/raid1/www/Hosts/bankrupt/TCREUR_Public/230210.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Friday, February 10, 2023, Vol. 24, No. 31
Headlines
A Z E R B A I J A N
PASHA BANK: S&P Affirms 'B+/B' ICRs on Resilient Earnings
SOUTHERN GAS: Fitch Affirms BB+ Rating on Eurobond Unsec. Notes
B E L G I U M
BL CONSUMER 2021: Fitch Affirms 'BB-sf' Rating on Class F Notes
C R O A T I A
INSTITUT IGH: Avenue Mehanizacija to Write Off EUR2.3MM Debt
ULJANIK DD: Croatia Prepares to Sell Unfinished Hull Number 531
D E N M A R K
SKILL BIDCO: S&P Assigns Prelim. 'B' LongTerm ICR, Outlook Stable
F R A N C E
IM GROUP: S&P Rates New EUR250MM 2028 Sr. Secured Notes 'B'
G E O R G I A
GEORGIAN RAILWAY: Fitch Alters Outlook on BB- LongTerm IDRs to Pos.
PROCREDIT BANK (GEORGIA): Fitch Alters Outlook on 'BB+' IDR to Pos.
G E R M A N Y
SPEEDSTER BIDCO: Moody's Affirms 'B3' CFR, Outlook Remains Stable
H U N G A R Y
OTP BANK: S&P Rates New USD-Denominated Tier 2 Sub. Notes 'BB'
I R E L A N D
CASTLELAKE AVIATION: S&P Rates Sec. Incremental Term Loan B 'BB'
HARVEST CLO XIV: Moody's Affirms Ba3 Rating on EUR12MM Cl. F Notes
I T A L Y
BBVA CONSUMER 2018-1: Moody's Ups Rating on EUR6MM E Notes to B1
L U X E M B O U R G
MALLINCKRODT FINANCE: First Trust Fund II Marks Loan at 22%Off
U N I T E D K I N G D O M
AA BOND: S&P Affirms 'B+(sf)' Rating on Class B3-Dfrd Notes
ALBA PLC 2005-1: S&P Lowers Class E Notes Rating to 'BB+(sf)'
ALBION FINANCING 3: Moody's Rates New $440MM Secured Term Loan 'B1'
ALBION HOLDCO: S&P Affirms 'BB-' LongTerm ICR, Outlook Stable
BRIAN CLEGG: Enters Administration, Almost 40 Jobs Affected
CO-OPERATIVE BANK: Fitch Hikes IDR to 'BB', Outlook Stable
DRB GROUP: Placed Into Creditors Voluntary Liquidation
INTERNATIONAL GAME: Fitch Gives 'BB+' FirstTime IDR, Outlook Stable
PRO-MOTION HIRE: Sold to Pixipixel, 28 Jobs Saved
SNOWDROP INDEPENDENT: Expected to Go Into Liquidation
TOWD POINT 2020: S&P Lowers Class XA Notes Rating to CCC
X X X X X X X X
[*] BOOK REVIEW: Transnational Mergers and Acquisitions
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A Z E R B A I J A N
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PASHA BANK: S&P Affirms 'B+/B' ICRs on Resilient Earnings
---------------------------------------------------------
S&P Global Ratings affirmed its 'B+/B' long- and short-term issuer
credit ratings on Azerbaijan-based Pasha Bank. The outlook is
stable.
S&P said, "We believe that economic risks in the Azerbaijani
banking sector have eased. We consider that favorable commodity
prices benefit Azerbaijan's economic, fiscal, and balance of
payments performances. Therefore, in 2023, we expect Azerbaijani
banks' asset quality and profitability to remain broadly stable. At
the same time, in our view, regional geopolitical
developments--including the Russia-Ukraine war and Azerbaijan's
confrontation with Armenia--and the reduced global economic outlook
in 2023 could present risks to Azerbaijan's economic and banking
sector's prospects.
"We anticipate that Pasha Bank's capitalization will remain stable
and its profitability could rebound in 2023. We forecast our
risk-adjusted capital (RAC) ratio at 5.0%-5.5% in 2022-2023
compared with 5.3% at midyear 2022, because planned moderate
balance-sheet growth will be supported by decreased economic risks
in Azerbaijan, moderate retained earnings due to high dividend
payouts, and no planned Tier 1 capital injections. A decrease in
economic risk in Azerbaijan in 2022 will add about 50 basis points
to our forecast RAC ratio in 2023 due to lower risk-weights for
bank's exposures. We forecast the bank's return on equity (ROE) to
be 10%-12% in 2022 due to the creation of credit loss provisions on
securities. We expect that ROE could rebound to historical levels
of 18%-20% in 2023, supported by a stable revenue mix, with about
three-quarters accounted for by interest income and the rest split
equally between fees, commissions, and trading income.
"In our view, Pasha's asset quality will remain broadly stable in
2023. We expect that Stage 3 loans could move to about 6% in
2022-2023 as loans mature in low growth economic environment and
remain comparable with our forecast for the system of 6%-7%. For
Azerbaijan operations, only the Stage 3 loans stood at 4.6% at
midyear 2022 compared with 7.3% in 2021 due to recoveries of a few
large corporate nonperforming loans. Pasha's reserves were slim,
accounting for only 3.4% of total loans as of midyear 2022, taking
into account sizable cash collateral for some corporate exposures.
"We base the stable outlook on Pasha on our expectation that the
bank's solid corporate business franchise in Azerbaijan, large
liquidity buffer, and stable customer deposits will support its
credit profile over the next 12 months."
S&P could lower the rating in the next 12 months if the bank's:
-- Asset quality deteriorates, such that it has significantly more
problem assets and credit losses than its peers in Azerbaijan; or
-- Liquidity falls short due to the withdrawal of large deposits.
A positive rating action is unlikely in the next 12 months because
it would require Pasha to strengthen its capitalization, either
through substantial capital increases or materially reduced
dividend payouts, such that our forecast RAC ratio increases to
over 7%. S&P will also monitor the bank's ability to adequately
recognize and provide for its problem loans, maintain asset quality
at least on par with the system average, and maintain adequate
liquidity.
Environmental, Social, And Governance
ESG credit indicators: E-2, S-2, G-4 (governance structure)
S&P said, "Governance factors are a negative consideration in our
credit rating analysis of Pasha. We consider governance and
transparency in Azerbaijan's banking system weak. Many aspects of
ownership, management, and governance might be opaque and lead to
high risks, and we believe that Azerbaijan has significant
governance issues." It has a pervasive perceived level of
corruption, which is exacerbated by the significant shadow economy.
The bank is owned by Pasha Holding and has sizable related party
loans collateralized by deposits to the companies of its parent.
SOUTHERN GAS: Fitch Affirms BB+ Rating on Eurobond Unsec. Notes
---------------------------------------------------------------
Fitch Ratings has affirmed Southern Gas Corridor CJSC's (SGC)
senior unsecured Eurobond's long-term foreign-currency rating at
'BB+'.
The affirmation reflects Fitch's unchanged view on SGC's USD2
billion Eurobonds maturing in 2026 fully guaranteed by the Republic
of Azerbaijan (BB+/Positive).
The rating reflects the unconditional, unsubordinated and
irrevocable guarantee of full and timely repayment provided to
SGC's noteholders by the state. As a result, Fitch views the notes'
rating as equalised with Azerbaijan's Long-Term Foreign-Currency
IDR.
Derivation Summary
SGC's notes are explicitly guaranteed by Azerbaijan, and
noteholders can enforce their claims directly against the state
without being required to institute legal actions or proceedings
against SGC first. The guarantee is governed by English law and
ranks pari passu with all other unsecured external sovereign debt.
Historically, reserves for the guarantee coverage were appropriated
in the annual state budgets for 2016-2022, and Fitch expects this
practice to continue.
Liquidity and Debt Structure
SGC's 2022 funding was a combination of debt (USD6.3 billion) and
equity (USD2.4 billion) injected by the state. SGC did not borrow
any new debt in 2020-2022, while about 71% of its debt stock as of
end-2022 comprised bonds issued in favour of the State Oil Fund of
Azerbaijan Republic and Eurobonds, followed by international
financial institutions (IFI)/IFI-backed loans (29%).
As all of its projects are already commissioned, SGC's total needs
for cash in 2023 will be fully covered by proceeds from the Shah
Deniz, South Caucasus Pipeline, Trans-Anatolian Natural Gas
Pipeline (TANAP) and Trans Adriatic Pipeline (TAP) projects, along
with accumulated cash, according to management's forecast.
Issuer Profile
SGC is a special purpose company, established by presidential
decree in 2014, owned by Azerbaijan with 51% endowed to Ministry of
Economy and Industry and 49% to State Oil Company of the Azerbaijan
Republic (BB+/Positive). SGC was created for consolidating,
managing and financing the state's interests in the development of
Shah Deniz gas-condensate field, the expansion of the South
Caucasus Pipeline, implementation of the TANAP and TAP projects.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A downgrade of the sovereign rating will be reflected in the
notes' rating.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- The senior unsecured notes' rating is equalised with that of
the Republic of Azerbaijan. Accordingly, an upgrade of the
sovereign rating will be reflected on the notes' rating.
ESG Considerations
Fitch is no longer providing ESG relevance scores for SGC as its
debt ratings and ESG profile are derived from its parent.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The note's rating is linked to Azerbaijan's sovereign IDR.
Entity/Debt Rating Prior
----------- ------ -----
Southern Gas
Corridor CJSC
senior unsecured LT BB+ Affirmed BB+
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B E L G I U M
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BL CONSUMER 2021: Fitch Affirms 'BB-sf' Rating on Class F Notes
---------------------------------------------------------------
Fitch Ratings has affirmed BL Consumer Issuance Platform II S.a
r.l. Compartment BL Consumer Credit 2021's asset-backed notes.
Entity/Debt Rating Prior
----------- ------ -----
BL Consumer
Issuance Platform
II S.a r.l.
Compartment BL
Consumer Credit
2021
A XS2303841857 LT AAAsf Affirmed AAAsf
B XS2303842152 LT AAsf Affirmed AAsf
C XS2303842400 LT Asf Affirmed Asf
D XS2303842582 LT BBB-sf Affirmed BBB-sf
E XS2303842749 LT BB+sf Affirmed BB+sf
F XS2303843044 LT BB-sf Affirmed BB-sf
TRANSACTION SUMMARY
This transaction is the second public and first Fitch-rated
securitisation of revolving loan receivables and consumer loans
originated by Buy Way Personal Finance S.A./N.V. (Buy Way), an
unrated non-deposit-taking entity. Buy Way is a Belgian consumer
credit provider and insurance intermediary that offers credit
cards, revolving credit facilities and amortising personal loans to
individual customers in Belgium and Luxembourg.
KEY RATING DRIVERS
Performance in Line With Expectations: The transaction has been
performing in line with Fitch's expectations. Loan in arrears by
more than 30 days were 1.0% of the pool at the end of November
2022, and net excess spread has been healthy, averaging about 5.2%
since the transaction closed. Fitch has maintained its asset
assumptions in line with those set during the initial rating
analysis in 2021.
Portfolio Migration Risk Still Relevant: The transaction is at the
end of the second year of its three-year revolving period, which
will last until March 2024. During this period, new receivables can
be purchased by the issuer. Subsequently, the issuer will only be
able to purchase further drawings on revolving credits already sold
to a special-purpose vehicle, subject to no prior seller event of
default. Fitch considers that the portfolio conditions related to
the transaction replenishment criteria could still allow
significant movements of some portfolio characteristics, and
stressed this in its analysis.
Fitch considered possible increases in the share of specific
products when assigning asset levels to the portfolio. It also
analysed different scenarios in its cash flow analysis in which the
shares of revolving credits and instalment loans move up to their
limit.
Regulatory Changes Affecting Operations in Luxembourg: Buy Way has
opened a new branch in Luxembourg in response to a change in the
regulatory environment. Fitch understands that this will move part
of the servicing activities to the new branch but will not have an
impact on the overall servicing and origination policies and
procedures.
Key Counterparties Unrated: Buy Way acts in several capacities,
most prominently as originator, seller, servicer and seller
interest credit facility provider. The degree of reliance on Buy
Way's servicing activities is mainly mitigated by the appointment
of Intrum NV as back-up servicer. The presence of a pledge in
favour of the issuer on amounts held on the collection account
bank, a reserve fund and the overall set-up of the collection
process mitigate commingling and payment interruption risk.
However, Fitch's purchase rate assumptions on the revolving credit
sub-portfolio have been limited by the presence of an unrated
seller, among other things.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Long-term asset performance deterioration, such as increased
charge-offs and defaults, reduced monthly payment rate, reduced
portfolio yield or reduced recoveries, which could be driven by
changes in portfolio characteristics, macroeconomic conditions,
business practices, credit policy or legislative landscape, would
contribute to negative revisions of Fitch's asset assumptions that
could negatively affect the notes' ratings. An increase in the
charge-offs and defaults assumption by 25% and a decrease in the
purchase rate assumption to 0% in all scenarios would result in
downgrades of up to one category for all the notes.
For enhanced disclosure on Fitch's stresses and sensitivities on
class A to F notes, see the transaction's new issue report.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Long-term asset performance improvement such as decreased
charge-offs and defaults, increased monthly payment rate, increased
portfolio yield or increased recoveries driven by a sustainable
positive change of the underlying asset quality would contribute to
positive revisions of Fitch's asset assumptions, which could
positively affect the notes' ratings.
The class A notes are rated 'AAAsf', the highest level on Fitch's
scale and cannot be upgraded. A decrease of 25% in charge-offs for
revolving credits and in defaults for instalment loans would have a
positive impact of up to one rating category for the other notes.
For enhanced disclosure on Fitch's stresses and sensitivities on
class A to F notes, see the transaction's new issue report.
DATA ADEQUACY
BL Consumer Issuance Platform II S.a r.l. Compartment BL Consumer
Credit 2021
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Prior to the transaction closing, Fitch reviewed the results of a
third party assessment conducted on the asset portfolio information
and concluded that there were no findings that affected the rating
analysis.
Prior to the transaction closing, Fitch conducted a review of a
small targeted sample of the originator's origination files and
found the information contained in the reviewed files to be
adequately consistent with the originator's policies and practices
and the other information provided to the agency about the asset
portfolio.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
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C R O A T I A
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INSTITUT IGH: Avenue Mehanizacija to Write Off EUR2.3MM Debt
------------------------------------------------------------
Annie Tsoneva at SeeNews reports that Croatian civil engineering
company Institut IGH said that it has signed a protocol with its
creditor, local construction company Avenue Mehanizacija, based on
which it will write off Institut IGH debt in the amount of EUR2.3
million (US$2.5 million).
