders and Steven
Illes of London insolvency firm MacIntyre Hudson LLP, the Gazette
discloses.
Beaumont ABS Ltd was part of the Manchester firm bpl Solicitors,
which is part of the consolidator Metamorph Group. It was
previously part of the US business LegalZoom but was acquired by
Metamorph in April 2020. At the time, it employed 129 staff.
Earlier this month, the Gazette reported that Beaumont ABS Ltd was
subject to a winding-up petition from estate agency Connells
Limited, a creditor. That petition had been due to be heard this
week at the business and property courts in Leeds, the Gazette
notes.
Beaumont ABS Ltd's accounts for 2021/22 were supposed to be filed
in June this year but are still overdue, the Gazette states. The
previous accounts, for the year ended June 30, 2020, showed that
turnover had increased slightly to GBP9.5 million and profit before
tax had jumped to GBP11.9 million from a loss of GBP2.2 million,
according to the Gazette. That turnaround was largely due to a
waiver of loansworth GBP13.8 million by the former parent group,
the Gazette relays.
CARILLION PLC: KPMG Missed Multiple Red Flags in Audits
-------------------------------------------------------
Jennifer Williams-Alvarez at The Wall Street Journal reports that
big four firm KPMG LLP missed multiple red flags when it audited
the financial statements of Carillion PLC, the liquidators of the
defunct construction and outsourcing firm said.
U.K. government officials sued KPMG seeking in January GBP1.3
billion -- equivalent to around US$1.55 billion -- and claiming the
audit firm failed to spot misstatements that would have led the
company's management to take different actions, the Journal
recounts.
According to the Journal, the filings in a commercial civil court
in London said dividends worth roughly GBP210 million and paid out
over the course of three years shouldn't have been made had the
auditor flagged the true state of Carillion's financials.
The company additionally incurred nearly GBP1.1 billion in losses
as it continued to trade after it should have been deemed
insolvent, the Journal relays, citing the filings which were made
public late last week.
KPMG received GBP29 million from Carillion without qualifying its
audit opinions over the course of 19 years, according to the
liquidators, the Journal notes. Qualified opinions indicate that
auditors have found issues in a company's financials, the Journal
states.
Carillion's liquidators in court filings on Nov. 25 said that KPMG
has yet to address claims that it failed to properly audit the
accounting of 20 construction contracts, the Journal recounts.
Carillion says the value of two contracts alone in the year ended
in 2016 was misstated by nearly GBP352 million and that had KPMG
acted as a reasonably competent auditor, it would have detected the
misstatements, the Journal discloses.
The construction company's liquidators also reject KPMG's argument
that the value of the construction contracts was concealed, the
Journal relates. This would have "required all relevant personnel
in the project teams, business units and senior management to
engage in a widespread and concerted fraud on the Group's auditors,
which they would not have done," the liquidators, as cited by the
Journal, said, adding that a reasonably competent auditor wouldn't
have allowed Carillion to withhold relevant documents.
The latest filings additionally point to a GBP14.4 million fine
announced by the U.K.'s audit and accounting regulator in July, the
Journal states. The Financial Reporting Council imposed the fine
for KPMG's failings related to the audits of Carillion in 2016 and
Regenersis PLC in 2014. Regenersis is a data-security company that
has been renamed Blancco Technology Group PLC. Four of the
accounting firm's former employees were fined and banned from the
auditing profession for varying numbers of years. A fifth was
"severely reprimanded," the FRC said.
Peter Meehan, a former KPMG partner who was responsible for the
fiscal 2016 Carillion audit, received the most severe penalty, with
a ban of 10 years from auditing and a GBP250,000 fine, the Journal
discloses.
The Carillion liquidators will rely at trial on findings from the
FRC's investigation, the filings show, the Journal notes.
"KPMG has failed to respond to material aspects of Carillion's
case," the Journal quotes a Carillion spokesman as saying.
KPMG in a July court filing denied that it was negligent when
signing off on Carillion's financials, the Journal recounts. KPMG
said there were no red flags the firm could have identified given
that the company's management allowed relevant audit information to
be concealed or did so itself, the Journal notes.
If there is no settlement between the liquidators and the audit
firm, the case against KPMG could go to trial in or around 2024,
the Journal discloses.
DE LA RUE: In Dispute with Auditors Over Going Concern Warning
--------------------------------------------------------------
Daniel Thomas at The Financial Times reports that De La Rue, the
currency maker, has warned that full-year profit will be below
market expectations and clashed with its auditors over the
inclusion of a going concern warning in its accounts.
