/raid1/www/Hosts/bankrupt/TCREUR_Public/230420.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Thursday, April 20, 2023, Vol. 24, No. 80
Headlines
F R A N C E
NAVYA: Lyon Court Converts Receivership Into Liquidation
G E R M A N Y
GRUNENTHAL GMBH: Fitch Rates EUR300M Sr. Sec Notes BB+(EXP)
I R E L A N D
CVC CORDATUS XXV-A: S&P Assigns B- (sf) Rating to Class F Notes
L U X E M B O U R G
AFE SA: S&P Cuts Sr. Secured Notes Rating to 'B-', On Watch Neg.
R O M A N I A
BLUE AIR: EU Commission Opens Investigation Into Support Measures
U N I T E D K I N G D O M
ALPHABET BREWING: Financial Difficulties Prompt Administration
BRUCE AND LUKE'S: Goes Into Liquidation Following Branch Closures
CURZON MORTGAGES: Fitch Gives 'B+sf' Final Rating to Class G Notes
PEOPLECERT HOLDINGS: S&P Ups Ratings to 'B+' on Strong Deleveraging
STEWART AND SHIELDS: Enters Liquidation, Halts Trading
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F R A N C E
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NAVYA: Lyon Court Converts Receivership Into Liquidation
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NAVYA (FR0013018041 - "Navya" or the "Company") (Paris:NAVYA) on
April 19 announced the decision of the Commercial Court of Lyon, by
a judgment, to adopt a disposal plan and to order, as a
consequence, the judicial sale of all its tangible and intangible
assets of the Courbevoie and Villeurbanne sites and of the
inventories of the Venissieux site, for a sale price of 1.4 million
to Gaussin, a public limited company listed on Euronext Growth
Paris through a joint venture with the Japanese group MACNICA,
listed on the Tokyo Stock Exchange, which holds 51% and 49% of the
share capital and voting rights respectively.
A total of 143 French employees have been taken over out of a total
of 206, as well as the subsidiaries Charlatte Autonom and Navya
Systems Pte Ltd.
Navya disclosed that the Commercial Court of Lyon has pronounced in
a judgment of the same day, the conversion of the Company's
receivership proceedings, opened by the judgment of February 1,
2023, into liquidation proceedings.
Given the opening of this judicial liquidation procedure, there
will be no resumption of the listing, and Euronext will soon
proceed with the delisting of Navya shares.
About NAVYA
Created in 2014, NAVYA -- http://www.navya.tech-- is a leading
French name specialized in the supply of autonomous mobility
systems and associated services. With 280 employees in France
(Paris and Lyon), in the United States (Michigan) and in Singapore,
NAVYA aims at becoming the leading player in Level 4 autonomous
mobility systems for passenger and goods transport. Since 2015,
NAVYA has been the first to market and put into service autonomous
mobility solutions. The Autonom(R) Shuttle, main development axis,
is dedicated to passenger transport. Since its launch, more than
200 units have been sold in 25 countries as of 31 December 2021.
The Autonom(R) Tract is designed to goods transport. Engaged in an
ambitious CSR approach, the Company has an active policy in this
area, as illustrated by the obtaining of the ISO 9001 certification
in September 2021. The Valeo and Keolis groups are among NAVYA's
historical shareholders. NAVYA is listed on the Euronext regulated
market in Paris (ISIN code: FR0013018041- Navya).
NAVYA is listed on the Euronext regulated market in Paris (ISIN
code: FR0013018041 - Navya).
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G E R M A N Y
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GRUNENTHAL GMBH: Fitch Rates EUR300M Sr. Sec Notes BB+(EXP)
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Fitch Ratings has assigned Grunenthal GmbH's planned issue of
EUR300 million senior secured notes, maturing in 2030, an expected
'BB+(EXP)'/RR2 instrument rating. Fitch expects the issuance to be
leverage neutral as proceeds will be used to repay a EUR200 million
bridge loan and EUR75 million Schuldschein facilities.
The assignment of a final rating is subject to the debt issue
conforming materially to the draft terms originally presented to
Fitch.
Grunenthal's 'BB' IDR continues to reflect its niche position and
concentrated product portfolio, making it heavily reliant on the
commercial success of individual drugs. Rating strengths are
cash-generative operations, and management of its organic portfolio
decline with mid-to-larger scale acquisitions of established
cash-generative drugs with low integration risk, in its view.
The Stable Outlook reflects its expectation of a disciplined
approach to acquisitions and adherence to a conservative internal
financial policy leading to EBITDA leverage remaining below 4.0x,
which is consistent with the rating.
KEY RATING DRIVERS
Integrated Business Model: Grunenthal benefits from an integrated
business model with international manufacturing and distribution
capabilities. It has a good mix between mature off-patent drugs and
growing patented drugs, leading to adequate EBITDA margins
estimated at over 20% in the medium term.
