/raid1/www/Hosts/bankrupt/TCREUR_Public/221216.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 16, 2022, Vol. 23, No. 245
Headlines
B E L A R U S
DEVELOPMENT BANK: Fitch Lowers Eurobond's LongTerm Rating to C
B O S N I A A N D H E R Z E G O V I N A
FORUM SARAJEVO: Penny Plus Increases Stake in Business to 61.842%
VITEZIT: WDG Promet Wins Tender to Take Over Business
G E R M A N Y
CECONOMY AG: Fitch Publishes LongTerm IDR at 'BB', Outlook Stable
RAFFINERIE HEIDE: S&P Withdraws 'CCC+' LT Issuer Credit Rating
I R E L A N D
TAURUS 2020-1: Fitch Affirms 'BB-sf' Rating on Class E Notes
K A Z A K H S T A N
ALMA TELECOMMUNICATION: S&P Assigns 'B' ICR, Outlook Stable
L U X E M B O U R G
ENDO LUXEMBOURG: XAI OFRAITT Marks 2028 Loan at 16% Off
SAMSONITE INTERNATIONAL: Fitch Affirms 'BB-' IDR, Outlook Negative
N E T H E R L A N D S
LEALAND FINANCE: XAI OFRAITT Marks $47,572 Loan at 50% Off
LEALAND FINANCE: XAI OFRAITT Marks $8,469 Loan at 40% Off
VODAFONEZIGGO GROUP: Fitch Affirms B+ LongTerm IDR, Outlook Stable
P O R T U G A L
SATA AIR: Moody's Affirms 'Ba1' Rating on Senior Unsecured Notes
R O M A N I A
CET PALAS: Romania to Build RON743-Mil. Cogeneration Plant
R U S S I A
UZAUTO MOTORS: Fitch Hikes LongTerm IDR to BB-, Outlook Stable
T U R K E Y
ALBARAKA TURK: S&P Withdraws 'B-/B' Issuer Credit Ratings
U K R A I N E
UKRAINIAN RAILWAYS: Fitch Cuts LongTerm Foreign Currency IDR to 'C'
U N I T E D K I N G D O M
CLARA.NET HOLDINGS: Fitch Affirms B+ LT IDR, Alters Outlook to Neg.
GARDEN TRADING: TIM Group Buys Business Out of Administration
OLDE BARN: Unnamed Buyer Rescues Hotel Out of Administration
SIG PLC: Moody's Affirms B1 CFR, Cuts GBP300MM Notes Rating to B2
X X X X X X X X
[*] BOOK REVIEW: Bankruptcy and Secured Lending in Cyberspace
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B E L A R U S
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DEVELOPMENT BANK: Fitch Lowers Eurobond's LongTerm Rating to C
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Fitch Ratings has downgraded JSC Development Bank of the Republic
of Belarus's (DBRB) Eurobond's long-term rating to 'C' from 'CC'.
The bank's Long-Term Foreign-Currency Issuer Default Rating (IDR)
has been affirmed at 'CC'.
KEY RATING DRIVERS
The rating actions follow the non-payment to bondholders of the
coupon on DBRB's USD500 million Eurobond beyond the 14-day grace
period. Fitch understands that non-payment was due to the paying
agent withholding the coupon amount in view of uncertainty about
the application of UK sanctions legislation. Fitch has downgraded
the Eurobond's rating to 'C', which is the lowest possible rating
assigned to a debt issue on its rating scale, to reflect the
uncured default on the bond.
At the same time, Fitch has affirmed DBRB's Long-Term
Foreign-Currency IDR at 'CC', as Fitch understands the bank
fulfilled its obligation in respect to the coupon payment by
transferring the amount on time, in full and in the designated
currency to the paying agent. In its view, therefore, a default of
the issuer has not occurred, and hence Fitch has not downgraded the
bank's IDR to Restricted Default (RD).
According to DBRB, the coupon amount was transferred to the
UK-based paying agent, but the latter did not distribute these
funds to bondholders on the payment date (2 November 2022) due to
lack of clarity about whether this would violate UK sanctions on
Belarus effective from July 2022. These regulations prohibit UK
entities from providing financial services to persons controlled by
the Ministry of Finance and the National Bank of Belarus for the
purpose of foreign exchange reserve and asset management. Fitch
understands that both the paying agent and the bank have asked the
UK sanctions regulator to clarify whether these sanctions apply to
the payment on DBRB's Eurobond, but no reply has been received to
date.
The bank's Long-Term Local-Currency IDR is unaffected by the rating
actions.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
If DBRB ceases to make payments on its foreign-currency-denominated
debt, including due to sanctions imposed on the bank, Fitch would
downgrade the bank's Long-Term Foreign-Currency IDR to 'RD'.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
The bond's rating could be upgraded to the level of the bank's
Long-Term Foreign-Currency IDR if the coupon payment on the bond is
fully received by investors.
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
----------- ------ -----
JSC Development
Bank of the
Republic of Belarus LT IDR CC Affirmed CC
ST IDR C Affirmed C
Government Support cc Affirmed cc
senior unsecured LT C Downgrade CC
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B O S N I A A N D H E R Z E G O V I N A
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FORUM SARAJEVO: Penny Plus Increases Stake in Business to 61.842%
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Dragana Petrushevska at SeeNews reports that Bosnian retailer Penny
Plus increased to 61.842% from 56.4321% its stake in local film
distribution company Forum Sarajevo, which is in bankruptcy
proceedings, Forum Sarajevo said.
Penny Plus acquired 41,298 shares of Forum Sarajevo at a price of
BAM0.11 (US$0.059/EUR0.056) apiece in a transaction that took place
on December 6, Forum Sarajevo said in a filing with the Sarajevo
Stock Exchange (SASE) on Dec. 8, SeeNews relates.
Earlier this year, Penny Plus launched a buyout bid for Forum
Sarajevo and raised its stake in the company to 55.3591% from
54.8637%, SeeNews recounts. Penny Plus offered to pay 0.11 marka
per share in the takeover bid, SeeNews discloses.
VITEZIT: WDG Promet Wins Tender to Take Over Business
-----------------------------------------------------
Annie Tsoneva at SeeNews reports that Croatian company WDG Promet
won a tender to take over bankrupt Bosnian gunpowder producer
Vitezit.
Vitezit was sold for BAM10.8 million (US$5.9 million/EUR5.5
million) in an international tender, Bosnian news portal
www.viteski.ba reported on Dec. 13, citing the company's receiver
Bahrija Huseinbegovic, who declined to name the buyer, SeeNews
relates.
The receiver, as cited by SeeNews, said buyer has already paid a
deposit of 10% of the final price and has to come up with the
remainder within 15 days.
According to Croatian daily Jutarnji List, the buyer is WDG Promet,
a company owned by Matias Zubak, SeeNews discloses.
His father Zvonko Zubak had been previously selected several times
to buy Vitezit but failed to pay the price, says, citing tothe
daily.
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G E R M A N Y
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CECONOMY AG: Fitch Publishes LongTerm IDR at 'BB', Outlook Stable
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Fitch Ratings has published Germany-based electronics retailer
Ceconomy AG's (Ceconomy) Long-Term Issuer Default Rating (IDR) at
'BB' with a Stable Outlook. Fitch has also published its rating for
its five-year EUR500 million senior unsecured bond at 'BB' with a
Recovery Rating of 'RR4'.
The 'BB' rating balances Ceconomy's large-scale, well-diversified
product offering, omnichannel capabilities and pan-European
footprint with operations in a competitive market, low operating
margins, volatile free cash flows (FCF) and tight interest cover
metrics.
The Stable Outlook reflects its view that the company should be
able to restore its EBITDA margin to or above 2.5% in FY24-FY25
(financial year end September) and to reduce its EBITDAR net
leverage towards 4.0x from a level currently not consistent with
the rating. This will mainly be driven by stronger volumes in a
recovering macro-economic environment, after temporary trading
softness in FY23 amid recessionary pressures, particularly in its
main German market.
KEY RATING DRIVERS
Leading European Consumer-Electronics Retailer: Ceconomy is the
largest consumer-electronics retailer in Europe, but Fitch places
its business profile between the 'BBB' and 'BB' categories due to
its scale, market position and diversification, but also given the
challenges of operating in a fiercely competitive market. Ceconomy
benefits from its strong brand name, sizeable operations with a
pan-European footprint, and well-diversified product offering with
adequate omni-channel capabilities as evident in its online sales
having reached 25% of total sales in FY22. However, its trading
performance is predominantly driven by Germany and is exposed to a
challenging and volatile consumer-electronics market.
Profitability Lower than Sector Peers': Ceconomy operates in the
largely commoditised mass-market end of consumer-electronics
retailing, which is exposed to substantial competitive pressures
amid high price comparability. This is exacerbated by increasing
online market penetration, and retailer-agnostic consumer
behaviour. Fitch assesses Ceconomy's EBITDA and fund from
operations (FFO) margins at 'B', which could come under further
pressure in FY23 as consumers delay their purchases or trade down
while the company can only partly pass on inflation-cost increases.
Fitch anticipates a restoration of EBITDA and FFO margins towards
2.5% and 2%, respectively, (FY22E: 1.9% and 1.1%) from FY24, mainly
on potentially stronger volumes in a recovering macro-economic
environment.
Volatile FCF: Fitch estimates that FCF will remain prone to high
volatility, which Fitch attributes mostly to sizeable inventory-led
changes in trade working capital (TWC) and pronounced sales
seasonality, combined with an uncertain trading environment. Based
on the company's tighter stock control to manage goods availability
and actual consumer demand, Fitch projects at least a partial funds
release leading to slightly positive TWC cash flow in FY23-FY24.
This follows two consecutive years of a large cumulative cash
outflow estimated by Fitch at around EUR900 million, which includes
company-reported changes in TWC adjusted by Fitch for use of
factoring for part of its receivables.
Low Working-Capital Visibility: The visibility of the TWC changes
remains extremely low, which may be aggravated by recessionary
pressures over the coming months, and will also strongly depend on
the success of cash conversion cycle-reduction measures. At the
same time, irrespective of the timing of the TWC reversal over the
rating horizon, Fitch estimates that Ceconomy's liquidity at
financial year-end will likely remain under EUR1 billion in the
medium term versus around EUR1.3 billion during FY18-FY21.
Leverage Weak in FY23: Based on its view of lower trading volumes
and cost pressures, Fitch projects a temporarily heightened EBITDAR
net leverage of around 5.0x in FY23, which is weak for the 'BB'
IDR. From FY24, Fitch estimates that leverage will strengthen to
4.0x on gradually improving macro-economic conditions leading to an
EBITDA recovery towards EUR600 million, from a below EUR350 million
projected for FY23. This 4.0x leverage is commensurate with the
mid-to-low end of the 'BB' rating category for non-food retailers,
and is a critical consideration behind the rating.
Lease Adjustments to Leverage: Ceconomy's pure financial debt
leverage is low, when capitalised leases contributing most to its
lease-adjusted credit metrics are excluded. However, in its rating
analysis of non-food retailers, whose business models rely on a
store network, Fitch assesses and compare financial risk profiles
using lease-adjusted leverage metrics, which place Ceconomy in the
mid-to-low end of the 'BB' rating category. The 'BB'/Stable IDR is
therefore strongly predicated on Ceconomy's ability to rebuild its
EBITDA towards EUR600 million by FY25, as consumer confidence
improves from the currently low point affected by an increased cost
of living.
Tight Fixed Charge Cover: Fitch sees weak fixed charge cover ratios
for Ceconomy with FFO and EBITDAR based metrics estimated to remain
below 2.0x, which correspond to a low 'B' level. This is balanced
by its actively-managed leased store network, mitigating the impact
of inflation indexation, and leading to broadly flat lease payments
in combination with modest cash debt service. However, tightening
fixed charge cover ratios would signal less effective property
management and could put ratings under pressure.
Adequately Managed Property Portfolio: Fitch recognises Ceconomy's
active management of its operating leases, which provides financial
flexibility, given the short-term nature of leases (average
remaining lease is over three years versus sector peers of around
eight-10 years) as well as the inclusion of early termination
clauses, usually linked to store-based profitability metrics. Fitch
uses a lower estimated 7x lease multiple (standard lease multiple
is 8x) when computing the company's lease- adjusted debt metrics to
reflect the roughly one third proportion of its turnover-based
leases.
DERIVATION SUMMARY
Ceconomy's 'BB'/Stable combines the 'BBB' traits of its sizeable
operations, market position and product offering, with 'B' levels
of operating profitability and credit metrics. Fitch also regards
as a rating constraint the highly commoditised consumer electronics
markets in which Ceconomy operates, with exposure to demand
volatility, growing online penetration and shortening product
lifecycle due to technological advancements. Fitch consequently
views Ceconomy's credit profile as in line with that of the
consumer electronics retail subsector.
