/raid1/www/Hosts/bankrupt/TCREUR_Public/221209.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
Friday, December 9, 2022, Vol. 23, No. 240
Headlines
F R A N C E
CIRCET EUROPE: Fitch Affirms 'B+' LT IDR, Alters Outlook to Pos.
EDEN SAS: Moody's Assigns B2 CFR, Rates New Senior Secured Debt B2
ILIAD SA: Moody's Rates New EUR750MM Senior Unsecured Notes 'Ba2'
G E R M A N Y
ASTERIX HOLDCO: Moody's Assigns First Time B2 Corp. Family Rating
DEUTSCHE LUFTHANSA: Moody's Affirm 'Ba2' CFR, Outlook Now Stable
WIRECARD AG: Former Head Goes on Trial Following Collapse
I T A L Y
LIBRA GROUPCO: S&P Affirms 'B' ICR on Planned Atos Acquisition
POPOLARE BARI 2017: Moody's Cuts EUR80.9MM A Notes Rating to Caa1
N E T H E R L A N D S
LEALAND FINANCE: DoubleLine ISF Values 2024 Loan at 64% of Face
LEALAND FINANCE: DoubleLine ISF Values 2025 Loan at 51% of Face
LEALAND FINANCE: DoubleLine OCF Values 2024 Loan at 64% of Face
LEALAND FINANCE: DoubleLine OCF Values 2025 Loan at 51% of Face
SCHOELLER PACKAGING: Moody's Cuts CFR & Sr. Secured Notes to Caa1
P O L A N D
CANPACK SA: S&P Downgrades Long-Term ICR to 'BB-', Outlook Negative
S P A I N
PARQUES REUNIDOS: S&P Alters Outlook to Stable, Affirmed 'B-' ICR
U N I T E D K I N G D O M
DELTA TOPCO: Fitch Assigns 'BB' Final LongTerm IDR, Outlook Stable
GKN HOLDINGS: Fitch Affirms LongTerm IDR at 'BB+', Outlook Stable
JOULES: Perth Store Saved Following Rescue Deal
RANGERS FC: Liquidators Reach GBP54-Mil. Settlement with HMRC
SHADE LIMITED: Goes Into Administration
SHUROPODY RETAIL: Bought Out of Administration via Pre-pack Deal
WASPS: Owed GBP95 Million at Time of Administration
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F R A N C E
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CIRCET EUROPE: Fitch Affirms 'B+' LT IDR, Alters Outlook to Pos.
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Fitch Ratings has revised the Outlook on French telecoms provider,
Circet Europe SAS's Long-Term Issuer Default Rating (IDR) to
Positive from Stable and affirmed the IDR at 'B+'. Fitch has also
affirmed the EUR1,825 million senior secured term loan B (TLB) at
'BB-'/RR3/57%.
The Positive Outlook reflects its view that Circet's EBITDA growth
and solid free cash flow (FCF) generation of 4-5% could accelerate
deleveraging, reducing leverage to 4.5x over the next 12-18 months,
a year earlier than previously expected.
The rating reflects Circet's still-high EBITDA leverage after its
acquisition by Intermediate Capital Group (ICG) in 4Q21, coupled
with pressured margins in an inflationary environment for 2022 and
geographical expansion into less profitable markets, albeit with a
good growth platform, such as the US. A good record of project
execution, increased scale, geographical diversification, and
leading positions in key markets offset the customer concentration
and inherent risks from its acquisitive strategy.
KEY RATING DRIVERS
Temporary Margin Erosion: Fitch expects Circet's FY22 profitability
to be adversely affected by inflationary pressure and
margin-diluting acquisitions of the Italian and US entities. Circet
has renegotiated pricing with its customers, which is likely to
partially restore profitability, albeit with some time lag.
Inflationary challenges from personnel costs could be mitigated by
a subdued labour market in some operating countries. Nevertheless,
with an EBITDA margin forecast between 13%-13.5% beyond 2022,
Circet is still solidly positioned against peers like Spie and
Whistler and is in line with its expectation for investment-grade
profitability medians in the diversified services navigator.
Deleveraging Supported by Strong FCF Generation: The recent
acquisitions were largely financed via a term loan B (TLB) add-on
and drawn-down of the up-sized revolving credit facility (RCF).
Fitch forecasts EBITDA leverage will remain stable despite the
EBITDA margin erosion. Fitch believes that EBITDA leverage will
drop below 4.5x as early as 2023 and Circet has deleveraging
capacity supported by strong FCF generation. Its FCF margin is in
line with higher rated peers and could result in a rapid build-up
of cash balances. Cash deployment to finance new, sizable
acquisitions, together with increased borrowing could hinder
deleveraging.
More Diversified Geographical Footprint: Fitch expects Circet's
revenue to grow to over EUR3 billion in 2022 from EUR1.4 billion in
2019, implying a CAGR of over 20%. This is driven by strong organic
growth in existing markets and expansion into new regions through
M&A, as demonstrated by its entry into Benelux (2020) and Germany
(2021). Fitch expects the two acquisitions in Italy and the US at
the start of 2022 to add combined annual revenue of EUR700 million
per year. Circet will likely remain a small player in the US
market, but it will benefit from the growth prospects from
increased adoption of fibre in the states in which it operates.
Improved Business Profile: Market-leading positions, strong
contract execution and a reputation for expertise and quality
continue to support Circet's business profile. Its scale and
diversification are commensurate with a 'bb' midpoint according to
the diversified services navigator. Dependence on the French
telecom infrastructure and on Orange has continued to decline.
Service diversification is also satisfactory as Circet moves up the
value chain and increases its added-value per contract.
Nonetheless, there is still customer, geographic and end-market
concentration. This is mitigated through a high contracted income
structure and recurring revenue stream.
Leading Market Position: Leading market positions in its core
service fields in France, Ireland and the UK, Germany, and Benelux
with its Circet and KN brands, are a positive credit factor. Circet
has effectively used its expertise in telecom infrastructure
services to secure out-sourcing contracts with several major
European telecom operators, such as Orange, SFR, Deutsche Telekom,
and BT/Openreach. The expansion into the US market grants Circet
access to customers outside Europe and potentially attract
cross-region business opportunities with existing clients. Fitch
believes that the group is the only market operator able to work on
all technologies while being involved in the design, roll-out,
activation and maintenance of its client's network.
Manageable Earning Risks: Moderate customer diversification and
significant exposure to new build contracts create meaningful, but
manageable, earning risks, notably through contract renewal risk.
Circet's operations remain concentrated in France (41% pro-forma
for recent acquisitions), but Fitch expects this share to decrease.
Its two largest customers still account for around 23% of revenue
and its services offering is focused on the telecommunication
infrastructure market. Longer technology cycles and high fibre
coverage in the long term could weigh on the availability of build
contracts. The telecom industry's low cyclicality, growing
maintenance and subscriber connection capabilities, a good customer
retention rate and the trend toward out-sourcing are mitigating
factors.
DERIVATION SUMMARY
Circet's business profile solidly maps to the 'BB' rating category.
Its ratings are supported by leading market positions, strong
contract execution, adequate scale and services diversification for
the TMT sector, and exposure to high-profile customers. However,
geographical and customer concentration, although materially
improving , remain weak features of the business profile. Circet is
stronger than smaller similarly-rated peers that are more focused
on one service offering and one country. It also compares well with
peers that offer a wider range of services to broader end-markets,
such as Spie, Morrison or Telent.
Like most Fitch-rated medium-sized business services companies,
Circet benefits from a leading position in a specific end-market.
Sales also tend to be concentrated on a limited number of customers
in a small number of countries. However, this is a characteristic
of the TMT sector composed of few operators, often a leader in
their own country. Fitch believes that Circet's resilience through
the cycle is likely to be greater than services peers as the
company is exposed to the telecom industry with low cyclicality.
Circet's lean and flexible cost structure supports operating and
cash profitability that is significantly higher than peers and
strong for the current rating. EBITDA leverage of 5.3x in 2022
exceeds its expectation for the 'BB' median of 4.0x. However, Fitch
expects Circet to deleverage rapidly towards 5.0x for FFO leverage
and 4.0x for EBITDA leverage over the next 24 months, which is more
commensurate with a 'BB' rating.
KEY ASSUMPTIONS
RECOVERY ASSUPTIONS:
A going concern (GC) EBITDA of EUR300 million, compared with 2022
pro forma post-acquisition EBITDA of EUR400 million is assumed,
implying a discount rate of about 33%. Financial distress is likely
to occur if Circet loses one or two customers that account
for10%-20% revenue, coupled with erosion in EBITDA margin toward
the industry average (approximately 10%) from the current double
digits. Its cash flow calculation shows with the assumed GC EBITDA
Circet is still able to remain cash flow-neutral as a GC.
An enterprise value (EV) multiple of 5.0x is used to calculate a
post-reorganisation valuation, which reflects Circet's absolute
small size (though sizable relative to peers') and a business model
that is exposed to regulations, TMT development and concentration
in customers.
Circet's debt comprises the RCF, TLB, and a small amount of local
bank lines. The RCF carries a springing covenant (net senior
secured debt leverage of under 9.0x) when utilisation exceeds 40%.
Fitch does not expect any breach of covenant with its GC EBITDA
assumption. Therefore, the RCF is assumed to be fully drawn at
EUR300 million. Fitch also considered the factoring utilisation of
EUR160 million in the recovery analysis.
Its analysis results in an instrument rating of 'BB-' with a
Recovery Rating of 'RR3'. Based on its assumptions used for
recovery, its waterfall calculation implies a 57% recovery.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- EBITDA leverage below 4.5x on a sustained basis
- FFO gross leverage below 5.5x on a sustained basis
- FCF margin above 5% on a sustained basis
- Increasing share of life-of-contract revenue and improving
contract length
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- EBITDA leverage above 5.5x
- Failing to deliver an FFO gross leverage below 6.5x before
end-2022
- FCF margin below 2.5%
- Loss of contracts with key customers
LIQUIDITY AND DEBT STRUCTURE
Ample Liquidity: Fitch expects Circet to end 2022 with
approximately EUR200million cash, after its adjustment for
restricted cash. Fitch considers the internally generated cash more
than sufficient to sustain working capital swings mainly resulting
from project deployment process. The liquidity position is
additionally supported by the EUR64 million undrawn portion of RCF
of after the US acquisition. On the back of solid cash generation,
Fitch anticipates gradual cash build-up in the coming years to more
than EUR400 million by 2023, which will give the group some
deleveraging capacity.
Distant Balloon Debt Maturity: The TLB and RCF are both
floating-rate and due in 2028, and comprise the majority of debt.
Circet has overdraft and bank borrowings. Fitch forecasts Circet's
future bolt-on acquisitions to be self-financed and do not expect
it to face significant, imminent debt maturity and refinancing
needs over the rating horizon. Financial hedging instruments are in
place for part of the debt obligation, which mitigates the risk
from rising benchmark rates. Circet also has a factoring line of
around EUR160 million.
ISSUER PROFILE
Cirect Europe owns France-based Odyssee, which is the number one
provider of telecom infrastructure services for telecom operators
in France and now has leading positions in several other European
countries.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Recovery Prior
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Circet Europe SAS LT IDR B+ Affirmed B+
senior secured LT BB- Affirmed RR3 BB-
EDEN SAS: Moody's Assigns B2 CFR, Rates New Senior Secured Debt B2
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Moody's Investors Service assigned a B2 corporate family rating and
a B2-PD probability of default rating to Eden S.A.S. (Safic-Alcan
or the company), and B2 instrument ratings to the proposed EUR470
million senior secured term loan B (TLB) and the proposed EUR90
million senior secured revolving credit facility (RCF), both to be
issued by Eden S.A.S. The outlook is stable.
The proceeds from the debt issuance will be used primarily to
finance the purchase of Mytril SAS, repay existing debt, pay for
transaction-related fees, and finance general corporate purposes to
the extent of any overfunding at the allocation date. Additional
sources of funding include equity contributions from its existing
and new shareholders. The company remains majority owned by
management, including shares ultimately owned by employees.
RATINGS RATIONALE
The assigned B2 CFR reflects Safic-Alcan's fairly high tolerance
for financials risks, illustrated by its relatively high Moody's
estimated adjusted gross leverage, on a pro-forma basis for the new
capital structure and including full-year contribution of
acquisitions, of around 5x for the last 12 months ended October
2022. The company's starting leverage is relatively modest compared
to other B2 rated distributors, which positions the company
strongly in the B2 rating category. Moody's expects the energy
crisis in Europe, where the company generates the vast majority of
its sales, along with high inflation and higher interest rates, to
reduce demand for its products in 2023, pressuring earnings.
Moody's believes that profitability for most chemical distributors
has more or less peaked for the next 12 months However, Moody's
expects Safic-Alcan's gross leverage to remain below 5.5x over the
next 12-18 months.
The company's direct exposure to energy prices is materially lower
than that of the overall chemical sector because Safic-Alcan acts
as an intermediary between chemical producers and customers. Its
operations have relatively low energy intensity, with the exception
of one industrial plant in the United Kingdom. The company benefits
from a variable cost structure, with cost of goods sold tied to
demand and chemical prices. Personnel costs are the second largest
expense for the company.
The company's relatively small size compared to other rated
distributors (both in chemicals distribution and distributors more
generally); limited geographical diversification, which increases
the company's susceptibility to demand shocks in its main markets;
relatively high pro-forma starting gross leverage, though lower
compared to other B2 rated specialty chemicals distributors; and
higher share of sales to more cyclical applications (e.g.
construction or automotive) compared to other pure specialty
chemicals distributors, notwithstanding significant exposure to the
life science end markets, such as food or pharma; constrain the
rating.