The protocol confirms that Avenue Mehanizacija cannot and shall not
demand repayment of the debt on the basis of a pre-bankruptcy
settlement of the debtor dating back to 2013, Institut IGH said in
a statement published by the Zagreb Stock Exchange on Feb. 9,
SeeNews relates.
According to SeeNews, on Feb. 6, Institut IGH said that another of
its creditors, 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 of an Institut IGH pre-bankruptcy
settlement.
On Tuesday, Feb. 7, the bourse suspended trading in the shares of
Institut IGH due to unconfirmed information that the company's
account has been blocked. Later on Tuesday, the bourse put the
company shares under observation.
ULJANIK DD: Croatia Prepares to Sell Unfinished Hull Number 531
---------------------------------------------------------------
Annie Tsoneva at SeeNews reports that Croatia's government said it
decided to start preparations for the sale of a roll-on/roll-off
vessel under construction, Hull number 531, of which it was awarded
ownership in exchange for receivables during the bankruptcy
procedure of local shipyard Uljanik d.d.
The decision to grant ownership of Hull number 531 to the Croatian
state was taken by the commercial court in Pazin in May 2021,
finance minister Marko Primorac told a weekly cabinet meeting on
Feb. 3, as seen as a video recording published on the government's
website, SeeNews relates.
According to the court's decision, the hull of the vessel with a
planned length of 211.64 metres and 12,695 gross tonnage was valued
at an estimated HRK72.4 million (US$10.3 million/EUR9.6 million),
SeeNews notes.
Due to shipyard's inability to deliver the vessel in accordance
with the terms of its contract with CLdN Ro-Ro Luxembourg for the
construction of the ship, the buyer cancelled the deal in
January 2019, SeeNews says, citing a notice sent earlier by Uljanik
d.d. to the Zagreb bourse.
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D E N M A R K
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SKILL BIDCO: S&P Assigns Prelim. 'B' LongTerm ICR, Outlook Stable
-----------------------------------------------------------------
S&P Global Ratings assigned its preliminary 'B' long-term issuer
credit rating to Skill BidCo ApS. S&P also assigned preliminary 'B'
issue and '4' recovery ratings to the proposed $765 million senior
secured notes due 2028, indicating average recovery (about 40%)
prospects at the time of default.
The stable outlook reflects S&P's expectation that the group's
credit metrics will remain steady over the coming 12 months, with
S&P Global Ratings-adjusted debt to EBITDA at below 6x and funds
from operations cash interest cover at about 2x.
CVC Capital Partners (CVC) is acquiring a majority stake in Skill
BidCo ApS, a new holding company set up to own Danish freight
forwarder and logistics services group Scan Global Logistics (SGL).
The existing shareholder AEA Investors (AEA) will retain a
participation.
The group plans to raise $765 million-equivalent dual currency
senior secured notes due 2028 and retain its existing $40 million
and Danish krone (DKK) 450 million super senior revolving credit
facilities.
S&P said, "The group's highly leveraged capital structure, as
reflected in S&P Global Ratings-adjusted debt to EBITDA peaking to
over 5.5x in 2023 and its private equity ownership, constrain our
view of the group's creditworthiness. CVC signed an agreement to
acquire about 76% of SGL from AEA. The financing package includes a
$765 million-equivalent dual currency senior secured notes due in
2028 borrowed by Skill BidCo, the acquisition vehicle for SGL. The
company is contemplating a rollover of its existing 2024 and 2025
notes into the new issue. The existing $40 million and DKK450
million super senior revolving credit facilities (RCFs), which are
expected to remain mostly undrawn at closing, will be retained and
renewed or replaced as they come due in July and August 2023,
respectively. Our assessment of the group's financial risk profile
as highly leveraged considers the group's private-equity ownership
and potentially aggressive strategy to maximize shareholder returns
over the investment horizon.
"The ownership changes and debt issuance does not materially weaken
SGL's credit quality, in our view. We assume the ownership change
will not affect SGL's financial policy. Although CVC will own a 76%
stake of SGL, it will control the company jointly with AEA, which
will roll over a portion of its equity and retain about 20% in the
company; management will own the remainder at transaction close. We
believe that growth through mergers and acquisitions (M&A) remains
a key strategic priority for SGL. By expanding through
acquisitions, SGL aims to enhance its entrenchment with existing,
large, international clients that value SGL's ability to deliver
complex multi-staged logistics solutions globally. In its external
growth efforts, SGL normally targets geographic diversification,
market share, and increasing its contracted revenue base and
absolute scale, and we understand that its acquisition targets are
typically relatively small but well-established and profitable
players, resulting in low integration costs and quick onboarding.
We expect the group will fund sizable transformational M&A through
a combination of internal cash, equity, and debt, as was the case
in the past. SGL has kept annual M&A-related special items low ($10
million-$20 million) and integrated the acquired companies quickly
and profitably.
"We expect that the group's leverage will depend largely on the
trajectory of SGL's EBITDA.Post-closing, SGL's debt will increase
by about 30% to $850 million, as adjusted by S&P Global Ratings,
from our estimate of the end-2022 figure. We believe it will
primarily consist of the new notes and leases, and we calculate
leverage in excess of 5.5x for 2023. In the near-term, because we
think absolute debt levels will remain largely unchanged and bolt
on acquisitions will be funded from available liquidity, EBITDA
developments will most likely dictate the evolution of the group's
leverage metrics. We expect that SGL generated a robust free
operating cash flow (FOCF) of about $250 million in 2022, boosted
by a material working capital release (after a substantial outflow
of $160 million in 2021 because receivables from customers surged
due to the record-high freight rates). That said, such an FOCF
level is unlikely to be sustainable. Our base case indicates a drop
to $20 million-$40 million in 2023 due to a combination of higher
cash interest burden, our expectation of normalized working capital
trends, and typically low capital expenditure (capex)
requirements.
"The preliminary rating on the group primarily reflects SGL's
position as a small-to-midsize asset-light freight forwarder and
logistics services provider in the highly fragmented and
price-competitive logistics industry.The business risk profile
assessment reflects SGL's wide geographic footprint in Europe,
North America, and Asia-Pacific, providing it broad reach, demand
diversity, and value propositions, resulting in new customers and
cross-selling opportunities. The logistics industry is price
competitive and fragmented (with top three players accounting for
about 12% of total market) and SGL with an estimated S&P adjusted
EBITDA of about $200 million in 2022 remains a small player.
However, acquisitions have helped SGL increase its global
footprint, win market shares, and expand its absolute EBITDA base,
improving its pricing power somewhat. Furthermore, it has a solid
track record of customer retention because of its expertise in
niche markets and provision of tailor-made multi-modal logistic
solutions. As of end-December 2022, SGL was in 45 countries
including the Americas, EMEA, Southeast Asia, and Asia-Pacific with
a network of 140 offices. The company has also been able to reap
benefits from its collaboration with the UN and UNICEF with large
orders received for help in regions like Kabul and Haiti.
Accounting for 10%-15% of SGL's revenue, these operations are not
the largest contributors, but they are recurring, and we understand
that they generate above-average returns."
SGL's operating performance may experience softening demand amid
macroeconomic headwinds in major global economies. Like peers in
the wider logistics industry, SGL has demonstrated resilient
operating performance in 2021-2022, supported by all-time-high air
and shipping freight rates, leading to 2022 revenue almost tripling
from 2020. Robust trade volumes and a diverse customer base, with
limited correlation between individual customers and end
industries, along with new contracts in aid and humanitarian
logistics projects and government and defense, were the main
drivers behind the strong financial results. Factoring in
contributions from the acquired companies, we estimate that SGL's
EBITDA (after special items) neared $200 million in 2022 from $116
million in 2021. S&P said, "Nevertheless, we expect many major
economies and contributors to trade volumes will face inflationary
pressures and rising interest rates in 2023. We also expect real
consumer spending will moderate, and retail restocking will be
muted given the still-high inventory levels. We therefore
anticipate growth in freight volumes to slow (our base case is that
cargo volumes will track global GDP growth, which will slow to
around 3% in 2022, from 5.8% in 2021 and 3.1% in 2019). Conversely,
spot rates for air and ocean as well as road transportation saw
significant declines in late 2022 from the previous all-time highs,
and we've included these much lower freight rates in our 2023 base
case. As a result, because SGL, like other freight forwarders,
reports transportation costs as revenue (which it then bills to its
customers), we forecast a decline in organic revenue in 2023 (from
record highs in 2022) and in EBITDA to potentially $150 million,
reflecting our conservative view of the overarching industry trends
at this time."
S&P said, "The final ratings will depend on our receipt and
satisfactory review of all final transaction documentation.
Accordingly, the preliminary ratings should not be construed as
evidence of final ratings. If S&P Global Ratings does not receive
final documentation within a reasonable time frame, or if final
documentation departs from materials reviewed, we reserve the right
to withdraw or revise our ratings. Potential changes include, but
are not limited to, use of loan proceeds, maturity, size and
conditions of the loans, financial and other covenants, security,
and ranking.
"The stable outlook reflects our expectation that the group's
credit metrics will remain broadly unchanged over the coming 12
months, with adjusted debt to EBITDA at below 6x and adjusted FFO
cash interest cover at about 2x."
S&P would take a negative rating action if SGL's:
-- EBITDA generation (pro forma acquisitions) significantly
underperforms our base case, leading to adjusted debt to EBITDA
rising above 6x without prospects for a quick reduction;
-- FOCF (after lease payments) turns sustainably negative; or
-- FFO cash interest cover falls significantly below 2x on a
sustained basis.
These developments could stem from unforeseen operational setbacks,
such as the loss of a few key customers and reduced demand from
existing clients. Aggressive external growth initiatives involving
large new debt not compensated for by corresponding growth in
earnings or unexpected material shareholder remuneration could also
lead to a negative rating action.
S&P could also downgrade SGL if the company's liquidity position
deteriorates unexpectedly.
S&P said, "We view an upgrade over the next 12 months as unlikely
because SGL's financial sponsor ownership and acquisitive track
record preclude sustained financial leverage reduction. However, we
could consider raising the rating in the medium term if the company
demonstrates a prudent financial policy and sustainably reduces
financial leverage. In such a scenario, ratings upside would hinge
on adjusted debt to EBITDA falling and remaining well below 5x,
while also supported by the owners' commitment to maintain a
financial policy that would sustain such an improved ratio long
term."
ESG credit indicators: E-2, S-2, G-3
S&P said, "Governance factors are a moderately negative
consideration in our credit analysis of SGL. Our assessment of the
company's financial risk as highly leveraged reflects corporate
decision-making that prioritizes the interests of those controlling
owners, in line with our view of the majority of entities owned by
private equity sponsors. Our assessment also reflects generally
finite holding periods and a focus on maximizing shareholder
returns."
As an asset-light freight forwarder and logistics services
provider, the company is only indirectly exposed to environmental
risks relevant to the transportation sector.
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F R A N C E
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IM GROUP: S&P Rates New EUR250MM 2028 Sr. Secured Notes 'B'
-----------------------------------------------------------
S&P Global Ratings assigned its 'B' issue rating to the proposed
EUR250 million senior secured notes maturing in 2028 to be issued
by the holding company of French luxury good maker Isabel Marant,
IM Group (B/Stable/--). The proceeds will be used to repay EUR181
million senior secured notes maturing in 2025, distribute a EUR60
million dividend to shareholders, and pay for transaction fees. The
proposed transaction extends the group's overall debt maturity
profile. S&P's issuer credit rating on IM Group remains unchanged.
S&P said, "In light of the proposed transaction, we now forecast
IM's debt to EBITDA (leverage) will increase to about 5.0x in 2023,
up from our previous estimate of about 4.0x-4.5x. We also forecast
a higher coupon on the proposed notes due to generally less
favorable financing conditions, resulting in a funds from
operations (FFO) cash interest coverage ratio of about 3.0x-3.5x in
2023. The recovery rating on the proposed notes is '3', which is in
line with the rating on the existing notes, reflecting our
expectation of meaningful recovery prospects (50%-70%; rounded
estimate: 60%)."
For the first nine months 2022, the group posted solid revenue
growth of about 18% that was well balanced across regions and
distribution channels, but with a slightly higher contribution
coming from the retail network (including owned web shop) and the
U.S. market (14% of total sales in 2021), but partially offset by a
slowdown in activity in Asia due to pandemic-related restrictions
in China. Over the same period, the group reported EBITDA growth of
about 16% year on year, highlighting the resilience of its
addressable market to inflationary pressures, despite declining
consumer confidence.
S&P said, "We understand the group intends to maintain its business
strategy of increasing retail penetration in existing and new
geographies (i.e., Japan) and to invest in people to improve the
in-store customer experience, strengthen its digital presence, and
drive sales of adjacent product categories like menswear and bags.
We believe the group will continue to post sound annual revenue
growth and maintain its profitability through consolidation of its
market position in its key channels and geographies.
"For 2023, we forecast revenue growth of 8%-10%, mainly due to a
successful execution of IM's retail expansion strategy, increasing
demand within the online channel and for fast-growing categories,
coupled with store reopenings in China (6% of total sales in 2021)
following stringent social restrictions. We forecast an S&P Global
Ratings-adjusted EBITDA margin of 26.0%-27.0% in 2023, which is
lower than our previous estimate of 28.0% due to the need to invest
in staff costs and marketing activities to support growth. We now
expect leverage to be around 5.0x by year-end 2023 and
progressively decreasing toward 4.5x in the next 18-24 months. We
anticipate FFO cash interest coverage ratio will remain above 2.0x
though lower than our previous expectations, reflecting our
forecast of higher interest expenses. We also expect the group will
continue to post positive annual free operating cash flow (FOCF)
before lease expenses of about EUR30 million-EUR35 million in 2023
and 2024, which translates into about EUR15 million-EUR20 million
of FOCF after accounting for annual lease payments."
=============
G E O R G I A
=============
GEORGIAN RAILWAY: Fitch Alters Outlook on BB- LongTerm IDRs to Pos.
-------------------------------------------------------------------
Fitch Rating has revised the Outlook on JSC Georgian Railway's (GR)
Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs)
to Positive from Stable and affirmed the IDRs at 'BB-'.
