/raid1/www/Hosts/bankrupt/TCREUR_Public/230208.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Wednesday, February 8, 2023, Vol. 24, No. 29
Headlines
A R M E N I A
ARMECONOMBANK: Fitch Gives 'B' Foreign Currency IDR, Outlook Stable
B E L G I U M
BEFIMMO SA: S&P Withdraws 'BB+/B' Issuer Credit Ratings
B O S N I A A N D H E R Z E G O V I N A
BOSNIA AND HERZEGOVINA: S&P Alters Outlook on B/B Ratings to Pos.
C R O A T I A
INSTITUT IGH: B2 Kapital Writes Off EUR5.3-Million Debt
F R A N C E
ELIOR GROUP: Moody's Confirms 'B2' CFR & Alters Outlook to Negative
I R E L A N D
ACCUNIA EUROPEAN II: Moody's Hikes Rating on Class E Notes to Ba1
BARINGS EURO 2023-1: S&P Assigns Prelim. B-(sf) Rating on F Notes
CVC CORDATUS VII: Moody's Affirms B2 Rating on EUR13.2MM F-R Notes
PREMBROKE PROPERTY 2: S&P Affirms 'B(sf)' Rating on Class F Notes
S P A I N
EDREAMS ODIGEO: Fitch Affirms LongTerm IDR at 'B', Outlook Stable
U N I T E D K I N G D O M
888 HOLDINGS: Moody's Affirms 'B1' CFR & Alters Outlook to Negative
888 HOLDINGS: S&P Places 'B' ICR on Watch Neg. on Increased Risks
AARTEE BRIGHT: Goes Into Administration, Alvarez & Marsal Tapped
BRITISHVOLT LTD: Tees Valley Strikes Supply Deal with Recharge
LIGHT SOURCE: Enters Administration, Buyer Sought for Business
MALIN INDUSTRIAL: Goes Into Administration, Mazar Explores Sale
TRAIDCRAFT: Collapses Into Administration Amid Cost Pressures
[*] S&P Affirms Debt Ratings in 16 UK-Based Hospital Projects
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A R M E N I A
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ARMECONOMBANK: Fitch Gives 'B' Foreign Currency IDR, Outlook Stable
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Fitch Ratings has assigned Armeconombank OJSC (AEB) a Long-Term
Foreign-Currency Issuer Default Rating (IDR) of 'B' with a Stable
Outlook and a Viability Rating (VR) of 'b'.
KEY RATING DRIVERS
IDR Captures Intrinsic Strength: AEB's 'B' IDR is underpinned by
the bank's intrinsic strength, as captured by the VR, which is
significantly influenced by Fitch's assessment of the potentially
cyclical operating environment in Armenia and resulting credit
risks from the highly dollarised and concentrated local economy.
The rating also reflects the bank's medium-sized universal
franchise (5% of system assets at end-3Q22) in a granular banking
sector; consistently low impaired loans, despite significant
exposure to potentially vulnerable sectors; historically modest
profitability, which is a sector feature; below-average core
capitalisation; heavy reliance on wholesale funding sources; and
tight liquidity.
Currently Favourable Operating Environment: The so far net positive
spill-over effects from the Russia-Ukraine conflict to Armenia's
economy in 2022 has underpinned the country's strong economic
growth, which is likely to moderate but remain solid in 2023 (Fitch
forecasts 5.1%). The continuing large influx of foreign, mainly
Russian, visitors and money transfers into Armenia has translated
into credit demand recovery as well as visible improvements in a
wide range of financial metrics across the banking sector.
Significant local-currency appreciation (18% against the US dollar
in 2022) has underpinned borrowers' ability to service debt in the
context of the highly dollarised banking sector (38% of system
loans and 44% of deposits).
Good Asset Quality Metrics: AEB's asset quality metrics have
historically been significantly better than the sector average.
Stage 3 loans made up a low 1% of gross loans, while Stage 2 added
another 1% at end-3Q22. Stage 3 and Stage 2, net of specific loan
loss allowances, were a limited 10% of Fitch Core Capital (FCC).
Loan impairment charges (LICs) have consistently been low (below 1%
of average gross loans over a decade). Fundamentally, the bank's
asset quality is vulnerable, due to significant exposure to
potentially risky SME and consumer segments (equal to more than
half of total loans).
Historically Modest Profitability: AEB's operating profit has
historically been below 2% of risk-weighted assets (RWAs), mainly
due to low but gradually improving operating efficiency. In 9M22,
the ratio improved to 2.5% driven by the favourable operating
conditions, although the bank has benefited to a much lower extent
from human and financial inflows to Armenia than the sector on
average. This is due to AEB's conservative approach not to service
any non-resident operations from Russia. Fitch believes positive
momentum for the local economy will continue into 2023, supporting
the bank's loan and revenue growth, while containing LICs.
Below-Average Core Capitalisation: AEB's FCC ratio was a
below-peer-average 11.7% at end-3Q22. Regulatory Tier 1 capital was
higher at 12.7% due to inclusion of preference shares held by
majority shareholders (equal to 1.8% of RWAs), while the regulatory
total capital of 14.5% was bolstered by high-trigger subordinated
debt (equal to 1.2% of RWAs). Fitch expects some moderate
improvement of the bank's FCC in 2023 thanks to internal capital
generation and a common equity placement (equal to 0.3% of RWAs),
which will be finalised in early 2023.
Large Wholesale Funding: AEB's deposit franchise is modest (3% of
system deposits) relative to the bank's size, and customer accounts
made up a low 43% of total liabilities at end-3Q22. The remainder
was wholesale funding, mainly comprising long-term borrowings from
international financial institutions and the Central Bank of
Armenia (CBA). This translated into a 171% loans/deposit ratio,
above the sector average (121% at end-3Q22).
Tight Liquidity: AEB's primary liquidity sources covered 19% of
total liabilities at end-3Q22. The former comprised cash due from
banks and unpledged securities but excluded large balances of
mandatory reserves at the CBA (5%). The reserves are inflated by
high regulatory requirements, and Fitch believes some of these
funds could be made available to the bank in case of liquidity
stress. Wholesale funding due within the next 12 months makes up a
sizable 16% of total liabilities. Net of the scheduled debt
repayments, primary liquid assets cover customer accounts by a
tight 7%. However, Fitch believes most of wholesale debt could be
rolled over, avoiding high pressure on the bank's liquidity.
Extraordinary Support Unlikely: AEB's Government Support Rating
(GSR) of 'ns' reflect Fitch's view that the Armenian authorities
(sovereign IDR: B+/Stable) have limited financial flexibility to
provide extraordinary support to the bank, if necessary, given the
banking sector's large foreign-currency liabilities relative to the
country's international reserves.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Material funding disruptions could lead to a downgrade if they
translate into serious refinancing issues for the bank, which it is
unable to mitigate via available local- and foreign-currency
liquidity.
A downgrade of AEB's ratings could also result from a material
deterioration of asset quality and an associated rise in LICs,
which would lead to large losses and capital erosion to around the
minimum regulatory requirements, excluding additional buffers.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
An upgrade of AEB's ratings would require higher core
capitalisation, with FCC consistently above 14% of RWAs as well as
a strengthening of the bank's franchise, and material improvement
of the funding and liquidity profile. The latter implies
loans/deposits ratio of significantly below 150% and a much larger
balance of net primary liquidity sources relative to customer
deposits.
A notable improvement of the operating environment in Armenia could
create positive momentum for AEB's ratings.
VR ADJUSTMENTS
The operating environment score of 'b+' is below the 'bb' category
implied score, due to the following adjustment reason: sovereign
rating (negative).
The asset quality score of 'b+' is below the 'bb' category implied
score, due to the following adjustment reason: underwriting
standards and growth (negative).
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
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Armeconombank OJSC LT IDR B New Rating
ST IDR B New Rating
Viability b New Rating
Government Support ns New Rating
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B E L G I U M
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BEFIMMO SA: S&P Withdraws 'BB+/B' Issuer Credit Ratings
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S&P Global Ratings withdrew its 'BB+' long-term and its 'B'
short-term issuer credit ratings on Befimmo S.A. at the issuer's
request, following its delisting. The outlook was stable at the
time of the withdrawal.
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B O S N I A A N D H E R Z E G O V I N A
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BOSNIA AND HERZEGOVINA: S&P Alters Outlook on B/B Ratings to Pos.
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S&P Global Ratings, on Feb. 3, 2023, revised its outlook on the
long-term local and foreign currency sovereign credit ratings on
Bosnia and Herzegovina (BiH) to positive from stable. At the same
time, S&P affirmed the 'B/B' long- and short-term foreign and local
currency sovereign credit ratings on BiH.
Outlook
The positive outlook reflects S&P's view that a potentially less
confrontational domestic political environment should hold over the
next year while BiH's external imbalances remain contained and the
government's debt burden stays low at 22% of GDP by year-end 2023,
with most debt owed to official creditors at relatively low
interest rates and long maturities.
Upside scenario
S&P could raise the ratings over the next 12 months if the
government's balance sheet remains strong and external imbalances
remain moderate, despite weakening demand from key trading partners
and the sometimes-unpredictable nature of BiH's domestic politics.
Downside scenario
S&P could lower the ratings if domestic political confrontations
escalate, particularly if this leads to a rising likelihood of
negative implications for government debt service--for example, by
affecting indirect tax revenue or foreign currency reserves at the
central bank.
Rationale
The outlook revision to positive reflects what S&P views as
receding domestic political confrontation in BiH in the aftermath
of the October 2022 general election. The state-level coalition
government was formed less than four months after in January 2023,
versus 14 months following the previous election in 2018.
Meanwhile, Republika Srpska's (RS; B/Stable/--) plans to withdraw
from several state-level institutions (the Indirect Tax Authority
[ITA], the judicial and prosecutorial council, and the armed
forces) appear on hold, de-escalating the situation for now. S&P's
baseline scenario remains that RS will continue within BiH on
largely the same terms as previously for the foreseeable future.
S&P said, "We also note that BiH's economy has exhibited resilience
to recent external shocks such as the COVID-19 pandemic and the
sharp rise in commodity prices following the onset of the
Russia-Ukraine conflict. We expect the current account deficit to
remain elevated this year, but most funding will come from net
foreign direct investment (FDI) inflows and a capital account
surplus. Additionally, we estimate that the general government ran
a balanced budget on a consolidated basis in 2022 and project only
modest deficits averaging 0.6% of GDP through 2026.