The B2 rating incorporates some event risk in the form of
debt-funded acquisitions, but management's more prudent approach
towards acquisitions compared to some of its rated industry peers
reduces the risk of large debt-funded acquisitions. The rating
agency expects most future acquisitions to be small and executed
with moderate valuation multiples.
The company's strong European market position in specialty
chemicals distribution; good profitability for a distributor,
supported by value-added services and private label activities;
capacity to generate meaningful free cash flow (FCF) because of the
capex light business model, though working capital requirements can
be significant; diversified customer and end market exposure; and
track record of reducing net leverage during the last two
management-led buyouts, support the B2 CFR.
Many chemicals distributors experienced strong organic growth since
the beginning of 2021 because of solid demand and constrained
supply leading to peak profitability levels in the industry.
Moody's considers the chemical distribution industry more resilient
to demand shocks relative to the chemical industry but believes
that the industry is not immune to macroeconomic cycles. In the
past, most chemicals distributors performed fairly well during
downturns and exhibited counter cyclical working capital
movements.
LIQUIDITY PROFILE
Moody's considers the company's liquidity profile good. As of end
October 2022, the company had around EUR28 million of cash on
balance sheet and around EUR84 million of availability under its
committed revolving credit facility (RCF). In combination with
funds from operations, these sources should be sufficient to cover
intra-yearly working capital swings, capital expenditure and
working cash.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's expectation that credit metrics
will remain in line with the B2 rating category over the next 12 to
18 months and the company will generate positive FCF.
ESG CONSIDERATIONS
Moody's governance assessment for Safic-Alcan incorporates its
leveraged capital structure, reflecting high risk tolerance of its
shareholders, as well as some key person risk given the significant
control of a small number of key individuals, which is partly
offset by the long experience of the management team and the
non-executive members of the supervisory board. Nevertheless,
Moody's views the financial policy of the company as more
conservative compared to most private equity owned companies. Also,
the company's reporting entails weaker reporting standards than
those of public companies, and its annual reports are prepared
under French GAAP, which, to a degree, limits full comparability
with those of the companies reporting under US GAAP or IFRS.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could consider a rating upgrade in the context of further
significant expansion and geographical diversification of
Safic-Alcan's revenue base. An upgrade would also be likely if the
company reduces its Moody's-adjusted total debt/EBITDA sustainably
below 5.0x and continues to generate positive free cash, while also
maintaining an adequate liquidity profile.
Negative pressure on the ratings could arise with evidence of
inability to generate sustained positive free cash flow or
deterioration of the liquidity profile. A downgrade also would be
likely if Moody's-adjusted total debt/EBITDA increases above 6.0x
or EBITA/interest expense is below 1.75x on a sustainable basis.
STRUCTURAL CONSIDERATIONS
Moody's rates the proposed EUR470 million senior secured term loan
B and the proposed EUR90 million RCF at B2 in line with the CFR.
These debt instruments rank pari passu and share the same security
package and guarantor coverage. Entities representing a minimum of
80% of consolidated EBITDA, subject to certain limitations, will
guarantee the senior secured debt.
Moody's understands that there will be a sizeable subordinated
convertible note (obligations à bons de souscription d'actions)
outside the restricted group, which is held by equity participants
with the exception of management and employees, at the level of
Wistera, one entity above Eden S.A.S. The rating agency does not
include the instrument in its leverage calculation nor in its
structural considerations.
The principal methodology used in these ratings was Distribution &
Supply Chain Services Industry published in June 2018.
COMPANY DESCRIPTION
Headquartered in La Defense, France, Eden S.A.S. (Safic-Alcan or
the company) is a leading Europe-focused specialty chemicals
distributor. The company's main product categories are rubber &
adhesives, personal care, pharmaceuticals, and coatings, inks &
construction. In 2021, the company generated reported EBITDA of
around EUR78 million.
ILIAD SA: Moody's Rates New EUR750MM Senior Unsecured Notes 'Ba2'
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Moody's Investors Service has assigned a Ba2 rating to the proposed
EUR750 million senior unsecured notes due 2027 to be issued by
Iliad S.A. ("Iliad"), the operating subsidiary of Iliad Holding
S.A.S. ("Iliad Holding" or "the company"), a European
telecommunications operator with presence in France, Italy and
Poland. The outlook is stable.
Proceeds from this debt issuance will be used to partially
refinance the EUR2 billion bridge facility maturing on January 1,
2025.
"The refinancing will marginally increase Iliad's weighted average
debt maturity" says Ernesto Bisagno, a Moody's VP-Senior Credit
Officer and lead analyst for Iliad.
"The transaction is leverage neutral, but given the current market
conditions, the interest costs are higher than those of the
outstanding bonds," added Mr Bisagno.
RATINGS RATIONALE
Iliad Holding's Ba3 rating reflects: (1) the company's scale and
geographical diversification owing to the company's presence in
France, Italy and Poland; (2) its strong positioning in the French
and Polish telecom markets with a growing market share in the
Italian mobile segment; (3) its solid revenue growth rates and
margins, which remain above industry average; and (4) the
expectation of improving free cash flow (FCF) generation (before
spectrum payment).
However, the rating also reflects: (1) the company's high leverage
with Moody's adjusted leverage expected at around 4.8x in 2022 (pro
forma for 12 months contribution from UPC Poland), following the
debt financed expansions in Italy and Poland, and the debt incurred
to fund share buybacks and the take private deal; (2) uncertainties
around the path of deleveraging and, more broadly, financial
policies going forward owing to the concentrated ownership despite
management's commitment to deleverage to below 4.0x in the short
term; (3) the highly competitive market environment; (4) the
sustained capex levels largely as a consequence of 5G investments
in France and the roll-out of its own network in Italy, which put
pressure on free cash flow generation; and (5) modest execution
risk from M&A activity.
Iliad's revenue increased materially over 2019-21, driven by a
combination of positive organic growth in Italy and France, and the
contribution from the acquisition of Play Communications SA (Play)
in Poland. Underlying growth was particularly strong in 2021, with
revenue and EBITDA (before lease expenses) up by 29% and 57%,
respectively (up 4.8% and 22.3%, excluding M&A contribution), with
the Italian operations reaching EBITDA break-even for the first
time since launch, driven by stronger revenue and good progress of
the network rollout plan. Operating performance remained strong in
2022, with revenue and EBITDA (before lease expenses) up by another
9.6%/12.6% for the first 9 months (up 6.7% and 9% excluding M&A
contribution).
Despite strong growth, the company's Moody's-adjusted FCF was
negative over 2020-21 because of high capex. In addition, Iliad
Holding's debt increased further in 2021 because of the EUR3.1
billion take-private deal and Moody's-adjusted debt/EBITDA
increased to 5.3x as of December 2021 (from 5.0x as of December
2020, pro forma for the 12 months contribution from Play). Over the
past five years, Moody's adjusted debt has increased to EUR19.3
billion in 2021, including new debt at the holding company level
which was created in 2019.
Moody's expects Iliad's revenue to increase in the high single
digit range each year over 2022-23, driven by the contribution from
the acquired assets in Poland and positive organic growth across
all of Iliad's geographies. Moody's expects that the impact from
higher inflation will not derail profit growth, owing to a
combination of manageable staff costs and increased cost
efficiencies, offsetting higher energy costs.
In 2022, the rating agency expects FCF to improve and be broadly
neutral (before spectrum payment) benefiting from stronger EBITDA,
steady working capital needs and capital spending; partially offset
by higher tax paid on the gain on past disposals and higher
interest paid. Iliad's Moody's adjusted debt will remain broadly
stable at December 2022, because the impact from the acquisition of
UPC Poland was offset by debt repayments with proceeds from the
towers disposal. In 2023, Moody's expect FCF to turn positive
towards EUR250 million - EUR300 million, mostly driven by
additional earnings growth but will also depend on the funding
costs for the refinancing of the 2023 debt maturities.
Because of higher earnings, the company's Moody's-adjusted
debt/EBITDA will improve to 4.8x in 2022, and decrease towards 4.6x
by 2023, which would leave the company more adequately positioned
in the rating category.
LIQUIDITY
Iliad Holding's liquidity is adequate and reflects a combination of
(1) cash of EUR434 million at September 30, 2022; (2) expected
neutral free cash flow before spectrum payment in 2022, improving
towards EUR250 million in 2023; (3) access to fully undrawn three
multi-year revolving credit facilities of EUR2,000 million (at
Iliad, recently upsized from EUR1,750 million and extended to July
2027 plus two year extension options), EUR413 million equivalent
(at Play) and EUR300 million (at Iliad Holding), respectively; and
(4) access to a new EUR2 billion bridge facility maturing on the 1
of January 2025 (EUR300 million used at September 2022).
The closest debt maturities include the EUR650 million senior
unsecured bond maturity which was repaid in December 2022, the
EUR419 million (out of EUR500 million Schuldschein issue) due in
May 2023, and the EUR600 million senior unsecured bond due in
February 2024.
There are maintenance financial covenants on Iliad's and Play's
Revolving Credit Facilities (RCF) set at 3.75x and 3.25x,
respectively. Iliad Holding's RCF includes a springing leverage of
7.0x and expected to be tested once the RCF will be more than 40%
drawn. Moody's expects headroom under the covenants to remain
adequate over the next 12 months, although to diminish at Iliad
level, due to the increased net debt following UPC Poland's
acquisition and the spectrum payment.
STRUCTURAL CONSIDERATIONS
Moody's has used the standard 50% family recovery rate assumption
given that the capital structure includes a mix of both bank loans
and bonds. The Ba2 assigned to Iliad's senior unsecured notes is
one notch above the CFR and reflects their senior ranking in the
waterfall of liabilities, as the debt at Opco level is closer to
the cash flow generating assets. The B2 instrument rating on Iliad
Holding's backed senior secured notes is two notches below the CFR,
reflecting its structural subordination to the debt raised at Play
and Iliad, and the contractual subordination to the super senior
RCF at Iliad Holding.
RATIONALE FOR STABLE OUTLOOK
Due to the high leverage, Iliad Holding is currently weakly
positioned in the rating category with no headroom for operational
underperformance against current expectations. However, the stable
outlook reflects Moody's expectations that the company will be
committed to a deleveraging path and reduce its Moody's-adjusted
leverage towards 4.6x, at the latest by fiscal 2023, supported by
ongoing operating performance improvements in France, Poland and
Italy. The stable outlook also assumes that FCF will improve and
turn positive (before spectrum payments) in 2023.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Upward rating pressure in the next 12-18 months is unlikely but
could develop if the company successfully delivers on its business
plan, showing strong and stable revenue growth as well as a
sustainable improvement in EBITDA margins. Quantitatively, that
would require Moody's adjusted debt/ EBITDA to reduce below 3.75x
and Moody's adjusted retained cash flow (RCF) to improve towards
20%.
Downward pressure on the ratings could develop if operating
performance deteriorates relative to expectations or the company
engages in large debt-financed acquisitions, such that its Moody's
adjusted debt / EBITDA remains above 4.75x; its Moody's adjusted
RCF to debt stays below 15%; or if the company fails to address its
funding requirements in the coming months.
LIST OF AFFECTED RATINGS
Assignments:
Issuer: Iliad S.A.
Senior Unsecured Regular Bond/Debenture, Assigned Ba2
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was
Telecommunications Service Providers published in September 2022.
COMPANY PROFILE
Iliad Holding is the holding company owned by Mr Xavier Niel.
Headquartered in Paris, Iliad Holding is a leading
telecommunications operator in France, Italy and Poland, with 43.4
million subscribers and more than 15,000 employees. In 2021, the
company reported revenues of EUR7.6 billion and EBITDAaL of EUR2.95
billion.
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G E R M A N Y
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ASTERIX HOLDCO: Moody's Assigns First Time B2 Corp. Family Rating
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Moody's Investors Service has assigned a B2 corporate family rating
and a B2-PD probability of default rating to Asterix HoldCo GmbH
("Asterix"), a new entity created for the acquisition of The
Quality Group GmbH ("TQG" or "the company"), a German producer and
direct seller of sports and dietary nutrition products.
Concurrently, Moody's has assigned B2 ratings to the EUR300 million
backed senior secured term loan B and the EUR50 million backed
senior secured revolving credit facility both due in 2029 and
borrowed by Asterix AcquiCo GmbH. The outlook on all ratings is
stable.
On July 2022, CVC Capital Partners ("CVC") completed the
acquisition of a majority stake of TQG alongside with all previous
owners, who reinvested in the business as minority shareholders.
The transaction valued the company at around EUR800 million, and
was financed with a mix of debt and equity, including a 7-year
EUR300 million term loan B and a 6.5 years EUR50 million revolving
credit facility.
"The B2 rating reflects TQG's relatively strong financial profile,
supported by its high profitability and cash generation and
moderate leverage for the rating category, as well as its leading
market position in the sports and dietary nutrition market in
Germany," says Valentino Balletta, a Moody's Analyst and lead
analyst for TQG.
"However, the rating is constrained by the company's limited scale,
narrow business focus and relative concentration in Germany, as
well as some inherent risks related to its influencer-led marketing
business model," adds Valentino Balletta.
RATINGS RATIONALE
The B2 CFR reflects (1) the company's high profitability and cash
conversion rate, supported by a lean and flexible cost structure;
(2) its moderate leverage for the rating category; and (3) the
leading market position of its two core brands (ESN and More
Nutrition) in the narrow but fast growing sports and dietary
nutrition market.