Grunenthal has progressively diversified and repositioned its
portfolio and business model through acquisitions, complementing
its R&D-focused niche position as a pain medicines specialist with
a cash generative portfolio of established drugs. The
predictability of established drugs mitigates the impact of
potential R&D failures. The group has demonstrated efficient
capital-deployment and diligence in adding cash generative low-risk
drug rights and leveraging them on its own manufacturing and
distribution networks.
Conservative Financial Policy: The rating is predicated on
Grunenthal's adherence to stated financial policies, covenanted
leverage levels and deleveraging, particularly after any
debt-funded M&A. Unlike sponsor-backed leveraged buyouts with an
opportunistic financial approach, Fitch considers the commitment of
Grunenthal's founding-family shareholders, as reflected in their
target EBITDA net leverage below 2.5x. Departure from the stated
target leverage would signal an increased risk appetite and put the
ratings under pressure.
Adherence to Disciplined M&A: Fitch stresses the importance of
Grunenthal's disciplined selection of M&A targets, including
acquisition economics and asset integration, especially in light of
increasing competition from off-patent branded pharmaceuticals,
rising asset valuations and cost of capital. Given Grunenthal's M&A
pattern, operating needs and financial policy, Fitch projects
opportunistic M&A of up to EUR100 million-EUR200 million a year
over 2024-2026, funded by a revolving credit facility (RCF) and
free cash flow (FCF).
Fitch assumes new products will complement Grunenthal's therapeutic
competences and be compatible with the company's manufacturing and
commercial franchises with low integration risks. Fitch deems its
acquisition economics with enterprise value/EBITDA of up to 6.0x
and EBITDA margin of 50% as reasonable.
Cash-Generative Operations: The ratings are supported by
cash-generative operations, given Grunenthal's focus on established
branded products. The combination of gradually declining but
predictable sales and targeted product acquisitions support annual
EBITDA of around EUR400 million through 2026. The company further
benefits from contained capex needs estimated around 2%-4% of
sales, in turn supporting high single-digit to low-teen FCF
margins.
Concentrated Product Portfolio: Operating risks have a high rating
influence, particularly given the uneven revenue pattern of
Grunenthal's existing portfolio, which is supported by product
acquisitions to mitigate generic market pressures. Despite its
multi-regional presence, its smaller scale than peers and
concentrated product portfolio make it heavily reliant on the
commercial success of individual drugs that can lead to volatile
underlying revenue and operating profitability.
Contained Execution and Operational Risks: Grunenthal's business
development strategy around organic portfolio management
supplemented with selected drug-rights additions carries lower
execution risk and requires fewer resources than the acquisition of
clinical-stage drug candidates and businesses with manufacturing
assets and commercial networks.
Mild Decline Offset By Acquisitions: Its rating case conservatively
assumes negative organic growth from 2023 to 2025 due to the patent
expiry of Palexia, Grunenthal's largest drug accounting for
slightly over 20% of sales, partly offset by growth from Qutenza.
Its rating case does not incorporate the potentially substantial
contribution of late-stage drug candidate RTX, which could be
launched in 2025 and become a blockbuster if clinical trials are
successful. Fitch expects that recent acquisitions of established
drugs will more than offset the near-term negative organic growth.
Recent deals include the EUR494 million acquisition of Nebido and
the entry into a joint venture with Kyowa Kirin for its established
medicines portfolio with the intention to acquire the remaining 49%
stake in 2026. The latter will contribute to sales but not profits
until Grunenthal acquires the remaining 49% stake of the JV in
early 2026. Therefore, it will be dilutive to margins until 2025.
Grunenthal has an ESG Relevance Score of '4' for exposure to social
impact, due to the company's reliance on reimbursement policies in
its countries of operations, which has a negative impact on the
credit profile, and is relevant to the rating in conjunction with
other factors.
DERIVATION SUMMARY
Fitch rates Grunenthal Pharma GmbH & Co. Kommanditgesellschaft
using its Ratings Navigator for Pharmaceutical Companies. The 'BB'
IDR is supported by its integrated cash-generative business model
with a portfolio of patented and generic drugs with strong
financial credit metrics, reflecting a commitment to conservative
financial policies. This stance offsets the operating risks arising
from Grunenthal's concentrated product portfolio exposed to generic
market pressures.
Grunenthal is rated above asset-light scalable specialist
pharmaceutical companies focused on lifecycle management of
off-patent branded and generic drugs such as CHEPLAPHARM
Arzneimittel GmbH (Cheplapharm; B+/Stable), Pharmanovia Bidco
Limited (B+/Stable) and ADVANZ Pharma Holdco Limited (B/Stable).
Its rating is also above asset-intensive pharmaceutical companies
such as Roar BidCo AB (B/Stable) and European Medco Development 3
S.a.r.l. (B/Stable), due mainly to its much stronger leverage
metrics with EBITDA leverage below 3.5x versus Cheplapharm's and
Pharmanovia's 5.0x, and other peers' 6.0-9.0x.
Its stronger leverage profile is embedded in Grunenthal's
considerably more conservative financial policy and less aggressive
M&A strategy. Grunenthal is larger than most of these peers, but
product concentration remains a risk for the majority of
non-investment-grade pharmaceutical credits given their niche.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Volatile revenue profile reflecting an organic portfolio
declining at low-single digits due to generic and payor pressure.
