/raid1/www/Hosts/bankrupt/TCREUR_Public/230411.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
Tuesday, April 11, 2023, Vol. 24, No. 73
Headlines
A U S T R I A
INNIO GROUP: Fitch Affirms LongTerm IDR at 'B', Outlook Stable
D E N M A R K
SAS AB: Takes Steps to Raise Equity, Seeks Bids as Part of Ch.11
F R A N C E
ECOTONE HOLDCO III: Moody's Affirms B3 CFR, Alters Outlook to Neg.
G E R M A N Y
OEP TRAFO: EUR360M Bank Debt Trades at 16% Discount
SYNLAB AG: Moody's Affirms 'Ba3' CFR & Alters Outlook to Stable
G R E E C E
MYTILINEOS SA: Fitch Hikes LongTerm IDR to 'BB+', Outlook Stable
H U N G A R Y
INT'L INVESTMENT: S&P Cuts ICR to 'BB+/B' Then Withdraws Rating
NITROGENMUVEK ZRT: Fitch Affirms 'B-' LongTerm IDR, Outlook Stable
I R E L A N D
EUROMAX V ABS: Fitch Hikes Rating on Class A2 Notes to 'BBsf'
GRIFFITH PARK: Moody's Affirms B2 Rating on EUR11.25MM E-R Notes
PLATFORM BIDCO: S&P Alters Outlook to Negative, Affirms 'B-' Rating
L U X E M B O U R G
EUROPEAN MEDCO: S&P Alters Outlook to Negative, Affirms 'B-' ICR
SAPHILUX SARL: S&P Affirms 'B-' Long-Term ICR, Outlook Stable
N E T H E R L A N D S
ICL FINANCE: EUR250M Bank Debt Trades at 6% Discount
S W E D E N
PREEM HOLDINGS: S&P Upgrades Rating to 'BB-', Outlook Stable
S W I T Z E R L A N D
COVIS FINCO: S&P Cuts ICR to 'SD' on Distressed Debt Restructuring
T U R K E Y
TURK HAVA: S&P Alters Outlook to Negative, Affirms 'B' LT ICR
U K R A I N E
UKRAINE: S&P Lowers FC LT SCR to 'CCC' on Debt Restructuring Plan
U N I T E D K I N G D O M
AMERICAN PIE: Enters Administration, Not Issuing Refunds
CD&R FIREFLY: Moody's Cuts Rating on GBP32.7MM 1st Lien Loan to B2
CURZON MORTGAGES: Fitch Assigns 'B+(EXP)sf' Rating to Class G Notes
CURZON MORTGAGES: S&P Assigns B- (sf) Rating on Class G-Dfrd Notes
EVERTON FC: Expresses Going Concern Doubt, In Funding Talks
LERNEN BONDCO: S&P Upgrades Long-Term ICR to 'B-', Outlook Stable
PEOPLECERT WISDOM: Moody's Hikes CFR to B1, Outlook Remains Stable
WYELANDS BANK: Censured by Bank of England for Regulatory Failings
[*] UK: Company Administrations Hit Three-Year High in March 2023
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A U S T R I A
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INNIO GROUP: Fitch Affirms LongTerm IDR at 'B', Outlook Stable
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Fitch Ratings has affirmed Austria-based reciprocating engine maker
INNIO Group Holding GmbH's (INNIO) Long-Term Issuer Default Rating
(IDR) at 'B' with a Stable Outlook. Fitch has also affirmed INNIO's
senior secured ratings at 'B+' with a Recovery Rating of 'RR3'.
The IDR remains constrained by INNIO's medium scale, niche-market
focus and limited product diversification. Rating strengths are
INNIO's global footprint and strong market position in gas-fired
power generation, end-market and customer diversification and
higher margin aftersales services supporting the group's revenue
stability and profitability.
Favourable long-term demand benefiting from de-carbonisation
industry trends supports business growth and deleveraging, with the
latter subject to a conservative financial policy. EBITDA gross
leverage of 5.9x at end-2022 is consistent with the rating, having
fallen from 8.1x at end-2020.
KEY RATING DRIVERS
Strong 2022 Results: INNIO turned in a solid operating performance
for 2022, with EUR1.65 billion revenue and EUR320 million
Fitch-adjusted EBITDA exceeding Fitch's expectations by 9% and 4%,
respectively. This reflected continued strong demand for services
and solid recovery in new equipment sales, which lifted overall
revenue around 12% above their pre-pandemic levels. This is
underpinned by a strong order backlog of EUR3.2.billion at
end-2022, which provides good revenue visibility.
Moderate Inflation Impact: INNIO's Fitch-adjusted EBITDA margin of
19.4% was around 100bp lower than its previous expectations, driven
by its business mix and moderate pricing pressure under the current
inflationary environment. Fitch expects the EBITDA margin to remain
broadly stable at around 19% in the short-to-medium term, due to a
less favourable product mix, as higher sales of new equipment
expected for 2023 from current backlog offset some pricing pressure
in the short-and- medium term.
Strong Cash Flows: INNIO's free cash flow (FCF) remains strong for
the 'B' rating category, at around 7% of revenue in 2022, despite
an increase in its interest burden. Fitch expects the FCF margin to
remain broadly stable at 5%-6% over the next three years, despite
higher interest-rate assumptions than in its previous forecasts and
assuming no significant volatility in working-capital (WC) and
capex requirements.
Expected Leverage Within 'B' Category: At end-2022, EBITDA gross
leverage remained at around 6x, down from 8.1x seen during the
pandemic in 2020, driven by a recovery in trading, stable WC and
capex needs and some debt repayment. Fitch expects INNIO's leverage
ratios to remain stable over the next two to three years, assuming
an unchanged conservative cash-deployment policy. Further sustained
deleveraging below 5.0x gross debt/EBITDA could result in upward
rating pressure.
Moderate Supply Chain/Inflation Risks: INNIO's supply chain is not
reliant on shipments of parts from war-affected regions and has
therefore seen no material disruptions. To date, INNIO has been
able to effectively navigate the high inflationary raw-material
cost environment, but continued global supply- chain constraints,
persistent volatility in oil & gas demand, and the moderate
capacity of INNIO to pass on higher costs, have been reflected in
its operating-margin expectations over the next three years.
Strong Niche Market Position: INNIO is the number one global
manufacturer in reciprocated power generation and number two in gas
compression engines in a sector with high barriers to entry. Its
market-leading positions are protected by proven technology and
reliability, low life-cycle costs, fuel efficiency and a
comprehensive service offering. Its good diversification by
end-customer and geography is weakened by a narrow product range
and its focus on a niche, albeit growing, market.
Positive Market Fundaments: The industry's shift towards
de-carbonisation, exemplified by zero carbon targets by 2050, means
that INNIO is well-positioned to capture market growth related to
the global energy transition to gas and hydrogen-led technologies.
INNIO's roadmap of its transition to full hydrogen next-generation
product capabilities, expected by 2025, and positive market
fundamentals support, and provide visibility to, its long-term
growth prospects.
DERIVATION SUMMARY
INNIO's closest competitors by product are Rolls-Royce Power
Systems (RRPS) and Caterpillar (CAT), both of which exhibit
stronger rating profiles than INNIO.
Caterpillar Inc. (A/Stable) benefits from the largest product
portfolio in the industry, which overlaps with some of more
competitive and less tailored product offering by INNIO. However,
in terms of rating comparison, Caterpillar benefits from larger
scale and truly global diversification, coupled with a financial
and funding structure that provides access to capital markets in
line with investment grade companies, therefore making comparison
to INNIO meaningless.
RRPS, fully owned by Rolls-Royce plc (BB-/Positive) benefits from
intra-company funding arrangements, and has significantly larger
scale and a business profile far more diversified than INNIO's,
both by geography, product offering and end-markets. However,
Rolls-Royce exhibited larger exposure to cycles as proven over the
pandemic as travel disruptions adversely impacted the operating and
financial metrics of the company. FFO margins (usually around 7%)
are lower than those of INNIO as a result of its exposure to a
wider range of more competitive end markets, albeit exhibits
greater volatility.
Similarly rated diversified industrials companies such as TK
Elevator Holdco GmbH (B/Negative), exhibit higher leverage and
weaker cash flows, but these factors are offset by a much better
business profile and scale and comfortable liquidity. Compared to
German gearboxes and generators manufacturer Flender International
GmbH (B/ Negative), INNIO has a superior profitability and cash
flow profile and slightly lower leverage, however these factors
offset lower scale and diversification which constraints the
rating.
Other peer private ratings in its portfolio that fall within the BB
rating category, have materially larger scale, stronger financial
profile and consistently generate superior FCF margins. This is
offset by a less diversified business profile (end-customer and
geography) than INNIO's.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Revenue CAGR of 5% for 2022-2025, driven by 6%-7% growth in new
equipment sales, with strong growth in 2023 and stable thereafter.
Organic growth in services of around 3% p.a., supported by an
enlarged installed base leading to more long-term service
agreements
- Contribution margin to remain around 36% over the next three
years, little changed from 35% in 2020, reflecting some pricing
pressure in the short-and-medium term
- Fitch-adjusted EBITDA margin to remain stable at around 19% to
2025
- WC requirements to lead to outflows of around 1% of revenue to
2025, in line with 2022's
- Total capex requirements to remain at 4%-5% of sales p.a. up to
2025. R&D to remain at 30%- 50% of total capex, supporting the
hydrogen transition, while maintenance capex remains stable at 1%
Recovery Assumptions:
Fitch estimates under its bespoke recovery analysis that a
going-concern approach will lead to higher recoveries for
creditors, given INNIO's long-term proven robust business model,
long-term relationship with customers and suppliers, and existing
barriers to entry in the market.
Fitch estimates a going-concern value for INNIO at around EUR1.25
billion (before deducting 10% for administrative claims), assuming
a post-reorganisation EBITDA of about EUR209 million at a multiple
of 6x. This reflects the company's premium market positioning and
adjusts for the value factoring drawdown of about EUR150 million
(as per Fitch criteria the highest amount drawn in the past 12
months). Its waterfall analysis generated a ranked recovery in the
'RR3' band, indicating a 'B+' rating for the senior secured debt.
The waterfall analysis output percentage on current metrics and
assumptions is 52% for the senior secured debt.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Improved business diversification through an expansion of the
product portfolio and successful transition to hydrogen
technologies
-Gross debt/EBITDA sustainably below 5x (2022: 5.9x)
- EBITDA margin above 18% (2022: 19.4%)
- FFO margin above 10% (2022: 13.9%)
- FCF margin above 5% (2022: 6.7%)
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Deterioration in trading leading to EBITDA margin sustainably
below 15%
- FFO margin sustainably below 8% and FCF margin sustainably below
3%
- EBITDA interest cover below 2x (2022: 3.4x)
- Gross debt/EBITDA sustainably above 7x
LIQUIDITY AND DEBT STRUCTURE
Satisfactory Liquidity: Fitch expects INNIO to have healthy
liquidity from 2023 onwards, driven by high cash generation and
lack of material scheduled debt repayments until 2025. Fitch
expects the business to remain highly cash-generative but assumes
higher taxes and working capital requirements for future growth to
reduce FCF to 6%-7% of revenue. Fitch treats EUR25 million of
reported cash as necessary for operating needs of the business
during the year and hence unavailable for debt servicing.
ISSUER PROFILE
INNIO is a manufacturer and services provider of mission-critical
solutions for power generation and gas compression. It operates
under two well-known brands, Jenbacher, which manufactures
reciprocating gas engines, and Waukesha, which produces gas
compression engines mainly for on-site power generation in oil and
gas fields and accounts for slightly above 20% of total revenue.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Recovery Prior
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INNIO Group
Holding GmbH LT IDR B Affirmed B
senior secured LT B+ Affirmed RR3 B+
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D E N M A R K
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SAS AB: Takes Steps to Raise Equity, Seeks Bids as Part of Ch.11
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Shivani Tanna and Bharat Govind Gautam at Reuters report that
Scandinavian airline SAS AB said on April 6 it had initiated steps
to raise equity and would seek bids as part of its ongoing Chapter
11 bankruptcy proceedings in the United States.
The embattled carrier filed for bankruptcy protection in the U.S.
last year, as it sought to slash costs and debt amid strikes from
pilots after wage talks collapsed, Reuters recounts.
According to Reuters, the airline, which earlier aimed to raise SEK
9.5 billion (US$911.20 million) in equity financing, now said the
final sum would be dependent on the bidding process and generation
of additional liquidity by the airline.
It expects "little or no recovery for subordinated unsecured
creditors and only a modest recovery for general unsecured
creditors due to anticipated debt reductions and the need for
substantial new equity capital."
SAS, whose biggest owners are Sweden and Denmark, said in a
statement that it expects revenues to return to pre-COVID levels in
fiscal year 2024, and reach up to about 58 billion Swedish crowns
for 2026, Reuters relates.
It also sees a significantly higher level of liquidity than the
previously expected 15% for 2023, Reuters notes.
About Scandinavian Airlines
SAS SAB, Scandinavia's leading airline, with main hubs in
Copenhagen, Oslo and Stockholm, is flying to destinations in
Europe, USA and Asia. Spurred by a Scandinavian heritage and
sustainable values, SAS aims to be the global leader in sustainable
aviation. The airline will reduce total carbon emissions by 25% by
2025, by using more sustainable aviation fuel and its modern fleet
with fuel-efficient aircraft. In addition to flight operations,
SAS offers ground handling services, technical maintenance and air
cargo services. SAS is a founder member of the Star Alliance, and
together with its partner airlines offers a wide network worldwide.
On the Web: https://www.sasgroup.net
SAS AB and its subsidiaries, including Scandinavian Airlines
Systems Denmark-Norway-Sweden and Scandinavian Airlines of North
America Inc., sought protection under Chapter 11 of the U.S.
Bankruptcy Code (Bankr. S.D.N.Y. Lead Case No. 22-10925) on July 5,
2022. In the petition filed by Erno Hilden, as authorized
representative, SAS AB estimated assets between $10 billion and $50
billion and liabilities between $1 billion and $10 billion.
Judge Michael E Wiles oversees the cases.
The Debtors tapped Weil, Gotshal & Manges, LLP as global legal
counsel; Mannheimer Swartling Advokatbyra AB as special counsel;
FTI Consulting, Inc. as financial advisor; and Seabury
Securities, LLC and Skandinaviska Enskilda Banken AB as investment
bankers. Seabury is also serving as restructuring advisor. Kroll
Restructuring Administration, LLC is the claims agent and
administrative advisor.
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F R A N C E
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ECOTONE HOLDCO III: Moody's Affirms B3 CFR, Alters Outlook to Neg.
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Moody's Investors Service has changed to negative from stable the
outlook on the ratings of ECOTONE HoldCo III S.A.S. ("Ecotone" or
"the company", formerly known as "Wessanen"), a European leading
provider of organic food. Concurrently, Moody's has affirmed the
company's B3 corporate family rating, the B3-PD probability of
default rating, and the B3 backed senior secured instrument ratings
on the EUR490 million first lien term loan and the EUR75 million
first lien revolving credit facility (RCF), both due in 2026 and
borrowed by Ecotone.
"The negative outlook reflects the company's weaker operating
performance in 2022 and Moody's expectations that any recovery in
profitability over the next 12-18 months will be weaker than
previously anticipated and challenged by the general high inflation
and low consumer sentiment that are exerting pressure on the
company's sale volumes and profitability, limiting therefore any
significant improvement in credit metrics that are likely to remain
weak over the next 12 to 18 months", says Valentino Balletta, a
Moody's lead analyst for Ecotone.
"The affirmation of B3 CFR reflects Moody's expectation that
liquidity, while tightening overtime because of moderately negative
FCF generation, will remain adequate in the next 12 to 18 months.
Failure to contain profit and FCF deterioration in 2023 resulting
in weakening liquidity could result, however, in a rating
downgrade", continued Mr. Balletta.
RATINGS RATIONALE
The change in the rating outlook to negative from stable reflects
Ecotone's current weak credit metrics and the risk that any
improvement in metrics to a level commensurate with its B3 rating
over the next 12-18 months will be challenged by the deteriorating
macroeconomic environment.