Compared with wider non-food retail peers including Marks and
Spencer Group plc (M&S) and Kingfisher (BBB/Stable), Ceconomy
enjoys similarly strong market positions in its respective markets,
combined with scale and good diversification. Likewise, Fitch takes
a positive view of Ceconomy's conservative financial policy and
well-managed leased property portfolio, although this is offset by
considerably lower profitability versus M&S's and Kingfisher's.
Relative to Spanish department store El Corte Ingles S.A. (ECI),
Ceconomy is larger in scale, more geographically diversified (ECI
generates 95% of sales in Spain) and better positioned in its
online service offering. ECI however has a more premium service
offering, with prime-city store locations and customer loyalty, as
well as higher own-brand sales, which translate into higher
profitability than Ceconomy (5.7% EBITDA margin for ECI vs. 2.1%
for Ceconomy in FY21).
Compared with direct peers in the consumer-electronics space UK
retailer Currys plc and French retailer Fnac Darty, Ceconomy is
around 2x-3x the scale in absolute sales, reflecting operations
across multiple European countries. Gross profit and EBITDA margins
are similar to Currys plc's at around 17%-18% and 2%-3%,
respectively, with some pressure emerging as both companies
increase lower-margin online sales. However, Ceconomy's EBITDA
margins are lower than Franc Darty's 4%-5%, which highlights a less
lean cost base as well as structural margin pressure in the
commoditised end of the consumer-electronics market.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Revenue at EUR21.8 billion in FY22, as reported in the FY22
trading statement. Around 1% average annual sales growth over
FY23-FY25
- Fitch-defined EBITDA margin to decline to 1.9% in FY22 and 1.5%
in FY23 before gradually recovering to 2.7% in FY25
- Leases at 2.5% of sales p.a. to FY25
- TWC of EUR450 million outflow in FY22 followed by a normalisation
in FY23 with a largely neutral cash impact over FY23 and FY24. TWC
outflow at around 1% of sales in FY25
- Capex at 0.7% of sales p.a. in FY22 and FY23 before returning to
1.5% (public guidance) from FY24
- Dividend payments of EUR63 million to shareholders and EUR26
million to Convergenta in FY22. No dividends over FY23 and FY24;
40% of prior year's net income assumed by Fitch for FY25
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Improved profitability and like-for-like sales, for example due
to strengthened competitive position or improved business mix, with
EBITDA margin (Fitch-defined) sustained above 2.5% and FFO margin
above 2%
- EBITDAR net leverage sustainably below 3.5x and FFO-adjusted net
leverage below 4.0x
- FFO fixed charge cover sustainably above 1.6x and EBITDAR fixed
charge cover above 1.8x
- Neutral to marginally positive FCF generation and evidence of
improved cash flow-conversion cycle leading to reducing TWC
volatility
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Decline in profitability and like-for-like sales, for example due
to increased competition or poor business mix, with EBITDA and FFO
margins remaining below 2% and 1%, respectively
- FFO fixed charge cover sustainably below 1.4x and EBITDAR fixed
charge cover below 1.6x
- EBITDAR net leverage sustainably above 4.0x and FFO-adjusted net
leverage above 4.5x
- Mostly negative FCF
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: Ceconomy's readily available cash balances
estimated at EUR700 million at FYE22 was adequate relative to its
volatile FCF generation and low ongoing debt service requirements
in the absence of material contractual debt maturities until FYE25.
Based on the TWC outflow in FY21 and FY22, Fitch projects a lower
year-end cash balance of EUR600 million-EUR700 million over the
rating horizon, versus an average of EUR1.3 billion of
Fitch-calculated freely-available cash during FY18-FY21.
Manageable Short-Term Financing Needs: Ceconomy also has access to
an undrawn committed revolving credit facility (RCF) of EUR1.06
billion and a EUR500 million commercial paper programme to support
short-term financing needs (EUR45 million utilised as of November
2022) even though Fitch does not include the latter in its
liquidity calculation.
Fitch believes that cash is not inflated at fiscal year-end in
September, as this is typically close to its average level of TWC
for the year, therefore, Fitch only restricts EUR100 million of
cash at year-end.
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
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Ceconomy AG LT IDR BB Publish
senior unsecured LT BB Publish RR4
RAFFINERIE HEIDE: S&P Withdraws 'CCC+' LT Issuer Credit Rating
--------------------------------------------------------------
S&P Global Ratings withdrew its 'CCC+' long-term issuer credit
rating on German single-asset refinery Raffinerie Heide GmbH at the
company's request. The outlook was stable at the time of the
withdrawal.
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I R E L A N D
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TAURUS 2020-1: Fitch Affirms 'BB-sf' Rating on Class E Notes
------------------------------------------------------------
Fitch Ratings has affirmed Taurus 2020-1 NL DAC's notes, as
detailed below
Entity/Debt Rating Prior
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Taurus 2020-1 NL DAC
A XS2128007163 LT AAAsf Affirmed AAAsf
B XS2128007593 LT AA-sf Affirmed AA-sf
C XS2128007759 LT A-sf Affirmed A-sf
D XS2128007916 LT BBBsf Affirmed BBBsf
E XS2128008211 LT BB-sf Affirmed BB-sf
TRANSACTION SUMMARY
Taurus 2020-1 NL DAC finances 100% of a EUR410.4 million commercial
mortgage term loan advanced by Bank of America Merrill Lynch
International DAC (the originator) to entities related to
Blackstone Real Estate Partners.
Together with a senior capex loan and a mezzanine loan, the senior
term loan is secured on a EUR661.8 million portfolio of office and
industrial properties in the Netherlands. The originator retains 5%
of the issuer's liabilities in the form of an issuer loan pari
passu with the notes.
Since closing, 45 assets have been sold, of which 27 were
industrial, resulting in 31.6% of the senior loan balance being
repaid. Of the remaining portfolio of 42 assets, 37 assets consist
of offices, with 60% of the market value focused in the Amsterdam
Metropolitan area.
The loan extension option is in February 2023 and Fitch expects the
borrower to purchase the hedging required to exercise the option
for another 12 months.
KEY RATING DRIVERS
Improving Quality, Patchy Vacancy: The portfolio has vacancy of
about 17%, which is broadly in line with closing and in some cases
reflecting ongoing refurbishment work. Currently, EUR15.6 million
of the EUR60.8 million capex facility commitment has been drawn,
which Fitch assumes has addressed some backlog capex items
identified by the valuer. Fitch believes the disposed properties
are of lower quality than the remaining collateral. This is also
contributing towards a falling debt yield, which Fitch understands
will fall below the cash trap trigger level of 8%.
Overall, Fitch believes performance is broadly stable, with recent
lettings in line with its assumed rental value (indexed from rental
value reported by the valuer in January 2021). Fitch notes the
absence of a more recent valuation despite the 12-month
requirement.
Limited Adverse Selection Scope: Scope for adverse selection is
presented by the pro-rata principal allocation, which only reverts
to sequential once no more than 35% of the loan balance is
outstanding (currently 63% of the senior loan is outstanding). The
10% release premium being applied to all future property disposals
is reasonably defensive for a portfolio that is reasonably similar,
being largely Randstad offices.
Mezzanine Purchase Option: The mezzanine lender has an option to
purchase the senior loan that can endure after enforcement, which
(if not exercised) could act as a negative market signal as to the
value of the portfolio when it converges with the senior loan
balance. The rating of the class E notes is reduced by one notch
from its breakeven, where Fitch expects non-exercise not to be
viewed as a negative signal.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Contraction in demand, which leads to lower rents or higher vacancy
in the portfolio.
The change in model output that would apply with 1.25x rental value
declines is as follows:
'AA+sf' / 'A+sf' / 'A-sf' / 'BBBsf' / 'BBsf'
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Improvement in portfolio performance led by rent increases and
decline in vacancy
The change in model output that would apply with 0.8x cap rates is
as follows:
'AAAsf' / 'AAAsf' / 'AA+sf' / 'AA-sf' / 'Asf'
Key Property Assumptions (weighted by market value)
'Bsf' WA cap rate: 7.0%
'Bsf' WA structural vacancy: 17.4%
'Bsf' WA rental value decline: 6.1%
'BBsf' WA cap rate: 7.5%
'BBsf' WA structural vacancy: 19.6%
'BBsf' WA rental value decline: 9.6%
'BBBsf' WA cap rate: 8.0%
'BBBsf' WA structural vacancy: 21.9%
'BBBsf' WA rental value decline: 13.3%
'Asf' WA cap rate: 8.5%
'Asf' WA structural vacancy: 24.1%
'Asf' WA rental value decline: 17.2%
'AAsf' WA cap rate: 9.1%
'AAsf' WA structural vacancy: 26.8%
'AAsf' WA rental value decline: 21.1%
'AAAsf' WA cap rate: 9.7%
'AAAsf' WA structural vacancy: 30.0%
'AAAsf' WA rental value decline: 25.0%
Depreciation: 7.4%
ERV: EUR53.2 million
DATA ADEQUACY
Taurus 2020-1 NL DAC
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Prior to the transaction closing, Fitch reviewed the results of a
third party assessment conducted on the asset portfolio information
and concluded that there were no findings that affected the rating
analysis.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
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.
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K A Z A K H S T A N
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ALMA TELECOMMUNICATION: S&P Assigns 'B' ICR, Outlook Stable
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S&P Global Ratings assigned its 'B' long-term and 'B' short-term
issuer credit ratings to Alma TV; S&P also assigned a Kazakh
national scale rating of 'kzBBB-'.
S&P said, "The stable outlook reflects our expectation that Alma TV
will execute its business strategy as planned, while its leverage
reaches its peak in 2023 and subsequently starts decreasing with
debt to EBITDA approaching 3.5x, funds from operations (FFO) to
debt declining to 20% in 2023 and free operating cash flows (FOCF)
turning negative in 2023-2024 on the back of investments.
"Our rating on Alma TV is constrained by the company's relatively
small scale and the competition it faces from much larger players
in the country, as well as regional players and the shadow market.
In 2021 Alma TV's revenues were Kazakhstani tenge (KZT) 15.5
billion ($37 million), making it one of the lowest earners of the
telecom operators we rate in EMEA. Kazakhtelecom JSC's
(BB+/Stable/--) revenues for the same period were $1.4 billion and
TransTeleCom Co. JSC's (B/Negative/--) were $0.2 billion.
Alma TV has developed as a national cable TV company. It owns
networks within cities and villages only and lacks its own
long-haul intercity fiber network (unlike Kazakhtelecom and
Transtelecom). This creates additional costs for Alma TV as it
needs to lease network capacity.
Additional business pressure comes from the shadow market where
people receive illegal IPTV services without paying a subscription,
and where illegal dishes primarily in the north of Kazakhstan
receive signals from Russian operators. Alma TV estimates the
shadow market is equivalent to about one million subscribers out of
the country's total pay-TV market of 3.7 million. Recent changes to
broadcasting law to strengthen regulation will create opportunities
for telecom operators and could help Alma TV by curtailing illegal
competition. However, the successful implementation of the
regulations remains to be seen and it will likely take time to
translate into additional subscribers and cash flows for Alma TV.
Despite being the No.2 operator in paid TV, Alma TV operates in a
niche segment that constitutes less than 5% of the total
telecommunications market in the country. Alma TV maintains solid
penetration rates in large cities, including Almaty and Astana, but
entering rural areas presents challenges related to tariff
competition. Via direct agreements with online streaming platforms
Qazaqsha, Megogo, and Amediateka, Alma TV offers quality content
that enhances customer retention (six years on average). The
company is one of few operators in Kazakhstan that telecasts TV
channels in 4K resolution. These factors support Alma TV's No.2
position in terms of revenue within the paid TV market
(Kazakhtelecom leads), but the paid TV sector is less than 5% of
the telecom market. Alma TV is absent from the mobile segment
(about half of the total telecom market) and has only a 1% market
share in fixed broadband (fixed broadband comprises 12% of the
total market).
Below average profitability, with EBITDA margin of less than 30%,
is another rating constraint. EBITDA margins have historically been
below 30%-40%, which we think is typical for cable players. The
company's S&P Global Ratings-adjusted margins have been 23%-27% in
recent years and we expect them to decline to about 20% in
2022-2024 given pressure on operating expenses and the inflationary
environment. Competition in the paid TV market doesn't allow the
company to materially increase tariffs to help profitability, while
about one-third of operating expenses are exposed to
foreign-exchange risk relating to content costs, though this risk
is shared with the supplier. Diversification to other segments
(primarily fixed broadband) could improve the company's metrics but
its diversification strategy has yet to bear fruit.
Alma TV has substantial geographical concentration given its focus
on Kazakhstan. It is exposed to high country risk in Kazakhstan
with its relatively weak institutional environment and politicized
legal system. It also currently has low services diversification
with cable TV being its core segment, providing about 60% of
revenue.