However, organic revenue declines are offset by revenue from
opportunistic newly-acquired medium-sized targets;
- EBITDA margin maintained at/above 22%-23% to 2026;
- Trade working capital fluctuating with revenues and following
addition of new drugs;
- Sustained maintenance capex at 2%-4% of sales, in addition to
milestone payments related to previous acquisitions over the next
four years;
- Dividend payment of EUR40 million in 2023 and EUR30 million per
year from 2024 to 2026;
- Opportunistic acquisitions of around EUR100-200 million per year
funded through RCF utilisation and FCF (Fitch's assumption);
- Flexible use of RCF to support organic and inorganic growth.
Key Recovery Rating Assumptions
Fitch follows the generic approach for corporates rated 'BB-' or
above in accordance with the Corporates Recovery Ratings and
Instrument Ratings Criteria. Given the senior secured nature of the
entire debt issued by Grunenthal (single debt class) Fitch
classifies its debt as 'category 2 first lien' under the generic
approach for rating instruments of companies in the 'BB' rating
category based on Fitch's Corporates Recovery Ratings and
Instrument Ratings criteria. Therefore, Fitch rates Grunenthal's
senior secured debt one notch above the IDR, leading to a 'BB+'
senior secured notes rating with a Recovery Rating of 'RR2'.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- An upgrade to 'BB+' would require an improved business risk
profile through increased visibility of revenue defensibility
combined with stable EBITDA and FCF margins and a more conservative
financial policy with EBITDA leverage trending towards 1.5x (1.0x
net of readily available cash)
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Volatile revenue, EBITDA and FCF margins, signalling challenges
in addressing market pressures or poorly executed M&A with
increased execution risks
- Departure from conservative financial policies and commitment to
deleveraging, leading to EBITDA leverage above 3.5x (3.0x net of
readily available cash).
LIQUIDITY AND DEBT STRUCTURE
Satisfactory Liquidity: Fitch projects total liquidity levels being
maintained in excess of EUR300 million through to 2026. This is
supported by sustained positive FCF generation, albeit subject to
fluctuations in trade working capital, plus performance-related and
milestones payments, which Fitch treats as regular capital
commitments as they relate to the existing product portfolio. Fitch
expects the company will make flexible use of its RCF to top up
liquidity or fund M&A, but also to make voluntary debt prepayments,
based on its record and financial policies. Grunenthal's
medium-term liquidity profile benefits from the recent extension of
its RCF maturity, with its senior secured notes due in 2026 and
2028.
In its view, the planned bond issuance will further improve the
company's flexibility, which it will use for additional M&A
activities.
ISSUER PROFILE
Grunenthal is a German family-owned (with 75 years of history)
integrated pharmaceutical company focused on pain therapies and
management of established brands and patented products.
ESG CONSIDERATIONS
Grunenthal has an ESG Relevance Score of '4' for exposure to social
impact, due to the company's reliance on reimbursement policies in
its countries of operations, which has a negative impact on the
credit profile, and is relevant to the rating 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
----------- ------ --------
Grunenthal GmbH
senior secured LT BB+(EXP) Expected Rating RR2
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I R E L A N D
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CVC CORDATUS XXV-A: S&P Assigns B- (sf) Rating to Class F Notes
---------------------------------------------------------------
S&P Global Ratings assigned credit ratings to CVC Cordatus Loan
Fund XXV-A DAC's class A, B-1, B-2, C, D, E, and F notes. At
closing, the issuer also issued subordinated notes.
The ratings reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior-secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which is bankruptcy remote.
-- The transaction's counterparty risks, which are in line with
S&P's counterparty rating framework.
Portfolio Benchmarks
CURRENT
S&P weighted-average rating factor 2,997.04
Default rate dispersion 449.78
Weighted-average life (years) 4.60
Obligor diversity measure 117.95
Industry diversity measure 21.82
Regional diversity measure 1.19
Transaction Key Metrics
CURRENT
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 1.00
Covenanted 'AAA' weighted-average recovery (%) 5.81
Covenanted weighted-average spread (%) 3.95
Covenanted weighted-average coupon (%) 4.50
Liquidity facility
The Bank of New York Mellon provided the transaction with a EUR1.0
million liquidity facility with a maximum commitment period of four
years and an option to extend for a further two years. The margin
on the facility is 2.50% and drawdowns are limited to the amount of
accrued but unpaid interest on collateral debt obligations. The
liquidity facility is repaid using interest proceeds in a senior
position of the waterfall or repaid directly from the interest
account on any business day before the payment date. For our cash
flow analysis, we assume the liquidity facility is fully drawn
throughout the six-year period and that the amount is repaid just
before the coverage tests breach.
Class A investor condition
The transaction features a condition whereby the issue date class A
investor would have to consent, in writing, before certain
provisions of the documentation can be used. Some examples
include:
-- The transaction would not be able to run the class F interest
coverage ratio test to avoid interest smoothing unless consent is
obtained.