Following a strong performance in 2020 and 2021, supported by an
accelerated trend towards healthy eating during the coronavirus
pandemic and general high home food consumption, the company's
operating performance in 2022 has been severely impacted by high
inflationary pressure, time lag in passing through cost inflation
to consumers and by lower demand for organic premium products,
which is causing some inefficiency and underutilization of the
company's manufacturing plants, amplifying the negative impact on
its profitability. As a result, revenue during 2022 declined by 5%.
This was despite the 8% increase in prices to offset higher input
costs. Higher prices resulted in declining selling volumes,
especially in France and for specific categories, such as
plant-based drinks and meals and sweet in between. During 2022
Moody's adjusted EBITDA declined by 22% compared to a year earlier,
resulting in a very high financial leverage with a Moody's adjusted
leverage of 8.9x up from 6.9x in 2021, well above the maximum of
7.0x tolerated by the rating.
While Moody's expects Ecotone will continue to pass through price
increases to consumers to offset higher input costs, products sold
under these categories normally carry a significant price premium,
which expose the sector to greater cyclicality than traditional
food. Low purchasing power and consumer confidence stemming from
the current weak macroeconomic environment are expected to
negatively impact traffic at healthy food stores and demand for
organic products in general. As consumers are trading down from
premium organic products to private label or non-organic products,
Ecotone's volume will remain under pressure.
As a result, Moody's expects Ecotone's Moody's-adjusted gross
leverage to remain around 10.0x in the next 12 to 18 months, with
modest visibility on potential for improvements. This is very high
for its B3 rating and leaves the rating weakly positioned with very
limited room for further underperformance relative to
expectations.
The affirmation of the B3 CFR reflects Moody's expectation that
liquidity will remain adequate in the next 12 to 18 months and the
company will maintain its fundamental capacity to service its debt.
In addition, the company has some levers, such as suspending the
cash coupon on its shareholder loan instrument to limit the impact
on liquidity and prevent any further deterioration. However, the
decision to pay a dividend during 2022, at times of significant
deterioration in the company's cash generation, is seen as
aggressive by Moody's.
Ecotone's B3 CFR continues to be supported by the company's good
market positions, particularly in France which represented more
than half of its 2022 revenue; the supportive long term
fundamentals of the European organic and healthy food market,
despite recent headwinds; and a degree of geographical
diversification across Europe, outside its key French market.
However, these strengths are offset by the current high inflation,
spike in commodity prices and some delay in passing this on to
customers; increasing competition in the market, which could result
in gradual pricing pressure; and lower-than-peer operating margin,
which is partially because of Ecotone's strategy to outsource most
of the production to third-party manufacturers.
LIQUIDITY
Ecotone liquidity has deteriorated but is still adequate, supported
by EUR7 million of available cash as of December 2022 and full
availability on its EUR75 million RCF maturing in 2026. Moody's
expects the RCF to be partially drawn over the next 12 to 18 months
in light of the relatively low cash balance and expectation of
negative FCF generation of around EUR15 million in both 2023 and
2024, driven by weak operating performance, as well as higher
interest expenses. The company has hedged its interest rate on 50%
of its debt at a 0.75% cap, until 2023, but remains fully exposed
to the higher interest rates environment thereafter.
The RCF has only one springing covenant based on senior secured net
leverage not exceeding 9.2x, tested when the facility is drawn more
than 40%. Moody's expects Ecotone to maintain adequate headroom
under this covenant. The company has no debt maturities until
2026.
STRUCTURAL CONSIDERATIONS
The B3 ratings on Ecotone's EUR490 million first-lien term loan and
the EUR75 million first-lien RCF are in line with the CFR,
reflecting the fact that these instruments rank pari passu and
constitute most of the company's debt. These facilities benefit
from the same security package, comprising pledges over shares,
bank accounts and intercompany receivables, and are guaranteed by
operating companies of the group representing at least 80% of the
consolidated EBITDA. Moody's views these debt facilities as
unsecured because of the weak security package. Moody's assumes a
50% family recovery rate because of the covenant-lite structure.
The capital structure also includes a EUR85 million shareholder
loan entering the restricted group and being lent to ECOTONE HoldCo
III S.A.S., maturing more than six months after the term loan, to
which we have assigned 100% equity credit under Moody's Hybrid
Equity Credit methodology published in September 2018. However, the
company has the ability to service its coupon in cash.
RATIONALE FOR NEGATIVE OUTLOOK
Ecotone is weakly positioned in the B3 rating category. The
negative outlook reflects Moody's expectations that operating
performance will remain weak with uncertainties around the ability
to gradually improve profitability and cash generation from the
current weak levels in this challenging operating environment.
Failure to gradually improve operating profitability and limit
further deterioration in liquidity could result in downward
pressure on the rating.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive pressure on the rating over the next 12 to 18 months is
very unlikely but could materialize over time if the company
improves its profitability, leading to (1) Moody's-adjusted
debt/EBITDA below 6.0x on a sustained basis; (2) generate positive
free cash flow and maintain adequate liquidity. The existence of a
shareholder loan instrument in the restricted group limits
potential upward pressure on Ecotone's rating because of the risk
that this instrument may be refinanced with debt raised within the
restricted group.
Negative pressure on the rating could arise if (1) the company's
free cash flow generation remains persistently and highly negative,
including dividend payments under Moody's definition, resulting in
weakening liquidity; (2) its Moody's-adjusted debt/EBITDA remains
well above 7.0x on a sustained basis; (3) if its EBITA interest
coverage ratio, as adjusted by Moody's, remains below 1.0x; and (4)
the company engages in an aggressive acquisition or financial
policy which delay any improvement in credit metrics.
LIST OF AFFECTED RATINGS
Affirmations:
Issuer: ECOTONE HoldCo III S.A.S.
Probability of Default Rating, Affirmed B3-PD
LT Corporate Family Rating, Affirmed B3
BACKED Senior Secured Bank Credit Facility, Affirmed B3
Outlook Action:
Issuer: ECOTONE HoldCo III S.A.S.
Outlook, Changed To Negative From Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Consumer
Packaged Goods published in June 2022.
COMPANY PROFILE
Ecotone is a leading European food company with a clear focus on
organic and sustainable food products. The company operates across
several Western European countries, with France accounting for more
than half of its revenue in 2022, and holds a diversified portfolio
of brands, including Allos, Alter Eco, Bjorg, Bonneterre, Clipper,
Isola Bio, KallA¸, Tanoshi, Whole Earth and Zonnatura. The group
focuses on six main product categories, including plant-based
drinks, sweets, veggie meals, hot drinks, bread and biscuit
alternatives, and breakfast cereals. In 2022, Ecotone reported
revenue of EUR688 million and EBITDA of EUR69.6 million. Since
2019, Ecotone is controlled by funds managed by private equity firm
PAI Partners, which hold approximately 60% of the company, with the
remainder owned by Mr. Charles Jobson, alongside with management.
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G E R M A N Y
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OEP TRAFO: EUR360M Bank Debt Trades at 16% Discount
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Participations in a syndicated loan under which OEP Trafo BidCo
GmbH is a borrower were trading in the secondary market around 84.4
cents-on-the-dollar during the week ended Friday, April 7, 2023,
according to Bloomberg's Evaluated Pricing service data.
The EUR360 million facility is a Term loan that is scheduled to
mature on July 18, 2024. The amount is fully drawn and
outstanding.
OEP Trafo BidCo GmbH manufactures electrical equipment. The
Company's country of domicile is Germany.
SYNLAB AG: Moody's Affirms 'Ba3' CFR & Alters Outlook to Stable
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Moody's Investors Service has affirmed the Ba3 long-term Corporate
Family Rating and Ba3-PD Probability of Default rating of Synlab AG
(Synlab). Moody's has also affirmed the B1 ratings of the EUR500
million senior unsecured revolving credit facility and the EUR735
million senior unsecured term loan A both issued by Synlab AG.
Concurrently Moody's affirmed the Ba2 rating of the guaranteed
senior secured term loans issued by Synlab Bondco PLC. The outlook
on both entities has been changed to stable from positive.
RATINGS RATIONALE
The outlook change to stable from positive reflects Moody's
expectation that Synlab's credit metrics will no longer meet
Moody's requirements for an upgrade to a Ba2 over the next 12-18
months. This is primarily due to the expected weakening of its
earnings as a result of the steeper decline in Covid-19 testing
revenues than Moody's had expected when the agency changed the
outlook to positive back in April 2022 combined with higher
operating costs owing to inflation.
The company forecasts COVID-19 testing revenue to decline to around
EUR50 million in 2023, from EUR790 million in 2022, representing a
94% year on year decline. Given the high margins of COVID-19
testing activities, this will lead to an additional significant
squeeze on its margins on top of the higher operating costs caused
by inflation. As a service provider Synlab's largest costs are
personal expenses representing around 50% of its cost base. Since
prices are regulated by the different national healthcare
authorities, the ability to pass-on cost inflation to the payors is
limited. As a result, Moody's expects Moody's adjusted EBITDA
margin to decline towards 16% in 2023 from around 24% in 2022 and
20% in 2019. Based on these assumptions Moody's adjusted leverage
will increase towards 5.0x in 2023 from 2.8x in 2022, positioning
the company weakly within the Ba3 rating.
However, Moody's expects some improvement in earnings from 2024
onwards, which should support a gradual deleveraging to below 4.5x.
Excluding COVID-19 testing activities Moody's forecasts continued
positive organic growth in the low to mid-single-digit percentages.
Moody's also expects the company to continue driving cost-saving
measures as part of its SALIX programme, which will help limit the
impact from cost inflation. The company forecasts a margin increase
of at least a 0.5 p.p. per year in 2024 and 2025. Despite the
weaker earnings Moody's expects Synlab to continue to generate
solid free cash flow (FCF) on a Moody's adjusted basis of around
EUR80 million to EUR100 million per annum. M&A activities are
expected to slow down with around EUR100 million to be spent in
2023.
Synlab's ratings remain supported by its leading position in Europe
protected by strong barriers to entry, good geographic
diversification which limits its exposure to adverse changes in one
particular regulatory regime, and the defensive nature and positive
underlying fundamentals of clinical laboratory tests. Conversely,
the ratings are constrained by the continuous price pressure in the
industry which limits organic growth and drives the need to achieve
continued economies of scale and efficiency gains to protect
margins.
LIQUIDITY
Synlab's liquidity is good, supported by EUR542 million of cash on
balance sheet as of December 2022, a EUR500 million fully undrawn
senior unsecured revolving credit facility (RCF), expected positive
FCF over the next 12-18 months and no near-term debt maturities,
with the first maturity in 2026. The documentation of the term loan
and the RCF issued by Synlab AG includes a maintenance covenant
with a net total leverage test of less than 4.0x, tested every six
months. The headroom will tighten, but Moody's expects the company
to remain compliant with its test.
OUTLOOK RATIONALE
The stable outlook reflects Moody's expectation that the company's
credit metrics will gradually improve to levels commensurate with a
Ba3 rating from 2024. The stable outlook also assumes that the
company will maintain a good liquidity profile and a conservative
financial policy. The stable outlook does not factor in the
possibility of a binding offer by Cinven to take the company
private which Moody's would view as credit negative.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward rating pressure could develop if Moody's adjusted
debt/EBITDA declines to below 3.5x on a sustained basis, Moody's
adjusted retained cash flow/net debt remains sustainably above 20%
and the company maintains a good liquidity profile.
Downward rating pressure could develop if Moody's adjusted
debt/EBITDA increases above 4.5x on a sustained basis, Moody's
adjusted retained cash flow/net debt declines to below 15%, Moody's
adjusted free cash flow/debt declines to below the mid-single digit
area on a sustained basis or the liquidity deteriorates, and the
company adopts a more aggressive financial policy. A binding offer
by Cinven to take the company private would also lead to negative
rating pressure.
STRUCTURAL CONSIDERATIONS
The EUR735 million senior unsecured term loan A and the EUR500
million senior unsecured revolving credit facility issued by Synlab
AG and rated B1 are fully unsecured and do not benefit from any
guarantee from operating entities. In the waterfall analysis, they
rank behind the guaranteed senior secured term loans rated Ba2
issued by Synlab Bondco PLC. This is because the term loans issued
by Synlab Bondco PLC benefit from guarantees from operating
companies representing 50% of group's EBITDA and from a security
package including shares, bank accounts, receivables and
intercompany loans.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
Synlab, headquartered in Munich, Germany, is the largest clinical
laboratory and medical diagnostic service provider in Europe and
generated revenue of around EUR3.25 billion in 2022. The company
was listed for the first time in April 2021. As of March 2023, the
free float represented around 26% of total shares with the
remaining shares being owned mostly by the former shareholders
including Cinven, Novo Nordisk and OTPP. On March 13, 2023 Synlab
confirmed it had received a non-binding offer from Cinven to take
the company private.
===========
G R E E C E
===========
MYTILINEOS SA: Fitch Hikes LongTerm IDR to 'BB+', Outlook Stable
----------------------------------------------------------------
Fitch Ratings has upgraded Mytilineos S.A.'s (MYTIL) Long-Term
Issuer Default Rating (IDR) to 'BB+' from 'BB'. The Outlook is
Stable.
The upgrade is driven by its expectations of the group's solid
operating performance in 2023 and beyond, characterised by enlarged
operations due to growing exposure to the more stable and resilient
power & gas segment, and expected increased earnings from execution
of build-own-transfer (BOT) projects as well as other projects in
renewables. Moreover, Fitch expects a significant and sustained
improvement in EBITDA net leverage towards 1.5x by 2024 from
2.0x-3.0x in 2019-2021.
MYTIL's IDR continues to reflect its diversified business profile
and synergistic business model, self-sufficient metallurgy
operations with low unit costs. The rating also reflects its strong
and growing market position in domestic electricity, which provides
the group with sustainable cash flows and supports the upgrade.
KEY RATING DRIVERS
Performance Better Than Expected: MYTIL benefited during the EU
energy crisis in 2022 from its strong position in both the domestic
electricity market and as one of the largest importers of gas in
Greece, in natural gas supply. The successful execution of projects
in the sustainable engineering solutions (SES) and renewables &
storage development (RSD) divisions, in particular BOT, supported
increased EBITDA on top of strong earnings in power & gas.
While the 2022 EBITDA margin was broadly in line with its
expectations, materially higher revenue led to significantly better
leverage metrics versus its previous expectations. Fitch-defined
EBITDA net leverage fell to 1.1x at end-2022 from 2.9x at
end-2021.
Growing Exposure to Energy: The start of commercial usage of
MYTIL's new 826MW combined cycle gas turbine (CCGT) power plant in
2Q23 will materially increase current installed capacity in the
power & gas division. Together with development of solar projects,
this will further strengthen its domestic market share in
electricity production to about 20% in the medium term from 10.7%
currently. Growing penetration of the electricity market supports
the upgrade as it will be MYTIL's main source of fairly stable cash
flow generation.
Fitch forecasts the contribution from the power & gas division at
up to 50% in 2023-2026, versus 40% on average during 2019-2022. In
addition, MYTIL is actively developing its RES portfolio, in
particular solar farms it acquired in Greece in 2021, which should
also contribute to the group's expected increased earnings in power
& gas.
Large Capex Erodes FCF: Increasing installed capacity and execution
of RES projects in power & gas will nearly double capex to on
average at about 9% of revenue during 2023-2026, nearly twice its
historical level (excluding capex for the new CCGT plant). Fitch
forecasts this will drive MYTIL's free cash flow (FCF) into
negative territory over 2023-2026. Fitch projects FCF margins at
between -1% and -4% during 2024-2026, after -7% in 2023. Negative
FCF across the investment cycle is mitigated by MYTIL's expected
solid leverage metrics and healthy liquidity.
Low Leverage: Fitch forecasts EBITDA generation of over EUR900
million from 2023, supported by activity expansion in power & gas
as well as higher EBITDA, with reduced volatility from the
construction business. Fitch therefore expects MYTIL will be able
to maintain EBITDA net leverage at about 1.5x over 2023-2026,
supporting the upgrade.
Working-Capital Volatility: Fitch forecasts ongoing execution of
its BOT projects will lead to further working capital (WC) outflow
in 2023 of over EUR400 million. Together with high capex and
continuing dividend payment, this will erode the FCF margin to
about -7%. Nevertheless, Fitch expects the completion of
construction works under BOT projects and their further successful
sale to reverse WC outflows in 2024, followed by normalising WC
from 2025.