KEY RATING DRIVERS
The rating actions follow the revision of Georgia's Outlook to
Positive from Stable. This rating action has a direct impact on
GR's Outlook as Fitch considers it a government-related entity
(GRE) of the Georgian state based on its GREs Rating Criteria.
The affirmation reflects its unchanged assessment of strength of
linkage with the Georgian government and the government's incentive
to support GR since its last review (see 'Fitch Affirms Georgian
Railway at 'BB-', Outlook Stable', dated 16 December 2022). In
December 2022, the government became a direct, 100% shareholder of
GR, while previously the company was indirectly state-owned via
national asset manager Partnership Fund. In its view, this event
was credit-neutral, as Fitch does not expect material changes in
the degree of state control or status of GR.
GR's Standalone Credit Profile (SCP) is 'b+', which reflects a
'Weaker' assessment for revenue defensibility, 'Midrange'
assessment for operating risk, and leverage (Fitch net adjusted
debt to EBITDA) averaging 4x in its rating case scenario.
DERIVATION SUMMARY
Fitch classifies GR as an entity linked to Georgia under its GRE
Rating Criteria and Fitch assesses the GRE support score at 22.5,
reflecting a combination of the following assessment of key risk
factors: a 'Strong' assessment for status, ownership and control
and financial implications of default, and a 'Moderate' assessment
for support track record and socio-political implications of
default.
Based on this assessment, Fitch applies a top-down approach under
its GRE Rating Criteria, which combined with GR's SCP of 'b+'
assessed under Fitch's Public Sector, Revenue-Supported Entities
Rating Criteria, results in a single-notch difference between GR's
IDRs and those of the sovereign.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- A dilution of linkage with the sovereign, resulting in
the ratings being further notched down from the
sovereign.
- Downward reassessment of the company's SCP, resulting
from deterioration of financial profile due to material
increase in debt or weakening of liquidity position.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- An upgrade of Georgia's sovereign rating, provided
there is no deterioration in GR's SCP and support
score under its GRE Criteria.
- Upward reassessment of the GRE support score, which
may result from stronger support from the government.
- Improvement of the company's financial profile
resulting in the SCP being on par with or above the
sovereign's, which could be justified by strengthening
the net adjusted debt/EBITDA toward 2x on a sustained
basis.
ISSUER PROFILE
GR is Georgia's national rail company, 100% owned by the state. Its
core business is freight transit.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
GR's ratings are linked to Georgia's IDRs.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Prior
----------- ------ -----
JSC Georgian
Railway LT IDR BB- Affirmed BB-
ST IDR B Affirmed B
LC LT IDR BB- Affirmed BB-
LC ST IDR B Affirmed B
senior
unsecured LT BB- Affirmed BB-
PROCREDIT BANK (GEORGIA): Fitch Alters Outlook on 'BB+' IDR to Pos.
-------------------------------------------------------------------
Fitch Ratings has revised the Outlook on ProCredit Bank (Georgia)'s
(PCBG) Long-Term Issuer Default Rating (IDR) to Positive from
Stable and affirmed the IDR at 'BB+'.
The revision of the Outlook follows the revision of the Outlook on
Georgia's sovereign rating to Positive from.
PCBG's Viability Rating (VR) is unaffected by the rating actions.
KEY RATING DRIVERS
The affirmation of PCBG's IDRs and Shareholder Support Rating at
'bb+' reflects Fitch's view that the bank's sole shareholder,
ProCredit Holding AG & Co. KGaA (PCH; BBB/Stable), will continue to
have a strong propensity to support PCBG, given its importance to
the group, full ownership, common branding, strong integration, and
a record of capital and liquidity support.
Country Risks Constrain Ratings: Fitch caps PCBG's ratings at one
notch above the Georgian sovereign to reflect country risks and
potential interventions in the banking sector. In its view, these
risks could limit PCBG's ability to service its obligations or the
parent's propensity to support, or both, in case of extreme
macroeconomic and sovereign stress.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
PCBG's Outlook could be revised to Stable if Georgia's sovereign
Outlook was revised to Stable. PCBG's support-driven IDRs could be
subject to negative rating action if Georgian country risks
materially increase or if Fitch revises down the support assessment
from the parent. Fitch views the latter as unlikely.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
PCBG's support-driven IDRs could be upgraded if Georgia's sovereign
rating was upgraded.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3'. This
means ESG issues are credit neutral or have only a minimal credit
impact on the entity, either due to their nature or the way in
which they are being managed by the entity.
Entity/Debt Rating Prior
----------- ------ -----
ProCredit Bank
(Georgia) LT IDR BB+ Affirmed BB+
ST IDR B Affirmed B
LC LT IDR BB+ Affirmed BB+
LC ST IDR B Affirmed B
Shareholder Support bb+ Affirmed bb+
=============
G E R M A N Y
=============
SPEEDSTER BIDCO: Moody's Affirms 'B3' CFR, Outlook Remains Stable
-----------------------------------------------------------------
Moody's Investors Service affirmed the B3 long term corporate
family rating and the B3-PD Probability of Default Rating of
Speedster Bidco GmbH (AutoScout24). Concurrently, Moody's affirmed
the B2 ratings of the senior secured first lien term loans, and the
senior secured first lien revolving credit facility (RCF) issued by
Speedster Bidco GmbH. Additionally, Moody's affirmed the Caa2
rating of the EUR225 million senior secured second lien term loan,
all borrowed by Speedster Bidco GmbH. The outlook remains stable.
RATINGS RATIONALE
The affirmation of the long term corporate family rating reflects
Moody's expectations that the company will maintain credit metrics
in line with the B3 rating over the next 12-18 months. AutoScout24
has complemented its product offering since 2020 with the fully
debt-funded acquisitions of LeasingMarkt.de GmbH and Auction Group
A/S ("AUTOproff") which delayed Moody's initial deleveraging
expectations. In addition, the semiconductor shortage lead to a
decline in listings and the company was also affected with lower
advertising income so that Moody's adjusted debt/EBITDA was 8.9x as
per the last twelve month that ended in September 2022. Moody's
expect the company to focus on the integration of the acquisitions
and expect EBITDA-growth over the next quarters, driven by the
normalization of listings combined with its ability to introduce
price increases, leading to Moody's adjusted debt/EBITDA trending
towards 8.0x over the next quarters. Moody's expect AutoScout24 to
generate free cash flow/debt in the low-single digit in percentage
terms despite higher interest rates with only a portion of its debt
being hedged. The company's financial assets, which were received
as part of the divestment of FFG FINANZCHECK Finanzportale GmbH
("FFG Group"), provide some further financial buffer, if needed.
More general, AutoScout24's ratings are supported by (1) the
company's established brand and good position in the automotive
online classified marketplace in Germany, Italy, the Netherlands,
Belgium, and Austria, (2) its high margins and free cash flow (FCF)
generation, (3) the high level of recurring subscription-based
revenues which supports revenue visibility and (4) its large
customer base with low churn rate historically according to
management.
Conversely, the ratings are constrained by (1) the company's
narrowly-focused business, (2) the highly competitive environment
and embedded threat of new disruptive technologies and business
models, (3) the high Moody's-adjusted debt/EBITDA of around 8.9x as
per LTM September 2022 and its willingness to perform debt-funded
acquisitions and (4) the exposure to the cyclical automotive sector
and discretionary marketing spending of the dealers.
OUTLOOK
The stable outlook assumes that AutoScout24 will maintain its
current market positioning and that there will be no major
disruption in the current competitive environment. Moreover the
stable outlook assumes that the company will continuously improve
its leverage from the recently elevated level. Finally, the stable
outlook does not factor in any distribution to shareholders or
debt-financed acquisitions.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive rating pressure could develop should (1) the company's
revenue display steady growth while maintaining high margins and
leading market shares, (2) Moody's-adjusted debt/EBITDA remains
below 6.5x, (3) the company generates positive FCF on a sustained
basis and (4) the company maintains adequate liquidity.
Negative rating pressure could develop should (1) the company's
competitive profile weakens, for example, as a result of a material
erosion in the company's market share, (2) Moody's-adjusted
debt/EBITDA remains above 8.0x, (3) FCF turns negative, (4) the
company's liquidity weakens.
LIQUIDITY
AutoScout24's liquidity is adequate supported by (1) Moody's
projected FCF of EUR48 million in the next 12 months, (2) the
EUR83.5 million RCF undrawn as of September 2022 and (3) long-dated
maturities of its senior secured term loans. As of September 2022,
the company had cash and equivalents of EUR40 million on its
balance sheet (EUR30.1 million if excluding Smyle). The debt
structure includes a springing covenant, with ample headroom at
closing, tested only in case the RCF is drawn by more than 50%.
STRUCTURAL CONSIDERATIONS
The capital structure of Speedster Bidco GmbH primarily consists of
a EUR927.5 million senior secured first lien term loan due in March
2027, a EUR225 million senior secured second lien term loan due in
March 2028, a EUR85 million additional senior secured first lien
term loan due in March 2027, and a EUR83.5 million senior secured
first lien revolving credit facility due in September 2026. The
collateral package includes certain share pledges, intercompany
receivables and bank accounts. The guarantor coverage is set at a
minimum level of 80% of consolidated EBITDA. The capital structure
also includes a EUR13.9 million of lease liability on balance and a
deferred consideration of EUR40.6 million of which Moody's expects
EUR10 million to be paid in 2023 and the remainder being paid in
2024.
The B3-PD probability of default rating is at the same level as the
long term corporate family rating reflecting the use of a 50%
recovery rate as typical for these structures. The senior secured
first lien term loan, the additional senior secured first lien term
loan and the senior secured first lien revolving credit facility
are rated one notch higher than the corporate family rating at B2,
while the senior secured second lien term loan is rated at Caa2
reflecting their ranking in the capital structure.
LIST OF AFFECTED RATINGS:
Issuer: Speedster Bidco GmbH
Affirmations:
LT Corporate Family Rating, Affirmed B3
Probability of Default Rating, Affirmed B3-PD
Senior Secured Bank Credit Facility, Affirmed B2
Senior Secured Bank Credit Facility, Affirmed Caa2
Outlook Actions:
Outlook, Remains Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
Founded in 1998, AutoScout24 is an online classified marketplace
offering cars, motorbikes and trucks listings. The company has a
good market position in Germany, Italy, the Netherlands, Belgium
and Austria. AutoScout24 also operates in Spain and France and
offers local language versions in 11 additional countries.
=============
H U N G A R Y
=============
OTP BANK: S&P Rates New USD-Denominated Tier 2 Sub. Notes 'BB'
--------------------------------------------------------------
S&P Global Ratings assigned its indicative 'BB' long-term issue
rating to the Proposed U.S.-dollar-denominated (USD) Tier 2
nondeferrable subordinated notes that may be issued by OTP Bank PLC
(BBB-/Stable/A-3). The notes will be drawn from the bank's EUR5.0
billion medium-term note program and S&P understands they will
qualify as Tier 2 regulatory capital. This is OTP Bank's first
issuance of Tier 2 capital notes in a currency other than the euro.
The rating is subject to its review of the notes' final
documentation.
S&P said, "In accordance with our criteria for hybrid capital
instruments, the starting point for the rating on the subordinated
contingent capital notes is the lower of the bank's stand-alone
credit profile (SACP) and long-term issuer credit rating (ICR). The
'BB' issue rating reflects our analysis of the proposed instrument
and the deduction of two notches from our 'BBB-' ICR on OTP Bank.
"As per the terms and conditions, we consider the instruments to be
subordinated to senior creditors' claims and note that they are
available to absorb losses at the point of the bank's nonviability
via statutory loss absorption.
"Given the notes' lack of going-concern loss absorption, we do not
expect to include them in our calculation of the bank's total
adjusted capital."
=============
I R E L A N D
=============
CASTLELAKE AVIATION: S&P Rates Sec. Incremental Term Loan B 'BB'
----------------------------------------------------------------
S&P Global Ratings assigned its 'BB' issue-level rating and '2'
recovery rating to Castlelake Aviation One DAC's proposed $635
million senior secured incremental term loan B due 2027. The
incremental term loan B is guaranteed by parent Castlelake Aviation
Ltd. and will be secured by the fleet collateral on a pari passu
basis with the existing $1.165 billion first-lien term loan B. The
'2' recovery rating indicates our expectation that lenders would
receive substantial (70%-90%; rounded estimate: 80%) recovery in
the event of a payment default. The company will use the proceeds
to repay existing debt. S&P also revised its rounded recovery
estimate on the company's outstanding term loan B to 80% from 75%.
S&P's '5' recovery rating remains unchanged, indicating our
expectation that lenders would receive modest (10%-30%; rounded
estimate: 25%) recovery in the event of a payment default.
ESG credit indicators: E-2, S-2, G-3
ISSUE RATINGS--RECOVERY ANALYSIS
Key analytical factors
-- The incremental term loan is secured by the expanded term loan
collateral on a pari passu basis with the existing term loan and is
governed by the same financial covenants. To support the additional
borrowing, 21 aircraft, consisting largely of A320neo and A330
freighters, will be transferred into the existing pool, resulting
in a slightly improved loan-to-value ratio and recovery prospects.
-- S&P's analysis suggests that the collateral for the term loan,
which now comprises 75 aircraft, will cover about 77% of the
facility at default, while its share of the unpledged value pushes
the total recovery above 80%. It believes the unpledged value
relating to non-aircraft assets and unencumbered aircraft would be
sufficient to provide about 25% coverage of the senior unsecured
notes.
Simulated default assumptions
-- S&P's simulated default scenario assumes a significant
disruption in the air travel industry in 2027, causing airlines to
renegotiate leases and turn back aircraft on lease. This causes
aircraft values to decline, requiring the company to use cash flow
to pay down certain secured aircraft financings to meet
collateralization covenants.
-- S&P values the company on a going-concern basis following a
discrete asset valuation approach. The current fleet comprises 87
aircraft. It depreciates the appraised value of the aircraft to the
year of default, at which point it applies realization rates to
reflect the contraction in their value in distressed
circumstances.