-- The carrying value of long-dated restructured obligations in
the overcollateralization numerator would be zero without consent
but the collateral value with consent.
-- The cumulative portfolio profile tests for workout obligations
are limited to 5% without consent but extend to 10% with consent.
-- An interim payment date can only be called with consent.
-- There is a minimum S&P weighted-average recovery test, which is
included in the collateral quality tests unless class A consent is
received.
Rating rationale
Under the transaction documents, the rated notes pay quarterly
interest unless a frequency switch event occurs. Following this,
the notes will switch to semiannual payments. The portfolio's
reinvestment period will end approximately four and half years
after closing.
S&P said, "The portfolio is well-diversified, primarily comprising
broadly syndicated speculative-grade senior-secured term loans and
senior-secured bonds. Therefore, we conducted our credit and cash
flow analysis by applying our criteria for corporate cash flow
CDOs.
"In our cash flow analysis, we used the EUR400 million target par
amount, and the portfolio's covenanted weighted-average spread
(3.95%), covenanted weighted-average coupon (4.50%), and target
weighted-average recovery rates at each rating level. We applied
various cash flow stress scenarios, using four different default
patterns, in conjunction with different interest rate stress
scenarios for each liability rating category.
"Under our structured finance sovereign risk criteria, we consider
that the transaction's exposure to country risk is sufficiently
mitigated at the assigned ratings.
"Until the end of the reinvestment period on Nov. 20, 2027, the
collateral manager may substitute assets in the portfolio for so
long as our CDO Monitor test is maintained or improved in relation
to the initial ratings on the notes. This test looks at the total
losses that the transaction can sustain as established by the
initial cash flows for each rating, and compares that with the
current portfolio's default potential plus par losses to date. As a
result, until the end of the reinvestment period, the collateral
manager may through trading deteriorate the transaction's current
risk profile, as long as the initial ratings are maintained.
"We consider the transaction's documented counterparty replacement
and remedy mechanisms to adequately mitigate its exposure to
counterparty risk under our current counterparty criteria.
"We consider the transaction's legal structure and framework to be
bankruptcy remote, in line with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our ratings are
commensurate with the available credit enhancement for the class A
to F notes. Our credit and cash flow analysis indicates that the
available credit enhancement for the class B-1, B-2, C, D, and E
notes could withstand stresses commensurate with higher ratings
than those we have assigned. However, as the CLO is in its
reinvestment phase since closing, during which the transaction's
credit risk profile could deteriorate, we capped our ratings
assigned to the notes.
"Taking the above factors into account and following our analysis
of the credit, cash flow, counterparty, operational, and legal
risks, we believe our ratings are commensurate with the available
credit enhancement for all the rated classes of notes.
"In addition to our standard analysis, to provide an indication of
how rising pressures among speculative-grade corporates could
affect our ratings on European CLO transactions, we also included
the sensitivity of the ratings on the class A to E notes based on
four hypothetical scenarios.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
The transaction securitizes a portfolio of primarily senior-secured
leveraged loans and bonds, and is managed by CVC Credit Partners
Investment Management.
Environmental, social, and governance (ESG) factors
S&P said, "We regard the exposure to ESG credit factors in the
transaction as being broadly in line with our benchmark for the
sector. Primarily due to the diversity of the assets within CLOs,
the exposure to environmental credit factors is viewed as below
average, social credit factors are below average, and governance
credit factors are average." For this transaction, the documents
prohibit assets from being related to certain activities,
including, but not limited to the following:
-- Any obligor where revenue is derived from the manufacture or
marketing of anti-personnel mines, cluster weapons, depleted
uranium, nuclear weapons, white phosphorus, or biological and
chemical weapons.
-- Any obligor where more than 5% of revenue is derived from
weapons, tailor-made components, or is involved in the
manufacturing of civilian firearms.
-- Any obligor where revenue is derived from tobacco production
such as cigars, cigarettes, e-cigarettes, smokeless tobacco,
dissolvable and chewing tobacco, and obligors where more than 5% of
revenue is derived from products that contain tobacco.
-- Any obligor whose primary business activity is non-certified
palm oil production.
-- Any obligor that derives more than 5% of revenue from the
mining of thermal coal or that has expansion plans for coal
extraction.
-- Any obligor that derives more than 5% of revenue from oil sands
extraction or that has expansion plans for unconventional oil and
gas extraction.
-- Any obligor that is an oil and gas producer that derives less
than 40% of revenue from natural gas or renewables or that has
reserves of less than 20% deriving from natural gas.
-- Any obligor that is an electrical utility where carbon
intensity is greater than 100gCO2/kWh, or where carbon intensity is
not disclosed it generates more than: 1% of its electricity from
thermal coal, or 10% from liquid fuels (oil).
-- Any obligor that primarily provides predatory payday lending.