The company wants to transform its business model and increase its
internet broadband segment by investing in a hybrid fiber network.
Its cable TV subscriber base has been declining in recent years due
to competition from broadband pay TV providers, as well as the
illegal consumption of TV content over the internet. From 2022,
following years of underinvestment, the company will start building
its fiber network to connect new houses and also keep its existing
cable TV subscribers by offering them tailored TV plus internet
packages. Its average revenue per user (ARPU) in the internet
segment of about KZT5,400 per customer is almost 2x higher than its
ARPU in cable TV. Its broadband investments could therefore boost
revenue generation, with expected 25-30% growth in its internet
services, and could improve profitability over the medium term if
accompanied by efficient cost management
Due to intensive debt-funded investments, the company's leverage
will increase in 2023-2024. At the start of 2022, Alma TV didn't
have any debt, only financial leasing obligations. At the end of
2022, it signed a bilateral bank loan agreement and now has KTZ4
billion available under this undrawn credit line to fund its capex
in 2023-2025. S&P said, "We forecast its leverage will increase on
the back of investments to about 20% FFO to debt and up to 3.3x
debt to EBITDA in 2023-2024 from the about 27% and 2.2x expected in
2022. We also forecast its FOCF will turn significantly negative.
Future deleveraging will depend on its ability to expand the
customer base while achieving positive FOCF, as well as the owners'
commitments to future financial policies. Since late 2021, Alma TV
has been ultimately owned by several businesspeople in Kazakhstan.
The new owners are driving the business transformation and are
committing to a cautious financial policy, so we do not assume any
dividend payments in the next two-to-three years. We will monitor
how closely the company and its owners adhere to their
statements."
S&P said, "We assess liquidity as adequate, because the company
plans to fund its heavy capex with a medium-term bilateral bank
line. The planned capex is largely not yet committed and is subject
to available funding, so we do not anticipate pressure on the
company's liquidity. Future developments will depend on
management's approach to liquidity maintenance.
"The stable outlook reflects our expectation that Alma TV will
successfully implement its strategy to connect new customers, with
no material cost overruns or delays. In our base case, actions to
increase the subscriber base and market penetration--by providing
combo packages and a full range of services--will result in revenue
growth of about 10%-15% in 2023-2024 and broadly stable
profitability with an EBITDA margin of about 20%. We forecast
leverage will reach its peak in 2023 on the back of investments
with FFO to debt of 20% and debt to EBITDA of 3.2x in 2023, and
then start gradually deleveraging in 2024-2025.
"We could take a negative rating action if, for a protracted
period, Alma TV's leverage exceeded 3.5x debt to EBITDA and FFO to
debt stayed well below 20%. This could come from
weaker-than-expected EBITDA generation in its core business or if
it failed to introduce a public financial policy and followed more
aggressive practices, leading to higher debt accumulation because
of extensive capex or dividend distributions."
A material deterioration in its liquidity position, with uses
exceeding sources--for instance if debt raised was not sufficient
to fund upcoming capex--could also trigger a downgrade.
Rating upside could result from a meaningful strengthening of Alma
TV's competitive position absent a further deterioration in
metrics, for example from a combination of:
-- An improvement in profitability to average among telecom peers,
with EBITDA margin sustainably exceeding 30%; and
-- A substantial increase in scale of operations and a successful
diversification into retail broadband.
Alternatively, S&P could take a positive rating action if Alma TV's
adjusted leverage reduced sustainably with FFO to debt exceeding
30% and debt to EBITDA staying below 2.5x, coupled with positive
FOCF generation, and supported by the owners' commitment to
maintain this debt leverage level.
ESG credit indicators: E-2, S-2, G-3
S&P said, "Governance factors are a moderately negative
consideration in our credit rating analysis of Alma TV, reflecting
the company's exposure to country risk, rather than entity-specific
concerns. We assess country risk in Kazakhstan--where the company
generates all its revenue and where all its assets are located--as
high, therefore governance risks are elevated in a global context.
This represents a negative factor compared with telecom companies
in Europe, but we do not see any company-specific governance
weaknesses that would differentiate it from local peers."
===================
L U X E M B O U R G
===================
ENDO LUXEMBOURG: XAI OFRAITT Marks 2028 Loan at 16% Off
-------------------------------------------------------
XAI Octagon Floating Rate & Alternative Income Term Trust has
marked its $229,232 loan extended to Endo Luxembourg Finance
Company I S.a r.l to market at $193,013, or 84% of the outstanding
amount, as of September 30, 2022, according to a disclosure
contained in XAI OFRAITT's Form N-CSR for the fiscal year ended
September 30, filed with the Securities and Exchange Commission on
December 1.
XAI OFRAITT extended a Senior Secured First Lien Loan to Endo
Luxembourg Finance Company I S.a r.l. The loan currently has an
interest rate of 12.25% (1M US L + 5.00%) and is scheduled to
mature on March 27, 2028.
XAI OFRAITT is a diversified, closed-end management investment
company. The Trust seeks attractive total return with an emphasis
on income generation across multiple stages of the credit cycle.
Endo Luxembourg Finance Company I S.a r.l is in the pharmaceutical
industry.
SAMSONITE INTERNATIONAL: Fitch Affirms 'BB-' IDR, Outlook Negative
------------------------------------------------------------------
Fitch Ratings has affirmed the Long-Term Issuer Default Ratings of
Samsonite International S.A. and Samsonite IP Holdings S.a r.l. at
a 'BB-'. The Rating Outlook is Negative.
Samsonite's ratings reflect the company's position as the world's
largest travel luggage company, with strong brands and historically
good organic growth. The affirmation considers the strong
improvement in global travel, which has supported Samsonite's
operational rebound, along with the company's progress in paying
down pandemic era debt, in line with Fitch's expectations. However,
the Negative Outlook reflects the continued uncertainty regarding
the exact timing and trajectory of Samsonite's full
recovery—which could be negatively impacted in the near-term by
broader global macroeconomic uncertainty.
Fitch expects that Samsonite will finish 2022 with adjusted
leverage somewhat elevated for its rating at around 5.3x versus
5.0x in 2019, before gradually approaching the high-4x range, as
appropriate for the rating, in 2023. The company would need to show
continued operational improvements alongside ongoing debt reduction
to support its rating.
KEY RATING DRIVERS
Operating Recovery on Track: The pandemic underscored Samsonite's
exposure to the travel segment. Severe disruption to the global
travel segment yielded weak results for the business, with 2020
revenue down nearly 60% from 2019 to USD1.5 billion and EBITDA
migrating to negative USD219 million in 2020 from positive USD492
million in 2019. YTD through 3Q22, Samsonite's rebound has been
strong, aided by elevated global pent-up demand for travel and the
relaxing of restrictions around domestic and international travel.
Samsonite reported 3Q22 constant currency sales growth (excluding
the divested Speck and discontinued Russian operations) up 0.6%
versus 3Q19, with EBITDA margin of 17% versus 14.5% in 3Q19.
Fitch currently projects that Samsonite's 2022 revenue could climb
45% yoy, although still be around 20% below 2019 levels; EBITDA
which improved toward USD182 million in 2021 is projected to be
close to USD480 million in 2022 versus USD492 million in 2019.
Above-average growth is expected to continue into 2023, although
near-term revenue could remain below pre-pandemic levels of USD3.6
billion (with LTM 3Q22 revenue at USD2.7 billion) given concerns
around consumer health and the global macroeconomic environment,
including ongoing lockdowns in China, which represented around 8%
of 2019 sales.
Good Liquidity; Debt Repayment: Samsonite ended 3Q22 with
approximately USD1.4 billion in liquidity, comprised of USD801
million of cash and USD643 million available under its USD850
revolver maturing in March 2025. At the beginning of the pandemic,
Samsonite took on additional debt of USD1.4 billion (comprising of
USD810.3 million in revolver borrowings and a USD600 million
incremental term loan B). Subsequently through Sept. 30, 2022,
Samsonite has paid down approximately USD800 million in COVID debt
utilizing its cash balance. Fitch's base case assumes that
Samsonite will continue to deploy its elevated cash balance of
USD801 million as of Sept. 30, 2022, versus the USD300
million-USD400 million pre-pandemic range to repay debt in 2023,
such that debt returns close to pre-pandemic levels of USD1.8
billion by the end of 2023.
Adjusted leverage could be around 5.3x in 2022, improving to the
high-4x area by 2023, assuming the company repays all remaining
incremental borrowings. Fitch expects management to maintain its
stated financial policy to suspend cash distributions to
shareholders until leverage stabilizes at pre-pandemic levels which
equates to the high 4.0x on a Fitch adjusted basis. As such,
Fitch's forecasts assume Samsonite could resume cash distributions
to shareholders in 2023, if adjusted leverage approaches the
high-4.0x, given FCF expectations of around USD200 million-USD250
million pre-cash distributions.
Strong Brands and Leading Market Position: Samsonite's multi-brand,
multi-category approach enabled it to grow into the largest travel
luggage company in the world, with USD3.6 billion in revenues and
USD492 million in EBITDA in 2019. Its focus on innovation,
geographic diversity, and ability to operate across the value,
mid-market and premium market segments has enabled Samsonite to
grow market share. As sales continue to shift online, Samsonite's
direct-to-consumer (DTC) sales penetration of around 27%
company-operated retail at 3Q22 plus around 18% owned digital
allows the company to continue to grow its brands, with a healthy
mix of retail and wholesale presence.
History of Stable Cash Flows: Prior to the pandemic, the luggage
industry saw good growth due to increasing disposable income in
developing countries, increased business travel and a shift of
consumer spending toward experiences such as travel and
entertainment. Samsonite's organic growth, excluding acquisitions,
averaged 9% for the six years ending 2018; 2019 was an exception,
where sales were down 4% due to headwinds from market challenges in
the U.S., Hong Kong, South Korea and Chile, as well as a planned
reduction in China B2B sales. Pre-2019, the business generated
relatively strong EBITDA margins of 16%-17%, with stable cash
flows. Post pandemic recovery, Fitch expects Samsonite to enjoy
topline growth of around 3%-5% annually, given long-term
fundamentals of the travel industry.
EBITDA margins could stabilize in the low-15% range beginning in
2023, slightly lower than expected levels of approximately 16% in
2022 and higher than the 13.5% seen in 2019. Since 2020, the
company has undergone cost savings efforts including closing
unproductive stores (965 stores as of 3Q22 versus 1,294 stores as
of 4Q19). These savings could be somewhat offset in the medium-term
by inflationary pressures and ramp up in SG&A to support the
continued sales recovery.
Parent Subsidiary Linkage: Fitch's analysis includes a strong
subsidiary/weak parent approach between the parent, Samsonite
International, S.A. and its subsidiaries Samsonite Finco S.a
r.l.and Samsonite IP Holdings S.a r.l. Fitch assesses the quality
of the overall linkage as high that results in an equalization of
Issuer Default Ratings (IDRs).
DERIVATION SUMMARY
Samsonite's ratings reflect the company's position as the world's
largest travel luggage company, with strong brands and historically
good organic growth. The 'BB-'/Negative considers the strong
improvement in global travel, which has supported Samsonite's
operational rebound, along with the company's progress in paying
down pandemic era debt, in line with Fitch's expectations. However,
the Negative Outlook reflects the continued uncertainty regarding
the exact timing and trajectory of Samsonite's full
recovery—which could be negatively impacted in the near-term by
broader global macroeconomic uncertainty.
Fitch expects that Samsonite will finish 2022 with adjusted
leverage somewhat elevated for its rating at around 5.3x versus
5.0x in 2019, before gradually approaching the high-4x range, as
appropriate for the rating, in 2023. The company would need to show
continued operational improvements alongside ongoing debt reduction
to support its rating.
'BB'-rated peers include the following: Tempur Sealy International,
Inc.'s (TPX) 'BB+'/Stable rating reflects the increased scale of
operations and good operating momentum relative to peers, which has
been driven by expanded distribution and market share gains
supported by operating initiatives that expanded TPX's omnichannel
presence, enhanced the brand/product portfolio and improved
manufacturing capabilities. Fitch believes this has led to a
sustainable competitive advantage with increased confidence in
TPX's ability to sustain EBITDA of around $900 million. Barring a
large debt financed acquisition, Fitch projects TPX will maintain
long-term gross leverage in the mid-2.0x area.
Signet's 'BB'/Stable rating reflect its leading market position as
a U.S. specialty jeweler with approximately 9% share of a highly
fragmented industry. The rating considers its recently strong
operating trajectory, which demonstrates success in the
implementation of its topline and other initiatives. Although Fitch
expects some near-term contraction from record 2021 results,
revenue and EBITDA beginning 2023 are projected to trend in the
mid-$7 billion and mid-$800 million ranges, respectively, well
above pre-pandemic levels of $6 billion and $504 million. The
rating reflects expectations that Signet will be able to maintain
adjusted leverage (adjusted debt/EBITDAR, capitalizing leases at
8x) in the low-4x range, in line with their publicly articulated
financial policy.
