/raid1/www/Hosts/bankrupt/TCREUR_Public/230126.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
Thursday, January 26, 2023, Vol. 24, No. 20
Headlines
B E L G I U M
SARENS BESTUUR: Fitch Affirms LongTerm IDR at 'B', Outlook Stable
F R A N C E
KAPLA HOLDING: Moody's Rates New EUR150MM Sec. Notes Due 2027 'B2'
KAPLA HOLDING: S&P Rates New EUR150MM Floating Rate Notes 'B+'
SPIE SA: S&P Upgrades ICR to 'BB+' on Tighter Financial Policy
G E R M A N Y
CHEPLAPHARM ARZNEIMITTEL: Fitch Affirms 'B+' LongTerm IDR
I R E L A N D
DRYDEN 51 EURO 2017: S&P Affirms 'B-(sf)' Rating on Class F Notes
GEDESCO TRADE 2020-1: Moody's Ups Rating on EUR7.5MM D Notes to B2
I T A L Y
ITALMATCH CHEMICALS: Moody's Ups CFR to B3 & Rates New Notes B3
ITALMATCH CHEMICALS: S&P Puts 'B-' ICR on Watch Pos. on Refinancing
R U S S I A
UZAUTO MOTORS: S&P Affirms 'B+/B' ICRs & Alters Outlook to Positive
S P A I N
INTERNATIONAL PARK: Fitch Assigns 'B(EXP)' IDR, Outlook Stable
S W I T Z E R L A N D
VERISURE MIDHOLDING: New Secured Notes No Impact on Moody's B2 CFR
U K R A I N E
UKRAINE: Fitch Affirms LongTerm Foreign Currency IDR at 'CC'
U N I T E D K I N G D O M
ARCADIA GROUP: Pension Fund Nears Rescue Deal with Aviva
BRITISHVOLT: Australian Firm Submits Late Rescue Bid
DAIRY COMPANY: Enters Administration, Owed GBP10MM by Kent Dairy
DREAM WORLD: Airlines' Failure to Pay Refunds Prompted Collapse
LITTLE CARPET: Goes Into Creditors' Voluntary Liquidation
PLATFORM BIDCO: Moody's Alters Outlook on 'B3' CFR to Negative
S&I GROUNDWORKS: Goes Into Administration
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B E L G I U M
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SARENS BESTUUR: Fitch Affirms LongTerm IDR at 'B', Outlook Stable
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Fitch Ratings has affirmed crane fleet operator Sarens Bestuur NV's
(Sarens) Long-Term Issuer Default Rating (IDR) at 'B' with a Stable
Outlook. Fitch has also affirmed the senior subordinated debt
rating of Sarens Finance Company NV at 'B+' with a Recovery Rating
of 'RR3.
The rating reflects Saren's highly leveraged, albeit improved,
financial structure and moderate liquidity. Rating strengths are
its sound diversification, a leading market position, resulting in
stable profitability, plus balanced and steady cash-generation
visibility.
The Stable Outlook reflects its expectations that Sarens' key
financial metrics will remain consistent with its rating in the
short-to-medium term under current stressed economic conditions.
Its rating scenario forecasts EBITDA margin to remain above 21%,
free cash flow (FCF) margin above 5% and EBITDA gross leverage to
improve toward 4.5x in the medium term. The Outlook also
incorporates no material changes to the company's business
strategy.
KEY RATING DRIVERS
Consistent Profitability: For 2022, Fitch estimates Sarens to have
continued to grow through small projects and rental businesses,
including the benefit from the end of the TCO project in 2021. In
the current difficult economic conditions, its short- term
contracts have allowed Sarens to pass on cost inflation to prices.
Sarens maintained its turnover above EUR600 million in 2022 and an
EBITDA margin of over 21%. Fitch forecasts profitability to remain
above 21% over the short term and above 23% in the medium term.
Healthy FCF Margin: Fitch expects Sarens to generate stable cash
flow to 2025, supported by the absence of major projects. Fitch
estimates a 5% FCF margin in 2022 on capex restraint but
supply-chain disruptions may worsen working-capital outflow in
2023. Fitch forecasts the FCF margin will trend toward 8% by 2024,
supported by EUR50 million annual capex, no dividend payments and
normalised working-capital movements.
Deleveraging Capacity: Fitch estimates Sarens' EBITDA leverage to
improve over the short-to-medium term to 5.5x in 2022, below 5.0x
in 2023, and 4.5x in 2024, from 5.9x in 2021. The improvement will
be supported by Sarens' bond repurchase, strict capex control and
sustainable positive cash generation. Conversely weaker-than
expected cash generation or larger-than-forecast capex may weaken
deleveraging capacity and put pressure on ratings. Fitch believes
that Sarens is committed to deleveraging to increase financial
flexibility.
Balanced Income Risks: The proportion of Sarens' contracted
earnings and the average length of contracts are modest and place
its rating in the 'B' category. Projects account for about 50% of
total sales, while rental services account for the rest. Rental
activities are short-term by nature with customers renting for a
few hours or days. Project-related operations offer greater revenue
visibility but can face delay or change in scope. A large global
project can account for a significant portion of sales in a given
year, leading to contract replacement risk. This is mitigated by a
solid record of contract execution, favorable asset quality, a
diverse mix of services and an ability to move assets and sell
unused ones.
Global Presence in Niche Sector: Sarens' business benefits from
steady diversification, its leading market position and recognised
knowledge in its core services fields. It holds a strong position
in heavy lifting and complex logistics global projects where
competition is less intense and barriers to entry are higher than
rental equipment services. Sarens is one of the few companies that
are able to contract globally. While the group is significantly
larger than its local or regional competitors, it remains small
relative to peers in our broader business services universe. The
group's revenue also tends to focus on cyclical and volatile
sectors but this is offset by its dominance in a niche market.
Sound Asset Quality: Sarens' fleet is diversified with cranes of
various types and sizes as well as by onshore and offshore
transport equipment. It also operates some of the largest cranes in
the world, which provides a competitive edge. The group benefits
from solid internal maintenance and repair capability, which allows
it to extend its fleet's lifetime for further smaller projects or
to sell its fleet on the secondary market. Its fleet's average
remaining useful life remains significant, which is reflected in
its fixed asset value.
DERIVATION SUMMARY
Fitch rates Sarens using its Business Services Navigator framework.
Like most Fitch-rated medium-sized business services companies,
Sarens benefits from leading market positions in the services it
provides. Sarens is the second-largest global heavy lifting and
complex transport operator with significant European and
international footprints. Nonetheless, Sarens remains a small
presence in the overall business services sector.
Sarens compares favourably with international industrial
competitors, with large end-market diversification. Within the
Fitch-rated universe, the group presents a solid business profile
with diversified customers and is exposed to cyclical risk
similarly to Albion Holdco Limited (BB-/Stable) but which is less
at Assemblin Group AB (B/Stable), as it is only present in
Scandinavian countries. Sarens' revenue is lower than both Albion's
(EUR1.3 billion in 3Q22) or Assemblin's (EUR861 million in 3Q22).
Sarens benefits from a solid EBITDA margin that is consistently
above 20%, similar to Albion and better than Assemblin (6.5%
expected in 2022). In addition, the group's cash generation margin
improved to mid-teens, in line with Albion's (16% FFO margin) and
better than Assemblin's (5%). Sarens' financial structure remained
more leveraged (5.5x) than Albion's (1.6x) but comparable to
Assemblin's (4.3x). No Country Ceiling, parent/subsidiary or
operating environment aspects affect the ratings.
KEY ASSUMPTIONS
- Revenue to fall by low-to-mid single digits in 2023 and grow by
low single digits in the following two years
- Cost of goods sold to increase in 2023
- Stable EBITDA margin in 2023 despite supply-chain pressure
- Stable change in working capital in the next three years
- Focus on maintenance capex, capped at EUR50 million per annum to
2025
- Interest payment to remain stable to 2025
- FCF margin rising to 8% in 2024 from 5% in 2022, on
working-capital outflow
- Limited bond repurchase in 2023-2024
KEY RECOVERY RATING ASSUMPTIONS
The recovery analysis assumes that Sarens would be liquidated in
bankruptcy rather than reorganised as a going-concern. Sarens
operates a diversified fleet of heavy lifting and logistic
equipment for which secondary markets exist.
Fitch has assumed a 10% administrative claim
Liquidation Approach
Fitch assigns a liquidation value to the cranes and rolling
equipment, land, buildings and other tangible fixed assets. The
value of the cranes and rolling equipment is based on management
discussions and incorporates a discount to new build cost and
market value estimates provided by Sarens. The liquidation value of
net property plant and equipment is estimated at around EUR0.8
billion
The 25% inventory rate is supported by inclusion of
work-in-progress in the inventory.
Fitch estimates recovery at 60% for Sarens' receivables, reflecting
the likely deterioration of the credit profile of some customers in
a stress scenario and that near-default project-related activities
are likely to be lower, leading to less account trade receivables.
Fitch treats lessors as typical senior secured creditors.
Fitch assumes Sarens' EUR459 million global facility agreement
(GFA) to be fully drawn upon default
Its analysis indicates a recovery of 'RR3'/64% for the senior
secured subordinated notes, implying a single-notch uplift from the
IDR.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to a
positive rating action/upgrade:
- Higher proportion of contracted income and longer average length
of contracts
- Constantly positive FCF generation
- Adjusted EBITDA leverage below 4.5x
- EBITDA interest coverage above 4.5x
Factors that could, individually or collectively, lead to a
negative rating action/downgrade:
- Negative FCF on a sustained basis
- Weakening liquidity position
- EBITDA interest coverage below 3.5x
- Adjusted EBITDA leverage above 5.5x or inability to improve
covenant headroom
- Structural deterioration of fleet fundamentals
LIQUIDITY AND DEBT STRUCTURE
Modest Liquidity: Sarens' liquidity remained modest at end-2021
with a cash balance of EUR65 million, and undrawn committed RCF
availability of EUR81 million. Fitch estimates an FCF margin of 5%
in 2022, before it rises above 8% by 2024, supported by tight capex
control and an inflation pass-through mechanism. Sarens has no
major repayments in the medium term and its senior notes are
fixed-rate, limiting interest rate risk.
Secured Debt Structure: Sarens' debt structure mainly consists of
senior secured debt benefiting from a pledge on movable assets. Its
main credit line is an EUR459 million GFA with the main facility A
at a total committed EUR341 million, of which EUR315 million was
utilised at end-3Q22. The facility A is revolving until January
2024. The GFA also provides access to an EUR118 million RCF
available until January 2024, of which EUR37 million was drawn at
end-September 2022.
Sarens also has EUR300 million senior subordinated notes due in
February 2027. The notes are secured on the share capital of
issuing Sarens Finance Company N.V. and not on the tangible assets
of the group. The notes benefit from guarantees on a senior
subordinated basis by Sarens and some of its subsidiaries. During
2022, Sarens bought back bonds for a total amount of EUR8.3
million.
ISSUER PROFILE
Sarens, located in Belgium, operates one of the world's largest
fleets of lattice boom and mobile cranes, self-propelled modular
trailers, and barges.
Criteria Variation
Fitch adjusts the application of its Corporate Rating Criteria, to
reflect the structure of Sarens' operations and financing. This
variation from criteria has no impact on the ratings. Fitch rates
Sarens under its Business Services Navigator Framework under which
all lease costs are treated as operating expenses and corresponding
liabilities are excluded from the debt amount. However, Fitch
treats Sarens' core operations in a similar way to transport
services. A key feature of Sarens' business model is financing
assets with lease agreements. As such, Fitch follows the lease
treatment of the transport sector and our credit metrics for Sarens
incorporate reported lease liabilities.
ESG CONSIDERATIONS
Sarens has an ESG Relevance Score of '4' for Governance Structure
due to a limited number of independent directors as a constraining
factor for board independence and effectiveness. An ownership
divided among several branches of the Sarens family could also make
the definition of a strategy and succession planning challenging
and less transparent. This has a negative impact on the credit
profile, and is relevant to the ratings in conjunction with other
factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Recovery Prior
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Sarens Finance
Company NV
Subordinated LT B+ Affirmed RR3 B+
Sarens Bestuur NV LT IDR B Affirmed B
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F R A N C E
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KAPLA HOLDING: Moody's Rates New EUR150MM Sec. Notes Due 2027 'B2'
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Moody's Investors Service has assigned a B2 instrument rating to
KAPLA HOLDING S.A.S.' (Kiloutou or the company) proposed EUR150
million backed senior secured floating rate notes due 2027.
Proceeds from the notes will be used to repay the EUR150 million
bridge loan put in place to fund the acquisition of GSV, a Danish
equipment rental company.
Moody's has also affirmed Kiloutou's B2 corporate family rating,
B2-PD probability of default rating and B2 instrument ratings on
the backed senior secured notes due 2026. The outlook was changed
to positive from stable.
RATINGS RATIONALE
Kiloutou has continued to report strong operating performance in
2022 with proforma revenue of more than EUR1 billion and pro forma
Moody's adjusted EBITDA of EUR377 million for the last twelve
months (LTM) ending September 2022, having already recovered to
above pre-covid levels in 2021. The recovery was driven by a strong
rebound in activity levels following the Covid-19 crisis, strong
underlying market trends and a combination of organic and
acquisition driven growth.
The acquisition of GSV in April 2022 has diversified Kiloutou's
revenues outside of France and provided access to the Danish
market. GSV is the market leader in Denmark with 22% market share
and revenue of EUR131 million and post-IFRS EBITDA of EUR40 million
in FY2021. GSV currently offers more than 13,000 units of equipment
through 16 depots, 4 hubs and one module factory with an extensive
geographical footprint that is able to cater to both large national
construction companies and smaller regional and local players.