-- Any obligor that derives more than 5% of revenue from the trade
in, production, or marketing of: pornography or prostitution,
opioid manufacturing and distribution, hazardous chemicals,
pesticides and wastes, ozone-depleting substances as covered by the
Montreal Protocol on Substances that Deplete the Ozone Layer
(1989), or the extraction of fossil fuels from unconventional
sources (including Arctic drilling, tar sands, shale oil, and shale
gas) or other fracking activities, or coal mining and/or coal-based
power generation.
-- Any obligor that derives any revenue from the trade in
endangered or protected wildlife, any species described as
'endangered' or 'critically endangered' in the most recent
publication of the International Union for Conservation of Nature
(IUCN) Red List; or any species subject to protection under the
Convention on International Trade in Endangered Species of Wild
Fauna and Flora (1973).
Accordingly, since the exclusion of assets from these industries
does not result in material differences between the transaction and
our ESG benchmark for the sector, we have not made any specific
adjustments in our rating analysis to account for any ESG-related
risks or opportunities.
Environmental, social, and governance (ESG) corporate credit
indicators
S&P said, "The influence of ESG factors in our credit rating
analysis of European CLOs primarily depends on the influence of ESG
factors in our analysis of the underlying corporate obligors. To
provide additional disclosure and transparency of the influence of
ESG factors for the CLO asset portfolio in aggregate, we've
calculated the weighted-average and distributions of our ESG credit
indicators for the underlying obligors. We regard this
transaction's exposure as being broadly in line with our benchmark
for the sector, with the environmental and social credit indicators
concentrated primarily in category 2 (neutral) and the governance
credit indicators concentrated in category 3 (moderately
negative)."
Corporate ESG Credit Indicators
ENVIRONMENTAL SOCIAL GOVERNANCE
Weighted-average credit indicator* 2.04 2.17 2.92
E-1/S-1/G-1 distribution (%) 1.25 0.00 0.00
E-2/S-2/G-2 distribution (%) 80.65 74.61 12.35
E-3/S-3/G-3 distribution (%) 4.95 9.37 70.75
E-4/S-4/G-4 distribution (%) 0.00 2.87 1.75
E-5/S-5/G-5 distribution (%) 0.00 0.00 2.00
Unmatched obligor (%) 11.14 11.14 11.14
Unidentified asset (%) 2.00 2.00 2.00
*Only includes matched obligor.
Ratings List
CLASS RATING AMOUNT INTEREST RATE CREDIT
(MIL. EUR) ENHANCEMENT (%)
A AAA (sf) 244.00 3mE + 1.70% 39.00
B-1 AA (sf) 27.00 3mE + 3.00% 28.50
B-2 AA (sf) 15.00 7.00% 28.50
C A (sf) 22.00 3mE + 3.75% 23.00
D BBB- (sf) 26.00 3mE + 5.20% 16.50
E BB- (sf) 18.00 3mE + 7.54% 12.00
F B- (sf) 11.00 3mE + 9.72% 9.25
Subordinated NR 36.40 N/A N/A
NR--Not rated.
N/A--Not applicable.
3mE--Three-month Euro Interbank Offered Rate.
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L U X E M B O U R G
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AFE SA: S&P Cuts Sr. Secured Notes Rating to 'B-', On Watch Neg.
----------------------------------------------------------------
S&P Global Ratings lowered its ratings on AFE S.A. and its
outstanding senior secured notes to 'B-' from 'B' and placed the
ratings on CreditWatch with negative implications.
The CreditWatch negative indicates a 50% likelihood of a downgrade
if AFE fails to refinance its senior secured notes or revolving
credit facility (RCF) in the next three months, which would put
more pressure on its liquidity position and increase the risk of
distressed restructuring.
S&P said, "We think AFE S.A. faces mounting risks while it seeks to
refinance its senior secured notes and revolving credit facility
(RCF) amid tough financial conditions. Furthermore, lack of
long-term funding constrains AFE management's ability to invest in
new portfolios, putting pressure on AFE's business position.
"We believe that AFE's refinancing risk has increased due to
currently tough financial market conditions and its shortening debt
maturity profile. Unlike some of its peers, AFE didn't access the
market over the last six months to refinance its outstanding
EUR307.5 million senior secured notes maturing in August 2024.
This, in turn, constrains its access to bank lending, except very
short term, and has led management to significantly reduce its
investments this year to accumulate liquidity until a refinancing
is achieved. AFE has yet to refinance its RCF of EUR90 million
(EUR88.5 million drawn as of Dec. 31, 2022) due on June 30, 2023.
While negotiations appear to be well advanced, and we expect the
company will extend the RCF, the new amount will be reduced, and
the maturity will be shorter than 12 months. We assume that if AFE
fails to refinance its senior secured notes by year-end, it will
have to repay all of its RCF, which would leave its liquidity
position highly sensitive and vulnerable. We assume management will
accelerate its efforts to refinance the senior secured notes in the
coming months by considering public and private refinancing."
Nevertheless, the outcome of this refinancing exercise remains
uncertain, considering the market environment, and it might be very
costly for AFE.
