/raid1/www/Hosts/bankrupt/TCREUR_Public/221221.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Wednesday, December 21, 2022, Vol. 23, No. 248
Headlines
F R A N C E
ELSAN: S&P Alters Outlook to Negative, Affirms 'B+' ICR
G E O R G I A
GEORGIAN RAILWAY: S&P Upgrades LT ICR to 'BB-', Outlook Stable
G E R M A N Y
ATHENA BIDCO: S&P Affirms 'B' Long-Term ICR, Outlook Stable
MESSER INDUSTRIES: Moody's Affirms 'B1' CFR, Outlook Stable
NIDDA BONDCO: Moody's Affirms B3 CFR, Cuts Secured Term Loan to B3
PEACH PROPERTY: Moody's Affirms 'Ba2' CFR, Alters Outlook to Neg.
G R E E C E
MYTILINEOS SA: S&P Upgrades ICR to 'BB', Outlook Positive
H U N G A R Y
MTB MAGYAR: S&P Upgrades Long-Term ICR to 'BB+', Outlook Positive
I R E L A N D
ARMADA EURO III: Fitch Hikes Rating on Class F Notes to 'B+sf'
CVC CORDATUS XXVI: Fitch Assigns 'B-sf' Rating on Class F Notes
DOLE PLC: Moody's Affirms 'Ba3' CFR & Alters Outlook to Negative
EDMONDSTOWN PARK: Fitch Assigns 'B-sf' Rating to Class F Notes
ESCADIA LTD: Secured Creditor Seeks Appointment of Examiner
SILVER PAIL: High Court Appoints Interim Examiner
TIKEHAU CLO VIII: Fitch Assigns 'B-sf' Rating to Class F Notes
K A Z A K H S T A N
EURASIAN BANK: Moody's Affirms 'B2' Long Term Deposit Ratings
N O R W A Y
SECTOR ALARM: S&P Cuts LT ICR to 'B-' on Weakening Credit Metrics
P O L A N D
CANPACK SA: Fitch Lowers LongTerm IDR to 'BB-', Outlook Negative
S P A I N
CLAVEL RESIDENTIAL 2: Fitch Assigns 'Bsf' Rating to Cl. F Notes
FOODCO BONDCO: S&P Downgrades ICR to 'CCC-', Outlook Negative
T U R K E Y
ULKER BISKUVI: S&P Raises Long-Term ICR to 'B', Outlook Stable
U N I T E D K I N G D O M
ARMADILLA: Goes Into Administration, 29 Jobs Affected
GROUNDED EVENTS: London Marathon to Take Over Brighton Marathon
INVERNESS CALEY: Enters Liquidation, May Opt for CVA
PAVILLION MORTGAGES 2022-1: Fitch Puts 'BBsf' Rating on Cl. E Notes
[*] UK: Urged to Boost Electricity Companies' Access to Liquidity
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F R A N C E
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ELSAN: S&P Alters Outlook to Negative, Affirms 'B+' ICR
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S&P Global Ratings revised its outlook on French private hospital
operator Elsan to negative from stable and affirmed its 'B+'
long-term issuer credit rating.
The negative outlook indicates the potential that S&P's could lower
the ratings if Elsan is unable to offset the tough industry
conditions, resulting in weaker profitability such that it fails to
maintain its adjusted debt-to-EBITDA ratio below 7.0x.
S&P said, "The negative outlook reflects our expectation that
Elsan's credit metrics will remain under pressure through 2023, in
light of tough operating conditions for French private hospital
operators. We believe that inflationary pressures, continued staff
shortages, and absenteeism will weigh on Elsan's profitability in
2022 and 2023, despite an expected recovery in volumes. We
understand that the group aims to offset inflationary pressures by
embarking on an efficiency program that includes for instance
increasing adjacent margin accretive activities, savings in energy
consumptions, renegotiation of supplier contracts, decreasing
activity in some therapeutical areas, or closing unprofitable
clinics. Although the group has a good track record of delivering
efficiencies, Elsan's largely fixed cost base and the uncertain
inflationary environment puts into question the successful
materialization of such measures. The French government aims to
support public and private hospitals and has integrated a EUR800
million inflation compensation package into its latest social
security financing bill. Although beneficial, we consider that this
measure would only partially absorb the expected inflationary shock
next year, given the increasingly uncertain macroeconomic
environment and the needs of the French health care system.
Finally, we expect the structural deficit of medical personnel to
persist in 2023, which will make the group's operations more
difficult. Overall, we expect the group's adjusted EBITDA margin to
remain below 18% in 2022 and 2023, translating into adjusted
leverage close to 7x, above our previous base case of closer to
6.5x.
"Despite margin erosion, we expect Elsan's revenue to rise by
4.0%-4.5% over the next two years, as the volume of procedures
gradually returns to normal in France. After two years of
disruptions caused by the COVID-19 pandemic, the group has
experienced a strong recovery in activity thanks to the
stabilization of the treatment pathway, which we expect should
persist in 2023. Furthermore, we understand that the negotiations
with French authorities to increase tariffs should support the
group's strong revenue momentum (we estimate the increase could be
about 3.5%-3.7%, starting in March 2023). In France, Elsan benefits
from a minimum revenue guarantee (MRG) mechanism, which has
recently been extended until December 2022, after negotiations with
the state. Elsan's activities in medicine, surgery, and obstetrics
and follow-up care and rehabilitation were covered by the MRG for
the whole of the company's fiscal year ending Dec. 31, 2022, but
for mental health activities, the MRG only covered the first half
of the fiscal year (July-December 2021). We understand that a
similar mechanism to the MRG to support clinics that are still
having difficulties will be approved in 2023.
"We factor no major acquisitions into our base case. We assume the
group will continue to acquire clinics to further consolidate the
private hospitals market, as well as developing alternative
potential growth initiatives abroad. These could take the form of
greenfield projects with bid processes, to be financed jointly with
public and private partners, where Elsan would provide hospital
management services. Any major debt finance acquisition above our
current base case would put significant pressure on the rating,
given its already limited headroom.
"The negative outlook indicates that we could lower the ratings if
Elsan is unable to offset the tough industry conditions, resulting
in weaker profitability such that it fails to restore and maintain
its adjusted debt to EBITDA ratio below 7.0x.
"We could consider lowering the ratings if the group's operating
performance deteriorates such that its cash flow generation is
hampered by substantial working capital outflows or higher capital
expenditure (capex) or its profitability worsens more than assumed
in our base case." S&P downsides scenario comprises the following
triggers:
-- Adjusted debt to EBITDA remaining above 7.0x in the next 12-18
months, posing questions about the sustainability of the capital
structure;
-- Negative adjusted free operating cash flow after finance lease
payments; or
-- A fixed-charge coverage ratio of below 1.5x.
S&P could revise the outlook back to stable if the group's
efficiency measures prove to be successful allowing Elsan's
adjusted leverage to improve and remain below 7.0x while
maintaining a fixed charge coverage ratio above 1.5x.
ESG credit indicators: E-2, S-2, G-2
S&P said, "ESG factors have no material influence on our credit
rating analysis of Elsan. The social risks are an important credit
consideration for hospitals, since they provide an essential
service to their local communities and derive most funding from
tariffs regulated by the government. In France, the state has been
increasingly focusing on compensating health care providers for
their efforts to enhance quality through dedicated subsidies, and
Elsan SAS has demonstrated a track record of good quality in care
standards and patient satisfaction. Governance risks from majority
financial sponsor-ownership are mitigated by the significant stake
of long-term institutional investors and the group's balanced board
structure."
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G E O R G I A
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GEORGIAN RAILWAY: S&P Upgrades LT ICR to 'BB-', Outlook Stable
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S&P Global Ratings raised its long-term issuer credit rating on
Georgian Railway JSC (GR) and its issue rating on its senior
unsecured bond to 'BB-' from 'B+'. At the same time, S&P affirmed
its 'B' short-term issuer credit rating on GR.
S&P said, "The stable outlook reflects our view that GR will
maintain its resilient operating performance and maintain FFO to
debt comfortably above 8% despite the challenging economic
environment. We also expect that GR will continue to benefit from a
very high likelihood of extraordinary state support.
"The upgrade reflects GR's strong revenue growth and our
expectation that this will continue. Despite our concerns earlier
this year about the uncertain macroeconomic and the financial
effects of Russia's invasion of Ukraine on Georgia, we now see that
the current geopolitical situation benefits GR as it enjoys a
strong demand for freight transit through Georgia while
international transport routes through Ukraine and Russia have been
disrupted. GR's freight turnover increased by 27% to 3.105 billion
ton-kilometers (transport of one ton over one kilometer) in the
first nine months of 2022, and we expect GR's 2022 revenue will
increase by approximately 20% compared with 2021, which was an
already strong year despite the pandemic. We expect the total
freight volume will increase to about 14.8 million tons in 2022 (an
increase of around 22% from 2021), driven by growth of both dry
cargo volumes (an increase of about 24% expected in 2022) and
liquid cargo volumes (approx. 15% increase in 2022). Oil products
(GR's major freight cargo) are mainly transported from Russia and
Kazakhstan; dry cargo products (including chemicals, fertilizers,
grain, and ores) come mainly from Azerbaijan, Armenia, and
Turkmenistan. We believe GR will still be able to capitalize on the
rerouted transit freight in 2023. However, we recognize that a
sizable share of oil products remains linked to Russia and is
therefore exposed to potential further sanctions.
"We expect GR to maintain FFO to debt comfortably above 8% over the
next couple of years, supported by robust operating performance and
lower cost of debt.In 2021, GR refinanced its $500 million bond on
favorable terms, effectively slashing its annual interest expense
by around 45%. Taking into account GR's lower cost of debt and our
view of its robust operating performance, we revised our forecast
of FFO to debt in 2022 to 13%-15% and in 2023 to 11%-13% (compared
with our previous forecast of 8%-10% in 2022 and 9%-11% in 2023).
We updated our debt to EBITDA forecast to 4.5x-5.5x in 2022 and
5.8x-6.8x in 2023 (compared with our previous projection of
7.5x-8.5x in 2022 and 6.8x-7.8x in 2023). Such credit metrics are
commensurate with an anchor (the starting point in assigning a
credit rating) and stand-alone credit profile (SACP) assessment of
'b' compared with our former 'b-' assessment. Together with our
view of very high likelihood of government support (leading to a
positive two-notch adjustment), we raised the long-term issuer
credit rating to 'BB-', one notch higher than 'B+' previously."
To maintain the credit metrics, GR will need to further bolster its
revenue and control costs, as well as the foreign exchange rate
trajectory.
Despite the unexpectedly favorable short-term economic developments
since the start of the Russia-Ukraine war, the medium-term outlook
is less certain with some downside risks. S&P said, "In line with
our latest sovereign view, we consider that GR's growth momentum
will weaken in 2023 with a slowdown in revenue growth to 5% in
2023. To fully benefit from increased freight volumes, GR will have
to increase its capital expenditure (capex) substantially to
maintain its current infrastructure and renovate its locomotives
and wagon fleet. We now expect GR's capex to reach Georgian lari
(GEL) 150 million-GEL160 million in 2022 compared with GEL77
million in 2021. GR could also suffer from the effects of higher
energy prices and persistent high inflation, which could weaken its
credit metrics. Exposure to lari depreciation continues to threaten
the company's debt leverage, given its debt is entirely denominated
in U.S. dollars. Although about 90% of total revenue is denominated
in U.S. dollars and operating costs are denominated in lari,
inflationary increases could still pressure EBITDA margins. Our
base case includes some moderate depreciation of Georgia's local
currency in line with our latest sovereign forecasts."
The very high likelihood of extraordinary support from the Georgian
government underpins our rating on GR. This reflects that the
company plays a very important role to the government as the
manager and owner of the national rail infrastructure and as the
sole provider of freight rail services. GR is one of the largest
corporate borrowers in Georgia and its network is an important
infrastructure link in the country and in the region. S&P considers
that the government has a strong incentive to support GR, because a
default would considerably damage the sovereign's reputation and
limit other Georgian issuers' ability to borrow externally.
S&P said, "The stable outlook reflects our expectation of strong
credit metrics, namely with FFO to debt comfortably exceeding 8%
from 2022 despite the challenging economic environment. It also
reflects our view that the likelihood of state support will remain
very high as GR remains the main infrastructure artery in the
country and in the region. The outlook also incorporates our view
that liquidity will remain adequate, with no large maturity
payments until 2028, and that waivers for potential covenant
breaches on bank facilities will continue to be received in good
time.
"We could lower the rating if GR's operating performance and
leverage ratios were weaker than we expect, with forecast FFO to
debt staying below 8% due to a significant decline in freight
turnovers, increasing operating expenditure, and substantial
depreciation of the lari."
Moreover, ratings downside could stem from a material deterioration
in liquidity, for example caused by adverse developments in the
local banking system, which might limit access to GR's cash
balances.
Although less likely, a downgrade of Georgia could lead S&P to take
a negative rating action on GR, absent expected improvements on its
operating performance and leverage.
S&P could raise the rating on GR if adjusted debt to EBITDA
improves comfortably below 5x, and FFO to debt improves comfortably
above 12% on a sustained basis, while its free operating cash flow
(FOCF) is at least neutral, and liquidity remains solid. This could
be supported by growth in freight turnover, translating into higher
EBITDA generation, or by operating cost efficiencies, absent large
fluctuations of the lari against other currencies.
An upgrade of the Georgian sovereign could also lead S&P to take a
positive rating action on GR.
ESG credit indicators: E-2, S-2, G-3
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G E R M A N Y
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ATHENA BIDCO: S&P Affirms 'B' Long-Term ICR, Outlook Stable
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S&P Global Ratings affirmed its 'B' long-term issuer credit and
issue rating on Germany-based HR software provider Athena Bidco,
the immediate holding company of P&I.
S&P said, "The stable outlook reflects our view that P&I's
software-as-a-service (SaaS) transition will strengthen its
earnings stability and support strong revenue growth of more than
15% in fiscals 2023 and 2024 and EBITDA margin expansion to more
than 57%, leading to sound deleveraging prospects and FOCF to debt
recovery of more than 5% in fiscal 2025.
"We expect the company's leverage and cash flow metrics will remain
within our downside triggers, despite the debt add-on. Despite the
company's EUR300 million add-on, we expect S&P Global Ratings'
adjusted leverage will only increase moderately in fiscal 2023 to
about 9.7x (6.6x excluding PIK) from 8.7x (4.1x excluding PIK) in
fiscal 2022 thanks to sound EBITDA growth. The company's reported
revenue in the first half of fiscal 2023 increased 22.3% (17.4% on
an organic basis), while maintaining a largely stable cost base
thanks to the high scalability of the company's SaaS offering and
sound operational efficiency. As a result, we forecast the
company's adjusted EBITDA will increase more than 25% in fiscal
2023, with an adjusted EBITDA margin of about 57.5%, compared with
54.2% in fiscal 2022. Considering that more than half of the pay
slips relying on the company's HR software remain on premise, and a
large portion are expected to migrate to the company's flagship
SaaS product LogaHR, we think the company's growth momentum and
margin expansion will remain strong in the next two-to-three years.
This will lead to sound deleveraging prospects and gradual recovery
of FOCF to debt of more than 5%, compared with our forecast of
4%-5% in fiscals 2023 and 2024.
"We expect a resilient labor market in Germany and the company's
high recurring revenue will defy the weak macroeconomic outlook in
2023. We expect Germany will enter a mild recession in 2023 with a
real GDP declining 0.5%, before a modest recovery of 1.0% in 2024.
That said, we think the German labor market will remain resilient
with the unemployment rate only ticking up slightly to 3.5% in
2023, compared with our estimate of 3.0% in 2022. This should, in
our view, support demand for P&I's payroll and HR-related software
services. Furthermore, we view it as unlikely that the current weak
economic conditions will reverse P&I's customer digitalization and
cloud adoption determination, because of benefits from increased
efficiency and capital expenditure (capex) savings. We think P&I's
high recurring revenue of more than 80% (stemming from its
fast-growing LogaHR offering), coupled with much higher pricing and
margins on LogaHR, will continue to support the company's earnings
stability. Additionally, the company's LogaHR includes
comprehensive HR-related functionalities. With customers steadily
migrating to LogaHR, we think the switching cost for customers will
also increase compared with customers opting for a single HR
module.
"The stable outlook reflects our view that P&I will maintain more
than 15% revenue growth in fiscals 2023 and 2024 on the back of
continued customer migration to its all-inclusive SaaS offering,
with further EBITDA margin expansion to more than 57%. This will
lead to sound deleveraging to below 9x and FOCF to debt increase
toward 5% in fiscal 2024.