Kiloutou also completed two bolt on acquisitions in Denmark
(Holbaek Lift) and Portugal (Grupo Vendap) in the second half of
2022, these acquisitions allow Kiloutou to enter the Portuguese
market and further strengthen GSV's leading position in the Danish
market while diversifying Kiloutou's exposure outside France. Pro
forma for these transactions, Moody's estimates that exposure to
France has decreased to around 64% from 81%.
The affirmation of the B2 CFR and the change of outlook to positive
reflects the significant improvement in Kiloutou's performance in
2021 and 2022 resulting in a decrease in Moody's adjusted gross
leverage to 4.2x as of LTM September 2022 from 5.6x during the
COVID-19 pandemic in FY2020 and the company's adequate liquidity.
While the rating agency considers that leverage may increase
slightly to 4.3x in FY2023 due to these acquisitions and under the
assumption of a more challenging macroeconomic environment,
positive industry fundamentals should support de-leveraging to
around 4.1x by FY2024. Moody's projects FCF/debt to be around 1-2%
in FY2023 as Kiloutou reduces capex in response to softening
demand.
Moody's expects that Kiloutou could meet the upgrade triggers if it
continues to perform well in the next 12-18 months, however the
rating agency also notes the expectation for a more challenging
macroeconomic environment raising the risk of some earnings
volatility.
Governance is a consideration here under Moody's ESG framework
because of the company's financial policy of pursuing debt funded
acquisitions which shows an appetite for increase in leverage.
LIQUIDITY
Moody's considers Kiloutou's liquidity to be adequate and supported
by: (i) EUR32 million of cash on balance sheet as of 30 September
2022; (ii) EUR154 million of undrawn RCF; (iii) a certain level of
capex flexibility and a history of maintaining positive
EBITDA-capex through the cycle; and (iv) no meaningful debt
amortization before 2026.
As part of the documentation, the super senior RCF contains a
springing financial covenant based on net leverage set at 7.2x and
tested on a quarterly basis only when the RCF is drawn by more than
40%.
RATING OUTLOOK
The positive outlook reflects Moody's expectations that Kiloutou's
strong operating performance will continue such that Moody's
adjusted leverage will remain below 4.5x in the next 12-18 months.
It also includes Moody's expectation for an improved free cash flow
generation from FY2023 onwards after a period of elevated levels of
growth capex. Moody's assumes that the company will not execute any
additional major debt-funded acquisitions or shareholder
distributions.
STRUCTURAL CONSIDERATIONS
Kiloutou's PDR is B2-PD, in line with the CFR, reflecting Moody's
assumption of a 50% recovery rate as is customary for capital
structures including bonds and bank debt. The backed senior secured
notes are rated B2 in line with the CFR due to a limited amount of
super senior RCF ranking ahead in the structure.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive pressure on the rating could occur if: (i) the company
successfully achieves further international diversification; (ii)
maintains its strong operating performance; (iii) Moody's adjusted
leverage is maintained at below 4.5x on a sustainable basis; and
(iv) liquidity remains adequate.
Negative pressure on the rating could occur if: (i) the company's
operational performance deteriorates; (ii) Moody's adjusted
leverage remains above 5.5x in the next 12-18 months; and (iii)
free cash flow generation remains negative leading to weaker
liquidity.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Equipment and
Transportation Rental published in February 2022.
COMPANY PROFILE
Founded by Franky Mulliez in 1981, Kiloutou is the number two
operator in the French equipment rental market and the number three
in Europe. In February 2018, HLD and Dentressangle acquired a
majority stake in Kiloutou alongside its management and Franky
Mulliez and family continue to hold a minority stake. The company
serves more than 400,000 customers through a network of 600
branches across seven countries. Kiloutou has a focus on tools and
light equipment, construction equipment, access equipment and
services. As of LTM September 2022, Kiloutou generated more than
EUR1 billion of revenue and EUR377 million of Moody's adjusted
EBITDA on a proforma basis.
KAPLA HOLDING: S&P Rates New EUR150MM Floating Rate Notes 'B+'
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S&P Global Ratings assigned its 'B+' issue rating and '3' recovery
rating to the proposed EUR150 million floating-rate notes, maturing
in 2027, that Kapla Holding S.A.S. (Kiloutou; B+/Stable/--) plans
to issue. S&P expects Kiloutou to use the proceeds from the
issuance to repay the EUR150 million bridge loan, in place since
April 2022, to fund its acquisition of GSV in Denmark for about
EUR190 million.
S&P said, "We expect that Kiloutou's S&P Global Ratings-adjusted
gross debt levels will have risen toward EUR1.7 billion in 2022. We
also anticipate debt to EBITDA of close to 4.6x over the same
period, reducing toward 4.3x in 2023. Although slowing our
deleveraging projections, the rise in debt will have only a
marginal effect on the company's key credit metrics. We expect
Kiloutou's free operating cash flow generation to be negative in
2022, owing to higher capital expenditure, but we expect it will be
positive in 2023. Slightly higher interest costs through the
increased gross debt and the exposure to floating rates will cause
the company's cash interest costs to rise. With this in mind, we
forecast funds from operations cash interest coverage to be above
4.0x in 2022 and 2023. Overall, we expect Kiloutou to maintain
credit metrics commensurate with the current rating.
"We continue to expect growth in Kiloutou's top line. The company's
sales are forecast to be above EUR1 billion in 2022, supported by
the acquisition of GSV, Grupo Vendap, and Holbaek Lift.
Furthermore, the latest bolt-on acquisitions of Jamart Location
Modulaire in France and Aerotecnica in Italy continue to increase
the company's geographic footprint."
Issue Ratings--Recovery Analysis
Key analytical factors
-- The EUR1,010 million senior secured floating- and fixed-rate
notes are rated 'B+' with a recovery rating of '3', reflecting
S&P's expectation of meaningful recovery (50%-70%; rounded
estimate: 60%) in the event of a payment default.
-- For the purposes of our recovery analysis, S&P includes the
fleet value absorbed through the acquisitions of GSV, Grupo Vendap,
and Holbaek Lift.
-- The senior secured notes form the majority of the recovery
package, which supports our recovery rating. The presence of the
super senior revolving credit facility (RCF) and priority debt in
the form of bilateral loans constrain the recovery rating.
-- S&P values the business using a discrete-asset valuation method
because it believes its enterprise value would be closely
correlated with the value of its assets.
-- In S&P's hypothetical default scenario, it assumes an overall
negative business landscape, rise in competition leading to loss of
market share, and Kiloutou's inability to effectively reduce
costs.
-- S&P continues to analyze the company's recovery prospects on a
going-concern basis because we think Kiloutou would likely
restructure in a default scenario, instead of being liquidated.
S&P's base this on customers' shift to a rental model rather than
ownership, as well as the company's strong position in the French
market and flexibility in managing the size of its fleet and
product offerings.
Simulated default assumptions
-- Year: 2026
-- Jurisdiction: France
Simplified waterfall
-- Gross recovery value: EUR935 million
-- Net enterprise value after 5% administrative expenses: EUR888
million
-- Priority debt claims: EUR229 million
-- Value available for senior secured claims: EUR659 million
-- Senior secured claims: EUR1,038 million
--Recovery first-lien debt of 50%-70% (rounded estimate: 60%)
All debt amounts include six months of prepetition interest accrued
and assumed 85% drawn RCF.
SPIE SA: S&P Upgrades ICR to 'BB+' on Tighter Financial Policy
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S&P Global Ratings raised its long-term issuer credit and issue
ratings on French multi technical support services provider Spie
S.A. and its EUR600 million senior unsecured bonds due 2026 and
EUR600 million bonds due 2024, to 'BB+' from 'BB'; the recovery
rating remains '3' (about 55% recovery).
The stable outlook reflects S&P's expectation that Spie will record
sales growth of 4%-5% over the next 12 months and stable adjusted
EBITDA margins of about 8.5%, resulting in leverage comfortably
below 3.0x and funds from operations (FFO) to debt well above 25%.
Spie has issued EUR400 million of senior unsecured convertible
bonds and will use the proceeds, along with cash from the balance
sheet, to refinance its existing EUR600 million bonds due 2024.
Spie has in recent months refinanced its capital structure,
reducing gross leverage. S&P said, "We expect adjusted debt of
approximately EUR1.8 billion at year-end 2023. Spie recently issued
EUR400 million of sustainability linked convertible bonds due in
2028, which along with cash from the balance sheet will be used to
refinance its EUR600 million bonds maturing in March 2024. These
will be redeemed on Feb. 11, 2023. In October 2022, the company
successfully issued a EUR600 million sustainability linked term
loan A (TLA) that was used to repay the previous EUR600 million
syndicated TLA. It also refinanced its EUR600 million revolving
credit facility (RCF) with a new one of the same amount, maturing
in 2027. In addition to about EUR1.9 billion of reported financial
debt, we adjust for operating lease liabilities (EUR476 million),
factoring liabilities (EUR68 million), and pension obligations
(EUR487 million), net of EUR1.14 billion cash. As a result, we
forecast adjusted debt to EBITDA of below 3.0x by year-end 2023,
since our base case does not include any large debt-funded
acquisitions. We note that higher interest rates result in lower
pension obligations that we add to our adjusted debt figure, by
about EUR230 million in 2023 versus 2021."
The lower leverage and commitment to a new financial policy is
supportive of a higher rating. S&P said, "We understand that the
company has a newly stated financial policy targeting a reported
net leverage (company calculated) of 2.0x at each year end, with a
tolerance very slightly above in case of acquisitions. This
translates into S&P Global Ratings-adjusted leverage of 3.0x-3.5x
in the long term, which is consistent with the significant
financial risk profile category. We further understand that Spie
does not intend to undertake any large debt-funded acquisitions in
the short-to-medium term. Therefore, with adjusted leverage
expected at below 3.0x at year-end 2022, metrics are now consistent
with the intermediate financial risk profile category. However,
given the track record of debt-funded acquisitions and to reflect
the potential releveraging that could take place in line with
Spie's financial policy, we apply a one-notch negative financial
policy modifier to the 'bbb-' anchor, resulting in a 'bb+'
stand-alone credit profile."
S&P said, "We anticipate Spie will continue to expand resiliently
in 2023. We forecast total sales growth of 4%-5%, which will be
2.5%-3.5% organic. Despite slow economic growth in Spie's main
market--France--or even a recession in its second
market--Germany--we expect demand to remain strong because of the
essential services it provides and fundamentally supportive
underlying trends, notably energy efficiency and the transition to
green energy. About two-thirds of Spie's business relates to energy
works, for example, linking newly built windmills to the grid in
Germany or maintenance works on French nuclear plants. The
importance of these is strongly underlined by the extremely high
energy prices in Europe since the beginning of 2022. High oil and
gas prices are also boosting demand for Spie's services from this
sector, whereas the strong need for extraordinary maintenance of
EDF's nuclear plants in France will boost sales in 2024.
"We see Spie as well positioned in the current inflationary
environment to preserve its margins. Given Spie's largest input
cost is personnel costs at 70%, followed by purchase costs at 20%,
the biggest challenge to maintaining its margins is controlling
wage inflation and passing it on in contracts with clients. We
understand that Spie has a good ability to do this thanks to its
project-based business model, allowing higher costs to quickly be
reflected in new contracts. It has also started to put indexation
clauses in longer-tenure contracts. We therefore expect that wage
inflation levels above 4% will not impair profitability. The
company purchases most goods in Europe and euros and will therefore
see a negligeable negative impact from euro depreciation. Energy
costs represent about 1% of the cost base, so the recent spike will
also barely hit profitability.
"The stable outlook reflects our expectation that Spie's sales will
expand 4%-5% in 2023 and its adjusted EBITDA margins will be stable
at about 8.5%, benefiting from works relating to the energy
transition and its ability pass on higher costs to clients. This
will result in leverage staying below 3.0x and FFO to debt of above
25% over the next 12 months.
"We could take a negative rating action if debt to EBITDA climbs
above 4.0x or FFO to debt falls below 20% on a sustained basis."
This could happen if:
-- The company prioritizes large acquisitions or shareholder
returns over deleveraging to below these levels.
-- Operating headwinds affect Spie's ability to deliver on its
contracts and negatively affect EBITDA.
S&P said, "We could raise the rating if Spie maintains its strong
operational performance, sustaining adjusted leverage of less than
3x and weighted-average FFO to debt of above 30%, commensurate with
an intermediate financial risk profile. This would need to be
supported by a further tightened financial policy and amended
maximum leverage ceiling to reflect a commitment to maintain these
credit metrics. We believe it would be in line with
company-reported debt to EBITDA of about 1.5x.
"We could also raise the rating if we see further improvements in
the company's business risk profile, possibly via growth,
geographical diversification, and market share gains in its core
geographies."
ESG credit indicators: E-2, S-2, G-2
S&P said, "ESG factors have no material influence on our credit
rating analysis of Spie. About two-thirds of Spie's works benefit
from the energy transition, such as the installation of more
efficient heating, ventilation, and air conditioning systems in
buildings or the connection to the grid of wind farms. The EU
Nextgen funding program provides a further boost and the current
energy crisis in Europe should trigger additional investments into
energy efficiency and green energy production, thus benefitting
Spie. However, about 4% of its revenue comes from the maintenance
of oil and gas platforms, which are predicted to decline in the
medium-to-long term, with negative effects on revenue and earnings.