The existing financial constraints materially limit AFE's ability
to keep and grow its current business volume. To generate liquidity
sufficient to go through RCF repayments, management has temporarily
switched AFE into run-off mode, by focusing on collecting cash from
its existing nonperforming loans (NPL) portfolio and reducing new
investments to no higher than EUR30 million in 2023--a level well
below its replacement rate of EUR76 million. This will likely
reduce AFE's 84-month ERC below EUR475 million from EUR553 million,
creating missed business opportunities compared with peers with no
such constraints, and limiting future collections' growth. However,
the deployment will likely get back to a more normalized level if
AFE refinances its senior secured notes and extends maturity of its
new RCF.
The major increase of real estate investments might intensify AFE's
earnings volatility and create additional business risks not faced
by peers. Last year, AFE deployed EUR94.8 million into new
investments with around 90% of all investments directed to various
real estate assets in the U.K., France, and Italy. As a result, the
share of direct real estate investments in total estimated
remaining collections (ERC) increased to 52% from 35% a year ago.
AFE has indicated it is focusing on acquiring prime, well-occupied
real estate from distressed sellers at steep discounts to market
value. This could at least partially protect the company from
negative revaluation in the current challenging real estate market
environment. Nevertheless, S&P thinks that the large size and
illiquid nature of real estate assets may heighten cash flow
volatility over 2023-2024, complicating liquidity management.
S&P said, "Uncertain economic conditions and our anticipation of
persisting collections volatility suggests the company will not be
able to deleverage in 2023.The company's 2022 performance was close
to our expectations with S&P Global Ratings-adjusted EBITDA
increasing by 13.2% and adjusted debt to EBITDA reducing to 3.8x
versus 4.2x. We note that in 2022 AFE continued to experience high
quarter-to-quarter swings in collections, reflecting the company's
lower portfolio granularity and greater-than-peers' focus on
secured NPLs and real estate. We expect the company's leverage
metrics will remain in the 3.7x-4.0x range over 2023-2024, while
economic uncertainty may create downside risks to our forecasts.
Leverage metrics on an unadjusted basis (excluding credit for
portfolio amortization) will likely stay above 7.0x."
The CreditWatch negative reflects the potential of a downgrade if
AFE fails to refinance its senior secured notes in the next three
months. Although the company's debt doesn't mature until August
2024, further delays in refinancing will constrain the ability to
refinance the RCF beyond December 2023 and create a significant
near-term liquidity risk, thereby increasing the risk of distressed
debt restructuring. Although less likely given the advanced stage
of negotiations with the banks, a negative rating action could also
occur if AFE fails to refinance its existing RCF.
S&P could resolve the CreditWatch and affirm the ratings in the
event of a successful refinancing of the RCF and the senior secured
notes, with no losses incurred by creditors as result of that
exercise.
=============
R O M A N I A
=============
BLUE AIR: EU Commission Opens Investigation Into Support Measures
-----------------------------------------------------------------
Andrei Chirileasa at Romania-Insider.com, citing G4media.ro,
reports that the European Commission (EC) has opened a detailed
investigation to assess whether certain support measures taken by
Romania in favour of Blue Air Aviation, specifically the guarantees
for a EUR34 million rescue loan extended in August 2020 and its
renewal, comply with EU state aid rules.
Specifically, such a detailed investigation assesses whether the
troubled company is likely to become viable after the restructuring
plan as notified to the Commission, Romania-Insider.com notes.
The Romanian state accepted a 75% stake in Blue Air in exchange for
repaying the EUR62 million bank loans previously guaranteed under
the state-aid schemes, Romania-Insider.com discloses. But instead
of assets, the state ended up with more liabilities (around EUR200
million), which was probably not part of the restructuring plan,
Romania-Insider.com relays. The state eventually filed for the
company's bankruptcy in March 2023, Romania-Insider.com recounts.
It is uncertain whether the recovery plan notified by Romania to
the EC included such developments, but most likely not,
Romania-Insider.com states.
The investigation also evaluates the support the target company
receives from the free market (banks, other investors) as part of
the restructuring plan and whether the support measures provided by
the state distort the competition in the market,
Romania-Insider.com discloses. Both elements are far from the
classic state aid scheme, Romania-Insider.com says.
In August 2020, the EC cleared two public support measures for Blue
Air, namely guarantees for a EUR28 million loan to compensate for
the effects generated by the Covid-19 crisis and a EUR34 million
rescue loan, Romania-Insider.com relates.
After six months, the state should have either reported the
termination of the guarantees or drafted a liquidation/
comprehensive restructuring plan, Romania-Insider.com states.
In April 2021, Romania communicated for the first time to the
Commission a plan to restructure Blue Air for the period August
2020 - September 2025, Romania-Insider.com relates.
===========================
U N I T E D K I N G D O M
===========================
ALPHABET BREWING: Financial Difficulties Prompt Administration
--------------------------------------------------------------
Alistair Houghton at BusinessLive reports that craft ale brewery
and taproom Alphabet Brewing Company has gone into administration
-- and its administrator has warned that many other small breweries
are facing cash challenges.