The British banknote printer said on Nov. 23 that it expected
full-year adjusted operating profits to be between GBP30 million
and GBP33 million, lower than analyst estimates of about GBP36
million, after booking a series of exceptional charges related to
restructuring efforts, the FT relates.
De La Rue has criticised EY after the auditor warned of a "material
uncertainty" about the company as a going concern, the FT
discloses. In the audit statement, EY said that, in a "severe but
plausible downside scenario" where De La Rue lost key currency
contracts, it would breach a debt covenant on the group's credit
facility, the FT relates.
Clive Vacher, chief executive of De La Rue, told the FT that the
"board and management strongly disagree with this and believe it is
based on an analysis that is neither plausible nor realistic".
He said that its banks had signed an extension of this debt "less
than a week ago with the covenants unchanged  . . . we are
therefore surprised that our auditors, Ernst & Young, have chosen
to flag potential concern with our interest covenant next financial
year", the FT notes.
EY said: "We do not comment on the companies we audit. Our
priority continues to be the delivery of high quality audits."
Shares in the group shed about a fifth of their value in London
trading on Wednesday, Nov. 23, stretching their decline for the
year to about 50%, the FT relays.
Revenues fell more than 8% to GBP164.3 million for the six months
to September 24 after a drop in sales in its currency-making
operations, which were hit by customers using up stocks built up
over the pandemic when money use dropped sharply, the FT
discloses.
According to the FT, he said that the company continued to face
supply chain inflation, including higher prices for its polymer
notes business. The company reported an operating loss of GBP12.6
million in the first half, compared with an operating profit of
GBP13.8 million in the same period last year, the FT states.
The company outlined a new plan for the next three years, saying
that it expected to generate free cash flow, after pension
payments, for the next financial year, the FT notes.
Mr. Vacher, as cited by the FT, said that its turnround plan had
been successful in saving the company and making it more resilient
to tougher economic conditions.
ENTAIN HOLDINGS: Moody's Rates New EUR500MM Sec. Term Loan 'Ba1'
----------------------------------------------------------------
Moody's Investors Service has assigned Ba1 rating to the proposed
issuance by Entain plc (Entain)'s subsidiary Entain Holdings
(Gibraltar) Limited of a new EUR500 million senior secured term
loan B tranche due in June 2028. The existing USD1 billion senior
secured term loan B2 (TLB2) due 2029 issued by Entain Holdings
(Gibraltar) Limited is rated Ba1 and unaffected by the USD250
million add-on. The extension and the add-on are expected to be
placed in December 2022.
The facilities' rating is in line with the current Entain plc's Ba1
corporate family rating. The outlook is stable.
The proposed transaction represent a partial refinancing of the
EUR1,125 million senior secured term loan B3 (TLB3) due in March
2024 and is expected to be leverage neutral; the proceeds from the
TLB2 add-on will be used to pre-pay TLB3 and reduce the March 2024
payment to about EUR385 million, while the remaining EUR500 million
are to be extended to June 2028.
RATINGS RATIONALE
Moody's views the proposed transaction positively as it improves
Entain's liquidity by extending its debt maturities. The early
refinancing also improves cash flow visibility given uncertainties
remain on how the debt market will evolve in 2023.
The transaction is largely leverage neutral, however Moody's note
that, in October 2022, Entain upsized the TLB2 to USD1 billion from
an anticipated USD750 million. This resulted in a Moody's adjusted
leverage forecasted to be just above 3.5x by end of 2022 and
declining below 3.0x only during 2024 compared with 2023 in Moody's
prior expectations. Despite a slower deleveraging profile, the
rating agency notes that the company has restated its medium term
leverage target to be below 2x reported net debt to EBITDA (3.0x
pro-forma for the transaction).
The Ba1 CFR is supported by (1) Entain's business profile that has
improved over time through a combination of targeted acquisitions,
geographic diversification and organic growth; (2) the underlying
positive trend in demand in the online gaming sector as well as the
demonstrated ability to migrate part of its retail customers to
online during the lock down period; (3) the size of the group with
revenues set to exceed GBP4.5 billion in 2022 while maintaining
profitability and strong market share over the years; (4) the
competitive advantage stemming from Entain's proprietary technology
platform; and (5) strong free cash flow generation, that remained
positive in 2020 and 2021 and sufficient to cover the funding
requirement of BetMGM JV, combined with demonstrated deleveraging.