Our assessment of Spie's management and governance as satisfactory
reflects management's strong experience within the multi technical
services industry and satisfactory governance standards, with seven
independent members and three employee representatives on its
board, out of 11 in total."
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G E R M A N Y
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CHEPLAPHARM ARZNEIMITTEL: Fitch Affirms 'B+' LongTerm IDR
---------------------------------------------------------
Fitch Ratings has affirmed Cheplapharm Arzneimittel GmbH's
(Cheplapharm) Long-Term Issuer Default Rating (IDR) at 'B+' with a
Stable Outlook. Fitch has also affirmed Cheplapharm's senior
secured ratings of 'BB-' with a Recovery Rating of 'RR3'.
The IDR balances Cheplapharm's strong operating and cash flow
margins with a modest size, moderate leverage and a scalable
asset-light business model that relies on acquisitions to offset
the modest yet structural decline of its portfolio of off-patent
and niche drugs.
The Stable Outlook reflects its expectation that the group will
continue pursuing its buy-and-build strategy in a disciplined
manner. Fitch expects Cheplapharm to finance acquisitions with
internally generated cash flows and additional debt, while
maintaining EBITDA leverage at between 4.0x and 5.0x through to
2025.
KEY RATING DRIVERS
Defensive Operations: The rating is underpinned by Cheplapharm's
defensive business profile, characterised by predictable revenue
and high margins from a diversified portfolio of off-patent drugs,
including niche and legacy drugs. The group has a solid record of
strong performance, supported by a well-managed intellectual
property (IP) portfolio, active product life-cycle management and
well-executed acquisitions of drug IP rights.
Mild Organic Decline: Cheplapharm relies on constant acquisitions
to grow given the structural low single-digit decline in sales of
its portfolio of off-patent drugs. These acquisitions can be funded
internally with the group´s strong cash generation. Making
acquisitions at disciplined valuation multiples is key and higher
interest rates would make debt-financed M&A less attractive.
New Shareholder Loan Credit-Positive: Fitch views the recent EUR500
million shareholder loan provided to the restricted group by its
parent Cheplapharm AG as supportive of the rating. This shareholder
loan consists of funds raised by Cheplapharm AG from a EUR550
million mandatorily convertible instrument (MCI) maturing in 2029
or when a potential IPO takes place. The MCL was provided by
Atlantic Park and GIC, who are expected to own less than 20% of the
company after conversion.
Fitch treats the shareholder loan as equity but includes the
related interest payments in its projections. Therefore, the new
shareholder loan has improved the group's rating headroom, with
leverage approaching its positive sensitivities in 2023. Fitch
expects Cheplapharm to invest the proceeds in acquiring new drug IP
rights.
More Debt-Funded M&A Likely: Fitch expects Cheplapharm to use
internally-generated cash, combined with the flexibility under its
revolving credit facility (RCF), to prioritise inorganic growth
over deleveraging. FItch estimates that the group would need to
invest around 8% of its revenue each year in acquisitions (which
Fitch treats as development capex) to offset its organic portfolio
decline. This amount can be comfortably funded with internal cash
flow generation. Its rating case factors in acquisitions above
EUR500 million per year. Larger acquisitions, which would require
more funds than committed debt capital, are possible but Fitch
treats them as event risk.
Appropriate Leverage, No Deleveraging: Cheplapharm´s leverage has
been moderate compared with private-equity (PE)-owned peers', at
around 4x-6x gross debt/EBITDA. Fitch expects the group to continue
to favour M&A over deleveraging, resulting in stable gross
debt/EBITDA over the next four years at 4.0x-4.5x. Fitch assumes
that the group will not deviate from its disciplined approach to
acquisitions, with established acquisition and investment criteria.
Acceptance of higher asset valuations, higher-risk product profiles
or weaker integration would be negative for the rating.
Financial Policy Key to Rating: Cheplapharm has the ability to
deleverage given its strong cash generation, but its strategy has
been to prioritise inorganic growth. Last year's decision to
postpone the planned IPO due to unfavourable market conditions and
to instead issue debt to fund inorganic growth was aggressive, but
fully consistent with its financial policy prior to the IPO
announcement. Fitch believes that the recent issuance of a EUR550
million MCI instead of debt demonstrate the willingness of the
founding family to continue growing the business while maintaining
manageable leverage until a potential IPO takes place.
Supportive Market Fundamentals: Cheplapharm benefits from a strong
supply of acquisition targets in the market, as innovative pharma
companies look to streamline their product portfolios by divesting
off-patent drugs to concentrate on their core therapies and
implement their capital-allocation strategies. Fitch regards niche
specialist pharmaceutical companies, such as Cheplapharm, as firmly
positioned to continue capitalising on this sector trend.
DERIVATION SUMMARY
Fitch rates Cheplapharm using its Ratings Navigator Framework for
Pharmaceutical Companies. The IDR reflects Cheplapharm's defensive
asset-light business profile with resilient and predictable
earnings, as well as high operating margins and strong cash flow
generation.
Cheplapharm is rated at the same level as Pharmanovia Bidco Limited
(B+/Stable), given smaller-scale but comparable asset-light
scalable business model with strong operating and cash flow
margins, in combination with moderate debt/EBITDA of 4.0x-5.0x.
Cheplapharm is rated below Grunenthal Pharma GmbH & Co.
Kommanditgesellschaft (BB/Stable). Grunenthal's credit profile
reflects its more conservative financial policy with leverage of
below 3.0x and strong free cash flow (FCF) margins derived from a
portfolio of off-patent and innovative drugs and own manufacturing
and distribution capabilities, albeit with lower EBITDA margins of
around 20%.
Fitch views Cheplapharm's credit profile as stronger than that of
the pharmaceutical company ADVANZ PHARMA HoldCo Limited (B/Stable).
Although the latter is involved in bringing new niche, specialist
and value-added generics to market through co-development,
in-licencing, and distribution agreements, it has smaller business
scale and lower operating and cash flow margins, warranting a
one-notch difference.
Fitch also regards Cheplapharm as stronger than generics producer
Nidda BondCo GmbH (B/Negative), despite its much smaller scale and
more concentrated portfolio, which is mitigated by wide geographic
diversification within each brand. Nidda BondCo's rating is limited
by high EBITDA leverage above 7.0x in 2023, and high refinancing
risk, with large maturities due in 2024-2025.
KEY ASSUMPTIONS
- Sales growth of 15% in 2023 and 2024 and 8% by 2025, up from 5%
in 2022, as acquisitions offset low-single-digit organic declines
- EBITDA margin to gradually moderate to 50% by 2025 from 58% in
2022
- Unspecified acquisitions of EUR600 million a year, except for
2023 when Fitch projects M&A of EUR1 billion
- Issuance of EUR500 million shareholder loan in early 2023,
treated as equity and resulting in EUR30 million additional
interest payment
- Capex at around 1% of sales. Moreover, Fitch treats acquisitions
equivalent to 8% of sales as capex, as it views them as necessary
to offset the organic portfolio decline
- Trade working-capital outflows of EUR50 million-EUR100 million
per year to 2025
- No dividend payments
KEY RECOVERY RATING ASSUMPTIONS
Fitch expects that Cheplapharm in a bankruptcy would most likely be
sold or restructured as a going concern (GC) rather than liquidated
given its asset-light business model.
Fitch estimates a post-restructuring GC EBITDA at about EUR450
million (previously EUR400 million), which includes contribution
from the recently signed but not yet closed drug IP acquisitions
scheduled for completion in 1Q23-2Q23. Cheplapharm would be
required to address debt service and fund working capital as it
takes over inventories following transfer of market authorisation
rights, as well as making smaller M&A to sustain its product
portfolio to compensate for a structural sales decline.
Fitch continues to apply a distressed enterprise value/EBITDA
multiple of 5.5x, reflecting the underlying value of the group's
portfolio of IP rights.
After deducting 10% for administrative claims, the allocation of
value in the liability waterfall results in a Recovery Rating of
'RR3' for the existing senior secured debt, including its EUR545
million RCF, which Fitch assumes will be fully drawn prior to
distress. This indicates a 'BB-' instrument rating with a
waterfall-generated recovery computation of 63% (56% previously).
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- An upgrade to the 'BB' rating category would require a maturing
business risk profile, characterised by sustainable revenue, a more
diversified product portfolio, as well as resilient operating and
strong FCF margins that allow the group to finance development M&A
and reduce execution risks
- Conservative leverage policy leading to EBITDA leverage at or
below 4.0x on a sustained basis
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Unsuccessful management of individual pharmaceutical IP rights
leading to material permanent loss of income and EBITDA margins
declining towards 40%
- Positive but continuously declining FCF
- More aggressive financial policy leading to EBITDA leverage
sustainably above 5.5x
- EBITDA interest coverage below 3x on a sustained basis
LIQUIDITY AND DEBT STRUCTURE
Comfortable Liquidity: Fitch views liquidity as comfortable based
on Cheplapharm's strong FCF before acquisitions, which Fitch
estimates at around EUR400 million a year until 2025. The group
benefits from a long-dated term loan B and senior secured note
maturities until 2027-2029.
SUMMARY OF FINANCIAL ADJUSTMENTS
Fitch treats the EUR500 million shareholder loan as equity but
includes its interest paid in its cash flow projections given the
group's intention to pay interest in cash. Fitch also treats EUR15
million of readily available cash as restricted cash.
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
----------- ------ -------- -----
CHEPLAPHARM
Arzneimittel GmbH LT IDR B+ Affirmed B+
senior secured LT BB- Affirmed RR3 BB-
=============
I R E L A N D
=============
DRYDEN 51 EURO 2017: S&P Affirms 'B-(sf)' Rating on Class F Notes
-----------------------------------------------------------------
S&P Global Ratings raised its credit ratings on Dryden 51 Euro CLO
2017 DAC's class B-1 and B-2 notes to 'AA+ (sf)' from 'AA (sf)'. At
the same time, S&P raised to 'A+ (sf)' from 'A (sf)' its rating on
the class C notes, to 'BBB+ (sf)' from 'BBB (sf)' its rating on the
class D notes, and to 'BB (sf)' from 'BB- (sf)' its rating on the
class E notes. S&P affirmed its 'AAA (sf)' ratings on the class A-1
and A-2 notes, and its 'B- (sf)' rating on the class F notes.
Dryden 51 Euro CLO 2017 is a cash flow CLO transaction that
securitizes leverage loans and is managed by PGIM.
The rating actions follow the application of S&P's relevant
criteria and its credit and cash flow analysis of the transaction
based on the November 2022 trustee report.
Since S&P reviewed the transaction in 2020:
-- The pool's credit quality has improved, however the portfolio's
weighted-average rating is unchanged at 'B'.
-- As the CLO has begun amortizing, the portfolio has become less
diversified (the number of performing obligors has decreased to 137
from 161).
-- The portfolio's weighted-average life has decreased to 3.32
years from 5.09 years.
-- The percentage of 'CCC' rated assets has decreased to 7.08%
from 13.20%.
-- Despite a more concentrated portfolio the scenario default
rates (SDRs) have decreased for all rating scenarios, mainly due to
the portfolio's lower weighted-average life and improved credit
quality.
Table 2
Transaction Key Metrics
AS OF JANUARY 2023 PREVIOUS REVIEW
(BASED ON NOVEMBER
TRUSTEE REPORT)
SPWARF 2,904.22 3,097.96
Default rate dispersion 655.80 731.65
Weighted-average life (years) 3.32 5.09
Obligor diversity measure 83.85 99.86
Industry diversity measure 20.06 18.57
Regional diversity measure 1.12 1.32
Total collateral amount (mil. EUR)* 361.03 400.79
Defaulted assets (mil. EUR) 1.81 2.22
Number of performing obligors 137 161
Portfolio weighted-average rating B B
'AAA' SDR (%) 58.27 67.13
'AAA' WARR (%) 35.60 34.10
*Performing assets plus cash and expected recoveries on defaulted
assets.
SDR--scenario default rate.
SPWARF--S&P Global Ratings' weighted-average rating factor.
WARR--Weighted-average recovery rate.
On the cash flow side:
-- The reinvestment period ended in July 2021. The class A notes
(A-1 and A-2) have deleveraged by EUR40.23 million since then.
-- No class of notes is deferring interest.
-- All coverage tests are passing as of the November 2022 trustee
report.
Table 1
Credit Analysis Results
CLASS CURRENT AMOUNT CREDIT ENHANCEMENT CREDIT ENHANCEMENT
(MIL. EUR) AS OF JANUARY 2023(%) AT PREVIOUS
(BASED ON NOVEMBER REVIEW (%)
TRUSTEE REPORT)
A-1 170.624 45.48 40.85
A-2 26.219 45.48 40.85
B-1 31.500 30.92 27.73
B-2 21.053 30.92 27.73
C 27.000 23.44 21.00
D 20.000 17.90 16.01
E 22.000 11.81 10.52
F 12.500 8.35 7.40
Subordinated 42.250 N/A N/A
Credit enhancement = [Performing balance + cash balance + recovery
on defaulted obligations (if any) – tranche balance (including
tranche balance of all senior tranches)]/ [Performing balance +
cash balance + recovery on defaulted obligations (if any)].
N/A--Not applicable.
S&P said, "In our view, the portfolio is diversified across
obligors, industries, and asset characteristics. Nevertheless, due
to the CLO amortizing, it has become more concentrated (since our
previous analysis). The aggregate exposure to the top 10 obligors
is now 22.54%.