"The ratings on BiH are supported by the modest level and favorable
structure of public debt. We expect net general government debt to
remain at 20%-22% of GDP over the next four years. About 90% of
external debt (which itself accounts for more than 70% of gross
general government debt) is due to official bilateral or
multilateral lenders at long maturities and favorable interest
rates. Our sovereign ratings on BiH pertain to the state's ability
and willingness to service financial obligations to nonofficial
(commercial) creditors. To this end, we note that--bar a very small
amount of commercial bank loans with long maturities and linked to
specific projects--BiH's state-level government currently has no
commercial debt.
"BiH's cost of debt, as measured by interest expenditure to GDP of
below 1%, is among the lowest of all rated sovereigns. In our view,
this gives BiH some fiscal space, partially offsetting the lack of
monetary policy flexibility, given the currency board arrangement
of the konvertibilna marka (BAM; the national currency) to the
euro. As a result, fiscal policy remains the government's main
lever with which to influence domestic economic conditions."
Importantly, BiH's current state-level budgetary procedures
explicitly prioritize external debt service payments. All indirect
tax revenue from the entities (RS and the Federation of Bosnia and
Herzegovina [FBiH]) is collected by the ITA and re-distributed to
the entities once proceeds for external debt service and the
functioning of state institutions have been provisioned for. All
external debt repayments, except for external debt directly
contracted by the entities, which we would consider local rather
than central government debt, are made through the ITA.
Additionally, if no budget is adopted, only foreign debt will be
serviced, and expenditure is limited to that needed for the
functioning of the institutions, up to 25% of the previous year's
budget on a quarterly basis.
On Dec. 15, 2022, EU leaders unanimously agreed to grant BiH the
status of a candidate country, more than six years after its
initial application in early 2016. S&P considers that the potential
for EU membership could help accelerate some reforms and keep more
confrontational politics in check given the apparent popular
support for EU membership across both RS and FBiH.
S&P said, "Despite recent improvements, our ratings on BiH remain
constrained by its complex institutional arrangements and weak
policy coordination between the two largest entities comprising the
country--the FBiH and the RS--and the central government. Our
ratings are also constrained by BiH's modest income levels. We
estimate GDP per capita at $7,400 in 2022, which is well below that
of most other European countries."
Institutional and economic profile: BiH's economic growth is set to
slow in 2023, in line with key trading partners
-- A coalition government has been formed at the state level
following the October 2022 general election, and in December 2022
BiH received EU candidate status.
-- Nevertheless, BiH's institutional arrangements remain
fundamentally complex, and S&P expects finding consensus on some
government policies will remain difficult.
-- S&P projects economic growth will slow to 1.0% in 2023 from an
estimated 4.2% in 2022, reflecting the weaker global macroeconomic
backdrop.
BiH is a country with arguably the most complex institutional and
governance arrangements in the world, and this constrains the
sovereign ratings. The existing political structures owe their
existence to the Dayton Peace Accords, which ended three years of
war (1992-1995). In practice, the country comprises two
entities--FBiH and RS--each of which has a large degree of
autonomy, in addition to the small, self-governing Brcko District.
Each entity has its own parliament, government, and banking
regulator with extensive mandates. BiH's past politics have
consistently been characterized by a high degree of political
volatility and confrontational decision-making.
Following the latest state-level parliamentary, presidential, and
entity-level elections in October 2022, there appears more
consensus around the formation of the various governments than in
the past. For example, after the 2018 general election, it took 14
months to form a state-level government. This time the state-level
government was formed less than four months after in January 2023,
comprising a coalition between Croat and Serbian parties, the
Croatian Democratic Union of Bosnia and Herzegovina (HDZ) and
Alliance of Independent Social Democrats (SNSD) respectively, as
well as several Bosniak parties. The RS government, dominated by
SNSD and its coalition partners, was formed in December 2022, while
FBiH's government remains in the process of formation.
S&P said, "We also consider that previously heightened risks of RS
withdrawing from state-level institutions have receded, at least in
the short term. At year-end 2021, RS' leadership announced its
intentions to withdraw from the ITA, judicial council, and armed
forces, among others, with RS' parliament adopting a motion
requiring the government to present specific steps to achieve these
goals. However, in mid- 2022 the plans were postponed by six months
with an uncertain future direction. We consider SNSD's
participation in the state-level government to signify lower
immediate risks. We also observe that no concrete technical steps
toward more RS autonomy have been taken in respect of the three
institutions so far."
That said, risks remain because RS did not recognize the
constitutional court's decision to suspend the legislation and
intends to proceed with the establishment of its own medicinal
agency, which is planned to unilaterally take over the functions of
a similar state-level agency.
S&P said, "Our baseline expectation remains that there will be no
significant changes to the administrative organization of BiH. We
previously analyzed the possible economic and ratings implications
of RS' withdrawal from BiH state institutions under various
hypothetical scenarios and believe the conclusions reached then
remain broadly valid (see "Economic And Ratings Implications Of
Republika Srpska's Potential Withdrawal From Bosnia's State-Level
Institutions," published Nov. 17, 2021, on RatingsDirect).
"Overall, despite the moderation of near-term political risks, we
still expect reaching political consensus on many policies within
BiH to remain difficult. The election results have again
demonstrated a voter base split along ethnic lines with Party of
Democratic Action (SDA), SNSD, and HDZ gaining a lot of support.
Beyond coordination on a state level, political gridlocks have
frequently occurred at the FBiH entity level. With an announced
goal to address these issues, on the day of the election, the High
Representative for Bosnia and Herzegovina used Bonn powers to
impose a so-called functionality package, with changes to election
law and constitution of FBiH.
"In our view, disagreements will remain with RS, for example,
opposing any transfer of competencies to the central government
level, reducing the likelihood that the authorities would meet the
conditionality associated with an IMF program, should they need
one. More broadly, a complex setup with multiple parliaments and
counterweights (dictating a certain minimal representation of
ethnic groups within each parliament) and the large number of
parties involved in decision-making slows policymaking."
BiH was granted EU candidate status in December 2022, almost seven
years after the country officially applied to join. The related EU
report points to necessary judicial, anti-corruption, and economic
reforms, among others, that would be required to gain membership.
S&P expects the negotiation process to be gradual and do not view
EU membership as likely in the near future.
S&P said, "Beyond political developments, we consider that the
economic outlook for BiH has deteriorated. Over 70% of its trade
partners are in the EU, where we expect a major slowdown in 2023,
with 0% growth in the eurozone, while some countries will
experience a recession. Output in Germany, which remains BiH's key
trade partner, is expected to contract 0.5%. Based on high
frequency data, we estimate that BiH's real growth was 4.2% in 2022
but project it will slow to 1% in 2023. Our forecast for 2023
mostly reflects carryover effects, with quarterly growth averaging
close to zero throughout the year. In terms of components, we
expect consumption to contract 0.5% in real terms year on year
while investment and export growth decelerate to 1.5% and 2.0%,
respectively, in 2023 from 18.0% and 22.0% estimated for 2022."
BiH's direct exposure to Russia and Ukraine via the trade channel
is limited. Exports to and imports from Russia in 2021 constituted
0.8% and 3.0% of the totals, respectively, while Ukraine's share is
even lower. Importantly, energy linkages with Russia are also
significantly lower than in many other European countries.
Specifically, BiH imports all its natural gas from Russia, but gas
constitutes less than 5% of domestic energy needs and is mostly
used for heating in the Sarajevo region. Almost all domestic
electricity supply comes from hydro power and thermal power plants,
with the latter operating predominantly on coal. BiH remains a net
exporter of electricity. Additionally, BiH does not import crude
oil, only refined oil products through third-party countries, such
as Croatia and Serbia. S&P understands that it does not have any
direct arrangements with Russia regarding oil supplies.
At the onset of the Russia-Ukraine conflict, BiH had some
financial-sector linkages with Russia via two Bosnian subsidiaries
of large Russian state-owned bank Sberbank--one operating in RS and
the other in FBiH. After international sanctions were imposed on
Sberbank, there was a deposit run at the two Bosnian subsidiaries,
requiring the local regulator to intervene. The subsidiaries were
subsequently sold to other domestic banks and confidence in the
banking sector has since been largely restored. There was no
involvement of the deposit insurance fund in the resolution process
and no related budgetary financing either at the state or RS/FBiH
level. S&P does not see any other substantial financial-sector
linkages to Russia.
Flexibility and performance profile: Low net general government
debt partially offsets the absence of monetary flexibility
-- S&P forecasts BiH's general government deficit will average
0.6% of GDP over the next four years, following balanced budgets
over 2021-2022.
-- Net general government debt will remain contained at close to
20% of GDP through 2026. About 65% of BiH's total debt stock is
concessional.
-- BiH lacks an independent monetary policy given the existing
currency board arrangement with the euro, which we expect will
continue through our forecast to 2026.
S&P said, "Although there are limited reliable high frequency data
available, we estimate that on a consolidated general government
level, BiH recorded a balanced budget in 2022. Although RS recorded
a deficit, FBiH recorded an offsetting surplus. One of the key
factors driving this stronger-than-expected fiscal performance was
the effect of inflation, which lifted government revenue across the
board. For example, indirect taxes rose by about 17% year-on-year
in 2022. In turn, this more than offset additional measures that
entity governments announced to limit the impact of higher
inflation on domestic households.
"In our baseline forecast, we expect a small 1% of GDP general
government deficit this year and a nearly balanced budget over the
medium term, not least reflective of difficulties in adopting
budgets and agreeing spending priorities in the federation and at
the central government level.
"We forecast that BiH will continue to benefit from its low net
general government debt, which we estimate amounted to about 22% of
GDP by year-end 2022, and interest costs will therefore remain low.
The debt structure is also favorable. Over 70% of gross government
debt is external, with the lion's share to official bilateral or
multilateral creditors. RS has some commercial external debt
outstanding in the form of Eurobonds, including a EUR168 million
Eurobond maturing in June 2023 and a EUR300 million bond maturing
in 2026. FBiH has almost no external commercial debt. BiH's largest
external creditors are the World Bank, the European Investment
Bank, and the International Monetary Fund, which together account
for 60% of public external debt. The average time to maturity is
seven years, and we project that interest payments will average
about 2% of consolidated government revenue through 2026.
