/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/230511.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, May 11, 2023, Vol. 24, No. 95 Headlines F R A N C E CASINO GUICHARD: S&P Downgrades ICR to 'CCC-', On Watch Negative G E O R G I A LIBERTY BANK: Fitch Affirms B+ LongTerm IDR, Alters Outlook to Pos. PROCREDIT BANK: Fitch Affirms LongTerm IDR at BB+, Outlook Positive I R E L A N D BARINGS EURO 2018-2: Moody's Cuts EUR12.5MM F Notes Rating to B3 IRISH FAIRY: Appoints Adviser to Work Out Restructuring Plan MAN GLG II: Moody's Cuts Rating on EUR7.7MM Class F Notes to Caa1 L U X E M B O U R G MALLINCKRODT FINANCE: $369.7M Bank Debt Trades at 29% Discount N E T H E R L A N D S BRIGHT BIDCO: $300M Bank Debt Trades at 38% Discount S P A I N DURO FELGUERA: EUR85M Bank Debt Trades at 48% Discount S W E D E N VATTENFALL AB: S&P Assigns 'BB+' Rating to Hybrid Capital Notes U N I T E D K I N G D O M 3F PELLETS: Enters Administration, Owes GBP9 Million AMBIVENT LIMITED: On Verge of Administration, Put Up for Sale BCP V MODULAR: Moody's Affirms 'B2' CFR, Outlook Remains Stable BCP V MODULAR: S&P Affirms 'B' LT ICR, Outlook Stable SAPIENT COMMERCIAL: On Brink of Administration Following CVA UK: More Insolvencies in Construction Sector, Report Shows VURGER CO: Bought Out of Administration, Three Sites Saved - - - - - =========== F R A N C E =========== CASINO GUICHARD: S&P Downgrades ICR to 'CCC-', On Watch Negative ---------------------------------------------------------------- S&P Global Ratings lowered its long-term issuer credit ratings on Casino Guichard - Perrachon S.A. (Casino) to 'CCC-' from 'CCC+' and its issue ratings on its senior secured debt to 'CCC' from 'B-', its senior unsecured debt to 'CC' from 'CCC+', and its hybrid instruments to 'C' from 'CC'. S&P also placed all the ratings on CreditWatch negative. S&P said, "We revised down the recovery rating on the group's senior unsecured debt to 5 (25%) from 4 (30%), since Monoprix Exploitation issued a EUR120 million private bond that we consider structurally senior to Casino's unsecured debt and we cannot exclude further priority debt issuances of a similar nature in the future. "The CreditWatch negative reflects our view of an increasing probability of default--either conventional or through a distressed exchange or restructuring--absent favorable developments. We expect to resolve the placement when we have more visibility on the various transactions and options that the company is considering to address its weak liquidity position and unsustainable capital structure." The weak liquidity position and a prospects of a conciliation procedure signal increased default risks at Casino. On April 24, Casino launched a solicitation to seek the consent of the required majority of creditors so that a potential request for, or the appointment of, conciliators would not constitute a default or event of default under the bond documentation. This procedure would provide a framework for discussions with creditors in the context of negotiations with EP Global Commerce, as well as with Teract and Groupement Les Mousquetaires, since the group is considering various options to address its upcoming debt maturities and unsustainable capital structure. At March 31, 2023, Casino's French operations had about EUR350 million of cash on the balance sheet, including cash in segregated accounts, while about EUR1.4 billion of debt is coming due in the next 12 months. S&P said, "We believe the consent solicitation process, combined with the group's weak operating performance, fragile liquidity position, and unsustainable capital structure, make a default, distressed exchange, or redemption appear inevitable within six months, absent unanticipated and significantly favorable changes in the issuer's circumstances. Although we would likely not consider the opening of a conciliation procedure in itself a default under our criteria, any eventual agreement in which investors would receive less value than originally promised would qualify as a distressed debt exchange and tantamount to default. Furthermore, we cannot exclude forthcoming restructuring or reorganization proposals from bondholders or other third parties." Casino's French operations recorded weak results in first-quarter of 2023, putting liquidity under pressure. French revenue declined 4.8% quarter on quarter, driven by a 25% contraction in e-commerce and a 2% decline in retail, underlying a significant volume contraction. Retail performance varied depending on the format, with organic revenue from