"Based on the improved SDRs, higher portfolio weighted-average
recovery, and higher available credit enhancement, we raised our
ratings on the class B-1, B-2, C, D, and E notes as the available
credit enhancement is now commensurate with higher levels of
stresses. At the same time, we affirmed our ratings on the class
A-1, A-2, and F notes.
"Our cash flow analysis indicated higher ratings than those
currently assigned for the class C, D and E notes. However, we
considered that the manager has and may still reinvest unscheduled
redemption proceeds and sale proceeds from credit-impaired and
credit-improved assets (such reinvestments, rather than repayment
of the liabilities, may therefore prolong the note repayment
profile for the most senior class of notes). We also considered the
considerable portion of senior notes outstanding and current
macroeconomic conditions.
"In our view, the portfolio is granular, and well-diversified
across obligors, industries, and asset characteristics compared to
other CLO transactions we have recently rated. Hence, we have not
performed any additional scenario analysis.
"Counterparty, operational, and legal risks are adequately
mitigated in line with our criteria. We have also considered the
differences in volatility buffer posting requirements, which may
arise if the issuer enters into derivative transactions using its
current documentation compared against our counterparty criteria
requirements.
"Following the application of our structured finance sovereign risk
criteria, we consider the transaction's exposure to country risk to
be limited at the assigned ratings, as the exposure to individual
sovereigns does not exceed the diversification thresholds outlined
in our criteria."
GEDESCO TRADE 2020-1: Moody's Ups Rating on EUR7.5MM D Notes to B2
------------------------------------------------------------------
Moody's Investors Service has upgraded the ratings of Class C and
Class D Notes in Gedesco Trade Receivables 2020-1 Designated
Activity Company. The rating action reflects the correction of a
modelling error for the affected notes.
EUR15 million Class C Notes, Upgraded to Ba2 (sf);
previously on Jul 20, 2022 Upgraded to Ba3 (sf)
EUR7.5 million Class D Notes, Upgraded to B2 (sf);
previously on Jul 20, 2022 Upgraded to B3 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR225 million (Current outstanding amount EUR 208.2M)
Class A Notes, Affirmed Aa3 (sf); previously on
Jul 20, 2022 Affirmed Aa3 (sf)
EUR15 million Class B Notes, Affirmed Baa2 (sf);
previously on Jul 20, 2022 Affirmed Baa2 (sf)
EUR7.5 million Class E Notes, Affirmed Caa3 (sf);
previously on Jul 20, 2022 Affirmed Caa3 (sf)
EUR15 million Class F Notes, Affirmed Ca (sf);
previously on Jul 20, 2022 Affirmed Ca (sf)
The transaction is a revolving cash securitisation of different
types of receivables (factoring, promissory notes and short-term
loans) originated or acquired by Gedesco Finance S.L. ("Gedesco",
NR) and Toro Finance, S.L.U. (NR) to enterprises and self-employed
individuals located in Spain. The revolving period is ending in
January 2023.
RATINGS RATIONALE
The rating action is prompted by the correction of a modelling
error related to the reserve fund amortization mechanism.
According to the deal documentation, the reserve fund in the
transaction is to be replenished to 1% of the outstanding balance
of the Class A Notes, irrespective of the deal performance. In the
previous rating actions, the reserve fund was incorrectly modelled
with a trigger stopping its amortization under certain performance
related conditions. The correction of this error had beneficial
effects on all the tranches junior to Class A, driving a one-notch
upgrade to the ratings for the Class C and Class D Notes.
Revision of Key Collateral Assumptions:
As part of the rating action, Moody's reassessed its default
probability and recovery rate assumptions for the portfolio
reflecting the collateral performance to date.
The performance of the transaction has continued to be stable since
closing in March 2020. Cumulative defaults currently stand at 0% of
original pool balance and the deal revolving period is close to the
end.
For Gedesco Trade Receivables 2020-1 Designated Activity Company,
the current default probability assumption is 10.7% of the current
portfolio balance and the assumption for the fixed recovery rate is
36%. Upon Gedesco's insolvency the recovery rate assumption is
reduced to 25% to take into account the potential lack of recourse
to certain security on the claims. Moody's has maintained the CoV
at 53.2% which, combined with the revised key collateral
assumptions, corresponds to a portfolio credit enhancement of
27.3%.
Counterparty Exposure
The rating action took into consideration the notes' exposure to
relevant counterparties, such as servicer or account bank
provider.
The principal methodology used in these ratings was "Moody's Global
Approach to Rating SME Balance Sheet Securitizations" published in
July 2022.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors or circumstances that could lead to an upgrade of the
ratings include (1) performance of the underlying collateral that
is better than Moody's expected, (2) an increase in available
credit enhancement and (3) improvements in the credit quality of
the transaction counterparties.
Factors or circumstances that could lead to a downgrade of the
ratings include (1) an increase in sovereign risk, (2) performance
of the underlying collateral that is worse than Moody's expected,
(3) deterioration in the Notes' available credit enhancement and
(4) deterioration in the credit quality of the transaction
counterparties.
=========
I T A L Y
=========
ITALMATCH CHEMICALS: Moody's Ups CFR to B3 & Rates New Notes B3
---------------------------------------------------------------
Moody's Investors Service upgraded Italmatch Chemicals S.p.A.'s
corporate family rating and probability of default rating to B3 and
B3-PD from Caa1 and Caa1-PD, respectively. Concurrently, Moody's
upgraded Italmatch's existing EUR650 million senior secured
floating rate notes to B3 from Caa1 and assigned B3 instrument
ratings to the proposed total EUR700 million backed senior secured
floating rate notes and backed senior secured fixed rate notes.
Moody's also changed the outlook to stable from positive. The
ratings and outlook incorporate the expectation that the company
will execute on the proposed refinancing and maintain interest
coverage in line with Moody's expectation for the B3 rating.
Italmatch announced in December that Dussur, the Saudi Arabian
Industrial Investments Company, signed a definitive agreement to
acquire a stake in Italmatch from Bain Capital.
Moody's expects to withdraw the rating on the legacy debt
instrument upon repayment.
RATINGS RATIONALE
The rating action reflects Moody's expectation that the company can
maintain adequate credit metrics for the B3 rating over the next
12-18 months pro-forma basis for the expected refinancing and
capital increase transactions. The contemplated refinancing
transaction will extend Italmatch's maturity profile, which Moody's
views as credit positive, but will also increase interest costs
materially. In tandem with the proposed debt issuance, the company
plans to extend the maturity of its unrated super senior revolving
credit facility (SSRCF) to the earlier of October 2027 or three
months prior to the maturity of the proposed senior secured notes,
under the condition that the legacy debt has been repaid.
Governance considerations are a key driver in this action as the
proposed capital increase of approximately EUR100 million by
Italmatch's future minority owner, the Saudi Arabian Industrial
Investments Company (Dussur), will delever the capital structure
leading to a more conservative financial policy compared to when
Moody's first assigned the rating in September 2018. The minority
stake acquisition in Italmatch by Dussur is subject to the approval
of the regulatory authorities and is expected to be completed in
the first half of 2023.
In 2022, Italmatch's EBITDA increased materially, mainly because of
increased pricing power, the company's focus on higher value
products and customers' willingness to pay for supply guarantee,
supporting a reduction in Moody's estimated adjusted gross leverage
to around 5.6x (excluding unrealized forex gains related to
intra-group loans) in 2022 from around 10x (excluding unrealized
forex gains related to intra-group loans) in 2021. The
aforementioned leverage metrics include the rating agency's
standard adjustmentsand are not adjusted for non-recurring items or
management adjustments. Higher selling prices more than offset
increased raw material and energy costs illustrated by the
company's contribution margin per ton, which increased to levels
materially above historical averages. Moody's anticipates that
Italmatch's earnings will moderate in 2023 compared to 2022 because
of a weaker macroeconomic environment, although Moody's expects
that Italmatch's EBITDA in 2023 will be above the levels of 2021
and prior year levels because of tighter supply conditions and its
focus on higher value products.
Moody's forecasts Italmatch's gross leverage, as adjusted and
defined by Moody's, to be in the range of 6.5x-7x in 2023, and its
EBITDA interest coverage to be around 1.5x in 2023. Although
interest expense could vary significantly depending on definitive
costs, including any original issuance discount, and final
allocation between fixed and floating rates notes at closing of the
refinancing transaction. The good liquidity profile after the
proposed capital increase and refinancing transactions somewhat
mitigates the relatively weak interest cover. In addition, the
company benefits from favorable interest rate swaps, however these
arrangements will mature in late 2024 increasing the company's
exposure to interest rate risks.
Italmatch's rating reflects positively the company's geographical
and end-market diversification despite its modest revenue size;
strong positions in selected market niches; and its diversified
blue-chip customer base. Its good liquidity, pro-forma for the
expected refinancing and capital increase transactions, further
supports the credit profile.
However, the company's modest scale; its highly leveraged capital
structure; its mixed track record of growing earnings since Moody's
first assigned the rating in 2018; its relatively short track
record of operating with credit metrics strong enough for a B3
rating; and lack of track record of generating consistent positive
free cash flow, especially given that the company now faces higher
interest costs, weighs negatively on the credit profile. Risks
related to its private equity ownership could result in
re-leveraging for return of capital or debt-funded acquisitions.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects Moody's expectation that the company
will be willing and able to maintain credit metrics commensurate
for the B3 rating over the next 18 months.
LIQUIDITY
Italmatch's liquidity profile is good, supported by the full
availability under its EUR107 million SSRCF (after the assumed
repayment of the existing revolving credit facility). The opening
cash balance could vary depending on closing terms which remain
uncertain. In combination with forecasted funds from operations and
material working capital release in the mid-double-digit million
euro range over the next 12 months, these sources are sufficient to
cover capital spending and day-to-day cash needs.
STRUCTURAL CONSIDERATIONS
The senior secured ratings are B3, in line with the corporate
family rating for Italmatch, because the senior secured instruments
have a dominant position in the capital structure, though the SSRCF
ranks ahead of the notes. The security package for the senior notes
comprises mostly a pledge over the company's bank accounts and
intercompany receivables, and benefits from upstream guarantees
from most of the group's operating subsidiaries.
ESG CONSIDERATIONS
Moody's governance assessment for Italmatch incorporates its
leveraged capital structure, reflecting high risk tolerance of its
private equity owner. The private equity business model typically
involves an aggressive financial policy and a highly leveraged
capital structure to extract value. Following the investment by
Dussur, the board of directors will include at least one
representative of Dussur, nevertheless Bain Capital will remain the
majority shareholder of Italmatch.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade Italmatch's rating, though unlikely over the
next 12 months, if the company's Moody's-adjusted total debt/EBITDA
fell sustainably below 5.5x and EBITDA/interest expense would be
comfortable above 2.5x on a sustained basis. An upgrade would also
require the company to generate positive free cash flow and to
maintain an adequate liquidity profile. In addition, the company
needs to demonstrate a continued track record of EBITDA generation
(including non-recurring items) at current levels and a disciplined
approach regarding growth opportunities.
Moody's could downgrade Italmatch's rating if the company
experiences a material increase in competition that weakens its
contribution margin per ton or EBITDA to levels seen in 2021 or
before, is unable to generate sustained positive free cash flow, or
its liquidity profile deteriorates. A downgrade also would be
likely if Moody's-adjusted total debt/EBITDA increases above 7.0x
or EBITDA/interest expense is below 1.5x on a sustainable basis.
Also, negative rating pressure could arise if the investment by
Dussur or the refinancing transaction would not be completed as
indicated to the rating agency.
LIST OF AFFECTED RATINGS
Upgrades:
Issuer: Italmatch Chemicals S.p.A.
Probability of Default Rating, Upgraded to B3-PD from Caa1-PD
LT Corporate Family Rating, Upgraded to B3 from Caa1
Senior Secured Regular Bond/Debenture, Upgraded to B3 from Caa1
Assignments:
Issuer: Italmatch Chemicals S.p.A.
BACKED Senior Secured Regular Bond/Debenture, Assigned B3
Outlook Action:
Issuer: Italmatch Chemicals S.p.A.
Outlook, Changed To Stable From Positive
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Chemicals
published in June 2022.
COMPANY PROFILE
Headquartered in Genova, Italy, Italmatch Chemicals S.p.A.
(Italmatch) is a global chemical additives manufacturer, with
leadership in lubricants, water & oil treatments, detergents and
plastics additives. The company operates through four distinct
business divisions: Advanced Water Solutions, Lubricant Performance
Additives, Flame Retardants and Plastic Additives and Performance
Products and Personal Care. In the last 12 months ended September,
the company generated revenues of around EUR858 million and
company-adjusted EBITDA of EUR160 million. Since late 2018,
Italmatch is majority owned by Bain Capital.
ITALMATCH CHEMICALS: S&P Puts 'B-' ICR on Watch Pos. on Refinancing
-------------------------------------------------------------------
S&P Global Ratings placed its 'B-' issuer credit rating on
Italmatch Chemicals SpA's parent, Fire (BC) S.a.r.l, on CreditWatch
with positive implications. At the same time, S&P assigned its
preliminary 'B' issue rating to the proposed EUR700 million senior
secured notes.
S&P plans to resolve the CreditWatch placement when the transaction
closes, which is expected to be in January/February 2023.
Italmatch launched the EUR700 million senior secured notes to
refinance the existing EUR650 million notes due in September 2024.