Simplified waterfall
-- Gross enterprise value, discrete asset valuation (DAV)
approach: $2,111 million
-- Value split between unencumbered assets/term loan including new
add-on/other aircraft financing facilities/revolver:
11%/68%/15%/6%
-- Net enterprise value after 5% administrative expenses: $2,005
million
-- Estimated collateral value available to term loan: $1,367
million
-- Additional recovery through unencumbered assets: $103 million
-- Total value available to the proposed term loan: $1,470
million
-- Estimated term loan balance at default: $1,776 million
--Recovery expectations: 70%-90% (rounded estimate: 80%)
-- Total value available to unsecured claims: $224 million
-- Senior unsecured notes/pari passu claims (term loan and
revolver deficits): $431 million/$461 million
--Recovery expectations: 10%-30% (rounded estimate: 25%)
Note: All debt amounts include six months of prepetition interest.
HARVEST CLO XIV: Moody's Affirms Ba3 Rating on EUR12MM Cl. F Notes
------------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by Harvest CLO XIV Designated Activity Company:
EUR25,000,000 Class D-R Senior Secured Deferrable Floating Rate
Notes due 2029, Upgraded to Aa1 (sf); previously on Feb 8, 2022
Upgraded to Aa2 (sf)
EUR24,500,000 Class E-R Senior Secured Deferrable Floating Rate
Notes due 2029, Upgraded to Baa2 (sf); previously on Feb 8, 2022
Upgraded to Baa3 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR239,000,000 (Current outstanding amount EUR33,582,535) Class
A-1A-R Senior Secured Floating Rate Notes due 2029, Affirmed Aaa
(sf); previously on Feb 8, 2022 Affirmed Aaa (sf)
EUR5,000,000 (Current outstanding amount EUR702,564) Class A-2-R
Senior Secured Fixed Rate Notes due 2029, Affirmed Aaa (sf);
previously on Feb 8, 2022 Affirmed Aaa (sf)
EUR32,000,000 Class B-1-R Senior Secured Floating Rate Notes due
2029, Affirmed Aaa (sf); previously on Feb 8, 2022 Affirmed Aaa
(sf)
EUR10,000,000 Class B-2-R Senior Secured Fixed Rate Notes due
2029, Affirmed Aaa (sf); previously on Feb 8, 2022 Affirmed Aaa
(sf)
EUR23,000,000 Class C-R Senior Secured Deferrable Floating Rate
Notes due 2029, Affirmed Aaa (sf); previously on Feb 8, 2022
Affirmed Aaa (sf)
EUR12,000,000 Class F Senior Secured Deferrable Floating Rate
Notes due 2029, Affirmed Ba3 (sf); previously on Feb 8, 2022
Upgraded to Ba3 (sf)
Harvest CLO XIV Designated Activity Company, issued in November
2015, is a collateralised loan obligation (CLO) backed by a
portfolio of mostly high-yield senior secured European loans. The
portfolio is managed by Investcorp Credit Management EU Limited.
The transaction's reinvestment period ended in November 2019.
RATINGS RATIONALE
The rating upgrades on the Class D-R and Class E-R Notes are
primarily a result of deleveraging of the senior notes following
amortisation of the underlying portfolio since the last rating
action in February 2022.
The senior notes have paid down by approximately EUR39.2 million
(53.3%) since the last rating action in February 2022 and EUR209.7
million (85.9%) since closing. As a result of the deleveraging,
over-collateralisation (OC) has increased across the capital
structure. According to the trustee report dated December 30, 2022
[1] the Class A/B, Class C, Class D, Class E and Class F OC ratios
are reported at 239.71%, 184.18%, 147.13%, 122.91% and 113.73%
compared to December 31, 2021 [2] levels of 193.85%, 161.66%,
136.94%, 119.09% and 111.95%, 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: EUR187.2m
Defaulted Securities: none
Diversity Score: 34
Weighted Average Rating Factor (WARF): 3065
Weighted Average Life (WAL): 2.9 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.55%
Weighted Average Coupon (WAC): 3.30%
Weighted Average Recovery Rate (WARR): 44.97%
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 and swap provider,
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: 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.
=========
I T A L Y
=========
BBVA CONSUMER 2018-1: Moody's Ups Rating on EUR6MM E Notes to B1
----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings of eight Notes
in BBVA CONSUMER AUTO 2018-1 FONDO DE TITULIZACION, BUMPER NL
2020-1 B.V. and Red & Black Auto Italy S.r.l. The rating action
reflects better than expected collateral performance for BBVA
CONSUMER AUTO 2018-1 FONDO DE TITULIZACION, and the increase in the
levels of credit enhancement for the affected Notes for the three
transactions.
Moody's affirmed the ratings of the Notes that had sufficient
credit enhancement to maintain their current ratings.
Issuer: BBVA CONSUMER AUTO 2018-1 FONDO DE TITULIZACION
EUR728 million (Current outstanding balance EUR120.3 million)
Class A Notes, Affirmed Aa1 (sf); previously on May 17, 2022
Affirmed Aa1 (sf)
EUR23.2 million Class B Notes, Affirmed Aa1 (sf); previously
on May 17, 2022 Upgraded to Aa1 (sf)
EUR32.8 million Class C Notes, Upgraded to Aa3 (sf);
previously on May 17, 2022 Upgraded to A2 (sf)
EUR10 million Class D Notes, Upgraded to Baa2 (sf);
previously on May 17, 2022 Upgraded to Ba1 (sf)
EUR6 million Class E Notes, Upgraded to B1 (sf);
previously on May 17, 2022 Affirmed B3 (sf)
EUR4 million (Current outstanding balance EUR1 million)
Class Z Notes, Upgraded to B2 (sf); previously on
May 17, 2022 Upgraded to Caa1 (sf)
Issuer: BUMPER NL 2020-1 B.V.
EUR500 million (Current outstanding balance EUR243.8 million)
Class A Notes, Affirmed Aaa (sf); previously on Jun 18,
2020 Definitive Rating Assigned Aaa (sf)
EUR29 million Class B Notes, Upgraded to Aaa (sf); previously
on Jun 18, 2020 Definitive Rating Assigned Aa2 (sf)
Issuer: Red & Black Auto Italy S.r.l.
EUR945 million (Current outstanding balance EUR538.9 million)
Class A Notes, Affirmed Aa3 (sf); previously on Nov 5,
2021 Definitive Rating Assigned Aa3 (sf)
EUR15 million Class B Notes, Upgraded to A3 (sf); previously
on Nov 5, 2021 Definitive Rating Assigned Baa1 (sf)
EUR19 million Class C Notes, Upgraded to Baa2 (sf);
previously on Nov 5, 2021 Definitive Rating Assigned Baa3 (sf)
EUR21 million Class D Notes, Upgraded to Ba1 (sf);
previously on Nov 5, 2021 Definitive Rating Assigned
Ba2 (sf)
RATINGS RATIONALE
The rating action is prompted by decreased key collateral
assumptions for BBVA CONSUMER AUTO 2018-1 FONDO DE TITULIZACION,
namely the portfolio Default Probability assumption (DP) due to
better than expected collateral performance as well as an increase
in credit enhancement for the affected tranches for the three
transactions.
Revision of Key Collateral Assumptions
As part of the rating action, Moody's reassessed its default
probability and recovery rate assumptions for the portfolios
reflecting the collateral performance to date.
The performance of BBVA CONSUMER AUTO 2018-1 FONDO DE TITULIZACION
has continued to improve since the last rating action. Total
delinquencies have been stable over the past year, with 90 days
plus arrears currently standing at 0.46% of current pool balance.
Cumulative defaults currently stand at 2.68%.
The performance of BUMPER NL 2020-1 B.V. has been stable since the
last rating action. Total delinquencies have been stable over the
past year, with 90 days plus arrears currently standing at 0.03% of
current pool balance. Cumulative defaults currently stand at
0.52%.
The performance of Red & Black Auto Italy S.r.l. has been stable
since the last rating action. Total delinquencies have increased in
the past year, with 90 days plus arrears currently standing at
0.28% of current pool balance. Cumulative defaults currently stand
at 0.17%.
For BBVA CONSUMER AUTO 2018-1 FONDO DE TITULIZACION, the default
probability was decreased from 5.00% down to 4.50% of the current
portfolio balance. The recovery rate remains unchanged at 35.00%
and the portfolio credit enhancement remains unchanged at 15.00%.
For BUMPER NL 2020-1 B.V., the default probability remains
unchanged at 3.25% of the current portfolio balance. The recovery
rate remains unchanged at 50.00% and the portfolio credit
enhancement remains unchanged at 13.00%.
For Red & Black Auto Italy S.r.l., the default probability remains
unchanged at 2.00% of the current portfolio balance. The recovery
rate remains unchanged at 15.00% and the portfolio credit
enhancement remains unchanged at 10.00%.
Increase in Available Credit Enhancement
A non-amortizing reserve fund for BUMPER NL 2020-1 B.V. and
sequential amortization in all three transactions led to the
increase in the available credit enhancement.
For the deal BBVA CONSUMER AUTO 2018-1 FONDO DE TITULIZACION the
credit enhancement available for the Class C Notes affected by the
rating action increased to 7.69% from 5.95% since the last rating
action, and for the Class D Notes affected by the rating action, to
2.71% from 2.05% since the last rating action.
For the deal BUMPER NL 2020-1 B.V. the credit enhancement available
for the Class B Notes affected by the rating action increased to
30.37% from 18.41% since closing.
For the deal Red & Black Auto Italy S.r.l. the credit enhancement
available for the Class B Notes affected by the rating action
increased to 7.26% from 4.50% since closing, for the Class C Notes
affected by the rating action, to 4.06% from 2.60% since closing,
and for the Class D Notes affected by the rating action, to 0.52%
from 0.50% since closing.
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Auto Loan- and Lease-Backed ABS" published in
November 2022.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors or circumstances that could lead to an upgrade of the
ratings include: (1) performance of the underlying collateral that
is better than Moody's expected, (2) an increase in available
credit enhancement, (3) improvements in the credit quality of the
transaction counterparties and (4) a decrease in sovereign risk.
Factors or circumstances that could lead to a downgrade of the
ratings include: (1) an increase in sovereign risk, (2) performance
of the underlying collateral that is worse than Moody's expected,
(3) deterioration in the Notes' available credit enhancement, and
(4) deterioration in the credit quality of the transaction
counterparties.
===================
L U X E M B O U R G
===================
MALLINCKRODT FINANCE: First Trust Fund II Marks Loan at 22%Off
--------------------------------------------------------------
First Trust Senior Floating Rate Income Fund II has marked its
$5,061 loan extended to Mallinckrodt International Finance SA to
market at $3,964 or 78% of the outstanding amount, as of November
30, 2022, according to a disclosure contained in the First Trust
SFRIFII’s Form N-CSRS for the six months ended November 30, 2022,
filed with the Securities and Exchange Commission on February 2,
2023.
First Trust SFRIFII is a participant in an Amendment No. 2
Incremental Term Loan to Mallinckrodt International Finance SA. The
loan accrues interest at a rate of 8.73% (3 Mo. LIBOR + 5.25%,
0.75% Floor) per annum. The loan matures on September 30, 2027.
First Trust SFRIFII is a diversified, closed-end management
investment company organized as a Massachusetts business trust on
March 25, 2004, and is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended.
The Fund trades under the ticker symbol FCT on the New York Stock
Exchange.
Mallinckrodt International Finance SA manufactures and distributes
pharmaceutical products. The company's country of domicile is
Luxembourg.
===========================
U N I T E D K I N G D O M
===========================
AA BOND: S&P Affirms 'B+(sf)' Rating on Class B3-Dfrd Notes
-----------------------------------------------------------
S&P Global Ratings assigned its 'BBB- (sf)' credit rating to AA
Bond Co. Ltd.'s class A11 notes. Its rating on these senior notes
addresses the timely payment of interest and the ultimate payment
of principal by the legal final maturity date. The class A11 notes'
expected maturity date will be in January 2028 and the notes rank
pari passu with the other outstanding class A notes. At the same
time, S&P affirmed its 'BBB- (sf)' ratings on the outstanding class
A2, A7, A8, A9, and A10 notes and its 'B+ (sf)' rating on the
outstanding class B3-Dfrd notes.
Since S&P assigned the preliminary rating, the borrower increased
the class A11 notes' balance to GBP400 million from GBP250 million,
and has not made any other notable changes.
The issuer used a portion of the class A11 notes' gross proceeds to
partially prepay the existing GBP550 million class A7 notes. The
balance of the class A7 notes will reduce to GBP242.5 million from
GBP550 million. The remaining GBP97.8 million of the surplus
proceeds from the class A11 notes issuance will be held in the
mandatory prepayment account, with the existing borrower
transaction bank account provider, until such time they can be used
to further repay the class A7 notes. While the surplus could be
used to repay the class A7 notes on any interest payment date (IPD)
this is not a contractual obligation. Therefore, S&P assumed that
the class A7 notes' balance will remain unchanged until its
expected maturity date.
AA Bond Co.'s financing structure blends a corporate securitization
of the operating business of the Automobile Association (AA) group
in the U.K. with a subordinated high-yield issuance. Debt repayment
is supported by the operating cash flows generated by the borrowing
group's two main lines of business: roadside assistance, and
insurance brokering.
S&P believes the transaction will qualify for the appointment of an
administrative receiver under the U.K. insolvency regime.
Accordingly, an obligor default would allow the noteholders to gain
substantial control over the charged assets before an
administrator's appointment, without necessarily accelerating the
secured debt, both at the issuer and borrower levels.
AA Bond Co.'s primary sources of funds for principal and interest
payments on the class A notes are the loan interest and principal
payments from the borrower and amounts available from the liquidity
facility, which is shared with the borrower to service the senior
term loan (when the latter is drawn).
Principal and interest payments under the loan are supported by the
operating cash flows generated by the borrowing group's two main
lines of business: roadside assistance and insurance brokering.
S&P's ratings on the class A notes are based primarily on its
ongoing assessment of the borrowing group's underlying business
risk profile (BRP), the integrity of the transaction's legal and
tax structure, and the robustness of operating cash flows supported
by structural enhancements.
Business risk profile
S&P does not see material changes in business fundamentals for the
borrower, AA Intermediate Co. relative to our existing BRP
assessment, which would remain unchanged at satisfactory. Its BRP
assessment is based on the factors outlined below.
Key Credit Considerations
Leading market position
With about 40% and 50% market share in the B2C and B2B roadside
segments, respectively, the AA is the market leader in the U.K.'s
roadside breakdown services industry.