Construction Margins Continue to Rise: Profitability in both the
SES and RSD divisions for 2022 materially exceeded its previous
expectations. Fitch has revised up its forecast for EBITDA margin
to on average of about 16% for RSD and 14% for SES over 2023-2026.
Margins in RSD will be supported by the successful execution of BOT
projects, which usually have double-digit margins, versus
single-digit margins for solar power plants developed for third
parties. SES profitability will be supported by the execution of
more complex sustainable projects (solid and liquid waste
management, infrastructure, energy efficiency project).
Entering Concessions: In addition to its established RSD and SES
businesses, MYTIL is planning to participate more actively in
concessions for infrastructure projects, primarily in the domestic
market. This will absorb cash at the early stages, but will provide
the group with stable income once the construction is completed,
which Fitch views positively. All debt for the concessions will be
non-recourse for the group. Joining the concession business
provides the group with further diversification and expected
recurring dividends, which Fitch expects to start after 2026, is
credit positive, in its view.
Resilient Metallurgy Performance: Despite a drop in the price of
aluminum since 1Q22, MYTIL was able to report healthy performance
for 2022 in its metallurgic division. In 2023 Fitch expects the
division's EBITDA will be broadly flat, underpinned by aluminum
premiums received by the company, having hedged its 2023 volumes at
a favourable price. Fitch forecasts a normalisation of the
metallurgy division's EBITDA for 2023-2026 based on Fitch's
aluminum price deck.
Small-Scale, Low Cost Aluminum Unit: MYTIL is a small-scale,
single-plant aluminum producer, which operates across the value
chain. Its own alumina production covers more than 100% of its
aluminum smelter needs and its self-sufficiency in bauxite is about
30% of its total alumina refining needs. CRU estimates that MYTIL's
alumina refinery and aluminum smelter are positioned in the first
quartile of the global cost curve. Fitch expects MYTIL to remain
cost-competitive, supported by its new initiative to fully meet its
electricity needs from own renewable energy sources and other
parties by 2025.
DERIVATION SUMMARY
Given the diversified nature of MYTIL's operations, Fitch compared
the group's separate business units with the most relevant
companies that operate in the metallurgy, utilities and
construction industries.
Metallurgy: MYTIL's metallurgy business benefits from a competitive
cost base positioned in the first quartile of the global aluminum
cost curve, partial self-sufficiency in bauxite, in-house anode
production and a captive power plant that produces steam for
alumina production. However, its small scale in comparison with
Alcoa Corporation (BBB-/Stable) and China Hongqiao Group Limited
(BB+/Stable), single-asset base and low exposure to
value-added-products constrain the group's business-profile
assessment.
Power & Gas: MYTIL is the largest independent power producer in
Greece and second-largest power producer after state-owned Public
Power Corporation S.A. (PPC; BB-/Stable). It operates high-quality
assets that are strongly positioned at the front end of the merit
order. MYTIL benefits from gas-fired plants of the highest
efficiency in Greece as well as from available installed capacity
of renewables which it plans to expand. Expected material capex
over 2023-2026 and challenging market regulation in Greece are key
constraining factors. MYTIL is comparable with other EMEA
electricity generation companies, including PPC, Drax Group Holding
Limited (BB+/Stable) and Bulgarian Energy Holding EAD
(BB+/Stable).
RSD and SES Businesses: MYTIL has a fairly strong position in the
niche segment of energy-project construction with a long record and
historically solid order backlog, which provides revenue visibility
over the medium term. However, the business-profile assessment
remains constrained by its small scale in comparison with Ferrovial
S.A. (BBB/Stable), Petrofac Limited (B+/Negative) and Webuild
S.p.A. (BB/Stable), and by a somewhat concentrated project
portfolio and customer base. Fitch views positively reduced
exposure to developing markets. MYTIL's continued expansion into
solar power and growing presence in infrastructure projects should
improve diversification by business segment and will provide the
group with solid cash generation once the projects are successfully
delivered.
KEY ASSUMPTIONS
- Fitch's aluminum price deck at USD2,500/tonne in 2023-2025 and
USD2,000/tonne in 2026
- US dollar/euro at 0.95 over the next four years
- Aluminum production increases to 241kt in 2023
- Material contribution to EBITDA from the new CCGT power plant
from end-2Q23
- EBITDA margin at about 12% in 2023 and rising towards 15% by
2026
- WC volatility driven primarily by RSD and SES businesses. Fitch
forecasts outflow of about EUR430 million in 2023, followed by WC
reversal in 2024 mainly due to the execution of BOT projects. Fitch
forecasts normalisation of WC volatility from 2025
- High capex in 2023-2026, primarily reflecting the development of
RES projects. Total capex at about EUR3.2 billion during 2023-2026
- Dividends payment of about EUR170 million in 2023, followed by
pay-out ratio of 35% to 2026
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Net debt/EBITDA below 1.0x on a sustained basis
- Commitment to a conservative financial policy
- Enhancement of the group's diversification by the timely delivery
of the projects in power and construction business and improvement
of cash flow stability through PPAs in new RES projects
- Neutral to positive FCF
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Net debt/EBITDA above 2.0x on a sustained basis
- Failure to deliver the growth projects largely on time and on
budget leading to weaker credit metrics and much lower than
anticipated contribution from more stable power business
- Materially negative FCF
- Weak performance on major contracts with a material impact on
profitability
LIQUIDITY AND DEBT STRUCTURE
Healthy Liquidity: At end-2022, MYTIL had EUR1 billion of
Fitch-defined readily available cash, which was more than
sufficient to cover its short-term debt repayments and expected
negative FCF of around EUR560 million in 2023. One of the group's
EUR500 million bonds mature in November 2024, which Fitch believes
it will successfully refinance. Available undrawn credit facilities
at end-2022 of around EUR0.7 billion with maturity over one year
provide an additional cash buffer.
Fitch forecasts FCF to improve from 2024, albeit still negative
until 2026. It is mitigated by MYTIL's expected solid readily
available cash.
Debt at end-2022 was mainly represented by bonds of EUR1 billion or
53% of Fitch-defined total debt. About 18% of debt or EUR353
million was to Greek banks. MYTIL has limited exposure to Credit
Suisse with its share in outstanding total debt of about 4% at
end-2022.
ISSUER PROFILE
MYTIL is a Greek-domiciled diversified industrial group that
operates in metallurgy (32% of 2022 EBITDA), power generation and
supply (45%), RSD (12%) and SES (11%). MYTIL is the only
self-sufficient bauxite mining, alumina refinery and aluminum
smelter in the EU.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Mytilineos S.A. LT IDR BB+ Upgrade BB
senior
unsecured LT BB+ Upgrade BB
senior
unsecured LT BB+ Upgrade RR4 BB
Mytilineos
Financial
Partners S.A.
senior
unsecured LT BB+ Upgrade RR4 BB
=============
H U N G A R Y
=============
INT'L INVESTMENT: S&P Cuts ICR to 'BB+/B' Then Withdraws Rating
---------------------------------------------------------------
S&P Global Ratings lowered its long and short- issuer credit
ratings on the International Investment Bank (IIB) to 'BB+/B' from
'BBB-/A-3'. S&P then withdrew the issuer credit ratings at the
bank's request. The outlook was negative at the time of the
withdrawal.
Prior to the withdrawal, the negative outlook reflected S&P's view
that the IIB's policy relevance could weaken over the next 12
months if it cannot reposition its public policy role and mandate
under the changing shareholder structure and now limited
geographical reach. It also reflected our view that the IIB's
financial risk profile could come under pressure from a material
deterioration in asset quality, a disruption to counterparts'
payment abilities that depleted the IIB's liquidity buffers, or if
the bank was unable to regain a recurring presence in funding
markets, which could signal risks to the viability of its business
model.
S&P Said, "The downgrade reflects our weaker assessment of the
IIB's capital position following our estimation of extraordinary,
realized losses last year. These reduced our risk-adjusted capital
(RAC) ratio to 21.5% at year-end 2022, from 23.3% one year earlier.
In its financial accounts for first-half 2022, released Feb. 27,
2023, we observe a material drain on equity. We estimate that parts
of the unrealized currency-related losses will have been reversed
in second-half 2022, on the back of market swings in unhedged
exposures, but still estimate that the IIB will have suffered
substantial realized losses in 2022. These relate to assets
divested at discount, the provisions the IIB booked on its Russian
lending, and material extraordinary losses on its derivatives
portfolio. We assess that the reduction in our total adjusted
capital assessment, the numerator in our RAC ratio, has outweighed
the effects of the bank's substantial deleveraging in 2022. We
estimate the latter corresponded to a 50% reduction in its loan
book to EUR650 million at year-end 2022 from EUR1,300 million in
2021.
"We view the bank's enterprise risk profile as very weak and
consider its changing shareholder composition will require
significant strategic pivoting to avoid a complete depletion of its
policy mandate. In our view, the IIB's strategic repositioning
faces several challenges, potentially impacting the success of its
execution, and accentuating risks around the bank's longer-term
policy function. We believe that the future direction of the bank's
operations, following an anticipated fundamental re-invention of
strategy, could take time to crystalize. Therefore, we expect the
IIB's balance sheet to further reduce in 2023 because its loan book
holds natural amortization at about EUR125 million that we believe
will outweigh any volumes of new disbursements over the year. On
top of its generic amortization, we also consider it likely that
the IIB will explore possibilities to un-wind parts of its
outstanding lending in the outgoing shareholder jurisdictions of
Romania and Bulgaria, which together accounted for 35% of the loan
book at year-end 2022. Although medium-term risks to asset quality
remain, we recognize that the IIB currently holds no nonperforming
loans and maintains a loan book consisting exclusively of Stage 1
assets, including its Russia-domiciled lending.
"We view the IIB's liquidity position as sound and expect the bank
to be able to service its debt obligations, while institutional
changes regarding its policy mandate and shareholder structure
unfold. Through February 2023, the IIB has built liquidity by
liquidating loan and treasury assets, all at par values, lifting
our liquidity ratio to 1.13x over the one-year horizon and closing
the bank's funding gap. At Feb. 28, 2023, we estimate the IIB held
about EUR475 million in cash and short-term deposits, which are
funds immediately available at the bank's discretion. We assess the
IIB can cover its debt obligations in 2023, which we compute to
EUR458 million at Feb. 28, 2023, from its cash and short-term
holdings alone. In addition, an asset portfolio of about EUR315
million, invested in highly rated securities, adds to its liquid
asset base.
"We expect that the IIB, by virtue of its status as a multilateral
lending institution, will remain insulated from instances of
capital controls and enjoy access to open channels for cross-border
transactions, including from the Russian jurisdiction. That said,
we understand it currently has EUR40 million of funds blocked at
Euroclear, pertaining to a treasury asset liquidation in March 2022
made by the IIB's Russia-based custodian bank, which had come under
sanctions. We consider this an isolated incident and observe that,
since then, the IIB has executed trades via Euroclear and withdrawn
associated cash from those transactions without any issues."
NITROGENMUVEK ZRT: Fitch Affirms 'B-' LongTerm IDR, Outlook Stable
------------------------------------------------------------------
Fitch Ratings has affirmed Nitrogenmuvek Zrt's Long-Term Issuer
Default Rating (IDR) at 'B-' with a Stable Outlook. It has also
affirmed the senior unsecured rating at 'B-'. The Recovery Rating
is 'RR4'. Fitch has removed all ratings from Rating Watch Negative
(RWN).
The rating actions reflect the company's improved operational
performance and liquidity profile due to a successful navigation of
volatile markets. They also reflect its view that gas prices are
normalising as the EU is balancing its gas needs, mainly due to
sufficient LNG supplies and moderate demand reduction. The company
has sustained production since 4Q22 and continues to implement a
sound strategy, despite the challenges of its business model.
Nitrogenmuvek's ratings reflect its small scale with a single-site
operation, low geographical and product diversification, high
exposure to gas-price volatility and its position at the upper end
of the global ammonia cost curve as well as ownership
concentration. Rating strengths are its dominant market share in
Hungary as the only manufacturer of nitrogen fertilisers with a
focus on granulated calcium ammonium nitrate.
KEY RATING DRIVERS
Record Performance Despite Challenges: Fitch estimates that
Nitrogenmuvek generated record high EBITDA in 2022, despite the
extreme volatility in gas and fertiliser prices, which led to just
164 days of production. The company successfully navigated volatile
markets by operating the plant in a 'stop-start' manner; taking
advantage of periods when gas prices were lower to build inventory
that was sold when seasonal demand drove fertiliser prices higher.
Nitrogenmuvek also demonstrated its ability to adapt its gas
sourcing and production schedule to changing market conditions to
mitigate risks of unprofitable production and protect its
liquidity. Accumulated cash and the absence of dividends provided
sufficient resources to produce at times of relatively stable gas
prices and to restart the plant when needed.
Operational Uncertainty Eased: The fall in gas prices since the
peak of August 2022 reduces Nitrogenmuvek's cost of production and
improves fertiliser affordability for its customers. This supported
a restart of the plant in 4Q22 and sustained production since.
Fitch revised its EBITDA forecasts for Nitrogenmuvek in 2023
significantly upward, in line with the cut of its European gas
price average assumption to USD20/mcf from USD40/mcf.
However, Fitch expects gas prices to remain volatile in 2023,
leading to some production disruption this year, but see lower
execution risk than in 2022. Fitch expects Nitrogenmuvek to
continue managing inventory levels by balancing production and
sales to ensure seasonal demand can be met, while preserving
liquidity.
Softening Fertiliser Prices: Fertiliser shortage and high crop
prices enabled Nitrogenmuvek and most fertiliser companies to
expand margins in 2022, despite unprecedented production cost
volatility. Both fertiliser and crop prices have now eased and
Fitch expects them to further normalise in 2023 and 2024. Volumes
recovery will mitigate the normalisation of fertiliser margins, as
affordability will improve. In case of renewed gas price
escalation, Fitch believes that nitrogen assets in Europe may be
out of the money given higher fertiliser inventory levels.
Assumed Refinancing Despite Uncertainty: Fitch believes that the
company's good record of navigating the gas crisis and conservative
net leverage will support refinancing of its EUR200 million
outstanding bond due in May 2025. However, the volatility in gas
and fertiliser prices has led to significant fluctuations in
production premiums that hinder the reliability of financial
forecasting. Combined with difficult capital market conditions,
this may challenge Nitrogenmuvek's ability to refinance at
competitive terms.
Single Asset Risk: Production depends on Nitrogenmuvek's sole
ammonia plant, which exposes the company to operational risk. Fitch
sees this single asset structure as a significant constraint on the
stability of cash flow, even though it has been more stable since
the completion of the capex programme that ended in 2018, after a
period of recurring unplanned outages. This also exposes
Nitrogenmuvek to a single region that can be affected by local
weather or regional fertiliser affordability.
Price and Gas Cost Volatility: Nitrogenmuvek lacks the product and
geographical diversification of its international peers, and is at
the upper end of the global ammonia cost curve, which leaves it
more exposed to nitrogen price volatility than lower-cost
producers. It is also exposed to volatility in natural gas prices,
which can only be locked in once customers sign orders.
Fertiliser price volatility continues to be driven by gas costs,
weather patterns and uncertainties around global supply and trade
patterns. Moreover, plant maintenance must be performed every three
years for 30-45 days, which can reduce production by about 10% and
adds volatility to metrics.
Weak Corporate Governance: Nitrogenmuvek's rating factors in
ownership concentration. In April 2022, the Office of Economic
Competition imposed a fine of about HUF8.5 billion (about EUR23
million) due to allegations that Nitrogenmuvek infringed the
provision of the Law of Competition. An appeal process is ongoing
and payment of the remaining HUF7.1 billion (about EUR20 million)
is currently suspended, but could be paid in the coming years.
DERIVATION SUMMARY
Nitrogenmuvek has a significantly smaller scale and weaker
diversification than most Fitch-rated EMEA fertiliser producers.
This is slightly mitigated by its status as the sole domestic
producer of fertiliser and dominant share in landlocked Hungary,
with high transportation costs for competing importers. However,
its business model remains highly exposed to high natural gas
costs.
Among its wider peer group, Roehm Holding GmbH (B-/RWN), a European
producer of methyl methacrylate, is a much larger and diversified
company with a robust cost position in Europe, but is also exposed
to raw-material volatility and has higher leverage since its
acquisition by a private equity sponsor.