Entain's rating, however, remains constrained by (1) the highly
competitive nature of the online betting and gaming industry; (2)
the highly acquisitive nature of the company, being a consolidation
platform, that is unlikely to change in the near future; (3) the
company's ability to cash on the growth in the US market through
its JV and (4) the ongoing threat of greater regulation, gaming tax
increases, and regulatory fines, particularly in the largest and
most established European markets due to social pressure.
LIQUIDITY
Entain's liquidity position is solid, evidenced by (1) material
cash flow generation with an FFO well exceeding GBP600 million per
year and meaningful cash on balance sheet of GBP270 million net of
customer deposits as of June 2022 (pro-forma cash would be GBP335
million when taking into account repayment of September debt
maturities, the BetCity.nl acquisition considerations and
overfunding from the TLB2 raising); (2) an undrawn GBP590 million
senior secured RCF with expiry in 2026. The next debt maturity is
represented by the GBP400 million 2023 Ladbrokes notes (unrated)
which is likely to be repaid with internal sources.
The senior secured RCF benefits from a springing covenant once
drawn for at least 40%; the covenant level would is set at 6.0x
with a stepdown to 5.5x after 2023 and 5.0x after 2025, leaving
plenty of headroom.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's view that the business has
reached full recovery from the pandemic, is well positioned to
absorb the potential regulatory changes expected in the UK by the
end of 2022 and to benefit from a strong slate of sports events in
the next 12-18 months that will drive sports betting revenue
growth. Although the gaming sector is unlikely to be significantly
affected by economic cycle, the present macroeconomic environment
is likely to deteriorate leading to lower disposable income.
The stable outlook reflects the view that leverage will continue to
decline despite possible regulatory headwinds in the UK. Entain's
effort to date to pursue a responsible gaming strategy would
possibly mitigate some of the foreseen negative impacts from the
review of the Gaming Act later in 2022.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Upward pressure on the ratings could arise over time if the
company's (1) Moody's-adjusted gross leverage falls sustainably
below 2.5x; (2) the company's retained cash flow (RCF)/Net debt (as
adjusted by Moody's) remains sustainably above 35%. For an upgrade
Moody's also expects the group to further define its dividend
policy and reduce its appetite for yearly acquisitions.
Downward pressure on the ratings could occur if the company's (1)
Moody's-adjusted gross leverage is maintained for a prolonged
period of time above 3.5-4.0x; (2) retained cash flow (RCF)/Net
debt (as adjusted by Moody's) deteriorates towards 20% and (3)
changes to its financial policy resulting in greater appetite for
leverage. A downgrade could also occur as a result of materially
adverse regulatory actions in one or more of the larger
geographies.
STRUCTURAL CONSIDERATIONS
The extended portion of the TLB3 of EUR500 million will constitute
a separate tranche in the amended TLB3 facility agreement with a
revised pricing based on market appetite during the syndication
process; security and ranking are aligned with the remaining
balance with unchanged maturity.
All the TLBs and the GBP400 million 2023 Ladbroke notes rank
pari-passu and share the same security package, consisting mainly
of share pledges.
The rating of all debt instruments is in line with the CFR
reflecting a single debtor class in the capital structure.
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Gaming published
in June 2021.
COMPANY PROFILE
Entain is one of the largest global gaming & betting operators with
revenues of GBP4.2 billion and EBITDA of GBP0.95 billion for the
last twelve months ending June 2022; it has operations in 31
regulated or regulating territories, more than 25,000 people in 20
offices across five continents. Listed on the London Stock Exchange
and a constituent of the FTSE 100 index, it has a market
capitalisation exceeding GBP6.5 billion.
JOLLY JACKS: Put Into Creditors Voluntary Liquidation
-----------------------------------------------------
William Telford at PlymouthLive reports that Plymouth's Jolly Jacks
restaurant is to go into liquidation and the company wound up after
having shut suddenly.
Liquidators at Newcastle under Lyme-based Currie Young Ltd have
been appointed to put the company into creditors voluntary
liquidation, PlymouthLive relates.
A resolution to wind up Jolly Jacks Ltd was passed on Nov. 17,
PlymouthLive discloses.
The award-winning Mayflower Marina restaurant shut on Oct. 28, with
owner Sue Robson blaming staff shortages, reduced takings and
rising food and utility bills for driving it out of business,
PlymouthLive recounts. She insisted staff will be paid money owed
and said she was confident the business was salvageable and new
owners could re-employ workers, PlymouthLive notes.