Franprix and Monoprix expanding 6.6% and 4.1% respectively, while hypermarkets and supermarkets organic revenue contracted 10.2% and 10.3%. S&P believes the weak performance of hypermarkets and supermarkets was driven by Casino's inadequate price positioning amid the more challenging macroeconomic environment and declining consumer purchasing power. Although the group is now working to adjust its price position, this may result in a further decline in margins over the short term. Weaker-than-expected revenue and challenging trading conditions translated in a 60% decline in reported French EBITDA, which dropped to EUR95 million. Reported EBITDA after leases was negative at EUR53 million. S&P estimates the French operations burned about EUR700 million in the quarter, which the group covered with an equivalent amount of proceeds from asset disposals, such that net debt was broadly unchanged. The severe cash burn during the quarter also put liquidity under pressure. At March 31, 2023, Casino France had about EUR350 million of cash on the balance sheet, including cash in segregated accounts, while EUR1.4 billion of debt is coming to maturity in the next 12 months. Furthermore, covenant headroom under the senior secured debt leverage limit dropped below 10%, leaving the group with only EUR211 million available under its revolving credit facilities (RCFs). This weak quarterly performance follows an already poor full-year 2022, when French revenue declined 1.7% to EUR15.8 billion, reported EBITDA declined 9%, and the group burned about EUR1.1 billion of cash. Casino has received a proposal from EP Global Commerce for a EUR1.1 billion capital increase, conditional on restructuring its senior unsecured debt. The total capital increase of EUR1.1 billion under the conditional letter of intent, announced April 24, would be provided by EP Global Commerce itself (EUR750 million), Fimalac (EUR150 million), and other shareholders (EUR200 million). EP Global Commerce (through its affiliated VESA Equity Investment S.a.r.l.) and Fimalac are already minority Casino investors. The offer is conditional on a restructuring of senior unsecured debt, various regulatory approvals, and eventually a waiver from secured creditors relating to change-of-control clauses. Casino has acknowledged the proposal and started the process to enter a conciliation procedure to help eventual negotiations with creditors. If implemented, the capital increase would lead to a material dilution of existing shareholders, determining a change of control of the group. S&P understands that, aside from this, the group is also continuing to negotiate with Teract and it understands that the two offers may not be mutually exclusive. The group is still negotiating a potential deal with Teract and Groupement Les Mousquetaires. On March 9, 2023, Casino announced it had entered into an exclusive agreement with Teract to discuss a merger between the two groups. This would likely result in the creation of two new entities, one controlled by Casino and managing the retail activities, and one controlled by Teract and managing the supply chain. S&P understands that Casino would contribute its core French retail activities to the new entity, while retaining its Latin American assets, e-commerce business C-Nova, data business RelevanceC, and the remaining real estate. The new entity would be provided with an additional EUR500 million of equity, of which EUR300 will be from InVivo (Teract's controlling shareholder) and Groupement Les Mousquetaires (the third-largest French food retailer), with the latter entity becoming a minority shareholder of the new company. Groupement Les Mousquetaires is also negotiating an extension of the purchasing agreement with Casino, sourcing partnerships with the new entity, and a possible future transfer of stores. At this stage, it's too early to assess the rating effects of this transaction on Casino, its capital structure, or debt instruments. In particular, depending on where the debt instruments sit within the new structure and whether their terms and conditions are altered, the transaction could have different rating implications for Casino's various classes of debt. The group faces significant debt maturities in 2024-2025, while asset values have declined. Casino's French perimeter will face about EUR1.4 billion of debt maturities in the next 12 months, including subsidiary Quatrim's EUR553 million of senior secured notes, EUR509 million of senior unsecured notes, Monoprix's new EUR120 million private notes, EUR40 million of