Membership-based business model
The AA had about 3.2 million paid members in the
business-to-consumer (B2C) roadside segment and about 8.8 million
paid members in the business-to-business (B2B) roadside segment in
FY2022. Retention rates in the B2C segment are approximately 81%
and it retained or extended all its key contracts in the B2B
segment in FY2022. This membership-based business model provides
good cash flow visibility, despite some churn in membership base,
and potential renewal risk for the longer-term B2B contracts.
Relatively high barriers to entry
The AA's longstanding brand name, strong customer loyalty, and
retention rates, as well as its national roadside assistance fleet,
create relatively high barriers to entry.
Strong profitability
S&P said, "Underpinned by above average absolute profitability,
with EBITDA adjusted margins historically in the 30%-35% range.
That said, we expect a slight weakening in margins toward the lower
end of the range over the next two years, as a result of the higher
exceptional costs in FY2023 and FY2024. However, absent major
operational issues related to the program's implementation and
ability to largely pass on cost increases to its customers
(especially in roadside segment), these should still remain
comfortably above the 25% margin threshold we would expect from the
group and supportive of the group's satisfactory business risk
profile."
Limited scale
Despite the significant advantage in terms of size relative to its
direct competitors, S&P views this base as relatively small
compared with peers from across other business services sectors.
Limited service diversification and weak geographic
diversification
The roadside segment accounted for about 87% of the group's revenue
base and 90% of EBITDA in FY2022. The AA derives its revenues
solely in the U.K.
Moderate customer concentration
Top 10 B2B clients account for about 15% of the group's revenue in
that segment.
DSCR analysis
S&P said, "Our cash flow analysis serves to both assess whether
cash flows will be sufficient to service debt through the
transaction's life and to project minimum debt service coverage
ratios (DSCRs) in base-case and downside scenarios. In our
analysis, we have excluded any projected cash flows from the
underwriting part of the AA's insurance business, which is not part
of the restricted borrowing group (only the insurance brokerage
part is).
"We typically view liquidity facilities and trapped cash (either
due to a breach of a financial covenant or following an expected
maturity date) as being required to be kept in the structure if:
the funds are held in accounts or may be accessed from liquidity
facilities; and we view it as dedicated to service the borrower's
debts, specifically that the funds are exclusively available to
service the issuer/borrower loans and any super senior or pari
passu debt, which may include bank loans.
"In this transaction, although the borrower and the issuer share
the liquidity facility, the borrower's ability to draw is limited
to liquidity shortfalls related to the senior term facility and
does not cover the issuer/borrower loans. Therefore, we do not give
credit to the liquidity facility in our base-case DSCR analysis. We
have given credit to any trapped cash in our DSCR calculations
because we have concluded that it is required to be kept in the
structure and is dedicated to debt service."
Base-case scenario
S&P said, "Our base-case EBITDA and operating cash flow projections
in the short term and the company's satisfactory BRP rely on our
corporate methodology. We gave credit to growth through the end of
financial year (FY) 2025. Beyond FY2025, our base-case projections
are based on our methodology and assumptions for corporate
securitizations, from which we then apply assumptions for capital
expenditures (capex), finance leases, pension liabilities, and
taxes to arrive at our projections for the cash flow available for
debt service." For AA Intermediate Co., our assumptions were:
-- Maintenance capex (including net finance leases): GBP62 million
for FY2023 and GBP63 million for each of FY2024 and FY2025.
Thereafter, we assume GBP35 million, in line with the transaction
documents' minimum requirements.
-- Development capex: GBP39 million for FY2023 and GBP30 million
for each of FY2024 and FY2025. Thereafter, because we assume no
growth, we considered no investment capex, in line with our
corporate securitization criteria.
-- Working capital: A net outflow of GBP6 million for FY2023
followed by net inflows of GBP5 million in FY2024. Thereafter, we
assume that the change in working capital is nil.
-- Pension liabilities: S&P considered the plan agreed by the
company with the trustee in February 2020.
-- Tax: GBP11 million for FY2023 and GBP29 million for FY2024.
Thereafter, S&P considered slightly higher tax exposure.
-- The transaction structure includes a cash sweep mechanism for
the repayment of principal following an expected maturity date
(EMD) on each class of class A notes. Therefore, in line with S&P's
corporate securitization criteria, it assumed a benchmark principal
amortization profile where each class A note is repaid over 15
years following its respective EMD based on an annuity payment that
we include in our calculated DSCRs.
Based on S&P's assessment of AA Intermediate Co.'s satisfactory
BRP, which it associates with a business volatility score of 3, and
the minimum DSCR achieved in our base-case analysis, we established
an anchor of 'bbb-' for the class A notes.
Downside DSCR analysis
S&P said, "Our downside DSCR analysis tests whether the
issuer-level structural enhancements improve the transaction's
resilience under a stress scenario. AA Intermediate Co. falls
within the business and consumer services industry, for which we
apply a 30% decline in EBITDA relative to the base-case at the
point where we believe the stress on debt service would be
greatest.
"Our downside DSCR analysis resulted in a strong resilience score
for the class A notes. The combination of a strong resilience score
and the 'bbb-' anchor derived in the base-case results in a
resilience-adjusted anchor of 'bbb+' for the class A notes.
"The GBP160 million liquidity facility balance represents about
7.5% of liquidity support, measured as a percentage of the current
outstanding senior debt, which is below the 10% level we typically
consider for significant liquidity support. Therefore, we have not
considered any further uplift adjustment to the resilience-adjusted
anchor for liquidity."
Modifiers analysis
S&P has not applied any adjustments under its modifier analysis.
Comparable rating analysis
S&P said, "Due to its cash sweep amortization mechanism, the
transaction relies significantly on future excess cash. In our
view, the uncertainty related to this feature is increased by the
execution risks related to the company's investment plan and the
returns it will effectively generate. The company may need to
invest periodically in order to maintain its cash flow generation
potential over the long term, which could erode future excess cash.
To account for this combination of factors, we applied a one-notch
decrease to the senior class A notes' resilience-adjusted anchor."
Counterparty risk
S&P's 'BBB- (sf)' rating on the class A notes is not constrained by
the ratings on any of the counterparties, including the liquidity
facility, derivative, and bank account providers.
Eligible investments
Under the transaction documents, the counterparties can invest cash
in short-term investments with a minimum required rating of 'BBB-'.
Given the substantial reliance on excess cash flow as part of its
analysis and the possibility that this could be invested in
short-term investments, full reliance can be placed on excess cash
flows only in rating scenarios up to 'BBB-'.
Rationale for the class B3-Dfrd notes
S&P said, "Our rating on the class B3-Dfrd notes only addresses the
ultimate repayment of principal and interest on or before its legal
final maturity date in July 2050. The class B3-Dfrd notes are
structured as soft-bullet notes due in July 2050, but with interest
and principal due and payable to the extent received under the B3
loan. Under the terms and conditions of the class B3 loan, if the
loan is not repaid on its expected maturity date (January 2026),
interest and principal will no longer be due and will be deferred.
The deferred interest, and the interest accrued thereafter, becomes
due and payable on the final maturity date of the class B3-Dfrd
notes in 2050. Our analysis focuses on the scenarios in which the
underlying loans are not repaid on their EMD and the corresponding
notes are not redeemed. We understand that the obligors will not be
permitted to make payments under the class B3 issuer/borrower
facility agreement. Therefore, we assume that the class B3 notes do
not receive interest after the class A7 EMD, receiving no further
payments until the class A notes are fully repaid."
Moreover, under the terms of the class B issuer/borrower loan
agreement, further issuances of class A notes, for the purpose of
refinancing, are permitted without consideration given to any
potential effect on the then current ratings on the outstanding
class B notes. Both the extension risk, which S&P views as highly
sensitive to the future performance of the borrowing group given
its deferability, and the ability to issue more senior debt without
consideration given to the class B3-Dfrd notes, may adversely
affect the issuer's ability to repay the class B3-Dfrd notes. As a
result, the uplift above the borrowing group's creditworthiness
reflected in our rating on the class B3-Dfrd notes is limited.
S&P said, "Our view of the borrowing group's standalone
creditworthiness has not changed. Therefore, we have affirmed our
'B+ (sf)' rating on the class B3-Dfrd notes.
"We believe the transaction will qualify for the appointment of an
administrative receiver under the U.K. insolvency regime. When the
events of default allow security to be enforced ahead of the
company's insolvency, an obligor event of default would allow the
then senior-most noteholders to gain substantial control over the
charged assets prior to an administrator's appointment, without
necessarily accelerating the secured debt. However, under certain
circumstances, particularly when the class A notes have been
repaid, removal of the class B FCF DSCR financial covenant would,
in our opinion, prevent the borrower security trustee, on behalf of
the class B3-Dfrd noteholders, from gaining control over the
borrowers' assets as their operating performance deteriorates and
would no longer trigger a borrower event of default under the class
B3 loan, ahead of the operating company's insolvency or
restructuring. This may lead us to conclude that we are unable to
rate through an insolvency of the obligors, which is an eligibility
condition under our criteria for corporate securitizations. Our
criteria state that noteholders should be able to enforce their
interest on the assets of the business ahead of the insolvency
and/or restructuring of the operating company. If at any point the
class B3-Dfrd noteholders lose their ability to enforce by proxy
the security package we may revise our analysis, including forming
the view that the class B3-Dfrd notes' security package is akin to
covenant-light corporate debt rather than secured structured
debt."
Outlook
A change in S&P's assessment of the company's BRP would likely lead
to rating actions on the notes. It would require higher/lower DSCRs
for a weaker/stronger BRP to achieve the same anchors.
Upside scenario
S&P said, "We do not see any upside scenario at this stage in
relation to our assessment of the borrowing group's BRP, which is
constrained by the group's weak geographic and service
diversification, and its exposure to the insurance broker business.
Furthermore, our rating on the class A notes is capped at
'BBB-(sf)' under our eligible investments criteria."
Downside scenario
S&P said, "We could lower our anchor or the resilience-adjusted
anchor for the class A notes if we were to revise the borrowing
group's BRP to fair from satisfactory. This could occur if the
group faced significant operational difficulties in relation to its
investment plan or if trading conditions in its core roadside
service market were to deteriorate with significant customer losses
and/or lower revenue per customer. Under these scenarios, we would
likely observe margins falling below 25% with little prospect for
rapid improvement, or an increase of the group's profitability
volatility.
"We may also consider lowering our rating on the class A notes if
our minimum projected DSCR falls below 1.4:1 in our base-case
scenario or 1.8:1 in our downside scenario. This could happen if
the cash flow available for debt service declines beyond our
expected base case level.
"We could also lower the rating on the class B3 notes if there was
a deterioration in our assessment of borrower's overall
creditworthiness, which reflects its financial and operational
strength over the short-to-medium term. This could occur, for
example, if there is a material decline in profitability or if the
group loses significant market share to its competitors, resulting
in weaker free operating cash flow and higher leverage; or if the
group pursued aggressive financial policy."
Surveillance
S&P said, "We will maintain active surveillance on the rated notes
until the notes mature or are retired. The purpose of surveillance
is to assess whether the notes are performing within the initial
parameters and assumptions applied to each rating category. The
transaction terms require the issuer to supply periodic reports and
notices to S&P Global Ratings for maintaining continuous
surveillance on the rated notes.
"We view the AA's performance as an important part of analyzing and
monitoring the performance and risks associated with the
transaction. While company performance will likely affect the
transaction, we believe other factors, such as cash flow, debt
reduction, and legal framework, also contribute to the overall
analytical opinion."
Ratings List
CLASS RATING* BALANCE EXPECTED LEGAL FINAL
(MIL. GBP) MATURITY MATURITY
DATE DATE
RATING ASSIGNED
A11 BBB- (sf) 400.0 Jan 2028 July 2050
RATINGS AFFIRMED
A2 BBB- (sf) 500.0 July 2025 July 2043
A7§ BBB- (sf) 242.5 July 2024 July 2043
A8 BBB- (sf) 325.0 July 2027 July 2050
A9 BBB- (sf) 270.0 July 2028 July 2050
A10 BBB- (sf) 250.0 July 2029 July 2050
B3-Dfrd B+ (sf) 280.0 Jan 2026 July 2050
*S&P's ratings on the class A notes address the timely payment of
interest and the ultimate payment of principal on the legal final
maturity date. S&P's rating on the class B3-Dfrd notes addresses
ultimate payment of interest and ultimate payment of principal by
the legal final maturity date.
§The proceeds from the issuance of the class A11 notes are used to
partially repay the class A7 notes. The surplus proceeds from the
class A11 notes issuance will be held in the mandatory prepayment
account until such time they can be used to further repay the class
A7 notes.
ALBA PLC 2005-1: S&P Lowers Class E Notes Rating to 'BB+(sf)'
-------------------------------------------------------------
S&P Global Ratings lowered its credit rating on ALBA 2005-1 PLC's
class E notes to 'BB+ (sf)' from 'BBB (sf)'. At the same time, S&P
affirmed its 'AAA (sf)', 'AA+ (sf)', 'AA (sf)', and 'AA- (sf)'
ratings on the class A, B, C, and D notes, respectively.
The rating actions reflect the marginal rise in the required credit
coverage at the 'A' rating level and below since S&P's previous
review, while the transaction is now amortizing sequentially, the
reserve fund has been drawn due to increased fixed fees.
Since S&P's previous review, its weighted-average foreclosure
frequency (WAFF) assumptions have increased at all rating levels
primarily due to higher arrears and a higher proportion of
reperforming loans.
WAFF And WALS Assumptions
WAFF WALS CC
AAA 27.66% 30.01% 8.30%
AA 20.61% 20.43% 4.21%
A 16.85% 8.16% 1.37%
BBB 13.21% 3.54% 0.47%
BB 9.37% 2.00% 0.19%
B 8.51% 2.00% 0.17%
WAFF--Weighted-average foreclosure frequency.
WALS--Weighted-average loss severity.
CC--Credit coverage.
Loan-level arrears have increased to 6.9% from 6.2%. Cumulative
losses are at approximately 2.5%, while the pool factor is low at
13%.
The reserve fund was drawn due to a significant rise in fixed fees
and rising interest adversely affected the cost of liabilities in
S&P's stressed scenarios.
S&P said, "In addition to our standard runs, we also performed some
sensitivity runs around the starting interest rates, fees, and
higher foreclosure rates given the uncertain economic outlook.
"We affirmed our 'AAA (sf)' rating on the class A notes to reflect
our credit and cash flow results, which indicate the available
credit enhancement continues to be commensurate with the rating.