However, the company is now to be liquidated, which means it cannot
be bought, PlymouthLive states. But assets such as stock and
goodwill can be bought, according to PlymouthLive.
Mrs. Robson, who now lives in Portugal, said the business had been
hit with a string of problems which had made it "unsustainable",
PlymouthLive relates. She said the restaurant had found it
increasingly difficult to recruit staff following the relaxation of
Covid restrictions, PlymouthLive notes.
She said wages for chefs, usually supplied via freelance agencies,
had gone up and many had been "poached" by other eateries,
PlymouthLive relays. The business had then been hit by other cost
hikes while at the same time earnings had fallen, according to
PlymouthLive.
KELLY PROPERTY: Goes Into Liquidation, Owes More Than GBP144,000
----------------------------------------------------------------
William Telford at PlymouthLive reports that a Plymouth building
firm went bust leaving a GBP64,000 County Court judgment unpaid
among claims totalling more than GBP144,000.
According to PlymouthLive, Tamerton Foliot-based Kelly Property
Services (Plymouth) Ltd is now in liquidation and also owes
GBP65,853 to Barclays Bank.
The company was this month ordered to pay GBP60,736, plus interest
and GBP3,000 in costs, to a claimant by the County Court Money
Claims Centre, PlymouthLive relates. It is understood this
judgement in default relates to building work carried out on a
house in Plymouth, PlymouthLive notes.
The business held meetings with creditors in September and October
2022 and appointed liquidators in October, passing a resolution to
voluntarily wind up the company, PlymouthLive discloses. Documents
filed at Companies House showed it had just GBP6,000 in the bank
but faced claims of GBP144,614, PlymouthLive states.
A claim from the taxman for GBP2,595 will be paid, leaving just
GBP3,405 for the other claimants, PlymouthLive says. This includes
the sum owed to Barclays and the outstanding County Court
judgement, according to PlymouthLive. The statement of affairs
document reveals there is likely to be a shortfall of GBP138,614
for creditors, PlymouthLive discloses.
PCB ELECTRICAL: Owed More Than GBP500,000 at Time of Collapse
-------------------------------------------------------------
William Telford at PlymouthLive reports that a Plymouth electrical
business has gone bust with debts of more than GBP500,000 after
being owed a significant sum when a larger city construction firm
went under.
According to PlymouthLive, Plymstock-based PCB Electrical Services
Ltd, which traded as PCB Group, was owed more than GBP100,000 when
Henry W Pollard and Sons Ltd went to the wall in 2021 with debts of
more than GBP15 million and leaving dozens of smaller companies out
of pocket.
Pollard, which had been in business for 161 years and had offices
in Plymouth and Bridgwater, ceased trading leaving buildings, such
as Mount Wise's Teesra House, unfinished, PlymouthLive relates. It
has recently been estimated unsecured creditors will receive just
4p in the GBP1, PlymouthLive discloses.
Electrical engineering firm PCB has now followed the larger company
into liquidation, PlymouthLive relays. It held a meeting of
creditors in October 2022 and appointed liquidators the following
month, PlymouthLive recounts.
The company, incorporated in 2006 and stating its business as
"electrical installation", has received creditor claims amounting
to more than GBP544,000, PlymouthLive states. But documents filed
at Companies House reveal liquidators are expecting to collect
assets of GBP351,885, PlymouthLive notes.
This includes GBP130,127 of cash in the bank, and GBP198,201 which
can be clawed back from debtors, although GBP324,685 is actually
owed to the company, PlymouthLive states. But despite this, it is
estimated that creditors will be short of a total of GBP218,270,
according to PlymouthLive.
The company's statement of affairs reveals five employees are
likely to receive the GBP6,786 they are jointly owed as
preferential creditors, and the taxman will pocket GBP13,402 that
is due, PlymouthLive discloses. But the workers may not receive
all of another GBP27,303 in non-preferential claims, and other
unsecured creditors are asking for a total of GBP549,961,
PlymouthLive notes.
PCB's most recent accounts, for the year to March 2021, revealed
the firm had net assets of GBP74,132 and at that time employed six
people, PlymouthLive discloses. The financial statement also
reveals the company was owed GBP104,321 by Pollard when it went
bust in 2021, according to PlymouthLive. Pollard's statement of
affairs, filed at Companies House after PCB's accounts were filed,
showed the company was claiming GBP134,393, PlymouthLive notes.
*********
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