drawn RCFs maturing in January 2024, and about EUR176 million of short-term commercial paper and bank overdrafts. The group will also face an additional EUR1.8 billion debt maturity in 2025. Although Casino still has some valuable assets to sell to potentially manage debt maturities, their overall value has declined after the cumulative EUR1.2 billion sale of 29% of Assai, and the negative exchange developments between the euro and Brazilian real. Currently, the group can still rely on the publicly listed shares in its Latin American subsidiaries, worth about EUR800 million; the publicly listed shares in CNova, worth about EUR1.0 billion; and potentially its remaining real estate assets, worth about EUR1.2 billion. S&P said, "We also understand that Casino is proceeding with the spin-off of Grupo Exito from Grupo Pao de Açucar (GPA) to maximize its valuation. We note the current price deterioration of Casino's debt instruments may incentivize the group to launch additional buybacks or tender offers at prices significantly below par instead of refinancing or reimbursing them. We may consider any such buyback a distressed debt exchange and tantamount to default." Casino's parent Rallye and its holding companies will face difficulties in reimbursing its debt when it comes due from 2025. Rallye holds 51.7% of Casino's shares and Jean-Charles Naouri is the main shareholder, chairman, and CEO of both Rallye and Casino. On Oct. 21, 2021, the Paris Commercial Court agreed to a two-year deferral of Rallye's debt amortization schedule established under the original safeguard plan approved in March 2020. Rallye's debt is secured with Casino's shares. The initial safeguard plan for Casino's holding companies mentions that Rallye's plan to redeem its debt relies on the distribution capacity of Casino. Although Rallye's debt repayment schedule has been amended to adapt to highly volatile market conditions in the past two years, S&P believes the parent may face difficulties in managing either an orderly refinancing of these instruments or a redemption, with EUR1.9 billion of debt and accrued debt due in February 2025 at Rallye alone. S&P notes that, on March 22, 2023, Rallye recognized risks to the safeguard plan had increased given Casino's weak performance and the sale of a significant portion of Assai and said it may start discussions with creditors to revise the plan. On April 25, 2023, Rallye and its holding companies announced they had obtained ad-hoc mandate proceedings from the Commercial Court of Paris to start negotiations with creditors. In particular, they are soliciting a waiver of the event of default triggered if Casino enters a procedure of conciliation. Depending on negotiations, this could eventually have implications for Casino's shareholders and controls. Casino's current equity valuation is much smaller than the value of Rallye's outstanding debt. S&P said, "The CreditWatch negative reflects our view of an increasing probability of default--either conventional or through a distressed exchange or restructuring--absent favorable developments. We expect to resolve the placement when we have more visibility on the various transactions and options that the company is considering to address its weak liquidity position and unsustainable capital structure." ESG credit indicators: E-2, S-2, G-5 ============= G E O R G I A ============= LIBERTY BANK: Fitch Affirms B+ LongTerm IDR, Alters Outlook to Pos. ------------------------------------------------------------------- Fitch Ratings has revised the Outlook on JSC Liberty Bank's (LB) Long-Term Issuer Default Rating (IDR) to Positive from Stable, and has affirmed the rating at 'B+'. At the same time, Fitch has affirmed the bank's Viability Rating (VR) at 'b+'. The Positive Outlook reflects its expectation that Georgia's improving operating environment will strengthen LB's financial profile, namely asset quality, profitability and funding. Fitch has similarly revised the outlook on the operating environment score for banks in Georgia to positive, from stable. Fitch believes the banking sector's operating environment benefits from the country's buoyant economic growth, strengthening sovereign credit profile and improving external finances. KEY RATING DRIVERS IDR Captures Intrinsic Strength: LB's IDR is driven by the bank's standalone profile, as captured by its VR. The VR reflects the bank's good asset quality and profitability metrics, adequate capitalisation, as well as reasonable funding profile. This is balanced by LB's moderate franchise, weaker-than-peer