Root Bidco S.a.r.l. (B/Stable) has higher leverage than
Nitrogenmuvek and limited diversification, but it operates on a
larger scale. Root Bidco's rating also reflects the stability of
its business profile due to a focus on specialty-crop nutrition,
crop protection and bio-control products as well as its positioning
in higher-margin segments with favourable growth prospects.
Lune Holdings S.a r.l. (B/Stable) has similar asset concentration
and has yet to establish a record of stable production at a higher
operating rate. However, it has reduced its supplier dependency
with the construction of an ethylene terminal, and has direct
access to the Mediterranean Sea to reach export markets outside of
Europe. It also maintains conservative leverage with EBITDA gross
leverage consistently below 4x through the cycle despite
significant capex.
Italmatch Chemicals S.p.A. (B/Stable) has comparable EBITDA to
Nitrogenmuvek, but benefits from the earnings stability of a
speciality product portfolio across a wider range of end markets.
It also has operations in multiple regions compared to
Nitrogenmuvek's single-asset operation. Italmatch's rating is
constrained by its high leverage.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Fertiliser prices generally following Fitch's global fertiliser
and gas price assumptions to 2026
- Fertiliser sales volumes of 0.9mt on average in 2023-2026
- EBITDA margin of 12.6% on average in 2023-2026
- Capex at 3% of sales on average in 2023-2026
- Annual dividends of HUF5 billion in 2024-2026
KEY RECOVERY ANALYSIS ASSUMPTIONS
- The recovery analysis assumes that Nitrogenmuvek would be
liquidated rather than treated as going-concern (GC), as the
estimated value derived from the sale of the company's assets is
higher than its estimated GC enterprise value post-restructuring
- The liquidation estimate reflects Fitch's view of the value of
inventory and other assets that can be realised in a reorganisation
and distributed to creditors
- Property, plant and equipment is discounted by 65%; the value of
accounts receivables by 25% and the value of inventory by 50%, in
line with peers and industry trends and taking into account high
operational risk
- Its EUR200 million bond ranks pari passu with the company's bank
debt and the HUF7.1 billion fine liability
- After a deduction of 10% for administrative claims, its waterfall
analysis generated a waterfall-generated recovery computation
(WGRC) in the 'RR4' band, indicating a 'B-' instrument rating. The
WGRC output percentage on current metrics and assumptions was 42%.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- A material improvement in scale or diversification
- EBITDA gross leverage sustained below 4.5x and EBITDA net
leverage below 4.0x
- EBITDA margin sustained above 15%
- A successful refinancing of the bond with EBITDA interest
coverage maintained above 2x
- Industrial efficiency and stabilised market environment
supporting sustained production
- Development of a more robust corporate governance structure
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- A material deterioration in Nitrogenmuvek's liquidity profile due
to continuously high gas prices among other things, and the
company's inability to sell fertilisers at high prices leading to
plant shutdown for a protracted period or unprofitable operations
- Sustained EBITDA gross leverage above 6.0x and EBITDA net
leverage above 5.5x,
- Continuous deterioration in EBITDA margin to below 10%
- Sustained negative free cash flow
- EBITDA interest coverage below 1.5x
- Failure to refinance the EUR200 million bond at least six months
ahead of maturity
LIQUIDITY AND DEBT STRUCTURE
Manageable Liquidity, Volatile Working Capital: As at end-2022,
Fitch estimates that Nitrogenmuvek's available cash was HUF26
billion (about EUR70 million), after restricting HUF7.1 billion for
potential fine payments. The decrease in cash from end-2021 mostly
reflects significantly higher inventories in value and the absence
of meaningful customer prepayments in 4Q22. In its view,
Nitrogenmuvek has sufficient liquidity to cover annual debt service
of about HUF9 billion and fixed costs.
Concentrated Debt Maturity: About 85% of Nitrogenmuvek's debt will
mature in May 2025 when its EUR200 million bond is due. Fitch will
continue to monitor how management addresses the upcoming maturity,
especially in consideration of the higher interest rate environment
and the uncertain prospects for Europe-based nitrogen fertiliser
production assets in a volatile gas price environment.
ISSUER PROFILE
Nitrogenmuvek is a privately-owned producer of nitrogen fertilisers
based in Hungary.
SUMMARY OF FINANCIAL ADJUSTMENTS
For consolidated accounts closed on 31 December 2021:
- EBITDA and FFO were reduced by HUF181 million corresponding to
depreciation of right-of-use asset and lease-related interest
expense.
- Lease liabilities of HUF597 million were excluded from the
financial debt.
ESG CONSIDERATIONS
Nitrogenmuvek's ESG Relevance Score for Governance Structure of '4'
reflects its concentrated ownership and ongoing litigations over
alleged infringement of the provision of the Law of Competition,
which has a negative impact on the credit profile, and is relevant
to the ratings in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Nitrogenmuvek Zrt LT IDR B- Affirmed B-
senior
unsecured LT B- Affirmed RR4 B-
=============
I R E L A N D
=============
EUROMAX V ABS: Fitch Hikes Rating on Class A2 Notes to 'BBsf'
-------------------------------------------------------------
Fitch Ratings has upgraded Euromax V ABS PLC's class A2 notes and
affirmed the others, as follows:
Entity/Debt Rating Prior
----------- ------ -----
Euromax V ABS PLC
A2 XS0274616381 LT BBsf Upgrade Bsf
A3 XS0274616977 LT CCsf Affirmed CCsf
A4 XS0274617439 LT Csf Affirmed Csf
B1 XS0274617603 LT Csf Affirmed Csf
B2 XS0274617942 LT Csf Affirmed Csf
TRANSACTION SUMMARY
Euromax V is a securitisation of mainly European structured finance
securities that closed in 2006.
KEY RATING DRIVERS
Amortisation Increases CE: The portfolio has amortised by close to
EUR11.7 million since the payment date in February 2022, due to
principal repayments from RMBS assets. In particular, one Italian
RMBS asset issued by CORDUSIO RMBS SRL 3 and one UK issued by
CLAVIS 2006-1 paid down their outstanding principal of EUR10
million and EUR0.6 million respectively, resulting in significantly
higher credit enhancement (67.2% excluding the defaulted assets)
for the class A-2 notes, increasing by 27.6%. Furthermore, two UK
and two Dutch assets issued by NEWGATE FUNDING PLC 2006-3, RMAC
SECURITIES 2006-NS3X, and E-MAC NL 2008-1 amortised almost EUR1.1
million.
Deterioration in Credit Quality: The average credit quality of the
performing portfolio has deteriorated to 'BB'/'BB-' from
'BB+'/'BB'. This is mainly due to the EUR10 million paydown of a
'BBB' rated asset. Based on the performing portfolio, just over 50%
is rated in the investment-grade category ('BBB' or higher); 'BB'
rated assets represent 12.3%; 'B' assets 11.6%; and 'CCC' 19%.
The class A-2 notes' balance is covered by assets rated in the 'A'
category. The remaining notes are not fully covered by performing
assets. Even though defaulted assets are unchanged, the portfolio
concentration to defaulted assets increased by 12.8% during the
past year due to the paydown of performing assets.
Principal Used for Interest: Principal proceeds can be used to pay
interest on the class A-2 and A-3 notes. Over the past 12 months,
around EUR69,000 of principal proceeds have been used to pay
interest due on the class A-3 notes. This feature constrains the
rating of the class A-2 notes and is exacerbated when modelling a
rising interest rate scenario. Amortising assets currently
represent about 34% of the performing portfolio and upgrades may be
constrained by the amount of amortising assets.
Geographic and Asset Concentration: Following the EUR11.3 million
pay down by two issuers, the performing portfolio now comprises
only seven obligors with nine RMBS assets, of which 62.2% is
concentrated in the UK, and 37.8% is Dutch. Since one of the two
issuers that paid down is Italian, the portfolio is no longer
exposed to Italy. A rating cap of 'BBBsf' remains in place due to
the concentration to RMBS assets, although currently no ratings are
capped by this. The largest issuer now comprises 36% of the
performing assets.
Recovery on Defaulted Assets: As all of the assets within the
portfolio are non-senior tranches and the thickness is thin.
Consequently, recovery expectations for the portfolio are very
low.
CDO Structure and Cash Flow Analysis: Fitch used a proprietary cash
flow model to replicate the principal and interest waterfalls and
the various structural features of the transaction, and to assess
their effectiveness, including the structural protection provided
by excess spread diverted through the par value and interest
coverage tests. All the over-collateralisation tests are failing
and the class A4, B1 and B2 continue to defer interest.
Fitch derived an amortisation schedule assuming currently
amortising assets amortise linearly and the rest repay in one
bullet payment at their Fitch-adjusted maturity date, in accordance
with the applicable criteria. This resulted in a weighted average
life of 94 months.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
A 25% default multiplier applied to the portfolio's mean default
rate, and with this added to all rating default levels and a 25%
reduction of the recovery rate at all rating recovery levels, would
not impact the notes.
Downgrades may occur if build up of CE following amortisation does
not compensate for a higher loss expectation than initially assumed
due to unexpected high level of defaults and portfolio
deterioration. Fitch has tested the resilience of the transaction
towards a possible negative rating migration of the underlying
assets and the class A2 notes are resilient to this sensitivity
analysis.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
A 25% default multiplier applied to the portfolio's mean default
rate, and with this subtracted from all rating default levels and a
25% increase of the recovery rate at all rating recovery levels,
would lead to an upgrade to 'BBBsf' for the class A2 notes, and
would not impact the rest of the notes.
The senior classes could be upgrade if better than initially
expected portfolio credit quality and deal performance continues,
and amortisation leads to higher credit enhancement (CE) and excess
spread available to cover losses on the remaining portfolio.
Upgrades for the tranches rated 'CCsf' or below are currently not
expected, because these notes show negative CE.
DATA ADEQUACY
Euromax V ABS PLC
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.
Fitch did not undertake a review of the information provided about
the underlying asset pool ahead of the transaction's initial
closing. The subsequent performance of the transaction over the
years is consistent with the agency's expectations given the
operating environment and Fitch is therefore satisfied that the
asset pool information relied upon for its initial rating analysis
was adequately reliable.
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.
GRIFFITH PARK: Moody's Affirms B2 Rating on EUR11.25MM E-R Notes
----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by Griffith Park CLO Designated Activity Company
("Issuer"):
EUR20,500,000 Class A-2A Senior Secured Floating Rate Notes due
2031, Upgraded to Aa1 (sf); previously on Mar 31, 2021 Definitive
Rating Assigned Aa2 (sf)
EUR20,000,000 Class A-2B Senior Secured Fixed Rate Notes due 2031,
Upgraded to Aa1 (sf); previously on Mar 31, 2021 Definitive Rating
Assigned Aa2 (sf)
EUR31,400,000 Class B Senior Secured Deferrable Floating Rate
Notes due 2031, Upgraded to A1 (sf); previously on Mar 31, 2021
Definitive Rating Assigned A2 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR264,000,000 Class A-1A Senior Secured Floating Rate Notes due
2031, Affirmed Aaa (sf); previously on Mar 31, 2021 Definitive
Rating Assigned Aaa (sf)
EUR8,750,000 Class A-1B Senior Secured Floating Rate Notes due
2031, Affirmed Aaa (sf); previously on Mar 31, 2021 Definitive
Rating Assigned Aaa (sf)
EUR26,900,000 Class C Senior Secured Deferrable Floating Rate
Notes due 2031, Affirmed Baa3 (sf); previously on Mar 31, 2021
Definitive Rating Assigned Baa3 (sf)
EUR24,450,000 Class D-R Senior Secured Deferrable Floating Rate
Notes due 2031, Affirmed Ba3 (sf); previously on Mar 31, 2021
Affirmed Ba3 (sf)
EUR11,250,000 Class E-R Senior Secured Deferrable Floating Rate
Notes due 2031, Affirmed B2 (sf); previously on Mar 31, 2021
Affirmed B2 (sf)
Griffith Park CLO Designated Activity Company, originally issued in
September 2016 and last time refinanced in March 2021, is a
collateralised loan obligation (CLO) backed by a portfolio of
mostly high-yield senior secured European loans. The portfolio is
managed by Blackstone Ireland Limited. The transaction's
reinvestment period will end in May 2023.
RATINGS RATIONALE
The rating upgrades on the Classes A-2A, A-2B and B notes are
primarily a result of the benefit of the shorter period of time
remaining before the end of the reinvestment period in May 2023.
In light of reinvestment restrictions during the amortisation
period, and therefore the limited ability to effect significant
changes to the current collateral pool, Moody's analysed the deal
assuming a higher likelihood that the collateral pool
characteristics would maintain an adequate buffer relative to
certain covenant requirements. In particular, Moody's assumed that
the deal will benefit from a shorter amortisation profile, higher
weighted average recovery rate and lower weighted average rating
factor than it had assumed at the last review in September 2022.
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: EUR442.88 million
Defaulted Securities: EUR0
Diversity Score: 62
Weighted Average Rating Factor (WARF): 2969
Weighted Average Life (WAL): 4.26 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.77%
Weighted Average Coupon (WAC): 3.59%
Weighted Average Recovery Rate (WARR): 43.77%
Par haircut in OC tests and interest diversion test: 0%
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties, such as account bank and swap providers,
using the methodology "Moody's Approach to Assessing Counterparty
Risks in Structured Finance" published in June 2022. Moody's
concluded the ratings of the notes are not constrained by these
risks.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.
Additional uncertainty about performance is due to the following:
Portfolio amortisation: Once reaching the end of the reinvestment
period in May 2023, the main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales by the collateral manager or
be delayed by an increase in loan amend-and-extend restructurings.
Fast amortisation would usually benefit the ratings of the notes
beginning with the notes having the highest prepayment priority.
Weighted average life: The notes' ratings are sensitive to the
weighted average life assumption of the portfolio, which could
lengthen as a result of the manager's decision to reinvest in new
issue loans or other loans with longer maturities, or participate
in amend-to-extend offerings. The effect on the ratings of
extending the portfolio's weighted average life can be positive or
negative depending on the notes' seniority.
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.
PLATFORM BIDCO: S&P Alters Outlook to Negative, Affirms 'B-' Rating
-------------------------------------------------------------------
S&P Global Ratings revised the outlook on Platform Bidco,
Ireland-based food manufacturer Valeo Foods Group's parent entity,
to negative from stable and affirmed its 'B-' ratings on the
company and its senior secured first-lien term loan B due September
2028.
The negative outlook reflects the likelihood that S&P could lower
its ratings on in the next 12 months, if the group is unable to
clearly deleverage such that adjusted debt to EBITDA remained above
10x.
S&P said, "The negative outlook reflects the material deviation of
Valeo Foods' performance from our base case for fiscal 2023, due to
unexpected staffing issues at the U.K. snacking division, which
results in a material EBITDA decline and adjusted debt leverage of
well above 10x. For fiscal 2023, we now project slightly weaker
consolidated net sales of about EUR1.3 billion-EUR1.35 billion
(versus EUR1.37 billion-EUR1.40 billion before) and S&P Global
Ratings' adjusted EBITDA (after our projections of about EUR25
million of exceptional items) of EUR100 million-EUR110 million
(EUR180 million-EUR185 million before). We forecast negative FOCF
(after working capital, capital expenditure [capex], lease and cash
interest payments) of about EUR30 million-EUR35 million, versus our
previous expectation of positive EUR10 million-EUR20 million. This
translates into adjusted (gross) debt to EBITDA of about 15.0x,
significantly weaker than our previous expectations of 8.5x-9.0x.
Our adjusted debt metrics comprise the EUR1.38 billion in term
loans (senior secured first- and second-lien, revolving credit
facility [RCF] and second-lien acquisition facility drawdowns),
small local bank lines, EUR87 million of leases, EUR120 million of
factored trade receivables, and about EUR2 million in pension
liabilities.
"The lion share of the negative deviation from our previous base
case is linked to unexpected various operational issues, including
staffing shortages, weighing materially on production levels of the
group's U.K. snacking division (about 25% of group revenues). As a
result of the issues, the division's reported EBITDA decreased year
on year in the first nine months of fiscal 2023 by EUR26 million.
The company reported sizeable staff vacancy levels at three plants
in Northern England, peaking in September 2022 and decreased
considerably in February 2023. Valeo Foods is also reporting lower
attrition rates, which if sustained should translate in production
levels rebounding in the coming quarters. In addition, like other
food producers the company suffered from general cost inflation
weighing on margins of the remaining business divisions. For
example, Valeo Foods reported weaker results in the U.K.'s grocery
division. Positively, outside the U.K., overall EBITDA remained
broadly stable, supported by ongoing demand and price increases the
company initiated throughout the year.