Levi's 'BB+'/Stable rating continues to reflect the company's
position as one of the world's largest branded apparel
manufacturers, with broad channel and geographic exposure, while
also considering the company's narrow focus on the Levi brand and
in bottoms. The rating reflects expectations that Levi will be able
to maintain adjusted leverage under 3.5x.
KEY ASSUMPTIONS
- Revenue in 2022 is expected to grow around 45% to USD2.9 billion,
around 20% below the USD3.6 billion recorded in 2019. Above average
revenue growth could continue into 2023 although Fitch expects 2023
revenue could remain below 2019 levels, growing to USD3.3 billion,
incorporating the divestiture of Speck (which accounted for USD124
million of revenues in 2019). Growth in 2024 and beyond is expected
at around 3%, in line with management's estimation of industry
growth rates of 3.0%-3.5%.
- EBITDA, which was USD182 million in 2021 is expected to improve
to USD480 million in 2022, relative to USD492 million in 2019.
Margins by 2023 could stabilize in the low-15% range, slightly
lower than 16% expected levels in 2022 and higher than the 13.5% in
2019, given the company's cost control efforts, partially offset by
inflationary pressures and some ramp up in SG&A to support the
sales recovery. In addition, gross margins and EBITDA margins
should be supported by higher growth at the company's higher-end
Tumi brand, which is a higher margin business.
- FCF, rebounded from an outflow of USD144 million in 2020 to
positive USD356 million in 2021, due to EBITDA improvement. FCF
could moderate to around USD80 million in 2022, as Samsonite's
EBITDA rebound is partially offset by working capital reversal.
FCF, pre-dividends, could be sustained around USD200 million-USD250
million annually beginning 2023. Fitch projects that the company
will continue to use its elevated cash balance, which was USD801
million as of Sept. 30, 2022, to repay debt until the company
returns to its pre-pandemic debt balance of around USD1.8 billion.
- Given Fitch's EBITDA projections and the expected repayment of
the remaining incremental debt assumed at the onset of the
pandemic, adjusted debt/EBITDAR is expected to be around 5.3x in
2022 and 4.8x in 2023, with the potential to decline toward the
mid-4x in 2024. Increased comfort in Samsonite's ability to sustain
adjusted leverage below 5.0x would yield a stabilization in its
Outlook.
RATING SENSITIVITIES
Sensitivities
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- An upgrade could result from higher than expected organic growth
yielding EBITDA approaching USD575 million alongside anticipated
debt reduction, such that adjusted debt/EBITDAR (capitalizing
leases at 8.0x) is sustained below 4.5x;
- A stabilization of the Outlook could result from increased
confidence that global travel is rebounding at Fitch's expected
pace, allowing Samsonite to meet Fitch's rating case projections
over the next 6 months-12 months, alongside debt reduction, such
that adjusted debt/EBITDAR trends below 5.0x.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- A downgrade could result from adjusted debt/EBITDAR (capitalizing
leases at 8.0x) sustaining above 5.0x, due to a combination of
weaker than expected rebound in sales and EBITDA, such that EBITDA
remains below USD500 million, and/or lower than anticipated debt
reduction;
- A downgrade could also result from a deviation from the current
financial policy, as evidenced by acquisitions or capital return to
shareholders, before leverage returns to pre-pandemic levels.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: Samsonite had USD1.4 billion of total liquidity
at Sept. 30, 2022, consisting of USD801 million in cash plus USD643
million of availability on its USD850 million revolver due 2025.
The company's capital structure as of Sept. 30, 2022, consists of
the USD850 million revolver due March 2025 (with USD203 million
drawn at Sept. 30, 2022), USD590 million of term loan A due March
2025, approximately USD1.0 billion of term loan B due April 2025,
and EUR350 million of senior notes due May 2026.
Given the company's high cash balances at Sept. 30, 2022, Fitch
expects Samsonite will deploy cash toward continued debt paydown in
2023, such that debt returns to pre-pandemic levels of
approximately USD1.8 billion by the end of 2023.
During 2020, the company undertook a number of actions to support
liquidity and extend maturities given the pandemic's impact on its
business. To support liquidity, in April 2020 the company issued a
USD600 million term loan B due April 2025 (as incremental to its
existing term loan B due April 2025). The company also amended its
credit facility to increase its revolver size to USD850 million
from USD650 million and drew USD810 million on the facility,
increasing the debt load by around USD1.4 billion in 2020.
The company extended the maturity of both its revolver and USD800
million term loan A by two years to March 2025, reset the
amortization schedule, and suspended or relaxed certain leverage
and coverage covenants through the first quarter of 2022. In the
YTD September 2022 period, Samsonite repaid USD535 million of
outstanding borrowings, including USD501.3 million in voluntary
prepayments, in addition to USD33.7 million in mandatory
amortization on its facilities.
Recovery and Notching:
Fitch does not employ a waterfall recovery analysis for issuers'
assigned ratings in the 'BB' category. The further up the
speculative-grade continuum a rating moves, the more compressed the
notching between the specific classes of issuances becomes.
Samsonite's first-lien secured debt is rated 'BB+'/'RR1', notched
up two from the IDR and indicating outstanding recovery prospects
given default. The revolver and term loans are unconditionally
guaranteed by the company and certain subsidiaries. They are
secured by substantially all assets of the company on a first-lien
basis.
The senior notes are rated 'B+'/'RR5', one notch below the IDR,
indicating below-average recovery prospects given the amount of
first-lien secured debt in Samsonite's capital structure. The
senior notes are guaranteed on a senior subordinated basis. The
notes are secured by a second ranking pledge over the shares of the
issuer and a second ranking pledge over the collateral under the
senior secured facilities.
ISSUER PROFILE
Samsonite is the world's largest luggage company, selling luggage,
business and computer bags, outdoor and casual bags and travel
accessories with LTM revenue and EBITDA of USD2.7 billion and
USD456 million as of 3Q22. Its key brands include Samsonite, Tumi
and American Tourister.
SUMMARY OF FINANCIAL ADJUSTMENTS
Historical and projected EBITDA is adjusted to add back non-cash
stock-based compensation and exclude non-recurring charges. Fitch
has adjusted the historical and projected debt by adding 8.0x
annual gross rent expense.
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
----------- ------ -------- -----
Samsonite Finco
S.ar.l.
Senior Secured
2nd Lien LT B+ Affirmed RR5 B+
Samsonite
International S.A. LT IDR BB- Affirmed BB-
senior secured LT BB+ Affirmed RR1 BB+
Samsonite IP Holdings
S.a r.l. LT IDR BB- Affirmed BB-
senior secured LT BB+ Affirmed RR1 BB+
=====================
N E T H E R L A N D S
=====================
LEALAND FINANCE: XAI OFRAITT Marks $47,572 Loan at 50% Off
----------------------------------------------------------
XAI Octagon Floating Rate & Alternative Income Term Trust has
marked its $47,572 loan extended to Lealand Finance Company BV to
market at $23,727, or 50% of the outstanding amount, as of
September 30, 2022, according to a disclosure contained in XAI
OFRAITT's Form N-CSR for the fiscal year ended September 30, filed
with the Securities and Exchange Commission on December 1.
XAI OFRAITT extended a Senior Secured First Lien Loan to Lealand
Finance Company BV. The loan currently has an interest rate of
4.12% (3M US L + 1.00%) and is scheduled to mature on June 30,
2025.
XAI OFRAITT is a diversified, closed-end management investment
company. The Trust seeks attractive total return with an emphasis
on income generation across multiple stages of the credit cycle.
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: XAI OFRAITT Marks $8,469 Loan at 40% Off
---------------------------------------------------------
XAI Octagon Floating Rate & Alternative Income Term Trust has
marked its $8,469 loan extended to Lealand Finance Company BV to
market at $5,081, or 60% of the outstanding amount, as of September
30, 2022, according to a disclosure contained in XAI OFRAITT's Form
N-CSR for the fiscal year ended September 30, filed with the
Securities and Exchange Commission on December 1.
XAI OFRAITT extended a Senior Secured First Lien Loan to Lealand
Finance Company BV. The loan currently has an interest rate of
6.12% (1M US L + 3.00%) and is scheduled to mature on June 30,
2024.
XAI OFRAITT is a diversified, closed-end management investment
company. The Trust seeks attractive total return with an emphasis
on income generation across multiple stages of the credit cycle.
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.
VODAFONEZIGGO GROUP: Fitch Affirms B+ LongTerm IDR, Outlook Stable
------------------------------------------------------------------
Fitch Ratings has affirmed VodafoneZiggo Group B.V.'s (VZ)
Long-Term Issuer Default Rating (IDR) at 'B+'. Fitch has also
affirmed the group's senior secured debt at 'BB'/'RR2', vendor
financing notes at 'B-'/'RR6' and senior notes at 'B-'/'RR6'. The
Outlook on the IDR is Stable.
The ratings of VZ are held back by its high leverage due to
expected continuing high shareholder distributions. Despite its
organic deleveraging capacity, a shareholder-friendly financial
policy is likely to keep leverage high. Fitch expects funds from
operations (FFO) net leverage to remain above its upgrade threshold
of 5.2x.
The ratings reflect its solid operating profile given its strong
convergent position in a competitive Dutch telecoms market.
Convergence is proving important for the market with both VZ and
the incumbent operator reporting increasing convergent penetration.
It consistently generates healthy cash flows, as reflected in low
double-digit (pre-shareholder payment) free cash flow (FCF)
margins.
KEY RATING DRIVERS
Competitive Telecoms Market: Competition in the largest segment -
consumer fixed-line - intensified in 2022 following high levels of
promotional activity. Fixed-line consumer revenues at VZ fell 2.9%
year to date at FYE22 (year-end September) as subscriber numbers
declined 3.2%. VZ raised consumer fixed-line prices on average 3.5%
in July 2022 and with no meaningful increase in churn expected as a
result of the price increase the decline in full-year consumer
fixed-line revenue should be low. Given the strong levels of fibre
investment in the Netherlands, competition for fixed-line
subscribers is likely to remain high. Fitch expects competition
from fibre and pressures in TV subscriber numbers will lead to
further revenue decline in 2023.
Mobile Driving Growth: Mobile service revenue growth of 7.2% yoy
for 3QFY22 was the highest quarterly growth in five years. Higher
mobile subscriber numbers and average revenue per user (ARPU)
helped offset the competitive pressures in the consumer fixed-line
business this year and lead us to expect modest total revenue
growth in FY22. Fitch sees scope for further growth of 5G
penetration in the Netherlands, both from higher consumer adoption
and an increased need for internet-of-things sim-cards. Upselling
higher-speed products like 5G or gigabit broadband services should
support future revenue growth but the pace of this upsell will be
dampened by rising inflation and pressures on household and
business spending.
Gigabit-Capable Network: Fitch expects VZ to have upgraded their
national coaxial cable network to DOCSIS3.1 by the end of this
year. DOCSIS3.1 should be capable of providing gigabit speeds
across the network. Incumbent Royal KPN N.V. (BBB/Stable) has the
largest share of fibre to the home (FTTH) homes passed in the
country at around 46% of homes at end-September 2022. Until KPN
meets its national FTTH roll-out target of 2026, VZ will have a
wider network footprint that is capable of gigabit speeds. Given
its highly converged customer base, high speed network and market
leading pay-TV product, VZ is well-placed to keep churn rates low.
Sticking with Cable: While DOCSIS3.1 connections are typically
capable of gigabit speeds the technology is competing with the
incumbent's ultrafast FTTH network. Unlike its Liberty Global-owned
peers VMED O2 UK Limited (BB-/Stable) and Virgin Media Ireland
(B+/Stable), VZ has opted to upgrade its network in future to
DOCSIS4.0 rather than fibre. DOCSIS4.0 should deliver a material
bandwidth upgrade on DOCSIS3.1 but any change in consumer or
business preference towards fibre may lead to increased churn.
Fitch does not expect consumer demand for bandwidth greater than
1Gbps in the near future, meaning the existing DOCSIS3.1 network
may remain competitive against FTTH in the short to medium term.
Comfortable Leverage Profile: VZ's funds from operations (FFO) net
leverage was 5.8x at FYE21, supported by strong EBITDA growth and
efficiently managed interest expenses. VZ continues to deliver
strong cash flow with a low double-digit (pre-shareholder payment)
FCF margin. Fitch expects modest capex (excluding spectrum costs)
of about 23% of revenue to help maintain its FCF margin. VZ's
spectrum costs are funded by shareholder loans. Its rating case
forecasts FFO net leverage to reach 5.6x at FYE22, within its
downgrade threshold of 6.0x with sufficient headroom. This assumes
shareholder distributions at the high end of management's
guidance.