pricing power and a high, although declining, exposure to the consumer-finance segment. Strong Economic Growth: Fitch expects the boost in Georgia's economic activity to support banking-sector performance and loan quality. The military conflict in Ukraine and subsequent sanctions on Russia have resulted in a large positive economic shock in the form of sizable immigration and a surge in remittances. Coupled with a rebound in tourism and strong domestic demand, this has boosted GDP growth, which Fitch estimates at 10.3% in 2022, before normalising to 4.5% in 2023. Retail Focus: LB is the third-largest bank in Georgia and is focused on lending to the household segment. The bank's market shares amounted to 5.5% in sector loans and 6.0% in deposits at end-2022. LB acts as an exclusive agent for pensions and welfare distribution, and its retail franchise is supported by the country's largest branch network. Low Foreign-Currency Lending: LB has the lowest balance-sheet dollarisation among Fitch-rated banks in Georgia, due to its focus on retail lending. At end-2022, 20% of loans were denominated in foreign currencies, against a sector average of 45%. Household lending is almost entirely in local currency due to strict underwriting regulations. Falling Impaired Loans: The impaired loan ratio (Stage 3 under IFRS 9) fell to 3.8% at end-2022 from 6.0% at end-2021 due to write-offs and loan-book expansion. Impaired loans were 1.2x covered by loan loss allowances. Fitch expects asset quality to remain healthy against reducing inflationary pressure and good economic growth. Improved Performance: Fitch expects profitability to remain healthy in 2023, supported by high interest rates. LB's profitability has recovered in recent years amid lower impairment charges and stronger non-interest income. The ratio of operating profit/risk-weighted assets (RWAs) was at 3.1% in 2022. Tight Capital Buffers: Fitch expects LB to operate with capital ratios marginally above requirements, despite healthy internal capital generation, as the prudential requirements will increase until 1Q24. LB's Fitch Core Capital (FCC) ratio amounted to a moderate 12.5% at end-2022, while its regulatory common equity Tier 1 (10.9%), Tier 1 (11.1%) and total capital adequacy (14.2%) ratios were above the minimum requirements of 8.0%, 9.4% and 13.4%, respectively. Mainly Deposit Funded: LB is predominantly funded by customer accounts, which comprised 86% of non-equity funding at end-2022, about half of which are sourced from individuals. State and public sector entities contribute a third of total customer accounts. The liquidity position is reasonable, as expressed by the 95% ratio of gross loans/deposits at end-2022. Extraordinary Support Unlikely: The Government Support Rating (GSR) of 'ns' (no support) reflects its view that resolution legislation in Georgia, combined with a constrained ability by authorities to provide support - especially in foreign currency - means that government support, although still possible, cannot be relied on. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Fitch is likely to revise the Outlook to Stable if Fitch revises the factor outlook on the operating environment to stable. The IDR and VR could be downgraded if asset quality weakens, with an impaired loan ratio of above 10%, resulting in high risk costs and sustainably poor performance (operating profit/RWAs of below 1%). A major deterioration in capitalisation, with the FCC ratio falling to below 10%, could also result in a downgrade. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade An upgrade would require an improvement in Georgia's operating environment, coupled with an extended record of healthy performance, namely keeping the impaired loan ratio at below 5% and maintaining decent profitability metrics (operating profit/RWAs of above 2%). A somewhat higher capital buffer, with the FCC ratio approaching 15%, could also be credit positive. VR ADJUSTMENTS The earnings and profitability score of 'b+' is below the implied score of 'bb' due to following adjustment reason: earnings stability (negative). The capitalisation and leverage score of 'b+' is below the implied score of 'bb' due to following adjustment reason: regulatory capitalisation (negative). ESG CONSIDERATIONS Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Entity/Debt Rating Prior ----------- ------ ----- JSC Liberty Bank LT IDR B+ Affirmed B+ ST IDR B Affirmed B Viability b+ Affirmed b+ Government Support ns Affirmed ns PROCREDIT BANK: Fitch Affirms LongTerm IDR at