"We see EBITDA rebounding in fiscal 2024 thanks to price increases
and U.K. staff recruitment, but there is limited room for
underperformance of our base case of adjusted debt to EBITDA at or
slightly below 10x and positive FOCF. For fiscal 2024, we project
net sales growth of about 7%-8% and improving EBITDA generation
(after our projections of about EUR13 million exceptional items)
toward EUR160 million-EUR165 million, thanks to improving
production levels and volumes in the U.K. snacking division,
broad-based price increases, and reducing commodity and packaging
costs. This should help reduce debt leverage to about 10x or below,
with modest positive FOCF (after lease payments) of EUR10
million-EUR15 million, assuming prudent working capital management
and capex. FOCF generation in fiscal 2024 hinges on the realization
of tangible benefits from the company's planned working capital
management initiatives that should lead to inflows of about EUR30
million. These should help offset our expectation of further
increase in the debt interest burden, which for fiscal 2023 we
estimate at about EUR95 million, due to rising base rates and
hedging costs. We note that the company has hedged a sizable
portion of its principal amounts of first- and second-lien debt,
but is still exposed to some extent to further base rate increases
in Europe and the U.K., which constrains a potential strong rebound
in FOCF generation."
During fiscal 2023, Valeo Foods' costs increased considerably due
to inflation. It managed to offset these largely with price
increases during the year. The company reportedly managed to
achieve further price increases in recent negotiation rounds with
retailers in main markets (notably Germany, Italy, Czech Republic,
the U.K., and Canada), which we expect to support revenue growth in
fiscal 2024. S&P said, "Positively, we observe some commodity
(except sugar and glucose) and packaging cost decreases from peak
levels in mid-2022, which could support both EBITDA margin and free
cash flow recovery prospects over fiscal 2024. In addition, we see
some upside potential to our base case from recent commodity and
packaging cost reductions and planned group procurement
initiatives, which previously have been done locally, but
management looks to centralize."
S&Ps aid, "We see risk to our forecasts in the coming quarters,
particularly from declining volume growth prospects in the Western
European packaged foods sector, amid weakening consumer sentiment
in the high inflationary environment. According to Euromonitor
International, the broader core Western European packaged foods
sector volumes are expected to decline by about 1% in 2023, with a
similar decline in the confectionery, savory and sweet snacking
categories (which we estimate as normally close to half of the
business). This is in the context of the very high inflationary
environment that is weighing on consumer confidence. Even beyond
2023, the projected volume growth in the categories is very low at
about less than 1% per year through 2027, given the maturity and
demographic trends in the region.
"Although Valeo Foods operates in the ambient food category that is
relatively noncyclical and generates about 40% of revenue from
private label sales, we see the group's branded business as exposed
to some extent to downtrading and more broadly its volume growth
prospects as affected by weak consumer spending, notably in the
U.K. We believe declining volumes would likely offset the expected
rebound in EBITDA of the U.K. snacking division, which given the
sizeable of the company's debt burden, could prevent it from
posting positive FOCF generation and reduce adjusted debt to EBITDA
sustainably below 10x by the end of March 2024.
"In our ratings and outlook, we factor in the company's adequate
liquidity, with no near-term refinancing risks, which allow
sufficient time for management to turn around the U.K. snacking
business' performance. Our assessment of Valeo Foods' liquidity is
underpinned by the good cash balance of about EUR65 million (as of
Dec. 31, 2022) and EUR116 million available committed undrawn RCF
(out of EUR180 million original commitment) not due until March
2028. At this stage, we note that the company does not face
refinancing risks until 2028 when its EUR180 million RCF (in March)
and approximately EUR1.08 billion first-lien senior secured term
loan B (in September) are due. This affords the management team
time to tackle current challenges, notably the very elevated debt
burden.
Although the company drew down completely the revolver in March
following the global banking sector volatility, the company
maintained solid cash balances of over EUR180 million (as of March
31) and passes with good headroom the springing covenant (set at
net senior secured debt leverage of 10x) under its RCF. We
understand the company retains full access to its committed
facility.
S&P said, "Based on current trading, we expect the company will end
up with a net senior secured debt ratio of close to 7.5x (in
company-reported terms), which affords it significant headroom
under the covenant. In our forecasts, we have not incorporated any
acquisitions beyond the Bernard maple syrup maker in Canada that
closed in May 2022, and consider this an event risk for the
ratings. This is because of the company's current trading and debt
leverage, tough financing conditions globally, and limited
visibility on market activity. That said, we believe over time
Valeo Foods will likely remain acquisitive under a new ownership to
drive enterprise value growth, in line with its historical trends
and strategy.
"The negative outlook reflects the likelihood that we could lower
our ratings on Platform Bidco in the next 12 months if the company
underperformed relative to our base case.
"We could lower our ratings on Platform Bidco to 'CCC+' if adjusted
debt to EBITDA remains elevated at above 10x by end-March 2024 with
no prospects for rapid improvement or if FOCF remains largely
negative. This could arise if the turnaround initiatives at the
U.K. snacking division failed to result in tangible benefits and a
sizeable rebound in EBITDA. This would also likely stem from a
broad-based volume decline across categories and geographies amid
weaker consumer confidence."
A large negative FOCF generation could stem from the group's
inability to control working capital, which in turn would weaken
its liquidity.
S&P said, "We would view negatively the group entering into a
sizeable debt-funded acquisition, since this would put into
question the group's debt deleveraging path and limit management's
ability to focus on turning around its U.K. snacking division.
"We could revise our outlook to stable over the next 12 months, if
the company's operating performance improved such that debt to
EBITDA decreases to well below 10x on a sustained basis and FOCF
turns positive."
This would notably stem from resilient volume demand across Valeo
Foods' product categories together with a continued ability to
protect profitability with price increases, and a strong and
sustainable rebound in the EBITDA generation from the U.K. snacking
division showcasing a successful turnaround of these operations by
the management team. S&P would also view positively a demonstrated
ability to manage working capital volatility to support a lasting
return to positive FOCF generation.
ESG credit indicators: E-2, S-2, G-3
===================
L U X E M B O U R G
===================
EUROPEAN MEDCO: S&P Alters Outlook to Negative, Affirms 'B-' ICR
----------------------------------------------------------------
S&P Global Ratings revised its outlook on European Medco
Development 3 S.a.r.l. (operating as Axplora) to negative from
stable and affirmed its 'B-' long-term issuer credit and issue
ratings on the company and its debt.
The negative outlook reflects S&P's view there is at least a
one-in-three chance that we could lower the rating over the next 12
months if Axplora's anticipated operating improvements do not
materialize, pushing the earnings and cash flow rebound past the
end of FY2024 and potentially creating an unsustainable capital
structure.
S&P said, "The outlook revision reflects the material deviation in
credit metrics for FY2023 and FY2024 from our previous base case.
Novasep's contract development and manufacturing (CDMO) business'
unexpectedly weaker performance leads us to forecast Axplora's S&P
Global Ratings-adjusted debt-to-EBITDA ratio will reach 9.5x in
FY2023 and roughly 8.0x in FY2024. In our view, this represents a
significant departure from our previous anticipation of
deleveraging to slightly below 7.0x in FY2024.
"The elevated leverage results from revenue losses from one of
Novasep's largest revenue contributors, highly purified omega-3. At
the same time, its weaker operating cash flow generation led it to
increase debt funding to cover the cash shortfall. We could foresee
an increased risk of an unsustainable capital structure if there
are further operating obstacles which pressure a relatively low
EBITDA base.
"We understand management is currently working with its main U.S.
customer to find a solution to the revenue losses. But the timing
and size of the financial impact of this remediation will remain
highly uncertain for the next 12-24 months. Consequently, we assume
no additional sales related to its omega-3 product for the
remainder of FY2023 and forecast a relatively limited revenue
contribution for FY2024 onward. Despite healthy demand growth for
Axplora's core products such as steroids, meselazine (5-ASA), and
amino acids, we now forecast the company's adjusted EBITDA will
reach EUR85 million-EUR90 million in FY023 and EUR100
million-EUR105 million in FY2024.
"We now anticipate significant negative free operating cash flow
(FOCF) in FY2023, gradually turning positive in FY2025 due to
management's focus on working capital and disciplined capital
expenditure (capex). The company burned cash throughout the first
nine months of FY2023 with reported FOCF (including tax and
interest payments) reaching negative EUR49 million. This was mainly
driven by significantly high working capital and interest expenses.
We do not forecast significant improvements in the group's overall
inventories for the remainder of FY2023. This is because we believe
there will be a slow reduction in the group's highly purified
omega-3 product inventory until the product stock at its U.S.
customer normalizes, in line with management's expectation.
Overall, we now forecast significant negative working capital
outflows of close to EUR40 million in FY2023 before declining to
EUR5 million–EUR10 million in FY2024 in line with sales growth.
We note management is committed to improving cash flow generation,
supported by its disciplined capex and flexibility to postpone its
growth project without harming the growth trajectory. Regardless,
we now forecast FOCF will remain negative over the next 12-24
months before improving to substantially positive in FY2025.
"Nevertheless, we believe the company's liquidity position remains
adequate. With cash of about EUR35 million on the end of third
quarter FY2023 and EUR72.5 million of the senior secured revolving
credit facility (RCF) available, we believe the company's liquidity
position remains sufficient to service debt and fund any operating
shortfalls. Liquidity is also supported by the long maturity of
Axplora's debt with the senior secured RCF due in 2026 and senior
secured term loan B (TLB) in 2027.
"The negative outlook reflects our view there is at least a
one-in-three chance we could lower the rating over the next 12
months if Axplora's anticipated operating improvements do not
materialize, pushing the earnings and cash flow rebound past the
end of FY2024 and potentially creating an unsustainable capital
structure.
"We could lower the rating if Axplora's operating performance
deviated materially from our forecasts. This could stem from a
continued underperformance in its Novasep CDMO business, weakening
demand for its products, and greater difficulty in passing through
cost increases. As a result, we do not see a path for significant
deleveraging, leading to our view of an unsustainable capital
structure. We could also take a negative rating action if the FOCF
deficit in the forecast years is worse than we expect, such that it
jeopardizes the company's liquidity position.
"We could revise the outlook to stable if we think Axplora's
deleveraging path is on track to close to 8.0x and its liquidity
remained adequate with improving cash flow prospects. Additionally,
we would expect Axplora's financial policy, especially on
shareholder distributions and acquisitions, to continue supporting
the current rating."
ESG credit indicators: E-2, S-2, G-3
SAPHILUX SARL: S&P Affirms 'B-' Long-Term ICR, Outlook Stable
-------------------------------------------------------------
S&P Global Ratings affirmed its 'B-' long-term issuer credit rating
on Luxembourg-based investor services provider Saphilux S.a.r.l.
(IQ-EQ), and its 'B-' issue rating on the company's senior secured
first-lien term debt.
The stable outlook reflects S&P's view that IQ-EQ will continue to
grow organically and through acquisitions while generating positive
FOCF.
IQ-EQ continues to reduce leverage on the back of strong organic
growth. The group's S&P Global Ratings-adjusted leverage improved
to about 10.1x (9.4x on a pro forma basis) in 2022 from 14.3x in
2021 due to the conversion of convertible preferred equity
certifications (CPECs) into ordinary equity in January 2022 and
incremental EBITDA, albeit below S&P's previous expectations of
8.9x due to higher-than-expected non-recurring costs. S&P said, "We
expect leverage will improve further to just below 7x in 2023, due
to strong organic growth, price increases, and higher EBITDA
margins. We expect S&P Global Ratings-adjusted EBITDA margins of
25%-26% in 2023 compared with 21.6% in 2022, since we forecast
non-recurring costs will decline to about EUR40 million in 2023
compared with about EUR60 million in 2022. We expect adjusted
margins will improve to 28% in 2024, as these costs come down and
benefits of offshoring investments and cost-efficiency measures are
realized."
The group reported revenue growth of 29% in 2022 due to strong
double-digit organic growth across all the regions, notably in the
funds and asset management (FAM) segment in North America,
Luxembourg, and Asia. The topline is also supported by
contributions from acquisitions and favorable foreign currency
impact. In 2023, we forecast revenue growth of more than 20%,
underpinned by inflation-related price increases, new business
wins, and the full-year contribution from acquisitions completed in
2022.
FOCF remained slightly negative in 2022. However, we expect it to
turn positive to about EUR28 million in 2023. This is despite
one-off growth capital expenditure (capex) and expenses related to
the setup of offshoring centers and merger and acquisition (M&A)
related costs in 2023.
S&P said, "IQ-EQ continues to improve its scale and
diversification. We expect the group will remain acquisitive to
improve its scale, given the fragmented nature of the industry in
which it operates, with limited product differentiation. The
company has completed several bolt-on and more meaningful
acquisitions, such as JGM Fund Services (JGM), DGFM, Greyline
Partners LLC (Greyline), Concord Trust, Blue River Partners, and
Constellation Advisors. As a result of the acquisitions, revenue
increased to EUR545 million in 2022 from EUR72 million in 2019 and
the group's scale and geographical diversification improved,
especially in North America. We expect the contribution to revenue
from non-European regions will increase to about 43% in 2023 from
15% in 2018. Also, revenue contributions from the FAM segment
increased to 61% in 2022 from 31% in 2018. However, adjusted EBITDA
margins has seen a significant impact from non-recurring and
restructuring costs associated with the recent acquisitions. We
expect these costs to reduce from 2024 in the absence of any
significant acquisitions.
"The group's appetite for acquisitions and highly leveraged
financial policy constrain the rating, but we expect a reduced
impact on leverage from M&A going forward.Financial-sponsor owner
Astorg Partners has partially funded several of IQ-EQ's purchases,
with equity injections of about EUR160 million to fund the DGFM
acquisition and a deferred consideration for Greyline in the first
half of 2022. However, acquisition multiples in the sector are such
that IQ-EQ's debt to EBITDA has remained elevated since its
inception in 2018. Given strong EBITDA growth and the conversion of
CPECs worth EUR406 million into common equity in January 2022, we
now expect lower adjusted debt to EBITDA of 7.0x in 2023 compared
to 14.3x in 2021.
"While the company has shown its ability to deleverage, we expect
its financial policy will remain aggressive and cannot rule out the
possibility of higher leverage in event of a strategic debt-funded
acquisition, given the group's track record of raising debt to fund
growth. IQ-EQ would need to demonstrate a track record of leverage
below 8x before we see such levels as sustainable. That being said,
we believe the relative magnitude of bolt-on M&A and associated
non-recurring costs could reduce in the coming years, which could
lead to sustainably lower leverage in future.
"The stable outlook reflects our view that IQ-EQ will continue to
grow organically and through acquisitions while generating positive
FOCF. We forecast that IQ-EQ will steadily deleverage, but our
ratings also factor in the group's strategy of ongoing bolt-on
acquisitions, which we expect could constrain any permanent
deleveraging in light of the relatively high acquisition multiples
in the sector.
"We could take a negative rating action if IQ-EQ underperformed our
forecasts, resulting in weaker cash flow generation or heightened
liquidity pressure. Specifically, we could consider lowering the
rating if the group's operating performance were to weaken
significantly, for example, due to contract losses or higher
integration and cost-restructuring expenses than we expect, such
that it was unable to generate positive FOCF, with no signs of
recovery.
"We could take a positive rating action if IQ-EQ continued to
demonstrate sound operating performance, with adjusted EBITDA
margins exceeding 30%, such that adjusted debt to EBITDA fell below
8.0x on a sustained basis. We would also need to see a clear track
record of leverage remaining below this level, coupled with
continued positive FOCF, which would likely involve significantly
reduced M&A activity and non-recurring costs than in previous
years."
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 IQ-EQ. Our
assessment of the group's financial risk profile as highly
leveraged reflects corporate decision-making that prioritizes the
interests of the controlling owners, in line with our view of most
rated entities owned by private-equity sponsors. Our assessment
also reflects the owners' generally finite holding periods and
focus on maximizing shareholder returns."
=====================
N E T H E R L A N D S
=====================
ICL FINANCE: EUR250M Bank Debt Trades at 6% Discount
----------------------------------------------------
Participations in a syndicated loan under which ICL Finance BV is a
borrower were trading in the secondary market around 94.4
cents-on-the-dollar during the week ended Friday, April 7, 2023,
according to Bloomberg's Evaluated Pricing service data.