Manchester-based Alphabet was founded in 2014 and was known for
ales including Juice Springsteen and Charlie Don't Surf. As well
as its own venue in North Western Street, Alphabet supplied bars,
restaurants, and retailers throughout the region.
Alphabet announced last week that it was closing, BusinessLive
discloses. Now administrators from Begbies Traynor have confirmed
they have been appointed to the business which they say has been
experiencing financial difficulties in recent months, BusinessLive
relates.
According to its latest set of accounts, Alphabet turned over
GBP500,000 and employed 12 people.
According to BusinessLive, joint administrators Paul Stanley and
Jason Greenhalgh also acted in the 2022 administration of
Manchester-based brewer Beatnikz Republic, as well as the 2018
administration of Liverpool Organic Brewery.
"After exploring all the options available the directors took the
decision to place the company into administration. We're currently
working on maximising the return for creditors," BusinessLive
quotes Paul Stanley, regional managing partner at Begbies Traynor,
as saying. "Alphabet Brewing Company is a well-respected brand that
has played an important role in the craft beer scene in
Manchester.
BRUCE AND LUKE'S: Goes Into Liquidation Following Branch Closures
-----------------------------------------------------------------
Cumbria Crack reports that Cumbrian coffee chain Bruce and Luke's
has officially gone into liquidation.
Official papers have been lodged a month after the chain closed all
its branches saying they were no longer sustainable, Cumbria Crack
relates.
Liquidators have been appointed and a list 19 creditors have been
published, owed a total of GBP110,241.37, Cumbria Crack discloses.
The firm owes the most to Barclays, with GBP37,500 outstanding and
a London-based estate agency, with GBP25,289 listed, Cumbria Crack
states. The least amount owed is GBP103.17 to delivery firm DPD
Local. It owes GBP3836.25 to HMRC, Cumbria Crack notes.
Owners Brice Brown and Luke Jackson -- who is owed over GBP4,500
from the firm -- said on March 6 that they had no choice other than
to close the company's four stores in Keswick, Carlisle and
Caledonia Park, formerly Gretna Gateway, Cumbria Crack recounts.
CURZON MORTGAGES: Fitch Gives 'B+sf' Final Rating to Class G Notes
------------------------------------------------------------------
Fitch Ratings has assigned Curzon Mortgages Plc's notes final
ratings, as detailed below.
Entity/Debt Rating Prior
----------- ------ -----
Curzon Mortgages PLC
A1 XS2607046054 LT AAAsf New Rating AAA(EXP)sf
A2 XS2603650370 LT AAAsf New Rating AAA(EXP)sf
B XS2603650537 LT AAsf New Rating AA(EXP)sf
C XS2603650883 LT Asf New Rating A(EXP)sf
D XS2603651931 LT BBB+sf New Rating BBB+(EXP)sf
E XS2603652400 LT BBBsf New Rating BBB(EXP)sf
F XS2603652582 LT BB+sf New Rating BB+(EXP)sf
G XS2603653556 LT B+sf New Rating B+(EXP)sf
X XS2603655098 LT CCCsf New Rating CCC(EXP)sf
Z XS2603654018 LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
The transaction is 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 as of the
February 2023 cut-off date. 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 originator 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 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
has a liquidity reserve sized at 0.5% of the 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 is 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 (CE).
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 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 the class G
notes the expected rating exceeded the one-notch flexibility from
the model-implied rating included in the criteria.
DATA ADEQUACY
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Fitch reviewed the results of a third party assessment conducted on
the asset portfolio information, and concluded that there were no
findings that affected the rating analysis.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Curzon Mortgages Plc has an ESG Relevance Score of '4' for Customer
Welfare - Fair Messaging, Privacy & Data Security due 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.
PEOPLECERT HOLDINGS: S&P Ups Ratings to 'B+' on Strong Deleveraging
-------------------------------------------------------------------
S&P Global Ratings raised its ratings on PeopleCert Holdings UK
Ltd. and its EUR300 million senior secured notes to 'B+' from 'B'.
The stable outlook reflects S&P's expectation that PeopleCert will
continue to deliver strong organic revenue and earnings growth,
such that adjusted leverage will continue to decline well below
4.0x over the next 12 months.
S&P said, "The upgrade reflects our view that PeopleCert will
continue to rapidly reduce leverage after strong operating metrics
over the last 18 months. The group reported organic revenue growth
of 48% in 2022, and adjusted EBITDA jumped to £74 million from
£27 million in 2021 in the first full year of results after the
Axelos acquisition at midyear 2021. As such, PeopleCert ended 2022
with S&P Global Ratings-adjusted debt to EBITDA of about 4x,
earlier than we expected. The improving credit metrics stemmed from
PeopleCert's strong organic revenue growth and high profitability
margins, aided by the full release of synergies arising from the
integration of Axelos beyond and ahead of our expectations. We
forecast a further reduction of adjusted leverage toward 3.0x in
2023 and 2024. We believe the group will continue to focus on
driving double-digit revenue growth while maintaining stable
profitability margins through high-margin ancillary revenue streams
for its key IT service management and project management
certifications (including mandatory study materials, mock exams,
and membership fees). We anticipate growth will also come from
PeopleCert increasing its market share in the highly fragmented
languages certifications market, and acquiring and integrating
bolt-on, complementary assets with strong organic growth
capabilities that broaden its offering in core IT and project
management markets.