At the same time, it will extend the maturity of the super senior
RCF. Existing shareholders Bain Capital Private Equity and
management signed a definitive agreement to sell a minority stake
in Italmatch to Dussur. Upon closing of the sale, Dussur will
invest an additional EUR100 million into Italmatch to increase
capital. The equity injection is earmarked to repay the group's RCF
drawings and strengthen liquidity. Post refinancing, the sale to
Dussur, and its capital increase (which Italmatch expects will
complete in first-half 2023), Italmatch's capital structure will
include EUR700 million notes, EUR107 million undrawn RCF and about
EUR31 million other debt (mainly short-term local credit lines).
Despite EUR50 million more notes, gross financial debt outstanding
will be reduced slightly by about EUR17 million due to RCF
repayments.
The group's strong performance and rise in EBITDA led to swift
deleveraging in 2022. Strong demand across end-markets, and the
group's disciplined pass-through of raw material and energy cost
increases to customers, resulted in revenue growth of more than 59%
to EUR686 million in the first nine months of 2022. Additionally,
an improved product mix, supported by the increasing contribution
from new high value products, and Italmatch's focus on securing
reliable supply to its customers amid global supply chain
constraints contributed to much higher unit margins. This is
evidenced by the group's contribution margin jumping to EUR1,004
per ton (/ton) in the first nine months of 2022 from EUR665/ton in
the same period in 2021. S&P said, "However, we view part of the
2022 margin increase as unsustainable. We forecast that adjusted
EBITDA will increase by more than 65% to EUR145 million-EUR152
million in 2022. This would drive down our adjusted debt to EBITDA
significantly to 5.3x-5.5x, from 8.4x in 2021."
S&P said, "We expect leverage to temporally rise in 2023 before
deleveraging gradually from 2024, due to softening demand and
normalizing margins amid the global economic slowdown and elevated
inflation. We estimate a slight volume decline in 2023 and a
normalization in unit margins from the extraordinary high level in
2022, given weakening demand, potential lower raw material prices,
and easing supply chain tensions. As a result, we forecast adjusted
EBITDA to decline to EUR122 million-EUR127 million in 2023, with
our adjusted leverage temporarily deteriorating to 6.0x-6.5x. This
is still within the 5.0x-6.5x range that we view as commensurate
with a 'B' rating. Nevertheless, increasing demand for the
company's products, for example, for more environmentally friendly
industrial water management and desalination solutions,
particularly in the Middle East, will support a return to revenue
and earnings growth and thus gradual deleveraging to below 6.0x
adjusted debt to EBITDA from 2024.
"We expect a strong rebound in FOCF generation in 2023, driven by a
working capital release. Despite a material increase in EBITDA, we
forecast FOCF will remain negative in 2022, driven by unusually
high working capital consumption. Besides much higher raw material
prices and strong sales growth in 2022, a much-higher-than-usual
level of safety stock to ensure supply security to customers and
overcome supply chain disruptions led to a EUR94 million increase
in inventory and EUR102 million net working capital outflow in the
first nine months of 2022. The company is focused on implementing
various actions to reduce inventory levels, especially safety
stock, over the next quarters. We take a more cautious view
compared to management estimates and expect working capital to
reduce by EUR35 million-EUR45 million during 2023 (probably to be
fully achieved in the second half of the year). Working capital
normalization, combined with continuous low capital expenditure
(capex; 3.0%-3.5% of annual sales), will more than compensate for
lower EBITDA and higher interest costs post refinancing in the
current higher interest rate environment, leading to a strong
rebound in FOCF to above EUR50 million in 2023 from negative EUR20
million-EUR30 million in 2022. With normalized working capital, we
expect annual FOCF will reach EUR15 million-EUR25 million on
average with an underlying EBITDA of EUR125 million-EUR150
million."
Italmatch's leading position in the niche markets it operates, as
well as its good geographic and end-market diversity, and a
continuous shift toward specialty products support its business
risk profile. The company increased its scale and continuously
shifted its portfolio toward high value specialty products through
several acquisitions. It has established itself as a performance
additives producer after the BWA Water Additives and Water Science
Technologies acquisitions in 2019. These acquisitions sharpened the
focus on specialty products and allowed the development of new
sustainable solutions, including a new biodegradable antiscalant
for reverse osmosis desalination, a new antiscalant for geothermal
applications in sever conditions, new automatic transmission fluids
for the U.S. market, and polymers for electric vehicle lubricants
to improve heat transfer. S&P thinks this will contribute to
healthy sales growth and a gradual improvement in profitability.
Constraints on Italmatch's business risk include its relatively
limited scale of operations compared with other larger specialty
chemical peers, which makes it sensitive to external shocks and
even minor EBITDA changes that could lead to considerable
volatility in leverage ratios. S&P said, "With sales of about
EUR858 million and adjusted EBITDA of about EUR149 million in the
12 months to September 2022 (EUR160 million as per Italmatch's
adjusted EBITDA definition), Italmatch is one of the smallest
companies we rate in the specialty chemicals sector. It also has a
relatively narrow product focus on phosphorus-based derivatives,
despite a wide range of applications and end markets. Also, we
estimate that about 20% of the company's revenues are exposed to
highly cyclical end markets including oil and gas and
construction."
The final issue rating will depend on our receipt and satisfactory
review of all final documentation and terms of the transaction. The
preliminary issue rating should therefore not be construed as
evidence of the final rating. S&P said, "If we do not receive final
documentation within a reasonable time, or if the final
documentation and terms of the transaction depart from the
materials and terms reviewed, we reserve the right to withdraw or
change the rating. Potential changes include, but are not limited
to, utilization of the proceeds, maturity, size and conditions of
the facilities, financial and other covenants, security, and
ranking."
S&P said, "The CreditWatch positive placement reflects our view
that Italmatch's successful refinancing of its senior secured notes
maturing September 2024, extension of the RCF maturing April 2024,
and adjusted debt to EBITDA below 6.5x will improve its capital
structure and likely lead us to raise the rating by one notch to
'B'. We aim to resolve the CreditWatch placement when the
refinancing is completed, and once we receive final
documentation."
S&P could affirm the 'B-' rating if Italmatch does not successfully
refinance its debt maturities as intended.
ESG credit indicators: E-2, S-2, G-3
===========
R U S S I A
===========
UZAUTO MOTORS: S&P Affirms 'B+/B' ICRs & Alters Outlook to Positive
-------------------------------------------------------------------
S&P Global Ratings revised its outlook on UzAuto Motors (UAM) to
positive from stable and affirmed its 'B+/B' long- and short-term
ratings.
The positive outlook indicates that S&P could raise the long-term
rating if UAM successfully expands production capacity while
maintaining EBITDA margins at 8.5%-9.5%, FFO to debt above 45%, and
reducing intrayear working capital volatility.
Capacity expansion plans and growing domestic demand should support
EBITDA growth above US$300 million in 2023-2025. By the end of
2022, UAM reported a record high level of production of about
328,000 units, on the back of the successful launch of new models
on the GEM platform, which is currently ramping up. S&P said,
"However, we expect the company to further increase volumes given
its announced plans to expand its capacity to 500,000 units by
2025. We currently expect that the company will be able to sell
those volumes, thanks to the strong growth prospects of the
domestic market, driven by a young and growing population and still
low automobilization levels compared with neighboring countries in
the region. This should translate into top-line growth of 30%-45%
in 2023 and 10%-20% in 2024. We note 2022 profitability was hit by
inflation and additional costs related to the GEM platform launch,
depressing EBITDA margin to about 8.5% from 10.8% in 2021. However,
we expect a change in the portfolio mix with the introduction of
two new higher margin models, Onix and Tracker, as well as
economies of scale, will offset persistent inflation pressure. We
think this will keep the EBITDA margin at 8.5%-9.5% and that it
could result in sustainable EBITDA generation above US$300 million
in the next two years. We note that gradual domestic market
liberalization, including the reduction of custom duties in
Uzbekistan in February 2022, along with additional capacity
investments by other players, could intensify competition in
Uzbekistan in the next few years. However, we still expect UAM to
sustain its leading market position, supported by a fresh new model
line-up and its cost-efficient local production, which allow it to
offer its vehicles at lower price points relative to competitors."
UAM's ability to generate FOCF, in particular by controlling
working capital fluctuations, is a key rating factor. UAM's cash
flow generation has been highly volatile historically, constraining
the rating at the current level. The company generated US$220
million-US$240 million in operating cash flow, before working
capital changes, annually during 2020-2022. However, the company
faced a working capital outflow of US$365 million in 2020 on the
back of shrinking customer prepayments because of the pandemic.
This was followed by a working capital inflow of US$290 million in
2021, as the decline in prepayments reversed and UAM extended the
number of days payable. S&P said, "We further note sizable
half-year working capital fluctuations during 2022, with a US$167
million outflow during the first half of 2022 followed by an
expected material working capital inflow in the second half of the
year, leading to a sizable cash buildup. We estimate the year-end
2022 cash balance and short-term deposits at more than US$500
million, which should provide some cushion for potential liquidity
outflows in 2023. Also, we understand the inventory buildup to
launch the GEM platform and negotiations with suppliers are now
final, and that management expects no further material working
capital fluctuations. Nevertheless, we expect the company's
operating cash flow generation to remain prone to large swings, for
example, because capacity expansion plans can materially affect
inventories or lead to additional advances to suppliers, or due to
typically volatile customer prepayments, which fluctuate with
legislative changes or macroeconomic conditions. We also note that
the company's capex remains uneven, because it is mainly driven by
decisions on major capacity investments, and this may compound the
volatility of its FOCF."
S&P said, "We expect the group's credit quality to develop in line
with UAM's, with the introduction of International Financial
Reporting Standards (IFRS) improving transparency. We expect UAM to
remain the core asset of its parent company, UzAutoSanoat,
generating about 80% of the group's EBITDA. Therefore, the parent
company's credit quality is closely linked to UAM's, in our view.
Specifically, our view of the group's business is mainly driven by
UAM, given that the holding company's diversification into other
areas of light vehicle production, such as in engine production, is
limited. Despite plans for several joint ventures being announced
last year between the holding company and its foreign partners in
Uzbekistan and export markets, we don't expect any material debt
incurred in connection with these partnerships or at other
subsidiaries. As a result, we believe the group's FFO to debt will
be above 50% in the next two years, close to that of UAM.
"UAM's plan for an IPO of a minority stake is unlikely to change
our view of its link with the government. UAM announced a domestic
IPO launch in December 2022 with a target of disposing 5% of its
share capital, with a further capital disposal planned in a
subsequent international IPO, which for now is delayed on the back
of increased market volatility. Even if the second IPO were to go
ahead, we expect that the government would keep a large controlling
stake in UAM (more than 75%, in our view). As a result, we think
that the likelihood of UAM receiving extraordinary government
support in times of difficulty is unlikely to change. Conversely,
the potential entry of international investors could further
enhance transparency and the implementation of best corporate
practices, for example, quarterly reporting and public announcement
of a financial policy. We still believe our assessment of a high
likelihood of extraordinary government support captures the group's
importance to the local economy as a national auto producer and
large employer, as well as the government's influence on UAM's
strategic and business plans through its board of directors, and
its track record of previous support through favorable loan rates
and market regulation.
"The positive outlook reflects our expectation that pricing and new
model launches could support EBITDA margins at 8.5%-9.5% and
absolute EBITDA above US$300 million, as well as cumulative FOCF
above US$100 million in 2022-2023. In addition, with limited new
debt for UAM's capacity expansion, FFO to debt should remain
comfortably above 45%, and we expect no significant additional
incurrence of leverage at the holding level."
S&P could raise its rating in the next 15-18 months if:
-- UAM successfully expands its capacity, while sustaining
production above 400,000 units in 2023.
-- UAM generates annual EBITDA above US$300 million, supported by
strong demand and pricing.
-- FFO to debt remains consistently above 45%, with limited
additional leverage buildup to finance its capacity expansion
program.
-- Cumulative FOCF is above US$100 million in 2022-2023, supported
by good management of capex and a more predictable working capital
trajectory.
-- The credit quality of parent UzAutoSanoat would also need to
develop in line with that of UAM to support a potential upgrade.
S&P said, "Notably, we expect the parent's credit metrics to be
similar to those of UAM, implying limited additional debt (other
than assumed in our base case) and no material negative cash burn
at other subsidiaries. We expect transparency will increase at the
parent company with the introduction of IFRS reporting."
S&P could also raise the rating on UAM if it raises the sovereign
rating on Uzbekistan (BB-/Stable/B).
S&P said, "We could revise the outlook to stable if the company is
unable to sustain EBITDA above US$300 million, due to weakening
demand, the failure to expand capacity, or inability to offset
foreign exchange pressure or cost inflation through price
adjustments. We could also revise the outlook if we observe
negative FOCF as a result of a significant capital investment
program with uncertain future returns or higher working capital
requirements than we envisage in our base case."
The probability of a downgrade is limited in the next two years.
This would require material EBITDA reduction or leverage build up
at UAM or the holding level, leading to FFO to debt below 30% and
adjusted debt to EBITDA above 3.0x for the consolidated group, or
unexpected pressure on the company's or the group's liquidity.
ESG credit indicators: E-2, S-2, G-4
S&P said, "Governance factors are a negative consideration in our
credit rating analysis of UAM, similar to corporate peers in
Uzbekistan and Kazakhstan. UAM and its parent company,
UzAutoSanoat, are on the path to greater disclosure and
transparency. UzAutoSanoat has recently initiated IFRS disclosure,
but with only 2020 full-year results available so far. We think the
group's governance still lags international best practices,
especially when compared with those of public companies in
developed markets. Moreover, our assessment reflects the elevated
country-related governance risks in Uzbekistan, where the company's
operations are concentrated. Environmental factors have an overall
neutral influence on our rating analysis of UAM. Although UAM lags
global auto producers in terms of the transition to electric
vehicle production, this is offset by significantly lower
regulatory pressure from the Uzbekistani government and the lack of
carbon dioxide emission regulation, limiting the effect on the
company's financials in the next few years, in our view."