"We estimate that BiH's current account deficit widened to 4.9% of
GDP in 2022 from 2.3% of GDP in 2021, mostly on account of the
higher cost of oil imports, as well as broader global inflationary
pressures affecting goods imported into BiH. The deficits should
gradually moderate closer to historical averages of 3% of GDP by
2025. As previously, we expect debt financing to account for only a
small portion of current account funding, with most financing
representing net FDI inflows; a capital account surplus (European
pre-accession funds); and positive net errors and omissions likely
reflecting unrecorded transfers from Bosnian citizens working
abroad. Consequently, we project that BiH's net international
investment position will remain stable, at about -30% of GDP (that
is, a net external liability position)."
Following the temporary deterioration in banking sector confidence
over February-March 2022 relating to Sberbank subsidiaries
operating in BiH, conditions have since improved, and deposits are
expanding again. Reported nonperforming loans continue to decline,
while the stock of domestic credit increased an estimated 4.5% in
2022, both in the household and corporate segments. BiH's financial
sector remains largely conventional in nature, predominantly
deposit-funded, and with a limited amount of external debt
outstanding.
BiH maintains a currency board arrangement with the euro, whereby
the exchange rate is fixed at BAM1.96 to EUR1. The currency board
is an important economic anchor, but it curtails the central bank's
ability to conduct an independent monetary policy. Under the
existing exchange-rate arrangement, S&P also considers that the
central bank effectively has no ability to act as a lender of last
resort. It does not expect the existing exchange-rate arrangement
to change in the future.
S&P asid, "Like other countries, BiH has experienced a significant
upswing in inflation, which we estimate at 14% last year. We
forecast that inflation will gradually subside but remain elevated
at about 7% in 2023, given our assumption oil prices will remain
relatively high. Thereafter, inflation should gradually reduce
toward 2.5% by 2025."
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable. At the onset of the committee, the chair confirmed that
the information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision. The
views and the decision of the rating committee are summarized in
the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
Ratings List
RATINGS AFFIRMED; OUTLOOK ACTION
TO FROM
BOSNIA AND HERZEGOVINA
Sovereign Credit Rating B/Positive/B B/Stable/B
Transfer & Convertibility Assessment BB- BB-
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C R O A T I A
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INSTITUT IGH: B2 Kapital Writes Off EUR5.3-Million Debt
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Annie Tsoneva at SeeNews reports that Croatia's civil engineering
company Institut IGH said on that its creditor, local financial
services provider B2 Kapital, has written off debt in the amount of
EUR5.3 million (US$5.7 million), which is part of the senior debt
from the pre-bankruptcy settlement of Institut IGH.
Institut IGH and B2 Kapita have signed a protocol on the release of
debt, in line with a decision of the B2 Kapital management from
June 14, 2022, according to the provisions of a restructuring
agreement which was signed by the two companies on March 12, 2021,
Institut IGH said in a filing to the Zagreb bourse on Monday, Feb.
7, SeeNews relates.
As a result, B2 Kapital cannot and shall not demand the fulfilment
of the specified part of the senior debt from the debtor, it added,
SeeNews notes.
The two companies signed agreements on March 12 over Institut IGH's
payment-in-kind (PIK) debt settlement and restructuring of its
remaining senior debt obligations towards B2 Kapital on the basis
of a pre-bankruptcy settlement from 2013, Institut IGH said back
then, SeeNews discloses.
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F R A N C E
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ELIOR GROUP: Moody's Confirms 'B2' CFR & Alters Outlook to Negative
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Moody's Investors Service has confirmed Elior Group S.A.'s B2
corporate family rating, the B2-PD probability of default rating
and the B2 rating on the backed senior unsecured notes due 2026.
The outlook was changed to negative from ratings under review.
At this point, Moody's assessment of Elior's credit quality does
not explicitly factor in the recently announced assets contribution
by Derichebourg S.A. (Derichebourg), as well as incremental cash
flows and potential synergies associated with this transaction.
RATINGS RATIONALE
The confirmation of the CFR at B2 and the outlook changed to
negative reflect Moody's expectations that Elior's free cash flow
generation (FCF), on a standalone basis, will remain negative in
the next 18 months, resulting in a weak liquidity, despite the
successful amendment of September 2023 covenant test. Although
Moody's acknowledges that management is guiding for a positive
EBITA in fiscal 2023, ranging between 1.5% and 2% of revenues,
supported by 73% of the contracts successfully renegotiated as of
December 31, 2022, the rating agency considers that the persistent
inflationary environment poses continued risks to profitability
improvements in the next 18 months, thus leaving the company with a
little headroom to withstand further deterioration in margins.
Governance was considered a key rating driver for this rating
action, in accordance with Moody's General Principles for Assessing
Environmental, Social and Governance Risks Methodology for
assessing ESG risks. Moody's considers the company financial policy
to be more aggressive than before, due to weak liquidity (including
issues around covenant compliance) and higher tolerance for
leverage. As a consequence, the assessment of the company's
Financial Strategy and Risk Management was changed to 4, from 3.
The same factors weigh on Moody's assessment of Management
Credibility and Track Record that was also changed to 3, from 2. As
a result, the overall exposure to governance risks (Issuer Profile
Score or "IPS") was changed to G-4, from previous G-3, and Elior's
Credit Impact Score to CIS-4, from CIS-3.
Elior has a well-diversified customers and contracts base. Although
the company has continued to actively renegotiate contracts with
all customers, showing steady progress and passing price increases
to offset inflation, the speed of improvements has been slower than
expected, due to challenges in renegotiations of some contracts,
particularly with public customers in France. Moody's expects that
such lengthy renegotiations with some clients, coupled with
persistent inflationary pressures, will constrain profitability
improvements going forward, although the rating agency also
recognizes the absence of losses related to the Preferred Meals
business in fiscal 2023, due to the exit already implemented at the
end of fiscal 2022.
With this background, Moody's expects Moody's adjusted EBITA margin
to remain around 1.5% and FCF generation to remain negative in the
next 18 months, albeit progressively improving. Moody's adjusted
EBITA/ interest coverage will remain below 1x over the same
period.
On December 20, 2022, Elior announced that it entered into an
agreement with Derichebourg, according to which Derichebourg will
contribute its Multiservice business (DMS), a leading French player
in outsourced services for industrial and service companies, to
Elior in an all stock transaction. The agreement values DMS's
equity at EUR450 million, with a 9.1x fiscal 2022 EBITDA multiple,
excluding synergies. In exchange, Elior will issue 80 million of
shares at EUR5.65, representing a 119% premium to Elior's share
price as of November 23, 2022. The transaction, which will need to
be approved by an extraordinary general meeting and the antitrust
regulator, is expected to be finalized in April -May 2023.
Moody's believes that the announced assets contribution, if
finalized, will positively contribute to the EBITA of the new
group: DMS generated around EUR27ml of EBITA in fiscal 2022,
excluding the urban display division that DMS sold in May 2022 and
excluding potential cost synergies that Elior evaluates at around
EUR18 million on a run rate basis. At the same time, the final
credit impact of the transaction will also depend on the underlying
strategy of the combined entity, its financial policies going
forward and its ability to extract synergies, also taking into
account the associated execution and integration risks.
LIQUIDITY
Elior's liquidity is currently weak, stemming from an estimated
average FCF burn of around EUR40 million a year in the next 12-18
months draining available cash sources, which include EUR64 million
of cash & equivalents on the balance sheet at fiscal 2022 (end
September 2022), EUR218 million of undrawn committed revolving
credit facility (RCF) and EUR100 million available under the
receivable securitization program, in the same period. The company
will also need to reimburse a total of EUR56 million in fiscal
2024, relating to the amortization of the EUR225 million French
state-guaranteed loan.
Moody's expects the net leverage covenant to be complied with in
the next 18 months, despite with potentially tight headroom,
particularly at March 2024 testing date.
RATIONALE FOR THE NEGATIVE OUTLOOK
The negative outlook reflects Moody's expectations that, despite
the progress on contracts renegotiation, price increases already
achieved might not be sufficient enough to fully offset further
inflationary pressures. Profitability is likely to continue to be
under pressure with Moody's adjusted EBITA margin remaining at
around 1.5% in the next 12-18 months, and FCF generation remaining
negative at around EUR -40 million a year, both on a standalone
basis. The negative outlook also takes into consideration the fact
that Moody's EBITA/ interest is expected to remain below 1x, with
Moody's adjusted debt/EBITDA trending towards 7x.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Considering the negative outlook, the upgrade is unlikely in the
next 12 months. To stabilise the outlook the rating agency would
like to see a longer track record of sustainable profitability
improvements, return to positive FCF generation, adequate EBITA
interest coverage of at least 1,5x and sufficient headroom under
financial covenants for 2023/24 tests. A successful closure of the
Derichebourg transaction could provide upside to the rating, and
would need to be assessed once the full details on the new group's
financial strategy and financial policies become available.
In a longer term, the rating could be upgraded if Elior
successfully manages the ongoing inflationary pressure such that
Moody's adjusted EBITA margin progressively and sustainably
increases well above 2.5% and then ultimately revert back to around
3%, levels more in line with pre-covid levels. Moody's would also
require free cash flow to turn sustainably positive in excess of 5%
free cash flow (FCF)/debt and liquidity to become adequate. An
upgrade would also require Moody's adjusted EBITA/ interest expense
to remain sustainably above 2x. At the same time, Moody's adjusted
debt /EBITDA would also require to be lower than 6.0x on a
sustainable basis.
The rating could be downgraded if (1) Moody's adjusted EBITA margin
looks unlikely to improve to 2% in the next 12-18 months, which in
Moody's view would be a level that would support positive free cash
flow generation; or (2) if Moody's FCF/debt fails to increase to
low single digits and approach 5%; or (3) if liquidity further
deteriorates. Negative rating action may also materialize if
adjusted debt to EBITDA remains above 7x.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
Headquartered in France, Elior is a global player in contract
catering and support services. In the fiscal year ended September
2022, the company generated revenues of almost EUR4.5 billion.