"We could lower the rating if P&I faces difficulties with top-line
and EBITDA growth through the ongoing transition to SaaS,
up-selling, and price increases. This could be indicated by
challenges in migrating existing customers and higher churn, or in
new customer sales and growth. We could also lower the rating if
P&I pursues debt-funded shareholder returns or material mergers and
acquisitions, leading to adjusted debt to EBITDA exceeding 10x (7x
excluding PIK) and FOCF to debt decreasing materially below 5%.
"Rating upside is remote because of the highly leveraged capital
structure and our expectation that the sponsor owner is unlikely to
pursue significant leverage reductions on a sustained basis.
However, we could raise the rating if P&I improves FOCF to about
10% of adjusted debt. This is most likely to materialize through
gross debt repayments combined with strong EBITDA growth. In
addition, we would require a firm financial policy commitment to
maintain metrics at this level."
ESG credit indicators: E-2, S-2, G-3
MESSER INDUSTRIES: Moody's Affirms 'B1' CFR, Outlook Stable
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Moody's Investors Service affirmed the ratings of Messer Industries
GmbH, including a B1 Corporate Family Rating and B1 ratings on the
Senior Secured credit facilities. The rating outlook is stable.
"Messer has performed well so far in 2022 but performance in 2023
is expected to weaken modestly from the expected economic slowdown
in the US and Europe," stated John Rogers, Moody's Senior Vice
President and lead analyst for Messer Industries GmbH. "While
credit metrics are strong for the rating, event risk related to the
exit of the minority owner continues to constrain the rating.
Affirmations:
Issuer: Messer Industries GmbH
Corporate Family Rating, Affirmed B1
Probability of Default Rating, Affirmed B1-PD
Senior Secured 1st Lien Revolving Credit Facility, Affirmed B1
(LGD3) from (LGD4)
Senior Secured 1st Lien Term Loan B2, Affirmed B1 (LGD3) from
(LGD4)
Issuer: Messer Industries USA, Inc.
Senior Secured 1st Lien Term Loan B, Affirmed B1 (LGD3) from
(LGD4)
Outlook Actions:
Issuer: Messer Industries GmbH
Outlook, Remains Stable
RATINGS RATIONALE
Messer's B1 CFR is supported by its sustainable market position in
the industrial gas industry, relatively stable performance over the
economic cycle and solid free cash flow generation. While this is a
fairly capital intensive industry sector, most of the capital is
related to growth projects. Hence, management can limit
discretionary growth capex to generate more free cash flow and
improve financial flexibility. Increasing concern over an economic
downturn in the US and Europe in 2023 tempers Moody's outlook for
the company's performance over the next 12-18 months.
The principal constraint on the rating is event risk over the next
two years associated with the exit of the minority owner (42%
ownership), which could increase leverage. The minority owner, CVC
Capital Partners, is a private equity firm and has the ability to
exit through a buy out of its ownership stake or an eventual IPO of
the company. The strength and stability of Messer's business
profile is a key factor supporting the current rating and could
justify a higher rating, providing that a debt financed buyout of
the minority shareholder's equity is an unlikely scenario.
Messer is a smaller player compared to other rated peers (i.e., Air
Liquide, Air Products and Linde ) with about $2.2 billion in
revenue. Moody's believes that a combination of scale and ownership
structure limits the company's growth prospects, compared to the
larger industrial gas firms. However, credit quality has improved
due to consistent free cash flow generation and debt reduction
since 2017 when the company was formed. Messer generates free cash
flow as it capital spending is less than depreciation and
amortization ("D&A").
For the LTM period ended September 30, 2022, Moody's adjusted
Debt/EBITDA was 3.3x and Retained Cash Flow to Debt was over 20%.
Credit metrics in 2023 are expected to weaken modestly due to
reduced demand with leverage rising to the mid-3x range.
Messer has good liquidity to support operations with over $600
million of available liquidity. The company had about $291 million
of cash at September 30, 2022 and $355 million of availability
under its revolving credit facility. The company is expected to
remain free cash flow positive in 2023, despite the economic
slowdown. The company's $450 million revolving credit facility had
no outstanding borrowings, but availability was reduced by $95
million of letters of credit. The revolver has a springing maximum
first lien net leverage ratio of 8:1 that is tested when more than
40% is drawn. Moody's expects the company will remain in compliance
over the rating horizon. The first lien term loans do not have any
financial maintenance covenants.
As of September 30, 2022, Messer's debt capital is comprised of a
$450 million senior secured 1st Lien revolving credit facility,
$1,860 million first lien senior secured USD term loan B, and a EUR
325 million first lien senior secured term loan B2. The B1 ratings
on the first lien term loans and the revolving credit facility, in
line with the B1 CFR, reflect the absence of other material debt in
the capital structure.
The stable outlook assumes the company will maintain strong credit
metrics for the rating and devote the majority of free cash flow to
debt reduction.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade to the rating is unlikely until Moody's understands the
magnitude of the impact on Messer's capital structure from the
minority shareholder's exit. However, once this is determined
Moody's would consider an upgrade if adjusted financial leverage is
sustained below 4.5x, retained cash flow-to-debt sustained above
10% (RCF/Debt), and the company can generate at least $100 million
of free cash flow on a consistent basis. A downgrade would be
considered if adjusted financial leverage were maintained above
5.5x, there was significant cash consumption, or meaningful
deterioration in liquidity.
ESG CONSIDERATIONS
Messer's ESG risks have a negative impact on its credit rating
similar to many other companies that have a limited number of
shareholders and who prioritize shareholder returns. While Moody's
believe that the Messer family would have a lower tolerance for
risk, the presence of a private equity firm as a large minority
shareholder, and risks related to its exit, increase credit risk.
In addition, highly negative environmental risks reinforce the
CIS-4 score. The company does have moderate social risks.
Messer Industries is an industrial gas producer, dually based in
Bridgewater, NJ and Germany, formed in March 2019 with assets
divested from the merger of Linde and Praxair and is focused on the
Americas, Western Europe and South America. Messer Group and CVC
Capital Partners own 58% and 42% of the group, respectively. For
the last twelve months ended March 31, 2022, Messer Industries had
revenue totaling $2.19 billion.
The principal methodology used in these ratings was Chemicals
published in June 2022.
NIDDA BONDCO: Moody's Affirms B3 CFR, Cuts Secured Term Loan to B3
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Moody's Investors Service affirmed the B3 long-term corporate
family rating and the B3-PD probability of default rating of Nidda
BondCo GmbH ("STADA" or the "Company"). Concurrently, Moody's
downgraded to B3 from B2 the ratings of the Senior Secured term
loans, Senior Secured revolving credit facility (RCF) and Senior
Secured Notes, borrowed by Nidda Healthcare Holding GMBH. At the
same time the agency has affirmed the Caa2 instrument ratings of
the Senior Notes due in 2025 issued by the Company. The outlook on
all ratings remains stable.
RATINGS RATIONALE
On December 12, STADA announced its intention to tender up to
EUR250 million (excluding payment of accrued and unpaid interest)
of its outstanding Senior Secured Notes and Senior Notes. The
transaction will be funded using a new Senior Secured private
placement notes (Unrated). At the same time, the Company announced
that it entered into a definitive agreement to exchange EUR75
million in aggregate principal amount of the Senior Notes due 2025
issued by the Company for a substantially equivalent aggregate
principle amount through a tap of EUR75 million of Senior Secured
Notes due 2026.
The rating action was driven by the contemplated reduction of a
layer of loss absorbing debt which ranked below the Senior Secured
facilities at Nidda Healthcare Holding GMBH, resulting from the
repayment of a significant portion of the Senior debt before
maturity of the Senior Secured debt. The agency currently assumes
that the Company will tender EUR250 million or higher of its
outstanding Senior Notes. If the outcome of the tender comes out at
lower amount, given the already limited capacity to raise new
Senior Secured debt, there will still be high risk of downward
pressure on the Senior Secured debt rating.
The B3 rating affirmation considers the Company's solid business
profile, including a diversified small-molecule generics portfolio,
good geographical diversification and strong over-the-counter (OTC)
portfolio of consumer health products and specialty products.
Furthermore, it considers the Company's highly-leveraged capital
structure with a Moody's-adjusted gross leverage of 7.1x for the
last twelve months to September 2022 (pro forma this transaction),
and an appetite for debt-funded acquisitions which can delay
deleveraging.
The rating also considers the downside risks coming from the
Russia-Ukraine military conflict, given STADA's material exposure
to the region. However, operations continue to be relatively normal
in the region and the group's operating and financial performance
has been positive with growth in key markets. Moody's expects that
the Company's Moody's-adjusted gross leverage will trend towards 7x
by the end of 2022, and that its Moody's-adjusted free cash flow
(FCF) generation will improve to around EUR20-30 million, over the
next 12-18 months.
LIQUIDITY PROFILE
STADA has a good liquidity, underpinned by cash balances of
EUR303.7million as of September 30, 2022, the agency's expectations
of positive Moody's-adjusted FCF of between EUR20-30 million for
the next 12-18 months. Also, the Company has extended the maturity
of its RCF from August 2023 to June 2026 and will have access to
EUR365 million RCF, currently fully undrawn. There could be a risk
of increased volatility in working capital requirements over the
next few quarters if STADA's supply-chain arrangements are
disrupted in Russia, or its Russian accounts receivable collection
period is extended significantly or impairments increase. Moody's
understands that the Company has strong insurance contracts in
place to cover the latter risk.
STRUCTURAL CONSIDERATIONS
In light of the mixed capital structure, which includes both bank
debt and bonds, Moody's has applied a recovery rate of 50% for the
corporate family. The recovery rate assumption of 50% also reflects
the covenant-lite package, with only a springing covenant on the
senior secured RCF. The security package is considered weak because
it consists of a pledge on the shares and not on the assets of the
operating subsidiaries.
The B3 ratings of the senior secured term loans, senior secured
notes and senior secured RCF reflect the creditors' first-lien
claim over a security package consisting of shares from operating
subsidiaries accounting for at least 80% of group EBITDA. The Caa2
rating of the backed senior secured second-lien notes reflects the
second-lien claim over the same security package.
RATING OUTLOOK
The stable rating outlook reflects Moody's expectation that STADA's
credit metrics will continue to improve in the next 12-18 months
with a Moody's-adjusted gross leverage improving below 7x, driven
by stronger earnings and positive Moody's-adjusted FCF.
FACTORS THAT COULD LEAD TO AN UPGRADE OR A DOWNGRADE OF THE
RATINGS
Upward pressure on the rating would reflect a decline in leverage,
with Moody's-adjusted gross debt/EBITDA declining below 6.5x.
Downward pressure on the rating could materialize if the Company's
Moody's-adjusted FCF turns negative on a sustained basis, or if its
Moody's-adjusted gross leverage does not fall below 7.5x over the
next 12-18 months, or if its operating performance deteriorates.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Pharmaceuticals
published in November 2021.
Affirmations:
Issuer: Nidda BondCo GmbH
Corporate Family Rating, Affirmed B3
Probability of Default Rating, Affirmed B3-PD
Gtd Senior Secured 2nd Lien Global Notes, Affirmed Caa2
Downgrades:
Issuer: Nidda Healthcare Holding GMBH
Senior Secured Revolving Credit Facility, Downgraded to B3 from
B2
Senior Secured Term Loan F, Downgraded to B3 from B2
Senior Secured Term Loan E, Downgraded to B3 from B2
Senior Secured Global Notes, Downgraded to B3 from B2
Gtd Senior Secured Notes, Downgraded to B3 from B2
Outlook Actions:
Issuer: Nidda BondCo GmbH
Outlook, Remains Stable
Issuer: Nidda Healthcare Holding GMBH
Outlook, Remains Stable
PEACH PROPERTY: Moody's Affirms 'Ba2' CFR, Alters Outlook to Neg.
-----------------------------------------------------------------
Moody's Investors Service has affirmed the Ba2 corporate family
rating of Peach Property Group AG (PPG or the company), a real
estate company focused on German residential rental properties. At
the same time Moody's downgraded to Ba3 from Ba2 the backed senior
unsecured instrument rating of Peach Property Finance GmbH, a
wholly owned subsidiary of PPG. The outlook on all ratings was
changed to negative from stable.
RATINGS RATIONALE
Moody's changed the outlook to negative because the more
challenging operating environment including expected property value
declines, inflationary cost pressures, and constrained funding
markets alongside higher refinancing costs will lead to weaker
credit metrics.
PPG's Ba2 CFR rating affirmation is supported by (1) stable rental
cash flow from its around 27,500 residential units with a granular
tenant base and a ten-year average tenancy length and (2) a good
track record of integrating acquisitions while maintaining strong
operating metrics.
Moody's-adjusted gross debt/total assets stood at 54.9% as of June
30, 2022, and Moody's expects this ratio to increase to just above
57% in the next 18 months after incorporating expected value
declines of more than 10% and the planned fully subscribed CHF63
million equity raise via mandatory convertible bonds that are
expected to switch to equity by April 2023. This leverage ratio is
above Moody's previous expectations and leaves limited capacity
under the rating agency's guidance of below 60% for the Ba2 CFR.
The willingness of core shareholders to support the equity raise
despite the company's shares trading at a steep discount to net
asset value is credit positive. Further positive actions taken by
PPG to strengthen its balance sheet include limiting capital
expenditure, cutting costs, and a decision to waive dividends for
2022 (subject to approval by the Annual General Meeting).
Proceeds from the planned equity raise in addition to drawing under
a EUR100 million secured facility that was committed some months
ago will fully repay the upcoming CHF183 million equivalent
outstanding backed senior unsecured notes due in February 2023
leaving no major refinancing needs until CHF626 million of debt
becomes due in 2025. Moody's-adjusted fixed charge coverage is week
and stood at 1.3x as of June 30, 2022 and below Moody's 1.75x
guidance for the Ba2 CFR. Moody's forecasts this ratio to be around
1.5x by year-end 2022 and to gradually improve above 1.8x by
year-end 2024.
Encouragingly, operating performance remains solid with the company
expecting rental income at the upper end its forecast for 2022
(CHF113-117 million), a continuation in the trend of lower vacancy,
and further rental growth in 2023. However, significant increases
in maintenance, operating and financing costs will weigh on
profitability. As a result, Moody's now expects net debt/EBITDA to
remain elevated for significantly longer than it had previously
expected.
RATINGS RATIONALE FOR DOWNGRADE OF THE BACKED SENIOR UNSECURED
RATING
In line with Moody's REITs and Other Commercial Real Estate Firms
methodology, PPG's Ba2 CFR references a senior secured rating
because secured funding forms most of the company's funding mix
(61% as of June 30, 2022). Moody's previously rated unsecured debt
at the same level as the CFR because of the high quality of the
company's unencumbered asset pool that provided good asset coverage
to unsecured creditors.
Peach Property Finance GmbH's backed senior unsecured debt rating
was downgraded to one notch below PPG's Ba2 senior secured CFR
because the material decline in unencumbered assets has weakened
the credit standing of unsecured creditors. Unencumbered assets to
unsecured debt ratio was 1.2x as of June 30, 2022, down from 1.55x
as of December 31, 2021. This ratio is expected to deteriorate
further to around 1x in in 2023 as the upcoming backed senior
unsecured debt maturing in February 2023 is partially refinanced
with secured debt and the company makes further drawings under its
EUR100 million unsecured revolving credit facility (EUR15 million
drawn as of June 30, 2022).
ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
The Credit Impact Score (CIS)-3 reflects moderately negative impact
of ESG considerations on PPG's ratings. This reflects moderately
negative exposures to environmental, social and governance risks
for credit quality mainly linked lower rental growth or returns
because of higher capital requirements to meet environmental
standards or tighter regulation.
OUTLOOK
The negative outlook reflects the changed business environment for
PPG, with rising interest rates weaking the outlook for property
values and increasing the marginal cost of debt, which will result
in higher leverage. The negative outlook also reflects the risk the
company may not reach all the credit metrics expected for the
current rating level.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade would require:
Continued growth in scale and diversification and a consistent
track record of strong operating performance, along with a balanced
growth strategy and strong access to debt and equity capital
Moody's-adjusted gross debt/total assets below 55% and a
corresponding improvement in Moody's-adjusted net debt/EBITDA,
along with financial policies that support lower leverage
Moody's-adjusted fixed charge coverage above 2.25x on a sustained
basis
strong liquidity with a long-dated and well staggered debt
maturity profile
The ratings could be downgraded if:
Moody's-adjusted gross debt/total assets is above 60% on a
sustained basis and Moody's-adjusted net debt/EBITDA does not trend
below 20x
Moody's-adjusted fixed charge coverage below 1.75x on a sustained
basis
Failure to maintain adequate liquidity or addressing upcoming debt
maturities well in advance
Weak operating performance and a vacancy rate that is persistently
and materially above market levels
LIST OF AFFECTED RATINGS
Downgrades:
Issuer: Peach Property Finance GmbH
BACKED Senior Unsecured Regular Bond/Debenture, Downgraded to Ba3
from Ba2
Affirmations:
Issuer: Peach Property Group AG
LT Corporate Family Rating, Affirmed Ba2
Outlook Actions:
Issuer: Peach Property Finance GmbH
Outlook, Changed To Negative From Stable
Issuer: Peach Property Group AG
Outlook, Changed To Negative From Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was REITs and Other
Commercial Real Estate Firms published in September 2022.