The rating is constrained by the company's small scale,
geographical concentration in its domestic market, production
concentration in one manufacturing plant and business focus on the
niche sports and nutrition market, which is characterised by
limited barriers to entry, and with a focus on a few product
categories as well as some inherent risks related to its
influencer-led marketing business model.
TQG's business model carries a degree of operating risk because of
its reliance on influencers and the need to continue to focus not
only on maximising customer retention but also on winning new
customers. The potential shifts in consumer spending away from the
company's products or a declining appeal for certain influencers
create risks. The business model is untested through different
economic cycles, while the company needs to demonstrate a track
record operating the 2 core brands. Also, as the sports and
nutrition industry remains fragmented and highly competitive, there
is a risk that TQG will eventually turn to acquisitions to
diversify its platform and broaden its geographical presence and
product portfolio, although its immediate plan is to focus on
growing its existing business lines. Inorganic growth could
represent an event risk and will eventually constrain any
deleveraging.
The credit profile is supported by moderate financial leverage of
around 3.2x in 2022, and its high profitability and cash flow
generation, as well as supportive industry dynamics driven by an
increasing demand for wellness products. TQG's strong double digit
revenue growth over the past few years demonstrates the company's
ability to attract new customers to a product line that is priced
at a premium and supported by increasing penetration of online
sales.
TQG has high profitability, with an EBITDA margin of 33% in 2021,
stemming from its direct-to-consumer distribution model, its
premium price positioning (particularly for the More Nutrition
brand), its unique influencer-centric marketing approach which
allows to minimize marketing and advertising expenses, and the
company's very lean cost structure, with limited fixed costs. The
strong top line and EBITDA growth has continued in 2022, with
revenues in the last-twelve month ended August 2022 growing by 70%
and EBITDA by 50%, compared to the same period of the prior year.
EBITDA margins have slightly reduced to 28.3% as a result of higher
raw material and fulfilment costs, which were partially compensated
by price increases, though with a time lag.
Moody's expects TQG's EBITDA margin to reduce towards 20%-23% in
2023. Under the new ownership, TQG will implement a number of
initiatives to accelerate business growth by scaling logistics
activities, improving customer experience, expanding the product
portfolio and increasing its presence in different channels. This
strategy carries some execution risks and will require investments,
including an IT system and additional headcount, which will
ultimately increase General and Administrative costs. In addition,
the planned expansion into new geographies and increased
diversification in distribution channels, will weigh on margins
because of increased marketing and logistics spend, though will be
offset by the increased scale and geographic diversification of the
business.
Moody's expects TQG's free cash flow to remain solid supported by
its good margins, modest working capital needs and asset light
structure despite some capex investments. As a result, Moody's
expects gross leverage (adjusted gross debt to EBITDA) to remain
well below 4.0x through 2024.
LIQUIDITY
Moody's expects TQG to maintain good liquidity in the next 12-18
months following the transaction, supported by a post-closing cash
balance of EUR26 million as of July 2022 and a EUR50 million
committed RCF due in 2029. The RCF is undrawn at closing, with
ample headroom under the springing covenant of total net leverage
at Holdco level not exceeding 6.3x, tested when the facility is
more than 40% drawn.
Moody's also expects TQG to generate solid FCF of more than EUR40
million in financial year 2022 and around EUR25 and EUR30 million
per year in 2023 and 2024, respectively. FCF is supported by low
working capital needs with limited seasonality and by its asset
light business model with modest capital spending requirements (at
around EUR10 million per year), although slightly increasing in
2023 to around EUR17 million due to some project based capex to
support growth. In addition, Moody's positively view the fact that
the company has hedged 65% of its interest rate exposure through a
cap on the Euribor at 3% for 3 years.
Assuming no RCF utilisation, the company will have no material debt
maturities until 2029, when its term loan is due.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
TQG's ESG credit impact score is highly negative (CIS-4), mainly
driven by the credit exposure to governance risks, which reflect
its small scale and a relatively concentrated ownership between the
private equity firm CVC Capital Partners and the founders. The
company's environmental risk and social risk are both moderate.
TQG's exposure to environmental risks is moderately negative (E-3)
reflecting some moderate risks for natural capital, carbon
transition and physical climate risk. These risks are, respectively
related, to its reliance on raw materials, including milk-based and
whey-based proteins used in many of its products, the carbon
emissions generated in respect of transportation of the products it
sells via its online operations, as well as the physical climate
risks associated with its single production facility, which exposes
it to moderate risk in case of natural or human-made disasters
affecting the plant. TQG also has exposure to waste and pollution
risks as the company creates waste in food manufacturing,
packaging, and disposal. Regulations and consumer preferences are
likely to evolve to reduce packaging or improve recyclability or
biodegradability of packaging, which could increase the cost of
compliance in the future.
TQG benefits from favourable long term demand dynamics as consumer
awareness of the benefits of health and wellness products continues
to increase. In addition, its online focus means that its revenue
continues to benefit from the systemic shift of consumer spending
away from physical retail stores. However, the company's moderately
negative (S-3) social issuer profile score also takes into account
the importance of reputational risks around customer relations and
responsible production. The company is exposed to the risk of
reputational damage in the event that its actions harmed customers,
or were perceived to harm them. This could be caused by product
safety or quality problems, issues with website performance,
delivery standards or issues with data security. The risk is
exacerbated by the company's strong presence on social media. Also,
the company's sales and earnings growth are currently correlated to
the ability to recruit and retain new influencers, a human capital
risk.
TQG's exposure to governance risk has a highly negative impact on
the credit rating (G-4), reflecting its financial policy and
concentrated ownership. The company is majority owned by CVC
Capital Partners, and — as is often the case in highly levered,
private-equity-sponsored deals — has a high tolerance for
leverage, it lacks an independent Board of Directors, while
governance is comparatively less transparent than that of publicly
listed companies. The two co-founders will remain involved in the
business and will retain a minority share of ownership, but there
is a degree of key man risk, given that they are also some of the
key influencers in this segment.
STRUCTURAL CONSIDERATIONS
The B2 ratings assigned to the EUR300 million senior secured term
loan B and the EUR50 million senior secured RCF, both borrowed by
Asterix AcquiCo GmbH are in line with the CFR, reflecting the fact
that these instruments rank pari passu and constitute most of the
company's financial debt. The term loan and the RCF will benefit
from pledges over the shares of the borrower and guarantors as well
as bank accounts and intragroup receivables and will be guaranteed
by the group's operating subsidiaries representing at least 80% of
consolidated EBITDA.
The B2-PD probability of default rating assigned to TQG reflects
Moody's assumption of a 50% family recovery rate, given the weak
security package and the covenant-lite structure.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects Moody's view that the company will
continue to steadily grow its top line maintaining its relatively
high profitability, and that the company will generate positive
free cash flow and maintain good liquidity.
The stable outlook also assumes that there will be no disruptions
to the business model and that any debt-funded acquisition activity
will be bolt-on in nature and will not significantly increase
leverage.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A rating upgrade is unlikely in the short-term because the business
profile constrains the rating at the current level. However,
positive pressure on the rating could develop over time if the
company (1) successfully executes its expansion strategy, achieving
greater scale and increasing revenue diversification by geography,
products and channels; (2) maintains its Moody's-adjusted gross
debt to EBITDA ratio well below 3.5x on a sustained basis; and (3)
develops a longer track record of profitable growth and cash flow
generation.
The ratings could be downgraded if (1) its operating performance
materially deteriorates or the company engages in large
debt-financed acquisitions such that the company's
Moody's-adjusted gross debt to EBITDA ratio increases sustainably
above 4.5x; and (2) its cash flow generation turns negative leading
to weakening liquidity.
LIST OF AFFECTED RATINGS
Assignments:
Issuer: Asterix AcquiCo GmbH
BACKED Senior Secured Bank Credit Facility, Assigned B2
Issuer: Asterix HoldCo GmbH
Probability of Default Rating, Assigned B2-PD
LT Corporate Family Rating, Assigned B2
Outlook Actions:
Issuer: Asterix AcquiCo GmbH
Outlook, Assigned Stable
Issuer: Asterix HoldCo GmbH
Outlook, Assigned Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Consumer
Packaged Goods published in June 2022.
COMPANY PROFILE
Asterix HoldCo GmbH, is a newly incorporated German entity
established for the acquisition of The Quality Group GmbH a leading
sports and dietary nutrition company operating primarily in Germany
under two main brands (More Nutrition and ESN). The company offers
a wide range of high-quality lifestyle products such as protein
powder, weight management products, vitamins and sports
supplements. The company manufactures and sells the majority of its
products directly to customers online (84% of 2021 revenue) through
a unique influencer-led marketing model. In 2022, CVC Capital
Partner announced an agreement to acquire a majority stake of the
company alongside with all previous owners, who will reinvest in
the business as minority shareholders. In the last twelve months as
of August 2022, the company generated EUR351 million of revenue and
EUR99 million of Adjusted EBITDA.
DEUTSCHE LUFTHANSA: Moody's Affirm 'Ba2' CFR, Outlook Now Stable
----------------------------------------------------------------
Moody's Investors Service has affirmed Deutsche Lufthansa
Aktiengesellschaft's ("Lufthansa" or "the company") Ba2 long term
corporate family rating and Ba2-PD Probability of Default rating.
Concurrently the agency has affirmed Lufthansa's senior unsecured
ratings at Ba2 and the senior unsecured MTN program at (P)Ba2. The
outlook has been changed to stable from negative.
RATINGS RATIONALE
The rating affirmation of Lufthansa's Ba2 CFR and the change in
outlook to stable reflect (i) the strong improvement in credit
metrics and outperformance versus Moody's expectations since
Moody's last rating action in November 2021, (ii) the expected
further improvement in credit metrics over the next 12 to 18 months
to a level commensurate with the current rating, (iii) the
company's strong liquidity, (iv) Lufthansa's relative position
versus peers.
Supported by a recovery in earnings, Lufthansa's credit metrics
have improved significantly since Moody's last rating action in
November 2021. Debt/EBITDA reduced to 7.5x as per LTM September
2022 from a negative EBITDA in both 2020 and 2021 whilst net debt
/EBITDA is close to pre-pandemic levels at 4.3x versus 3.0x in
2019. These ratios exceeded Moody's expectations from November 2021
when Moody's expected 2022 debt/EBITDA to be around 9x and net
debt/EBITDA to reach close to 7.0x.
Lufthansa should benefit from easy comparatives in Q4 2022 and H1
2023 with Q1 and Q2 2022 Available Seat Kilometers at 43% and 27%
below pre-pandemic levels respectively whilst Revenue per ASK was
down 6.5% in Q1 2022 versus pre-pandemic levels. Lufthansa should
also benefit from a gradual reopening of Asia over the next 12 to
18 months. This region has not yet strongly recovered and accounted
for 19% of the network airline revenue in 2019 versus only 7% in
2021 and 7.8% YTD September 2022. Moody's expects a supply / demand
balance that will continue to favor a strong pricing environment
for airlines probably for the whole of 2023. Moody's expect
Lufthansa's debt/EBITDA to drop to around 5.5x by year-end 2022 and
to around 5.0x by year-end 2023.
Lufthansa's rating remains supported by the company's strong
liquidity profile with EUR9.7 billion of cash and short term
securities on balance sheet at September 30, 2022 and EUR2.1
billion undrawn credit lines available at the same date. This
accounts for around 33% LTM September 2022 revenue. This compares
to EUR3.4 billion of cash and unused credit lines of EUR800 million
as per December 2019 or 9.3% of revenue at that time.
Whilst Lufthansa has been lagging behind peers during the early
part of the pandemic largely due to its higher cost base, the track
record of the airline has improved significantly relative to peers
in recent quarters. Its financial profile is now aligned with
airline peers rated Ba2 with a stable outlook.
At the current juncture Moody's see limited positive rating
pressure in the short term. This mainly reflects a market
environment that might become more challenging due to macroeconomic
headwinds leading to a slower pace of recovery than anticipated
before the invasion of Ukraine. Moody's also note that the
improvement in credit metrics of Lufthansa has also been driven by
a significant contribution from its cargo business. Lufthansa's
cargo business generated an EBIT of EUR1,286 million year-to-date
September 2022 versus a group EBIT of EUR826 million. Whilst cargo
yields have not yet weakened significantly, a global recession
could lead to a significant weakening of the cargo business'
performance. Lufthansa's cargo business generated an adjusted EBIT
of EUR1 million in 2019 and an average EBIT of EUR107 million over
the period 2015-2019, which exemplifies the distorted contribution
of this business segment over the last 18 months.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook on the ratings reflects Moody's expectation that
Lufthansa's credit metrics will continue to improve over the next
12 to 18 months albeit at a slower pace than in recent quarters.
The stable outlook is also underpinned by Lufthansa's conservative
financial policies and its commitment to regain its investment
grade rating over time.
LIQUIDITY
Lufthansa's liquidity profile is strong. The company had EUR9.7
billion of cash on balance sheet at September 30 and EUR2.1 billion
availability under undrawn revolving credit lines. Total liquidity
(excluding credit lines) accounts for around 33% of LTM September
2022 revenue. This compares to EUR3.4 billion of cash (unused
credit lines of EUR800mio) as per December 2019 or 9.3% of revenue
(excluding credit lines) at that time. The company generated a
Lufthansa reported adjusted EUR3.0 billion in FCF as per LTM Sep.