=============
I R E L A N D
=============
ACCUNIA EUROPEAN II: Moody's Hikes Rating on Class E Notes to Ba1
-----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by Accunia European CLO II DAC:
EUR23,100,000 Class C Senior Secured Deferrable Floating Rate
Notes due 2030, Upgraded to Aa2 (sf); previously on May 4, 2022
Upgraded to A1 (sf)
EUR17,300,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2030, Upgraded to A3 (sf); previously on May 4, 2022
Upgraded to Baa1 (sf)
EUR21,700,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2030, Upgraded to Ba1 (sf); previously on May 4, 2022
Affirmed Ba2 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR223,500,000 (Current outstanding amount EUR127,191,426) Class A
Senior Secured Floating Rate Notes due 2030, Affirmed Aaa (sf);
previously on May 4, 2022 Affirmed Aaa (sf)
EUR38,100,000 Class B-1 Senior Secured Floating Rate Notes due
2030, Affirmed Aaa (sf); previously on May 4, 2022 Upgraded to Aaa
(sf)
EUR9,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2030,
Affirmed Aaa (sf); previously on May 4, 2022 Upgraded to Aaa (sf)
EUR12,500,000 Class F Senior Secured Deferrable Floating Rate
Notes due 2030, Affirmed B1 (sf); previously on May 4, 2022
Affirmed B1 (sf)
Accunia European CLO II DAC, issued in October 2017, is a
collateralised loan obligation (CLO) backed by a portfolio of
mostly high-yield senior secured European loans. The portfolio is
managed by ACCUNIA FONDSMA†GLERSELSKAB A/S. The transaction's
reinvestment period ended in October 2021.
RATINGS RATIONALE
The rating upgrades on the Class C, Class D and Class E Notes are
primarily a result of the deleveraging of the Class A Notes
following amortisation of the underlying portfolio since the last
rating action in May 2022.
The Class A Notes have paid down by approximately EUR53.5 million
(23.9%) since the last rating action in May 2022 and EUR96.3
million (43.1%) since closing. As a result of the deleveraging,
over-collateralisation (OC) has increased. According to the trustee
report dated January 2023 [1] the Class A/B, Class C, Class D,
Class E and Class F OC ratios are reported at 141.74%, 127.65%,
118.80%, 109.3% and 104.49% compared to April 2022 [2] levels of
137.19%, 125.81%, 118.44%, 110.34% and 106.16%, respectively.
Moody's notes that the January 2023 principal payments are not
reflected in the reported OC ratios. The key model inputs Moody's
uses in its analysis, such as par, weighted average rating factor,
diversity score and the weighted average recovery rate, are based
on its published methodology and could differ from the trustee's
reported numbers.
In its base case, Moody's used the following assumptions:
Performing par and principal proceeds balance: EUR268.66m
Defaulted Securities: none
Diversity Score: 39
Weighted Average Rating Factor (WARF): 3036
Weighted Average Life (WAL): 3.19 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.60%
Weighted Average Coupon (WAC): 2.13%
Weighted Average Recovery Rate (WARR): 45.47%
Par haircut in OC tests and interest diversion test: 2.47%
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties, such as account bank, using the
methodology "Moody's Approach to Assessing Counterparty Risks in
Structured Finance" published in June 2022. Moody's concluded the
ratings of the notes are not constrained by these risks.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change.
Additional uncertainty about performance is due to the following:
Portfolio amortisation: The main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales by the collateral manager or
be delayed by an increase in loan amend-and-extend restructurings.
Fast amortisation would usually benefit the ratings of the notes
beginning with the notes having the highest prepayment priority.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available to
rating committees, including macroeconomic forecasts, input from
other Moody's analytical groups, market factors, and judgments
regarding the nature and severity of credit stress on the
transactions, can influence the final rating decision.
BARINGS EURO 2023-1: S&P Assigns Prelim. B-(sf) Rating on F Notes
-----------------------------------------------------------------
S&P Global Ratings assigned preliminary credit ratings to Barings
Euro CLO 2023-1 DAC's class A-1, A-2, B-1, B-2, C, D, E, and F
notes. At closing, the issuer will issue unrated subordinated
notes.
The class notes is a delayed draw tranche with a maximum notional
amount of EUR14 million and a spread of three/six-month Euro
Interbank Offered Rate (EURIBOR) plus 11.00%. They can only be
issued once and only during the reinvestment period with an
issuance amount of EUR14 million. The issuer will use the full
proceeds received from the sale of these notes to redeem the
subordinated notes. Upon issuance, the class F notes' spread could
be subject to a variation and, if higher, is subject to rating
agency confirmation.
The preliminary ratings reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior-secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which S&P expects to be
bankruptcy remote.
-- The transaction's counterparty risks, which S&P expects to be
in line with its counterparty rating framework.
Portfolio Benchmarks
CURRENT
S&P weighted-average rating factor 2,741.64
Default rate dispersion 583.82
Weighted-average life (years) 4.57
Obligor diversity measure 116.45
Industry diversity measure 18.50
Regional diversity measure 1.29
Transaction Key Metrics
CURRENT
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 1.00
Covenanted 'AAA' weighted-average recovery (%) 35.02
Covenanted weighted-average spread (%) 4.00
Covenanted weighted-average coupon (%) 4.25
Under the transaction documents, the rated notes will pay quarterly
interest unless a frequency switch event occurs. Following this,
the rated notes will switch to semiannual payments. The portfolio's
reinvestment period will end four years after closing.
S&P said, "We understand that at closing the portfolio will be
well-diversified, primarily comprising broadly syndicated
speculative-grade senior-secured term loans and senior-secured
bonds. Therefore, we have conducted our credit and cash flow
analysis by applying our criteria for corporate cash flow CDOs.
"In our cash flow analysis, we used the EUR400 million target par
amount, the covenanted weighted-average spread (4.00%), the
reference weighted-average coupon (4.25%), and the covenanted
minimum 'AAA' weighted-average recovery rate (35.02%) as indicated
by the collateral manager. We applied various cash flow stress
scenarios, using four different default patterns, in conjunction
with different interest rate stress scenarios for each liability
rating category.
"Under our structured finance sovereign risk criteria, we consider
that the transaction's exposure to country risk is sufficiently
mitigated at the assigned preliminary ratings.
"At closing, we expect that the transaction's documented
counterparty replacement and remedy mechanisms will adequately
mitigate its exposure to counterparty risk under our current
counterparty criteria.
"We expect the transaction's legal structure and framework to be
bankruptcy remote, in line with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our preliminary ratings
are commensurate with the available credit enhancement for the
class A-1, A-2, B-1, B-2, C, D, E, and F notes. Our credit and cash
flow analysis indicates that the available credit enhancement for
the class B-1, B-2, C, D, and E notes could withstand stresses
commensurate with the same or higher ratings than those we have
assigned. However, as the CLO will be in its reinvestment phase
starting from closing, during which the transaction's credit risk
profile could deteriorate, we have capped our preliminary ratings
assigned to these notes.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
The transaction securitizes a portfolio of primarily senior-secured
leveraged loans and bonds, and it will be managed by Barings (U.K.)
Ltd.
Environmental, social, and governance (ESG) credit factors
S&P regards the exposure to ESG credit factors in the transaction
as being broadly in line with its benchmark for the sector.
Primarily due to the diversity of the assets within CLOs, the
exposure to environmental credit factors is viewed as below
average, social credit factors are below average, and governance
credit factors are average. For this transaction, the documents
prohibit assets from being related to certain activities,
including, but not limited to the following: An obligor involved
in:
-- The marketing, manufacturing or trade of illegal drugs or
narcotics;
-- The marketing, manufacturing or distribution of opioids;
-- The use of child or forced labor;
-- Payday lending;
-- Providing storage facilities or services for oil or other
infrastructure;
-- Tobacco production;
-- Trading, for commercial purposes, endangered, or critically
endangered species; or
-- The development of genetic engineering or genetic
modification.
Accordingly, since the exclusion of assets from these industries
does not result in material differences between the transaction and
S&P's ESG benchmark for the sector, no specific adjustments have
been made in its rating analysis to account for any ESG-related
risks or opportunities.
Environmental, social, and governance (ESG) corporate credit
indicators
S&P said, "The influence of ESG factors in our credit rating
analysis of European CLOs primarily depends on the influence of ESG
factors in our analysis of the underlying corporate obligors. To
provide additional disclosure and transparency of the influence of
ESG factors for the CLO asset portfolio in aggregate, we've
calculated the weighted-average and distributions of our ESG credit
indicators for the underlying obligors. We regard this
transaction's exposure as being broadly in line with our benchmark
for the sector, with the environmental and social credit indicators
concentrated primarily in category 2 (neutral) and the governance
credit indicators concentrated in category 3 (moderately
negative)."
Corporate ESG Credit Indicators
ENVIRONMENTAL SOCIAL GOVERNANCE
Weighted-average credit indicator* 2.06 2.16 2.80
E-1/S-1/G-1 distribution (%) 0.75 0.00 0.00
E-2/S-2/G-2 distribution (%) 75.00 72.50 20.75
E-3/S-3/G-3 distribution (%) 6.00 6.00 58.00
E-4/S-4/G-4 distribution (%) 0.00 3.00 1.50
E-5/S-5/G-5 distribution (%) 0.00 0.25 1.50
Unmatched obligor (%) 10.75 10.75 10.75
Unidentified asset (%) 7.50 7.50 7.50
*Only includes matched obligor.
Ratings List
CLASS PRELIM. PRELIM. INTEREST RATE CREDIT
RATING AMOUNT (%) ENHANCEMENT(%)
(MIL. EUR)
A-1 AAA (sf) 231.80 3mE + 2.20 39.00
A-2 AAA (sf) 12.20 5.00 39.00
B-1 AA (sf) 37.00 3mE + 3.00 28.50
B-2 AA (sf) 5.00 6.50 28.50
C A (sf) 22.00 3mE + 4.00 23.00
D BBB (sf) 24.00 3mE + 6.15 17.00
E BB- (sf) 18.00 3mE + 7.53 13.00
F† B- (sf) 14.00 3mE + 11.00 9.50
Sub NR 46.70 N/A N/A
NR--Not rated.
N/A--Not applicable.
3mE--Three-month Euro Interbank Offered Rate.†
†The class F notes is a delayed drawdown tranche not issued at
closing.