PROFILE
PPG is a real estate company focused on residential investments in
Germany. The company is headquartered in Zurich and has been listed
on the SIX Swiss Exchange since 2010 (market capitalisation of
CHF321.44 million as of December 13, 2022), with its German group
headquarters in Cologne. As of June 30, 2022, the company owned
27,398 residential units, with a total lettable area of around 1.7
million square metres and a total market value of CHF2.7 billion.
===========
G R E E C E
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MYTILINEOS SA: S&P Upgrades ICR to 'BB', Outlook Positive
---------------------------------------------------------
S&P Global Ratings raised its ratings on Greek industrial company
Mytilineos S.A. and its senior unsecured notes to 'BB' from 'BB-'.
The positive outlook reflects S&P's assumption that Mytilineos will
report stable earnings and lower leverage thanks to its ongoing
transformation into a larger, diversified company.
Exceptionally strong profitability in 2022 will power Mytilineos
toward record performance over the coming year. S&P expects full
2022 EBITDA of EUR750 million-EUR800 million. This is a marked
improvement from our previous assumption of EUR500 million-EUR550
million in November 2021. The better-than-expected results stem
from:
Disruption in the aluminium industry that spiked LME prices to
$3,841 per ton (/t) in March 2022, from an average price of
$2,360/t in 2021 and premiums to more than $1,000/ton, the latter
impacting Mytilineos due to hedged prices, while still benefiting
from well-priced power supply.
Disruption in the flow of gas from Russia to Europe, which resulted
in record high prices. Mytilineos managed to use its position as a
trader and benefit from arbitrages and as a lower cost energy
producer (Greece continued to receive Russian gas).
EBITDA in 2023 will likely reach EUR0.9 billion-EUR1.0 billion,
marking another peak despite a looming recession in Europe.
Drivers are largely in line with 2022--sustained prices in power
and considerably higher levels of hedged LME prices in metallurgy
amid a supply-constrained market--except for the additional
capacity from the combined cycle gas turbine (CCGT) plant coming
online and the acceleration of projects in the group's renewables
and storage development (RSD) and sustainable engineering solutions
(SES) divisions.
S&P said, "We think the group's decision to leverage its
engineering and construction (E&C) capabilities under its RSD and
SES division promises opportunities.The group's move into a new
line of business, "build-operate-transfer" (BOT) projects (applying
for energy contracts, constructing the project and selling it) has
born its first fruits. These developments are further supported by
the group's accelerated shift toward sustainable energy. The E&C
division's EBITDA averaged about EUR53 million in 2018-2019. We
expect the revamped SES segment together with RSD will contribute
annual average EBITDA of EUR300 million-EUR400 million in the
coming two to three years." Furthermore, BOT projects outside of
Greece will help reduce the company's exposure to its domestic
market, including:
-- Romania, Spain, and U.K. project sales to be completed in 2022
with total capacity of 740 megawatts (MW); and
-- Australia and Chile exits in 2023-2024 with total capacity of
1.2 gigawatts.
As of Sept. 30, 2022, the company's exposure to BOT projects (gross
investments on the balance sheet) was about EUR495 million. S&P
understands that the company is willing to increase the total
exposure to about EUR1 billion. Conversely, the company has started
derisking its exposure by introducing non-recourse project finance
and reducing the seed investment by entering into projects in a
much earlier phase.
Mytilineos continues to balance growth and debt. As of
end-September, the company's reported net debt (including all
non-recourse project finance instruments) was EUR1.4 billion
compared with EUR0.4 billion at end-December 2019. Since then,
Mytilineos has invested EUR0.5 billion in capital expenditure
(capex), EUR0.5 billion in BOT projects and about EUR30 million in
acquisitions, and its EBITDA more than doubled. S&P said, "Despite
the appetite for growth, Mytilineos will keep its balance sheet in
check, in our opinion, and the adjusted debt level will likely
plateau at about EUR1.5 billion by 2024. We view S&P Global
Ratings-adjusted debt to EBITDA of 2x or better as commensurate
with a higher rating. However, neutral, or positive, and more
diversified cash flows might, in our view, offset the impact of
higher leverage and not limit the potential rating upside."
The positive outlook reflects a potential upgrade in the coming six
to 12 months, subject to Mytilineos' ability to meet our base-case
assumptions. S&P said, "We project EBITDA of at least EUR900
million in 2023 and in 2024, translating into adjusted debt to
EBITDA below 2x. In our view, the projected recession in Europe is
likely to have a limited impact on the company's performance, as
some hedges and supply contracts are in place." Economic recovery
and the benefits of ongoing investments would also be main drivers
of ratings upside closer to 2024.
A positive rating action would hinge on the following milestones:
-- The group meeting or exceeding our base-case assumptions.
-- No changes in the company's financial policy, including capex
and dividend distribution.
-- An adjusted debt to EBITDA of 2x or better, while sustaining
heavy investments in current assets and the development of its BOT
portfolio. However, S&P may not dismiss the possibility of a higher
rating with higher leverage if cash flows turn neutral (or
positive) and more diversified.
-- No change in the timeline to commission its CCGT plant
(currently scheduled for the first-quarter 2023).
-- A longer track record of the BOT business model, including
limitation on the total exposure.
-- Other conditions include maintaining adequate liquidity and a
competitive position in each of its divisions.
S&P could revise the outlook to stable if its base-case projection
for either 2023 or 2024 shifted to adjusted debt to EBITDA of more
than 2x because of:
-- EBITDA standing at or below EUR700 million;
-- Greater overall net exposure to BOT projects (currently
assuming up to EUR1 billion);
-- Deterioration in the company's liquidity position; or
-- A debt-funded acquisition with no immediate earnings
contributions.
ESG credit indicators: E-3, S-2, G-2
=============
H U N G A R Y
=============
MTB MAGYAR: S&P Upgrades Long-Term ICR to 'BB+', Outlook Positive
-----------------------------------------------------------------
S&P Global Ratings raised its long-term issuer credit rating on MTB
Magyar Takarekszovetkezeti Bank (MTB) to 'BB+' from 'BB'. At the
same time, S&P affirmed its 'B' short-term issuer credit rating on
the bank and discontinued the 'bb' stand-alone credit profile
(SACP). The outlook on the long-term rating is positive.
MTB is an integral part of MKB Bank and dependent on the future
creditworthiness of the group. During the planned legal merger in
2023, Takarek Group (consisting of Takarekbank, MTB as the central
institution, and Takarek Mortgage Bank) is expected to fully
transfer its asset and liabilities to MKB, with the combined entity
re-branded MBH Bank. This follows the integration of Budapest Bank,
which was already completed in March 2022. The subsidiaries'
strategy, risk management, and resource allocation will be approved
and monitored by MKB's board of directors, which comprises members
of all three partnering institutions.
S&P said, "We expect the group will have broader revenue and
product diversification, as well as improved efficiency, which
supports our positive outlook. We see substantial progress on the
integration, with management having successfully merged several
legal entities. At the same time, we remain mindful of material
execution risks stemming from information technology (IT)
architecture modification and the envisaged brand launch. We
believe that the new organizational structure will help to overcome
legacy issues in terms of revenue generation as well as improve
attractiveness to investors and efficiency. Although positive
factors associated with the acquisition, like cost saving
initiatives, will take time to materialize, we see upside potential
from the group's future market position. However, the merger has
become somewhat more complex and integration challenges could arise
given market volatility, the slowdown in Hungary's economic growth,
and increasing credit risks. In our view, this may make it more
difficult to close the gap with larger domestic and international
peers.
"The positive outlook reflects our expectations of the potential
synergy effects from the merger. In our view, upon successful
execution, the group will have broader revenue and product
diversification, as well as improved efficiency.
"We expect MTB will maintain its strategic importance to the group
until the assets are transferred.
"We could raise our ratings on MTB over the next 12 months if the
bank continues its consolidation of operations and transformation
to contribute to the group's improved and more stable revenue and
efficiency.
"We could revise the outlook on MTB to stable if the group is
unable to successfully execute its upcoming merger milestones.
Furthermore, we could lower the ratings if we assess economic risks
in Hungary to have materially increased."
ESG credit indicators: E-2, S-2, G3
=============
I R E L A N D
=============
ARMADA EURO III: Fitch Hikes Rating on Class F Notes to 'B+sf'
--------------------------------------------------------------
Fitch Ratings has upgraded Armada Euro CLO III DAC's class B to F
notes and affirmed the class A notes.
Entity/Debt Rating Prior
----------- ------ -----
Armada Euro CLO
III DAC
A-1-R XS2320736080 LT AAAsf Affirmed AAAsf
A-2-R XS2320736759 LT AAAsf Affirmed AAAsf
B-R XS2320737302 LT AA+sf Upgrade AAsf
C-R XS2320738029 LT A+sf Upgrade Asf
D-R XS2320738706 LT BBB+sf Upgrade BBBsf
E XS1913265044 LT BB+sf Upgrade BBsf
F XS1913265390 LT B+sf Upgrade Bsf
TRANSACTION SUMMARY
Armada Euro CLO III is a cash flow CLO comprised of mostly senior
secured obligations. The transaction is actively managed by Brigade
Capital Europe Management LLP and will exit its reinvestment period
in January 2023.
KEY RATING DRIVERS
Reinvestment Period Over Shortly: The transaction will exit its
reinvestment period in January 2023 but the manager can reinvest
unscheduled principal proceeds and sale proceeds from credit-risk
and credit improved obligations after the reinvestment period ends,
subject to compliance with the reinvestment criteria. Given the
manager's ability to reinvest, Fitch analysis is based on a
stressed portfolio testing Fitch-calculated weighted average life
(WAL), Fitch-calculated weighted average rating factor (WARF),
Fitch-calculated weighted average recovery rate (WARR), weighted
average spread and fixed-rate asset share to their covenanted
limits.
Upgrade Reflects Good Performance: The upgrade was driven by the
transaction's good performance and a shorter WAL test compared with
the previous analysis in February 2022. The transaction is 0.5%
above par and has no defaults. The transaction is passing all
coverage, collateral-quality tests and portfolio-profile tests.
Exposure to assets with a Fitch-derived rating (FDR) of 'CCC+' and
below is 2.75% excluding non-rated assets, as calculated by Fitch,
below the 7.5% limit. The large default rate cushion at the current
ratings based on both the stressed portfolio and the current
portfolio supports the upgrade of the notes.
Limited Deleveraging Prospects: The Stable Outlooks on all notes
reflect limited deleveraging prospects as long as the deal can
still reinvest. Even if reinvestment is constrained after the
reinvestment period ends, Fitch expects deleveraging to remain
limited in the next 12-18 months with no assets maturing in 2023.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the obligors at 'B'/'B-'. The reported WARF of the current
portfolio was 32.57 as of 15 November 2022, against a covenanted
maximum of 35.00.
High Recovery Expectations: Senior secured obligations comprise
97.90% of the portfolio as calculated by the trustee. Fitch views
the recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch WARR
reported by the trustee for the current portfolio was 69.50% as of
15 November 2022, which compares favourably with the covenanted
minimum of 67.10%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration is 14.78%, as calculated by Fitch, and no single
obligor represents more than 1.74% of the portfolio balance, as
reported by the trustee.
Cash Flow Analysis: Fitch used a customised proprietary cash flow
model to replicate the principal and interest waterfalls and the
various structural features of the transaction, and to assess their
effectiveness, including the structural protection provided by
excess spread diverted through the par-value and interest-coverage
tests.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings of
the current portfolio would result in downgrades of one notch for
the class F notes.
Downgrades may occur if the loss expectation of the current
portfolio is larger than initially assumed, due to unexpectedly
high levels of defaults and portfolio deterioration. Due to the
better metrics and shorter life of the current portfolio, the class
B notes display a rating cushion of one notch, the class E notes
one notch, and the class D and F notes three notches.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
A 25% reduction of the mean RDR and a 25% increase in the RRR
across all ratings of the stressed portfolio would result in
upgrades of no more than three notches across the structure, apart
from the class A notes, which are at the highest rating on Fitch's
scale and cannot be upgraded.
Upgrades may occur on better-than-expected portfolio credit quality
and deal performance, leading to higher credit enhancement and
excess spread available to cover losses in the remaining
portfolio.
DATA ADEQUACY
Armada Euro CLO III 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.
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
CVC CORDATUS XXVI: Fitch Assigns 'B-sf' Rating on Class F Notes
---------------------------------------------------------------
Fitch Ratings has assigned CVC Cordatus Loan Fund XXVI DAC final
ratings, as detailed below.
Entity/Debt Rating Prior
----------- ------ -----
CVC Cordatus Loan
Fund XXVI DAC
Class A XS2553241956 LT AAAsf New Rating AAA(EXP)sf
Class B-1 XS2553242178 LT AAsf New Rating AA(EXP)sf
Class B-2 XS2553242335 LT AAsf New Rating AA(EXP)sf
Class C XS2553242509 LT Asf New Rating A(EXP)sf
Class D-1 XS2553242764 LT BBB+sf New Rating BBB+(EXP)sf
Class D-2 XS2553603023 LT BBB-sf New Rating BBB-(EXP)sf
Class E XS2553242921 LT BB-sf New Rating BB-(EXP)sf
Class F XS2553243143 LT B-sf New Rating B-(EXP)sf
Subordinated Notes
XS2553243499 LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
CVC Cordatus Loan Fund XXVI DAC is a securitisation of mainly
senior secured obligations (at least 90%) with a component of
senior unsecured, mezzanine, second-lien loans and high-yield
bonds. Note proceeds were used to purchase a portfolio with a
target par of EUR423.5 million.
The portfolio is actively managed by CVC Credit Partners Investment
Management Limited. The collateralised loan obligation has an
approximately five-year reinvestment period and a seven-year
weighted average life (WAL) test.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch places the
average credit quality of obligors in the 'B'/'B-' category. The
Fitch weighted average rating factor (WARF) of the identified
portfolio is 25.4.
High Recovery Expectations (Positive): At least 90% of the
portfolio comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate (WARR) of the identified portfolio is 61.7%.
Diversified Asset Portfolio (Positive): The transaction includes
two Fitch matrices, both effective at closing, corresponding to a
top 10 obligor concentration limit at 20%, fixed-rate asset limits
of 10% and 15% and a seven-year WAL covenant.
The transaction also includes various concentration limits,
including the maximum exposure to the three largest (Fitch-defined)
industries in the portfolio at 40%. These covenants ensure the
asset portfolio will not be exposed to excessive concentration.
Portfolio Management (Neutral): The transaction has an
approximately five-year reinvestment period and includes
reinvestment criteria similar to those of other European
transactions. Fitch's analysis is based on a stressed-case
portfolio with the aim of testing the robustness of the transaction
structure against its covenants and portfolio guidelines. The
transaction can extend the WAL test by one year to seven years on
15 December 2023 if the aggregate collateral balance (defaulted
obligations at Fitch collateral value) is at least at the target
par and all the tests are passing.
Cash Flow Modelling (Positive): The WAL used for the transaction
stress portfolio and matrices analysis is 12 months less than the
WAL test. This reduction to the risk horizon accounts for the
strict reinvestment conditions envisaged after the reinvestment
period. These include passing both the coverage tests, Fitch WARF
test and the Fitch 'CCC' bucket limitation, together with a
progressively decreasing WAL covenant. In Fitch's opinion, these
conditions reduce the effective risk horizon of the portfolio
during stress periods.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings of
the identified portfolio would have no impact on the class A and B
notes and lead to downgrades of no more than two notches for the
class C notes, one notch for the class D-2 notes, up to three
notches for the class D-1 and E notes and a downgrade below
´CCCsf´ for the class F notes.
Based on the identified portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of defaults and portfolio deterioration. Due to the
better metrics of the identified portfolio than the Fitch-stressed
portfolio the rated notes display a rating cushion to downgrades of
up to two notches higher than the cushion on the Fitch-stressed
portfolio.