The EUR250 million facility is a Term loan that is scheduled to
mature on September 3, 2026. The amount is fully drawn and
outstanding.
ICL Finance B.V. manufactures and supplies chemical products. The
Company's country of domicile is the Netherlands.
===========
S W E D E N
===========
PREEM HOLDINGS: S&P Upgrades Rating to 'BB-', Outlook Stable
------------------------------------------------------------
S&P Global Ratings raised its rating on Preem Holdings AB (publ) to
'BB-' from 'B+'.
The stable outlook indicates that Preem should be able to maintain
leverage below 3x in coming years while investing in additional
renewable capacity, over time supporting profitability and cash
generation.
S&P said, "We expect market conditions to gradually soften, but
refining margins should still remain above mid-cycle levels,
allowing Preem to maintain a robust balance sheet. The company
recorded all-time high EBITDA of SEK15.3 billion in 2022, because
refining margins were at exceptionally high levels, while
maintaining costs under control--notably by switching energy use
from natural gas to LPG when possible. Preem was able to reduce
gross debt by SEK5.5 billion and reported 0.5x debt to EBITDA. We
anticipate that the diesel and gasoline crack spreads will soften
in 2023, but still be at a level that cash flow from operations
(before working capital outflow) will cover the heavy investments
of about SEK4 billion planned in the year. Given that capital
expenditure (capex) should ease in 2024, the company would also be
in a position to cope with weaker market conditions and still
maintain debt to EBITDA at a level we view as commensurate with the
'BB-' rating--at below 3x--through 2024."
The company is continuing to invest in biofuel capacity to boost
profitability. Under its 2030 strategy, Preem aims to become the
world's first climate-neutral refining company, targeting climate
neutrality throughout its value chain by 2035. To achieve this, it
targets renewable production capacity of 3 million cubic meters
(m3) (more than 50,000 barrels of oil equivalent per day) by 2030
and up to 5 million m3 by 2035. In 2022, renewable production
capacity increased by 40% to 350,000 m3 per year at Gothenburg
after Preem rebuilt an existing plant for renewable production. At
Lysekil, the company is undertaking a major rebuild of the SynSat
facility, with the goal of reaching renewable production capacity
of 900,000 m3 per year by 2024.
S&P said, "Financial policies are supportive and we do not
anticipate any changes to the ownership structure. Preem is owned
by a single investor, Mohammed Hussein Al- Amoudi, a Saudi national
who owns numerous much-larger assets. The company's financial
policies, with debt to EBITDA to be maintained below 3x over the
cycle and no dividend payments as dictated by bond documentation,
is credit supportive in our view. We understand the recent
bankruptcy of another company held by Mr. Al Amoudi in Sweden has
no impact on Preem and no financial ties exist between the two
entities.
"The stable outlook reflects the lowered debt and strong expected
cash flows that will fund capex to further grow Preem's renewable
fuel capacity. Although we anticipate an easing of refining margins
in 2023 and even more so in 2024, we believe they will remain high
compared with the 10-year average because the diesel shortage in
Europe should remain in force (given Russian products will not
likely return). Despite negative free operating cash flow (FOCF) in
2023 in our base case, the much reduced gross debt in 2022 provides
headroom under the rating and the company should be in a position
to maintain debt to EBITDA well in the 2x-3x range over the coming
years.
"We could lower the rating if crack spreads weaken materially,
operating expenses are greater than we expect, or the company has
unplanned downtime, such that performance deteriorates
significantly, leading to total adjusted debt to EBITDA remaining
within the higher end of the 3x-4x range for a prolonged period.
This would mean a meaningful deviation from financial policy and
could lead to a downgrade. Very large investments resulting in
materially negative FOCF and leverage in the 3x-4x range could also
put pressure on the rating if not compensated by business risk
improvement benefits.
"We view any rating upside as remote, considering the continued
exposure to inherent high volatility of the sector, current
financial policy, and capex requirements to gradually transform the
business toward non-hydrocarbon dependency. However, over time, if
profitability greatly improves because of ongoing investments, and
more stringent financial policy supports leverage well below 2x, we
could consider an upgrade."
ESG credit indicators: E-4, S-2, G-2
=====================
S W I T Z E R L A N D
=====================
COVIS FINCO: S&P Cuts ICR to 'SD' on Distressed Debt Restructuring
------------------------------------------------------------------
S&P Global Ratings lowered its long-term issuer credit rating on
Covis Pharma's (Covis) holding company Covis Finco S.a.r.l. to 'SD'
(selective default) from 'CCC+', and its issue ratings on its
outstanding rated first-lien term loan and second-lien debt to 'D'
(default). The RCF, which is unaffected by the restructuring, is
unrated.
S&P will reassess its ratings on Covis and its debt once it has
reviewed the group's new capital structure, cash flow profile,
liquidity position, and business prospects.
On April 3, 2023, Covis announced that its principal shareholder,
Apollo, and approximately 95% of its first-lien and 100% of its
second-lien lenders had entered a binding agreement to recapitalize
the group and alter its capital structure. The group expects the
restructuring to close by mid-May at the latest, if all or
substantially all of its first-lien lenders agree.
The recapitalization transaction would reduce Covis' debt by a
significant amount (about $450 million). At closing, committed debt
would total about $860 million, comprising the:
-- New super senior facility of approximately $64 million maturing
in February 2027;
-- First-lien facility of approximately $700 million maturing in
February 2027;
-- Reinstated first-lien RCF of $100 million maturing in February
2027.
-- Liquidity will also be supplemented by a new factoring facility
of up to $100 million.
S&P views the transaction as distressed and tantamount to default.
This is because existing first-lien term loan and second-lien term
loan investors will receive less than originally promised as a
result of the:
-- $200 million debt-principal exchange into a significant
minority equity stake of the common equity, which we do not
consider adequate compensation.
-- Repayment of all $312 million second-lien term loan and accrued
interest at a substantial discount to par, following the nonpayment
of quarterly interest due March 31, 2023.
S&P will review its ratings on Covis as soon as it has finished its
evaluation of its new capital structure, cash flow profile,
liquidity position, and business prospects.
ESG credit indicators: E-2, S-2, G-3
===========
T U R K E Y
===========
TURK HAVA: S&P Alters Outlook to Negative, Affirms 'B' LT ICR
-------------------------------------------------------------
S&P Global Ratings revised its outlook on government-related
entity, Turk Hava Yollari (Turkish Airlines), to negative from
stable and affirmed its 'B' long-term issuer credit rating on
Turkish Airlines and its issue rating on its aircraft-backed
enhanced-equipment trust certificates.
The negative outlook mirrors that on Turkiye and reflects risks to
the sovereign's creditworthiness from what we consider untenable
monetary, financial, and economic policy settings.
S&P said, "The rating action on Turkish Airlines follows our rating
action on Turkiye. On March 31, 2023, we revised our outlook on
Turkiye to negative from stable. At the same time, we affirmed our
unsolicited 'B/B' long- and short-term sovereign credit ratings and
unsolicited 'trA/trA-1' national scale ratings. In accordance with
our criteria for government-related entities (GREs), our outlook
revision on Turkiye results in a similar action on Turkish Airlines
and this rating action is triggered solely by our rating action on
the sovereign. We maintain our assessment on Turkish Airlines'
stand-alone credit profile (SACP) at 'bb-' because we believe that
the airline's sound EBITDA performance will continue in 2023
(although likely below the strong level seen in 2022). This
reflects the ongoing positive trends in international passenger
traffic, supported by a weaker Turkish lira making Turkiye an
attractive travel destination. That said there are potential
downside risks to our base case considering that passenger air
travel demand is subject to lingering macroeconomic and
geopolitical uncertainties.
"Our sovereign rating on Turkiye caps our rating on Turkish
Airlines. This is because we view Turkish Airlines as a GRE, which
would not be sufficiently protected from extraordinary negative
government intervention. Most importantly, the airline has a strong
link with the Turkish government. Turkish Airlines is the country's
top service exporter and generator of foreign currency earnings. It
is 49.12% owned by Turkiye Wealth Fund, one Class C share is held
by Turkiye's Ministry of Treasury and Finance Privatization
Administration, and the remaining 50.88% of shares are publicly
traded, with some being held by other GREs."
The negative outlook mirrors that on the sovereign.
S&P said, "We would lower the rating on Turkish Airlines if we
lower the sovereign rating on Turkiye, for example if pressure on
Turkiye's financial stability or wider public finances were to
increase further, potentially in connection with renewed currency
depreciation.
"We could also lower the rating if Turkish Airlines' adjusted funds
from operations to debt falls below 6% on a sustainable basis. We
view this as unlikely, due to the airline's ample headroom under
this trigger." Nevertheless, it could potentially result from:
-- An unexpected significant decline in passenger revenue if
mounting inflation curbs consumer confidence and travel
affordability or if geopolitical tensions escalate;
-- A steeper-than-expected decline in cargo revenue; or
-- Significantly higher-than-expected fuel and labor costs with
only a limited ability to pass through higher costs to customers.
S&P would revise the outlook on Turkish Airlines to stable if it
took a similar rating action on Turkiye.
This would also depend on whether Turkish Airlines' SACP did not
deteriorate unexpectedly in the meantime.
ESG credit indicators: E-3, S-3, G-2
=============
U K R A I N E
=============
UKRAINE: S&P Lowers FC LT SCR to 'CCC' on Debt Restructuring Plan
-----------------------------------------------------------------
On April 6, 2023, S&P Global Ratings lowered its foreign currency
(FC) long-term sovereign credit and issue ratings on Ukraine to
'CCC' from 'CCC+'. The outlook on the long-term sovereign FC rating
is negative. At the same time, S&P affirmed its 'C' short-term FC
rating and its 'CCC+/C' local currency (LC) long- and short-term
sovereign credit ratings on the sovereign. The outlook on the
long-term LC rating is stable. S&P also affirmed its national scale
rating at 'uaBB' and our transfer and convertibility assessment
remains 'CCC+'.
As "sovereign ratings", the ratings on Ukraine are subject to
certain publication restrictions set out in Art 8a of the EU CRA
Regulation, including publication in accordance with a
pre-established calendar. Under the EU CRA Regulation, deviations
from the announced calendar are allowed only in limited
circumstances and must be accompanied by a detailed explanation of
the reasons for the deviation. In this case, the reason for the
deviation is Ukraine's announcement of a government debt
restructuring plan. The next scheduled publication on the Ukraine
sovereign rating is Sept. 8, 2023.
Outlook
The negative outlook on the FC long-term rating reflects risks to
Ukraine's commercial debt service, given the government's debt
restructuring plan.
The stable outlook on the LC long-term rating balances increased
fiscal pressures against the government's incentives to service
hryvnia-denominated debt to avoid distress to domestic banks, which
are the primary holders of LC bonds.
Downside scenario
S&P said, "We could lower the FC ratings in the next 12 months if,
for instance, we consider it a virtual certainty that commercial
debt obligations will be included in the government's debt
restructuring. We could lower the LC ratings if we see indications
that Ukrainian-hryvnia-denominated obligations could suffer
nonpayment or restructuring."
Upside scenario
S&P could raise the FC rating if commercial debt was excluded from
the proposed restructuring, for example, due to significantly
improved economic outcomes and a favorable debt sustainability
assessment by the IMF.
Upward pressure on the ratings could arise if Ukraine's security
environment and medium-term macroeconomic outlook improve.
Rationale
The rating action follows Ukraine's official announcement that it
will restructure its foreign currency external debt to restore
public debt sustainability, as part of the recently agreed,
four-year, $15.6 billon Extended Fund Facility arrangement with the
IMF. Ukraine is suffering from significant macroeconomic and fiscal
pressures triggered by the ongoing war with Russia. S&P understands
that the parameters and timing of the restructuring have yet to be
decided and are contingent on the IMF's assessment of public debt
sustainability, which is expected to be updated in early 2024.
Official creditors, including the U.S., U.K., Canada, France,
Germany, and Japan (the Group of creditors of Ukraine [CGU]), have
agreed to an extension of the deferral of external debt payments
until the end of the IMF program in 2027, from the previously
agreed period of August 2022 until September 2024.
The CGU also agreed to an additional debt restructuring, which we
expect to take place by midyear 2024. This agreement is subject to
private external creditors delivering a debt restructuring at least
as favorable. However, the potential restructuring will take place
more than one year from now and the development of the war in
Ukraine remains uncertain. To that end, visibility on the exact
scenario for commercial creditors will increase only next year.
That said, bilateral debt represents a small 5% of total government
debt. S&P said, "Given our understanding that multilateral and
domestic government debt (both in LC and FC) are excluded from the
debt restructuring plans, there is, in our view, a relatively high
probability that a meaningful debt relief exercise will include
Ukraine's commercial external debt outstanding." The latter
represents about 20% of total government debt, with another 40%
constituting domestic-law bonds (both in LC and FC) and 35% from
international financial institutions.
S&P said, "Our ratings reflect our view of an issuer's ability and
willingness to meet its commercial, nonofficial financial
obligations in full and on time. If the commercial debt
restructuring takes place in 2024, in light of protracted
balance-of-payments and fiscal challenges, we would likely view it
as distressed.
"In our view, the government's ability and medium-term incentives
to meet its financial commitments in LC are somewhat higher than
those in FC. Hryvnia-denominated debt is primarily held by domestic
banks, half of which are state-owned. A default on these LC
obligations would amplify banking sector distress, increasing the
likelihood that the government would have to provide the banks with
financial support, which would limit the benefits of debt relief."
Ukraine's medium-term macroeconomic outlook depends heavily on the
duration and evolution of the war. S&P's base-case assumption is
that there will not be a near-term end to hostilities. Given
substantial damage to physical and human capital, Ukraine's growth
prospects--and its balance-of-payments and fiscal positions--hinge
on continued international financial support, access to export
routes via the Black Sea, the persistence of war-driven
dislocations on the labor market, the restoration of tax
mobilization capacity, and reconstruction efforts.
S&P Global Ratings notes a high degree of uncertainty about the
extent, outcome, and consequences of the Russia-Ukraine war.
Irrespective of the duration of military hostilities, related risks
are likely to remain in place for some time. As the situation
evolves, we will update our assumptions and estimates accordingly.
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable. At the onset of the committee, the chair confirmed that
the information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision. The
views and the decision of the rating committee are summarized in
the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
Ratings List
DOWNGRADED
TO FROM
UKRAINE
Senior Unsecured CCC CCC+
STATE ROAD AGENCY OF UKRAINE (UKRAVTODOR)
Senior Unsecured CCC CCC+
DOWNGRADED; RATINGS AFFIRMED
TO FROM
UKRAINE
Sovereign Credit Rating
Foreign Currency CCC/Negative/C CCC+/Stable/C
RATINGS AFFIRMED
UKRAINE
Sovereign Credit Rating
Local Currency CCC+/Stable/C
Ukraine National Scale uaBB/--/--
Transfer & Convertibility Assessment CCC+
UKRAINE
Senior Unsecured D
===========================
U N I T E D K I N G D O M
===========================
AMERICAN PIE: Enters Administration, Not Issuing Refunds
--------------------------------------------------------
Alastair Ulke at The Star reports that a string of Sheffield
private hire companies have gone into liquidation with no refunds
or deposits back for customers, leaving untold people out of
pocket.
American Pie Limousines stunned customers on April 6 when it sent
out an email to everyone with a booking saying the company was in
administration, The Star relates.
According to The Star, the email from liquidators Anderson Brookes
also informed them that wedding hire company Cupid Carriages and
executive car hire group Quantum Chauffeur were also bust.
But, to the shock of everyone receiving the bad news, the notice
also said there would be no refunds or returned deposits due to the
collapse, leaving likely dozens of people hundreds of pounds short,
The Star notes.
CD&R FIREFLY: Moody's Cuts Rating on GBP32.7MM 1st Lien Loan to B2
------------------------------------------------------------------
Moody's Investors Service downgraded to B2 from B1 the rating on
CD&R Firefly Bidco Limited's (MFG) GBP32.7 million outstanding
backed senior secured first lien term loan (B1 tranche) due June
2025. There is no change to CD&R Firefly 4 Limited's (MFG or the
company) B2 corporate family rating and B2-PD probability of
default rating, and no change to existing ratings of the backed
senior secured bank credit facilities issued by CD&R Firefly Bidco
Limited (MFG) and Motor Fuel Limited. The outlook is positive.