=========
S P A I N
=========
INTERNATIONAL PARK: Fitch Assigns 'B(EXP)' IDR, Outlook Stable
--------------------------------------------------------------
Fitch Ratings has assigned International Park Holdings B.V. a
first-time Issuer Default Rating (IDR) of 'B(EXP)' with a Stable
Outlook. The issuer is the financing entity that owns PortAventura,
the Spanish theme park and resort operator. Fitch has also assigned
an expected senior secured rating of 'B+(EXP)'/RR3 to the EUR620
million term loan B (TLB) borrowed by International Park Holdings
B.V.
The assignment of final ratings is subject to the successful
completion of the amend and extend (A&E) transaction with final
terms being in line with its preliminary expectations.
The 'B' IDR reflects its assessment of a sustainable business model
supported by strong brand awareness in Spain and other parts of
Europe, a well-invested asset base consisting of the theme park,
on-site hotels and other attractions, which represent relatively
high barriers to entry. Profitability is strong, with
Fitch-adjusted EBITDA margins of around 42% (2022 forecast) and
positive free cash flow generation, despite higher expected
interest costs following the A&E transaction.
The rating is constrained by the small size of the business versus
wider sector peers and the low diversification of the business as a
single-location theme park and resort with high exposure to the
Spanish market (roughly two-thirds of the client base).
The Stable Outlook reflects its view that the group is adequately
positioned to face the mild recessionary environment Fitch expects
for 2023, supported by strong recent bookings and a flexible cost
base. Fitch believes it has adequate liquidity to manage internal
investment needs, the seasonal low point of cash flow in the first
months of the year, as well as higher debt servicing costs.
KEY RATING DRIVERS
Leading Spanish Family Destination Resort: PortAventura is a
one-location entertainment resort comprising three attraction parks
and six on-site hotels in southern Spain. The resort attracts
around 5.1 million visitors per year, making it the most visited
theme park in Spain and fourth biggest in Europe, with good air and
road connections to the resort.
The business is well-invested with almost EUR1 billion of capex
spent since its inception in 1995, including the opening of the
"FerrariLand" theme park in 2017 as well as expansion and regular
refurbishments across its hotel base. Fitch judges barriers to
entry as relatively high, given the large initial investment
capital required to build a theme park resort as well as stringent
safety and regulatory standards.
FCF Supports Investments: Fitch expects PortAventura's underlying
free cash flow (FCF) generation to be positive and forecasts FCF
margins averaging around 4% over the rating horizon (2023-2026).
This is despite higher interest costs, which Fitch assumes will
rise from EUR33 million in 2022 to EUR44 million in 2024 following
the upcoming A&E, and will compress FCF.
Nevertheless, Fitch expects PortAventura's expected cash on balance
sheet of around EUR65 million, pro-forma to the upcoming A&E
transaction, together with strong operating cash flow generation as
adequate to cover investments in digitalisation initiatives and new
attractions. Capex is generally high, and Fitch projects EUR40
million per year (around 15%-20% of sales in its projections),
comprising investments in new rides and attractions as well as
hotel refurbishments and a solar panel park in 2022-2024.
Stable Performance Expected in 2023: Fitch expects fairly stable
performance in 2023 on the back of a very strong 2022, supported by
a number of factors: i) continued pent-up demand in the industry as
well as additional opening days during 2023; ii) price rises are
expected to compensate for slightly softening volumes; and iii)
Fitch expects the group to generate additional revenues from its
new asset-light hotel operations business line.
Latest indications are that 4Q22 performance was strong, with a
record quarter for the group. This is despite high levels of
inflation and a weakening economic backdrop, which supports its
overall expectations for flat revenue development in 2023 alongside
a modest decline in EBITDA.
Low Diversification: According to its generic navigator, Fitch
assigns a 'b' diversification score to PortAventura, which reflects
the high concentration of the business, as a single asset located
on the Costa Dorada in Spain. However, the single site location
allows for multiple cost efficiencies across the various parks and
hotels and supports the high group EBITDA margin of over 40%. Most
of PortAventura's visitors are Spanish (over 60%), although this is
slowly diversifying and should proceed on this trajectory thanks to
marketing efforts.
Moderate Cyclicality: Fitch judges PortAventura's end-market demand
to be moderately cyclical, given the discretionary nature of
spending, with exposure to health events and international travel.
However, Fitch thinks that it is somewhat protected versus leisure
industry peers due to its relatively economical price offering
(average day pass of around EUR30) as well as benefiting from the
"staycation effect".
Financial Leverage Commensurate with Rating: Fitch expects
pro-forma EBITDA leverage to be stable at slightly below 6.5x in
2022 and 2023 after the A&E, which is in line with the 'B(EXP)'
rating. Strong profitability and cash flow generation will support
stable leverage in 2023 through partial repayment of the revolving
credit facility (RCF), despite Fitch's expectations of softening
volumes alongside moderate cost pressure from wage inflation and
increased marketing spend.
Fitch expects EBITDA leverage to trend towards 5.4x by 2025, driven
by a combination of mid-single digit sales growth, gradual margin
expansion and positive FCF that allows further RCF repayments by
2024.
Energy Costs Expected to Fall: Fitch expects energy costs to reduce
in 2023 by about 30% compared with 2022. PortAventura is building a
solar panel park, from which it plans to generate one-third of its
total electricity use from March 2023 when it goes live, and up to
60% from 2024. It has also fixed prices on 40% of the rest of
energy use for 2023-2025. This will limit the company's exposure to
further energy price increases, as total energy costs doubled to
EUR12 million in 2022 from EUR6 million in 2019.
DERIVATION SUMMARY
Fitch rates PortAventura based on its Generic Navigator but
compares it with leisure issuers TUI Cruises GmbH (B-/Stable),
Pinnacle Bidco plc (Pure Gym, B-/Stable), Deuce Midco Limited
(David Lloyds, B/Stable), as well as restaurant operator Wheel
Bidco Limited (Pizza Express, B/Negative) and hotel companies NH
Hotels Group S.A. (B/Stable) and Sani Ikos Group S.C.A.
(B-/Negative). While smaller in revenue terms, thanks to a very
high EBITDA margin of around 40%, PortAventura's EUR120 million
EBITDA is comparable with many of these issuers.
Its leverage of around 6.5x is also at the low end of this peer
group and due to more moderate capex requirements, its cash flow
generation has a generally more stable record than that of hotel
companies and TUI Cruises GmbH. However, these other issuers
operate with a wider number of locations and travel destination
offers, while PortAventura's rating is constrained by the single
location of its operations.
Port Aventura benefits from demand for its service being a
low-ticket form of entertainment, similar to restaurants but also a
relatively more efficient and flexible cost base, which makes its
volumes and margins relatively resilient to economic swings. On the
other hand, compared with gym operators, it does not enjoy the
better profit visibility of a subscription-based model.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Revenue growth to slow down to 1.4% in 2023, as marginal decline
in visits and room nights are offset by some price pass through.
- Mid-single-digit revenue growth in 2024-2026, mainly driven by
increased volume and price. Expansion of international visitors,
longer opening days and hotel under management business will
support volume growth.
- Fitch-adjusted EBITDA margin to contract to 40% in 2023 from
around 43% in 2022 due to cost inflation, before recovering towards
42% in 2025.
- Working capital outflows of around 1.5% of sales per year.
- Capital expenditures of EUR57 million in 2022 and around EUR40
million per year for 2023-2025. Capex mainly relates to investments
in new rides and solar panels. Maintenance capex accounts for
around EUR25 million per year.
- No dividends or M&A
RECOVERY ASSUMPTIONS
Fitch assumes that the company would be reorganised as a
going-concern (GC) in bankruptcy rather than liquidated.
In its bespoke recovery analysis, Fitch estimates GC EBITDA
available to creditors of around EUR90 million. This reflects
Fitch's view of a sustainable, post-reorganisation EBITDA level on
which Fitch bases the enterprise valuation (EV). At the GC EBITDA,
the company will generate low double-digit operating cash flow that
would provide no room for investments in growth capex.
Fitch has applied a 5.5x EV/EBITDA multiple to the GC EBITDA to
calculate a post-reorganisation EV. This multiple reflects the
company's good brand name, well-invested asset base, strong
profitability and high barriers of entry, balanced by relatively
small scale and concentrated geographic location. This is in line
with Pure Gym and 0.5x lower than David Lloyd Leisure, which
benefits from a more diversified portfolio alongside an affluent
membership base that is less sensitive to economic downturn and
lower attrition rates.
PortAventura's EUR620 million senior secured TLB ranks pari-passu
with its EUR50 million RCF, which Fitch assumes to be fully-drawn
in a default scenario, but ahead of the unsecured Institute of
Official Credit (´ICO´) loan. Fitch has treated EUR16.5 million
drawings under a reverse factoring facility as unsecured debt. The
allocation of value in the debt waterfall results in senior secured
rating of 'B+(EXP)'/RR3/66% to the EUR620 million TLB.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- A structural strengthening of the business profile, evidenced by
larger EBITDA and reduced reliance on cash flow generation from
summer months of operation and admission tickets
- Total debt/EBITDA sustainably below 5.0x and EBITDA interest
coverage above 2.5x
- FCF margin in mid to high single digits on a sustained basis
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Substantial decline in key performance indicators and reliance on
discounts leading to significant sales decline and continued
pricing pressure
- Total debt/EBITDA above 6.5x and EBITDA interest coverage below
2.0x on a sustained basis
- Declining or weak FCF generation
LIQUIDITY AND DEBT STRUCTURE
Satisfactory Liquidity: PortAventura had cash on balance sheet of
around EUR88 million as of December 2022, with its EUR50 million
RCF fully drawn. Fitch expects PortAventura's liquidity to remain
satisfactory on the back of strong operating cash flow generation
and flexible capex, of which about EUR25 million is related to
maintenance. Assuming a successful A&E, PortAventura will also
benefit from extended maturities in 2026 (December 2026 for the
extended TLB and June 2026 for the extended RCF).
Fitch expects FCF generation to support some RCF repayment over
2023-2024. Fitch has included EUR30 million of RCF repayment in
2023 (of which EUR10 million is to be repaid upon maturity in 2023)
and EUR10 million in 2024 in its base case. Fitch restricts EUR10
million of cash for working capital purposes.
ISSUER PROFILE
Portaventura is a family-focused entertainment resort located on
the Costa Daurada, in Spain. The resort includes the largest theme
park in Spain alongside six on-site hotels and other leisure
attractions.
Entity/Debt Rating Recovery
----------- ------ --------
International
Park Holdings B.V. LT IDR B(EXP) Expected Rating
senior secured LT B+(EXP) Expected Rating RR3
=====================
S W I T Z E R L A N D
=====================
VERISURE MIDHOLDING: New Secured Notes No Impact on Moody's B2 CFR
------------------------------------------------------------------
Moody's Investors Service has said that Verisure Midholding AB's
(Verisure or the company) B2 corporate family rating, B2-PD
probability of default rating and Caa1 guaranteed senior unsecured
ratings are unaffected by the planned issuance by Verisure Holding
AB of the proposed EUR350 million backed senior secured notes.
Moody's has assigned the B1 rating to this new issuance. Verisure
Holding AB's existing backed senior secured B1 ratings are also
unaffected. The outlook on all ratings is stable.
RATINGS RATIONALE
The planned transaction is largely leverage neutral with proceeds
from the issuance used to primarily repay drawings under the EUR700
million backed senior secured revolving credit facility (RCF) that
stood at EUR407.9 million as of September 30, 2022. Moody's
adjusted gross debt / EBITDA for the last twelve months to
September 30, 2022, pro forma for the planned issuance, is around
the 7x level. The company continues to perform in line with Moody's
expectations although the operating environment is becoming more
challenging as inflationary pressures increasingly weighs on
profitability and cancelation rates moderately increase.
The new planned backed senior secured notes will have the same
ranking, security, guarantees, and covenants as the existing backed
senior secured notes.
STRUCTURAL CONSIDERATIONS
The EUR2.8 billion backed senior secured term loans, the EUR3
billion backed senior secured notes and the EUR700 million RCF all
rank pari passu and share the same security package. They are all
rated B1 which is one notch above Verisure's B2 CFR to reflect
their ranking ahead of the Caa1 rated EUR1.32 billion equivalent
guaranteed senior unsecured notes.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) CONSIDERATIONS
ESG considerations have a highly negative credit impact (CIS-4) on
the company. This primarily reflects governance risks from the
company's tolerance for high leverage and policies that favour
shareholders over creditors motivation, as demonstrated by a
history of recurring dividend recapitalisations.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects Moody's expectation of sustained
deleveraging through EBITDA growth and no sharp increase in
cancellation rates. Moody's expects the subscriber base to grow
leading to improved cash flow on a steady-state basis before growth
in new subscribers. Moody's also anticipates no further material
debt-financed dividends until the company has achieved further
substantial deleveraging.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Positive rating pressure could develop if Verisure
demonstrates and commits to more balanced financial policies, and
limits additional debt financing to fund growth and dividend
payments
sustains Moody's-adjusted gross debt/ EBITDA below 5.5x, and
increases steady-state free cash flow (before growth spending) to
debt to 10%, with free cash flow (after growth spending) becoming
positive and
maintains strong operating performance, including stable
cancellation rate
Downward rating pressure could develop if
Moody's-adjusted gross debt/ EBITDA is sustained above 7x for a
prolonged period or
steady-state FCF generation trends towards zero, or if liquidity
concerns were to arise or
operating performance weakens materially
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Business and
Consumer Services published in November 2021.