Should the cushion between the identified portfolio and the
Fitch-stressed portfolio erode due to manager trading
post-reinvestment period or negative portfolio credit migration, a
25% increase of the mean RDR across all ratings and a 25% decrease
of the RRR across all ratings of the Fitch-stressed portfolio would
result in downgrades of up to four notches for the class A to D
notes and to below 'CCCsf' for the class E and F notes.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings of the Fitch-stressed
portfolio would lead to upgrades of up to three notches for the
rated notes, except for the 'AAAsf' rated notes, which are at the
highest level on Fitch's scale and cannot be upgraded. .
During the reinvestment period, based on the Fitch-stressed
portfolio upgrades may occur on better-than-expected portfolio
credit quality and a shorter remaining WAL test, allowing the notes
to withstand larger-than-expected losses for the remaining life of
the transaction. After the end of the reinvestment period, upgrades
may occur on stable portfolio credit quality and deleveraging,
leading to higher credit enhancement and excess spread available to
cover losses in the remaining portfolio.
DATA ADEQUACY
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
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.
DOLE PLC: Moody's Affirms 'Ba3' CFR & Alters Outlook to Negative
----------------------------------------------------------------
Moody's Investors Service changed Dole plc's ("Dole") outlook to
negative from stable. At the same time, Moody's affirmed Dole's Ba3
Corporate Family Rating, Ba3-PD Probability of Default Rating, and
the Ba3 rating on the company's $600 million senior secured 1st
lien revolving credit facility. In addition, Moody's also affirmed
the Ba3 rating on Finantic Limited's $300 million senior secured
1st lien term loan A and Total Produce USA Holdings Inc.'s $540
million senior secured 1st lien term loan B. Moody's also
downgraded Dole's speculative grade liquidity ("SGL") to SGL-3 from
SGL-2.
The outlook revision to negative from stable reflects Moody's
expectation that Dole will continue to face inflationary headwinds,
foreign currency translation losses, and operational challenges in
the next twelve months. These factors create challenges to
improving the company's weak free cash flow and reducing leverage.
As of September 2022, Dole's Moody's adjusted debt to EBITDA stood
at 4.3x, which is a little above Moody's expectations for the Ba3
CFR given the company's operating profile. Rising prices for
materials such as fertilizers, as well as inflation pressures in
labor and freight are increasing operating costs. Moody's believes
that Dole has reasonably good pricing power to help pass along
rising costs but that the low margin and free cash flow provides
only modest flexibility to quickly reduce leverage.
Moody's nonetheless affirmed the ratings based on expectations that
the company will be able to reduce its Moody's adjusted debt to
EBITDA leverage to below 4.0x in the next 12 to 18 months and
generate positive free cash flow if cost pressures moderate. Some
of the operating challenges are likely to be temporary. In the last
twelve months, Dole faced a number of weather-related issues that
impacted its sourcing costs, such as losses on Chilean grapes and a
lettuce crop failure in the Salinas region of California. In
addition, the company also experienced a fresh salad recall, which
resulted in a loss of customer orders but has since been
remediated.
Moody's assumes that the company's EBITDA will improve in the next
twelve months, as Dole continues to implement price increases to
offset inflationary headwinds, and continues to focus on mitigating
the operating challenges in its value-added salads business. In
addition, Moody's projects that Dole will continue to realize
merger synergies from the Dole Food Company, Inc. and Total Produce
plc merger. At the time of the merger in July 2021, management
announced expectations of delivering between $30 million and $40
million in synergies, and Moody's believes management is still on
track to realize these synergies over a five-year period
The SGL downgrade to SGL-3 from SGL-2 reflects Moody's view that
the company's free cash flow will likely remain modest over the
next 12 months because of rising interest rates and only a gradual
improvement in earnings. Dole free cash flow generation over the
past twelve months was weaker than anticipated despite reduced
spending on capital expenditures. Operating challenges, weather
challenges, and inflationary headwinds resulted in Dole generating
free cash flow that has been weaker than Moody's originally
expected when the SGL-2 rating was assigned. The SGL-3 rating
reflects adequate liquidity based on approximately $221 million in
cash as of September 30, 2022, approximately $20-30 million in free
cash flow in the next twelve months, $345 million of availability
on a $600 million revolving credit facility, $42 million of
availability on a $255 million trade receivables facility, and no
meaningful debt maturities through 2026. The cash sources provide
ample resources for the $12.9 million of required annual term loan
amortization, reinvestment needs and potential acquisitions.
The following ratings/assessments are affected by the action:
Ratings Affirmed:
Issuer: Dole plc
Corporate Family Rating, Affirmed at Ba3
Probability of Default Rating, Affirmed at Ba3-PD
Senior Secured 1st Lien Revolving Credit Facility, Affirmed at Ba3
(LGD3) from (LGD4)
Issuer: Finantic Limited
Senior Secured 1st Lien Term Loan A, Affirmed at Ba3 (LGD3) from
(LGD4)
Issuer: Total Produce USA Holdings Inc.
Senior Secured 1st Lien Term Loan B, Affirmed at Ba3 (LGD3) from
(LGD4)
Ratings Downgraded:
Issuer: Dole plc
Speculative Grade Liquidity Rating, Downgraded to SGL-3 from
SGL-2
Outlook Actions:
Issuer: Dole plc
Outlook, Changed To Negative From Stable
Issuer: Finantic Limited
Outlook, Changed To Negative From Stable
Issuer: Total Produce USA Holdings Inc.
Outlook, Changed To Negative From Stable
RATINGS RATIONALE
Dole plc's Ba3 CFR reflects the company's significant scale with
approximately $9 billion in LTM revenues as of September 30, 2022,
broad geographic presence, and its leading market share in fruit
and vegetables. The rating is constrained by the company's low
EBITDA margin and free cash flow as well as its elevated Moody's
adjusted debt to EBITDA leverage of 4.3x as of September 30, 2022.
Combining Dole Food's iconic brand and asset base including its
distribution and manufacturing facilities, shipping vessels,
packing houses, and owned acres with Total Produce's sourcing and
customer relationships in Europe and North America created a global
leader in fresh produce. Dole plc is still expected to deliver
between $30 million and $40 million in EBITDA synergies through
development of high growth products and cross-promotion of the two
product portfolios, increased collaboration in certain regions of
the world, collaborative sourcing from key production regions, and
increased collaboration across inland freight and logistics in
North America. Prior to the merger in July 2021, Total Produce plc
owned a 45% stake in Dole Food Company, Inc. and as such, the two
companies were able to collaborate on a number of initiatives prior
to the merger. The high expense base associated with complex global
sourcing and distribution of fresh fruits and vegetables, as well
as marketing, translates to a low EBITDA margin and limited free
cash flow generation. Dole plc's EBITDA margin is less than 5% and
the company's free cash flow generation is low for the Ba3 rating.
Dole plc's ESG Credit Impact score is moderately negative (CIS-3),
reflecting its moderately negative governance risk and a
conservative financial policy that helps to partially mitigate its
highly negative exposure to environmental and social risks. The
main environmental risk for Dole plc stems from its water and
natural capital requirements in producing fruits & vegetables. The
company's main social risks stem from the responsible production
requirements in ensuring that its fruits and vegetables adhere to
food safety and quality measures to prevent recalls and
contamination. Dole's conservative financial policies and adequate
liquidity provide financial flexibility to manage the business
volatility of a commodity business as well as offset the company's
highly negative environmental and social risks.
Credit exposure to environmental risks is highly negative (E-4).
This is driven by the company's highly negative exposure to water
management and natural capital risks, which stem from its water
requirements in producing its fruits & vegetables. Dole has
significant land, water and energy needs to grow and transport
fresh produce. The company has a goal to achieve 100% optimized
water practices in Dole operated farms and packing facilities by
2025.
Credit exposure to governance considerations is moderately negative
(G-3). Dole plc's financial policies are conservative with a target
net debt/ adjusted EBITDA of approximately 3.0x. Low leverage is
beneficial for a company with seasonal and other operating
volatility given dependence on weather, political risks in certain
growing regions, varying global transport conditions, and
competition from other foods. Dole's transition to a publicly
listed company provides greater transparency and public disclosure
than Dole Food had as a standalone private company.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Dole's ratings could be upgraded if the company maintains good
market share, at least a 6% operating profit margin, free cash flow
to debt of at least 10%, and debt to EBITDA is sustained below
2.0x.
Ratings could be downgraded if operating performance does not
stabilize or deteriorates further due to adverse sourcing,
transport or competitive factors, liquidity weakens, the company
does not sustain comfortably positive free cash flow, or debt to
EBITDA is sustained above 4.0x.
The principal methodology used in these ratings was Protein and
Agriculture published in November 2021.
Dole plc, based in Ireland, is a global producer of fresh fruit and
fresh vegetables. The company was created from the merger of Total
Produce plc and Dole Food Company, Inc. on July 29, 2021, and is
publicly listed in the U.S. For the twelve-month period ended
September 30, 2022, Dole plc generated revenue of approximately $9
billion.
EDMONDSTOWN PARK: Fitch Assigns 'B-sf' Rating to Class F Notes
--------------------------------------------------------------
Fitch Ratings has assigned Edmondstown Park CLO DAC final rating.
Entity/Debt Rating
----------- ------
Edmondstown Park
CLO DAC
A Loan LT AAAsf New Rating
A Notes XS2558574369 LT AAAsf New Rating
B XS2558574526 LT AAsf New Rating
C XS2558574955 LT Asf New Rating
D XS2558575093 LT BBB-sf New Rating
E XS2558575176 LT BB-sf New Rating
F XS2558575689 LT B-sf New Rating
Sub XS2558575507 LT NRsf New Rating
TRANSACTION SUMMARY
Edmondstown Park CLO DAC is a securitisation of mainly senior
secured obligations (at least 90%) with a component of senior
unsecured, mezzanine, second-lien loans and high-yield bonds. Note
proceeds were used to fund a portfolio with a target par of EUR400
million. The portfolio is actively managed by Blackstone Ireland
Limited. The collateralised loan obligation (CLO) has a 4.6-year
reinvestment period and an 8.5-year weighted average life (WAL).
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors to be in the 'B' category. The
Fitch weighted average rating factor of the identified portfolio is
23.79.
High Recovery Expectations (Positive): At least 90% of the
portfolio will comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate of the identified portfolio is 63.16%.
Diversified Portfolio (Positive): The transaction has two matrices
effective at closing corresponding to the 10 largest obligors at
25% of the portfolio balance and two fixed-rate assets limits at
5.0% and 12.5% of the portfolio. There are two forward matrices
corresponding to the same top 10 obligors and fixed-rate assets
limits that will be effective one year post closing, provided that
the aggregate collateral balance (defaults at Fitch collateral
value) is at least at the target par.
The transaction also includes various concentration limits,
including the maximum exposure to the three-largest Fitch-defined
industries in the portfolio at 40%. These covenants ensure that the
asset portfolio will not be exposed to excessive concentration.
Portfolio Management (Neutral): The transaction has a 4.6-year
reinvestment period and includes reinvestment criteria similar to
those of other European transactions. Fitch's analysis is based on
a stressed-case portfolio with the aim of testing the robustness of
the transaction structure against its covenants and portfolio
guidelines.
Cash Flow Modelling (Positive): The WAL used for the transaction
stress portfolio and matrices analysis is 12 months less than the
WAL covenant, to account for structural and reinvestment conditions
post-reinvestment period, including the OC tests and Fitch 'CCC'
limitation passing post reinvestment, among others. This ultimately
reduces the maximum possible risk horizon of the portfolio when
combined with loan pre-payment expectations.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings of
the identified portfolio would lead to a downgrade of one notch for
the class D, E and F notes, and have no impact on the class A, B
and C notes.
Based on the identified portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration. Due to the
better metrics and shorter life of the identified portfolio, the
class E notes have a three-notch cushion, the class B, D and F
notes a two-notch cushion, the class C notes a one-notch cushion
and there is no rating cushion for the class A notes.
Should the cushion between the identified portfolio and the stress
portfolio be eroded due to manager trading or negative portfolio
credit migration, a 25% increase of the mean RDR across all ratings
and a 25% decrease of the RRR across all ratings of the stressed
portfolio would lead to downgrades of up to four notches for the
notes.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings of Fitch's stress portfolio
would lead to upgrades of up to four notches, except for the
'AAAsf' rated notes, which are at the highest level on Fitch's
scale and cannot be upgraded.
During the reinvestment period, based on Fitch's stress portfolio,
upgrades may occur on better-than-expected portfolio credit quality
and a shorter remaining WAL test, meaning the notes are able to
withstand larger than expected losses for the transaction's
remaining life. After the end of the reinvestment period, upgrades
may occur in case of stable portfolio credit quality and
deleveraging, leading to higher credit enhancement and excess
spread available to cover losses on the remaining portfolio.
DATA ADEQUACY
Edmondstown Park CLO DAC
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESCADIA LTD: Secured Creditor Seeks Appointment of Examiner
-----------------------------------------------------------
Breakingnews.ie reports that a Musgrave Group company is to seek
the appointment of an examiner to two companies operating Lanney's
Supervalu in Ardee, Co Louth, the Commercial Court has heard.
According to Breakingnews.ie, the application has come from
Coralfin Ltd which says it is a secured creditor, of some EUR15.6
million, in one of the companies, Escadia Ltd, whose debts are
guaranteed by the second company, Belraine Ltd. Escadia is the
sole shareholder in Belraine whose directors are Margaret and David
Lanney, of Nobber, Co Meath.
Coralfin says it took over loans originally made by Anglo-Irish
Bank to Escadia and to the Ardee Co-ownership Group,
Breakingnews.ie notes.
It seeks court protection until an independent expert's report into
the future of Escadia and Belraine is prepared, Breakingnews.ie
discloses.
The petition to appoint an examiner came before Mr. Justice Denis
McDonald who on Dec. 19 adjourned the matter to the new year after
hearing the two companies wanted to oppose the petition,
Breakingnews.ie relates.
John O'Donnell SC, for the companies, said his clients had decided
to oppose it after efforts at negotiation between the parties "did
not work out", according to Breakingnews.ie.
Counsel said it was not a matter which required urgent attention as
it was an internal dispute with one company "putting a gun to the
head of a sister company", Breakingnews.ie notes. It was not like
many examinerships where a bank is trying to pull the rug out and
there would be no prejudice in adjourning the matter, he said.
He also suggested that as there had been negotiations, there should
be mediation.
John Lavelle BL, for Coralfin, said he was seeking a hearing of the
petition this week but as this could not be accommodated by the
court, he wanted as short an adjournment as possible,
Breakingnews.ie relays.
Graham Kenny, solicitor for the Ardee Co-ownership Group, a group
of private investors who acquired the Supervalu property, said the
client was effectively the landlord of the premises,
Breakingnews.ie notes.
Mr. Kenny was neutral in relation to the examinership petition,
according to Breakingnews.ie. Revenue, the court heard, wanted
time to consider the application.
The judge gave directions for exchange of documentation and said
the case can come back in January, Breakingnews.ie discloses.
SILVER PAIL: High Court Appoints Interim Examiner
-------------------------------------------------
RTE reports that the High Court has appointed an interim examiner
to companies that are major manufactures of ice-cream and cream
liqueurs that has become insolvent and unable to pay their debts.
The appointment was made in respect of Silver Pail Dairy, which
employs 82 full time staff, as well as several contract workers at
various times of the year, in Fermoy Co Cork, RTE discloses.
According to RTE, the court heard that despite the group's current
difficulties it can survive and continue to trade if certain steps,
including entering the examinership process, are taken.
The court heard that the business has traded successfully for many
years but has experienced financial difficulties due to the impact
of reduced sales during the Covid-19 pandemic, and increased costs
such as energy and commodity prices, RTE relates.
The court heard that the business owes its trade creditors some
EUR4.16 million and owes EUR2.46 million to Revenue, RTE notes.
Its main creditors also include AIB Bank, Arrabawn Co-Op, IPL
Protech Performance Plastics, and Carbery Food Ingredients, RTE
states.
It had sought additional investment and had been engaged in
discussions with a potential investor for several months, RTE
recounts.
Those discussions ultimately broke down, resulting in the group
being without working capital it requires, RTE relays.
Despite its difficulties the High Court heard on Dec. 19 that an
Independent Experts Report had stated that the company can survive
if significant restructuring takes place, according to RTE.
To do this the firm required the appointment of an examiner who
would see if a scheme of arrangement can be agreed with the group's
creditors, RTE notes.
The examiner could also seek to bring in additional investment into
the group, RTE says.
According to RTE, at the High Court Mr. Justice Brian O'Moore
appointed insolvency expert Shane McCarthy as interim examiner to
Silver Pail Dairy Ireland Unlimited Company and a related entity
Havana Company Unlimited.
The company, which makes tubs of ice cream and Irish Cream Liqueur
for the Irish, UK, EU, Middle Eastern and US Markets, petitioned
the court for the appointment of the examiner, which will give the
group protection from its creditors, RTE states.