The rating action follows the completion of the company's
amend-and-extend and subsequent add-on, which resulted in GBP32.7
million outstanding of the B1 tranche of the GBP backed senior
secured first lien term loan not being amended and extended to
2028, the maturity remains in June 2025. The amended capital
structure is now expected to be all senior and pari passu ranking
and hence the downgrade to B2 from B1 rating of the remaining
GBP32.7 million B1 tranche of the GBP backed senior secured first
lien term loan to align with the CFR.
RATINGS RATIONALE
MFG's B2 CFR continues to reflect its (1) strong market position as
the largest petrol station operator in the UK by number of sites,
with a high-quality forecourt network; (2) stable cash flows; (3)
growing convenience retail and food-to-go markets providing
significant rollout opportunities across its estate; (4)
experienced, founder-led management team and; (5) well-invested
predominantly freehold sites. The B2 rating is also underpinned by
MFG's company-owned franchise-operated (COFO) business model, with
limited fixed costs and relatively predictable income streams.
Constraints to the rating include the company's (1) exposure to the
inherently low and volatile profit margin associated with fuel
retail operations, though strongly rising over the past two years;
(2) limited contributions, albeit growing, from non-fuel offering
reflected by the COFO model and; (3) historical aggressive
financial policy and potential to re-leverage the capital
structure, as evidenced by rapid successive dividend
recapitalisations over the past few years. The rating also factors
the company's high investment requirements needed to manage the
transition to alternative fuel and the negative impact on cash
flows.
ENVIRONMENTAL, SOCIAL & GOVERNANCE CONSIDERATIONS
MFG's ESG Credit Impact Score is CIS-5. This reflects Moody's
assessment that ESG attributes are overall considered to have a
very high impact on the current rating driven by governance risk
exposures including an aggressive financial strategy as
demonstrated by high leverage and a history of dividend
recapitalisations, and its concentrated ownership structure. High
environmental and social risk exposures are mainly related to the
company's fuel sales activities.
LIQUIDITY
Moody's views MFG's liquidity as adequate. Liquidity is supported
by the agency's expectation of ongoing availability under the
backed senior secured multi-currency revolving credit facility
(RCF) of GBP350.5 million, which was drawn GBP60 million to meet
internal cash flow needs. Moody's considers this facility to be
adequate to cover intra-quarter working capital needs. The RCF has
only one springing maintenance covenant based on net senior secured
leverage, tested only when drawn by more than 40% and against,
which Moody's expects MFG to maintain sizeable headroom. The first
lien term debt is covenant-lite.
STRUCTURAL CONSIDERATIONS
The B2 rating of the senior secured first lien debt instrument
reflects the recent refinancing and the repayment of the
subordinated senior secured second lien term loan. This resulted in
the company's capital structure becoming all senior and pari passu
ranking and hence instrument ratings align with the CFR.
RATING OUTLOOK
The positive outlook reflects Moody's expectations of leverage
trending below 5.5x, towards Moody's upward rating guidance of
5.25x over the next 12-18 months, as well as the absence of
re-leveraging transactions, including dividend recapitalisations.
The positive outlook also incorporates expected continued strong
operational performance, and that the company will continue to grow
its adjusted EBITDA and generate positive free cash flow.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The ratings could experience upward pressure if Moody's-adjusted
gross leverage was expected to (1) sustainably reduce below 5.25x
or (2) Moody's adjusted EBIT/ interest expense was to exceed 1.75x.
An upgrade would also require expectations of broadly stable fuel
volumes and margins, as well as reduced event risk associated with
potential dividend recapitalisations.
On the other hand, negative pressure could arise if: (1)
Moody's-adjusted gross leverage increased above 6.25x over the next
12-18 months; (2) there was additional dividend payments that
increased leverage above this level; (3) free cash flow was to turn
negative for an extended period or; (4) a case of weaker than
expected liquidity transpired.
LIST OF AFFECTED RATINGS
Downgrade:
Issuer: CD&R Firefly Bidco Limited (MFG)
BACKED Senior Secured Bank Credit Facility, Downgraded to B2 from
B1
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Retail published
in November 2021.
CURZON MORTGAGES: Fitch Assigns 'B+(EXP)sf' Rating to Class G Notes
-------------------------------------------------------------------
Fitch Ratings has assigned Curzon Mortgages Plc's notes expected
ratings, as detailed below.
Entity/Debt Rating
----------- ------
Curzon
Mortgages plc
A1 LT AAA(EXP)sf Expected Rating
A2 LT AAA(EXP)sf Expected Rating
B LT AA(EXP)sf Expected Rating
C LT A(EXP)sf Expected Rating
D LT BBB+(EXP)sf Expected Rating
E LT BBB(EXP)sf Expected Rating
F LT BB+(EXP)sf Expected Rating
G LT B+(EXP)sf Expected Rating
X LT CCC(EXP)sf Expected Rating
Z LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
The transaction will be a securitisation of UK owner-occupied (OO)
loans originated by Northern Rock Plc, mainly between 2006 and
2008. The loans were previously securitised under the Chester B1
Plc transaction.
KEY RATING DRIVERS
Seasoned Loans: The portfolio consists of seasoned prime OO loans
predominantly originated between 2006 and 2008 (80.7%). The
weighted average (WA) seasoning of the pool is 194 months. The pool
has benefited from a considerable degree of indexation, with a WA
indexed current loan-to-value (LTV) of 53.4% leading to a WA
sustainable LTV of 67.9%. The pool also contains a relatively high
proportion of interest-only loans at 52.3%.
High Loss Severity Affecting Recoveries: Fitch based its rating
analysis on scenarios that include lower WA recovery rates (RR)
than its proprietary asset model output would imply. This mirrors
the observed relatively high loss severity levels in the refinanced
Chester B1 plc transaction. This approach constitutes a variation
to Fitch's UK RMBS Rating Criteria, as the class G notes' expected
rating exceeded the one-notch flexibility from the model-implied
rating, included in the criteria.
Weaker-than-Average Performance: Current and historical arrears are
above those typical of prime UK pools. Fitch considered this
historical performance as well as the level of observed arrears in
Northern Rock collateral when setting the lender adjustment at 1.4
under its prime criteria assumptions.
Strong Excess Spread: The majority of loans in the pool pay an
interest rate based on a standard variable rate (SVR) set by the
legal title holder. Loans paying an SVR rate typically produce
higher revenue than loans paying a different interest type, for
example those paying a rate linked to the Bank of England base
rate. This higher excess spread supports the ratings through the
coverage of interest payments and reduction in principal deficiency
ledgers to make up for any losses incurred.
Reserves Mitigate Payment Interruption: At closing, the transaction
will have a liquidity reserve sized at 0.5% of the closing balance
of the class A and B notes. The target amount is the lower of 0.5%
of the class A and B notes at closing or 1% of their outstanding
balance. The general reserve will be sized at a static 0.75% of
closing portfolio balance. If the general reserve is drawn below
0.6% of the closing portfolio balance, the liquidity reserve will
step up to a dynamic target of 1.5% of the current class A and B
notes' balance. The reserve step-up provides protection to payment
coverage. The general reserve provides credit enhancement.
Weak Representations and Warranties Framework: The seller provides
the majority of representations and warranties Fitch expects in a
UK RMBS transaction, but many are qualified by awareness on the
part of the lead arranger, Barclays Bank Plc. In addition, the
seller is provided with financing to remediate warranty breaches
only in the first two years after closing and up to a maximum of
GBP1 million. Fitch considers this framework to be weak in
comparison with typical UK RMBS, but the seasoning of the assets,
and the fact that there have been no warranty breaches in the
Chester B1 transaction, makes the likelihood of the issuer
suffering a material loss sufficiently remote.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
The transaction's performance may be affected by adverse changes in
market conditions and the economic environment. Weakening economic
performance is strongly correlated to increasing levels of
delinquencies and defaults that could reduce credit enhancement
(CE) available to the notes.
In addition, unexpected declines in recoveries could result in
lower net proceeds, which may make certain notes susceptible to
potential negative rating action depending on the extent of the
decline in recoveries. Fitch conducts sensitivity analyses by
stressing a transaction's base-case foreclosure frequency (FF) and
RR assumptions. For example, a 15% WAFF increase and 15% WARR
decrease would result in a model-implied downgrade of up to four
notches.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
Stable to improved asset performance driven by stable delinquencies
and defaults would lead to increasing CE levels and consideration
for potential upgrades. Fitch tested an additional rating
sensitivity scenario by applying a decrease in the WAFF of 15% and
an increase in the WARR of 15%, implying upgrades of up to seven
notches for the mezzanine tranches.
CRITERIA VARIATION
Fitch based its rating analysis on scenarios that include lower
WARR than its proprietary asset model output would imply. This
mirrors the observed relatively high loss severity levels in the
refinanced Chester B1 plc transaction. This approach constitutes a
variation to Fitch's UK RMBS Rating Criteria, as for class G notes
the expected rating exceeded the one-notch flexibility from the
model-implied rating, included in the criteria.
DATA ADEQUACY
Fitch reviewed the results of a third party assessment conducted on
the asset portfolio information, and concluded that there were no
findings that affected the rating analysis.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Curzon Mortgages plc has an ESG Relevance Score of '4' for Customer
Welfare - Fair Messaging, Privacy & Data Security due to the high
proportion of IO loans in legacy OO mortgages, which has a negative
impact on the credit profile and is relevant to the ratings in
conjunction with other factors.
Curzon Mortgages plc has an ESG Relevance Score of '4' for Exposure
to Social Impacts due to the high proportion of borrowers in the
pool that have already reverted to a floating rate and are
currently paying a high SVR rate. These borrowers may not be in a
position to refinance.
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.
CURZON MORTGAGES: S&P Assigns B- (sf) Rating on Class G-Dfrd Notes
------------------------------------------------------------------
S&P Global Ratings assigned preliminary credit ratings to Curzon
Mortgages PLC's class A, B, C-Dfrd, D-Dfrd, E-Dfrd, F-Dfrd, G-Dfrd,
and X-Dfrd U.K. RMBS notes. At closing, Curzon Mortgages will also
issue unrated class Z and R notes and X1, X2, and Y certificates.
The transaction is a refinancing of the Chester B1 Issuer PLC
transaction, which closed in April 2020 (the original
transaction).
S&P said, "We have based our credit analysis on the GBP939 million
pool. The pool comprises first-lien U.K. owner-occupied residential
mortgage loans that Northern Rock PLC originated. The loans are
secured on properties in England, Wales, Scotland, and Northern
Ireland, and were originated between 1995 and 2009. The underlying
loans in the securitized portfolio are serviced by Topaz Finance
Ltd., which is also the legal title holder. Topaz Finance is a
subsidiary of Computershare Mortgage Services Ltd. (CMS). We
reviewed CMS' servicing and default management processes and are
satisfied that it is capable of performing its functions in the
transaction."
Of the preliminary pool, 17.56% of the loans are in arrears, with
11.21% of that portion in severe arrears (90+ day arrears). Of the
pool, 2.98% is considered reperforming. However, the average
payment rate on most of the severe arrears loans have been
consistently high with one-third of the loans in severe arrears
paying above 70% over the past three years.
There is high exposure to interest-only and part-and-part loans in
the pool at 52.52%, and the borrowers in this pool may have
previously been subject to a county court judgement (CCJ; or the
Scottish equivalent), an individual voluntary arrangement, or a
bankruptcy order prior to the origination.
The rated notes are supported by the principal borrowing mechanism,
the general reserve, and the liquidity reserve (class A and B
notes). The first two are subject to a principal deficiency ledger
(PDL) condition for the class B to G-Dfrd notes unless they are the
most senior outstanding. The class B notes' access to the liquidity
reserve fund is subject to being the most senior class outstanding
or having a PDL balance of less than 10% of this class of notes'
outstanding balance. These reserve funds will be funded at
closing.
S&P said, "A portion of joint lead managers' (JLMs) indemnity
claims ranks senior and are thus modelled in our cash flow
analysis. They represent a potential expense (to the benefit of the
JLMs) if, for instance, investors sue the JLMs for costs and
expenses in connection with the issuance of the notes. There is
also a subordinated component to the JLMs' indemnity claims, which
rank senior to the class X principal and interest. We have
considered this in our preliminary rating on the class X notes.
"There are no rating constraints in the transaction under our
counterparty, operational risk, or structured finance sovereign
risk criteria. We consider the issuer to be bankruptcy remote.
"We expect inflation to continue to be high in U.K. in the near
term. 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. Borrowers in this transaction are largely paying
a floating rate of interest (standard variable rate or tracker). As
a result, they will feel the effect of rising cost of living
pressures. We have considered these risks in our loan
characteristic and originator adjustments. Based on our most recent
macroeconomic forecasts, we have also maintained our mortgage
market outlook for the U.K. to reflect uncertain economic
conditions and increased credit risk. These continue to affect our
'B' foreclosure frequency assumptions for the archetypal pool. We
have also performed sensitivities related to higher levels of
defaults in our cash flow analysis and the assigned ratings remain
robust to these sensitivities."
Preliminary Ratings
CLASS PRELIM. RATING* CLASS SIZE (%)
A AAA (sf) 83.00
B AA- (sf) 5.75
C-Dfrd A- (sf) 4.00
D-Dfrd BBB (sf) 1.50
E-Dfrd BB (sf) 1.50
F-Dfrd B (sf) 1.00
G-Dfrd B- (sf) 0.75
Z NR 2.50
R NR 1.19
X-Dfrd CCC (sf) 2.00
X1 certificates NR N/A
X2 certificates NR N/A
Y certificates NR N/A
*S&P's preliminary ratings address timely receipt of interest and
ultimate repayment of principal for the class A and B notes, and
the ultimate payment of interest and principal on the other rated
notes. Its preliminary ratings also address the timely receipt of
interest on the class C–Dfrd to X-Dfrd notes when they become the
most senior outstanding. All class C-Dfrd to X-Dfrd interest
deferred prior to a class of notes becoming most senior is due by
the legal final maturity date.
N/A--Not applicable.
NR--Not rated.
EVERTON FC: Expresses Going Concern Doubt, In Funding Talks
-----------------------------------------------------------
Samuel Agini at The Financial Times reports that Everton FC has
warned over the club's ability to continue as a going concern in
the event of relegation this season, with the accounts of the
Premier League side highlighting a reliance on its majority
shareholder.
According to the FT, the accounts also said the Liverpool-based
club "is in advanced negotiations for additional long-term funding"
and had agreed "heads of terms" for the next stage of funding for a
new stadium.
Everton said on March 31 that it had "significantly reduced its
losses" and made progress on construction of its new ground at
Bramley-Moore Dock, a development that could transform the club's
revenue potential, the FT relates.
But the club's financial release said it "remains reliant on the
support of its majority shareholder", Farhad Moshiri, the FT notes.
The British-Iranian businessman, who controls Everton through an
Isle of Man entity, had provided interest-free loans of GBP230
million in the period covered by the accounts, and a further GBP70
million since the financial year ended on June 30, 2022, the FT
discloses.
Crowe UK LLP, which replaced BDO as the club's auditor, drew
attention to a note in the financial statements that warned that
Everton would require additional financial support from its
majority shareholder in the event of relegation from the Premier
League, the FT relates.
The accounts said Mr. Moshiri had written to the board to confirm
the "intention to provide ongoing financial support for a period of
no less than 12 months from the date of approval of the financial
statements but this does not represent a legally binding
commitment", the FT notes.
According to the FT, given the club's financial issues and on-field
performance, the report says that "conditions indicate the
existence of a material uncertainty that may cast significant doubt
about the group's ability to continue as a going concern".
Like other clubs, Everton suffered because of the coronavirus
pandemic and then Russia's invasion of Ukraine, the FT discloses.
The war forced Everton to cut ties with sponsors connected to
Uzbek-Russian billionaire Alisher Usmanov, who has been sanctioned
by the EU, UK and US, the FT states.
Everton's net debt increased to GBP141 million at the end of June
2022, from GBP58 million a year earlier, with the club pointing to
additions made to the playing squad and investment in the new
stadium, the FT notes.