Effective Hedging Strategy: Using a combination of cross-currency
and interest rate derivatives, VZ has hedged its interest-rate
exposure in its floating-rate debt to a fixed rate until maturity.
Fitch expects LIBOR and EURIBOR rates to continue to rise into next
year and VZ's hedging strategy should protect it against an
otherwise material weakening of its coverage ratios. Its JV parent
company Liberty Global also announced that across the group they
have hedged their energy costs by up to 70% into 2023. Fitch
expects VZ's Fitch-defined EBITDA margins to increase to 48.1% in
FY22, driven by tight cost control and successful price increases,
which will help mitigate the effect of rising inflation in staff
and energy costs.
Strengthened Convergence Position: Fitch views the Netherlands as
an evolved convergent market with both KPN and VZ reporting good
traction for the take-up of fixed-mobile services. VZ has been
successful in increasing its converged penetration rate in the past
three years, driven by its competitive bandwidth capability and TV
offering. It reported 45% of broadband accesses had converged
services at FYE22, a level much closer to KPN's penetration rate of
55%. The increasing convergence is important for VZ to protect its
solid broadband customer base and to grow ARPUs.
DERIVATION SUMMARY
VZ's ratings are supported by a solid operating profile, backed by
a strong convergent position and an eventual easing in competitive
conditions, with the latter helped by a four-to-three operator
consolidation of the mobile market.
VZ's closest peers, operationally - VMED O2 UK Limited and Telenet
N.V. (both BB-/Stable) - offer similar characteristics in business
and market potential, but deliver better financial metrics,
especially leverage. VZ's forecast FFO net leverage of 5.6x at
FYE22 places the company more firmly at the 'B+' rating with
sufficient headroom. VZ has the scale and operational potential to
support a rating of 'BB-'. Fitch nonetheless expects cash returns
to shareholders at the high end of management's guidance and that
leverage will remain in line with a 'B+' rating.
KEY ASSUMPTIONS
- Flat revenue of around EUR4.08 billion in FY22, gradually
increasing to EUR4.15 billion by 2025
- Fitch-defined EBITDA margin of 48.1% in FY22 before a decrease to
47.7% in FY23, reflecting continuing cost inflation. Thereafter
Fitch expects a gradual increase to 47.9% by FY25
- Capex (excluding spectrum) at about 23.1% of revenue in
FY22-FY25
- Distribution to shareholders of EUR550 million-EUR650 million in
FY22-FY25
Key Recovery Rating Assumptions
- The recovery analysis assumes that VZ would be considered a going
concern (GC) in bankruptcy and that it would be reorganised rather
than liquidated
- A 10% administrative claim
- Its GC EBITDA estimate of EUR1.4 billion reflects Fitch's view of
a sustainable, post-reorganisation EBITDA level upon which Fitch
bases the valuation of the company
- Its GC EBITDA estimate is 26% below VZ's FY21 Fitch-defined
EBITDA
- An enterprise value (EV) multiple of 6x is used to calculate a
post-reorganisation valuation and reflects a distressed multiple
- Fitch estimates the total amount of debt claims at EUR13 billion,
which includes full drawings on an available revolving credit
facility (RCF) of EUR800 million. Its recovery analysis indicates
an 80% recovery percentage for the senior secured debt, with an
instrument rating and a Recovery Rating of 'BB' and 'RR2'
respectively. VZ's vendor financing and senior unsecured debt have
0% recovery and an instrument rating and Recovery Rating of 'B-'
and 'RR6', respectively
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Strong and stable FCF generation together with a more
conservative financial policy resulting in FFO net leverage
sustainably below 5.2x (equivalent to Fitch-defined net debt /
EBITDA of 5.0x)
- Cash flow from operations (CFO) less capex/gross debt
consistently above 5%
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- FFO net leverage sustainably above 6.0x (equivalent to
Fitch-defined net debt / EBITDA 5.8x)
- Further intensification of competitive pressures leading to
deterioration in operational performance
LIQUIDITY AND DEBT STRUCTURE
Sound Liquidity: At 3QFY22 VZ reported a cash balance of EUR85.4
million and a fully undrawn RCF due 2026 of EUR800 million. In
addition, the business is expected to generate strong pre-dividend
FCF of over EUR500 million between FY22 and FY25 and has long-dated
maturities. Fitch expects VZ to keep its cash at low levels, as its
JV shareholders have a record of moving excess cash to the
parents.
VZ's short-term maturity in 2022 is predominantly vendor financing,
which is usually due within one year. Fitch expects this amount to
be rolled over under its recurring vendor financing arrangement.
Vendor financing is not included in covenant leverage but is
included in all Fitch-defined metrics.
ISSUER PROFILE
VZ is a JV formed in 2016 between Liberty Global and Vodafone Group
plc (BBB/stable). The company is a fully converged cable and mobile
service provider in the Netherlands.
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
----------- ------ -------- -----
Ziggo Financing
Partnership
senior secured LT BB Affirmed RR2 BB
VZ Secured
Financing B.V.
senior secured LT BB Affirmed RR2 BB
Ziggo B.V.
senior secured LT BB Affirmed RR2 BB
VZ Vendor
Financing II B.V.
structured LT B- Affirmed RR6 B-
VodafoneZiggo
Group B.V. LT IDR B+ Affirmed B+
Ziggo Bond
Company B.V.
senior
unsecured LT B- Affirmed RR6 B-
===============
P O R T U G A L
===============
SATA AIR: Moody's Affirms 'Ba1' Rating on Senior Unsecured Notes
----------------------------------------------------------------
Moody's Investors Service has affirmed the backed senior unsecured
rating of SATA Air Acores S.A. (SATA or SATA Air) at Ba1. The
outlook was changed to negative from stable.
The change in outlook was prompted by the revision of the outlook
to negative from stable on the Autonomous Region of Azores on
November 25, 2022. The Ba1 backed senior unsecured rating and the
negative outlook on SATA Air is based solely upon the unconditional
and irrevocable guarantee of scheduled principal and interest
payment (the "Guarantee") provided by the Autonomous Region of
Azores ("Azores", Ba1 negative).
SATA is the current parent company of the SATA Group and is mainly
responsible for the provision of connections between the 9 Azores
islands under public service obligations.
RATINGS RATIONALE
The Ba1 rating on SATA's EUR65 million backed senior unsecured
notes is in line with the long-term issuer rating of Azores, which
provides unconditional and irrevocable guarantees of scheduled
principal and interest payment. The terms of the guarantees are
sufficient for credit substitution in accordance with Moody's
Guarantees, Letters of Credit and Other Forms of Credit
Substitution Methodology.
In particular, Moody's considers that the terms of the guarantees
have characteristics of strong guarantee arrangements:
the guarantees are irrevocable and unconditional and ensure that
obligations under the guarantee rank pari and passu with Azores'
present or future, direct, unconditional, unsecured and
unsubordinated obligations
the guarantees promise full and timely payment of the obligations
including interest and principal payments
the guarantees cover payment -- not merely collection
the guarantees extend as long as the term of the underlying
obligations will be reinstated and become effective again if
Noteholders have to return moneys after the date on which
guarantees has expired due to any insolvency proceeding or any
court proceeding
the guarantees are enforceable against the guarantor and also in
accordance with Portuguese law
the guarantees cannot be transferred, assigned or amended by the
guarantor
The guarantees do not explicitly state that they waive all
suretyship defenses, but there are provisions in the Deed of
Guarantee stating that the guarantor would pay all obligations in
full without any exception, reserve, condition or claim. All
payments to be made by the Guarantor under the guarantees shall
also be made without set off or counterclaim and without deduction
for or on account of any present or future taxes, duties,
withholdings or other charges.
RECENT DEVELOPMENTS
On June 07, 2022 the European Commission has approved EUR453
million of Portuguese restructuring aid in favor of SATA Group. The
measure is aiming at enabling the company to finance its
restructuring plan for the period 2021-2025 and restore its
long-term viability.
The support will take the form of (i) a direct loan of EUR144.5
million and a debt assumption of EUR173.8 million, totaling
EUR318.25 million to be converted into equity, and (ii) a State
guarantee of EUR135 million granted until 2028 for funding to be
provided by banks and other financial institutions.
The restructuring plan sets out a package of measures aimed at
improving SATA's operations and schedules, as well as at reducing
costs. In particular, the plan provides for: (i)
efficiency-enhancing and cost-cutting measures, (ii) the divestment
of a controlling shareholding (51%) in Azores Airlines, and (iii)
the carve-out and divestment of the ground-handling activity. In
addition, to ensure an effective implementation, the restructuring
plan includes the reorganization of SATA's corporate structure,
with a holding company replacing SATA Air Acores S.A. in
controlling its operating subsidiaries (SATA Air, Azores Airlines
and SGA). Furthermore, SATA will be banned from any acquisitions
and will have a cap on its fleet until the end of the restructuring
plan.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The backed senior unsecured debt rating is fundamentally linked to
the rating of Azores. Any change in Azores' rating would be
expected to translate into a rating change on the Notes.
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Guarantees,
Letters of Credit and Other Forms of Credit Substitution
Methodology published in July 2022.
CORPORATE PROFILE
SATA is the current parent company of the SATA Group and is mainly
responsible for the provision of connections between the 9 Azores
islands under public service obligations. SATA holds 100% of the
airline company Azores Airlines. Further to operating routes under
PSO -- the linking Lisbon to Santa Maria, Horta and Pico islands
and routes linking Ponta Delgada (Sao Miguel Island) to Funchal
(Madeira Island) -- Azores Airlines operates international flights
to countries with important Portuguese and Azorean communities,
especially in North America.
The SATA Group plays a very important role in inter-island
connections, as well as in connections between the AAR and Portugal
mainland, thereby assuring territorial cohesion.
SATA Group is responsible for the operation and management of
Graciosa, Pico, Sao Jorge and Corvo islands airfields, as well as
Flores island terminal, through the company SATA Gestao de
Aerodromos.
=============
R O M A N I A
=============
CET PALAS: Romania to Build RON743-Mil. Cogeneration Plant
----------------------------------------------------------
Nicoleta Banila at SeeNews reports that Romania's energy ministry
said on Dec. 12 it signed a contract with Constanta municipality,
on the Black Sea coast, for the construction of a cogeneration
plant worth an estimated RON743 million (US$159 million/EUR151
million).
According to SeeNews, the energy ministry said in a press release
some RON430 million of the total investment are eligible to be
covered by non-reimbursable EU funds under Romania's Resilience and
recovery Plan, PNRR.
The project envisages the construction of a gas-fired
high-efficiency cogeneration electricity and thermal energy
production unit, the ministry said, without elaborating on the
project, SeeNews notes.
According to a document posted on the Constanta municipality
website, the new plant will be built on a 3.5 ha land plot on the
premises of CET Palas TPP.
CET Palas was built in 1970 and is operated by Electrocentrale
Constanta, the main producer of thermal energy in the city.
The company has been insolvent since 2019, SeeNews relays, citing
data posted on the energy ministry's website.
In April, a restructuring plan was approved by its creditors,
SeeNews recounts.
===========
R U S S I A
===========
UZAUTO MOTORS: Fitch Hikes LongTerm IDR to BB-, Outlook Stable
--------------------------------------------------------------
Fitch Ratings has upgraded JSC UzAuto Motors' (UAM) Long-Term
Issuer Default Rating (IDR) and senior unsecured rating to 'BB-'
from 'B+'. The Outlook on the Long-Term IDR is Stable. The Recovery
Rating remains at 'RR4'.
The upgrade follows the revision of socio-political and financial
implications of a UAM default to 'Strong' from 'Moderate'. Fitch
has therefore equalised its rating with that of sovereign in line
with Fitch's 'Government-Related Entities Rating Criteria'(GRE).
Fitch continues to assess UAM's Standalone Credit Profile (SCP) at
'b'.
KEY RATING DRIVERS
Strong Socio-Political Impact: Its revision of socio-political
implications of a UAM default to 'Strong' reflects its view of a
material negative socio-political impact given UAM's large revenue
and contribution to Uzbekistan's economy. In addition, UAM,
together with related parties, has a rather large workforce in the
country of about 28,000 staff, which in case of default will
increase the unemployment rate in the country.
Strong Financial Implication: Its revision of financial implication
of default to 'Strong' reflects the proven record of the company's
access to international capital markets. Fitch expects that a UAM
default would adversely affect the reputation of Uzbekistan, as it
is a state-owned company and one of the largest corporate companies
in the country. In terms of revenue size it is similar to such
companies like JSC Almalyk Mining and Metallurgical Complex
(BB-/Stable) and JSC Uzbekneftegas (BB-/Stable). UAM is one of few
entities in Uzbekistan that placed a Eurobond, leading us to
believe that this company could be treated as proxy for government
bonds.