It claims that the appointment was in the interests of all affected
parties, including its creditors and its employees, RTE notes.
Creditors would do much better under a successful examinership
compared to if the group was wound up, the court also heard, RTE
relates.
While the company was clearly insolvent, Mr. Justice O'Moore said
he accepted the findings contained in the expert report put before
the court and was satisfied to appoint Mr. McCarthy on an interim
basis, according to RTE.
The judge also approved pre-petition payments, including payment of
the groups employee's wages, RTE discloses.
The matter will return before the court in January, RTE notes.
TIKEHAU CLO VIII: Fitch Assigns 'B-sf' Rating to Class F Notes
--------------------------------------------------------------
Fitch Ratings has assigned Tikehau CLO VIII DAC final ratings.
Entity/Debt Rating Prior
----------- ------ -----
Tikehau CLO VIII
DAC
A XS2553539938 LT AAAsf New Rating AAA(EXP)sf
B-1 XS2553540191 LT AAsf New Rating AA(EXP)sf
B-2 XS2553540431 LT AAsf New Rating AA(EXP)sf
C XS2553540605 LT Asf New Rating A(EXP)sf
D XS2553540860 LT BBB-sf New Rating BBB-(EXP)sf
E XS2553541082 LT BB-sf New Rating BB-(EXP)sf
F XS2553541249 LT B-sf New Rating B-(EXP)sf
Sub Notes XS2553541595 LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
Tikehau CLO VIII DAC is a securitisation of mainly senior secured
obligations (at least 90%) with a component of senior unsecured,
mezzanine, second-lien loans and high-yield bonds. Note proceeds
have been used to fund a portfolio with a target par of EUR400
million. The portfolio is actively managed by Tikehau Capital
Europe Limited. The collateralised loan obligation (CLO) has a
four-year reinvestment period and an eight-year weighted average
life test (WAL) test.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors at 'B'/'B-'. The Fitch weighted
average rating factor (WARF) of the identified portfolio is 24.5.
High Recovery Expectations (Positive): At least 90% of the
portfolio will comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate (WARR) of the identified portfolio is 62.5%.
Diversified Asset Portfolio (Positive): The transaction has one
matrix effective at closing corresponding to the 10 largest
obligors at 20% of the portfolio balance and a fixed-rate asset
limits at 10% of the portfolio. It also has one forward matrix
corresponding to the same top 10 obligor and fixed-rate asset
limits that will be effective one-year post closing, provided that
the aggregate collateral balance (defaults at Fitch-calculated
collateral value) will at least be at the target par.
The transaction also includes various other concentration limits,
including the maximum exposure to the three-largest Fitch-defined
industries in the portfolio at 40%. These covenants ensure that the
asset portfolio will not be exposed to excessive concentration.
Portfolio Management (Neutral): The transaction includes
reinvestment criteria similar to those of other European
transactions. Fitch's analysis is based on a stressed-case
portfolio with the aim of testing the robustness of the transaction
structure against its covenants and portfolio guidelines.
Cash-flow Modelling (Positive): The WAL used for the transaction's
Fitch-stressed portfolio analysis is 12 months less than the WAL
covenant to account for the strict reinvestment conditions
envisaged by the transaction after its reinvestment period. These
include, among others, passing both the coverage tests and the
Fitch 'CCC' bucket limitation test post reinvestment as well as a
WAL covenant that progressively steps down over time, before and
after the end of the reinvestment period. Fitch believes these
conditions would reduce the effective risk horizon of the portfolio
during the stress period.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings of
the identified portfolio would have no impact on the class A to E
notes and would lead to a downgrade below 'CCCsf' for the class F
notes.
Based on the actual portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration. Due to the
better metrics and shorter life of the identified portfolio than
the Fitch-stressed portfolio, the class B to F notes display a
rating cushion of one to three notches.
Should the cushion between the identified portfolio and the
Fitch-stressed portfolio be eroded either due to manager trading or
negative portfolio credit migration, a 25% increase of the mean RDR
across all ratings and a 25% decrease of the RRR across all ratings
of the stressed portfolio would lead to downgrades of up to four
notches for the class A to D notes and to below 'CCCsf' for the
class E and F notes.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
A 25% reduction of the mean RDR across all ratings and a 25%
increase in RRR across all ratings of the Fitch-stressed portfolio
would lead to upgrades of up to three notches for the rated notes,
except for the 'AAAsf' rated notes, which are at the highest level
on Fitch's scale and cannot be upgraded.
During the reinvestment period, based on the Fitch-stressed
portfolio, upgrades may occur on better-than-expected portfolio
credit quality and a shorter remaining WAL test, leading to the
notes' ability to withstand larger-than-expected losses for the
remaining life of the transaction. After the end of the
reinvestment period, upgrades may occur on stable portfolio credit
quality and deleveraging, leading to higher credit enhancement and
excess spread available to cover losses in the remaining
portfolio.
DATA ADEQUACY
Tikehau CLO VIII DAC
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
===================
K A Z A K H S T A N
===================
EURASIAN BANK: Moody's Affirms 'B2' Long Term Deposit Ratings
-------------------------------------------------------------
Moody's Investors Service affirmed Eurasian Bank's B2 long-term
local and foreign currency deposit ratings and changed the outlook
on these ratings to positive from stable. Concurrently, Moody's
affirmed the bank's b3 Baseline Credit Assessment (BCA) and
Adjusted BCA, Not Prime (NP) short-term local and foreign currency
deposit ratings, the bank's B1/NP long-term and short-term local
and foreign currency Counterparty Risk Ratings and the
B1(cr)/NP(cr) long-term and short-term Counterparty Risk
Assessments.
RATINGS RATIONALE
The affirmation of ratings, and change in outlook to positive from
stable reflects Moody's expectations that the bank will, in the
coming months, be able to consolidate recent improvements in asset
quality and solvency. The latter benefits from lower pressure from
legacy problem loans due to increased provisioning coverage and
lower related party exposure relative to equity. Concurrently
profitability has improved and will remain good.
The share of problem loans (defined as Stage 3 and POCI loans,
according to IFRS 9 accounting standard) in the bank's gross loan
book decreased to around 18% at end-H1 2022 from 22% at end-2021
and 29% at end-2020. This reduction is attributable to the work-out
of legacy problem loans and growth of better-quality loans (with
lower cost of risk) given tighter underwriting standards.
Moody's says that Eurasian Bank has significantly improved its
provisioning coverage of Non-performing loans, to an extent that is
likely to be compliant with the requirements that the National Bank
of Kazakhstan (NBK) imposed after the country's Asset Quality
Review (AQR). This review was carried out by the NBK with the
involvement of independent audit companies in 2020. Since then,
Eurasian Bank has significantly improved coverage of the remaining
problem loans by loan loss reserves to 94% at end-H1 2022 from 65%
at end-2020. As a result, the risk for the bank's solvency stemming
from the previously high uncertainty surrounding the future
performance of legacy problem assets has substantially reduced: the
share of problem loans relative to the sum of the bank's tangible
common equity and loan loss reserves fell to around 57% at end-H1
2022 from around 65% at end-2021 and 87% at end-2020.
Furthermore Moody's says that it expects the bank's current trend
of decreasing lending to related parties to continue as it develops
its retail and non-related party corporate lending. Eurasian bank
has reduced loans to related parties to 5% of the loan portfolio or
36% of tangible common equity at end-2021 from 7% and 50%,
respectively, a year earlier.
Moody's expects that the bank will maintain good profitability in
the next 12-18 months despite potential pressure from higher credit
costs as the loan book seasons after rapid growth (43% during nine
months of 2022) and the high interest rate environment. Lower
pressure from legacy problem loans on profitability due to
diminished need to create reserves, a higher share of performing
loan portfolio and stronger non-interest income generated by
growing franchise will support performance. During nine months of
2022, the bank reported net income to average assets at 5%. This
metric will moderate to above 2% in 2023 due to the absence of
exceptional gains from FX transactions in 2022 but will remain
significantly better than achieved by the bank in the past (less
than 1%).
The rating action also takes into account the bank's large buffer
of liquid assets, which is strong and exceeded 47% of the bank's
total assets at end-Q3 2022. Moody's expects that the bank will
partially utilise its large liquidity cushion to finance its loan
portfolio, but that this will remain robust at over 40% of total
assets in the next 12-18 months.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) CONSIDERATIONS
Eurasian Bank's ESG Credit Impact Score is highly negative (CIS-4),
reflecting the distinct negative impact of governance risks on the
credit ratings. The bank's exposure to environmental and social
risks has a limited impact on the ratings.
Eurasian Bank faces high exposure to environmental risks, primarily
because of its portfolio exposure to carbon transition risk as
result of its lending to carbon-intensive industries or industries
which are indirectly exposed to carbon transition risks. The
important role played by hydrocarbons in the Kazakhstan economy
increases the vulnerability to carbon transition risks.
Eurasian bank faces moderately negative exposure to social risks
related to regulatory and litigation risk requiring the bank to
meet high compliance standards.
Eurasian Bank's exposure to governance risks is highly negative.
The governance risks are stemming from a concentrated ownership,
elevated risk appetite, and related-party exposures.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
While recognizing the ongoing reduction in problem loans,
improvement in performance and good liquidity, Moody's views the
bank's current rapid loan book growth and exposure to potential
downside pressure from the operating environment as a source of
uncertainty over the future asset performance, profitability and
capital levels. Therefore, consolidating these improvements and
maintaining good asset performance and profitability with a similar
leverage ratio could lead to a rating upgrade.
The outlook on the bank's ratings could be reverted back to stable
or the bank's deposit ratings could be downgraded in case of a
sudden impairment of its assets and/or deterioration in
profitability metrics, leading to capital erosion.
RATIONALE FOR THE POSITIVE OUTLOOK
The positive outlook reflects Moody's expectations that the bank's
improved credit metrics will be maintained, demonstrating
resilience to possible pressure from the operating environment and
rapid loan growth.
LIST OF AFFECTED RATINGS
Issuer: Eurasian Bank
Affirmations:
Long-term Counterparty Risk Ratings, affirmed B1
Short-term Counterparty Risk Ratings, affirmed NP
Long-term Bank Deposits, affirmed B2, outlook changed to Positive
from Stable
Short-term Bank Deposits, affirmed NP
Long-term Counterparty Risk Assessment, affirmed B1(cr)
Short-term Counterparty Risk Assessment, affirmed NP(cr)
Baseline Credit Assessment, affirmed b3
Adjusted Baseline Credit Assessment, affirmed b3
Outlook Action:
Outlook changed to Positive from Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks
Methodology published in July 2021.
===========
N O R W A Y
===========
SECTOR ALARM: S&P Cuts LT ICR to 'B-' on Weakening Credit Metrics
-----------------------------------------------------------------
S&P Global Ratings lowered its long-term issuer credit rating on
Norway-Based Sector Alarm Holdings and its issue rating on its term
loan B (TLB) and revolving credit facility (RCF) to 'B-' from
'B+'.
The stable outlook reflects S&P's expectation of continued revenue
and net subscriber growth of 5%-7%, which, combined with a
continued elevated cost to new installations, will lead to stress
on the EBITDA margin and result in S&P Global Ratings-adjusted
leverage of about 8x in 2022-2023 and negative free operating cash
flow (FOCF) after leases of NOK150 million-NOK250 million per
year.
The growth strategy in Southern Europe has been more expensive than
expected, weighing on the company's EBITDA margin and operating
efficiency. Since 2016, Sector Alarm has embarked on a growth
strategy in Southern Europe, including Spain, France, Italy, and
(most recently) Portugal. These countries are attractive, having
lower penetration levels (3%-5%) and therefore higher growth
prospects than the company's traditional Northern European markets.
However, over the past two years costs associated with obtaining
new customers has increased sharply. Sector Alarm's cost per
acquisition (CPA) increased about 50% from 2020-2022. The increase
is attributable to mismatches and some inefficiencies in the sales
organization (both in terms of recruiting skilled personnel and
targeting the right customers), rising costs of hardware components
not fully passed on to customers and supply chain challenges
causing increasing transportation costs. S&P said, "Although we
understand that the previous supply chain issues will no longer
constrain hardware availability, we expect the CPA to remain at
this elevated level at least throughout 2023. This, combined with
our assumption that Sector Alarm will continue to target 10%-15%
installation growth (4%-6% net subscriber growth), will lead to a
continued pressure on EBITDA in the new portfolio business, which
we expect will be negative NOK 850 million-NOK 950 million per year
in 2022-2023."
Continued solid operating performance in the portfolio business,
driven by Northern Europe, will not be enough to prevent lower
consolidated profitability. We expect the existing portfolio
business, which predominantly relates to operations in Norway and
Sweden, but also Ireland, Finland and Southern Europe, will
maintain a solid and stable performance. We expect the portfolio
EBITDA margin to remain at about 60%, because we expect any
increase in operating costs will be balanced by higher revenue. We
primarily expect that revenue growth will be driven by subscriber
growth rather than price increases). However, the new growth
markets will weigh heavily on consolidated profitability, and we
now expect that the S&P Global Ratings-adjusted EBITDA margin will
stand at 27%-30% in 2022-2023 (compared with 37% in 2021 and 41% in
2020).
The decline in EBITDA, combined with higher interest rate, is
expected to result in negative FOCF over the coming two years. We
expect that the lower EBITDA, of about NOK850 million in 2022
compared with about NOK1 billion in 2021, and investment in a new
technology platform will strain Sector Alarm's cash flows. In
addition, we expect the company's interest costs will rise, as the
TLB represents the vast majority of the secured debt that is
unhedged against increases in the Euribor rate, which we expect
will average about 2% in 2023 compared with negative rates in 2020.
All in all, this leads to our forecast of negative FOCF of NOK150
million-NOK 250 million per year in 2022-2023.
We expect leverage to peak at about 8.0x in 2022-2023, following
the unfavorable foreign exchange rate trajectory. Reported net debt
increased NOK800 million during the first nine months of 2022, of
which about half relates to the krone's depreciation against the
euro. The leverage increase is approximately 0.5x. The other half
relates to an increase in finance leases, reduction in cash from
negative cash flow, and additional debt through a NOK70 million
shareholder loan. In our view the rise in debt, the decline in
EBITDA and expected negative free cash flow, will lead to an
increase in the S&P Global Rating-adjusted leverage to about 8.0x
in 2022-2023 from 5.6x in 2021, a level commensurate with the 'B-'
rating.
Despite weakening credit metrics, we believe investment that is
part of its expansion strategy will support the company's market
positioning. The expansion strategy in Southern Europe is to
accelerate revenue growth and provide large-scale, which we think
is ultimately positive. In our view, scale is critical in the
alarm-monitoring industry to absorb the cost of adding and
replacing customers lost through attrition. This is because the
substantial cost involved in acquiring customers reduces earnings
and cash flow from existing customers, which are typically stable.
Moreover, Sector Alarm's nearly 6%-7% attrition rate is
considerably lower than the 10%-15% of its U.S. peers, explained by
the lower mobility of households in Europe versus the U.S., and the
company's integrated business model; it's in line with Verisure's
6.9% in 2022. Notably, Sector Alarm has more interaction with
customers than rated peers in the U.S., where alarm companies
mainly focus on monitoring and often outsource parts of the value
chain. However, this is partly offset by the company's lower
profitability than rated peers with similar business risk profiles
(Verisure and ADT) or with a weaker business risk profile (Vivint
and Monitronics International), who all have an EBITDA margin at
close to or above 40%.
The stable outlook reflects our expectation of continued revenue
growth of 5%-7%, driven by a 5%-6% net subscriber growth, which
combined with a continued elevated cost to new installations will
lead to an EBITDA margin of 27%-30% and result in an S&P Global
Ratings-adjusted leverage of about 8x in 2022-2023 and negative
FOCF after leases of NOK150 million-NOK250 million per year.
We could lower the rating if Sector Alarm's credit metrics weakened
further, to the extent that leverage would no longer be sustainable
in our view. We could also lower the rating if liquidity weakened
so that the sources no longer cover uses over the coming 12 months.
We think this could be caused by faster or more costly growth than
we anticipate, resulting in further profitability drop and lower
cash flow.
We could upgrade Sector Alarm if adjusted debt to EBITDA declines
sustainably to below 7x. The upgrade would need to be supported by
improved profitability, with an EBITDA margin at or above 30%
coupled with revenue growth. We think this would be achieved by a
lower cost of attaining new subscribers.
ESG credit indicators: E-2, S-2, G-3
Governance factors are a moderately negative consideration in our
credit rating analysis of Sector Alarm. Our assessment of the
company's financial risk profile as highly leveraged reflects
corporate decision-making that prioritizes the interests of the
controlling owners, which is the case for most rated entities owned
by private-equity sponsors or concentrated holdings. The financial
sponsor owns 30% of Sector Alarm, with the remaining 70% owned by a
single person. Our assessment also reflects their generally finite
holding periods and a focus on maximizing shareholder returns.