CVC CORDATUS VII: Moody's Affirms B2 Rating on EUR13.2MM F-R Notes
------------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by CVC Cordatus Loan Fund VII Designated Activity
Company:
EUR26,200,000 Class B-1-R-R Senior Secured Floating Rate Notes due
2031, Upgraded to Aa1 (sf); previously on Mar 15, 2021 Definitive
Rating Assigned Aa2 (sf)
EUR20,000,000 Class B-2-R-R Senior Secured Fixed Rate Notes due
2031, Upgraded to Aa1 (sf); previously on Mar 15, 2021 Definitive
Rating Assigned Aa2 (sf)
EUR20,900,000 Class D-R-R Senior Secured Deferrable Floating Rate
Notes due 2031, Upgraded to Baa2 (sf); previously on Mar 15, 2021
Definitive Rating Assigned Baa3 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR270,600,000 Class A-R-R Senior Secured Floating Rate Notes due
2031, Affirmed Aaa (sf); previously on Mar 15, 2021 Definitive
Rating Assigned Aaa (sf)
EUR30,800,000 Class C-R-R Senior Secured Deferrable Floating Rate
Notes due 2031, Affirmed A2 (sf); previously on Mar 15, 2021
Definitive Rating Assigned A2 (sf)
EUR27,500,000 Class E-R Senior Secured Deferrable Floating Rate
Notes due 2031, Affirmed Ba2 (sf); previously on Mar 15, 2021
Affirmed Ba2 (sf)
EUR13,200,000 Class F-R Senior Secured Deferrable Floating Rate
Notes due 2031, Affirmed B2 (sf); previously on Mar 15, 2021
Affirmed B2 (sf)
CVC Cordatus Loan Fund VII Designated Activity Company, originally
issued in August 2016, refinanced in September 2018 and March 2021,
is a collateralised loan obligation (CLO) backed by a portfolio of
mostly high-yield senior secured European loans. The portfolio is
managed by CVC Credit Partners Group Ltd. The transaction's
reinvestment period will end in March 2023.
RATINGS RATIONALE
The rating upgrades on the Class B-1-R-R, B-2-R-R and D-R-R Notes
are primarily a result of the benefit of the shorter period of time
remaining before the end of the reinvestment period in March 2023.
The affirmations on the ratings on the Class A-R-R, C-R-R, E-R and
F-R Notes are primarily a result of the expected losses on the
notes remaining consistent with their current rating levels, after
taking into account the CLO's latest portfolio, its relevant
structural features and its actual over-collateralisation ratios.
In light of reinvestment restrictions during the amortisation
period, and therefore the limited ability to effect significant
changes to the current collateral pool, Moody's analysed the deal
assuming a higher likelihood that the collateral pool
characteristics would maintain an adequate buffer relative to
certain covenant requirements. In particular, Moody's assumed that
the deal will benefit from a lower WARF and a shorter WAL than it
had assumed at the last rating action in March 2021.
The key model inputs Moody's uses in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers.
In its base case, Moody's used the following assumptions:
Performing par and principal proceeds balance: EUR432.2m
Defaulted Securities: EUR6.0m
Diversity Score: 56
Weighted Average Rating Factor (WARF): 2902
Weighted Average Life (WAL): 4.3 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.7%
Weighted Average Recovery Rate (WARR): 43.8%
Par haircut in OC tests and interest diversion test: 0%
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties, such as account bank and swap providers,
using the methodology "Moody's Approach to Assessing Counterparty
Risks in Structured Finance" published in June 2022. Moody's
concluded the ratings of the notes are not constrained by these
risks.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.
Additional uncertainty about performance is due to the following:
Portfolio amortisation: Once reaching the end of the reinvestment
period in March 2023, the main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales by the liquidation agent/the
collateral manager or be delayed by an increase in loan
amend-and-extend restructurings. Fast amortisation would usually
benefit the ratings of the notes beginning with the notes having
the highest prepayment priority.
Weighted average life: The notes' ratings are sensitive to the
weighted average life assumption of the portfolio, which could
lengthen as a result of the manager's decision to reinvest in new
issue loans or other loans with longer maturities, or participate
in amend-to-extend offerings.
Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Moody's analysed
defaulted recoveries assuming the lower of the market price or the
recovery rate to account for potential volatility in market prices.
Recoveries higher than Moody's expectations would have a positive
impact on the notes' ratings.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available to
rating committees, including macroeconomic forecasts, input from
other Moody's analytical groups, market factors, and judgments
regarding the nature and severity of credit stress on the
transactions, can influence the final rating decision.
PREMBROKE PROPERTY 2: S&P Affirms 'B(sf)' Rating on Class F Notes
-----------------------------------------------------------------
S&P Global Ratings raised its credit ratings on Pembroke Property
Finance 2 DAC'S class B, C, D, and E notes. At the same time, S&P
affirmed its 'AAA (sf)' and 'B (sf)' ratings on the class A and F
notes, respectively.
Rating rationale
The rating actions follow S&P's review of the transaction's five
key rating factors (credit quality of the securitized assets, legal
and regulatory risks, operational and administrative risks,
counterparty risks, and payment structure and cash flow
mechanisms). Since closing, the issuer received approximately
EUR19.6 million in scheduled amortization and EUR28.9 million in
prepayments, together accounting for 13.8% of the initial principal
balance. Of the principal receipts, the issuer used EUR21.2 million
for further advances.
Further advances are limited to 14.5% of the portfolio (by balance)
over the transaction's life and are subject to various value and
income tests at the portfolio, loan, and asset levels. To date, the
transaction has made about half the further advances that are
allowed.
Moreover, the transaction pays sequential from closing, so the
repayments, net of further advances, have increased credit
enhancement for all classes of notes except the most junior class.
Portfolio performance
As of the November 2022 interest payment date:
-- The pool's average loan size is EUR2,023,725.
-- Of the loans, 5.3% are interest-only mortgage loans.
-- The current weighted-average loan-to-value (LTV) ratio is
57.0%, down from 59.7% at closing.
-- The weighted-average current interest rate is 7.62%, up from
6.14% at closing.
-- The portfolio decreased to 138 loans from 147 at closing.
-- Obligor groups also decreased, to 73 from 79 over the same
period.
-- Of the original 79 obligor groups, six fully repaid and all
except one borrower group amortized partially, either from
scheduled amortization or from prepayments.
The total property value of the underlying assets has declined
slower than the debt, so the pool's weighted-average LTV is 57.0%,
down from 59.7% at closing. Only 14 of the 244 remaining properties
report an updated valuation since closing. For this subset, the
external market value was up by 36%. However, the previous
valuations dated back to 2017 and 2019.
As of the most recent report, none of the loans are in arrears or
default. The loans have a weighted-average remaining term of 2.6
years, which is unchanged from closing given the changes in the
underlying pool. However, the weighted-average seasoning has
increased to 30 months from 23 months, while the longest maturity
remains in 2031.
Loan concentration within the pool has increased, although it does
not affect our analysis because we give very little diversity
credit in our CMBS ratings, and the diversity credit stops
increasing after 10 effective loans.
Table 1
Concentration By Obligor Group
AT CLOSING (%) CURRENT
Largest loan 6.2 8.0
Top 5 24.9 26.9
Top 10 42.2 43.8
Credit evaluation
S&P said, "In our analysis, we evaluated each loan's underlying
real estate collateral to generate an "expected case" value. This
value constitutes the S&P Global Ratings value that we determine
for each property--or portfolio of properties--securing a loan (or
multiple loans) in a securitization. It primarily results from a
calculation that considers each property's net adjusted cash flows
and an applicable capitalization (cap) rate.
"We determined the loan's underlying value, focusing on sustainable
property cash flows and cap rates. We assumed that a real estate
workout would be required throughout the tail period (the period
between the maturity date of the latest maturing loan and the
transaction's final maturity date) needed to repay noteholders if
the respective borrowers defaulted."
Table 2
Loan And Collateral Summary
CURRENT AT CLOSING
S&P Global Ratings NCF (mil. EUR) 27.52 32.53
S&P Global Ratings value (mil. EUR) 353.08 412.60
S&P Global Ratings cap rate (%) 7.4 7.5
Haircut to reported market value (%) 32.3 24.9
Class F S&P Global Ratings loan-to-value
ratio before recovery rate adjustments (%) 74.3 70.0
S&P Global Ratings' NCF
S&P said, "Our property-level cash flow analysis derives what we
believe to be a property's long-term sustainable NCF. In our
analysis, we considered provided rental levels and operational
statements, third-party appraisal reports, relevant market data,
and assessments of the various properties' competitive positions.
"Our poolwide NCF is 13.6% lower than the reported net operating
income, compared with 9.0% at closing."
Other analytical considerations
S&P said, "Our rating analysis includes an analysis of the
transaction's payment structure and cash flow mechanics. We assess
whether the cash flow from the securitized assets would be
sufficient, at the applicable ratings, to make timely payments of
interest and ultimate repayment of principal by the legal maturity
date for each class of notes, after taking into account available
credit enhancement and allowing for transaction expenses and
external liquidity support."
The transaction maintains a EUR7.4 million liquidity reserve, which
was funded out of the issuance of the class Z notes.
S&P said, "We also analyzed the transaction's counterparty
exposure. The maximum rating achievable for this transaction under
our current counterparty criteria is 'AAA (sf)' based on the
replacement provisions of the account banks.
"Our analysis also includes a full review of the legal and
regulatory risks and operational and administrative risks. Our
assessment of these risks remains unchanged since closing and is
commensurate with the ratings assigned."
Rating actions
S&P said, "Our ratings in this transaction address the timely
payment of interest, payable quarterly in arrears, and the payment
of principal no later than the legal final maturity dates.
"Our opinion on the long-term sustainable value is unchanged (down
0.3% since closing) on a like-for-like basis, meaning when
considering only the properties that were already in the pool at
closing and that remain in the pool now.
"However, the issuer applied substantial amortization in the
transaction over the same period -- about 9% of the securitized
loan balance after considering further advances -- to the class A
notes only, increasing credit enhancement for all classes of notes
except the class F notes. We therefore raised to 'AA+ (sf)', 'A+
(sf)', 'A- (sf)', and 'BBB- (sf)' from 'AA (sf)', 'A (sf)', 'BBB
(sf)', and 'BB+ (sf)' our ratings on the class B, C, D and E notes,
respectively. We also affirmed our 'AAA (sf)' rating on the class A
notes as the available credit enhancement continues to be
commensurate with the assigned rating.