PROFILE
Headquartered in Versoix, Switzerland, Verisure Midholding AB
(Verisure) is the leading provider of professionally monitored
alarm solutions in Europe. It designs, sells and installs alarms,
and provides ongoing monitoring services to residential and small
businesses across 17 countries in Europe and Latin America. The
Company is also the leading provider of connected video
surveillance systems in Europe through Arlo Europe. The company
generates around EUR2.5 billion in annual revenues from its 4.65
million subscribers with a high share of recurring revenues at
approximately 80%, and employs more than 20,000 people. The company
was founded in 1988 as a unit of Securitas AB and is majority owned
by private equity firm Hellman & Friedman.
=============
U K R A I N E
=============
UKRAINE: Fitch Affirms LongTerm Foreign Currency IDR at 'CC'
------------------------------------------------------------
Fitch Ratings has affirmed Ukraine's Long-Term Foreign-Currency
Issuer Default Rating (IDR) at 'CC'. Fitch typically does not
assign Outlooks to sovereigns with a rating of 'CCC+' or below.
KEY RATING DRIVERS
Further Debt Restructuring Probable: The affirmation of Ukraine's
Long-Term Foreign-Currency IDR at 'CC' reflects Fitch's view that a
further foreign-currency commercial debt restructuring is probable,
given the magnitude of economic damage from the war with Russia and
resulting large fiscal needs in the medium term, and that a degree
of burden sharing by commercial creditors is a likely condition of
the large financial assistance extended by the official sector.
The 24-month deferral in August of Ukraine's Eurobond payments
provided USD6 billion of external debt service relief, but leaves
medium-term debt sustainability risks unresolved. Sovereign
external debt service rises to a relatively high USD5.4 billion in
2024 (excluding USD3.5 billion deferred Eurobond interest payments,
which could be capitalised) and USD7.0 billion in 2025. While the
timing of any such restructuring remains uncertain, there will be
greater impetus for negotiations if the security outlook improves,
and as the expiration of the Eurobond standstill draws closer.
Huge Economic Cost: The Ukrainian economy contracted an estimated
31% in 2022, and net outward migration has steadily risen to 8
million (based on UN data, which may be overstated). There was some
sequential recovery in economic activity in 3Q22 but energy outages
following Russian strikes provide an additional headwind into 2023.
Fitch forecasts GDP growth of 2% in 2023, with ongoing conflict
preventing a sizeable return of refugees or large-scale
investment.
Russia's attritional military tactics continue to cause huge
economic damage, with costs to infrastructure alone already
reaching near 85% of GDP by September 2022, according to Kyiv
School of Economics estimates. Inflation accelerated to 26.6% in
December and Fitch forecasts it eases slightly to 21% at end-2023
as loss of productive capacity, electricity shortages, and only
gradually improving supply chain disruptions offset weak domestic
demand.
Protracted War: Fitch expects the war to continue deep into 2023,
within its current broad parameters. In the near term, there is an
absence of politically credible concessions that could form the
basis of a negotiated settlement. Fitch does not decipher any
marked change in President Putin's objective of undermining the
sovereign integrity of the Ukrainian state, while Ukraine's
successful counter-offensives in Kherson and Kharkiv make it even
more unlikely it would cede substantial territory lost to Russia.
Despite the strategic advantage shifting more in Ukraine's favour
in recent months, neither side appears to have a decisive military
superiority to deliver on objectives, which could result in a long
drawn-out conflict. Over a longer period, the prospect of a
negotiated settlement becomes more likely, as costs to both sides
mount, although this may well take the form more of a "frozen
conflict" than sustainable peace.
Fiscal Deficit to Remain High: The general government deficit is
estimated at a record high 20.1% of GDP in 2022, driven by defence
spending, with state revenues increasing by 38% on the back of
surging international grants. Fitch forecasts the deficit to narrow
to 15.2% of GDP in 2023 due to partial enactment of budgeted
real-terms social expenditure cuts and somewhat higher grants, but
with defence outlays remaining well above the government target.
Fitch anticipates a high deficit into the medium term, due to
reconstruction needs, greater social spending including on war
veterans, and an increase on pre-war defence expenditure.
Public Debt Rises Sharply: Fitch projects general government
debt/GDP increases by 37pp in 2022 to 80.2% (excluding government
guarantees of 7.5% of GDP), and to 84.0% at end-2023, with support
from a high GDP deflator averaging 23% in 2022-2023. The
foreign-currency share of state debt has risen to 66%, adding to
exchange rate risks, although the share of longer-term,
concessional debt has also increased. There has been a marked rise
in contingent liability risk, including from the energy and
financial sectors, but regulatory forbearance will likely delay
bank recapitalisations beyond 2023. More generally, the public debt
trajectory is subject to a high degree of risk and uncertainty.
International Assistance Covers 2023 Financing: Deficit financing
in 2023 remains highly dependent on the budgeted USD38 billion of
bilateral and multilateral aid (up from USD32.8 billion disbursed
in 2022). The EU and US have committed USD29 billion, and Fitch
anticipates the full 2023 target will be met.
Fitch expects the domestic rollover rate of local-currency
government domestic debt, which fell to 65% in 2022, to partially
recover this year helped by recent reserve requirement measures, a
further rise in primary issuance yields, and current record-high
bank liquidity (which has been supported by 28% growth in hryvnia
deposits since end-February). This would allow a reduction in
National Bank of Ukraine (NBU) state deficit financing, which
accounted for 42% of the total since end-February despite falling
to within the agreed UAH30 billion monthly limit since spiking in
2Q22.
Funding Uncertain Beyond 2023: It is likely that Ukraine
successfully completes the four-month Programme Monitoring with
Board Involvement agreed in December, but it remains unclear
whether the IMF will extend an upper credit tranche programme
without significantly greater predictability on the security and
related macro-fiscal outlook. There is currently little visibility
on financing sources beyond this year, with risks from the
potential for donor fatigue, greater banking sector stress
weakening demand for domestic debt, and constraints on the use of
NBU fiscal financing if inflation remained high and there was a
resumption of external financing pressure.
Grants Support Current Account: The current account posted a
surplus of 6.2% of GDP (annualised) in 11M22, as international
grants and stable remittances more than offset a deterioration in
the trade and services balance. The size of private sector capital
outflows remains relatively stable, contained by capital controls,
and international reserves ended 2022 at USD28.5 billion, from
USD27.6 billion at end-February. Fitch projects the current account
surplus narrows to 2.6% of GDP this year on the back of higher
import growth, and international reserves end 2023 at 3.8 months of
current external receipts, from 4.0 months at end-2022.
Local-Currency IDRs Affirmed at 'CCC-': The lower default risk than
on foreign-currency debt reflects the greater disincentives to
include local-currency debt in any further debt restructuring,
given just 5% is held by non-residents, while 55% is held by NBU
and a further 32% by the domestic banking sector (half of which is
state owned) for which there could be associated financial
stability risks. Fitch also does not anticipate strong
international pressure to restructure domestic debt, partly due to
additional concerns this could undermine efforts to revive demand
for new government debt issuance.
Nevertheless, the 'CCC-' Long-Term Local-Currency IDR reflects the
still substantial credit risk given the potential for the war to
extend beyond this year, and uncertainty over financing sources to
continue to meet large fiscal deficits, which add to liquidity
risks.
ESG - Governance: Ukraine has an ESG Relevance Score (RS) of '5'
for both political stability and rights and for the rule of law,
institutional and regulatory quality and control of corruption.
These scores reflect the high weight that the World Bank Governance
Indicators (WBGI) have in its proprietary Sovereign Rating Model
(SRM). Ukraine has a low WBGI ranking at the 32nd percentile,
reflecting the Russian-Ukrainian conflict, weak institutional
capacity, uneven application of the rule of law and a high level of
corruption.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- The Long-Term Foreign-Currency IDR would be downgraded on signs
that a renewed default-like process has begun, for example, a
formal launch of a debt exchange proposal involving a material
reduction in terms and taken to avoid a traditional payment
default.
- The Long-Term Local-Currency IDR would be downgraded to 'CC' on
increased signs of a probable default event, for example from
severe liquidity stress and reduced capacity of the government to
access financing, or to 'C' on announcement of restructuring plans
that materially reduce the terms of local-currency debt to avoid a
traditional payment default.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- The Long-Term Foreign-Currency IDR would be upgraded on
de-escalation of conflict with Russia that markedly reduces
vulnerabilities to Ukraine's external finances, fiscal position and
macro-financial stability, reducing the probability of commercial
debt restructuring.
- The Long-Term Local-Currency IDR would be upgraded on reduced
risk of liquidity stress, potentially due to more predictable
sources of official financing, greater confidence in the ability of
the domestic market to roll over government debt, and lower
expenditure needs.
SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO)
Fitch's proprietary SRM assigns Ukraine a score equivalent to a
rating of 'CCC+' on the LTFC IDR scale. However, in accordance with
its rating criteria, Fitch's sovereign rating committee has not
utilised the SRM and QO to explain the ratings in this instance.
Ratings of 'CCC+' and below are instead guided by Fitch's rating
definitions.
Fitch's SRM is the agency's proprietary multiple regression rating
model that employs 18 variables based on three-year centred
averages, including one year of forecasts, to produce a score
equivalent to a LT FC IDR. Fitch's QO is a forward-looking
qualitative framework designed to allow for adjustment to the SRM
output to assign the final rating, reflecting factors within its
criteria that are not fully quantifiable and/or not fully reflected
in the SRM.
ESG CONSIDERATIONS
Ukraine has an ESG Relevance Score of '5' for political stability
and rights as WBGI have the highest weight in Fitch's SRM and are
highly relevant to the rating and a key rating driver with a high
weight. As Ukraine has a percentile below 50 for the respective
governance indicator, this has a negative impact on the credit
profile. The invasion by Russia and ongoing war severely
compromises political stability and the security outlook.
Ukraine has an ESG Relevance Score of '5' for rule of law,
institutional & regulatory quality and control of corruption as
WBGI have the highest weight in Fitch's SRM and in the case of
Ukraine weaken the business environment, investment and reform
prospects; this is highly relevant to the rating and a key rating
driver with high weight. As Ukraine has a percentile rank below 50
for the respective governance indicators, this has a negative
impact on the credit profile.
Ukraine has an ESG Relevance Score of '4[+]' for human rights and
political freedoms as the voice and accountability pillar of the
WBGI is relevant to the rating and a rating driver. As Ukraine has
a percentile rank above 50 for the respective governance indicator,
this has a positive impact on the credit profile.
Ukraine has an ESG Relevance Score of '4' for creditor rights as
willingness to service and repay debt is relevant to the rating and
is a rating driver for Ukraine, as for all sovereigns. Given
Ukraine's recent deferral of external debt payments which Fitch
deemed as a distressed debt exchange, together with the
restructuring of public debt in 2015, this has a negative impact on
the credit profile.
Ukraine has an ESG Relevance Score of '4' for international
relations and trade, reflecting the detrimental impact of the
conflict with Russia on international trade, which is relevant to
the rating and a rating driver with a negative impact on the credit
profile.
Except for the matters discussed above, the highest level of ESG
credit relevance, if present, 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 to the way in which they
are being managed by the entity.
Entity/Debt Rating Prior
----------- ------ -----
Ukraine LT IDR CC Affirmed CC
ST IDR C Affirmed C
LC LT IDR CCC- Affirmed CCC-
LC ST IDR C Affirmed C
Country Ceiling B- Affirmed B-
senior
unsecured LT CCC- Affirmed CCC-
senior
unsecured LT CC Affirmed CC
===========================
U N I T E D K I N G D O M
===========================
ARCADIA GROUP: Pension Fund Nears Rescue Deal with Aviva
--------------------------------------------------------
Mark Banham at Drapers Online reports that beneficiaries of the
pension fund at Arcadia Group, formerly owned by retail magnate Sir
Philip Green, have been left in the dark over pension pay-outs
since the collapse of the group in November 2020.
Trustees of the Arcadia Group pension scheme are close to agreeing
a deal with Aviva to guarantee its members' incomes, Drapers Online
relays, citing Sky News.
Mr. Green agreed a GBP385 million funding package with The Pensions
Regulator in 2019 to cover the liabilities of the pension schemes,
whose members include thousands of high street workers at chains
including Topshop, Dorothy Perkins, Miss Selfridge and Burton,
Drapers Online discloses.
Mr. Green was forced to place Arcadia Group into administration in
2020 in one of the most high-profile downfalls of a retail empire
in modern times, Drapers Online states. In all, the group owed
creditors up to GBP800 million, and it was reported that the
pension deficit alone for Arcadia was GBP510 million when it
collapsed, Drapers Online notes.
Green's BHS also collapsed into administration in 2016 with its
pension liabilities caught up in a deal selling the high street
retailer to City investors, including Dominic Chappell, for a
nominal GBP1, Drapers Online recounts.
BRITISHVOLT: Australian Firm Submits Late Rescue Bid
----------------------------------------------------
BBC News reports that collapsed electric car battery business
Britishvolt might have found a lifeline after an Australian
start-up lodged a late rescue bid.
The UK company entered administration on Jan. 17 when it failed to
attract any viable bids to keep it afloat, with the loss of
hundreds of jobs, BBC relates.