"We expect the group's financial policy will support lower
leverage, with a limited likelihood of releveraging. We consider
that PeopleCert's sound ability to deleverage through earnings
growth and strong cash flow generation is supported by the group's
aim to reduce net debt to EBITDA toward pre-Axelos acquisition
levels of 1x-2x on a company-adjusted basis. We also believe the
risk of releveraging is limited in the near term. This is because
we understand PeopleCert is focusing on achieving strong organic
revenue growth and conserving margins rather than pursuing large,
debt-funded acquisitions in the next six to 12 months. While we
think PeopleCert could consider larger acquisitions in the longer
term, we anticipate that organic EBITDA growth and free cash flow
generation will provide capacity to internally fund smaller bolt-on
acquisitions as well as headroom for a temporary, moderate increase
in leverage over the next two to three years. Similarly, we assume
the group will not pursue large, debt-funded shareholder
distributions over that period. Our revised forecast incorporates
our assumption of £13 million-£15 million of annual dividend
distributions in 2023 and 2024, broadly in line with our
expectation of earnings growth over the same period.
"We believe the group will continue to achieve rapid organic
earnings growth and generate ample free cash flow, despite tough
macroeconomic conditions. We forecast 20%-25% revenue growth in
2023, despite the current slowdown in global macroeconomic growth.
We consider that the group still has substantial opportunity to
drive organic revenue growth and diversify its revenue sources from
its core examinations products. This is supported by PeopleCert's
large and fragmented total addressable market, its small scale, and
our view that fully owned flagship certifications ITIL and PRINCE2
generate less revenue than competitors' products. We still project
the group's adjusted EBITDA margins at 62%-64% in 2023 and 2024. We
believe that, with PeopleCert's largely fixed cost structure,
strong organic topline growth will offset increasing staff costs.
Similarly, its fixed-rate, moderate debt service and low working
capital and capital expenditure (capex) requirements should lead to
sound free operating cash flows (FOCF) of £40 million-£50 million
over that period."
The stable outlook reflects S&P's expectation that, over the next
12 months, PeopleCert will continue to post strong organic revenue
growth and maintain profitability margins such that adjusted debt
to EBITDA will decline to well below 4.0x. Sound FOCF generation
will also provide some capacity to fund bolt-on acquisitions,
gradually increasing PeopleCert's size and scope of operations.
Downside scenario
S&P could lower its ratings if PeopleCert's S&P Global
Ratings-adjusted debt to EBITDA increased beyond 4.0x. This could
happen if:
-- Revenue and earnings do not increase in line with our
expectations due, for example, to weak exam volumes or lower growth
from ancillary revenue streams, leading to slower deleveraging than
expected; or
-- The group followed a more aggressive financial policy, such
that it prioritized debt-funded acquisitions or large shareholder
distributions over further deleveraging.
Upside scenario
S&P could raise its ratings if PeopleCert meaningfully expanded its
size and scope of operations and continued to reduce its dependence
on the ITIL and PRINCE2 frameworks, while achieving strong and
stable earnings growth and FOCF. An upgrade would also require
adjusted debt to EBITDA to decline and stay comfortably below 3.0x,
and the financial policy to aim at maintaining improved credit
metrics, with limited risk of releveraging.
ESG credit indicators: E-2, S-2, G-3
STEWART AND SHIELDS: Enters Liquidation, Halts Trading
------------------------------------------------------
Business Sale reports that a contractor based in Helensburgh,
Scotland that has been operating for more than 60 years has fallen
into liquidation and ceased trading as pressure continues to mount
on businesses in the UK construction sector.
Stewart and Shields provided building services including local
authority work, commercial construction, social housing and private
and residential contracts across the country. Despite being
longstanding and well-established, the company encountered cashflow
difficulties amid rising costs for raw materials and a skills
shortage, Business Sale discloses.
According to Business Sale, Blair Nimmo and Alistair McAlinden of
Interpath Advisory have now been appointed as joint provisional
liquidators to the company, which reported fixed assets of GBP1.6
million, current assets of GBP3.28 million and net assets amounting
to slightly over GBP1 million in its accounts for the year to
August 31 2021.
"The collapse of Stewart and Shields Limited is another indicator
of the challenges and economic headwinds currently facing the
Scottish construction sector," Business Sale quotes joint
provisional liquidator and Interpath Advisory Chief Executive Blair
Nimmo as saying. "The Directors fought hard to save this
long-standing family-run business, but the construction industry
has experienced several challenges over recent years, with rising
raw material costs, supply chain disruption and labour challenges
putting businesses under increased pressure."
*********
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.
This material is copyrighted and any commercial use, resale or
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Information contained herein is obtained from sources believed to
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