"Our model-indicated rating for the class F notes is 'B- (sf)'.
However, we affirmed our 'B (sf)' rating on this class of notes
given the transaction's overall performance and the
overcollateralization provided by the class Z notes."
=========
S P A I N
=========
EDREAMS ODIGEO: Fitch Affirms LongTerm IDR at 'B', Outlook Stable
-----------------------------------------------------------------
Fitch Ratings has affirmed online travel group eDreams ODIGEO
S.A.'s (eDreams) Long Term Issuer Default Rating (IDR) at 'B' with
a Stable Outlook.
The affirmation encapsulates eDreams' increased rating headroom as
trading performance has recovered, driven by a rebound of air
travel alongside rapid growth in prime subscribers. The latter
signals good progress in the group's transition to a
subscription-based model, which has been achieved with
competitively priced air tickets and strong investment in
acquisition costs that are at the same time constraining group
profitability. Fitch estimates that trading recovery should return
eDreams' credit metrics in the financial year to March 2023 (FY23)
to within the levels that are consistent with the rating.
Stable or decreasing churn rates of prime members resulting in
improving profitability and financial leverage would signal a
successful transition to a subscription model and could lead to
positive rating action.
KEY RATING DRIVERS
Recovering Profitability: Fitch expects EBITDA margin to increase
to close to 14% for FY23 from 9.6% in FY22 as a result of revenue
recovering to pre-pandemic levels. Fitch-adjusted EBITDA includes
cash inflow from the increase of prime subscriptions received but
not yet recorded as revenue. Profitability remains subdued by high
acquisition costs of new users, in particular as a result of the
ongoing business- model transition focused on growing its prime
members.
Fitch sees EBITDA margin trending towards pre-pandemic levels of up
to 20% by FY25 once the number of prime members stabilises. This
will however be subject to stabilising or decreasing churn in prime
members and keeping discounts under control.
Macroeconomic Challenges Delay Deleveraging: Fitch assumes an
inflationary and a higher interest-rate environment, with a
resulting decrease in disposable income for discretionary
activities, will affect spending on travel in FY24. Therefore,
despite the continuing benefits on revenue growth from new prime
subscriptions, more cautious consuer spending could affect product
mix and weigh on the average revenue per booking, consequently
slowing profitability growth. While eDreams has improved its rating
headroom with a forecast EBITDA leverage below 6.0x at FYE23, Fitch
expects deleveraging to temporarily slow in FY24 as the economy
cools.
Continuing Transitioning Strategy: eDreams has made significant
progress in its business-model transition into the first
subscription model for the travel industry with approximately 3.6
million prime members as of end-2QFY23, up from 1.7 million a year
before. However, it remains to be seen if the group can limit the
rate of churn on its enlarged and growing membership base.
While cross-selling opportunities from the subscription model will
help increase income to fund subscriber discounts, our rating case
projects more conservative sales growth relative to management's
ambitious expected market-share gains and levels of repeat bookings
from members.
Cash-Generative Business Model: eDreams operates an asset-light
business model with a flexible cost base that has proved resilient
during the pandemic, while, however, spending some EUR40
million-EUR50 million a year on capex, mainly for IT. The prime
member business allows the group to receive cash upfront from
subscriber fees but which are not yet reported as revenue. This
partly mitigates the large swings in working capital in eDreams,
which should over time lead to a stable positive free cash flow
(FCF) margin, and contributes to a Fitch-forecast funds from
operations (FFO) margin of close to 10% in FY23 and FY24.
Following EUR66 million FCF generated in FY22, which was aided by
working-capital changes, Fitch expects more modest FCF in FY23.
Strong Positioning in Competitive Market: The global online travel
agent (OTA) market is characterised by low switching costs and
intense competition from bigger and more diversified operators,
metasearch sites and the direct channels of airlines and hotels,
making industry players more vulnerable to higher customer
acquisition costs and rates of churn. However, the
highly-fragmented travel industry in Europe continues to favour the
use of intermediators. The fully online model of eDreams with
well-developed mobile channels and different web-based brands is a
competitive advantage.
Leisure Recovery Ahead of Industry: eDreams' focus on leisure has
been beneficial, as this part of the market has recovered much
faster than business travel following the lifting of
pandemic-related restrictions. Fitch expects disruption in the
wider travel industry to last until 2024 and 2025 for airline
capacity and hotel occupancy, respectively, with international
travelling lagging domestic trips. However, eDreams is
well-positioned to benefit from the faster growth prospects in
leisure, albeit due to the non-recurring pent-up demand of leisure
customers.
Limited Booking Diversification: eDreams' business mix offers
certain diversification between sources (customers, fees from
stakeholders and payment providers etc) and products (flights,
hotels, cars, insurance) but the group is mostly exposed to the
flights market. It operates in 44 sourcing markets, although its
top six regions account for 74% of revenue, led by southern Europe
(France, Italy and Spain account for 46% of revenue). Fitch expects
the subscription model will enhance diversification, given discount
incentives for repeat bookings for members in all categories.
DERIVATION SUMMARY
eDreams lags the global leader Expedia Group, Inc. (BBB-/Stable)
and Booking.com in scale and global market position. Despite
sharing a similar EBITDA margin to eDreams (Expedia: 17.5%
pre-pandemic), Expedia is significantly less leveraged (EBITDA
leverage of 2.9x estimated for 2022) and benefits from ample
liquidity as it adapts to post-pandemic travel-demand patterns.
While eDreams' operations concentrate on the softening European
market, Expedia is more geared towards the US, where domestic
travel has rebounded more quickly.
Compared with hotel operators such as NH Hotel Group S.A.
(B/Stable) or Sani/Ikos Group S.C.A.(B-/Negative), eDreams could
over time offer more stable prospects based on its subscription
model for bookings. However, hotels' business models are
traditionally more profitable while the subscription model is yet
to be fully proven.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Bookings from prime and non-prime members at 15.6 million for
FY23, growing to 20.5 million in FY25 as prime members increase on
average to 5.5 million from 3.7 million
- Revenue per booking decreasing to EUR33.5 in FY24 from EUR36 in
FY23 (FY22: EUR30) on weaker consumer spending in Europe before
returning to EUR34 in FY24
- Fixed costs at EUR85million-100 million to FY25
- Variable costs decreasing to 72% of revenue in FY24 and 68% in
FY25 from 80% in FY23 as a result of lower acquisition cost
alongside a slowdown in new prime members
- Capex of around EUR200 million in the next four years to reflect
business-model transition
- No acquisitions to FY25
- On average, modest capital inflows excluding increase in prime
deferred revenues to FY26
- No dividend distribution
KEY RECOVERY RATING ASSUMPTIONS
- eDreams would be considered a going concern in bankruptcy and
that it would be reorganised rather than liquidated. Fitch has
assumed a 10% administrative claim in the recovery analysis
- Fitch assumes a going-concern EBITDA of EUR64 million, which
Fitch believes should be sustainable post-restructuring
- Fitch assumes a 5.0x distressed enterprise value (EV)/ EBITDA.
The distressed multiple reflects a weaker competitive position than
global leaders' and the disrupted industry in which eDreams
operates (compared with regular software companies)
- The abovementioned assumptions result in a distressed EV of about
EUR320 million
- Based on the payment waterfall Fitch has assumed the group's
EUR180 million revolving credit facility (RCF) to be fully drawn
and ranking senior to its senior secured notes, together with
eDreams' outstanding EUR3.75 million Instituto de Crédito Oficial
loan. Therefore, after deducting 10% for administrative claims, its
waterfall analysis generates a ranked recovery for its senior
secured debt in the 'RR5' band, indicating a 'B-' instrument
rating, or one notch below the IDR. The waterfall analysis output
percentage on current metrics and assumptions is 28% for the senior
secured bond.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Visibility on stabilisation in travel demand, successful
resumption of bookings and signs of consolidation of the group's
subscription model
- Total debt / EBITDA below 4.5x
- Positive FCF generation sustaining liquidity buffer
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Incapability to deleverage with total debt / EBITDA above 6.5x
- Increased volatility in profitability with FFO margin below 10%
on a sustained basis
- Liquidity deterioration as a result of delayed industry recovery
leading to over-reliance on RCF or external liquidity requirements
- Secular decline or deterioration in the OTA business model from a
shift to direct bookings or failure to transition to the
subscription model
LIQUIDITY AND DEBT STRUCTURE
Limited but Improving Liquidity: As of 30 September 2022, eDreams
had EUR41 million of reported cash and EUR125 million in an undrawn
RCF. While this is adequate liquidity at a seasonally low point,
Fitch restricts 50% of year-end cash to reflect seasonal
working-capital requirements.
ISSUER PROFILE
eDreams is one of the world's largest online travel companies and
one of the largest European e-commerce businesses (market share of
5% of european air market share). It provides access to over 690
airlines and 2.1 million hotel partners for 17 million customers
across 44 markets every year.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
eDreams ODIGEO S.A. LT IDR B Affirmed B
senior secured LT B- Affirmed RR5 B-
===========================
U N I T E D K I N G D O M
===========================
888 HOLDINGS: Moody's Affirms 'B1' CFR & Alters Outlook to Negative
-------------------------------------------------------------------
Moody's Investors Service has affirmed the B1 corporate family
rating and a B1-PD probability of default rating to 888 Holdings
Plc. The rating outlook has changed to negative from positive.
The rating actions follows 888's press release on January 13 of the
2022 post closing trading update and the disclosure on January 30
that (a) the CEO, Itai Pazner, is leaving the company immediately;
(b) VIP customer accounts in the Middle East have been temporarily
suspended following an internal compliance review that identified
best practices related to know your customer ("KYC") and anti-money
laundering ("AML") had not been followed. The Board currently
estimates the impact is less than 3% of revenues, should the
suspensions remain in place after the completion of the internal
investigation.
RATINGS RATIONALE
The 2022 post close update indicated that revenue and EBITDA were
below Moody's previous expectations. The rating agency has revised
its projections for 2023 downwards. Moody's now expects larger cash
outflows as a result of higher interest costs (combination of
hedging and further increase in base rates are to materialize) and
higher costs to deliver synergies (which have been raised by 50%
during the company Capital Market Day last December) combined with
uncertainty on the timing for the re-entry into the Netherlands and
the changes to the UK Gaming Act that are likely to continue to put
pressure on online revenue growth in the UK.