Strong Links with State: Fitch views the status, ownership and
control linkage of UAM with the state as 'Strong' due to full state
ownership and operational control by the parent over the company's
capex and operational strategy. Fitch assesses the support track
record as 'Strong' due to historical state support in different
forms, including shareholder loans on favorable terms; the absence
of large dividends paid to the parent, which Fitch expects to
continue at least until the end of the large capex programme; and a
favourable regulatory environment supported previously by high
import duties for cars, protecting UAM's dominant position in its
domestic market.
Car Sales Disruption: UAM has a long-term license agreement with
General Motors Company (GM; BBB-/Positive), and while there may be
alternative offers from foreign competitors, a default of UAM would
cause temporary disruption to the delivery of new cars. While the
regulatory environment has softened over the last two years with
falling import duties, demand for UAM's cars is still strong and it
remains the dominant seller in Uzbekistan. UAM supplies the most
affordable cars in the local market and Fitch believes that it
would be hard to substitute UAM's cars with other foreign brands in
the medium term.
Constrained SCP: UAM's 'b' SCP reflects a weaker business profile
than that of other Fitch-rated carmakers, with limited scale, a
narrow product range and sales concentration in Uzbekistan. This
could be mitigated by its entry into new markets in the CIS region.
Its business profile is also constrained by the absence of a strong
brand, limiting the company's competitive position in relation to
global auto manufacturers'. UAM's operating activity is fully
dependent on its existing long-term license agreement with GM,
which provides access to the latter's technological knowledge.
Inherent Cash Flow Volatility: UAM's cash flow generation has been
highly volatile since 2016 and is one of the key rating
constraints. Its funds from operations (FFO) and free cash flow
(FCF) margins were deeply negative in 2020 before returning to
strongly positive territory in 2021, mainly driven by extreme
year-on-year working capital development and expansionary capex.
Although its main capex project is set to complete by 2023, Fitch
expects such volatility to remain in the near term on the back of
raw-material price inflation and lingering supply-chain issues in
the auto industry.
Temporary Profitability Erosion: EBITDA profit margin in 2022 has
been affected by inflation and industry-wide chip shortage, which
led to inefficiencies of fixed-cost absorption in 1H22. This is
partially offset by price increases on average of about 10% and
some production catch-up in 2H22. We expect EBITDA and EBIT margins
to slightly decline to 8.9% and 7.4%, respectively, in 2022, before
trending toward 11% and 8% by 2025. This is due to a change in the
portfolio mix, with UAM's legacy models being phased out by 2023
and sales of the new and relaunched models growing.
Dominant Position: UAM is the main producer of passenger cars in
Uzbekistan and has a dominant position in Uzbekistan. This,
combined with high capex in production facilities and favourable
regulation, acts as significant barriers to entry and supports the
company's local market share. Nevertheless, ongoing liberalisation
of Uzbekistan's economy could increase competition from foreign
competitors and erode UAM's sales and profitability.
DERIVATION SUMMARY
UAM's business profile is weaker than that of global automotive
manufacturers including GM (BBB-/Positive), Ford Motor Company
(BB+/Positive), and Renault SA (BB/Stable). The company is not
fully comparable to Fitch-rated peers as it does not own the brand
of the models it manufactures and the associated technological
knowledge. Moreover, despite its dominant position in its domestic
market UAM's scale is much smaller than peers'. The company's
product and geographical diversification is also significantly
lower than global automotive manufacturers'.
Though UAM's EBITDA and EBIT margins are commensurate with Fitch's
expectation for the investment- grade category, its cash flow
generation has been erratic. Fitch forecasts that UAM's FFO margin
will be in the range of 6%-9% in 2022-2025, in line with GM's and
Ford's, but lower than Stellantis N.V.'s (BBB/Stable). The
historical FCF margin volatility stems from large annual
working-capital swings and growth capex.
UAM's gross leverage profile is comparable with Ford's and GM's.
Fitch expects UAM to reach net cash position by 2025.
KEY ASSUMPTIONS
- Revenue peak in 2023 driven by new model launches and pricing,
and to remain at USD4 billion 2024-2025
- EBITDA margin of 8.9% in 2022 before gradually trending toward
11% by 2025
- Negative to neutral working-capital changes, in line with revenue
growth to 2025
- Average capex at 3.4% of sales to 2025, including spending to
increase production capacity to around 500,000 units
- Dividend pay-out ratio between 15% and 30%
- No M&A for the next four years
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Upgrade of Uzbekistan's sovereign rating
- EBITDA leverage sustainably below 1.3x accompanied by sustainably
positive FCF margin could be positive for SCP, but not necessarily
for the IDR
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Downgrade of Uzbekistan's sovereign rating
- EBITDA leverage sustainably above 2.3x or sustainably negative
FCF could be negative for the SCP but not necessarily for the IDR
- Evidence of weaker ties between Uzbekistan and UAM (including,
but not limited to, a change of UAM's legal status; a decline of
government ownership to less than 50%; weakening of financial and
regulatory support)
The following rating sensitivities are for Uzbekistan (9 September
2022):
- External Finances: Weakening of external finances, for example
through a sustained widening of the current account deficit derived
from a permanent decline in remittances or worsening trade deficit,
resulting in a significant decline in foreign-exchange (FX)
reserves or rapid increase in external liabilities
- Public Finances: A marked rise in the government debt-to-GDP
ratio or the erosion of the sovereign fiscal buffers, for example
due to an extended period of low growth or crystallisation of
contingent liabilities, that could result in the removal of the +1
notch for this factor
- Macro: Significant narrowing of Uzbekistan's GDP per capita gap
vs. peers, for example underpinned by the implementation of
structural reforms, while improving macroeconomic stability
- Structural: Significant improvement of governance standards
including rule of law, voice and accountability, regulatory quality
and control of corruption
- External and Public Finances: Significant strengthening of the
sovereign's fiscal and external balance sheets, for example,
through sustained high commodity export revenues
LIQUIDITY AND DEBT STRUCTURE
Improved Liquidity: Fitch expects UAM to conclude 2022 with more
than USD100 million readily available cash, after restricted cash
adjustment of about USD90 million. Fitch deems such liquidity
satisfactory to sustain intra-year working-capital swings. During
the course of 2022, UAM obtained a trade finance facility in the
amount of USD100 million from two financial institutions for its
payables to suppliers, which provides additional headroom to
liquidity.
Its IPO in December 2022 should bring in some cash proceeds of
about USD20 million-USD50 million. Fitch forecasts the cash
position to further improve on the back of positive cash flow
generation beyond 2022.
Bullet Debt Maturity Profile: The Eurobond is the main borrowing
facility in the UAM's debt quantum, with a maturity in May 2026.
The company also guarantees UzAuto Motors Powertrain's amortising
loan with ECA to fund its capex programme. Although UAM has no
imminent debt maturities, refinancing risk is on the rise and its
own production capacity expansion could mean additional funding
needs.
ISSUER PROFILE
UAM is the dominant car producer in Uzbekistan which is 100%
indirectly owned by JSC Uzavtosanoat, the state-owned company,
which is the dominant controlling body of the automotive industry
within the Republic of Uzbekistan (BB-/Stable). UAM produces and
sells vehicles and spare parts under the brand of Chevrolet mainly
in Uzbekistan and Kazakhstan.
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
----------- ------ -------- -----
JSC UzAuto Motors LT IDR BB- Upgrade B+
senior unsecured LT BB- Upgrade RR4 B+
===========
T U R K E Y
===========
ALBARAKA TURK: S&P Withdraws 'B-/B' Issuer Credit Ratings
---------------------------------------------------------
S&P Global Ratings has withdrawn its 'B-/B' long- and short-term
issuer credit ratings, as well as its 'trBB+/trB' long- and
short-term national scale ratings, on Albaraka Turk Katilim Bankasi
A.S. (ABT) at the company's request. S&P also withdrew the 'CC'
rating on ABT's subordinated sukuk, issued through Albaraka Sukuk
Ltd. The outlook was negative at the time of the withdrawal.
=============
U K R A I N E
=============
UKRAINIAN RAILWAYS: Fitch Cuts LongTerm Foreign Currency IDR to 'C'
-------------------------------------------------------------------
Fitch Ratings has downgraded JSC Ukrainian Railways (UR) Long-Term
Foreign-Currency Issuer Default Rating (LTFC IDR) to 'C' from 'CC'
following its consent solicitation to defer its debt servicing of
its US dollar loan participation notes (LPN) maturing in 2024 and
2026. Fitch has also downgraded the Long-Term Local-Currency Issuer
Default Rating (LTLC IDR) to 'C' from 'CCC-' and lowered the
Standalone Credit Profile (SCP) to 'c' from 'ccc'.
Fitch views the solicitation as a distressed debt exchange (DDE)
under its criteria, given the proposed restructuring involves a
material reduction in terms and is being conducted to avoid
insolvency.
KEY RATING DRIVERS
Russia's invasion of Ukraine (CC) in February 2022 and protracted
full-scale war has affected UR's performance and cast uncertainty
over its financial projections for the company's performance. UR's
liquidity position is currently tight and insufficient to cover
interest payments on the US dollar LPN falling due in January 2023
in the absence of further support from the Ukrainian state. The
company's sole owner - the Ukrainian state - is supportive of the
company but not able to provide extraordinary funds to support the
interest payments, but has other priorities when it comes to
potential provision of extraordinary support funds.
Material Reduction in Terms: Fitch believes the proposed deferral
of the principal and coupon constitutes a material reduction in the
terms of the existing Eurobonds, and hence a DDE under its
criteria. However, Fitch also understands that the proposal does
not involve any principal or coupon haircut. UR will offer
investors a fee for their consent and will also include certain
covenant concessions from UR's side. In particular, UR is asking to
defer each by two years - the maturity of its USD594.9 million
8.250% (2024-LPN, ISIN: XS1843433472) and USD300 million 7.875%
(2026-LPN, ISIN: XS2365120885) notes originally due on 9 July 2024
and 15 July 2026, respectively.
The consent solicitation also includes deferring the coupon
payments due on 9 January and 9 July each year for 2024-LPN and 15
January and 15 July each year for 2026-LPN for a 24-month period
starting from 9 and 15 January 2023. The deferred coupons will
continue accruing interest at the respective bond's coupon rate for
the duration of the deferral period, at the end of which the
deferred interest amounts will either be paid in cash by UR or
capitalised.
Transaction to Avoid Default: UR is responsible for managing
national railway infrastructure, and provide dispatching, passenger
transportation, and freight services. The company has been very
involved in the civil protection system during the war and supports
national security and defense capabilities of the country. Efforts
to maintain an operational rail network, combined with the
drastically decreased tariff-based revenues, have drained UR's
liquidity, which is weak. Consequently, Fitch considers the consent
solicitation an action to avoid default. UR's proposal follows
similar actions of the Ukrainian sovereign and other Ukrainian
corporates mid-year.
Focus on Cash Preservation: UR's liquidity position is weak given a
large need to fund operations and to restore damaged
infrastructure. In 1H22, the company received UAH10 billion from
the Ukrainian state to ensure continuous operation of railway
transport during martial law (currently valid until 19 February
2023). The company has managed to repurpose its available credit
lines available at international financial institutions (IFIs)
initially for investment to liquidity use. If the consent
solicitation is completed, UR should be able to utilise the current
financing arrangements of around EUR199 million. A further EUR200
million may follow after European Bank of Reconstruction and
Development's (EBRD) additional procedures and subject to EBRD's
review of UR's operational and financial performance and needs.
Standalone Profile Drives Rating: Fitch is de-linking UR's rating
from that of the Ukrainian state following the announced consent
solicitation. with UR's rating now reflects its SCP, which Fitch
has lowered to 'c' from 'ccc'. The 'c' SCP results Fitch's
Revenue-Supported Entities Rating Criteria and according to its
Rating Definitions means a "near default" situation, indicated by
the formal announcement by the issuer of a DDE. The state remains
supportive of the company but given the near default situation,
Fitch does not consider the Government Related Entities Rating
Criteria to have an impact on the rating. Fitch considers UR's
revenue defensibility, operating risk and financial profile as
'Weaker'. Once the DDE has been completed, Fitch will review UR's
linkage with the state and potential impact of the linkage on its
rating.
ESG - Governance Structure: The score of 5 reflects the close links
of UR to the Ukrainian government and the latter's launch of its
consent solicitation to defer external debt payment. The
sovereign's weakened finances may weigh on UR's debt policy and
willingness and ability to service and repay debt, especially its
US dollar LPN, which make up for a large portion of UR's debt
stock.
DERIVATION SUMMARY
Fitch has relied on its rating definitions to downgrade UR's
ratings to 'C' to reflect the company's launched consent
solicitation.