===========
P O L A N D
===========
CANPACK SA: Fitch Lowers LongTerm IDR to 'BB-', Outlook Negative
----------------------------------------------------------------
Fitch Ratings has downgraded CANPACK S.A.'s Long-Term Issuer
Default Rating (IDR) to and instrument rating to 'BB-' from 'BB'
with a Recovery Rating of 'RR4'. The Outlook is Negative.
The downgrade reflects a change in CANPACK's financial profile with
a significant deviation from its previous expectations and credit
metrics outside its previous negative sensitivities over the rating
horizon. Fitch forecasts weaker, albeit still growing, demand for
metal cans but inflated costs and a sharp decline of the aluminium
price will impact CANPACK's profitability in 2022 and 2023. Cuts or
postponement in the ongoing expansionary capex in Poland and Brazil
and weaker than expected ramp-up of new production capacities will
significantly weaken cash generation and deleveraging capacity
compared with its previous rating case.
The Negative Outlook reflects likely further pressure on leverage.
This will come from a further reduction in can volumes in the
weakening economic environment coupled with ongoing growth capex,
with related debt already in the capital structure.
CANPACK's IDR is supported by a strong market position,
complemented by new operations in North American, and fairly
diversified long-term customer relationships. This is offset by its
smaller scale and higher-than-average free cash flow (FCF)
volatility than sector peers.
KEY RATING DRIVERS
Sharp Decline in Profitability: Fitch forecasts CANPACK's EBITDA
margin will decline to 10.0%-10.4% in 2022-2024 from 15.5%-16.2%
forecast in June 2021, translating into a USD94 million, USD102
million, and USD90 million contraction in absolute EBITDA each
year, respectively. CANPACK's pass-through mechanism of the metal
price is weaker than Fitch expected. Depreciation of the euro
against the dollar and other inflated costs weight on
profitability, with the latter being only partly recovered through
negotiations, annual selling price indexation or contracts
renewals.
The new production lines coming on stream in the next months also
entail higher costs due to the inflationary environment. Cuts or
postponement in expansionary capex will also impact cash generation
over the rating horizon.
Higher Leverage for Longer: Fitch forecasts EBITDA net leverage to
spike to around 4.5x in 2022-2023 which is 1.1x-1.4x higher than
Fitch previously expected. The deleveraging path is longer due to
inflated costs, weaker demand from existing contracts, cuts and
postponement of expansionary capex for which debt was drawn in
2020-2021, with a resultant significant contraction in absolute
EBITDA. Fitch forecasts some improvement in net leverage to 4.0x in
2024. The company's defined net debt/EBITDA target of 2.0x-2.5x
will be exceeded in the longer term. Deviations from the expected
leverage profile is likely to pressure the current rating.
Negative FCF Until 2024: Expansionary capex and large
working-capital consumption have been a function of the company's
high growth strategy and kept FCF largely negative in the past few
years. Fitch forecasts a negative FCF margin in 2022-2024 due to
investments related to the company's entry into the North American
market through two greenfield plants in Pennsylvania and Indiana.
Despite the recent reduction in expansionary capex, the FCF margin
will remain negative until 2024, a year longer than previously
expected, triggering a negative sensitivity. Fitch believes FCF
generation will only turn positive in 2025. Flexibility in dividend
payments provides a cash buffer if needed.
Aluminum Price Impact: High metal price had inflated revenue for
the last few months while the recent sharp decline has had a
significant impact on EBITDA. CANPACK's aluminum cost pass-through
mechanisms are embedded in the majority of its contracts, but this
is inefficient in times of sharp fluctuations in the metal price.
This is due to a long lag between setting the price with suppliers
(especially in China) and customers and additional aluminum-related
costs that cannot be passed through to customers. Fitch believes
the recently changed pricing mechanism will help mitigate the risk
from volatile metal prices.
Expansion Strategy: CANPACK's growth has been almost exclusively
through new greenfield investments, having developed operations in
17 countries over the last 18 years. The strategy is to grow with
existing customers, mainly beverage producers, and with a large
share of volumes for new facilities being pre-contracted. This has
led to high efficiency in new plant construction and projects being
implemented within set timeframes, typically less than one year
from start-to-project completion. The company has recently reduced
and postponed its expansionary capex plans to better manage weaker
volumes from existing contracts while keeping enough capacity to
deal with new orders.
Favourable Packaging Sub-Sector: CANPACK is largely a metal
beverage can manufacturer (88% of 2021 turnover). Fitch views this
as an attractive packaging segment with good growth fundamentals,
which is benefiting from the transition to aluminium cans from
plastic and glass bottles. This comes from growth in core products
(soft drinks, beer, etc) and the convenience of the aluminium can
promoting consumption of seltzers, coffees, teas etc.
The transition benefits from aluminium being recyclable, and hence
sustainability potential. The aluminium beverage can has the
highest recycling rate for beverage containers globally, and as it
is light-weight and easily stackable, it offers benefits for
beverage transport.
Rating Perimeter: Its rating case for CANPACK includes the
operations and financial results of CANPACK US LLC, although both
companies are affiliates. However, both are co-issuers of the
recent bonds and are jointly and severally liable for these senior
unsecured bonds, which now form the majority of the combined
group's debt.
Consolidated Approach: The management provides audited combined
accounts for the CANPACK group (i.e. a consolidated approach
including both CANPACK S.A. and CANPACK US and their subsidiaries).
In addition, both companies are owned by the same ultimate parent
and managed by the same senior executives. Fitch would reassess the
inclusion of CANPACK US in the event that the capital structure no
longer includes this co-issuer structure, including joint and
several liability, for the vast majority of the debt.
DERIVATION SUMMARY
CANPACK has strong market positions, ranking third in Europe and
fourth globally behind global beverage can leaders Ball
Corporation, Crown Holdings Inc and Ardagh Group S.A. (B/Stable;
third globally). However, these companies are significantly larger
than CANPACK (3x-5x the size), with Ardagh Metal Packaging S.A.
(B/Stable) of similar size to CANPACK.
CANPACK is somewhat larger than Titan Holdings II B.V.
(B/Positive), Europe's largest metal food can producer (spun off
from Crown Holdings) and better geographically diversified,
including the current US expansion. However, Titan has somewhat
lower net leverage and better EBITDA margins than CANPACK.
CANPACK's Fitch-defined EBITDA was 16.2% in 2021 and 18.5% in 2020
compared with Ardagh Metal Packaging's 14.3% and 14.4%. However,
CANPACK's margin volatility (both EBITDA and FCF) is typically
higher than other packaging companies, which is due to the
company's current high investment growth phase and exposure to a
volatile aluminum price not fully passed through onto customers.
While lacking the scale of its larger peers Ball and Crown,
CANPACK's recent margin erosion places the company behind its
peers.
CANPACK 's net leverage profile is weaker than that of higher rated
peer Berry Global Group, Inc (BB+/Stable; 3.8x end-2021 and
3.7x-3.1x for 2022-2023), Titan Holdings (6.3x end-2021 and
3.7x-3.4x for 2022-2023), but better than that of Fiber Bidco
S.p.A. (B+/Stable; 4.0x end-2021 and 5.0 for 2022-2023) and Ardagh
Group (7.5x end-2021 and 8.3x-7.0x for 2022-2023). CANPACK's gross
leverage profile (3.9x end-2021 and 5.2x-4.7x for 2022-2023)
compares favourably with Fiber Bidco (5.3x end-2021 and 5.2x-5.1x
for 2022-2023) and Titan Holdings (7.5x end-2021 and 4.5x-4.6x for
2022-2023).
KEY ASSUMPTIONS
- Revenue growth of around 19% in 2022, 14% in 2023, 7% in 2024 and
2% in 2025 due to added capacity and shipments of cans to North
America.
- EBITDA margin of about 10% in 2022-2023, improving to around
10.4% in 2024 and 10.6% in 2025.
- Start-up costs for the US plants and grants received excluded
from EBITDA but included in funds from operations (FFO).
- Significant negative net working capital (NWC) supporting high
sales growth.
- Cash adjusted by 2% of sales to reflect seasonal NWC swings.
- Expansionary capex of over 2022-2025 in addition to maintenance
capex of around USD85 million a year.
- Dividends of USD25 million a year to 2025, except for 2023.
- Refinancing of the USD400 million senior unsecured notes in
2025.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- EBITDA margin above 14%
- EBITDA gross leverage below 4.0x on a sustained basis
- FFO gross leverage below 4.5x on a sustained basis
- FCF margin above 1% on a sustained basis
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Delay and cost-overruns of investments leading to weaker
operating performance and EBITDA margins below 10% on a sustained
basis
- FCF margin failing to turn positive from 2024
- EBITDA gross leverage above 4.5x on a sustained basis
- FFO gross leverage above 5.0x on a sustained basis
- Change to corporate or capital structure indicating ineffective
consolidation scope of CANPACK and CANPACK US operations
LIQUIDITY AND DEBT STRUCTURE
Satisfactory Liquidity: CANPACK had readily available cash of
USD255 million at end-September 2022 (after Fitch's adjustment for
working capital seasonality) and access to undrawn revolving credit
facilities (RCF) totalling EUR386.7 million and PLN342million with
maturity dates in July 2024. Despite the strain on liquidity from
the North American greenfield investments will, Fitch forecasts the
RCF will be undrawn over the rating horizon. FCF is negative until
2024 due to high capex. Fitch believes dividend payments of USD25
million assumed in the rating case to serve as a buffer if needed.
Liquidity is supported by limited near-term maturities (the notes
maturing in 2025 and 2027).
Debt Structure: CANPACK's debt is composed of EUR600 million and
USD400 million unsecured notes issued in October 2020 maturing in
2027 and 2025, respectively, and USD800 million unsecured notes
issued in 2021 maturing in 2029. All rank pari passu with the
unsecured RCF. These notes are jointly issued with CANPACK US and
the two companies are jointly and severally liable for the full
amount of the notes as outlined in the bond documentation. For
covenant purposes, audited combined accounts are also taken into
consideration. The company plans to address the upcoming RCF
maturity extension together with a new net debt/EBITDA covenant
level following the current deterioration of the financial
profile.
ISSUER PROFILE
CANPACK is a global manufacturer of aluminium cans, glass
containers and metal closures for the beverage industry and of
steel cans for the food and chemical industries. Serving customers
across some 95 countries globally, it is the fourth-largest
supplier of beverage cans in the world and ranks number three in
Europe.
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
----------- ------ -------- -----
CANPACK S.A. LT IDR BB- Downgrade BB
senior
unsecured LT BB- Downgrade RR4 BB
=========
S P A I N
=========
CLAVEL RESIDENTIAL 2: Fitch Assigns 'Bsf' Rating to Cl. F Notes
---------------------------------------------------------------
Fitch Ratings has assigned Clavel Residential 2 DAC final ratings.
Entity/Debt Rating
----------- ------
Clavel Residential
2 DAC
Class A XS2552394814 LT AA+sf New Rating
Class B XS2552395621 LT A+sf New Rating
Class C XS2552395977 LT A-sf New Rating
Class D XS2552396199 LT BBB-sf New Rating
Class E XS2552396355 LT B+sf New Rating
Class F XS2552396439 LT Bsf New Rating
Class RFN XS2552396512 LT NRsf New Rating
Class X XS2552396942 LT NRsf New Rating
Class Z1 XS2552396603 LT NRsf New Rating
Class Z2 XS2552396785 LT NRsf New Rating
TRANSACTION SUMMARY
Clavel Residential 2 DAC is a cash flow securitisation of a static
pool of first-lien residential mortgages originated in Spain by
Banco Santander, S.A. (Santander, A-/Stable/F2) and by Banco
Popular Español and Banesto, entities that were integrated into
Santander in 2013 and 2018. Santander and Aktua Soluciones
Financieras Holding S.L. (Aktua, wholly-owned subsidiary of Intrum
Servicing Spain S.A.U.) will service the portfolio. The seller is
Ellington Residential Holdings Ireland II DAC, provider of the
transaction representations and warranties.
KEY RATING DRIVERS
Seasoned Loans, High Expected Loss: The pool consists of
well-seasoned (12 years) Spanish residential mortgages. The high
lifetime loss expectation for the portfolio estimated by Fitch of
about 5.1% and 21.3% under the 'B' and 'AA+' rating scenarios,
reflects the presence of adverse portfolio characteristics, namely
the high proportion of restructured loans.
High Exposure to Grace Period Loans (Criteria Variation): Almost
the entire portfolio is linked to loans with prior restructurings,
of which 74% relates to grace periods allowing the borrower to pay
only the interest component of the instalment for four to five
years and to postpone the principal component. The performance of
the portfolio will be materially influenced by the payment capacity
of borrowers on active grace period arrangements (around 24% of the
total portfolio balance) as they roll off this arrangement, on
average, over the next nine months.
To address the expected performance volatility of the portfolio in
an environment of interest rate increases and borrower
affordability constraints, Fitch's analysis captured the effects of
increasing defaults and reducing recoveries by 15% each from the
un-adjusted ResiGlobal model results. This is a variation from
Fitch's European RMBS Rating Criteria that establishes a maximum
deviation from model-implied ratings of one notch due to other
quantitative or qualitative factors.
Default Risk on Grace Period and Restructured Loans (Criteria
Variation): The foreclosure frequency (FF) of restructured loans is
influenced by an assessment of the payment record since the most
recent date between the date last in arrears, the grace period end
date and the restructuring end date. The WA clean payment history
(CPH) of the restructured loans that are not in an active grace
period was 2.0 years as at September 2022.
Fitch has applied a 3.5x FF adjustment to loans currently in grace
period, and 2.0x to restructured loans with a CPH between 12-24
months and those that had arrears incidents in the prior 12 months
but were able to fully clear the balance of arrears by the pool
cut-off date. This constitutes a variation from Fitch's European
RMBS Rating Criteria substantiated with historical data received.
Long Loan Term (Criteria Variation): Around 73% of the loans in the
portfolio have an original term to maturity greater than 366
months. Fitch did not apply the 1.2x FF adjustment defined under
the European RMBS Rating Criteria for long tenor loans, as the
maturity for these loans were extended as part of the restructuring
arrangements that we view as sufficiently captured within the
restructuring FF adjustment applied in the analysis. This
constitutes a variation from the European RMBS Rating Criteria.
The combined model-implied rating impact of the three variations is
one notch negative for the class A, C, D, and F notes two notches
negative for the class E notes, and no impact on the class B
notes.
Coupon Caps Limit Interest Receipts: The class B to F notes may not
receive the full stated coupon because of the net weighted average
coupon (WAC) caps applicable from closing. The net WAC cap is
defined as the interest rate on the underlying mortgages plus yield
supplement over-collateralisation amounts and less senior
transactions costs. The cap is defined on the basis of the
scheduled and not actual (collected) interest on the total
portfolio balance. Any additional interest due amounts on these
notes above the net WAC cap will be payable in a subordinated
position within the revenue waterfall. The ratings do not address
these subordinated amounts. The class A notes are not subject to a
net WAC cap.
Rising Rates Exposure Partially Hedged: An interest-rate cap is in
place at close for 12 years to hedge against rising interest rates.
It has a dynamic notional of up to EUR120 million (20% of the asset
balance) and a strike rate that rises incrementally to a maximum of
5%. The cap has a premium of 50bp running for the first four years,
decreasing to 25bp for the remaining eight years. The premium is
included as an issuer senior expense.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Long-term asset performance deterioration, such as increased
delinquencies or reduced portfolio yield, which could be driven by
changes in portfolio characteristics, macroeconomic conditions,
business practices or the legislative landscape.
Weaker than expected performance of restructured loans, especially
those currently in a grace period arrangement.
This section provides insight into the model-implied sensitivities
the transaction faces when one assumption is modified, while
holding others equal. The modelling process uses the modification
of these variables to reflect asset performance in upside and
downside environments. The results below should only be considered
as one potential outcome, as the transaction is exposed to multiple
dynamic risk factors. It should not be used as an indicator of
possible future performance.