22 and EUR3.3 billion in FCF year-to-date September 2022. Lufthansa
has established a new liquidity corridor of EUR6 billion to EUR8
billion, which would be materially higher than pre-pandemic.
Lastly, Lufthansa has a manageable maturity profile with around
EUR1.5 billion of maturities over the next 15 months and EUR2 to
EUR3 billion of maturities over the period 2024-2026.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive rating pressure would arise over time if Moody's adjusted
Debt/EBITDA would move below 4.0x whilst the company would maintain
a solid liquidity profile supported by positive free cash flow
generation.
Conversely Moody's could downgrade Lufthansa if (i) the recovery in
passenger stalls, (ii) the company's liquidity profile
deteriorates, (iii) gross adjusted leverage stays sustainably above
5x, and (iv) Moody's adjusted EBIT margin were to fall
substantially below 7%.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Passenger
Airlines published in August 2021.
WIRECARD AG: Former Head Goes on Trial Following Collapse
---------------------------------------------------------
Jenny Hill and Paul Kirby at BBC News report that the former head
of disgraced German payment company Wirecard has gone on trial
accused of involvement in the biggest fraud case in German
history.
Markus Braun, 53, presided over its meteoric rise from modest
beginnings to one of Germany's big banking beasts.
According to BBC, the setting for the Dec. 8 trial is a
high-security courtroom at Stadelheim prison in Munich.
Mr. Braun, who was Wirecard's chief executive, is being held at the
jail in pre-trial custody and denies any wrongdoing, BBC
discloses.
Two other ex-managers are also on trial, BBC states. Oliver
Bellenhaus was head of Wirecard's Dubai subsidiary while Stephan
von Erffa was in charge of accounting, BBC notes. They face
several years in prison if convicted, according to BBC.
Wirecard declared insolvency after it was forced to admit that
EUR1.9 billion missing from its accounts probably never existed,
BBC recounts.
Two banks in the Philippines thought to hold the money said they
had not been Wirecard clients and the company then filed for
insolvency protection from creditors, BBC relates.
Prosecutors accused Markus Braun of signing off financial reports
he knew were inaccurate, BBC discloses. They said Wirecard had
faked documents to show it had money that in reality, it never did,
according to BBC.
A nine-month inquiry by German lawmakers last year found a
succession of failings, including by auditors Ernst and Young for
signing off Wirecard's accounts, BBC recounts.
The trial is expected to last well into 2024, BBC notes. Among
those closely watching it will be the many who lost big sums
investing in the Munich-based company.
=========
I T A L Y
=========
LIBRA GROUPCO: S&P Affirms 'B' ICR on Planned Atos Acquisition
--------------------------------------------------------------
S&P Global Ratings affirmed its 'B' issuer credit ratings on Libra
GroupCo SpA, owner of Italian IT services group Lutech SpA, and its
'B' issue ratings on its EUR338 million senior secured notes.
The stable outlook reflects S&P's expectation that the company will
successfully reduce leverage, boosted by the planned acquisition of
Atos Italia, with S&P Global Ratings-adjusted debt to EBITDA
declining to below 6.5x and free operating cash flow (FOCF) to debt
above 5% in 2023.
Libra GroupCo has signed a EUR100 million term loan A, alongside
equity, to finance its EUR195 million (including transaction fees
and expenses) planned acquisition of the Italian operations of the
French IT services group Atos.
S&P said, "After the planned acquisition in 2023, the combined
adjusted debt to EBITDA will be below 6.5x, versus our previous
expectation of 7.0x-7.5x for Lutech on a stand-alone basis in 2022.
Lutech is acquiring Atos Italia for a total cash consideration of
about EUR195 million, including transaction fees and expenses.
Lutech will finance the transaction with a combination of a EUR100
million Term Loan A, EUR70 million equity, and EUR25 million cash
on the balance sheet. In our view, the lower-leveraged acquisition,
coupled with favorable market trends and expected improvement of
Lutech's operating leverage, will enable the company to reduce debt
to EBITDA to 6.0x-6.5x in 2023 (on a combined basis), while
generating positive FOCF."
The acquisition of Atos Italia will bring new capabilities and
complementary end markets to Lutech. According to Lutech'
estimates, Atos Italia has a strong market position in the Italian
utilities IT (No. 3) and telco (No. 7) services, both resilient
industries to the volatile macroeconomic environment. Lutech
estimates that Atos Italia will bring new capabilities in SAP SE
(A/Stable/--), with about 400 SAP utilities certified experts and
serving blue-chip customers such as Enel and Eni, the biggest
utility companies in Italy. In the telco vertical, Atos Italia is
well positioned in customized mission-critical app development and
cloud migration, although S&P notes that the competition in this
vertical is remarkably fierce. The combined entity will have more
diversified and resilient verticals.
This will be partly offset by Atos Italia's negligible proprietary
solutions and lower profitability. Lutech currently generates about
17% of revenue from the higher-margin proprietary software
solutions, from which about half of the revenue stems from the sale
of the proprietary software and the other half from related
consulting services. This compares unfavorably with competitors
such as Engineering, which derives about 27% of revenue from
proprietary, highly customized products that are developed
in-house, meaning it benefits from a higher share of recurring
revenue and low churn. The combined entity's share from own
software solutions will be lower than that of Lutech on a
stand-alone basis. In addition, Atos Italia's reported EBITDA
margin is weaker than Lutech's, leading to weaker combined
profitability.
The potential for significant cost synergies will somewhat offset
the lower profitability of Atos Italia. S&P expects the company to
achieve up to EUR8 million cost synergies within the 24 months post
acquisition, mainly related to personnel and rent savings in
addition to several efficiency improvements. Although not included
in our base case, it thinks the group could also achieve revenue
synergies in the future by cross selling in different vertical and
product offerings.
S&P said, "We expect Lutech to focus on Atos Italia's integration,
slowing down its aggressive acquisitive growth strategy. Private
equity-sponsored Lutech has shown a track of aggressive acquisitive
growth strategy. In 2021, Lutech spent EUR48 million on mergers and
acquisitions, and we anticipate an additional EUR50 million outflow
for several bolt-on acquisitions in 2022. In our view, these
acquisitions will strengthen Libra's position in some key services
and sectors in Italy. Assuming the successful acquisition of Atos
Italia, we expect the company to focus on the integration process
and realizing the cost synergies. We therefore assume no further
bolt-on acquisitions during 2023-2024.
"We expect Lutech to report pro forma revenue growth of 4%-6% on a
stand-alone basis in 2022-2023, supported by all segments. In the
first nine months of 2022, Lutech reported 7% year on year revenue
growth to EUR346 million, boosted by acquisitions that contributed
EUR19 million additional revenue. On a like-for-like basis, revenue
grew by 2.5% mainly due to the digital services business, supported
by the increased demand for digital customer engagement, big data,
and enterprise services. Lutech's end to end (E2E) technology
enabling segment was down by 0.9% in the first nine months of 2022
due to lower hardware resales, which are still affected by the
chipset shortage. We anticipate 8%-10% revenue growth in 2022,
including acquisitions contribution, followed by 4%-6% organic
growth in 2023 supported by recovery in the E2E technology enabling
business and favorable IT service demand in Italy underpinned by
the government's "PNRR" (national recovery and resilience plan),
which provides financial support to the IT services sector.
"We anticipate adjusted debt to EBITDA will remain above 7.0x in
2022, before reducing to less than 6.5x in 2023 while free
operating cash flow (FOCF) will remain positive for the same
period. We expect Lutech will be able to largely mitigate
inflation-induced increased costs with higher prices for
proprietary software and reduced research and development (R&D)
costs after the company moved some of its employees to Bari, Italy,
where labor costs are cheaper. We anticipate Lutech's stand-alone
adjusted EBITDA margin to improve to 11.0%-12.0% in 2022 from 10.2%
in 2021, and further to 12%-13% in 2023, mainly thanks to lower
expected restructuring costs. In addition, Lutech's moderate
capital expenditure (capex) of about 2%-3% of revenue and modest
working capital outflows should result in EUR5 million-EUR15
million of FOCF annually in 2022-2023. We think debt to EBITDA will
remain above 7.0x in 2022 driven by an increase in debt through
EUR63 million tap issuance in March 2022 on its existing EUR275
million senior secured notes.
"The stable outlook reflects our expectation that the company will
successfully reduce leverage, further boosted by the planned
acquisition of Atos Italia, with adjusted debt to EBITDA declining
to below 6.5x in 2023. This will be supported by EBITDA growth
thanks to favorable market trends and Lutech's leading market
position in certain solutions as well as the contribution from Atos
Italia. Furthermore, we expect the company to maintain solid cash
flow conversion by maintaining FOCF to debt higher than 5% in the
next 12 months.
"We could lower the ratings if Lutech's adjusted debt to EBITDA
remained above 7.0x and FOCF after leases decreased to breakeven.
In our view, this could result from weaker-than-expected operating
performance, for example due to material market share loss,
increased inflation, supply chain disruptions, or a significantly
weaker economic environment in Italy than anticipated. It could
also occur if Lutech encountered issues in integrating Atos Italia
or pursued additional sizable debt-financed acquisitions or
dividend recapitalization.
"We could raise the rating if Lutech performed well above our
expectations, leading to a reduction of debt to EBITDA to below
5.0x and an increase in FOCF to debt above 10% on a sustainable
basis. Additionally, an upgrade would hinge on Lutech's adherence
to a financial policy in line with those metrics."
ESG credit indicators: E-2, S-2, G-3
POPOLARE BARI 2017: Moody's Cuts EUR80.9MM A Notes Rating to Caa1
-----------------------------------------------------------------
Moody's Investors Service has downgraded the rating of Class A in
Popolare Bari NPLs 2017 S.r.l. This downgrade reflects lower than
anticipated cash-flows generated from the recovery process on the
non-performing loans (NPLs) which translates into a reduced credit
enhancement of the note in recent payment dates.
EUR80.9M Class A Notes, Downgraded to Caa1 (sf); previously on Apr
4, 2022 Downgraded to B2 (sf)
RATINGS RATIONALE
The rating action is prompted by lower than anticipated cash-flows
generated from the recovery process on the NPLs resulting in a
reduced credit enhancement in recent payment dates.
Lower than anticipated cash-flows generated from the recovery
process on the NPLs:
The portfolio is mainly concentrated in the South of Italy and
Islands (56.7% by Gross Book Value (GBV) as of September 2022).
Borrower concentration: about 33% of the pool in Popolare Bari NPLs
2017 S.r.l. by GBV is concentrated on the top 10 obligors which
increases potential performance volatility.
In terms of the underlying portfolio, the GBV stood at EUR272.02
million as of September 2022 down from EUR319.69 million at
closing. Out of the approximately EUR47.7 million reduction of GBV
since closing, principal payments to Class A have been in the range
of EUR18.3 million. The secured portion has decreased to 52.0% from
55.9% at closing. Around 225 properties, representing approximately
32% of the assets backing the initial pool by value, have been sold
at 44% of the updated property values as of closing, a relatively
low level. Overall profitability for closed positions is 48%.
Despite some slight increase in cashflows since last rating action,
the Cumulative Collection Ratio was at 40.2% as of September 2022,
down from 46.0% as of September 2021. The NPV Cumulative
Profitability Ratio was at 93.35%, currently above the trigger of
90%. The subordination trigger has been hit several times since
closing, in all payment dates with the NPV Cumulative Profitability
Ratio below such threshold of 90%. Last time this trigger was hit
in April 2022. Unpaid interest on Class B is EUR0.3 million as of
the latest payment date in October 2022. Class B received some
interest payment in October 2022, but collections were not
sufficient to pay all due interest. Trigger to defer interest
payments on Class B is based on profitability and not on cumulative
collections which may result in later deferral if profitability for
closed positions exceeds the threshold (90%). This is detrimental
for class A repayment.
The latest business plan received in 2022 contemplates cumulative
gross collections below the 38% of the GBV contemplated in the
original business plan. The updated business plan expects a total
amount of future collections lower than the outstanding amount of
Class A Notes. The collections remained subdued in most recent
payment date in October 2022, with the Class A not receiving
principal payment due to insufficient collections, compared to the
outstanding amount of Class A at EUR62.6 million.
Deterioration of the level of credit enhancement in recent payment
dates:
The mentioned lower than expected recovery rate translates into a
reduced credit enhancement of Class A notes.
Moody's notes that the advance rate of Class A at 23.02% as of
October 2022 is slightly higher than the 22.74% observed in October
2021, and overall flat in past payment dates. Simulation of
cashflows from the remaining pool in light of portfolio
characteristics, coupled with the outstanding balance of the Class
A Notes are no longer consistent with the rating prior to the
downgrade. There is higher likelihood of Class A Notes not being
fully repaid at legal maturity date.
Moody's also notes that so far interests due on Class A were a
negligible amount given 6-month Euribor being in negative levels
until recently; going forward, despite the hedging arrangement in
place, Moody's expect an increase in interests payments due to
Class A Notes, thus further lowering its pace of amortization.
NPL transactions' cash flows depend on the timing and amount of
collections. Due to the current economic environment, Moody's has
considered additional stresses in its analysis, including a 6 to
12-month delay in the recovery timing.
Moody's has taken into account the potential cost of the GACS
Guarantee within its cash flow modelling, while any potential
benefit from the guarantee for the senior Noteholders has not been
considered in its analysis.
The principal methodology used in this rating was "Non-Performing
and Re-Performing Loan Securitizations Methodology" published in
July 2022.