"The class B, C, and D notes could withstand our stresses at higher
rating levels than those assigned. However, additional factors that
we considered in our analysis constrained the ratings. First, we
considered their sensitivity to tail-end risks given the low pool
factor. In addition, we took into account these classes' relative
position in the capital structure and the lower credit enhancement
than the senior notes. We therefore affirmed our 'AA+ (sf)' rating
on the class B notes, our 'AA (sf)' rating on the class C notes,
and our 'AA- (sf)' rating on the class D notes.
"We lowered our rating on the class E notes to 'BB+ (sf)' from 'BBB
(sf)' due to the higher fixed fees causing the drawing of the
reserve fund which is the only source of credit enhancement to
these notes. Under our cash flow analysis, in some scenarios the
assigned rating sees some minor technical principal shortfalls.
However, we view these shortfalls as non-material and likely to
reduce with increased credit enhancement due to amortization."
Notably, the higher fees include one-off expenses related to the
LIBOR transition, but also various corporate service provider fees
related to regulatory and financial reporting requirements.
Counterparty risk does not constrain the ratings and the
replacement language in the documentation is in line with S&P's
counterparty criteria.
S&P said, "We expect U.K. inflation to remain high in 2023.
Although high inflation is overall credit negative for all
borrowers, inevitably some borrowers will be more negatively
affected than others and to the extent inflationary pressures
materialize more quickly or more severely than currently expected,
risks may emerge. This is a buy-to-let transaction and although
underlying tenants may be affected by inflationary pressures,
borrowers in the pool are generally considered to be professional
landlords and will benefit from diversification of properties and
rental streams. Borrowers in this transaction are largely paying a
fixed rate of interest on average until 2025. As a result, in the
short to medium term, they are protected from rate rises but will
feel the effect of rising cost of living pressures. Our credit and
cash flow analysis and related assumptions consider the
transaction's ability to withstand the potential repercussions of
the current economic environment--including higher inflation and an
increase in the cost of living--such as higher defaults and longer
recovery timing due to a potential backlog in court cases.
Considering these factors, we believe that the available credit
enhancement is commensurate with the ratings assigned."
The transaction is backed primarily by a pool of legacy
nonconforming mortgage loans secured on properties in England,
Scotland, and Wales.
ALBION FINANCING 3: Moody's Rates New $440MM Secured Term Loan 'B1'
-------------------------------------------------------------------
Moody's Investors Service assigned B1 rating to the proposed $440
million equivalent senior secured term loan due August 2026 to be
issued by Albion Financing 3 S.a.r.l., and Aggreko Holdings Inc.,
subsidiaries of Albion HoldCo Limited (Aggreko). Other ratings of
Aggreko and its subsidiaries are not affected. The rating outlook
is stable.
The proposed senior secured term loan is designated to finance the
acquisition of Resolute Industrial[1], a privately owned provider
of heating, ventilation and air conditioning (HVAC) solutions,
which Aggreko announced in December 2022.
RATINGS RATIONALE
The rating action reflects the complementarity of Resolute
Industrial's business to Aggreko's core offerings and Moody's
expectation that Aggreko will be able to deleverage in the next
12-18 months. Simultaneously, Aggreko is acquiring Crestchic
PLC[2], a UK-based producer of specialised industrial equipment,
such as load banks and transformers, for GBP122 million. Moody's
expect that the combination of aggregate EBITDA growth and the
equity-funded acquisition of Crestchic PLC will help the combined
company to manage its leverage levels prudently.
Headquartered in Tampa, Florida, USA, and owned by AE Industrial
Partners, a private equity firm, Resolute Industrial rents out its
fleet of heating, ventilation and air conditioning equipment
(HVAC), such as dehumidifiers, chillers and heaters. The company
also provides related services, such as installation of HVAC
equipment and its repair and maintenance. It operates
approximately 40 locations across North America. For the twelve
months ending November 2022, Resolute Industrial reported revenues
of approximately $146 million and EBITDA of approximately $53
million. Aggreko has agreed to acquire the company for a
consideration of $440 million.
Crestchic PLC is a listed UK-based producer of specialised
industrial equipment, such as transformers and load banks which are
used for the testing of power supplies. Similar to Aggreko's fleet,
load banks are often containerized. They can be portable or
permanently installed at the customer facility. Complementing its
manufacturing activities, Crestchic PLC also refurbishes its used
equipment, to extend its useful life at a reduced cost, and
subsequently rents it out, also similar to Aggreko. In the first
half of 2022, Crestchic PLC reported revenues of GBP23.3 million
and EBITDA of GBP5.9 million.
Aggreko has demonstrated strong performance in the first nine
months of 2022. Its underlying revenue (excluding pass-through
fuel cost and currency impact) for the first three quarters of the
year was flat at GBP1.2 billion on a year-over-year basis.
However, excluding the non-recurring revenues from the Tokyo and
Beijing Olympics, underlying revenue grew by 17% in the first nine
months of 2022 as compared to the same period in the prior year.
This revenue growth was comprised of 22% increase in transactional
rental revenue (when excluding non-recurring revenue from Tokyo and
Beijing Olympics) and 8% increase in power projects turnover.
Transactional rental revenue benefited from strong growth across
geographies while power projects turnover was bolstered by a major
on-hire in Kurdistan in the second quarter of 2021. Also
positively, Aggreko's operating profit increased by 22% over the
same period. The rise in operating profit was driven by growth in
power projects' profitability and offset by a year-over-year
decrease in the profits of the transactional business owing to the
non-recurring earnings from Tokyo Olympics in the prior year.
Moody's expect this trajectory to continue and strengthen as
Aggreko combines the acquisitions of Resolute Industrial and
Crestchic PLC with its own business portfolio.
Following these acquisitions, Aggreko's leverage will increase
slightly in 2023 but Moody's expects it to reduce well below the
agency's rating guidance of 4.5x in the next 12 months if the
company achieves the growth targets it has outlined. Should
Aggreko's performance fall short of the anticipated growth rates,
the deleveraging will slow down and the company's free cash flow
(after capex, as adjusted by Moody's) may turn negative.
LIQUIDITY
Aggreko's liquidity remains adequate, with GBP172 million of cash
and a GBP153 million available on its GBP300 million revolving
credit facility (RCF), issued by Albion Midco Limited at September
30, 2022. The company has no debt maturities until 2026.
STRUCTURAL CONSIDERATIONS
Aggreko's senior secured debt, issued through subsidiaries, is
rated B1 in line with the CFR, as is the proposed $440 million
equivalent senior secured add-on.
The company's debt includes GBP300 million senior secured revolving
credit facility (RCF) issued by Albion Midco Limited, $750 million
and EUR500 million term loan B (TLB) issued by Albion Financing 3
S.a.r.l. and $565 million and EUR450 million backed senior secured
notes issued by Albion Financing 1 S.a.r.l. The RCF, the TLB
(including the add-on) and the secured notes share the same
security package, and rank pari passu. The company's $450 million
backed senior unsecured notes issued by Albion Financing 2 S.a.r.l.
are rated B3, reflecting their junior position in the capital
structure.
The term loan is covenant lite, and the revolver has a springing
financial covenant tested if it is 40% drawn.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
FACTORS THAT COULD LEAD TO AN UPGRADE
Positive rating momentum would result from Aggreko's leverage
measured as debt/EBITDA reducing towards 3.5x including Moody's
standard adjustments, as well as stronger free cash flows on a
sustained basis. Adequate liquidity would also be needed for an
upgrade.
FACTORS THAT COULD LEAD TO A DOWNGRADE
Downward rating pressure could arise if Aggreko fails to reduce its
debt/EBITDA to sustainably below 4.5x or if its free cash flow
turns negative. Any liquidity challenges would also lead to a
rating downgrade.
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Equipment and
Transportation Rental published in February 2022.
COMPANY PROFILE
Headquartered in Glasgow, Albion HoldCo Limited (Aggreko) is the
leading global provider of modular power generation and temperature
control equipment, offering critical equipment rental and energy
services to a diverse mix of end-markets, clients and countries.
The company operates across 182 sales and services centres, serving
customers in 80 countries. In the first nine months of 2022,
Aggreko generated revenue of GBP1.3 billion and adjusted EBITDA of
GBP438 million.
ALBION HOLDCO: S&P Affirms 'BB-' LongTerm ICR, Outlook Stable
-------------------------------------------------------------
S&P Global Ratings affirmed its 'BB-' long-term issuer credit
rating on Albion Holdco Ltd. S&P also affirmed its 'BB-' issue and
'3' recovery ratings (rounded recovery prospects: 55%) on the
senior secured term loan B, which now includes the $440
million-equivalent raise, and the senior secured debt, and the 'B'
issue rating and '6' recovery rating on the senior debt.
The stable outlook indicates that S&P believes revenue and
profitability will continue to increase through strong demand in
Aggreko's key end-markets, as well as through the two acquisitions.
S&P Global Ratings-adjusted EBITDA margins will increase to
34%-35%, supporting the deleveraging, and free operating cash flow
should turn positive in 2023.
Rising organic EBITDA and the contribution from the acquisitions,
will help to offset the rise in S&P Global Ratings-adjusted debt in
2023. Aggreko is set to issue a further $440 million-equivalent of
term loan B, alongside an equity injection of $149 million, equally
split between Aggreko's owners TDR Capital and I Squared Capital,
Aggreko will use the funds to acquire Crestchic PLC and Resolute.
The new issuance will contribute to Aggreko's gross debt rising to
around GBP2.85 billion in 2023, as will adverse foreign exchange
movements on the U.S. dollar-denominated debt, given the company
reports in pound sterling. At the same time, the two
margin-boosting acquisitions, alongside increasing profitability in
the transactional rental business, should raise S&P Global
Ratings-adjusted EBITDA to GBP720 million-GBP750 million in 2023
from around GBP530 million in 2022. S&P said, "As a result,
our-adjusted leverage should remain at 3.9x-4.5 in 2023 and reduce
to 3.5x-4.0x in 2024, absent further debt-raises to support
acquisitions or other impacts to gross debt and profitability. We
forecast Aggreko's FFO to debt will be 12.5%-14.5% in 2023,
supported by EBITDA growth leading to higher FFO. However, the
increase is somewhat offset by cash interest costs, which we expect
to approach GBP230 million in 2023 from about GBP155 million in
2022, as a result of accumulating debt and the exposure to floating
rates on the term loan b debt. Nevertheless, FFO cash interest
cover should remain at 2.5x-3.0x."
S&P said, "We expect Aggreko to continue reporting margin growth
amid improving revenue and EBITDA generation. In our view,
Aggreko's revenue will rise to GBP2.1 billion-GBP2.2 billion in
2023 from about GBP1.76 billion in 2022. From the existing
business, the majority of this growth is forecast from the
transactional rental segment, where new project wins and rate
increases agreed with its customers should boost revenues by
14%-16% to GBP1.3 billion-GBP1.4 billion this year. We expect the
power projects business generated around GBP603 million revenue in
2022, which we forecast will remain broadly the same in 2023, as
the company aims to refocus its businesses in Africa and Asia
toward more attractive geographies and higher quality customers,
potentially exiting some regions. The expected sale of the Eurasian
business, which generated around GBP70 million of revenues in 2021,
also contributes to the expected minimal growth in the segment, as
this business is no longer reported within Aggreko's top line.
Currently, we do not include the proceeds from the sale in our
forecasts given that they are not committed. We expect revenue from
the two acquired businesses, Crestchic and Resolute, to contribute
about GBP170 million-GBP190 million in 2023, as the transactions
are expected to complete by the end of February. S&P Global
Ratings-adjusted EBITDA is also expected to increase to about
GBP720 million-GBP750 million in 2023, with margins rising to
34%-35%in 2023 from 29%-30% in 2022. This margin growth is expected
through improved pricing on contracts, as well as more complex
higher-margin projects. The continued one-off cost-savings from
operational efficiency and organization changes also bolster the
margins, while we expect synergies from the acquisitions to boost
profitability."
Free operating cash flow (FOCF) should rebound after negative
generation in 2021 and 2022, though capital expenditure (capex) and
cash interest costs will rise significantly in 2023. S&P said,
"After generating negative FOCF in 2021 (GBP88 million) and 2022
(GBP175 million-GBP210 million), we expect FOCF to rebound to about
GBP30 million-GBP60 million in 2023. Cash flows from operations are
expected to materially improve against 2022 due to large swings in
working capital. We expect Aggreko to report working capital
outflows of around GBP200 million for 2022, driven by an increase
in receivables through increased activity in North and Latin
America, with inventory increases to support capital build. We
anticipate that working capital changes will materially improve in
2023, with forecasts of inflows of up to GBP30 million, due to
measures such as a focus on debt collection and re-build programs
to utilize the built up inventory levels. Some of the improvement
is offset by increased capex expected this year. We anticipate that
spending will rise from about GBP291 million in 2022 to GBP370
million-GBP385 million in 2023, driven by the ramp-up in projects
in transactional rental, as well as the addition of about GBP40
million-GBP50 million of capex related to the acquired businesses.
The significant increase in cash interest costs expected in 2023
will also erode FOCF."
Crestchic and Resolute will complement Aggreko's existing
businesses. The two acquired companies will complete Aggreko's
operations and help it to take advantage of an expanding equipment
rental market, particularly in North America. According to the
American Rental Association and IHS Global Insights, the North
American equipment rental market will swell from about $54 billion
in 2021 to around $68 billion in 2025. Resolute will aid Aggreko's
growth in this market, as its revenues are focused in North
America. Resolute operates a fleet of HVAC equipment (relating to
heating, ventilation, and cooling or air-conditioning),
predominantly serving the commercial industry, with end-markets
focused in health care, manufacturing, non-residential buildings,
government customers, and education. Crestchic's revenues are
largely generated in the U.K., with sizable exposure to the Middle
East and Asia. It designs, manufactures, sells, and rents resistive
and reactive load banks used to test power supplies in the
commissioning and maintenance stages.
S&P said, "The stable outlook indicates that we believe revenue and
profitability will continue to strengthen through higher demand in
Aggreko's key end-markets, cost cutting measures, as well as
through the two acquisitions. We expect S&P Global Ratings-adjusted
EBITDA margins will increase to 34%-35% and leverage will remain
below 5x. We also expect FFO cash interest coverage to remain near
3x.