It had planned to build a giant factory to make batteries for
electric vehicles in Blyth, Northumberland, BBC notes.
However, Recharge Industries tabled a last-minute takeover move on
Tuesday, Jan. 24, BBC discloses.
The company, which is backed by New York-based Scale Facilitation,
confirmed it had made a non-binding offer, as first reported in the
Australian Financial Review, according to BBC.
A takeover of Britishvolt would make "strategic sense," BBC
quotesDavid Collard, Scale Facilitation's founder and chief
executive, as saying.
"Strengthening our friends in the UK, especially when most others
are kicking them when they're down, is in our interest and
definitely in the spirit of Aukus (the Australia-UK-US security
pact)."
DAIRY COMPANY: Enters Administration, Owed GBP10MM by Kent Dairy
----------------------------------------------------------------
Cedric Porter at Farmers Guardian reports that Dairy Company
Pensworth says that it is owed GBP10 million by Kent Dairy Company
and that non-payment of a weekly invoice by the
Freshways-controlled business has forced it into administration.
DREAM WORLD: Airlines' Failure to Pay Refunds Prompted Collapse
---------------------------------------------------------------
Ian Taylor at Travel Weekly reports that the sole director of Dream
World Travel has blamed airlines' failure to pay refunds for flight
cancellations and CAA finance requirements for the company's
collapse.
Atol-holder Dream World Travel went into liquidation in December
after calling in insolvency practitioners in July, Travel Weekly
recounts. According to Travel Weekly, the company failed owing
more than GBP10.2 million and with just GBP25,000 in assets. The
cost to the Air Travel Trust is put at GBP6.1 million, Travel
Weekly states.
The delay was unusual, Travel Weekly notes. A source noted "when
you're instructed as a liquidator, it's generally two to three
days" before liquidation. The intervening five months was spent
dealing with customers. The source noted there were "thousands of
members of the public upset at not getting tickets or refunds".
Processing refunds proved difficult. The same source said "a lot of
the data didn't make sense", leading the CAA to delay opening an
Atol claims portal "because of anomalies".
The value of non-Atol liabilities to customers left without tickets
is estimated at GBP890,000, Travel Weekly says.
The director's report on the failure suggests the company traded
successfully until the pandemic, noting this "created immense
pressure . . . as suppliers were not able to refund and the company
was under significant pressure to issue refunds to customers,
Travel Weekly relays. Almost GBP500,000 was due in cancellation
charges, Travel Weekly, according to Travel Weekly.
"Atol [the CAA] started scrutinising the business more often . . .
The company was forced to maintain the balance at GBP250,000 every
week with strict conditions which was only possible with future
bookings."
Once travel resumed, the report notes: "Demand was high while
resources were engaged in dealing [with] cancellations and refunds.
Ticket issuances were kept until a week or two before departure to
avoid . . . money being held by airlines/suppliers.
"Together with [the CAA's] conditions . . . this started to cause
losses as flight prices became higher at the time of issuance. This
created immense pressure . . . with customers starting to complain
to the company's marketing partners . . . and [on] social media . .
. [resulting] in a severe drop off in sales."
According to Travel Weekly, a spokesperson for liquidator Opus
Restructuring said: "The joint liquidators were first consulted by
the director in July 2022.
LITTLE CARPET: Goes Into Creditors' Voluntary Liquidation
---------------------------------------------------------
Joshua Hartley at NotthinghamshireLive reports that a carpet
company with five Nottinghamshire shops is "taking steps" towards
liquidation.
According to NotthinghamshireLive, The Little Carpet Company, which
has shops in Gedling, Mapperley, Arnold, Wollaton and West
Bridgford, has entered the process of voluntary liquidation.
A letter, which was sent on January 11, informed all known
creditors the company's director was taking steps to place it into
creditors' voluntary liquidation due to the company's "financial
position", NotthinghamshireLive relates.
Begbies Traynor, a corporate restructuring firm, is assisting the
director with this process, with insolvency practitioners to be
appointed following the resolution to wind-up the company being
passed by the members, NotthinghamshireLive discloses.
The letter outlined the director is required to seek a decision
from the company's creditors on the nomination of liquidators, via
a virtual meeting, NotthinghamshireLive states. The date for the
creditors' decision is scheduled for Feb. 2, NotthinghamshireLive
notes.
PLATFORM BIDCO: Moody's Alters Outlook on 'B3' CFR to Negative
--------------------------------------------------------------
Moody's Investors Service has changed to negative from stable the
outlook on the ratings of PLATFORM BIDCO LIMITED ("Platform Bidco",
"Valeo" or "the company"), the parent company of Valeo Foods Group
Ltd, an Irish producer and distributor of branded and non-branded
ambient food products across Europe & North America. Concurrently,
Moody's has affirmed the company's B3 corporate family rating, the
B3-PD probability of default rating, and the B2 ratings on the
EUR1.1 billion equivalent senior secured first lien term loan B and
the EUR180 million senior secured multi-currency revolving credit
facility (RCF), borrowed by Platform Bidco.
"The negative outlook reflects the company's weaker than expected
operating performance during fiscal year-ending March 2023 owing
to operational and supply chain challenges at some UK sites and
Moody's expectation that a rapid recovery in profitability over the
next 12-18 months will be challenged by the weak macroeconomic
environment and consumer sentiment, especially in the UK, which
might limit any significant improvement in credit metrics" says
Valentino Balletta, a Moody's Analyst and lead analyst for Valeo.
"However, while the outlook change also reflects the expectation
for a weaker free cash flow generation going forward, the B3 rating
affirmation is supported by Valeo's adequate liquidity and its
extended debt maturity profile, with no debt maturities until
2028", added Valentino Balletta.
RATINGS RATIONALE
The change in Valeo's rating outlook to negative from stable
reflects the heightened risk that Valeo might not be able to
improve its credit metrics to a level commensurate with its B3
rating over the next 12-18 months, in light of the ongoing
challenging macroeconomic environment, especially in the UK, which
represent around 47% of company's revenues.
Valeo's operating performance has been severely impacted
year-to-date through September 2022 relative to the comparable
period in 2021. While sales remained above last year, supported by
price increased secured in recent months, volume and profitability
were severely impacted by operational and labour challenges in its
UK snacking business which resulted in the inability to fulfill
some orders. On top of lower volumes, profitability was also
affected by the time lag in passing on price increases to customers
in a persistent inflationary environment. In fact, while the time
lag to transfer inflationary costs to consumers is reducing and
temporary impacting profitability, the high competitive environment
in certain product categories will limit the amount of price
pass-through possible, in Moody's view. As a result, Moody's
expects the company's adjusted EBITDA to decline by more than 20%
in the fiscal year ending March 2023, to EUR128 million (EUR168
million in the comparable period), which is well below Moody's
previous expectations, leading to a Moody's-adjusted debt/EBITDA of
11.7x, from 9.4x as of FY ending March 2022.
Although Valeo is addressing the supply chain disruptions and
labour shortages in the UK and should benefit from cost conscious
consumers moving towards private label alternatives, the overall
macro-economic environment remains difficult with ongoing high
inflation and declining consumer sentiment which might challenge
and delay any rapid credit metrics recovery.
As a result, Moody's views the company weakly positioned in the B3
rating category, with very high leverage and very limited room for
further underperformance relative to expectations. Moody's now
expects leverage to remain very high at around 11.7x in FYE 2023
and to hover around 10.0x over the next 12-18 months.
More positively, the ratings affirmation reflects the expectation
that Valeo's liquidity will remain adequate over the next 12-18
months, while the B3 CFR continues to be supported by the company's
leading position in the Irish ambient grocery market and the UK
honey and hand-cooked potato crisps markets, its pan-European
presence and its portfolio of well-recognised brands across
different categories and a portfolio products diversified between
brand and private label which mitigates potential volatility in
demand.
LIQUIDITY
Valeo's liquidity is adequate and is supported by approximately
EUR57 million of cash on balance sheet as of end-September 2022 and
partial availability under its committed senior secured RCF of
EUR180 million due in March 2028. This was partially drawn for
EUR89 million as of September 2022 to fund WC swings associated
with the seasonality of the business, which Moody's expects to be
partially repaid towards the end of the year. The senior secured
RCF contains one financial covenant, tested only when the RCF is
drawn more than 40%, with a maximum net senior secured leverage
covenant of 10.0x, against which Moody's expects the company to
maintain adequate headroom.
In addition, the company has a multi-currency capex, acquisition
and restructuring facility maturing in 2029, for a total committed
amount of EUR100 million, which has been utilized for EUR62 million
to fund acquisitions.
Although the company's liquidity remains currently adequate, it is
expected to weaken in the next 12-18 months, given Moody's
expectation for negative cash flow generation of around EUR39
million and EUR22 million expected respectively in FYE 2023 and FYE
2024, driven by weak operating performance, as well as higher
interest expenses, as debt is not entirely hedged with interest
rate caps covering only most of the total secured debt, expiring in
March 2026. Positively Moody's notes that Valeo has no debt
maturities until 2028.
STRUCTURAL CONSIDERATIONS
The B2 rating on the EUR1.1 billion equivalent senior secured first
lien term loan B and EUR180 million senior secured RCF is one notch
above the CFR of B3 as the EUR239 million equivalent second-lien
facility and drawings under the acquisition facility, which are
subordinated to both senior secured bank credit facilities, provide
enough loss-absorption protection.
All facilities benefit from the same guarantee and security
packages, although with a different priority of claim. Moody's has
assumed a 50% family recovery rate, as it is standard for capital
structures that include first and second lien bank debt with a
springing covenant only. The security package includes floating
charge on assets of UK and Irish subsidiaries and facilities are
guaranteed by subsidiaries representing at least 80% of the group's
EBITDA.
RATIONALE FOR NEGATIVE OUTLOOK
Valeo is weakly positioned in the B3 rating category, and there is
limited headroom for any deviation in operating performance or
acquisitions compared with Moody's expectations.
The negative outlook reflects the uncertainties around the
company's ability to improve its operating performance and to
reduce its financial leverage in a timely manner. Failure to
demonstrate such improvements from the current weak levels, will
likely weigh on liquidity and could lead to further downward
pressure on the rating.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive pressure on the rating over the next 12 to 18 months is
very unlikely but could materialize over time if the company
demonstrates solid topline growth with improving profitability,
leading to (1) leverage reducing below 7.0x on a sustained basis
(2) and ability to materially improve and maintain positive free
cash flow generation and adequate liquidity.
Negative rating pressure could develop if (1) the company fails to
stabilize and grow earnings over the next 12-18 months and reduce
its Moody's-adjusted gross debt to EBITDA ratio below 8.0x on a
sustained basis, leading to an increasingly unsustainable capital
structure; (2) free cash flow generation remains persistently and
highly negative resulting in weakening liquidity as demonstrated
for example by reduced availability under its senior secured RCF or
significant deterioration in covenant headroom; (3) if its EBITA
interest coverage ratio, as adjusted by Moody's, remains below
1.0x; and (4) the company engages in an aggressive acquisition
policy which delay any improvement in credit metrics.
LIST OF AFFECTED RATINGS
Affirmations:
Issuer: PLATFORM BIDCO LIMITED
Probability of Default Rating, Affirmed at B3-PD
LT Corporate Family Rating, Affirmed at B3
Senior Secured Bank Credit Facility, Affirmed at B2
Outlook Actions:
Issuer: PLATFORM BIDCO LIMITED
Outlook, Changed To Negative From Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Consumer
Packaged Goods published in June 2022.
COMPANY PROFILE
PLATFORM BIDCO LIMITED is a UK entity incorporated in April 2021
for the acquisition of Valeo Foods Group Ltd, an Irish
headquartered, leading producer and distributor of branded and
non-branded ambient food products. The company operates primarily
in Ireland, the UK, Italy, the Netherlands, the Czech Republic,
North America and Germany, and owns well-recognised local brands,
including Jacob's, Rowse, Batchelors, Odlums, Kettle Chips, Chef,
Matthew Walker and Kelkin, which hold leading market shares within
their respective product categories.
In the fiscal year that ended March 31, 2022 (fiscal 2022), Valeo
reported net revenue of around EUR1.3 billion and EBITDA of EUR168
million, pro forma for the 12-month contribution of recently
completed acquisitions and based on management accounts. Valeo was
founded in 2010 and was acquired by Bain Capital in 2021.
S&I GROUNDWORKS: Goes Into Administration
-----------------------------------------
Joshua Stein at Construction News reports that Contractor S&I
Groundworks has fallen into administration.
According to Construction News, the GBP41 million-turnover firm,
based in Burton-on-Trent, appointed administrators from business
restructuring firm KBL Advisory this week.
S&I attributed the issues to the COVID-19 pandemic and the Russian
invasion of Ukraine, Construction News discloses.
KBL Advisory cited materials, fuel, wages inflation, and "increased
competition in the market for key staff" for the collapse,
Construction News relates.
"Significant cashflow pressure as a consequence of cost inflation
and economic uncertainty left the directors with no option but to
place the company into administration," Construction News quotes
KBL’s statement as saying.
S&I worked on projects with housebuilders including Barratt Homes,
Crest Nicholson, Vistry and Gleeson, according to its website.
In its most recent accounts, for the year ending May 31, 2021, the
firm tabled a GBP41 million turnover, up from the GBP24.7 million
it posted the year before, Construction News notes. But pre-tax
profit rose by a smaller proportion, coming in at GBP1.9 million
compared with GBP1.4 million a year earlier, Construction News
states.
*********
S U B S C R I P T I O N I N F O R M A T I O N
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Editors.
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