Factors that would lead to an upgrade or downgrade of the rating:
Factors or circumstances that could lead to an upgrade of the
rating include: (i) the recovery process of the non-performing
loans producing significantly higher cash-flows in a shorter time
frame than expected; (ii) improvements in the credit quality of the
transaction counterparties; and (iii) a decrease in sovereign
risk.
Factors or circumstances that could lead to a downgrade of the
rating include: (i) significantly lower or slower cash-flows
generated from the recovery process on the non-performing loans due
to either a longer time for the courts to process the foreclosures
and bankruptcies, a change in economic conditions from Moody's
central scenario forecast or idiosyncratic performance factors. For
instance, should economic conditions be worse than forecasted and
the sale of the properties generate less cash-flows for the issuer
or take a longer time to sell the properties, all these factors
could result in a downgrade of the ratings; (ii) deterioration in
the credit quality of the transaction counterparties; and (iii)
increase in sovereign risk.
=====================
N E T H E R L A N D S
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LEALAND FINANCE: DoubleLine ISF Values 2024 Loan at 64% of Face
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DoubleLine Income Solutions Fund has marked its $52,939 loan
extended to Lealand Finance Company B.V., to market at $33,749, or
64% of the outstanding amount, as of September 30, 2022, according
to a disclosure contained in DoubleLine ISF's Form N-CSR for the
fiscal year ended September 30, filed with the Securities and
Exchange Commission on December 2.
DoubleLine ISF extended a Senior Secured First Lien Term Loan (1
Month LIBOR USD + 3.00%) to Lealand Finance Company B.V. The loan
currently has an interest rate of 6.12% and is scheduled to mature
on June 30, 2024.
DoubleLine Income Solutions Fund (NYSE: DSL) was formed as a
closed-end management investment company registered under the
Investment Company Act of 1940, as amended, and originally
classified as a non-diversified fund. The Fund is currently
operating as a diversified fund.
Lealand Finance is an affiliate of CB&I Holdings B.V. and Chicago
Bridge & Iron Company B.V. The Company's country of domicile is
The Netherlands.
LEALAND FINANCE: DoubleLine ISF Values 2025 Loan at 51% of Face
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DoubleLine Income Solutions Fund has marked its $703,484 loan
extended to Lealand Finance Company B.V., to market at $357,897, or
51% of the outstanding amount, as of September 30, 2022, according
to a disclosure contained in DoubleLine ISF's Form N-CSR for the
fiscal year ended September 30, filed with the Securities and
Exchange Commission on December 2.
DoubleLine ISF extended a Senior Secured First Lien Term Loan (1
Month LIBOR USD + 1.00%) to Lealand Finance Company B.V. The loan
currently has an interest rate of 4.12% and is scheduled to mature
on June 30, 2025.
DoubleLine Income Solutions Fund (NYSE: DSL) was formed as a
closed-end management investment company registered under the
Investment Company Act of 1940, as amended, and originally
classified as a non-diversified fund. The Fund is currently
operating as a diversified fund.
Lealand Finance is an affiliate of CB&I Holdings B.V. and Chicago
Bridge & Iron Company B.V. The Company's country of domicile is
The Netherlands.
LEALAND FINANCE: DoubleLine OCF Values 2024 Loan at 64% of Face
---------------------------------------------------------------
DoubleLine Opportunistic Credit Fund has marked its $6,259 loan
extended to Lealand finance company BV to market at $3,989 or 64%
of the outstanding amount, as of September 30, 2022, according to a
disclosure contained in DoubleLine OCF's Form N-CSR for the fiscal
year ended September 30, filed with the Securities and Exchange
Commission on December 2.
DoubleLine OCF extended a Senior Secured First Lien Term Loan (1
Month LIBOR USD + 3.00%) to Lealand finance company BV. The loan
currently has an interest rate of 6.12% and is scheduled to mature
on June 30, 2024.
DoubleLine Opportunistic Credit Fund (NYSE: "DBL") was formed as a
closed-end management investment company registered under the
Investment Company Act of 1940, as amended. The Fund is currently
operating as a diversified fund. The Fund was organized as a
Massachusetts business trust on July 22, 2011 and commenced
operations on January 27, 2012.
Lealand Finance is an affiliate of CB&I Holdings B.V. and Chicago
Bridge & Iron Company B.V. The Company's country of domicile is
Netherlands.
LEALAND FINANCE: DoubleLine OCF Values 2025 Loan at 51% of Face
---------------------------------------------------------------
DoubleLine Opportunistic Credit Fund has marked its $82,782 loan
extended to Lealand finance company BV to market at $42,115 or 51%
of the outstanding amount, as of September 30, 2022, according to a
disclosure contained in DoubleLine OCF's Form N-CSR for the fiscal
year ended September 30, filed with the Securities and Exchange
Commission on December 2.
DoubleLine OCF extended a Senior Secured First Lien Term Loan (1
Month LIBOR USD + 1.00%) to Lealand finance company BV. The loan
currently has an interest rate of 4.12% and is scheduled to mature
on June 30, 2025.
DoubleLine Opportunistic Credit Fund (NYSE: "DBL") was formed as a
closed-end management investment company registered under the
Investment Company Act of 1940, as amended. The Fund is currently
operating as a diversified fund. The Fund was organized as a
Massachusetts business trust on July 22, 2011 and commenced
operations on January 27, 2012.
Lealand Finance is an affiliate of CB&I Holdings B.V. and Chicago
Bridge & Iron Company B.V. The Company's country of domicile is
Netherlands.
SCHOELLER PACKAGING: Moody's Cuts CFR & Sr. Secured Notes to Caa1
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Moody's Investors Service has downgraded to Caa1 from B3 the
corporate family rating and to Caa1-PD from B3-PD the probability
of default rating of the Dutch returnable transit packaging (RTP)
manufacturer Schoeller Packaging B.V. Concurrently, Moody's has
downgraded to Caa1 from B3 the rating on the EUR250 million backed
senior secured notes due in November 2024 issued by Schoeller. The
outlook remains stable.
"The downgrade reflects Schoeller's weaker than expected credit
metrics, liquidity and free cash flow generation, and Moody's
expectation that a less favourable macroeconomic environment will
delay the recovery in the company's performance, at a time when it
will have to face the refinancing of its debt in 2024, most likely
at higher rates, "says Donatella Maso, a Moody's Vice President -
Senior Credit Officer and lead analyst for Schoeller.
RATINGS RATIONALE
Schoeller's Q3 2022 operating performance has been weaker than both
management and Moody's anticipated. Revenue for the quarter was
down by 18% and EBITDA, as reported by the company, fell by over
50% owing to reduced volumes from major customers, higher energy
prices and inventory revaluation. On a year-to-date basis, revenue
was broadly flat but EBITDA fell by 26%. As a result, the company's
gross leverage, as adjusted by Moody's and based on a LTM September
2022 EBITDA of EUR56 million, increased to around 7.0x from 5.5x at
the end of 2021, which is higher than the 6.5x maximum leverage
tolerance set for the previous B3 rating category.
The company's operations continued to burn a significant amount of
cash in the first nine months of 2022, owing to reduced EBITDA,
inventory build-up and large capital spending to support newly
signed rental contracts, which have been funded with drawings under
its super senior revolving credit facility (RCF) and a shareholder
loan provided by Brookfield Business Partners L.P. (Brookfield),
thus reducing the availability under these two facilities.
The company also announced its intention to carve out its long term
rental business outside the restricted group. The long term rental
business is small relatively to Schoeller's manufacturing
activities but requires significant investments. From an accounting
perspective, it is uncertain at this stage if this business will
remain consolidated or not within Schoeller's perimeter.
The less favourable macroeconomic environment will likely
negatively impact the customer demand in 2023 and delay the
company's EBITDA recovery trajectory as well as the expected cash
flow improvement. Moody's forecasts potential pressure in the
manufacturing business considering the company's exposure to
certain cyclical end-markets such as automotive, industrial
manufacturing and retail.
Nevertheless, Moody's expects Schoeller's EBITDA and margins to
slightly improve in 2023 primarily driven by the ramp up of the
higher margin rental contracts and the implementation of cost
saving initiatives but its gross leverage to remain around 7.0x
owing to potential new debt to finance the rental activities. At
the same time, the rating agency expects Schoeller to continue to
have weak EBIT/interest coverage below 1.0x and to generate
negative free cash flow (FCF) after interests owing to high capital
expenditures and the payment of lease liabilities. The structural
negative FCF owing to the high capital intensity of the business,
the uncertain macroeconomic environment that will delay the
expected performance recovery combined with rising interest rates
will make the refinancing of the RCF maturing in May 2024 and the
notes due November 2024 more challenging.
The Caa1 rating is also constrained by Schoeller's smaller size,
lower margins and higher capex requirements relative to other
packaging manufacturers, which constrain its ability to generate
positive free cash flows on a sustained basis; its exposure to
cyclicality, as the purchase of Schoeller's products is typically
seen as a capital investment, and therefore, is subject to deferral
during severe downturns; the highly competitive industry in the
context of the commoditised nature of the company's products
resulting in pricing pressure; its exposure to raw material prices
inflation; and some concentration with its largest client, IFCO,
which has a contract with Schoeller expiring in 2024.
Conversely, the Caa1 rating is positively supported by Schoeller's
leading market position in the niche RTP sector in Europe with an
estimated 20% share; its innovation capabilities enabling the
company to benefit from the continuous positive trends in the
sector; and a degree of geographic and end-market diversity.
LIQUIDITY
Schoeller's liquidity profile is weak for its near term operating
needs given its cash balances of EUR19.7 million at the end of
September 2022; the reduced availability (EUR7.6 million) under its
EUR30 million super senior RCF due May 2024; EUR55 million
availability under EUR100 million committed non-recourse factoring
lines due 2024; and Moody's expectation of highly negative free
cash flow both for the core manufacturing business and the entire
group, while the majority of its debt is due in 2024.
The company benefits from a EUR65 million committed stand-by
facility in the form a subordinated shareholders' loan provided by
Brookfield, currently drawn for EUR31 million. However, this
facility can be further utilised at the option of the
shareholders.
The super senior RCF has a springing covenant (maximum net drawn
super senior leverage of 1.0x), which is tested when the RCF is
drawn by more than 40%. Moody's expects the company to continue to
comply with this covenant.
STRUCTURAL CONSIDERATIONS
The company's Caa1-PD PDR is aligned with the Caa1 CFR, reflecting
the use of a 50% family recovery rate, as is typical for
transactions that include both bonds and bank debt.
The Caa1 rating on the notes reflects the fact that they represent
the majority of the debt in the capital structure and the size of
the RCF is not sufficiently large to allow any notching. Both the
notes and the super senior RCF share the same security and
guarantees but the notes rank junior to the RCF upon enforcement
under the provisions of the intercreditor agreement. The security
package includes pledges over shares, bank accounts, receivables,
and certain UK assets. Material subsidiaries which guarantee the
notes represent c.83% of the group EBITDA or c.82% total assets.
The capital structure also includes a EUR65 million subordinated
shareholders' loan due 2029 and a EUR25 million subordinated
shareholders' loan due May 2025, both provided by Brookfield. Both
facilities have been treated as equity in accordance with Moody's
hybrid methodology.
RATIONALE FOR STABLE OUTLOOK
While the company is weakly positioned in the rating category, the
stable outlook reflects Moody's view that despite deteriorating
macroeconomic conditions, Schoeller's operating performance will
gradually recover from the Q3 trough and assumes that the company
will timely address the refinancing of its 2024 debt maturities.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure on the rating could develop if the company's
operating performance recovers from Q3 2022 trough; it addresses
the refinancing of its 2024 debt maturities with a manageable cost
of debt that makes its capital structure more sustainable; its
Moody's adjusted gross debt-to-EBITDA ratio remains comfortably
below 6.5x; and its FCF becomes consistently positive while
maintaining an overall adequate liquidity.
Schoeller's rating could be lowered if the company' operating
performance and liquidity further deteriorate, limiting the options
to refinance its 2024 debt maturities and increasing the risk of a
debt restructuring that might results in losses for creditors.
LIST OF AFFECTED RATINGS:
Downgrades:
Issuer: Schoeller Packaging B.V.
Probability of Default Rating, Downgraded to Caa1-PD from B3-PD
LT Corporate Family Rating, Downgraded to Caa1 from B3
BACKED Senior Secured Regular Bond/Debenture, Downgraded to Caa1
from B3
Outlook Actions:
Issuer: Schoeller Packaging B.V.
Outlook, Remains Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Packaging
Manufacturers: Metal, Glass and Plastic Containers published in
December 2021.
COMPANY PROFILE
Headquartered in the Netherlands, Schoeller is a returnable transit
plastic packaging manufacturer operating primarily in Europe and
the US, employing approximately 2,000 people. For the last twelve
months ending September 30, 2022, the company generated revenue of
EUR612 million and EBITDA of EUR56 million, as adjusted by
Moody's.
The company is the result of the integration between the Schoeller
Arca Systems Group and the Linpac Allibert Group in 2013. Since
May 2018, Schoeller is 70% owned by private equity Brookfield and
30% by Schoeller Industries B.V., a family-owned business with a
broad focus on packaging, transport and logistics systems.
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P O L A N D
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CANPACK SA: S&P Downgrades Long-Term ICR to 'BB-', Outlook Negative
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S&P Global Ratings lowered its long-term ratings on Canpack S.A.
(Canpack), CANPACK US LLC, and the group's three senior unsecured
bonds to 'BB-' from 'BB'.
The negative outlook reflects S&P's expectation of further negative
FOCF generation and its view that Canpack could lose access to its
revolving credit facility (RCF) if it fails to obtain the approval
of its lenders for a reset of the leverage covenant for 2023.