"We could lower the ratings on the group if we expected revenue to
decline or margins dropped below 30% on a sustainable basis, with
leverage trending close to 5x. We could also lower the ratings if
FFO cash interest coverage were sustainably well below 3x, and if
we expected FOCF generation to remain deeply negative, potentially
as a result of higher capex or weak working capital management.
"We are unlikely to take a positive rating action, given the
company's acquisitive nature and the potential for further bolt-on
acquisitions. We could raise the ratings on the group if we thought
that it was committed to and highly likely to shrink leverage,
including substantially reducing gross financial debt, resulting in
a debt-to-EBITDA ratio remaining below 4x and FFO to debt staying
well above 20%. Furthermore, an upgrade would be contingent on
sustained FOCF generation and Aggreko's EBITDA margins increasing
toward 35%."
ESG credit indicators: E-2, S-2, G-3
S&P said, "Governance factors are a moderately negative
consideration in our credit rating analysis of Albion HoldCo
(Aggreko). Our assessment of the company's financial risk profile
as aggressive reflects corporate decision-making that prioritizes
the interests of the controlling owners, as is the case for most
rated entities owned by private-equity sponsors. Our assessment
also reflects their generally finite holding periods and a focus on
maximizing shareholder returns."
Environmental and social factors are an overall neutral
consideration. Despite a significant proportion of the company's
fleet being diesel-powered, Aggreko is committed to investment into
new technologies to reduce its greenhouse gas (GHG) emissions and
has recently implemented customer solutions such as deploying
gas-powered generators, battery storage, and solar-powered energy
generation. The company has set out internal targets, such as
committing to reduce diesel fuel usage in customer solutions by at
least 50% by 2030, and developing hydrogen powered units. To date,
Aggreko has been able to fully pass on fuel costs to its customers
and S&P expects that this would also be at least partly the case
for potentially higher compliance costs related to GHG emissions.
BRIAN CLEGG: Enters Administration, Almost 40 Jobs Affected
-----------------------------------------------------------
Neil Hodgson at TheBusinessDesk.com reports that almost 40 jobs
have been lost with the collapse of a Greater Manchester arts and
crafts products manufacturer.
Brian Clegg (Educational Products) was founded in 1973 and made
children's arts and crafts products, supplying both retail and
educational markets across England and Wales.
It operated from two sites, in Rochdale and Middleton.
However, the company had been loss making for some time and
suffered from sustained cashflow pressure from rising input prices,
TheBusinessDesk.com discloses.
An accelerated merger and acquisition process was conducted in
recent months but, without a viable offer, the business was
ultimately placed into administration, TheBusinessDesk.com states.
Anthony Collier and Richard Goodall, of specialist business
advisory firm FRP, were appointed as joint administrators on
Wednesday, Feb. 8, TheBusinessDesk.com relates.
They said, regrettably, upon appointment, almost all 40 roles were
made redundant, according to TheBusinessDesk.com. A small group of
staff has been retained to assist with the duties of the joint
administrators as they complete the winding up of the business,
TheBusinessDesk.com notes.
CO-OPERATIVE BANK: Fitch Hikes IDR to 'BB', Outlook Stable
----------------------------------------------------------
Fitch Ratings has upgraded The Co-operative Bank plc's Long-Term
Issuer Default Rating (IDR) to 'BB' from 'B+'. The Outlook is
Stable. The bank's Viability Rating (VR) has also been upgraded to
'bb-' from 'b'.
The upgrade reflects Fitch's view that despite the weak economic
outlook for the UK, the immediate risks to The Co-operative Bank's
capitalisation and leverage have materially reduced, given the
bank's significantly improved profitability and progress made with
its restructuring. Improved internal capital generation, which has
benefited from the rising interest rate environment, also supports
its assessment of the bank's business model stability.
KEY RATING DRIVERS
Compliant With Regulatory Buffers: The Co-Operative Bank's VR is
one notch below the 'bb' implied VR because its business model,
which Fitch’s believe is vulnerable to competitive pressures, has
a strong impact on its VR. The VR also reflects the bank's low-risk
credit exposures, healthy impaired loans ratio, strengthened
profitability, improved capitalisation as it now meets regulatory
capital requirements, and reasonable funding and liquidity.
Resilient Franchise: The bank's ethical focus has helped it to
attract and retain customers, building resilience in its franchise.
However, the bank's limited scale, low market shares and lack of
diversification weigh on its business model. Structural
profitability has improved with effective cost management following
the completion of the restructuring process in 2021, but costs
remain relatively high compared with peers.
Mortgage Lending Dominates Assets: The Co-operative Bank has
tightened its underwriting standards and risk controls, which are
in line with other UK mortgage lenders primarily writing low-risk
residential and buy-to-let mortgages with a small share of
unsecured retail and higher loan-to-value (LTV) lending. Fitch
expects mortgage lending growth to be muted in 2023, given higher
interest rates and housing market uncertainty. The average mortgage
LTV in the portfolio (end-June 2022: 55.2%) provides a buffer
against a moderate house price correction.
Healthy Asset Quality: Asset quality has remained healthy, with low
arrears and moderate mortgage LTVs. The bank reported an impaired
loan ratio of 0.3% at end-1H22 (or 0.7% when including purchased
originated credit impaired loans). Fitch expects the impaired loans
ratio to rise to around 0.5% of gross loans by end-2024, mainly due
to higher interest rates, the expected recession in 2023, and
affordability pressures. Nevertheless, The Co-operative Bank is
well positioned due to the low risk nature of its loans and
conservative underwriting standards.
Improved Structural Profitability: Profitability continued to
improve in 1H22 with operating profit/risk-weighted assets of 2.6%
(2021: 0.7%), supported by wider mortgage margins and a modest
pass-through of interest rate increases to savers. However, asset
margins remain vulnerable to competitive pressures and slowing
growth in a more challenging housing market. Revenues are also
sensitive to the bank's capacity to grow business and to rising
funding costs. Nevertheless, Fitch expects rising interest rates
and reduced operating costs to underpin the bank's profitability.
Improved Capital Position: The Co-operative Bank's common equity
Tier 1 (CET1) ratio of 19.3% at end-September 2022 reflects the low
risk weights assigned to mortgage loans under the bank's internal
ratings-based approach. The bank is now fully compliant with
regulatory requirements and had resources in excess of end-state
minimum requirements for own funds and eligible liabilities (MREL).
The leverage ratio remained stable at 3.8% at end-September 2022
(end-2021: 3.8%), and is expected to modestly strengthen, putting
the bank in a better position to gradually expand its balance
sheet.
Resilient Customer Funding: The bank is predominantly
retail-funded, with a resilient core deposit base. Access to
wholesale markets is limited and largely consists of MREL-eligible
debt, Tier 2 debt and the Bank of England's Term Funding Scheme
with additional incentives for SMEs (TFSME). The bank was able to
place an additional GBP250 million MREL issuance in April 2022.
Liquidity is healthy with large holdings of cash at the Bank of
England boosted by TFSME drawings, which raised the liquidity
coverage ratio to 270% at end-September 2022.
The Short-Term IDR of 'B' maps to the only available option for a
Long-Term IDR of 'BB' under Fitch's rating criteria.
Rating Uplift to Opco: The Co-operative Bank's Long-Term IDR is one
notch above its VR because we believe that there are sufficient
resolution funds issued by The Co-operative Bank Finance plc, the
bank's intermediate holding company, which afford additional
protection to the bank's external senior creditors, in case of its
failure.
No Support: The Government Support Rating (GSR) reflects Fitch's
view that senior creditors cannot rely on extraordinary support
from the UK authorities if The Co-operative Bank becomes
non-viable, in light of the legislation in place that is likely to
require senior creditors to participate in losses for resolving the
bank.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
The ratings could be downgraded if The Co-operative Bank recorded
weaker-than-expected profitability or faster-than-planned growth
that eroded buffers against CET1 and leverage ratio requirements,
with no clear actions to restore them.
The Long-Term IDR is also sensitive to the bank being able to meet
its end-state regulatory resolution buffer requirements, which
includes qualifying junior debt and internal subordinated debt. The
Long-Term IDR could be downgraded to the same level as the VR if
the bank is no longer required or able to meet end state MREL
regulatory requirements.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
An upgrade would require the bank to sustain a record of improved
structural profitability, and to continue to demonstrate its
ability to generate sufficient capital while maintaining healthy
buffers above minimum capital and leverage requirements. In turn,
stronger capital buffers that supported the bank's business growth,
competitiveness and scale could support its business profile
assessment and the bank's VR.
VR ADJUSTMENTS
The Viability Rating has been assigned below the implied Viability
Rating due to the following adjustment reason(s): Business Profile
(negative).
The operating environment score of 'aa-' is at the lower end of the
range because it is constrained by the UK's sovereign rating of
'AA-'/Negative (negative).
The business profile score of 'bb-' has been assigned below the
'bbb' category implied score due to the following adjustment
reason: business model (negative), market position (negative).
The asset quality score of 'bbb+' has been assigned below the 'aa'
category implied score due to the following adjustment reasons:
concentration (negative).
The earnings and profitability score of 'bb-' has been assigned
above the 'b' category implied score due to the following
adjustment reasons: historical and future metrics (positive).
The capitalisation and leverage score of 'bb-' has been assigned
below the 'aa' category implied score due to the following
adjustment reasons: Leverage and risk-weight calculation
(negative), capital flexibility and ordinary support (negative).
The funding and liquidity score of 'bb+' has been assigned below
the 'a' category implied score due to the following adjustment
reason: non-deposit funding (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 Prior
----------- ------ -----
The Co-operative
Bank p.l.c. LT IDR BB Upgrade B+
ST IDR B Affirmed B
Viability bb- Upgrade b
Government Support ns Affirmed ns
DRB GROUP: Placed Into Creditors Voluntary Liquidation
------------------------------------------------------
Owen Hughes at NorthWalesLive reports that an engineering firm that
was set up more than 45 years ago is going into liquidation.
DRB Group was originally founded in Chester by Dave Bennett in 1976
and moved to Deeside in 1984.
It provided engineering services to some of the UK's leading
manufacturing companies. The firm employed more than 120 staff.
According to NorthWalesLive, reports that the company was being
wound up emerged at the start of this month. On Feb. 9, business
recovery and insolvency firm Leonard Curtis confirmed the firm is
being placed into a Creditors Voluntary Liquidation, NorthWalesLive
relates.
INTERNATIONAL GAME: Fitch Gives 'BB+' FirstTime IDR, Outlook Stable
-------------------------------------------------------------------
Fitch Ratings has assigned first-time Issuer Default Ratings (IDRs)
of 'BB+' to International Game Technology plc (IGT) and IGT Lottery
Holdings B.V. (IGTBV). Fitch has also assigned a 'BBB-'/'RR2'
rating to IGT's senior secured debt, which consists of IGT's senior
secured notes and term loan, with IGTBV as co-borrower on the term
loan. The Rating Outlook is Stable.
The rating reflects IGT's conservative leverage, which improved
meaningfully from pre-pandemic levels primarily due to debt
paydown. This has been funded by non-core asset sale proceeds and
strong FCF generation. The strong credit profile positions IGT
favorably to continue funding slot machine development, shareholder
returns, and absorb potential future cash demands related to
lottery concessions. The rating also considers IGT's leading share
in core gaming end markets, specifically lottery.
KEY RATING DRIVERS
Credit Profile Improvement: IGT performed well during the pandemic,
driven by its less cyclical lottery business, U.S. regional
gaming's quick recovery, and IGT's large existing slot footprint.
Fitch's calculation of gross leverage for YE2022 is 4.0x, down from
5.7x at YE2019. This has been supported by $200 million in
structural cost savings and significant debt paydown from asset
sale proceeds. Management has a 2.5x - 3.5x net leverage target,
though Fitch focuses on gross metrics and subtracts minority
distributions from EBITDA (approximately 0.5x difference in
leverage calculations due to the latter). IGT is currently within
its target net leverage range.
Divestitures Drive Debt Paydown: From 2021-2022, IGT sold its
Italian B2C gaming business and Italian payments business for EUR
950 million and EUR700 million in proceeds, respectively, that was
primarily used to pay down debt. These divestitures and IGT's solid
EBITDA recovery delivered a meaningful reduction in leverage and
higher pro forma margins. The elimination of a segment facing
regulatory and lingering pandemic frictions (Italy B2C business is
largely point-of-sale at retailers that saw recurring pandemic
closures) was a credit positive. Capital intensity will also
improve as EUR200 million - EUR300 million of gaming license
renewals were required in the medium term for the B2C business.
Lottery Exposure a Credit Strength: About 75% of IGT's segment
EBITDA is generated by lotteries, which exhibit favorable
characteristics relative to other forms of gambling. Lottery, with
its broad appeal, exhibits less cash flow volatility and has
delivered stable low-to-mid single-digit growth rates. The industry
is less exposed to competitive threats seen elsewhere in the gaming
industry. Moreover, the industry has exhibited positive
spend-per-capita trends despite meaningful casino development over
the last 20 years, including in states that have legalized
traditional casino gaming. iLottery presents an additional growth
driver to the extent jurisdictions legalize.
Industry Leader: IGT is a market leader in lottery technology and
services and slots, although slots are subject to consistent
competitive pressure. The company ships about one-quarter of total
slots to U.S. casinos and provides draw lottery systems in most
U.S. states, including Texas, California and New York. IGT also
benefits from a solid market position in the Italian lottery and
video lotteries in Canada. Its slot market share has been under
pressure from other established competitors, and IGT's lottery
contracts are subject to renewals and extensions. IGT's less
cyclical lottery business provides diversification benefits from
the more competitive and volatile slot segment.
Considerable Cash Demands: IGT's considerable recurring cash
demands include concession renewal fees, the development of the
lottery terminals and slot participation games, all of which reduce
FCF. IGT also pays about $400 million of parent dividends and
distributions to minority holders annually. Discretionary FCF (CFFO
less capex) should exceed $500 million annually.
Slot Trends Stabilizing: IGT has seen its ship share and installed
base erode over the last decade as newer competitors invested
heavily in the U.S. market and increased scale, though stabilized
around 2017. Its current installed base of 48,527 as of Sept. 30,
2022 has benefited from healthy international growth and a
stabilizing level in North America. The average daily yields on
IGT's installed slots remains over $40 in the U.S. & Canada and
above pre-pandemic levels, while its international installed base
yield still has room to improve (about 70% of pre-pandemic levels).