Sensitivity to Increased Defaults:
Original ratings (class A/B/C/D/E/F): 'AA+sf' / 'A+sf' / 'A-sf' /
'BBB-sf' / 'B+sf' / 'Bsf'
Increase defaults by 15%: 'AA-sf' / 'A-sf' / 'BBBsf' / 'BBsf' /
'B-sf' / 'CCCsf'
Increase defaults by 30%: 'Asf' / 'BBB+sf' / 'BB+sf' / 'BB-sf' /
'CCCsf' / 'NRsf'
Sensitivity to Reduced Recoveries:
Original ratings (class A/B/C/D/E/F): 'AA+sf' / 'A+sf' / 'A-sf' /
'BBB-sf' / 'B+sf' / 'Bsf'
Reduce recoveries by 15%: 'A+sf' / 'A-sf' / 'BBB-sf' / 'B+sf' /
'CCCsf' / 'NRsf'
Reduce recoveries by 30%: 'A-sf' / 'BBB-sf' / 'BBsf' / 'B-sf' /
'NRsf' / 'NRsf'
Sensitivity to Increased Defaults and Reduced Recoveries:
Original ratings (class A/B/C/D/E/F): 'AA+sf' / 'A+sf' / 'A-sf' /
'BBB-sf' / 'B+sf' / 'Bsf'
Increase Defaults and Reduce recoveries by 15%: 'A-sf' / 'BBBsf' /
'BBsf' / 'Bsf' / 'NRsf' / 'NRsf'
Increase Defaults and Reduce recoveries by 30%: 'BBB-sf' / 'BB-sf'
/ 'Bsf' / 'NRsf' / 'NRsf' / 'NRsf'
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Increase in credit enhancement ratios as the transaction
deleverages to fully compensate for the credit losses and cash flow
stresses commensurate with higher rating scenarios.
CRITERIA VARIATION
High Exposure to Grace Period Loans
Almost the entire portfolio is linked to loans with prior
restructurings, of which 74% relates to grace periods. To address
the expected performance volatility of the portfolio in an
environment of interest rate increases and borrower affordability
constraints, Fitch's analysis captured the effects of increasing
defaults and reducing recoveries by 15% each from the un-adjusted
ResiGlobal model results. This is a variation from Fitch's European
RMBS Rating Criteria that establishes a maximum deviation from
model-implied ratings of one notch due to other quantitative or
qualitative factors.
Default Risk on Grace Period and Restructured Loans
Fitch has applied a 3.5x FF adjustment to loans that are currently
in grace period, and a 2.0x to restructured loans with a CPH
between 12-24 months and those that had a past arrears incident in
the prior 12 months but were able to fully clear the balance of
arrears by cut-off date of the analysis. This constitutes a
variation from Fitch's European RMBS Rating Criteria, which assigns
a FF expectation to active grace period loans and those with an
incident of arrears in the past 12 months equal to that of loans in
late stage arrears (i.e. more than 90 days), and applies a 3.0x FFA
to restructured loans with a CPH between 12-24 months. This
variation is substantiated with data received that shows a
reasonably strong resumption of monthly payments after grace period
ended, and track record on restructuring performance since 2017.
Long Loan Terms
Of the pool, around 73% has an original term to maturity greater
than 366 months (i.e. 30.5 years). As the term to maturity for most
of these loans was extended as part of the restructuring
arrangements, Fitch did not apply the 1.2x FF adjustment that is
defined under the European RMBS Rating Criteria for long tenor
loans, as this is sufficiently captured by the application of
restructuring FF adjustments. This constitutes a criteria
variation.
The combined model-implied rating impact of the three variations is
one notch negative for the class A, C, D, and F notes, two notches
negative for the class E notes, and no impact on the class B
notes.
DATA ADEQUACY
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
Fitch received loan-by-loan level information on the portfolio as
of 30 September 2022. All the data fields included in the pool cut
were of adequate quality. As Fitch did not receive borrower income
data on a loan by loan basis, Fitch assumed all borrowers to be
linked to class 3 debt-to-income bucket in line with the
underwriting policies of the originators. Moreover, Fitch applied
the same employment distribution data from observed positions when
information was not available (c. 41% of pool balance).
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.
Fitch performed a file review as part of the originator review
process with satisfactory results.
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.
FOODCO BONDCO: S&P Downgrades ICR to 'CCC-', Outlook Negative
-------------------------------------------------------------
S&P Global Ratings lowered its long-term issuer credit and issue
ratings on Telepizza group subsidiary Foodco Bondco SAU and its
senior secured notes from 'CCC+' to 'CCC-'.
The negative outlook indicates that S&P could lower the ratings if
a below-par debt repurchase or restructuring occurs in the next six
months.
Telepizza announced that it has engaged advisors to assess
potential financial and strategic alternatives with its debt
investors and Yum!. This decision is a consequence of the recurring
weak financial performance, which worsened in the first nine months
of 2022. Current geopolitical and economic uncertainty is causing
general disruptions to the supply chain and higher prices for raw
materials and energy products. In light of the adverse prospects
for the rest of 2022 and into 2023, as well as the group's very
tight liquidity position, Telepizza intends to engage in discussion
with stakeholders, including creditors and Yum!, to effect changes
to the business, capital structure, and agreement with Yum!.
Telepizza already renegotiated the terms and targets of its
strategic partnership with Yum! in May 2021 to reflect the
difficult economic context during the COVID-19 pandemic.
Telepizza exhibited weak results in the first nine months of 2022,
further lowering its cash position.The group posted EUR305 million
of sales, a 10.1% increase versus the same period in 2021. It also
recorded a cost increase of 8.0%, leading to additional costs of
EUR19.4 million related to higher food and utilities expenses, and
fees and royalties. During the first three quarters of 2022, S&P
Global Ratings-adjusted EBITDA reached EUR39.9 million, which is
13.1% lower than the same period of 2021. S&P Global
Ratings-adjusted EBITDA margin also decreased to 13.3% compared
with 16.5% the previous year. Amid this poor performance, already
squeezed capital expenditure (capex), and high interest payments,
the group burnt about EUR32 million of cash in the nine months to
Sept. 30, 2022. This further endangered its liquidity position
having already being tight on cash, with EUR58.2 million at
year-end 2021.
Inflationary pressures on the cost structure brought the group's
post-pandemic recovery to a halt, translating into negative free
operating cash flow (FOCF) over the next two years. S&P said, "For
full-year 2022, we expect Telepizza to continue posting weak
earnings in line with rising costs during the first three quarters,
mostly driven by a limited ability to pass these on to customers.
Additionally, due to its exposure to South America, Telepizza faces
potential foreign exchange fluctuations that could influence its
earnings. Therefore, we expect fourth-quarter 2022 to be EBITDA
negative. We see limited potential for a substantial improvement
over the next 12 months and believe the risk of a distressed debt
restructuring is very elevated. In our view, the group's topline
will continue increasing moderately, due to price increases coupled
with business expansion through new openings, mainly by
franchisees. That said, new outlets typically take about six-to-12
months to reach the group's average profitability level. Therefore,
we expect Telepizza's S&P Global Ratings-adjusted EBITDA margins to
average 10%-12% in 2023, far below pre-pandemic levels of 17.1% in
2019."
Telepizza's liquidity position has weakened, in line with the
worsening operating performance. At Sept. 30, 2022, it had about
EUR26.5 million of cash on the balance sheet, with a fully drawn
EUR45 million revolving credit facility (RCF). As per management
information, cash is expected to have further dropped to EUR15
million-EUR17 million by Nov. 30, 2022. Telepizza's liquidity
situation was already challenging in previous years, leading the
group to take several initiatives to rectify the situation. It
contracted two state-guaranteed loans (ICO loans) in Spain: EUR10
million in July 2020 and EUR30 million in January 2021.
Additionally, Telepizza obtained a shareholder loan totaling EUR42
million--EUR20 million directly and EUR22 million available in case
cash at hand falls below EUR25 million. Interest expenses over the
next nine months, of about EUR10.5 million (January 2023), as well
as necessary capex, of EUR8.7 million (before year end), are
sizable. S&P sid, "Overall, we see high uncertainty around the
group's willingness and ability to service its coupon payment in
January. We also note that there might be circumstances in which
the group may be incentivized not to activate the request for the
additional EUR22 million of pre-agreed sponsor support via a
shareholder loan."
The negative outlook reflects the heightened risk that the group
could default on its debt obligations or pursue a distressed debt
restructuring within the next six months.
S&P could lower its rating on Telepizza:
-- To 'CC' if it announces a debt restructuring or exchange offer
that S&P considers distressed;
-- To 'SD' (selective default) if it completes a debt
restructuring or exchange offer that S&P considers distressed; or
-- To 'D' (default) if it misses the upcoming interest payments,
and S&P does not expect them to be paid within the grace period.
S&P could raise its ratings:
-- If Telepizza demonstrates a significant improvement in
earnings, provided that we have visibility regarding the future of
the alliance with Yum!; and
-- If the group improves its liquidity position and reduces the
risk of a distressed debt restructuring.
ESG credit indicators: E-2, S-3, G-3
===========
T U R K E Y
===========
ULKER BISKUVI: S&P Raises Long-Term ICR to 'B', Outlook Stable
--------------------------------------------------------------
S&P Global Ratings raised its long-term issuer and issue-level
credit ratings on Turkiye-based confectionary producer Ulker
Biskuvi Sanayi (Ulker) and its notes to 'B' from 'B-' and removed
them from CreditWatch, where they were placed with negative
implications on Sept. 15, 2022.
The stable outlook indicates that Ulker will have positive FOCF
thanks to a stable operating performance in the next 12-18 months,
and that it will maintain a prudent financial policy to address the
large debt maturities due in 2025.
The rating action reflects S&P's view of Ulker's improved liquidity
position after the monetization of most of its short-term
investments portfolio in November 2022, and good progress in
extending its near-term bank debt maturities.
S&P said, "We view as credit positive Ulker's monetization of a
substantial proportion of its short-term investments portfolio. The
group now has $292 million of cash deposits at a highly rated
financial institution outside Turkiye. Combined with the reported
TRY3.8 billon cash on balance sheet and TRY1.2 billion cash deposit
at the parent, Yildiz Holding, we estimate the group's sources of
cash collectively amount to about $560 million at current exchange
rates. We also expect Ulker to generate positive FOCF in 2022 and
2023 (contrary to 2021). We think this provides sufficient
liquidity sources to fully cover about TRY10.1 billion (or $540
million at current exchange rates) of debt due within 12 months of
Sept. 30, 2022." It also covers the sizable $450 million foreign
currency syndicated and bilateral bank facilities due April 20,
2023, which comprise the following:
-- A EUR244 million floating rate syndicated bank loan;
-- A $110 million floating rate syndicated bank loan; and
-- A EUR75 million floating rate bilateral bank loan from the
European Bank for Reconstruction and Development (EBRD).
S&P said, "We understand that Ulker is at a very advanced stage in
its negotiations with bank lenders to secure new commitments, which
will enable it to refinance bank debt maturities in early 2023 with
a combination of new loans and utilization of available cash.
Overall, this will lead to reduced gross debt in the capital
structure upon completion of the process, such that--alongside a
stable operating performance--Ulker should be able to maintain S&P
Global Ratings-adjusted (gross) debt to EBITDA comfortably in the
4x-5x range in 2023, (about 4.0x for fiscal year ending Dec. 31,
2022). In our adjusted debt metrics calculation, we include the
group's bank loans, outstanding $650 million notes due October
2025, leases, and letters of credit. We do not net the group's cash
balances against debt given our assessment of its business risk,
and the fact that available cash balances are not explicitly
earmarked against debt repayment.
"The 'B' rating reflects our forecast that Ulker will maintain
positive FOCF generation in the next 12-18 months on the back of a
stable operating performance.Upon completion of the refinancing,
the group will not face meaningful refinancing risk until October
2025 when its $650 million senior unsecured notes are due. For
fiscal 2022, we project overall revenue growth of 110%-120% (to
TRY26.3 billion- TRY27.6 billion) with adjusted EBITDA margin
(after net operating income) of about 22% (21.2% in 2021). Solid
top-line growth is supported by a combination of strong price
increases to offset high inflation, particularly in Turkiye,
positive currency translation impact from weaker Turkish lira
versus other currencies from its exports and foreign operations
business, and 3.5%-4.0% consolidated volume growth, coming from
Turkiye. We anticipate the sequential improvement in the group's
FOCF generation to continue into fourth-quarter 2022 because we see
good coverage of raw material stock for the next 12 months, such
that FOCF (after cash interest payments) should be positive at
about TRY300 million-TRY500 million. This factors in our
expectations for about TRY2.9 billion-TRY3.2 billion annual working
capital outflows and reduced capital expenditure (capex) spend to
about 2% of revenue (versus 4.5% in 2021).
"For fiscal 2023, we forecast overall revenue growth of 50%-60%,
stemming from further price increases to offset sustained high
inflation, particularly in Turkiye, with low volume growth of
1.5%-2%. While Ulker's products are primarily in the affordable
price bracket, we think the confectionary category may exhibit some
elasticity of demand in a high inflationary environment compared
with other more staple food categories (such as pasta). Further
revenue growth could be supported by a positive currency
translation impact should the Turkish lira weaken further. We
assume adjusted EBITDA margins (after net operating income) will
decrease about 19%-21%, because we anticipate lower volume growth,
and we see more limited pricing ability to maintain volumes in the
very high inflationary environment, particularly in Turkiye. We
also account for some volatility around input costs, including
energy, labor, and transportation, which could weigh on margins in
the next 12 months. That said, we think that FOCF generation will
improve to over TRY500 million in 2023, thanks to capex below 2% of
revenue and potentially lower working capital outflows, supported
by a recent reduction in market prices of some raw materials since
first-half 2022, such as wheat and cocoa.
"Ulker has shown resilience amid the hyperinflationary environment
in its domestic Turkish market so far, and we expect that to remain
the case over the next 12-18 months. In our view, Ulker's operating
performance amid the current very tough operating environment has
been solid so far. This is in the context of the very high
inflation in Turkiye, where the consumer price index (CPI) exceeded
80% as of Sept. 30, 2022. Volume growth in Turkiye (about 62% of
total revenue and 57% of reported EBITDA as of Sept. 30, 2022)
stood at 6.2% and was broad-based across all confectionary
categories: chocolate, biscuits, and cakes. While this is aided by
the weaker comparable base in first-half 2021, when Turkiye was
largely in COVID-19-induced lockdowns, which affected consumption
outside the traditional (retail) channel, we note that volume
growth in third-quarter 2022 was still positive (+4%), despite
strong price increases. This is supported by the still-affordable
product price range, the noncyclical nature of the confectionary
category, and the duopolistic nature of the Turkish confectionary
market where Ulker and its main competitor are the two clear market
leaders.
"Ulker reported an increase in value market share in 2022 in
Turkiye in chocolate (to 40% from 38%) and cakes (22% from 21%),
while maintaining its 40% value share in biscuits. The group
continues to innovate with new product sales (launched in the past
12-36 months) accounting for 15% of sales in Turkiye. Outside
Turkiye, the Ulker's volumes (down 2.2% year-on-year for the first
nine months) were negatively affected, particularly in Saudi Arabia
(Ulker's second-largest market) and Egypt (its third-largest
market), by sizable price increases and downsizing activities to
offset high inflation. However, we understand that volume trends
are turning positive in fourth-quarter 2022, particularly in Egypt.
That said, Ulker also maintained value market share across each
main country (including Kazakhstan) in the key biscuits and
chocolate categories. We anticipate that volume will remain
negative at about 2% in international markets in fiscal 2022, but
turn positive and potentially outpace the growth rate in Turkiye in
the coming 12 months, in line with past trends and considering the
high inflation rate in Turkiye.
"Our ratings reflect our view that Ulker will likely proactively
address its medium-term refinancing risks. After Ulker completes
the refinancing of its syndicated and bilateral bank facilities due
April 2023, it will not face meaningful refinancing needs until
October 2025, when its $650 million senior unsecured notes are due.
That said, in our view, this is a comparatively large amount,
equivalent to about TRY12.1 billion at current exchange rates, or
about 50% of total reported debt as of Sept. 30, 2022. Given our
assumption that the company will likely have to deploy a portion of
its available liquidity to manage near-term maturities in April
2023, we consider it highly important that Ulker is able to
generate positive free cash flow in 2023 and 2024 to replenish its
cash balances and comfortably manage the refinancing of the bonds
in a timely manner.
"We think it plausible that the group will pursue prudent
discretionary spending in 2023 and 2024, notably on dividend
distributions and acquisitions, and prioritize building up large
cash balances. In our base case, we have factored in no
acquisitions and only moderate dividend distributions (about TRY120
million in 2022 already paid out and about TRY200 million in 2023),
because we do not see dividend upstream pressures from majority
parent company, Yildiz Holding. Finally, we also account for
improved treasury and governance policies with the near liquidation
of the investment portfolio almost completed, and our view that the
likelihood of further related parties' transactions in terms of
acquisitions and cash deposits will now be reduced.
"The stable outlook reflects our expectation that Ulker will
maintain operating and financial resilience in the ongoing very
high inflationary environment, thanks largely to the relatively
noncyclical nature of the confectionary products category, the
affordability of the group's products, and its strong leadership
positions across end markets. We anticipate that the group will
generate positive FOCF and maintain adjusted (gross) debt to EBITDA
of comfortably 4x-5x in the next 12-18 months. We also account for
no near-term material refinancing risks until 2025 when Ulker's
$650 million notes are due."