S&P anticipates weak EBITDA and negative FOCF generation for 2022:
Canpack reported weaker-than-expected EBITDA of $69 million in the
third quarter of 2022, which translated into negative reported FOCF
for the first nine months of 2022 of about $392 million (including
$290 million working capital outflows and $370 million capital
investments, mostly for U.S. greenfield investments). EBITDA was
negatively affected by the depreciation of the euro versus the U.S.
dollar, increases in raw material prices that the company was not
able to pass on to customers, higher unexpected costs in the U.S.
due to labor shortages, as well as a rise in other costs due to
inflation. The overall drag on EBITDA for 2022 is about $100
million.
High capital outlays will weigh on FOCF and liquidity in 2023 and
2024: Weaker-than-anticipated EBITDA and high working capital needs
weighed on Canpack's liquidity in 2022. The company is currently
seeking to reduce its cash needs. It has postponed about $350
million of capital expenditure (capex) relating to capacity
additions and greenfield expansions in Brasil and Poland, and could
sell non-core real estate assets for up to $35 million in 2023. S&P
said, "We estimate the company's cash balance at about $290 million
by Dec. 31, 2022. In 2023, we forecast S&P Global Ratings-adjusted
EBITDA at $415 million-$445 million. Due to ongoing growth capex
and a step-up in working capital needs for the ramp-up of its new
U.S. operations, we anticipate FOCF will remain negative in 2023
and 2024."
There is a risk of a breach of the leverage covenant under the RCF
agreement: Low profitability, high expansionary capex, and
substantial working capital needs have absorbed the group's
headroom under its RCF covenant. In 2022, the company and its
lenders agreed to reset the net debt to EBITDA covenant to 4.5x
from 4.0x for the next three test dates in December 2022, June
2023, and December 2023. Despite this, covenant headroom remains
tight, particularly for June 2023. S&P said, "We understand that
Canpack is in the early stages of discussions with its lenders on a
new RCF that would provide additional temporary covenant relief. A
covenant breach could restrict the company's access to the $444
million RCF (currently undrawn) or trigger the repayment of
drawings (if any) if a new RCF is not concluded or a waiver is not
granted by existing RCF lenders. We believe that the suggested
covenant reset to 5.0x would improve covenant headroom but it would
remain tight. We estimate a 5%-10% decline in EBITDA would lead to
a covenant breach and restrict the company's access to further
drawings under the RCF."
Cost recovery will improve as contracts are renegotiated: In 2022,
Canpack struggled to pass cost increases (for aluminum ingots to
sheet conversion costs) on to customers. This was exacerbated by
material timing differences between the sourcing of its raw
materials and the sale of its finished goods. Among other things,
the company faced much longer delivery times for aluminum, which it
had to source from Asia, instead of Russia. The company is
currently seeking to improve the passthrough of cost increases (for
aluminum, transportation, and other items) to customers. Canpack
also intends to improve the visibility on its costs by engaging in
further raw-material-price hedging.
The negative outlook reflects the possibility of a downgrade in the
next 12 months. It highlights the possibility of further
deterioration of Canpack's liquidity profile through an increase in
negative FOCF, due to ongoing weak profitability in combination
with substantial growth investments; as well as a potential loss of
access to its RCF if there is a covenant breach.
Downside scenario
S&P could lower the ratings on Canpack if:
-- S&P forecasts a further deterioration in Canpack's liquidity,
including failure to secure access to its RCF.
-- There is further weakening of Canpack's profitability and
accelerated negative FOCF, signaling that the current investment
path is straining the company's capabilities.
-- S&P Global Ratings-adjusted debt to EBITDA exceeds 5.0x.
-- In S&P's view, the group credit profile of holding company GGH
has deteriorated.
Upside scenario
S&P could revise the outlook to stable if:
-- The company's liquidity improves, including secure RCF access
and effective drawing capabilities under its new covenants.
-- S&P sees returning profitability slowing the expected cash
outflow due to working capital and growth capex needs.
ESG credit indicators: E-1, S-2, G-3
S&P said, "Governance factors are a moderately negative
consideration in our credit rating analysis of Canpack S.A. The
controlling shareholder and its representatives are closely
involved in the company's operations, with no independent
oversight. We view this as moderately negative because we see a
risk that the controlling shareholder might promote its own
interest at the expense of other stakeholders.
"Environmental factors have an overall positive influence on our
credit rating analysis. The company's environmental impact is lower
than some peers', reflecting our view that aluminum packaging
solutions have the highest recycling yields, recycled content, and
scrap value. We also note the company's efforts to reduce its water
consumption and waste generation and that all its plants in Poland,
the U.K., Slovakia, the Netherlands, and Columbia use 100% of
renewable electricity. Canpack also actively promotes the recycling
of cans."
=========
S P A I N
=========
PARQUES REUNIDOS: S&P Alters Outlook to Stable, Affirmed 'B-' ICR
-----------------------------------------------------------------
S&P Global Ratings revised its outlook on Piolin Bidco S.A.U.
(Parques Reunidos) to stable from negative, affirmed its 'B-'
rating, and assigned the proposed EUR225 million TPB add-on its
'B-' rating and '3' recovery rating (recovery prospects: 55%),
aligning them with the existing ratings on the senior secured
facilities.
S&P said, "Our stable outlook reflects improving industry dynamics
on the back of normalization of operations, coupled with active
yield management and successful operating efficiency measures.
"We expect the refinancing exercise to slightly reduce interest
charges and reinforce Parques Reunidos' position in its current
rating category. On Dec. 5, 2022, Parques Reunidos launched the
refinancing of its EUR200 million TLB tranche issued in 2020 and
maturing in 2026, exhibiting a 7.5%+Euribor coupon, with a EUR225
million TLB add-on pari passu with the existing TLB and maturing as
well in September 2026. The group expects to refinance the tranche
at more favorable terms. Proceeds will also be used to repay part
of the currently drawn RCF and pay for the transaction costs. The
transaction is leverage neutral on both gross-debt and S&P Global
Ratings-adjusted bases (in our adjustments, we don't net cash).
Upon completion, the transaction will slightly downsize the group's
overall interest charges.
Parques Reunidos exhibited strong recovery in the first nine months
of 2022, driven by continuous normalization of operations and
efficiency measures starting to bear fruit. Revenue as of Sept. 30,
2022, reached EUR647.3 million, 14% above 2019 levels, on the back
of increased per capita spending at EUR41.7, about 28% higher than
in the same period in 2019 at EUR32.6. The increase was led by
proactive commercial actions to reduce discounted tickets and
promotions, along with a favorable change in mix, but was partly
offset by a lower level of park visitors at 15.5 million, an 11%
decrease versus the 17.5 million in the first nine months of 2019.
Visitor numbers were adversely affected by COVID-19 restrictions
still in place in the beginning of 2022, inflationary pressures
disrupting consumer spending during the rest of the year, and a
slower-than-expected visitor ramp-up in the U.S. Parques Reunidos'
EBITDA for the first nine months of 2022 (after International
Financial Reporting Standard 16) reached EUR222.7 million, leading
to a 34.4% margin, only 100 basis points (bps) lower than the same
period in 2019 when the company generated EUR201.4 million. This
return to pre-pandemic levels was driven both by top-line recovery
and operating efficiency measures put in place during pandemic
times bearing fruit, although the cost structure already started to
be pressured by the current inflationary environment.
S&P believes demand for theme parks in 2023 will continue to be
tempered by reduction of purchasing power. Although there is still
a trend of pent-up demand in the leisure park industry, it
anticipates that the reduction in purchasing power might constrain
visitor growth during 2023. The typical price points of the largest
revenue generating theme parks are EUR27.9-EUR54.9, positioning
Parques Reunidos as a mid-market theme park operator. On the one
hand, it makes Parques Reunidos attraction parks a beneficiary of
the staycation trend in a challenging macroeconomic environment.
S&P notes that the group started a dynamic pricing strategy
resulting in a structural change in price/volume dynamics favoring
higher per capita prices for a smaller number of visitors. In 2022,
S&P expects visitor numbers to reach 18.5 million, about 87% of the
2019 level, followed by a minor increase of about 2.3%-2.5% in
2023, leading to 19.0 million visitors, meaning about 90% of the
2019 level.
S&P said, "We expect yield management and tight cost control will
mitigate the margin impact of cost inflation. Since the beginning
of 2022, the company implemented various strategies to increase per
capita spending, such as reduction of discounted ticket sales, the
addition of complementary revenue-generating in-park activities,
and introduction of digital queuing such that they have more time
to wander around the park. As a result, we expect per capita
spending to be EUR41.2-EUR41.6 in 2022, increasing toward
EUR41.8-EUR42.2 in 2023. Additionally, over the past two years,
management reassessed the business to identify areas of improvement
and subsequently implemented changes, such as centralization, cost
streamlining, and digitalization, in order to increase its
operational flexibility and efficiency. All these measures were
well received by the visitors, as reflected in the
14-percentage-point increase in the net promotor score over the
past 12 months. Nevertheless, efforts were partly offset by the
current challenging macroeconomic environment adding pressure on
all cost items. The company tackled one of the most critical items
of its cost structure, utilities, by hedging about 90% of its 2023
gas and electricity consumptions, encountering only a 130bps-150bps
increase compared with 2022, holding utilities at 6.5%-6.7% of
sales in 2023. We therefore expect S&P Global Ratings' EBITDA
margin to reach 27.2%-27.6% in 2022, slightly falling by
100bps-150bps in 2023 at 25.9%-26.3%, resulting in absolute EBITDA
generation remaining more or less constant in both years. We expect
margins to recover to about 27.5%-28.5% by 2024 and thereafter.
"Although the group is on a deleveraging path, the rating remains
constrained by the group's elevated indebtedness and low generation
of FOCF after lease payments over the next three years. We expect
our debt to EBITDA to reach 7.2x-7.4x at the end of 2022 from 9.5x
in 2021, driven by the recovery in operations. Leverage will still
remain about 1.0x higher than 2019, at 6.3x, depicting the higher
debt burden considering the full recovery of absolute EBITDA
generation. We expect Parques Reunidos to return to a level
commensurate with that seen in 2019--below 7.0x--only in 2024.
Although supported by improving operating performance and positive
working capital contribution, FOCF after lease payments will be
constrained over the next three years by the high level of
necessary capital spending (capex) driven by postponed investments
in 2020 and 2021 due to cash preservation measures during the
pandemic, which we project will result in capex reaching EUR120
million-EUR140 million over the next three years. We classify about
50%-60% of this capex as growth capex, because we consider it to be
necessary for the continuation of operations. At the same time, the
floating rate nature of the EUR1.2 billion TLB will contribute to
minimize cash generation because we expect the Euribor three-month
rate to spike between 2.5% and 3.0% over the next 24 months.
However, as regards the EUR970 million TLB, the group has fully
hedged its position through an interest rate cap of the Euribor
three-month rate at 2.5% until July 2026. We expect cash interest
payments to amount to EUR64 million-EUR66 million in 2022 and rise
to EUR80 million-EUR90 million in 2023 and 2024. As a consequence,
we expect FOCF after lease payments to be a cumulative EUR20
million-EUR50 million over the next three years.
"Our stable outlook reflects improving industry dynamics on the
back of the normalization of operations, coupled with active yield
management and successful operating efficiency measures. We expect
Parques Reunidos to return to profitability near pre-pandemic
levels, supporting leverage below 8x, positive FOCF after lease
payments in 2022 and neutral to slightly negative FOCF after leases
in 2023."
Upside scenario
S&P said, "Although remote in the next 12 months, we could revise
the outlook to positive if Parques Reunidos' performance continued
to recover, proving resilience of demand despite inflationary
pressures and the company's capacity to surpass pre-pandemic
profitability, such that we see a clear path for its S&P Global
Ratings-adjusted debt to EBITDA to approach 6x." An outlook
revision would also require Parques Reunidos to exhibit sustained
and sizable positive FOCF after leases of 3%-5% of its debt.
Downside scenario
S&P could lower the rating in the next 12 months if Parques
Reunidos were not able to improve credit metrics in line with its
base case. A downgrade could occur because of one or a combination
of the following:
-- Significant weakness in operating earnings, for example from
deteriorated consumer confidence, such that S&P Global
Ratings-adjusted leverage climbs above 8x and FOCF after leases is
meaningfully negative in 2023, such that we viewed the capital
structure as becoming unsustainable.
-- Liquidity weakened materially.
-- The group adopted a more aggressive financial policy, reflected
in prolonged weaker credit metrics, debt-funded acquisitions, or
shareholder returns.
-- S&P saw heightened risk of a specific default event, such as a
distressed exchange or restructuring, debt purchase below par, or
covenant breach.
ESG credit indicators: E-2; S-3; G-3
Social factors are a moderately negative consideration in our
credit rating analysis of Parques Reunidos, reflecting the
pandemic's unprecedented effect on the company's attendance in 2020
and early 2021. Once restrictions and COVID-19-related safety
concerns lessened, consumers eagerly re-entered theme parks, which
significantly elevated in-park spending in 2021 and so far in 2022
compared with 2019. The COVID-19 pandemic was an extreme
disruption, and although it is unlikely to recur at the same
magnitude, safety and health scares are an ongoing risk factor in
our analysis of Parques Reunidos although S&P's acknowledge the
outdoor nature of the parks.