DEBT RATING DERIVATION
The ratings of senior debt instruments are aligned with UR's LTFC
IDR, including the senior unsecured debt of the UK-based financial
special financial vehicle (SPV) Rail Capital Markets plc. Payments
under the LPN totaling USD894.9 million are backed by the payments
by UR under the underlying loan from SPV. This underpins its view
that the SPVs' debt is direct, unconditional senior unsecured
obligations of the GRE, ranking pari passu with all of its other
present and future unsecured and unsubordinated obligations. The
notes constituted 72% of UR's debt stock at end-2021. As the
solicitation consent relates to the notes, their ratings have also
been downgraded to 'C' from 'CC'.
KEY ASSUMPTIONS
- Tariff volume revenue decrease by 30% in 2022
- Expenditure primary focus on the maintenance of rail
infrastructure
- Net losses in 2022-2023
- No dividends to be paid according to the consent solicitation
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Fitch is likely to downgrade UR's IDR to 'RD' (Restricted
Default) on the DDE execution.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Post-DDE execution and once sufficient information is available,
Fitch will re-rate UR to reflect the appropriate IDR for the
issuer's post-exchange capital structure, risk profile and linkage
with the sovereign in line with Fitch's criteria.
LIQUIDITY AND DEBT STRUCTURE
UR's liquidity is weak. Fitch considers that the UR's outstanding
cash balance at end-November 2022 would allow it to make the
forthcoming coupon payments in January 2023 (USD36.35 million).
However, making the payment would pose a risk for the company to
finance its operations, as increasing opex and capex needs will
pressure the company's cash levels in 2023. The company is
prioritising expenditure that is vital for the continuity of its
operations and critical infrastructure.
Expected net losses will further pressure liquidity, with the
company needing to relay on the support from the state and
availability of the funds from the IFIs. Almost EUR400 million
should be available to the company, with EUR199 million under
existing financing facilities with EBRD and European Investment
Bank, and EUR200 million under process of obtaining acceptances.
ISSUER PROFILE
UR is the national integrated railway company and the largest
employer in the country and plays a vital role in Ukrainian's
economy and labour market. Since the outbreak of the war, it is
also the major mean of humanitarian transportation for civilians
and the main transportation option for goods export as sea
transport routes are still not fully viable.
ESG CONSIDERATIONS
UR has an ESG Relevance Score of '5' for governance structure due
to reflect the close links between the issuer and the Ukrainian
government and the latter's launch of consent solicitation to defer
external debt payments, which has a negative impact on the credit
profile, and is highly relevant to the rating. This resulted in its
downgrade on 29 July 2022.
UR has an ESG Relevance Score of '4' for employee wellbeing due to
employees' heightened safety risks in the performance of railway
services, especially in areas of protracted war operations, as well
as increased spending for personal protection equipment, which has
a negative impact on the credit profile, and is relevant to the
rating[s] in conjunction with other factors.
UR has an ESG Relevance Score of '4' for customer welfare - fair
messaging, privacy & data security due to increasing data
protection needs related to its strategies, investments and
policies, including critical logistic and infrastructure data, IT
infrastructure and financial information, which result from
intensified cyberattacks in the Russian-Ukrainian war. This has a
negative impact on the credit profile, and is relevant to the
rating[s] in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Prior
----------- ------ -----
Rail Capital
Markets Plc
senior
unsecured LT C Downgrade CC
JSC Ukrainian
Railways LT IDR C Downgrade CC
ST IDR C Affirmed C
LC LT IDR C Downgrade CCC-
Natl LT C(ukr)Downgrade AA(ukr)
===========================
U N I T E D K I N G D O M
===========================
CLARA.NET HOLDINGS: Fitch Affirms B+ LT IDR, Alters Outlook to Neg.
-------------------------------------------------------------------
Fitch Ratings has revised the Outlook on Clara.net Holdings
Limited's (Claranet) Long-Term Issuer Default Rating (IDR) to
Negative from Stable and affirmed the IDR at 'B+'. Fitch has
affirmed the group's secured loan facilities' 'BB-' rating with a
Recovery Rating of 'RR3'.
The revision of the Outlook reflects Fitch's expectation of high
leverage, EBITDA margin erosion and weak cash flow and interest
coverage metrics. Fitch expects EBITDA leverage to be 6.1x in the
financial year ending June 2022 (FY22) and to remain above its
downgrade thresholds until at least FY25. Deleveraging is expected
to be delayed due to a debt-funded acquisition in the first quarter
of FY23. EBITDA interest coverage is expected to decrease to around
2.2x and remain below its downgrade thresholds until FY25 due to
the higher interest rate environment. Further debt funded
acquisitions could put the rating under downgrade pressure.
Claranet's rating is supported by an asset-light business model,
avoiding any significant investments in infrastructure, its market
focus and supportive trends within the technology sector. Sustained
low normalised capex requirements support positive free cash flow
(FCF) generation, supporting deleveraging and providing liquidity.
KEY RATING DRIVERS
Leverage Remains Elevated: Fitch expects EBITDA leverage to remain
above its downgrade thresholds, reaching 6.1x in FY22 and 5.7x in
FY23 before reducing to around 4.5x by FY25. Gross debt increased
to GBP337 million in FY22 while the Fitch defined EBITDA margin
fell to around 11.5% (FY21 13.9%). Fitch expects the EBITDA margin
to be around 12.7% in FY23 before recovering to around 13.6% by
FY25. However, Fitch expects leverage to remain elevated as a
result of an estimated GBP36 million drawdown on the revolving
credit facility (RCF) in 1QFY23 to fund a large acquisition and for
working capital and cash purposes.
Fitch expects subsequent deleveraging to be driven by gradual
revenue and EBITDA growth including contributions from
acquisitions. Fitch continues to treat the GBP19.5 million
shareholder loan as equity under its methodology.
Challenging Macroeconomic Backdrop: Claranet has experienced longer
sales cycles, deal slippage and higher costs as a result of supply
chain delays, geopolitical conflict and the inflationary
environment. In 4Q22, Outscope in Portugal and cloud, security and
resell revenues in the UK were below expectations. There have been
cost and recruitment challenges due to a tight labour market,
specifically for IT engineers. Churn has remained stable and
management believe deals have not been lost. However, Fitch is
forecasting weak growth prospects and high cost inflation in the UK
and eurozone over 2023-24. Fitch believes this will continue to put
pressure on sales growth and cost management.
FCF, Interest Coverage Under Pressure: Fitch-defined cash from
operations (CFO)-capex/total debt is forecast to remain below the
agency's downgrade thresholds until FY25. This will be driven by
higher capex and working capital movements in Portugal, including
delayed capex on the new Lisbon office and hardware for a new
contract in FY23. Fitch expects the EBITDA interest coverage ratio
to be 2.2x in FY23 and remain above downgrade thresholds until
FY25, reflecting an increase in cash interest costs in line with
the higher interest rate environment. Claranet's floating-rate debt
remains unhedged. Fitch also expects free cash flow (FCF) to be
negative in FY22-23 with FCF margin only recovering back to low
single digits by FY25.
Acquisitive Strategy Continues: Claranet completed four
acquisitions in FY22. A further three acquisitions were completed
during 1QFY23 using internal cash and including a drawdown on the
RCF. Fitch believes the most recent deals are dilutive of the
EBITDA margin, with an estimated blended acquisition multiple of
around 12x EBITDA on total consideration, and therefore synergies
will be critical to support deleveraging and EBITDA growth.
Further bolt-on acquisitions, including contingent consideration
payments could be financed with additional debt, potentially
impacting deleveraging efforts. Although Claranet has completed and
integrated several acquisitions, in its view integration risks
exist, particularly with respect to realising synergies.
Supportive Sectorial Shift: The global trend for outsourcing of IT
functions is supportive of Claranet's long-term prospects,
particularly for cloud and cybersecurity services, where CAGR of
10% and 9% is expected between 2022-27 as businesses shift away
from on premises applications. Claranet benefits from a proven
record of managing cloud-based applications and has partnerships
and certifications with large public cloud providers. Conversely,
connectivity and workplace solutions (together 35% of FY21
revenues) are likely to see low single digit growth.
SME Focus Brings Benefits, Volatile Segment: A focus on servicing
small and medium-sized enterprises (SME) shields Claranet from
competing against larger IT integrators. In its view, its target
customer base values localised and personalised support and
expertise rather than an ability to take on large and complex IT
projects. Relationships tend to endure once established, which has
helped maintain churn at low to mid-teens percentage and provide
good revenue visibility (around 90% of FY22 revenues including
usage based).
However, Claranet does not offer any proprietary services and
cost-effective off-the-shelf solutions or the entrance of hyper
cloud providers into this segment could pose a longer-term
competition risk. The segment is also greater risk during times of
economic distress.
Off-Shoring, Potential Cost Benefits: The India Hub is expected to
be operational by the end of the calendar year 2022 and may help
alleviate some of the labour market challenges faced by Claranet
with the availability of lower-cost skilled IT professionals.
Off-shoring is a cost-efficiency model used by many technology
firms. However, the success of this model will depend on how
effectively Claranet continues to service its customer base. Given
the current limited visibility of cost savings, Fitch has not
incorporated any future benefits in its analysis.
DERIVATION SUMMARY
As a provider of managed IT services, Claranet shares some
operating-profile similarities with its larger peers such as
TierPoint, LLC (B/Stable). The latter is increasingly focused on
providing cloud-related managed services but with a much higher
contribution of revenue enabled by proprietary data-centre assets,
due to its origin as data-centre provider.
Claranet's range of offered services has some overlap with large IT
services companies, such as DXC Technology Company (BBB/Stable) and
Accenture plc (A+/Stable), but on a much smaller scale as it caters
to primarily medium-sized companies and sub-enterprise size
clients, a segment that is typically underserved by larger peers.
TeamSystem Holding S.p.A. (B/Stable) and Dedalus SpA (B-/Stable)
are software service providers with sticky customer bases,
evidenced by lower churn rates than Claranet. Together with their
strong market position and good revenue visibility, they have more
debt capacity than Claranet.
Another equally-rated peer is Centurion Bidco S.p.A (B+/Negative),
the acquisition vehicle for Ingegneria Informatica S.p.A., a
leading Italian software developer and provider of IT services to
large Italian companies. It has maintained a strong market share
and stable customer relationships in various industrial segments,
successfully competing with international IT services companies
such as Accenture and IBM. Its larger size and strong domestic
market position allow it to sustain higher leverage at its 'B+'
rating.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Revenue CAGR of 7.0% FY23-26 primarily driven by growth in cloud
services, cyber security and contribution from acquisitions
- Fitch-defined EBITDA margin improving from around 11.5% in FY22
to around 13.5% by FY26
- Capex as a percentage of sales excluding capitalised R&D costs
averaging 5.0% in FY23-26
- Change in working-capital as a percentage of sales of -1% FY23
and -0.5% FY24-26
- Dividends equal to 5% of company-defined EBITDA
KEY RECOVERY RATING ASSUMPTIONS
- The recovery analysis assumes that Claranet would be reorganised
as a going-concern (GC) in bankruptcy rather than liquidated given
the technical expertise within the group and stable customer base.
- Fitch estimates that post-restructuring EBITDA would be around
GBP49 million, which would broadly correspond to slightly negative
FCF. Fitch would expect a default to come from higher competitive
intensity leading to revenue losses. GC EBITDA is approximately 28%
lower than Fitch's forecast of pro-forma FY23 EBITDA of GBP68
million.
- An enterprise value (EV) multiple of 5.5x is applied to the GC
EBITDA to calculate a post-reorganisation EV. The multiple is in
line with that of other similar software and managed services
companies exhibiting strong pre-dividend FCF generation.
- 10% of administrative claim taken off the EV to account for
bankruptcy and associated costs.
- The total amount of first-lien secured debt for claims includes
GBP337 million senior secured term loan facilities (GBP equivalent
of GBP80 million and EUR290 million facilities) and an EUR75
million pari passu ranked RCF that Fitch assumes to be fully
drawn.
- Fitch estimates expected recoveries for senior secured debt at
62%. This results in the senior secured debt instrument rating of
'BB-'/'RR3', one notch above the 'B+' IDR.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- FFO gross leverage below 4.0x (broadly corresponding to EBITDA
leverage below 3.7x) on a sustained basis with a disciplined M&A
strategy
- Significant growth in FCF on a sustained basis with CFO less
capex as a share of total debt exceeding 10%
- FFO interest coverage above 4.0x (broadly corresponding to EBITDA
interest coverage above 4.5x)
- Positive operating trends supporting continued revenue growth,
with an improving share of recurring and usage-based revenues
Factors that could, individually or collectively, lead to a Stable
Outlook:
- FFO gross leverage to consistent below 5.0x (broadly
corresponding to EBITDA leverage below 4.7x) and FFO interest
coverage above 2.5x (broadly corresponding to EBITDA interest
coverage above 3.0x) by FY24
- CFO less capex as a share of total debt above 5%
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Failure to reduce FFO gross leverage to consistently below 5.0x
(broadly corresponding to EBITDA leverage below 4.7x)
- FFO interest coverage below 2.5x (broadly corresponding to EBITDA
interest coverage below 3.0x)
- Operating and competitive pressures resulting in revenue growth
falling significantly below the market average
- CFO less capex as a share of total debt persistently below 5%
LIQUIDITY AND DEBT STRUCTURE
Satisfactory Liquidity: Fitch estimates Claranet had GBP45 million
of cash on its balance sheet and an undrawn EUR75 million RCF at
year end June 2022, available for general corporate purposes and to
fund acquisitions. Fitch estimates GBP36 million of the RCF has
been drawn to date during FY23. Fitch forecasts balance sheet cash
of around GBP30 million by FY23. FCF is expected to be negative in
FY22 and FY23 after which Fitch expects positive low single digit
FCF margins. Claranet's term loan B has a maturity in July 2028.