Fitch expects slot sales to improve YoY in 2023 as gaming operators
remain financially sound to weather macro headwinds and increase
capex budgets.
Growing Digital Business: IGT operates as a B2B player in the
fast-growing U.S. digital gaming industry. The segment is
forecasted to generate $60 million in EBITDA in 2022, growing
toward $100 million by 2025 per Fitch's assumptions. Growth is
supported by continued adoption of IGT's offering in iGaming and
Sports Betting, but longer-term growth will require more igaming
legalization, increased IGT capabilities and geographic expansion.
Fitch expects EBITDA margins to operate in the low-30% range once
the market matures.
Recurring Revenues: About 80% of IGT's revenues are recurring in
nature, with the balance coming mostly from slot sales. These
revenues are largely based on percentage of end-user sales,
including participation in gaming machine wins and lottery sales.
The recurring revenues are dependent on the operating environment,
concession terms and the share of casino floor devoted to IGT
games.
Parent Subsidiary Linkage: Fitch applied the strong subsidiary/weak
parent approach under its Parent and Subsidiary Linkage Rating
Criteria. Fitch views the linkage as strong across IGT's entities
given the openness of access and control by the parent and relative
ease of cash movement throughout the structure. Fitch views the
entities on a consolidated basis, and the ratings are linked.
DERIVATION SUMMARY
IGT's rating reflects its conservative leverage profile, solid FCF
generation, and leading market position in the global lottery and
gaming equipment industries. This is balanced against the
competitive intensity for slot machines and the capital-intensive
nature of the lottery industry that could also require material,
upfront cash payments.
IGT's primary difference from its peers Aristocrat Leisure (ALL,
BBB-/Stable), Light & Wonder (LNW, BB/Stable), and Everi Holdings
(BB-/Stable) is that a majority of its cash flows are generated by
less cyclical lotteries. This results in slightly weaker FCF
generation, though still solid, when coupled with IGT's recurring
dividend and minority distributions. IGT is considered a top three
global gaming supplier with peers ALL and LNW, each generating a
higher degree of ship share than smaller peer Everi.
IGT's lottery exposure gives Fitch a slightly higher tolerance for
leverage relative to its US-rated peer set. IGT's rating is also
stronger than pure lottery peer Scientific Games Holdings
(B/Stable) due to meaningfully lower leverage, stronger FCF
margins, and better segment diversification.
The 'RR2' for IGT's secured debt reflects its designation as a
Category 2 first lien under Fitch's recovery criteria, given the
instruments are issued by non-US based borrower.
KEY ASSUMPTIONS
- Total revenues see a marginal decline in 2023 and grow by
single-digits thereafter. The decline is driven by a
pullback in lottery due to difficult YoY comps, asset
divestitures, and reduced gaming operations revenue amid
macro pressures. This is offset by the still recovering
gaming equipment sales and IGT's growing Digital segment;
- EBITDA margins approach low 40%-range longer-term thanks
to the divestiture of lower margin businesses and
structural cost savings implemented during the pandemic;
- Distributions to minorities consistent with historical levels;
- Capex averaging roughly 10% of revenues;
- Fitch assumes the Lottoitalia concession is renewed in 2025
at consistent terms and that this can be funded via
operating cash flow and excess liquidity.
- Shareholder returns are balanced between common dividends
and share repurchases (within the context of the currently
authorized buyback program).
- Debt paydown of less than $100 million in 2023 and flat
debt balances there after given the company's achievement
of its financial policy.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Gross debt/EBITDA declining below 3.5x;
- Stable or growing slot share, particularly in North America;
- New adjacencies (i.e. iLottery and Digital) achieving
meaningful
scale faster-than-anticipated.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Gross debt/EBITDA sustaining above 4.0x;
- The loss of a material lottery contract(s), meaningful market
share erosion, or a weakening of underlying lottery
fundamentals.
Meaningful, debt-funded upfront payments for lottery
concessions
could also impact the rating if not coupled with a credible
de-levering strategy;
- Slots business suffering from market share loss or the
deterioration of operating fundamentals.
Fitch could reassess IGT's leverage sensitivities should the
company's cash flow mix towards lottery meaningfully decline
resulting in IGT being more geared towards traditional gaming
equipment and digital segments.
If the secured notes and term loan are rated investment-grade by
certain combinations of rating agencies, the collateral would fall
away. If this were to transpire, the secured debt would be rated on
par with the IDR and receive no upward notching.
LIQUIDITY AND DEBT STRUCTURE
Solid Liquidity: IGT's liquidity is well-positioned between roughly
$400 million in cash (primarily operating cash) and $1.8 billion in
revolver availability as of Sept. 30, 2022. There are limited
near-term maturities given the company's proactive debt paydown as
it emerged from the pandemic and divested non-core operations.
Shareholder returns will be a cornerstone of capital allocation and
include a mix of dividends and share repurchases, though capped at
$400 million annually per restrictive covenants at the current
ratings levels (though could increase with certain ratings
improvement). IGT's cash flow from operations will be able to
sufficiently fund capex and shareholder return needs, while also
providing flexibility ahead of the Lottoitalia concession
expiration in 2025.
ISSUER PROFILE
IGT is a lottery and gaming equipment supplier. It is the leading
supplier for draw lottery in U.S and Italy, slots supplier in U.S.
and video lottery operator in U.S., Canada and Italy.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Recovery
----------- ------ --------
International Game
Technology plc LT IDR BB+ New Rating
senior secured LT BBB- New Rating RR2
IGT Lottery
Holdings B.V. LT IDR BB+ New Rating
senior secured LT BBB- New Rating RR2
PRO-MOTION HIRE: Sold to Pixipixel, 28 Jobs Saved
-------------------------------------------------
Stephen Chapman at Prolific North reports that the administrators
of Greater Manchester hire firm, Pro-Motion Hire say all 28 jobs
have been saved.
The company which specialised in hiring camera and lighting
equipment to the creative industry went into administration at the
start of the month, Prolific North relates.
According to Prolific North, the joint administrators from Quantuma
said it has been sold to London-based Pixipixel Rental limited.
"Pro-motion Hire is a high quality and well-established business
which suffered a significant reduction in trade during 2020 as a
direct result of the Covid pandemic. A number of large customers
put trading on hold whilst they followed the work from home
guidance," Prolific North quotes Joint administrator Andrew Watling
as saying.
"The business was slow to recover as lockdowns were lifted, and has
continued to struggle through 2022, exacerbated by a heightened
period of slow trade through school holidays and has been further
impacted due to unforeseen events including industrial action and
adverse weather conditions all reducing filming requirements.
"The joint administrators are delighted to have secured a sale for
the business, which not only saves all 28 jobs, but which also
represents an excellent outcome for all creditors."
SNOWDROP INDEPENDENT: Expected to Go Into Liquidation
-----------------------------------------------------
Harry Jamshidian at Western Telegraph reports that Bethan Evans,
business recovery partner at accountancy firm, Menzies LLP has
confirmed Snowdrop Independent Living is expected to go into
liquidation soon.
According to Western Telegraph, the retailer is said to have closed
all seven of its stores.
"Having suffered financial difficulties and having sought advice
from insolvency practitioners at Menzies LLP, regrettably Snowdrop
Independent Living Ltd has ceased trading on Jan. 30," Western
Telegraph quotes Ms. Evans as saying.
"All 37 employees have been made redundant with immediate effect.
Regrettably, due to the challenging trading conditions, the
business was failing to hit its revenue forecasts.
"We will continue to work with the directors to maximise value for
creditors."
At Snowdrop, 37 employees have reportedly been made redundant with
immediate effect, Western Telegraph discloses.
TOWD POINT 2020: S&P Lowers Class XA Notes Rating to CCC
--------------------------------------------------------
S&P Global Ratings lowered its credit ratings on Towd Point
Mortgage Funding 2020 - Auburn 14 PLC's class D-Dfrd notes to 'A
(sf)' from 'A+ (sf)', E-Dfrd notes to 'BBB+ (sf)' from 'A (sf)',
and XA-Dfrd notes to 'CCC (sf)' from 'B (sf)'. At the same time,
S&P affirmed its ratings on the class A, B-Dfrd, and C-Dfrd notes
at 'AAA (sf)', 'AA+ (sf)', and 'AA (sf)', respectively.
Since the transaction closed in 2020 the third-party fees have
increased, contributing to excess spread eroding. Currently no
excess spread is being generated. As a result, the class Z2
principal deficiency ledger (PDL) increased over the last year,
following principal borrowing to pay interest on the notes and
losses on repossessed properties.
S&P received notification from the issuer that the deal will not be
called on the February 2023 optional call date, therefore the step
up in note coupons -- coupled with higher third-party fees -- will
further pressure the transaction's liquidity.
When the first optional redemption date is not exercised, the
revenue waterfall changes so that excess revenue proceeds after
clearing any class Z1 and Z2 PDL amounts funds the excess cash flow
reserve. The issuer can use this to pay class B-Dfrd to E-Dfrd
interest shortfalls on or after the first optional redemption date.
All amounts deposited into the excess cash flow reserve fund that
are not applied to fund unpaid current interest amounts will remain
trapped in the reserve fund until the mezzanine floating rate notes
reduce to zero. Once the class E-Dfrd notes redeem it can be
applied to the principal waterfall. Since no excess spread is
currently being generated and because there is an increased cost of
funding resulting from the step up, it is unlikely the excess cash
flow reserve fund will be credited in the short to medium term.
S&P's credit and cash flow analysis indicates the credit
enhancement available for the class A, B-Dfrd, and C-Dfrd notes is
commensurate with our currently assigned ratings. S&P therefore
affirmed its ratings on these classes of notes.
Following the increase in third-party fees and the current lack of
excess spread in the transaction, our credit and cash flow analysis
for the class D-Dfrd and E-Dfrd notes indicates the available
credit enhancement is commensurate with a lower rating than those
currently assigned. S&P therefore lowered to 'A (sf)' from 'A+
(sf)' its rating on the class D-Dfrd notes and to 'BBB+ (sf)' from
'A (sf)' our rating on the class E-Dfrd notes.
S&P said, "The class XA-Dfrd notes did not pass our 'B' rating
level cash flow stresses in several cash flow scenarios. Therefore,
we applied our 'CCC' ratings criteria, to assess whether a 'B-'
rating or 'CCC' category rating would be appropriate and performed
a qualitative assessment of the key variables. We consider this
class currently vulnerable and dependent on favorable economic
conditions to pay ultimate principal, making a 'CCC' rating
appropriate. Following the first optional redemption date the
revenue waterfall changes; excess cash is trapped in the excess
cash flow reserve fund and will not flow to the class XA-Dfrd notes
to pay the remaining principal balance plus accrued interest until
the class E-Dfrd notes redeem. We have not lowered to 'CC' as we do
not expect default to be a virtual certainty. Upon exercise of the
call, the call option holder must fully repay the outstanding par
amount plus accrued interest, so the XA-Dfrd notes could be repaid
if the deal is called. It could also be paid upon legal final
maturity in the scenario interest rates remain high, generating
positive excess spread to reduce the Z2 PDL. Curing of the Z2 PDL
will create overcollateralization in the transaction, as certain
interest, fees, and payment holidays have been capitalized
historically. This overcollateralization can flow down the
principal waterfall to repay the XA-Dfrd notes."
Towd Point securitizes a pool of first-lien U.K. buy-to-let
residential mortgage loans originated by Capital Homes Loans Ltd.
===============
X X X X X X X X
===============
[*] BOOK REVIEW: Transnational Mergers and Acquisitions
-------------------------------------------------------
Author: Sarkis J. Khoury
Publisher: Beard Books
Softcover: 292 pages
List Price: $34.95
Order your personal copy today at http://is.gd/hl7cni
Transnational Mergers and Acquisitions in the United States will
appeal to a wide range of readers. Dr. Khoury's analysis is
valuable for managers involved in transnational acquisitions,
whether they are acquiring companies or being acquired themselves.
At the same time, he provides a comprehensive and large-scale look
at the industrial sector of the U.S. economy that proves very
useful for policy makers even today. With its nearly 100 tables of
data and numerous examples, Khoury provides a wealth of information
for business historians and researchers as well.
Until the late 1960s, we Americans were confident (some might say
smug) in our belief that U.S. direct investment abroad would
continue to grow as it had in the 1950s and 1960s, and that we
would dominate the other large world economies in foreign
investment for some time to come. And then came the 1970s, U.S.
investment abroad stood at $78 billion, in contrast to only $13
billion in foreign investment in the U.S. In 1978, however, only
eight years later, foreign investment in the U.S. had skyrocketed
to nearly #41 billion, about half of it in acquisition of U.S.
firms. Foreign acquisitions of U.S. companies grew from 20 in 1970
to 188 in 1978. The tables had turned an Americans were worried.
Acquisitions in the banking and insurance sectors were increasing
sharply, which in particular alarmed many analysts.
Thus, when it was first published in 1980, this book met a growing
need for analytical and empirical data on this rapidly increasing
flow of foreign investment money into the U.S., much of it in
acquisitions. Khoury answers many of the questions arising from the
situation as it stood in 1980, many of which are applicable today:
What are the motives for transnational acquisitions? How do foreign
firms plans, evaluate, and negotiate mergers in the U.S.? What are
the effects of these acquisitions on competition, money and capital
markets; relative technological position; balance of payments and
economic policy in the U.S.?
To begin to answer these questions, Khoury researched foreign
investment in the U.S. from 1790 to 1979. His historical review
includes foreign firms' industry preferences, choice of location in
the U.S., and methods for penetrating the U.S. market. He notes the
importance of foreign investment to growth in the U.S.,
particularly until the early 20th century, and that prior to the
1970s, foreign investment had grown steadily throughout U.S.
history, with lapses during and after the world wars.
Khoury found that rates of return to foreign companies were not
excessive. He determined that the effect on the U.S. economy was
generally positive and concluded that restricting the inflow of
direct and indirect foreign investment would hinder U.S. economic
growth both in the short term and long term. Further, he found no
compelling reason to restrict the activities of multinational
corporations in the U.S. from a policy perspective. Khoury's
research broke new ground and provided input for economic policy at
just the right time.
Sarkis J. Khoury holds a Ph.D. in International Finance from
Wharton. He teaches finance and international finance at the
University of California, Riverside, and serves as the Executive
Director of International Programs at the Anderson Graduate School
of Business.
*********
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-
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Copyright 2023. All rights reserved. ISSN 1529-2754.
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