Governance factors remain a moderately negative consideration, as
is the case for most rated entities owned by private-equity
sponsors. We believe the company's highly leveraged financial risk
profile points to corporate decision-making that prioritizes the
interests of the controlling owners. This also reflects generally
finite holding periods and a focus on maximizing shareholder
returns.
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U N I T E D K I N G D O M
===========================
DELTA TOPCO: Fitch Assigns 'BB' Final LongTerm IDR, Outlook Stable
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Fitch Ratings has assigned Delta Topco limited (Formula 1) a final
Long-Term issuer Default Rating of 'BB' with a Stable Outlook.
Fitch has also assigned Delta 2 (Lux) S.a r.l.'s loans a senior
secured instrument rating of 'BB+' with a Recovery Rating of
'RR2'.
The ratings follow Formula 1's successful refinancing of its USD2.9
billion term loans and USD500 million debt reduction.
Formula 1's ratings reflect its highly cash-generative business
model with strong revenue visibility supported by multi-year and
mostly fixed-fee contracts. Capacity for further growth in the US
and other regions is underpinned by the record popularity of the
FIA Formula One World Championship (F1) with attendance and
viewership levels growing strongly year on year. The ratings also
reflect limited diversification and moderately high leverage.
The Stable Outlook reflects its expectation that funds from
operation (FFO) leverage will fall within its 'BB' threshold in
2023 of below 4x. EBITDA growth in 2023 will be driven by an
additional race in 2023 (Las Vegas) along with favourable contract
renewals.
KEY RATING DRIVERS
Lower Leverage Expected: Fitch expects company-defined adjusted
EBITDA to be a little under USD600 million this year, allowing FFO
gross leverage to fall to around 4.5x at end-2022 from 6.3x in
2021. Next year will see at least one additional race added to the
calendar, more revenue under certain key contracts like the US
media rights and three more F1 Sprint races bringing further
marketable inventory. Fitch believes this organic growth should
lift company-defined adjusted EBITDA above USD700 million in 2023
and in the absence of a future increase in debt, FFO gross leverage
should fall to within its 'BB' leverage threshold by end-2023.
Headroom Against Financial Policy: Given expected strong
deleveraging, net leverage is likely to be well below parent
Liberty Media's financial policy of net debt at below 5x
company-defined adjusted EBITDA. Fitch believes shareholder returns
to Liberty Media seem likely given Formula 1's large cash balance
and expected strong free cash flow (FCF) generation. Its leverage
sensitivities are based on gross leverage so shareholder returns of
excess cash flows should not reduce headroom in the current rating.
Gross leverage could increase if the company issues new debt to
fund additional shareholder returns though this is unlikely in the
near future.
Unique Global Sport: F1 is one of the world's most watched sports
globally. It is unique in its combination of high viewership,
frequency of events and global event calendar format compared with
the other major sports' competitions such as the Olympics, NFL or
the English Premier football league. This provides a strong fan
base for pay-TV broadcasters, significant brand marketing
opportunities for its sponsors, and makes hosting events attractive
to cities and countries around the world. Under its long-term
agreement with the Federation Internationale de l'Automobile (FIA),
the company holds the exclusive commercial rights to the sport
through to 2110.
Macroeconomic Challenges: Fitch expects inflation-related increases
in operating expenses including personnel, logistics and Paddock
club costs in 2022. Fitch expects a slight decline in
company-defined pre-team share (PTS) EBITDA as a percentage of
revenue but overall company-defined adjusted EBITDA as a percentage
of revenue to remain broadly stable, reflecting favourable changes
to the Concorde agreement in 2021. Team payments are calculated on
reported profits, which hedge against increases in operating
expenses. The current popularity of the sport limits the risk of
the weakened global macroeconomic environment materially dampening
demand for sponsorship or other contract renewals.
Significant US Opportunity: Now in its fourth season, the Netflix
documentary 'Drive to Survive' has boosted F1's popularity globally
and particularly in the US. Tickets in Austin and Miami sold out in
2022 and the media rights contract extension with ESPN has been
agreed at multiples of the previous fee. Increasing the size of the
US market brings significant potential for promotion, sponsorship
and media rights. In Las Vegas, the company will promote the race
itself. This will be a major event for the sport next year, which
Fitch expects will help raise revenue above USD3 billion for the
first time in 2023.
Revenue Pipeline Growing Quickly: A significant majority of the
race promotion, broadcasting and sponsorship contracts specify
payments in advance and have built-in annual increases in the fees
payable. Contracts vary in length with broadcasters typically
contracting for three to five years, while race promoter contracts
are often longer as shown by Australia's extension to 2037.
Progress with long-term renewals of core revenue contracts has
resulted in significant growth in future revenues under contract,
which in total are multiples of 2022 equivalent fees.
Limited Diversification: Revenues are directly exposed to the
popularity of the sport, which is at record highs. Long-term
contracts protect the company against declines in viewership or
sponsor appeal though this would likely make renewals and revenue
growth more challenging. Fitch expects the Las Vegas race to be in
high demand from fans, casinos and sponsors but as race promoter
the company is more exposed to downside risks for this race than
others. The company also has some exposure to customer
concentration risk from its largest sponsors and broadcasters.
China Race Cancelled: Fitch-defined EBITDA fell nearly 80% in 2020,
reflecting the disruption to the race calendar caused by the
pandemic. The company returned to strong growth in 2021 as
restrictions were eased and the race calendar returned to 22 races
over the year. Under existing race promotion deals, 24 races were
planned for 2023 including a return to China in April as part of a
two-year deal. It was recently announced that the 2023 China race
has been cancelled, although the company continues to assess
opportunities to replace the race and maintain a 24-race calendar.
Fitch believes, that even if that should not happen, the company
should still have good capacity to reduce leverage below 4x in 2023
under a 23-race calendar.
DERIVATION SUMMARY
Formula 1's rating benefits from holding exclusive commercial
rights to one of the most popular sports globally. Good revenue
visibility, a flexible cost structure, strong brand recognition and
F1's unique position in the global sports market supports the
company's credit profile. The rating is constrained by the lack of
meaningful product diversification, some concentration of customers
in broadcasting and sponsorship and moderately high leverage, which
Fitch expects to decline with the projected growth in EBITDA.
Formula 1's operating profile as well as its main product are
unique and given the lack of direct peers we benchmark it against a
wide range of Fitch-rated media companies.
Higher-rated larger peers such as Informa PLC (BBB-/Stable) or
Pearson Plc (BBB-/Stable) have lower leverage and stronger product
diversification. Similar to these companies, Formula 1 is exposed
to secular shifts in media consumption and economic cycles via
advertising revenues though its long-term contracts mitigate this.
Formula 1 compares well with the broader media peer group in 'B+'
and below range, as the company demonstrated resilience during the
pandemic with its flexible cost structure, ample liquidity and
strong relationships with key partners and customers. Football
rights management company Subcalidora 1 S.a.r.l (Mediapro;
B/Stable) has a low rating, reflecting its customer concentration
risk from a single contract for agency services with La Liga
international.
KEY ASSUMPTIONS
- Race calendars for 2022 and 2023 comprise 22 and 23 races,
respectively. From 2024 the race calendar to increase to 24 races.
- Revenue to grow 18.3% in 2022, 22.5% in 2023 and by low-single
digits to 2025
- Fitch-defined EBITDA margin of around 22.7% in 2022 and gradually
improving to 23.5% by 2025
- Capex at around 1.2% of revenue in 2022-2025, excluding any
one-off capex related to the Las Vegas race in 2023
- Dividend payments are made to keep readily available cash on
average at around USD500 million between 2022 and 2025
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- Growth in EBITDA or a positive change in financial policy leading
to FFO gross leverage sustainably below 3.0x (or gross debt at 2.8x
Fitch-defined EBITDA)
- FFO interest coverage sustainably above 5x (equivalent to
Fitch-defined EBITDA interest cover of 5.5x)
- Increase in average contract length with broadcasters, sponsors
and promoters
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- FFO gross leverage sustainably above 4.0x (or gross debt above
3.8x Fitch-defined EBITDA)
- Material decline in popularity of the sport driving a loss of (or
significant reduction in terms at renewal) contracts with key
broadcasters or sponsors leading to material pressure on revenues
- Change in a future Concorde Agreement leading to a reduction in
the proportion of PTS EBIT for Formula 1
- FFO interest coverage expected to remain sustainably below 4.0x
(equivalent to Fitch-defined EBITDA interest cover of 4.5x)
LIQUIDITY AND DEBT STRUCTURE
Comfortable Liquidity: Fitch views Formula 1's liquidity position
as strong, as Fitch expects its pre-dividend FCF margin to average
15% in the four years to 2025. Post refinancing its next
significant debt maturities are in 2028 and 2030.
Fitch expects the company to have strong headroom for its upcoming
interest payments and amortisation payments on its term loan A.
Formula 1 supports its liquidity with a USD500 million revolving
credit facility and strong cash flow generation. At end-September
2022, USD1 billion of cash was held in the FWON tracker at parent
company level, which could provide support to Formula 1, if
required.
DATE OF RELEVANT COMMITTEE
08 November 2022
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Delta Topco
Limited LT IDR BB New Rating BB(EXP)
Delta 2 (Lux)
S.a r.l.
senior secured LT BB+ New Rating RR2 BB+(EXP)
GKN HOLDINGS: Fitch Affirms LongTerm IDR at 'BB+', Outlook Stable
-----------------------------------------------------------------
Fitch Ratings has affirmed UK-based GKN Holdings Limited's (GKN)
Long-Term Issuer Default Rating (IDR) at 'BB+' and UK-based GKN
Aerospace Services Limited's (GASL) IDR at 'BB+'. The Outlooks are
Stable.
The affirmation reflects the group's solid business profile,
characterised by good diversification and leading market positions
in niche markets, improved and moderate leverage metrics, and
expected further operating profitability margins amelioration. The
rating is underpinned by successful delivery of the group's 'buy,
improve, sell' strategy, which has improved its leverage and
financial flexibility.
KEY RATING DRIVERS
Proposed Demerger: The group plans to demerge GKN Automotive and
GKN Powder Metallurgy business from the Melrose Group. As a result,
there will be two independent and separately-listed automotive and
aerospace groups, albeit with the same shareholder structure. The
groups will run their own strategies and acquisition platforms. The
demerger is likely to go ahead by 1H23. Fitch will assess the
demerger as an event once the group's proposed capital structure is
known.
Ongoing Successful Disposals: Following large disposals in 2021,
with total proceeds of GBP2.9 billion the group successfully sold
Ergotron for GBP519 million in July 2022, the last business owned
by the group from the Nortek acquisition. The group has proved its
ability to deliver its strategic intentions, particularly in a
highly vulnerable market environment. The group has also continued
its shareholder-friendly policy and following the sale of Ergotron
proceeded with a share buy-back of GBP500 million by August 2022,
limiting its cash build-up by end-2022.
Aerospace Recovery is On Track: Ongoing, albeit
lower-than-expected, aircraft deliveries primarily in the
single-aisle end-market, should support the group's revenue
generation in 2022-2023 and profitability margin improvement. The
expected economic slowdown in 2023 might constrain the group's
sales and profitability. However, Fitch expects strong demand in
the medium term, which should support the group's revenue
visibility. Moreover, about 30% exposure to the defence market,
provides the aerospace division with more stable and resilient
revenue generation. In addition, expected completion of the
restructuring in 2023 should support profitability margin
improvement.
Challenges in Automotive Business: Margin improvement was slower
than expected, but restructuring projects in the automotive
division are expected to be completed in 2022. Supply chain issues
and high inflationary pressure eroded profitability in 1H22 in the
Automotive and Powder Metallurgy divisions. GKN negotiated revised
pricing with the majority of its original equipment manufacturers,
which should support modest margin recovery in 2023 amid ongoing
inflationary pressure and a slowdown in the economy.
The group is well-positioned in the growing electric vehicles
market, which should support margin improvement and revenue growth
over the medium term. About half of the new order intake in 2022
was attributed to electrified platforms. Fitch believes that the
group's leading market position and its technological capabilities
will support its competitiveness, which in turn should result in
margins rising.
FCF Under Pressure: In contrast to its previous expectation, Fitch
expects free cash flow (FCF) generation to remain under pressure
during 2023. FCF was eroded in 2022 by increased working capital
needs to support expected growth and also due to supply chain
issues. Ongoing capex and dividend payments of about GBP150 million
could result in a marginally negative FCF ratio, turning positive
in 2024, primarily supported by operating margin improvement.
An improvement of Fitch-defined EBITDA margin towards 11% and
sustainably positive FCF generation since 2024 could drive positive
rating action.
Consolidated Credit Profile Drives Rating: GKN's and GASL's ratings
reflect the group's consolidated credit profile. Fitch's business
profile analysis and credit metrics incorporate non-GKN diversified
operations and their financial obligations, as well as Melrose
plc's debt and liquidity. Consequently, actual and forecast
financial performance analyses are based on Melrose's consolidated
financial statements. GKN's 'BB+' rating reflects Fitch's
assessment of the linkage between Melrose and GKN on a
stronger-subsidiary approach under its PSL Criteria. Fitch views
both 'legal ring-fencing' and 'access and control' factors as
'open'.
The group's debt structure, including the bonds, incorporates
upstream guarantees from certain GKN entities, including GASL, to
Melrose, and downstream guarantees from Melrose. Melrose's
committed bank facilities contain a cross-default clause
referencing any member of the group. There is no legal ring-fencing
impeding intragroup liquidity movement with cash being channeled to
Melrose as much as possible. Daily operational management is
delegated to GKN divisions' executives, but Melrose has control of
GKN's board and remains responsible for strategy and performance.