Additionally, the recent events at 888 suggest that internal
control processes need to be strengthened. While the rating action
assumes that the financial impact of the internal compliance review
including any potential related fines will be limited, Moody's
could take further negative rating action should there be more
severe consequences for the company. Moody's views positively that
such findings were raised through an internal investigation and
that 888's Board took prompt actions to set a clear message that
such matters were taken very seriously. Nevertheless, the CEO
departure is likely to result in some management distraction and
potential delays in the company's strategy implementation set by
the board.
The B1 rating remains supported by the group's: (1) increased scale
and enhanced business profile post merger with William Hill
International; (2) established and popular brands with important
market position in large key gaming markets (UK, Italy, Spain); (3)
competitive advantage stemming from 888's proprietary technology
platform which also enable to pro-actively monitor clients behavior
and provide players with appropriate safe guarding measures and (4)
good free cash flow generation before synergies expenses which
should support deleveraging to around 5.0x Moody's adjusted
leverage by end of 2024.
The rating is however constrained by: (1) concentration on the
mature UK market representing over 65% of group revenues and a
still sizeable 10-11% of revenues derived from markets which are
not locally regulated; (2) high Moody's adjusted Debt to EBITDA at
6.5x in 2022 and a very weak projected interest cover ratio in 2023
of 1.1x due to high cost of debt; (3) execution risk stemming from
the need to integrate William Hill International into 888; (4) the
highly competitive nature of the online betting and gaming industry
and (5) the ongoing threat of greater regulation and gaming tax
increases, particularly in the largest and most established
European markets due to social pressure.
ESG CONSIDERATIONS
Moody's assessed the group governance to be a key driver for the
rating action. Recent events around failures of the KYC and AML
processes in the Middle East are a sign of governance weaknesses.
Accordingly, Moody's has re-assessed the Compliance & Reporting
score to moderately negative from the prior low to neutral. The
overall Governance score of 888 remains moderately negative but
could be changed to highly negative should there be further
evidence of governance weakness.
LIQUIDITY
The group's liquidity position is good and supported by (1)
material cash flow generation, (2) cash on balance sheet of around
GBP170 million (excluding customer balances) as of December 2022;
(3) the undrawn GBP150 million RCF due in 2028, and; (4) no
material debt maturities until 2027.
RATING OUTLOOK
The negative outlook reflects Moody's view that current elevated
leverage levels will remain broadly unchanged until 2024 when the
synergies should start to contribute positively to the cash flow.
From 2024, Moody's expects leverage to decrease rapidly in
particular if the company choses to voluntary repay debt in order
to achieve the leverage target set in its financial policy. The
negative outlook also reflect the possibility that the financial
impact of the internal compliance review could be more severe than
currently expected under Moody's base case.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure on the ratings could arise over time if (1)
Moody's-adjusted gross leverage falls sustainably below 4.75x; (2)
the company's retained cash flow (RCF)/Net debt (as adjusted by
Moody's) reaches 15%; (3) Moody's interest coverage is firmly above
2.25x. For an upgrade Moody's also expects the group to have
successfully completed the integration of William Hill
International and that the company has strengthened its internal
control functions.
Downward pressure on the ratings could occur if (1)
Moody's-adjusted gross leverage is maintained for a prolonged
period of time above 5.75x-6.0x; (2) retained cash flow (RCF)/Net
debt (as adjusted by Moody's) deteriorates below 10% and (3)
changes to its financial policy resulting in greater appetite for
leverage. A downgrade could also occur as a result of materially
adverse regulatory actions or if the KYC and AML issues recently
detected result in a more severe negative impact than currently
anticipated by Moody's.
LIST OF AFFECTED RATINGS
Affirmations:
Issuer: 888 Acquisitions Limited
BACKED Senior Secured Bank Credit Facility, Affirmed B1
BACKED Senior Secured Regular Bond/Debenture, Affirmed B1
Issuer: 888 Acquisitions LLC
BACKED Senior Secured Bank Credit Facility, Affirmed B1
Issuer: 888 Holdings Plc
Probability of Default Rating, Affirmed B1-PD
LT Corporate Family Rating, Affirmed B1
Issuer: William Hill Limited
BACKED Senior Unsecured Regular Bond/Debenture, Affirmed B2
Outlook Actions:
Issuer: 888 Acquisitions LLC
Outlook, Changed To Negative From Positive
Issuer: 888 Acquisitions Limited
Outlook, Changed To Negative From Positive
Issuer: 888 Holdings Plc
Outlook, Changed To Negative From Positive
Issuer: William Hill Limited
Outlook, Changed To Negative From Positive
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Gaming
published in June 2021.
COMPANY PROFILE
888 Holdings Plc, headquartered in Gibraltar, is a public company
listed on the London Stock Exchange with a market capitalization of
about GBP350 million; the group is the combination of 888 and
William Hill International operations outside the US, a merger that
closed in July 2022. The company has a strong presence (about 65%
of group revenues) in the UK and a leading market share with also a
strong position in core markets like Italy and Spain. The group
indicated revenues of GBP1.85bn and adjusted EBITDA in the range of
GBP305-315 million in the 2022 post close.
888 HOLDINGS: S&P Places 'B' ICR on Watch Neg. on Increased Risks
-----------------------------------------------------------------
S&P Global Ratings placed its 'B' ratings on 888 Holdings PLC on
CreditWatch negative to reflect the increased risk of a downgrade.
Executive changes have weakened 888 Holdings' management and
governance.
888 Holdings announced the immediate departure of its CEO on Jan.
30, 2023, without announcing a successor. The group's chairman will
serve as an executive until an appropriate successor is found. This
announcement follows the resignation earlier the same month of the
group's CFO, who has now extended his intended departure date to
the end of 2023. In S&P's view, the changes in the senior executive
team could jeopardize the group's stability and strategy, thus
weakening its management and governance.
Compliance deficiencies increase 888 Holdings' regulatory,
reputational, and financial risk. On the same day that it announced
the departure of its CEO, the group also announced that, following
an internal investigation, it had found procedural deficiencies in
know-your-customer and anti-money laundering compliance in its
Middle Eastern VIP operations. For the time being, as the group
works through the issue, it has suspended its operations in the
Middle East, with an estimated financial impact of up to GBP50
million in revenue on an annualized basis. S&P said, "In our
experience, VIP clients tend to be high margin, and thus, while we
cannot estimate the impact on EBITDA at this stage, it could exceed
5% of our prior base case. We already flagged the risk of 888
Holdings' leverage underperforming our base-case forecast on Dec.
6, 2022, when we assigned a negative outlook."
At this stage, S&P cannot fully estimate the potential for
contagion risk from 888 Holdings' investigation. Specifically, S&P
cannot fully estimate:
-- Whether the group could uncover deficiencies that are more
extensive than it first thought;
-- Whether such deficiencies extend to other jurisdictions,
although S&P notes that the group stated in its announcement that,
based on the board's current understanding, the process
deficiencies identified are isolated;
-- Whether external investigations by gaming or other governmental
authorities either in the Middle East or other jurisdictions
heighten the risk for the group's regulatory licenses and business
relationships; and
-- What broader implications the investigation has for the group's
compliance costs and strategies or the continuation of its
operations in the Middle East.
The announcements of the CEO's resignation and the compliance
deficiencies result from an internal investigation, with the group
having discovered and disclosed the deficiencies following its own
review.
S&P said, "The CreditWatch negative placement reflects the
increased risk of a downgrade following the announcements that 888
Holdings has made since we assigned a negative outlook on Dec. 6,
2022. We aim to resolve the CreditWatch placement in the next
90-180 days, once we have assessed and fully incorporated the
latest risks into our analysis, whether they relate to our
management and governance assessment or 888 Holdings' financial
metrics, or result from the group's market updates on Jan. 30,
2023, or from any further disclosures that 888 Holdings makes in
due course.
"We could lower the ratings on 888 Holdings if, once we have fully
assessed the latest disclosures, we deem them to have used up the
remaining headroom at the current ratings. Specifically, this could
include a material weakening in the group's financial risk, its
ability to achieve previously identified synergies arising from the
integration of William Hill Ltd., or our management and governance
assessment, warranting a one-notch downgrade.
"We could remove the ratings from CreditWatch and affirm them if,
in our view, the outcome of the group's internal investigation is
limited in its financial and nonfinancial scope, and the group
implements appropriate executive succession planning. The group
could release its annual financial audited results during the
CreditWatch period, and therefore these results could also form
part of our analysis, in conjunction with the issues announced on
Jan. 30, 2023, if the group does not resolve them prior to that
time."
Environmental, Social, And Governance
ESG credit indicators: To E-2, S-4, G-4; From E-2, S-4, G-3
S&P said, "Governance factors are now a negative consideration in
our credit rating analysis, because we see increased risks coming
from the announced changes to executive management, as well as from
the apparent compliance failings that the group's internal
investigation has revealed, which will likely cause it financial
losses.
"Social factors remain a negative consideration in our credit
rating analysis, because we see the group as particularly exposed
to the health and safety and social capital implications of its
gaming operations. Specifically, we note 888 Holdings' and William
Hill's prior fines for player-protection shortcomings and a
requirement to improve compliance practices; the ongoing review of
William Hill in the U.K.; and the group's exposure to U.K.
regulation and any outcome from a pending U.K. whitepaper review
into gambling.
Environmental, social, and governance (ESG) credit factors for this
change in credit rating/outlook and/or CreditWatch status:
-- Risk management, culture, and oversight
AARTEE BRIGHT: Goes Into Administration, Alvarez & Marsal Tapped
----------------------------------------------------------------
Sylvia Pfeifer and Robert Smith at The Financial Times report that
a leading customer of Sanjeev Gupta's Liberty Steel has fallen into
administration, deepening the crisis engulfing the industry in the
UK and prompting speculation the industrialist may step in to
rescue the business.
Aartee Bright Bar, which is owned by Ravi Trehan, a close associate
of Mr. Gupta, is Britain's largest distributor of engineering steel
products.