The club made a net loss of GBP44 million in the year ended June
2022, versus a net loss of GBP120 million in 2020-21, the FT
discloses. Although annual revenues fell to GBP181 million from
GBP193 million, the club cut operating expenses and made a gain of
GBP67 million from trading players, the FT notes.
In the previous two financial years, Everton had recorded net
losses of nearly GBP140 million and GBP111 million, the FT states.
LERNEN BONDCO: S&P Upgrades Long-Term ICR to 'B-', Outlook Stable
-----------------------------------------------------------------
S&P Global Ratings raised its long-term issuer credit and issue
ratings on Lernen Bondco PLC(Cognita) and its senior secured debt
to 'B-' from 'CCC+'.
S&P said, "The stable outlook reflects our view that the company
will continue to report revenue and earnings growth and start
generating positive free cash flow after leases over the next 18-24
months. We also expect the group to maintain adequate liquidity for
its operating and financial requirements, while continuing the
ongoing support from its shareholders to partially fund potential
acquisitions."
In the latest set of annual results for the fiscal year ending Aug.
31, 2022, and first-quarter fiscal 2023 results, Cognita posted
robust organic growth in Europe and Latin America as well as some
recovery in Asia amid easing COVID-19 restrictions.
The company's S&P Global Ratings-adjusted EBITDA rebounded strongly
to GBP128 million in fiscal 2022 from GBP107 million in fiscal
2021, supported by strong industry fundamentals and revenue
visibility.
S&P said, "We expect strong performance and increasing EBITDA
margins towards 23%-24% in fiscal year 2023 and 24%-25% in 2024
(from 20% in fiscal 2022) despite inflationary pressure. The
company has demonstrated its ability to pass on inflation costs by
increasing fee across all regions by a a weighted average of about
6% in 2023. We expect the group will continue its revenue growth
trajectory, with revenue increasing 24%-26% in 2023 followed by
19%-21% in 2024 because of additional capacity in Latin America and
the Middle East and India (with revenues expected to grow in those
regions by 70%-80% respectively in 2023) and the further reopening
of schools in Asia. We expect EBITDA margin to reach 23%-24% in
2023 and 24%-25% in 2024 on the back of increasing contribution
from North America and recovering margins in Asia and Europe as a
result of fee increases." Nevertheless, Cognita's EBITDA margin
still lags behind its peers such as Bach Finance (Nord Anglia),
EBITDA margins of which is about 35% and Inspired Education at
about 34% in 2022. The difference stems from the lower-margin U.K.
schools (40 of its 103 schools) in Cognita's portfolio, due to
competitive pricing dynamics and relatively higher staff costs, and
the initial loss-making profile of some recent greenfield
projects.
Liquidity remains adequate to cover operating and financing needs.
As of Nov. 30, 2022, the group had accessible cash of approximately
GBP223 million and full availability under GBP120 million revolving
credit facility. This, together with cash funds from operations of
GBP40 million-GBP50 million generated over the next 12 months, will
fully cover its acquisition, capital expenditure (capex), and
current maturities. S&P said, "We also expect FOCF after leases to
be break-even in fiscal 2024 with revenue and margin support, after
running negative in 2023 driven by GBP100 million-GBP110 million of
capex. In our view, capex will slowly decline over the next
two-to-three years, as the group shifts toward filling up existing
capacities and organic growth, resulting in some capex
efficiency."
S&P said, "We expect the capital structure to remain highly
leveraged, with S&P-adjusted debt to EBITDA above 8.0x over the
next 12-24 months. As of Aug. 31 2022, Cognita held about GBP1.7
billion of S&P-adjusted debt, with about GBP1 billion financial
debt, about GBP560 million lease liabilities, and over GBP100
million deferred consideration, leading to S&P Global
Ratings-adjusted debt to EBITDA of 11.3x in 2022. We expect
leverage to remain escalated at about 10.0x in 2023, then falling
to about 8.0x in 2024 because of improving profitability."
Regulatory risk is inherent in kindergarten-grade 12 (K-12)
education providers, but the company's improved geographic
diversity mitigates this. The education is highly regulated in all
geographies. In addition to that, the group has presence in certain
geographies with a complex regulatory environment, such as the
Middle East and India and Asia, leaving it exposed to regulatory
changes. S&P thinks Cognita's geographic diversity following its
capacity expansion in Europe, Latin America, and North America
partly offsets this risk. The group's expansion also leads to lower
reliance on any single market, as it has been the case over the
last years in Singapore. For 2023, it expects EBITDA for Singapore
(which has been historically the largest market for the group) to
be 20%-25% of the overall group EBITDA.
Borrowing in euros exposes the company to foreign exchange risk
despite its hedging policy. The group holds over GBP810 million of
euro-equivalent financial debt. About EUR230 million of this is
hedged with Singapore dollar-based floating to fixed swaps, as we
expect the group to generate 20%-25% of EBITDA from the country in
2023 and moving forward. The unhedged portion of the outstanding
debt, however, generates about GBP40 million of annual interest,
while the group generates less than GBP20 million EBITDA
denominated in euros. S&P captures its exposure to foreign exchange
risk in a negative assessment of capital structure, though it
understands the company has a risk management structure in place to
mitigate these risk.
S&P said, "The stable outlook reflects our expectation that Cognita
will sustain strong revenue growth in 2023 and into 2024 supported
by increasing capacity and utilization rates, while passing on fee
increases to offset inflationary pressures. As a result, we expect
the group to generate more than GBP770 million of revenue and
EBITDA margins of 23%-24% in 2023. We expect the FOCF after leases
to remain negative in 2023 and become neutral in 2024 as the
company reduces development capex and profitability continues to
improve. We also expect Cognita to maintain adequate liquidity for
its operating and financial requirements, while continuing the
ongoing support from its primary shareholder, which holds more than
GBP1.0 billion equity in the business, to partially fund potential
acquisitions."
S&P could take a negative rating action if the group were to
materially underperform our base-case scenario, resulting in:
-- FOCF after leases to remain negative for a prolonged time;
-- Liquidity weakened materially or shareholders appear reluctant
to bring in fresh equity when necessary; or
-- Prolonged and significant weakness in operating earnings, such
that S&P Global Ratings-adjusted leverage remained materially above
8.0x and FOCF after leases was sustainably negative in 2024, such
that we viewed the capital structure as becoming unsustainable.
S&P considers a positive rating action unlikely within the next 12
months due to continued high leverage. However, it could take one
if the company's performance materially exceeded our base case such
as:
-- FOCF after leases turns materially positive sustainably; and
-- S&P Global Ratings-adjusted debt to EBITDA falls to below
7.0x.
An upgrade would require the group to maintain an adequate
liquidity profile at all times and a financial policy supporting
these ratios. It will also require a hedging policy such that the
euro-denominated EBITDA covers the interest of euro-denominated
financial debt by at least 1.2x.
Environmental, Social, And Governance
ESG credit indicators: To E-2, S-2, G-3; From E-2, S-3, G-3
Governance factors are a moderately negative consideration in our
analysis of the group. Cognita has a high risk tolerance for
financial leverage, as reflected in its focus on expansion--shown
by its pre-pandemic S&P Global Ratings-adjusted leverage of 8x. S&P
expects players will continue to pursue sector consolidation to
enhance their market share in the highly fragmented private
education sector.
S&P said, "Social factors are now an overall neutral consideration
from our rating, from negative consideration before. Travel
restrictions and subsequent lockdowns for health and safety reasons
impacted the company's performance during the pandemic. The group
lost 15%-20% of its pre-pandemic EBITDA base during the pandemic
due to its high dependence on expat students and shortfall in
enrollments. However, over the past year, the group has rapidly
recovered with revenue above pre-pandemic levels and stronger
EBITDA margins. Since 2019 it has reduced its proportion of expat
students, expanded its geographical presence by adding six
countries to its portfolio, and reduced its EBITDA concentration in
the Singapore market. This provides the company some cushion in
case of regulatory changes or contingency events that lead to
large-scale international travel restrictions.
Environmental, social, and governance (ESG) credit factors for this
change in credit rating/outlook and/or CreditWatch status:
-- Health and safety
PEOPLECERT WISDOM: Moody's Hikes CFR to B1, Outlook Remains Stable
------------------------------------------------------------------
Moody's Investors Service has upgraded PeopleCert Wisdom Limited's
("PeopleCert", or "the company") corporate family rating to B1 from
B2 and probability of default rating to B1-PD from B2-PD.
Concurrently, Moody's has upgraded to B1 from B2 the instrument
rating of the EUR300 million backed senior secured notes due
September 2026 issued by PeopleCert Wisdom Issuer plc. The outlook
on all ratings remains stable.
RATINGS RATIONALE
The upgrade of PeopleCert's CFR to B1 with stable outlook reflects
the company's continued strong operating performance, with a 46%
increase in revenue to GBP118 million and 58% growth in
Moody's-adjusted EBITDA to GBP74 million in the financial year
ended December 31, 2022, compared to 2021 and pro forma for the
AXELOS acquisition. As a result, PeopleCert's Moody's-adjusted
Debt/EBITDA has decreased to 3.6x at the end of December 2022 and
Moody's-adjusted Free Cash Flow has reached nearly GBP32 million or
around 12% of adjusted debt. Moody's forecasts the company's
revenue to continue to grow in the double-digits in percentage
terms over the next 12-18 months whilst maintaining a
Moody's-adjusted EBITA margin of above 60%. Supported by a
continuously balanced financial policy, Moody's expects
PeopleCert's leverage to reduce further to below 3.0x by end of
financial year 2024.
The rating action further reflects PeopleCert's still very small
scale in terms of revenue, despite the strong organic growth
achieved over the past two years. The company operates in a niche
market and continues to be very focused on its IT and project
management examinations segment, which still accounted for over
half of 2022 revenue. However, this share has already significantly
decreased from around two thirds of revenue in 2020 and
PeopleCert's language exams and other products continue to grow at
a very fast pace.
PeopleCert's B1 CFR further reflects (1) the company's leading
market positions for IT and project management certifications; (2)
the substantial growth potential of its LanguageCert and ancillary
services offering; and (3) its vertically integrated business model
which supports very high profitability and good free cash flow
generation.
Conversely, the CFR is constrained by (1) PeopleCert's small scale
in terms of revenue, somewhat offset by its high profit margins;
(2) the limited revenue diversification; (3) a degree of key man
risk and concentration of power around the founder and CEO.
ESG CONSIDERATIONS
ESG considerations were a key driver of this rating action.
PeopleCert's financial policy has been fairly balanced over the
past two years, with a clear focus on continued deleveraging but
also regular dividend payments with a payout ratio of up to 30% of
net income. As such Moody's has changed the governance risk score
for PeopleCert to G-3 from G-4 and at the same changed the overall
ESG Credit Impact Score to CIS-3 from CIS-4.
Other ESG considerations factored in PeopleCert's ratings include
its ownership structure with the founder and CEO of the company
controlling c. 80% of share capital, which creates a degree of key
man risk and concentration of power.
RATING OUTLOOK
The stable outlook reflects Moody's expectation that PeopleCert
will continue to achieve good organic revenue growth and sustain
its very high EBITA margins. The outlook further assumes that the
company will maintain an adequate liquidity supported by
substantial free cash flow generation.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure on the rating could occur if PeopleCert continues
to deliver strong organic revenue growth, leading to a significant
step-up in its scale, and further diversifies its revenue base,
Moody's-adjusted Debt/EBITDA sustainably decreases below 2.5x,
profitability is maintained at current high levels, and liquidity
is considered good.
Downward pressure on the rating could develop if PeopleCert fails
to grow its revenue, exam volumes start to decline or profitability
significantly decreases, Moody's-adjusted Debt/EBITDA increases
above 4.0x, Moody's adjusted Free Cash Flow/Debt sustainably
declines below 10%, or liquidity weakens.
LIQUIDITY PROFILE
Moody's considers PeopleCert's liquidity to be adequate, supported
by an improved cash balance of GBP51 million at the end of December
2022, but without a revolving credit facility. Moody's forecasts
the company's liquidity to improve further as cash is accumulated
through good free cash flow generation which has turned positive
and reached nearly GBP32 million in the year ended December 31,
2022. PeopleCert's business has very limited seasonality in its
cash flows with moderate working capital needs.
STRUCTURAL CONSIDERATIONS
The B1 instrument rating of the EUR300 million backed senior
secured notes is aligned with PeopleCert's B1 CFR and reflects the
limited amount of other debt and non-debt liabilities in the
capital structure. The company's PDR of B1-PD is also in line with
the CFR and reflects the use of a 50% family recovery rate,
considering the absence of any financial covenant but a security
package that includes share pledges, intragroup receivables, bank
accounts and floating charges over the company's intellectual
property. Further, the notes benefit from guarantees by material
subsidiaries representing 99.7% of consolidated EBITDA at closing.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
PeopleCert is an established operator in the market for exams and
certifications with focus on IT, project management and language
skills. The company was founded in 2000 by the current CEO and
majority-owner (80% of share capital) Byron Nicolaides and is
headquartered in the UK, with minority shareholder FTV Capital
(20%).
PeopleCert owns a portfolio of around 700 different certifications
across its main segments and has delivered over 800k exams in over
200 countries around the world in the year ended December 31, 2022.
During the same period, the company generated revenue of GBP118
million and a company-adjusted EBITDA of GBP78 million, both pro
forma for the acquisition of AXELOS.
WYELANDS BANK: Censured by Bank of England for Regulatory Failings
------------------------------------------------------------------
Siddharth Venkataramakrishnan at The Financial Times reports that
the Bank of England has censured steel magnate Sanjeev Gupta's
Wyelands Bank for "wide-ranging significant regulatory failings",
although the company avoided an GBP8.5 million fine as it winds
down.
According to the FT, the BoE's Prudential Regulation Authority said
Wyelands' failings between December 2016 and May 2020 included an
over-reliance on companies related to Gupta, capital reporting,
governance, risk controls and the failure to properly retain
WhatsApp messages.
"Wyelands' wide-ranging and serious failings resulted in the PRA
taking swift supervisory action to minimise the risk to depositors
and issuing today's strong censure," the FT quotes Sam Woods,
deputy governor for prudential regulation and chief executive of
the PRA, as saying.
The UK banking regulator said in its statement on April 4 that
while Wyelands' business plan had been to "originate business from
entities introduced by [Gupta Family Group Alliance], with a view
to developing third party business over time", in practice it "was
almost entirely reliant on GFG and entities originally introduced
by GFG", the FT relates.
Wyelands is part of the GFG steel-to-finance conglomerate. At its
peak, the bank gathered more than GBP700 million in deposits from
British savers, the FT notes.
A FT investigation in 2020 revealed that Wyelands had channelled
depositors' money into Mr. Gupta's wider business empire, using a
network of companies controlled by the magnate's associates often
referred to as the "Friends of Sanjeev". The biggest backer of
companies in the alliance was the now-collapsed Greensill Capital.
Mr. Gupta, once dubbed the "saviour of steel" for a string of
acquisitions across four continents, has been battling to hold
together his metals empire since the collapse of Greensill amid
allegations of fraud in March 2021.
The PRA also ordered Wyelands to repay customer deposits in March
2021 amid rising concerns over its financial position, the FT
discloses.
BoE governor Andrew Bailey had revealed that regulators referred
Wyelands to the National Crime Agency and Serious Fraud Office in
2021 after probing its "connected lending" related to Gupta, though
there have been no charges, the FT relays.
The bank commenced a wind-down of the business in March 2020, the
FT recounts. In its annual results last year, it announced it had
"no viable future" with virtually all of its loans in default,
according to the FT.
[*] UK: Company Administrations Hit Three-Year High in March 2023
-----------------------------------------------------------------
Jessica Newman at The Times reports that the number of companies
that filed for administration jumped to a three-year high in March,
as economic strife continued to take its toll on business.
There were 130 company administrations last month, the most since
March 2020, and significantly higher than the pre-pandemic average
of 116, The Times relates.
According to Kroll, the consulting firm, a total of 288 businesses
went into administration in the first quarter, a 34 per cent rise
on a year earlier.
The number of administrations, designed to save viable elements of
a struggling company, has been on an upward trajectory since the
end of 2021 when the government's Covid-19 support measures and a
ban on insolvency proceedings came to an end, The Times discloses.
Kroll's analysis shows that construction and manufacturing
companies were among the hardest hit, The Times notes.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2023. All rights reserved. ISSN 1529-2754.
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Information contained herein is obtained from sources believed to
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