GASL's IDR Equalised: Under its PSL Criteria, GASL's rating is
equalised with immediate parent, GKN, reflecting our
stronger-parent approach to assess their linkage. Fitch views both
'legal incentive' and 'strategic incentive' as 'medium' and
operational incentive' as 'high'. The 'high' operational incentive
reflects that GASL is a key part of GKN's aerospace business, with
integrated management decisions, plus core capabilities in
aerospace products and services.
The 'medium' strategic incentive reflects GASL's key role in GKN's
European aerospace supply chain and development, contributing
around 7.5% of the group's sales in 2021. GASL is a guarantor of
both Melrose's committed bank facilities and GKN's bond, and relies
on the group's cash pooling system for external liquidity needs,
underlining the 'medium' legal incentive.
DERIVATION SUMMARY
GKN is one of the leading Tier 1 aerospace and automotive suppliers
globally. The group's business profile is characterised by exposure
to several end-markets in contrast to less diversified peers like
MTU Aero Engines AG (MTU; BBB/Stable), Schaeffler AG (BB+/Stable)
and Allison Transmission, Inc. (BB+/Stable). Nevertheless, the
diversified business profile is constrained with somewhat high
exposure to cyclical industries, similar to Rolls-Royce plc
(BB-/Positive), MTU, Allison Transmission, Faurecia S.E.
(BB+/Negative) and Dana Incorporated (BB+/Negative). GKN's
geographical diversification compares well with General Electric
Company (GE; BBB/Stable), MTU, Howmet Aerospace, Inc.
(BBB-/Stable), Rolls-Royce and Dana Incorporated. However,
Melrose's business profile is weaker than some of peers including
GE, MTU, Rolls-Royce, which have a larger share of more stable
aftermarket service revenue.
The group's profitability margins started rebounding in 2021 and
2022 following the recovery in demand in core end-markets and also
being supported by its restructuring. Nevertheless, the group's
EBIT margin is still weaker than that of most peers. Funds from
operations margin generation is comparable with GE, Faurecia, Dana
Incorporated and Rolls-Royce. The volatility of FCF generation is
broadly similar to Faurecia and Dana Incorporated and better than
that reported by Rolls-Royce. Over the rating horizon, Fitch
expects GKN's FCF to remain weaker than Allison Transmission and
Howmet Aerospace.
KEY ASSUMPTIONS
- Rebound of revenue in aerospace division with mid-teens growth in
2022
- Revenue increase by high single-digits pace yoy in automotive
division in 2022 primarily driven by prices revision
- Low single-digit rise of revenue in the powder metallurgy
division in 2022
- Overall mid single-digit revenue growth yoy for 2022-2025
- Gradual improvement of EBITDA margin towards 6.5% in 2022, 8.9%
in 2023 and over 11% in 2024-2025
- Annual capex at 4.3% of revenue in 2022 and at 5.0% during
2023-2025
- Dividend pay-out of about GBP77 million in 2022, GBP150 million
in 2023 and GBP250 million in 2024-2025
- Proceeds from disposal of Ergotron of GBP519 million in 2022
- Shares buy-back of GBP500 million in 2022
- No M&A or shareholder's returns in 2023-2025
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Consolidated EBITDA leverage below 2.0x, supported by consistent
long-term funding policy
- Consolidated EBITDA margin above 10.5%
- Consolidated FCF margin above 2%
- Weaker linkages between GKN and Melrose, with GKN consisting of
at least the aerospace and automotive divisions, without material
deleveraging of GKN
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
GKN
- Consolidated EBITDA leverage above 3.0x
- Consolidated EBITDA margin below 9%
- Consolidated FCF margin below 1%
- Disposals of material assets without adequate deleveraging
GASL
- Weaker ties between GKN and GASL
LIQUIDITY AND DEBT STRUCTURE
Good Liquidity Position: GKN has access to Melrose's liquidity via
a cash-pooling mechanism. At end-June 2022, Fitch-defined readily
available cash was GBP187 million, adjusted for about GBP106
million treated as restricted to cover potential working- capital
swings. This was sufficient to cover expected negative FCF
generation of about GBP86 million in the next 12 months. In
September 2022, the group redeemed its GBP450 million bond and in
December 2022 the group redeemed GBP170 million of the GBP300
million bond in advance following a tender offer.
Debt Structure: At end-June 2022, Melrose's debt comprised mainly a
GBP300 million and GBP450 million bond, together with a
multi-currency term loan (GBP30 million and USD788 million,
maturing in June 2024) that was fully drawn. The group also has a
multi-currency revolving credit facility (GBP1.1 billion, USD2
billion and EUR0.5 billion, maturing June 2024), which was mostly
undrawn (GBP80 million was drawn). By 1 December 2022 the group had
repaid its GBP450 million bond and GBP170 million of the GBP300
million bond had been tendered and cancelled, leaving GBP130
million outstanding. These repayments were funded by a mix of
available cash and drawdowns on the multi-currency revolving credit
facility.
ISSUER PROFILE
Melrose Industries plc is a UK based industrial buy-out group
focused on buying manufacturing business with good fundamentals,
improving performance through investment or changed management
focus and selling them on. Its three current major business come
from its acquisition of GKN plc, comprising GKN Aerospace, GKN
Automotive and GKN Powder Metallurgy.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Prior
----------- ------ -----
GKN Holdings Limited LT IDR BB+ Affirmed BB+
ST IDR B Affirmed B
senior unsecured LT BB+ Affirmed BB+
GKN Aerospace
Services Limited LT IDR BB+ Affirmed BB+
JOULES: Perth Store Saved Following Rescue Deal
-----------------------------------------------
Robbie Chalmers at Daily Record reports that clothing chain store
Joules in Perth city centre has survived a glut of shop closures
after the company was rescued from administration.
The GBP34 million deal from retail giant Next was agreed with
founder Tom Joule, saving 1450 jobs, Daily Record discloses.
However, 22 stores have been closed with immediate effect with the
loss of 133 posts as a result, Daily Record states.
Luckily, in a boost for the Fair City high street, the St John
Street outlet will be among the 110 other stores to remain open,
Daily Record notes.
Joules, known for its premium, brightly-coloured clothes, collapsed
into administration last month after failing to secure emergency
investment, Daily Record recounts.
Like other retailers, the Leicestershire-based firm has struggled
against a backdrop of the coronavirus pandemic and cost-of-living
pressures, Daily Record relays.
Under the terms of the deal, Next will take a 74% stake in the
business, with Tom Joule owning the rest, according to Daily
Record.
Next, Daily Record says, has also paid GBP7 million to buy the
current Joules head office.
According to Daily Record, a statement on the Joules website reads:
"We've sadly had to close 22 stores, but you can still shop Joules
at any of our remaining 110 stores."
RANGERS FC: Liquidators Reach GBP54-Mil. Settlement with HMRC
-------------------------------------------------------------
Gabriel McKay at The Herald reports that the liquidators of
Rangers' old operating company have come to a GBP54 million
settlement with HMRC, 10 years after the oldco was declared
insolvent.
According to The Herald, the revenue service had initially claimed
GBP94.4 million, the bulk of which came from the use of employee
benefit trusts (EBTs) to pay staff between 2001 and 2009.
Players, staff and directors had been given tax-free loans which
HMRC contended were income and thus taxable, something which was
upheld by the Court of Session in 2015, The Herald recounts. An
appeal to the Supreme Court was unanimously thrown out, The Herald
relays.
The revenue service had been claiming GBP47 million for that alone,
as well as a sum in the region of GBP10 million relating to former
owner Craig Whyte's failure to pay VAT and PAYE, The Herald notes.
The total debts claimed when the former Rangers operating company
were declared insolvent were in excess of GBP160 million, The
Herald discloses.
The agreement with HMRC means unsecured creditors will be paid
14.3p for every pound owed, The Herald states.
"We are pleased to advise that since the last report, we continued
extensive and collaborative discussions with HMRC to reach a
negotiated resolution in relation to the remaining elements of the
claim," The Herald quotes a letter signed by joint-liquidators
James Stephen and Malcolm Cohen as saying.
"After significant input from BDO’s Tax Dispute Resolution team,
together with our legal advisors, we were able to reach a composite
settlement of £56m for the whole of the HMRC claim.
"Formal settlement documentation will ensure that HMRC will not
raise any further claims in the liquidation.
"The agreed settlement with HMRC reflects the outcome of the
Supreme Court decision in 2017.
"This composite settlement represents an agreed reduction to
HMRC’s initial submitted claim in the liquidation.
"As a result, all other unsecured creditors should receive
dividends totalling approximately 5.3p in the pound more than they
would have otherwise received.
"It also negates the need for further protracted litigation which
could have been costly to the liquidation estate."
SHADE LIMITED: Goes Into Administration
---------------------------------------
Sam Metcalf at TheBusinessDesk.com reports that a
Lincolnshire-based outdoor accessories retailer and a north-west
sunglasses outlet have fallen into administration.
Graham Bushby, Nick Edwards and Matthew Haw of RSM UK Restructuring
Advisory have been appointed as joint administrators of Northcore,
of Louth, and Shade Limited, which trades as Shade Station, based
in Bury, TheBusinessDesk.com relates.
Shade is an online retailer of sunglasses, glasses and watches, and
Northcore is an outdoor accessories and lifestyle online retailer.
A spokesperson for RSM told TheBusinessDesk.com: "The joint
administrators are currently reviewing the financial position of
both companies to ascertain the prospect of continuing to trade the
businesses, and the viability to sell them as a going concern."
SHUROPODY RETAIL: Bought Out of Administration via Pre-pack Deal
----------------------------------------------------------------
Brian Donnelly at The Herald reports that hundreds of jobs have
been saved with the purchase of a shoe and podiatry retailer out of
administration.
According to The Herald, Gareth Harris and Lee Lockwood of RSM UK
Restructuring Advisory LLP were appointed joint administrators of
Shuropody Retail Limited this week and have now secured the
purchase of the business and assets of Shuropody in a "pre-pack"
administration sale.
The specialist retailer with outlets across the UK including
Glasgow went into administration on Dec. 7 and was immediately sold
to a subsidiary of Baaj Capital LLP, a special situations investor
which holds a number of other retail investments, The Herald
relates.
The deal has saved over 260 jobs and all of the company's 39 stores
remain open and are continuing to trade under new ownership, The
Herald notes.
The joint administrators were advised by Matthew Brown, Liz Russell
and Niall Crossley of Gateley Legal, The Herald discloses.
WASPS: Owed GBP95 Million at Time of Administration
---------------------------------------------------
Simon Gilbert at BBC Sport reports that Wasps had debts totalling
GBP95 million when the club went into administration, reports by
administrators FRP have revealed.
According to BBC Sport, they show that the combined debts of the
rugby club's parent company Wasps Holdings and their three Coventry
Building Society Arena companies have cost taxpayers millions of
pounds.
Dozens of local firms were also owed money, including Arena tenants
Coventry City who were owed about GBP465,000, BBC Sport discloses.
Wasps and their stadium businesses owed more than GBP21 million to
public bodies, BBC Sport states.
Wasps Holdings entered administration on Oct. 18, resulting in
their relegation from the Premiership, BBC Sport relates.
Meanwhile, Arena Coventry Ltd (ACL), Arena Coventry (2006) Ltd and
IEC Experience Ltd were first threatened with the likelihood of
administration on Nov. 2, BBC Sport notes.
According to BBC Sport, former Newcastle United owner Mike Ashley's
Frasers Group, the preferred bidder, then had a GBP17 million bid
accepted and took charge when the businesses went into
administration on Nov. 17, despite a late GBP25 million offer from
stadium tenants Coventry's proposed new majority shareholder Doug
King.
Frasers Group have since served the Sky Blues with an eviction
notice, saying they have no continuing right to use the ground
unless a new licence is agreed, BBC Sport relays.
The administrators' reports have highlighted the full extent of the
CBS Arena's and Wasps' debts, according to BBC Sport.
Taxpayers took the biggest hit as a result of the GBP14.1 million
unsecured Covid Sport Survival Package (SSP) loan from the
Department for Digital, Culture, Media and Sport (DCMS),
administered by Sport England, BBC Sport discloses.
A further GBP7 million owed to His Majesty's Revenue & Customs
(HMRC) has not been repaid -- and there were also losses for local
taxpayers, BBC Sport states.
Coventry City Council was owed more than GBP270,000, with the
council telling the BBC the bulk of it (GBP228,152) was as a result
of unpaid business rates, BBC Sport discloses.
Warwickshire County Council was owed GBP600 and Stratford District
Council GBP2,868, while West Midlands Police lost GBP20,570 and
West Midlands Ambulance Service took a loss of GBP1,755, BBC Sport
states.
According to BBC Sport, the reports also show former Wasps owner
Derek Richardson had loans of about GBP16.5 million in the various
Wasps companies when they went bust.
It is a bigger blow to the public purse than when Worcester
Warriors collapsed in October, owing the government GBP16.1 million
from their SSP loan (the biggest of the combined GBP124 million
package of loans given to all 13 Premiership clubs), as well as
GBP2.1 million in unpaid taxes to HMRC, BBC Sport recounts.
The other big losers were Wasps bondholders, who were owed GBP35.2
million, BBC Sport notes.
They did receive around GBP7.4 million back, but it still results
in total losses of GBP27.8 million, BBC Sport states.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2022. All rights reserved. ISSN 1529-2754.
This material is copyrighted and any commercial use, resale or
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Information contained herein is obtained from sources believed to
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