ISSUER PROFILE
Claranet is a medium-sized provider of managed IT services
primarily focusing on cloud-related services for small and
medium-sized companies and the sub-enterprise customer segment. It
also offers cybersecurity, connectivity and workplace solutions.
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
----------- ------ -------- -----
Claranet Finance
Limited
senior secured LT BB- Affirmed RR3 BB-
Clara.net Holdings
Limited LT IDR B+ Affirmed B+
Claranet Group
Limited
senior secured LT BB- Affirmed RR3 BB-
GARDEN TRADING: TIM Group Buys Business Out of Administration
-------------------------------------------------------------
Sam Metcalf at TheBusinessDesk.com reports that The Garden Trading
Company, the subsidiary of Joules, has been sold out of
administration, saving all 53 jobs.
The firm has been bought by Yorkshire private equity firm TIM Group
Holdings (TGH), which was set up by Yorkshire entrepreneur Tim
Whitworth.
Ryan Grant and Will Wright from Interpath Advisory were appointed
joint administrators to The Garden Trading Company on Nov. 16.
OLDE BARN: Unnamed Buyer Rescues Hotel Out of Administration
------------------------------------------------------------
Ian Evans at TheBusinessDesk.com reports that a luxury hotel that
faced being wound up by HMRC has been rescued by an unnamed buyer,
with all of its employees keeping their jobs.
The Olde Barn Hotel in Grantham was issued with a winding up order
in October before falling into administration for the third time in
its somewhat chequered history, TheBusinessDesk.com recounts.
Shepherd Cox Hotels (Grantham) Limited had bought the luxury
retreat out of administration in 2020 after its previous owner New
Barn Hotel Limited called in RSM Restructuring Advisory in August
2019, TheBusinessDesk.com discloses.
The hotel on Toll Bar Road in Marston boasts over 100 bedrooms, a
leisure club, a restaurant and function facilities.
It previously slipped into administration in 2011 and was put up
for sale for GBP3.5 million before being snapped up by Leena Group,
which shelled out around GBP2 million for the property in 2013,
TheBusinessDesk.com notes.
The hotel has now been handed a new lease of life and will continue
to trade as normal, TheBusinessDesk.com states.
SIG PLC: Moody's Affirms B1 CFR, Cuts GBP300MM Notes Rating to B2
-----------------------------------------------------------------
Moody's Investors Service has affirmed the B1 corporate family
rating and B1-PD probability of default rating of SIG plc (SIG or
the company), a UK-based building materials specialist distribution
company. Concurrently, Moody's has downgraded to B2 from B1 the
instrument rating on the GBP300 million backed senior secured notes
due 2026 issued by the company. The outlook remains stable.
RATINGS RATIONALE
The downgrade of the notes rating reflects the recent increase in
the size of the company's super senior revolving credit facility
(RCF) to GBP90 million from GBP50 million. Although the RCF is
currently undrawn, this change has increased the liabilities that
would rank ahead of the notes under an enforcement scenario, which
may reduce the recovery for the noteholders. More positively, the
increased RCF will provide SIG with additional liquidity buffer and
flexibility to grow the business over time. Moody's expects the RCF
to remain largely undrawn given the company's solid cash balances.
SIG's B1 CFR is supported by the company's (1) leading position as
a specialist building materials distribution company with a focus
on the relatively resilient roofing and insulation segments, good
geographic diversification and significant exposure to the more
stable renovation market; (2) conservative financial policies and
good liquidity; (3) flexible cost base and the inherent
countercyclical nature of working capital; (4) successful business
turnaround which led to adequate key credit ratios, including
leverage and interest cover.
SIG reported strong 21% like-for-like sales growth in H1 2022 with
its reported operating margin reaching 3.1% compared to 1.2% in H1
2021, reflecting strong demand and successful execution of its
"Return to Growth" plan. As a result of growing profitability,
SIG's Moody's adjusted gross debt to EBITDA reduced to 4.2x by June
2022 from 5.1x in December 2021, which Moody's considers an
adequate level for the rating. However, Moody's expects decreasing
disposable income and the energy crisis in Europe is expected to
reduce construction and, to less extent, refurbishment activity
over the next 12-18 months.
SIG also had significantly negative free cash flow over the 12
months to June of GBP90 million, due to a combination of cost
inflation, business growth and the company's strategy to make
targeted investments in inventory during 2021. Moody's expects
working capital inflow in the H2 of 2022 to partially offset the
seasonal working capital outflows of the first half, and support
free cash flow generation for the full year. The rating agency also
expect SIG to generate limited free cash flow in 2023, with a much
smaller impact from working capital, due to the lower business
growth compared to previous year.
Less positively, the CFR also factors in (1) the fragmented and
highly competitive European building materials distribution market;
(2) inherently low profitability in the industry, which limits free
cash flow generation; (3) deteriorating economic outlook and
reducing construction and renovation activity in Europe.
The ratings are also based on the Moody's expectation that SIG will
adhere to its conservative and publicly stated financial policies,
including a target pre-IFRS 16 net leverage of 1.5x and dividend
coverage of 2-3 times. In addition, the rating agency expects that
SIG will maintain a significant cash balance. The company's GBP113
million cash (at June 30, 2022) represents a solid proportion of
the company's GBP300 million notes and GBP11 million pension
liabilities. However, cash balance decreased from GBP145 million in
2021 and around GBP200 million estimated pro-forma for the
refinancing, partially driven by bolt-on M&A.
ESG CONSIDERATIONS
Moody's considers certain governance considerations related to SIG.
The company is LSE listed and subject to the UK Corporate
Governance Code. The company's Board includes ten members,
including eight non-executive directors. Private equity firm CD&R,
which owns 29% of SIG's shares, has two non-executive directors in
the Board. Moody's expects CD&R, similar to other private equity
firms, to have relatively higher appetite for shareholder-friendly
actions, although the rating agency expects that SIG will adhere to
its publicly stated financial policies.
LIQUIDITY
The company's liquidity is good with GBP113 million of cash on the
balance sheet as of June 2022. In addition, SIG's liquidity
benefits from a fully undrawn and upsized GBP90 million revolving
credit facility (RCF) due May 2026. The RCF is subject to a 4.75x
net leverage springing covenant that is tested when the RCF is over
40% drawn. The company also utilises approximately GBP25 million
under a factoring facility in one of its French businesses to speed
up the collection of the receivables.
STRUCTURAL CONSIDERATIONS
The company's 300 million backed senior secured notes represent the
majority of the debt and are rated B2, one notch below the CFR.
Although the backed senior secured notes and the upsized GBP90
million super senior RCF share the same security package and
guarantor coverage, the notes rank junior to the RCF upon
enforcement over the collateral which results in notching. Security
comprises share pledges and a floating charge over assets in the
UK, and guarantees are provided from material companies
representing at least 95% of revenue, gross assets and 91% of
EBITDA.
RATING OUTLOOK
The stable outlook reflects Moody's expectation that SIG will
continue profitable growth of its business, resulting in
Moody's-adjusted debt/EBITDA maintained below 5x and positive FCF.
The outlook does not take into account any potential significant
acquisitions or dividends.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade the company's rating if: (1) Moody's-adjusted
gross debt/EBITDA decreases below 4.0x on a sustained basis; (2)
FCF / debt grows towards high single digit figures; (3) EBITA /
Interest increases above 2.5x; and (4) the company builds track
record of operating with a conservative financial policy.
Downward pressure could materialise if (1) Moody's-adjusted
debt/EBITDA is sustained above 5x; (2) FCF is sustainably negative;
(3) liquidity profile deteriorates; or (4) the company pursues
debt-funded acquisitions or shareholder distributions, which result
in weakening of the company's credit metrics.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Distribution &
Supply Chain Services Industry published in June 2018.
PROFILE
Based in Sheffield, England, SIG plc is a European building
materials distributor specialist. The company operates in the UK,
France, Germany, Poland, the Benelux and Ireland and is focussed on
roofing products and insulation. With 436 branches across Europe,
SIG generated GBP2.5 billion revenue in the last 12 months to June
2022. The company is listed on LSE with current market
capitalisation of over GBP350 million.
===============
X X X X X X X X
===============
[*] BOOK REVIEW: Bankruptcy and Secured Lending in Cyberspace
-------------------------------------------------------------
Author: Warren E. Agin
Publisher: Bowne Publishing Co.
List price: $225.00
Review by Gail Owens Hoelscher
Red Hat Inc. finds itself with a high of 151 5/8 and low of 20 over
the last 12 months! Microstrategy Inc. has roller-coasted from a
high of 333 to a low of 7 over the same period! Just when the IPO
boom is imploding and high-technology companies are running out of
cash, Warren Agin comes out with a guide to the legal issues of the
cyberage.
The word "cyberspace" did not appear in the Merriam-Webster
Dictionary until 1986, defined as "the on-line world of computer
networks." The word "Internet" showed up that year as well, as "an
electronic communications network that connects computer networks
and organizational computer facilities around the world."
Cyberspace has been leading a kaleidoscopic parade ever since, with
the legal profession striding smartly in rhythm. There is no
definition for the word "cyberassets" in the current
Merriam-Webster. Fortunately, Bankruptcy and Secured Lending in
Cyberspace tells us what cyberassets are and lays out in meticulous
detail how to address them, not only for troubled technology
companies, but for all companies with websites and domain names.
Cyberassets are primarily websites and domain names, but also
include technology contracts and licenses. There are four types of
assets embodied in a website: content, hardware, the Internet
connection, and software. The website's content is its fundamental
asset and may include databases, text, pictures, and video and
sound clips. The value of a website depends largely on the traffic
it generates.
A domain name provides the mechanism to reach the information
provided by a company on its website, or find the products or
services the company is selling over the Internet. Examples are
Amazon.com, bankrupt.com, and "swiggartagin.com." Determining the
value of a domain name is comparable to valuing trademark rights.
Domain names can come at a high price! Compaq Computer Corp. paid
Alta Vista Technology Inc. more than $3 million for "Altavista.com"
when it developed its AltaVista search engine.
The subject matter covered in this book falls into three groups:
the Internet's effect on the practice of bankruptcy law; the ways
substantive bankruptcy law handles the impact of cyberspace on
basic concepts and procedures; and issues related to cyberassets as
secured lending collateral.
The book includes point-by-point treatment of the effect of
cyberassets on venue and jurisdiction in bankruptcy proceedings;
electronic filing and access to official records and pleadings in
bankruptcy cases; using the Internet for communications and
noticing in bankruptcy cases; administration of bankruptcy estates
with cyberassets; selling bankruptcy estate assets over the
Internet; trading in bankruptcy claims over the Internet; and
technology contracts and licenses under the bankruptcy codes. The
chapters on secured lending detail technology escrow agreements for
cyberassets; obtaining and perfecting security interests for
cyberassets; enforcing rights against collateral for cyberassets;
and bankruptcy concerns for the secured lender with regard to
cyberassets.
The book concludes with chapters on Y2K and bankruptcy; revisions
in the Uniform Commercial Code in the electronic age; and a
compendium of bankruptcy and secured lending resources on the
Internet. The appendix consists of a comprehensive set of forms for
cyberspace-related bankruptcy issues and cyberasset lending
transactions. The forms include bankruptcy orders authorizing a
domain name sale; forms for electronic filing of documents;
bankruptcy motions related to domain names; and security agreements
for Web sites.
Bankruptcy and Secured Lending in Cyberspace is a well-written,
succinct, and comprehensive reference for lending against
cyberassets and treating cyberassets in bankruptcy cases.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2022. All rights reserved. ISSN 1529-2754.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers.
Information contained herein is obtained from sources believed to
be reliable, but is not guaranteed.
The TCR Europe subscription rate is US$775 per half-year,
delivered via e-mail. Additional e-mail subscriptions for
members of the same firm for the term of the initial subscription
or balance thereof are US$25 each. For subscription information,
contact Peter Chapman at 215-945-7000.
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