S&P could lower the ratings on Ulker if:
-- S&P lowered its sovereign foreign currency rating ('B') on
Turkiye to 'B-', and Ulker does not pass its sovereign stress test,
including transfer & convertibility (T&C).
-- S&P observed a weakening operating performance, leading to
negative FOCF generation, and adjusted debt leverage deteriorating
above 5x with no prospect of rapid improvement. This would likely
stem from volume decline amid very high inflationary pressures in
the key Turkish market with an inability to raise prices in a
timely manner, or an inability to control large working capital
swings alongside strong adverse TRY-USD currency exchange
movements.
S&P could raise the ratings on Ulker if:
-- S&P upgraded its sovereign foreign currency rating on Turkiye
(currently B/Stable), or that the company successfully passes its
sovereign foreign currency stress test, including transfer and
convertibility (T&C) assessments, allowing us to rate it above
Turkiye;
-- The company takes proactive steps to spread out the debt
maturity profile, which is currently burdened by very large
maturities in 2025; and
-- The company outperformed our base case with strong positive
FOCF generation. This would stem from continued volume growth amid
the challenging operating environment, and new higher-margin
product development in the key biscuits and chocolate categories.
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 Ulker. This reflects
our view that the group's historical treasury policy was perceived
as risky given that it did not address, well in advance, the
refinancing of its large bank debt maturities (47% of total debt as
of Sept. 30, 2022) due April 2023. In our view, this points to
weaker risk management, culture, and oversight, although this is
now improving as the group is taking steps to align practices to
international standards for blue-chip companies. Until recently,
Ulker had for several years held a large investment portfolio that
exposed a major source of liquidity to financial markets
volatility. The group liquidated about 93% of its portfolio that
was held in equities in November 2022, placing the proceeds in
conventional bank deposits."
Social and environmental factors are also an overall neutral
consideration in S&P's credit analysis of Ulker.
===========================
U N I T E D K I N G D O M
===========================
ARMADILLA: Goes Into Administration, 29 Jobs Affected
-----------------------------------------------------
Ian McConnell at The Herald reports that a Bonnyrigg-based
manufacturer of sustainable luxury modular accommodation including
glamping pods has fallen into administration, with all 29 staff
made redundant, with cost pressures and the "time burden" of
exporting to the European Union cited as factors.
Blair Nimmo and Alistair McAlinden from Interpath Advisory have
been appointed joint administrators to Armadilla, The Herald
relates.
Founded in 2010, the company designs and manufactures the modular
accommodation, delivering this to clients across the education and
high-end leisure and wellness sectors.
The company had built a strong order book, with significant
projects in the pipeline in Scotland, the Algarve, the USA and
Dubai, the joint administrators noted.
"Despite this, however, in recent times the company experienced
significant cashflow challenges as a result of order deferrals in
the wake of the pandemic, the rising cost of raw materials and the
cost and time burden of exporting to the EU," The Herald quotes the
joint administrators as saying.
"Despite the exhaustive efforts of the management team, with
cashflow pressures intensifying, the directors had no option but to
take the very difficult decision to seek the appointment of
administrators. The business has now ceased to trade and, as such,
it is with regret that the joint administrators have made the
company's 29 employees redundant. The administrators will be
providing support to all impacted employees to help them submit
redundancy claims and ensure they can access the support services
of agencies such as Partnership Action for Continuing Employment."
Mr. Nimmo said: "Unfortunately however, the disruption encountered
by the business during the Covid-19 pandemic, coupled with soaring
costs, meant that the business was no longer viable in its current
form."
Mr McAlinden, head of Interpath Advisory Scotland, said: "We are
now looking to find a buyer for the business and its assets,
including its intellectual property, structural designs,
architectural drawings and CAD (computer-aided design) tooling, the
current work-in-progress and the customer order book. Given
Amardilla's pedigree, we very much hope to be able to secure a
future for the business, and so would ask any interested parties to
make contact with us at the earliest opportunity."
GROUNDED EVENTS: London Marathon to Take Over Brighton Marathon
---------------------------------------------------------------
Jenny Bozon at Runner's World reports that London Marathon Events,
organisers of the London Marathon, will take over the Brighton
Marathon.
The company has stepped into save the event after Grounded Events
Company Limited, the former owners and operators of the Brighton
Marathon, went into administration, Runner's World relates.
It means that participants who have already paid for their place
will still be able to take part in the event on April 2, 2023,
Runner's World discloses. Entries will also reopen this week,
giving runners another opportunity to take part, Runner's World
notes.
According to Runner's World, Phil Harris and Chris Stevens from
specialist business advisory firm FRP were appointed as joint
administrators to Grounded Events Company Limited on Friday, Dec.
16, and immediately completed the sale of the business and assets
to London Marathon Events.
Following discussions between London Marathon Events, FRP and
Brighton and Hove City Council, an agreement has been reached by
the Council and London Marathon Events for a license to operate the
event for the next five years (2023–2027), with the option to
break the licence in 2025 if specified metrics are not met,
Runner's World relays.
INVERNESS CALEY: Enters Liquidation, May Opt for CVA
----------------------------------------------------
Rachel Smart at The Inverness Courier reports that Inverness Caley
Thistle Concert Company has gone into liquidation -- several months
after creditors were left out of pocket.
The Inverness Courier reported in August that multiple businesses
had been informed that the Inverness Caley Thistle Concert Company
"exceeded its budget" in staging performances of Andrea Bocelli and
Duran Duran on consecutive evenings the previous month at
Caledonian Stadium.
According to The Inverness Courier, documents alleged that a "lack
of internal controls" led to costs spiralling -- an issue some
companies have already disputed, with legal action pending.
Dundee-based firm Ascot Tax had been brought in to try and resolve
the issue and creditors were sent a letter outlining a company
voluntary arrangement, which was "recommended" as the next course
of action, The Inverness Courier recounts.
A one-off dividend was offered amounting to 65% of money owed to
creditors -- meaning more than a third of their bill could be left
unpaid, The Inverness Courier discloses.
PAVILLION MORTGAGES 2022-1: Fitch Puts 'BBsf' Rating on Cl. E Notes
-------------------------------------------------------------------
Fitch Ratings has assigned Pavillion Mortgages 2022-1 PLC's notes
final ratings, as detailed below.
Entity/Debt Rating Prior
----------- ------ -----
Pavillion Mortgages
2022-1 PLC
Class A XS2554836507 LT AAAsf New Rating AAA(EXP)sf
Class B XS2554836762 LT AAsf New Rating AA(EXP)sf
Class C XS2554837570 LT Asf New Rating A(EXP)sf
Class D XS2554837653 LT BBBsf New Rating BBB(EXP)sf
Class E XS2554837737 LT BBsf New Rating BB(EXP)sf
TRANSACTION SUMMARY
Pavillion Mortgages is a securitisation of owner-occupied mortgages
originated by Barclays Bank UK PLC and backed by properties in the
UK. The securitised loans are predominantly recent high
loan-to-value (LTV) originations (85%-95%), up to and including
September 2022, with 74.5% of the borrowers being first-time buyers
(FTBs).
KEY RATING DRIVERS
High LTV Lending: The pool consists of loans originated with an LTV
above 85%. The weighted average (WA) original LTV is consequently
higher than the average for Fitch-rated RMBS at 89%. Fitch's WA
sustainable LTV is also higher than average at 110.1%, resulting in
a higher-than-average foreclosure frequency (FF) and lower recovery
rates (RR) than transactions with lower LTV metrics.
High Concentration of FTBs: Of the borrowers in the pool, 74.5% are
FTBs. Fitch considers that FTBs are more likely to suffer
foreclosure than other borrowers and considers their concentration
in this pool analytically significant. In line with its criteria,
Fitch has applied an upward FF adjustment of 1.4x to each loan
where the borrower is an FTB.
Robust Excess Spread: The WA margin on the class A to E notes is
1.09% (1.73% after the step-up date) with the class A notes' margin
of 90bp over SONIA. The WA fixed rate paid on the portfolio is
2.53%, with a reversion margin of 3.49% over the Bank of England
Base Rate. Therefore, the transaction benefits from strong excess
spread, which can be used to clear any losses debited to the
principal deficiency ledger through the interest priority of
payments.
Fixed Interest Rate Hedging Schedule: All loans pay a fixed rate of
interest (reverting to a floating rate), while the notes pay a
SONIA-linked floating rate. The issuer will enter into a swap at
closing to mitigate the interest rate risk arising from the
fixed-rate mortgages in the pool. The swap features a defined
notional balance that could lead to over-hedging in the structure
due to defaults or prepayments, which could reduce available
revenue funds in decreasing interest rate scenarios.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
The transaction's performance may be affected by changes in market
conditions and economic environment. Weakening economic performance
is strongly correlated to increasing levels of delinquencies and
defaults that could reduce credit enhancement available to the
notes.
Unanticipated declines in recoveries could also result in lower net
proceeds, which may make certain notes susceptible to potential
negative rating action depending on the extent of the decline in
recoveries. Fitch conducts sensitivity analyses by stressing both a
transaction's base case FF and RR assumptions, and examining the
rating implications on all classes of issued notes. Fitch tested a
sensitivity of a 15% increase in the WAFF and a 15% decrease in the
WARR and the results indicate downgrades of up to two notches
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Stable to improved asset performance driven by stable delinquencies
and defaults would lead to increasing credit enhancement levels and
potential upgrades. Fitch tested an additional rating sensitivity
scenario by applying a decrease in the FF of 15% and an increase in
the RR of 15%. The impact on the notes could be upgrades of up to
one category.
DATA ADEQUACY
Pavillion Mortgages 2022-1 PLC
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
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
Pavillion Mortgages 2022-1 PLC has an ESG Relevance Score of '4'
for Human Rights, Community Relations, Access & Affordability due
to the concentration of FTBs, which have a weaker credit profile
than other borrowers and may affect the transaction's credit risk.
The proportion of FTBs is higher than for other prime transactions,
but is comparable with other high-LTV transactions rated by Fitch.
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.
ARMADA EURO III: Fitch Hikes Rating on Class F Notes to 'B+sf'
-----------------------------------------------------------
Fitch Upgrades Armada Euro CLO III DAC
Thu 15 Dec, 2022 - 11:21 AM ET
Fitch Ratings - Madrid - 15 Dec 2022:
FTCREUR - Ireland
Fitch Ratings has upgraded Armada Euro CLO III DAC's class B to F
notes and affirmed the class A notes.
Entity/Debt Rating Prior
----------- ------ -----
Armada Euro CLO
III DAC
A-1-R XS2320736080 LT AAAsf Affirmed AAAsf
A-2-R XS2320736759 LT AAAsf Affirmed AAAsf
B-R XS2320737302 LT AA+sf Upgrade AAsf
C-R XS2320738029 LT A+sf Upgrade Asf
D-R XS2320738706 LT BBB+sf Upgrade BBBsf
E XS1913265044 LT BB+sf Upgrade BBsf
F XS1913265390 LT B+sf Upgrade Bsf
TRANSACTION SUMMARY
Armada Euro CLO III is a cash flow CLO comprised of mostly senior
secured obligations. The transaction is actively managed by Brigade
Capital Europe Management LLP and will exit its reinvestment period
in January 2023.
KEY RATING DRIVERS
Reinvestment Period Over Shortly: The transaction will exit its
reinvestment period in January 2023 but the manager can reinvest
unscheduled principal proceeds and sale proceeds from credit-risk
and credit improved obligations after the reinvestment period ends,
subject to compliance with the reinvestment criteria. Given the
manager's ability to reinvest, Fitch analysis is based on a
stressed portfolio testing Fitch-calculated weighted average life
(WAL), Fitch-calculated weighted average rating factor (WARF),
Fitch-calculated weighted average recovery rate (WARR), weighted
average spread and fixed-rate asset share to their covenanted
limits.
Upgrade Reflects Good Performance: The upgrade was driven by the
transaction's good performance and a shorter WAL test compared with
the previous analysis in February 2022. The transaction is 0.5%
above par and has no defaults. The transaction is passing all
coverage, collateral-quality tests and portfolio-profile tests.
Exposure to assets with a Fitch-derived rating (FDR) of 'CCC+' and
below is 2.75% excluding non-rated assets, as calculated by Fitch,
below the 7.5% limit. The large default rate cushion at the current
ratings based on both the stressed portfolio and the current
portfolio supports the upgrade of the notes.
Limited Deleveraging Prospects: The Stable Outlooks on all notes
reflect limited deleveraging prospects as long as the deal can
still reinvest. Even if reinvestment is constrained after the
reinvestment period ends, Fitch expects deleveraging to remain
limited in the next 12-18 months with no assets maturing in 2023.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the obligors at 'B'/'B-'. The reported WARF of the current
portfolio was 32.57 as of 15 November 2022, against a covenanted
maximum of 35.00.
High Recovery Expectations: Senior secured obligations comprise
97.90% of the portfolio as calculated by the trustee. Fitch views
the recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch WARR
reported by the trustee for the current portfolio was 69.50% as of
15 November 2022, which compares favourably with the covenanted
minimum of 67.10%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration is 14.78%, as calculated by Fitch, and no single
obligor represents more than 1.74% of the portfolio balance, as
reported by the trustee.
Cash Flow Analysis: Fitch used a customised proprietary cash flow
model to replicate the principal and interest waterfalls and the
various structural features of the transaction, and to assess their
effectiveness, including the structural protection provided by
excess spread diverted through the par-value and interest-coverage
tests.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings of
the current portfolio would result in downgrades of one notch for
the class F notes.
Downgrades may occur if the loss expectation of the current
portfolio is larger than initially assumed, due to unexpectedly
high levels of defaults and portfolio deterioration. Due to the
better metrics and shorter life of the current portfolio, the class
B notes display a rating cushion of one notch, the class E notes
one notch, and the class D and F notes three notches.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
A 25% reduction of the mean RDR and a 25% increase in the RRR
across all ratings of the stressed portfolio would result in
upgrades of no more than three notches across the structure, apart
from the class A notes, which are at the highest rating on Fitch's
scale and cannot be upgraded.
Upgrades may occur on better-than-expected portfolio credit quality
and deal performance, leading to higher credit enhancement and
excess spread available to cover losses in the remaining
portfolio.
DATA ADEQUACY
Armada Euro CLO III 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.
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
[*] UK: Urged to Boost Electricity Companies' Access to Liquidity
-----------------------------------------------------------------
Nathalie Thomas at The Financial Times reports that electricity
companies are urging the UK government to boost access to a GBP40
billion state-backed liquidity support scheme, as continued price
volatility in wholesale power markets reignites fears that some
suppliers and generators might run out of cash.
The Treasury and Bank of England in October set up an emergency
liquidity facility to tackle the margin requirements faced by power
generators and suppliers that hedge their sales or energy purchases
in the futures market, the FT relates.
Collateral requirements for energy companies across Europe have
ballooned as Russia's invasion of Ukraine has triggered extreme
volatility in wholesale energy markets, the FT discloses.
Trade body Energy UK told the FT it remained "very concerned" about
financial liquidity across the UK power industry "over the coming
months" and warned the conditions attached to the government's
£40bn facility meant it was not available to companies that may
need it most.
The GBP40 billion "energy markets financing scheme", which opened
to applications in mid-October, is on offer only to companies that
are of "good credit quality" and which make a "material"
contribution to UK electricity and gas markets. Suppliers, for
example, need to have more than 750,000 customers to qualify.
Any company that makes use of the scheme will be blocked from
paying dividends or bonuses to executives, according to the FT.
Analysts say smaller suppliers and generation companies that are
not part of big, diversified companies are at greatest risk of
running out of cash this winter as cold weather has sparked further
volatility in power prices, the FT notes.
Energy UK and individual suppliers have raised the matter in
meetings with the government since the scheme's launch, the FT
relays, citing people familiar with the situation.
According to the FT, Chris O'Shea, the chief executive of British
Gas owner Centrica, has said he believes many rival suppliers are
"struggling for cash" and could go bust in a repeat of the market
turmoil of 2021, which saw more than 30 energy retailers collapse.
Energy UK's deputy director Adam Berman said the sector "remains
very concerned about financial liquidity over the coming months",
the FT notes.
"While the government has put the energy markets financing scheme
in place to address this problem, it will have to go further to
ensure this facility is available to companies across the sector,"
he said, notes the report.
"Generators and suppliers face extremely challenging conditions due
to the ongoing [energy] market volatility. An enhanced
government-backed liquidity programme is the best way of
safeguarding the financial resilience of the sector," Berman
added.
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