It buys steel bars, mainly used in the construction industry, from
Liberty Steel. Based in the West Midlands, the company employs 250
people.
Alvarez & Marsal were appointed by Aartee's main creditor, FGI
Worldwide, to handle the insolvency process this week, the FT
relays, citing a person familiar with the situation.
According to the FT, Michael Magnay, joint administrator at A&M,
said: "Like many companies in its sector, Aartee Bright Bar has
been going through vital headwinds on account of the difficult
financial surroundings and fluctuating metal costs.
"Against this backdrop, administrators have been appointed and we
are exploring the options available to preserve value."
Liberty Steel declined to comment but a person familiar with the
situation said the company would "look at ways in which it could
help", the FT notes.
BRITISHVOLT LTD: Tees Valley Strikes Supply Deal with Recharge
--------------------------------------------------------------
Mark Burton at Bloomberg News report that Tees Valley Lithium
struck a preliminary deal to supply raw materials to the preferred
buyer of collapsed UK battery startup Britishvolt Ltd.
According to Bloomberg, the early-stage lithium refiner signed a
memorandum of understanding to supply toll-processed lithium to
Recharge Industries, which has been selected as the preferred
bidder for the majority of the insolvent battery firm's business
and assets. Tees Valley plans to produce the lithium at a refinery
in the northeast of England that's set to start operation in 2025,
Bloomberg discloses.
Once considered Britain's best shot for a homegrown
electric-vehicle battery supplier, Britishvolt went into bankruptcy
last month after failing to identify any potential rescuers,
Bloomberg recounts.
Recharge has sought Tees Valley's support "to safeguard the supply
of critical minerals" for both the Geelong plant and the
Britishvolt project, the companies said in a joint statement on
Feb. 8, Bloomberg relates.
LIGHT SOURCE: Enters Administration, Buyer Sought for Business
--------------------------------------------------------------
Business Sale reports that administrators from RSM UK Restructuring
Advisory LLP are seeking a buyer for the business and assets of
Nottingham-based telecoms contractor Light Source Design Limited.
The company, which was founded 20 years ago, had turnover of around
GBP48.5 million in its most recent accounts and an employee
headcount of 220. It provided installation services for
Fibre-to-the-Premises (FTTP) infrastructures for clients, which
included several blue chip communication firms.
Despite its prominence in the UK's booming FTTP market, the company
ran into difficulties as a result of delayed customer payments, as
well as challenges it faced converting work in progress, Business
Sale discloses. These issues were exacerbated by a large pile of
bad debt, a reduction in customer spending and adverse customer
credit terms, Business Sale states.
Due to these factors, the company suffered cash flow pressures that
meant it was unable to meet its liabilities, with Tom Straw and
Chris Lewis of RSM subsequently appointed as joint administrators
as January 31 2023, Business Sale relates.
According to Business Sale, the joint administrators will now seek
a sale of the business and its assets in order to protect jobs and
achieve an orderly handover of the firm's contracts to maximise
returns for creditors. Trading has been suspended while this
process is underway, Business Sale notes.
MALIN INDUSTRIAL: Goes Into Administration, Mazar Explores Sale
---------------------------------------------------------------
Joshua Stein at Construction News reports that a Manchester-based
floor specialist that has worked with major contractors including
Buckingham Group and Sir Robert McAlpine has collapsed into
administration.
Malin Industrial Concrete Floors Ltd, a GBP25.6 million-turnover
company specialising in flooring production, appointed Mazars as
administrators this week, Construction News relates.
In its most recent accounts, for the year to March 31, 2021,
Malin's turnover fell to GBP25.6 million compared with GBP38.4
million the year before, Construction News discloses. But its
pre-tax profit soared from GBP109,900 to around GBP1.3 million --
nearly a 13-fold increase, Construction News states.
The company also expanded its average workforce from 31 to 50
full-time staff. Demand for warehouses soared over the course of
the COVID-19 pandemic, mainly due to the boost in online shopping,
Construction News relays.
But Malin also suffered during the pandemic as its sites closed
during lockdown, according to Construction News. Despite this, the
2021 accounts filing said the firm had a "strong cash reserve" and
expected to return to pre-pandemic turnover levels and see a strong
profit margin, Construction News notes.
A spokesperson for Mazars said that it is pursuing the potential
sale of Malin and its assets, but declined to comment further.
TRAIDCRAFT: Collapses Into Administration Amid Cost Pressures
-------------------------------------------------------------
Tom Keighley at BusinessLive reports that North East fair trade
pioneer Traidcraft has collapsed into administration having faced a
number of cost pressures and the impact of strikes.
The Gateshead-based organisation, which began in the 1980s and is
owned by nearly 5,000 shareholders, announced the move "with
tremendous sadness", saying the impact of energy and transport cost
rises, the war in Ukraine and December's Royal Mail Strikes had
stymied its recovery from the pandemic, BusinessLive relates.
According to BusinessLive, administrators from Begbies Traynor were
appointed to the firm in what bosses say was "only honourable
course of action" to minimise impact on suppliers and creditors.
It follows a number of vulnerable years for Traidcraft, which
employs about 40 people and had faced collapse in 2018 following a
fall in the value of the pound on the back of the Brexit vote,
BusinessLive discloses. At the time, the business split in two
with its charitable arm -- Transform Trade -- forming a separate
organisation which bosses said was unaffected by the
administration, BusinessLive notes.
In accounts to the end of March 2022, which show turnover of GBP5.3
million and operating losses of GBP255,614, Traidcraft said the
departure of CEO Robin Roth -- in post since 2016 -- following a
period of absence, had caused difficulties, BusinessLive states. A
tougher economic market had also forced the business to review its
pricing and the range of stock it held in response to a challenging
market post-pandemic, BusinessLive relays.
The loss-making firm also said it had largely stopped trading in
foreign currency and was sourcing its products from UK-based
organisations, according to BusinessLive. In the documents
published last September, Traidcraft acknowledged its viability was
uncertain, BusinessLive discloses.
[*] S&P Affirms Debt Ratings in 16 UK-Based Hospital Projects
-------------------------------------------------------------
S&P Global Ratings affirmed its ratings on the debt of 16
U.K.-based private finance initiative hospital projects:
-- Capital Hospitals (Issuer) PLC,
-- Catalyst Healthcare (Manchester) Financing PLC,
-- Catalyst Healthcare (Romford) Financing PLC,
-- Consort Healthcare (Birmingham) Funding PLC,
-- Consort Healthcare (Mid Yorkshire) Funding PLC,
-- Consort Healthcare (Salford) PLC,
-- Consort Healthcare (Tameside) PLC,
-- Healthcare Support (Newcastle) Finance PLC,
-- Healthcare Support (North Staffs) Finance PLC,
-- Octagon Healthcare Funding PLC,
-- Peterborough (Progress Health) PLC,
-- St. James Oncology Financing PLC,
-- The Coventry & Rugby Hospital Co. PLC,
-- The Hospital Co. (QAH Portsmouth) Ltd.,
-- The Hospital Co. (Swindon & Marlborough) Ltd., and
-- The Walsall Hospital Co. PLC.
S&P said, "The affirmations follow our review of the 16 projects
under our revised project finance criteria. The revised criteria do
not have an impact on these projects' creditworthiness or on our
operating and financial risk assessments. As a result, we affirmed
our ratings on the 16 U.K.-based hospitals.
"Our assessment of the credit factors reflected in the outlooks and
CreditWatch are unchanged. We have therefore maintained our rating
outlooks on those entities' debt. The negative implications of the
CreditWatch on our rating on Coventry & Rugby Hospital Co.'s debt
are unrelated to the new criteria implementation."
Ratings List
RATINGS AFFIRMED
CAPITAL HOSPITALS (ISSUER) PLC
Senior Secured AA/Stable
Senior Secured BB+/Stable
Recovery Rating 2(70%)
S&P Underlying Rating BB+/Stable
CATALYST HEALTHCARE (MANCHESTER) FINANCING PLC
Senior Secured BB+/Stable
Recovery Rating 2(75%)
S&P Underlying Rating BB+/Stable
CATALYST HEALTHCARE (ROMFORD) FINANCING PLC
Senior Secured AA/Stable
S&P Underlying Rating BBB-/Stable
CONSORT HEALTHCARE (BIRMINGHAM) FUNDING PLC
Senior Secured BB/Negative
Recovery Rating 2(70%)
S&P Underlying Rating BB/Negative
CONSORT HEALTHCARE (MID YORKSHIRE) FUNDING PLC
Senior Secured BBB-/Negative
S&P Underlying Rating BBB-/Negative
CONSORT HEALTHCARE (SALFORD) PLC
Senior Secured BBB-/Stable
S&P Underlying Rating BBB-/Stable
CONSORT HEALTHCARE (TAMESIDE) PLC
Senior Secured CCC/Negative
Recovery Rating 4(40%)
S&P Underlying Rating CCC/Negative
COVENTRY & RUGBY HOSPITAL CO. PLC (THE)
Senior Secured AA/Stable
S&P Underlying Rating B/Watch Neg
HEALTHCARE SUPPORT (NEWCASTLE) FINANCE PLC
Senior Secured BB/Negative
Recovery Rating 2(70%)
S&P Underlying Rating BB/Negative
HEALTHCARE SUPPORT (NORTH STAFFS) FINANCE PLC
Senior Secured AA/Stable
S&P Underlying Rating BBB-/Stable
HOSPITAL CO. (QAH PORTSMOUTH) LTD. (THE)
Senior Secured AA/Stable
S&P Underlying Rating BBB/Negative
HOSPITAL CO. (SWINDON & MARLBOROUGH) LTD. (THE)
Senior Secured AA/Stable
S&P Underlying Rating A-/Stable
OCTAGON HEALTHCARE FUNDING PLC
Senior Secured AA/Stable
S&P Underlying Rating BBB/Stable
PETERBOROUGH (PROGRESS HEALTH) PLC
Senior Secured BB/Stable
Recovery Rating 2(70%)
S&P Underlying Rating BB/Stable
ST. JAMES'S ONCOLOGY FINANCING PLC
Senior Secured AA/Stable
S&P Underlying Rating BBB/Stable
WALSALL HOSPITAL CO. PLC (THE)
Senior Secured AA/Stable
S&P Underlying Rating BBB/Stable
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2023. All rights reserved. ISSN 1529-2754.
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