BB+, Outlook Positive ------------------------------------------------------------------- Fitch Ratings has affirmed ProCredit Bank Georgia's (PCBG) Long-Term Issuer Default Rating (IDR) at 'BB+' with a Positive Rating Outlook and Viability Rating (VR) at 'bb-'. KEY RATING DRIVERS The Long-Term IDRs of PCBG are driven by the Shareholder Support Rating (SSR) of 'bb+'. The SSR reflects Fitch's view that the bank's sole shareholder, ProCredit Holding AG & Co. KGaA's (PCH; BBB/Stable), will continue to have a strong propensity to support PCBG, given its importance to the group, full ownership, common branding, strong integration, and a record of capital and liquidity support. Country Risks Constrain Ratings: Fitch caps PCBG's ratings at one notch above the Georgian sovereign to reflect country risks and potential interventions in the banking sector. In Fitch views, such risks could limit PCBG's ability to service its obligations or the parent's propensity to support, or both in case of extreme macroeconomic and sovereign stress. Strong Economic Growth: The military conflict in Ukraine and subsequent sanctions on Russia have resulted in a large positive spill-over effects in the form of sizable immigration and surge in remittances. Coupled with stable public consumption, a rebound in tourism and positive net exports, these factors have led to a strong GDP growth, which Fitch estimates at 10.3% in 2022, before normalising to 4.5% by 2023. Fitch expects the boost in economic activity to support the banking sector's loan quality and profitability in the next two to three years. Benefits of Group's Business Model: PCBG's Viability Rating (VR) balances the risks stemming from the bank's very high balance-sheet dollarisation, with the expertise of the group in the SME sector, and sound risk appetite, resulting in strong asset quality through the cycle and healthy profitability. Elevated FC Lending: PCBG's loan book is highly dollarised (70% of loans at end-2022, above sector average of 45%), driven by the bank's focus on SME loans and limited retail lending. Reasonable Asset Quality: PCBG's asset quality has been stable through the cycle and compares well with other Georgian peers. The impaired loan ratio (Stage 3 and POCI) increased to 3.1% at end-2022 from 2.4% at end-2021, while Stage 2 loans ratio was at 4%, down from 6% at end-2021. Coverage of impaired loans by specific loan loss allowances was moderate at 60%. Good Profitability: Operating profit remained broadly unchanged at 4.2% of risk weighted assets in 2022 on the back of improved net interest margin (5.8%) coupled with lower reversals of provisions. Fitch expects profitability to moderate in the medium term against stiffer competition and a potential decline in margins. Strong Capitalisation: Fitch Core Capital ratio increased to 24% at end-2022 (end-2021: 22%), driven mainly by strong internal capital generation and loan book shrinkage. Regulatory common equity Tier 1 was a strong 19.6% at end-2022 with a 10pp headroom above the minimum requirement. Fitch expects capital ratios to remain solid, though a moderate decline is possible on the back of higher pay-outs or rebounding growth. Significant Wholesale Funding: The loans/deposits ratio of 119% at end-2022 is weaker than the sector average due to significant share of wholesale funding (at 31% of non-equity funding at end-2022), albeit the ratio has been slowly improving in recent years. Customer deposits are the main source of funding (end-2022: 69% of non-equity funding). Refinancing risks are manageable given sufficient liquidity coverage of upcoming wholesale funding maturities and intragroup funding from PCH. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade PCBG's Outlook could be revised to Stable if Georgia's sovereign Outlook was revised to Stable. PCBG's support-driven IDRs could be subject to negative rating action if Georgian country risks materially increase or if Fitch revises down the support assessment from the parent. The bank's VR could be downgraded in case of a loosening of its risk appetite, combined with a significant deterioration in its asset-quality metrics. A depletion of liquidity buffers, particularly in foreign currency, could also increase pressure on the rating. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade PCBG's IDRs could be upgraded if Georgia's sovereign rating was upgraded. An upgrade in the VR would require a further improvement in the operating environment, coupled with a material increase in the bank's franchise. VR ADJUSTMENTS The Capital and Leverage score of 'bb-' has been assigned below the 'bbb' category implied score due to the following adjustment reason: 'Size of Capital Base' (negative). ESG CONSIDERATIONS The highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Entity/Debt Rating Prior ----------- ------ ----- ProCredit Bank (Georgia) LT IDR BB+ Affirmed BB+ ST IDR B Affirmed B LC LT IDR BB+ Affirmed BB+ LC ST IDR B Affirmed B Viability bb- Affirmed bb- LT IDR (xgs) BB-(xgs)Affirmed BB-(xgs) Shareholder Support bb+ Affirmed bb+ ST IDR (xgs) B(xgs) Affirmed B(xgs) LC LT IDR (xgs) BB-(xgs)Affirmed BB-(xgs) LC ST IDR (xgs) B(xgs) Affirmed B(xgs) ============= I R E L A N D ============= BARINGS EURO 2018-2: Moody's Cuts EUR12.5MM F Notes Rating to B3 ---------------------------------------------------------------- Moody's Investors Service has downgraded the rating on the following notes issued by Barings Euro CLO 2018-2 Designated Activity Company: EUR12,500,000 Class F Senior Secured Deferrable Floating Rate Notes due 2031, Downgraded to B3 (sf); previously on Aug 15, 2022 Affirmed B2 (sf) Moody's has also affirmed the ratings on the following notes: EUR229,000,000 (Current outstanding amount EUR227,794,733) Class A-1A Senior Secured Floating Rate Notes due 2031, Affirmed Aaa (sf); previously on Aug 15, 2022 Affirmed Aaa (sf) EUR5,000,000 (Current outstanding amount EUR4,973,684) Class A-1B Senior Secured Fixed Rate Notes due 2031, Affirmed Aaa (sf); previously on Aug 15, 2022 Affirmed Aaa (sf) EUR14,000,000 Class A-2 Senior Secured Floating Rate Notes due 2031, Affirmed Aaa (sf); previously on Aug 15, 2022 Affirmed Aaa (sf) EUR8,000,000 Class B-1A Senior Secured Floating Rate Notes due 2031, Affirmed Aa1 (sf); previously on Aug 15, 2022 Upgraded to Aa1 (sf) EUR10,000,000 Class B-1B Senior Secured Floating Rate Notes due 2031, Affirmed Aa1 (sf); previously on Aug 15, 2022 Upgraded to Aa1 (sf) EUR15,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2031, Affirmed Aa1 (sf); previously on Aug 15, 2022 Upgraded to Aa1 (sf) EUR13,300,000 Class C-1 Senior Secured Deferrable Floating Rate Notes due 2031, Affirmed A1 (sf); previously on Aug 15, 2022 Upgraded to A1 (sf) EUR15,000,000 Class C-2 Senior Secured Deferrable Floating Rate Notes due 2031, Affirmed A1 (sf); previously on Aug 15, 2022 Upgraded to A1 (sf) EUR18,000,000 Class D Senior Secured Deferrable Floating Rate Notes due 2031, Affirmed Baa1 (sf); previously on Aug 15, 2022 Upgraded to Baa1 (sf) EUR30,000,000 Class E Senior Secured Deferrable Floating Rate Notes due 2031, Affirmed Ba2 (sf); previously on Aug 15, 2022 Affirmed Ba2 (sf) Barings Euro CLO 2018-2 Designated Activity Company, issued in September 2018, is a collateralised loan obligation (CLO) backed by a portfolio of predominantly European senior secured obligations. The portfolio is managed by Barings (U.K.) Limited. The transaction's reinvestment period ended in October 2022. RATINGS RATIONALE The rating downgrade on the Class F Notes is primarily a result of the deterioration in over-collateralisation ratios since the last rating action in August 2022, as a consequence of an increase in defaults and reduction of portfolio par. According to the trustee report dated April 2023 [1] the Class A/B, Class C, Class D, Class E and Class F OC ratios are reported at 138.5%, 125.8%, 118.9%, 108.9% and 105.2% compared to July 2022 [2] levels of 141.3%, 128.3%, 121.3%, 111.1% and 107.3%, respectively. Moody's notes that the April 2023 principal payments are not reflected in the reported OC ratios. In light of reinvestment restrictions during the amortisation period, and therefore the limited ability to effect significant changes to the current collateral pool, Moody's analysed the deal assuming a higher likelihood that the collateral pool characteristics would maintain an adequate buffer relative to certain covenant requirements. 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: EUR383.7m Defaulted Securities: EUR11.0m Diversity Score: 56 Weighted Average Rating Factor (WARF): 2963 Weighted Average Life (WAL): 3.88 years Weighted Average Spread (WAS) (before accounting for Euribor floors): 3.85% Weighted Average Coupon (WAC): 4.01% Weighted Average Recovery Rate (WARR): 43.35% Par haircut in OC tests and interest diversion test: none The default probability derives from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The estimated average recovery rate on future defaults is based primarily on the seniority of the assets in the collateral pool. In each case, historical and market performance and a collateral manager's latitude to trade collateral are also relevant factors. Moody's incorporates these default and recovery characteristics of the collateral pool into its cash flow model analysis, subjecting them to stresses as a function of the target rating of each CLO liability it is analysing. Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in December 2021. Counterparty Exposure: The rating action took into consideration the notes' exposure to relevant counterparties, such as account bank, using the methodology "Moody's Approach to Assessing Counterparty Risks in Structured Finance" published in June 2022. Moody's concluded the ratings of the notes are not constrained by these risks. Factors that would lead to an upgrade or downgrade of the ratings: The rated notes' performance is subject to uncertainty. The notes' performance is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. The collateral manager's investment decisions and management of the transaction will also affect the notes' performance. Additional uncertainty about performance is due to the following: Portfolio amortisation: The main source of uncertainty in this transaction is the pace of amortisation of the underlying portfolio, which can vary significantly depending on market conditions and have a significant impact on the notes' ratings. Amortisation could accelerate as a consequence of high loan prepayment levels or collateral sales by the collateral manager or be delayed by an increase in loan amend-and-extend restructurings. Fast amortisation would usually benefit the ratings of the notes beginning with the notes having the highest prepayment priority. Recovery of defaulted assets: Market value fluctuations in trustee-reported defaulted assets and those Moody's assumes have defaulted can result in volatility in the deal's over-collateralisation levels. Further, the timing of recoveries and the manager's decision whether to work out or sell defaulted assets can also result in additional uncertainty. 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. IRISH FAIRY: Appoints Adviser to Work Out Restructuring Plan ------------------------------------------------------------ Ian Curran at The Irish Times reports that the company behind the Irish Fairy Door brand has appointed an adviser to work out a restructuring plan for the business under the State's new "examinership light" process, designed to help save small businesses that are potentially viable but insolvent. CEBL Ltd, founded by Aoife Lawler and Niamh Sherwin Barry with their husbands Gavin Lawler and Oisin Barry in 2013, makes wooden Irish fairy doors and associated products for children, exporting to customers in the US and abroad. According to The Irish Times, a spokeswoman for the Enterprise Ireland-backed company told The Irish Times that the directors "are very confident" that the Irish Fairy Door Company will be able to successfully exit the Small Companies Administrative Rescue Process (Scarp) "within a short period of time". On May 2, the company appointed accountant Joe Walsh as its process adviser under the scheme, introduced by the Government in 2021 as a more cost effective alternative to the examinership process for small businesses, The Irish Times relates. Mr. Walsh has 49 days from his date of appointment to work out a rescue plan which could involve writing down debts owed to creditors who will have the approve the scheme once it is finalised, The Irish Times notes. The most recent accounts for CEBL reveal that it had accumulated losses of EUR3.9 million at the end of 2020, having lost EUR268,137 in the year, The Irish Times discloses. The directors noted that the company's performance "gives rise to concerns" about its "ability to continue operating as a going concern, The Irish Times states. They said: "This uncertainty could result in the company being unable to realise its assets and discharge its liabilities in the normal course of business." MAN GLG II: Moody's Cuts Rating on EUR7.7MM Class F Notes to Caa1 ----------------------------------------------------------------- Moody's Investors Service has downgraded the rating on the following notes issued by Man GLG Euro CLO II D.A.C.: EUR7,700,000 Class F Deferrable Junior Floating Rate Notes due 2030, Downgraded to Caa1 (sf); previously on Aug 9, 2022 Affirmed B2 (sf) Moody's has also affirmed the ratings on the following notes: EUR207,000,000 (Current outstanding balance EUR91,007,873) Class A-1 Senior Secured Floating Rate Notes due 2030, Affirmed Aaa (sf); previously on Aug 9, 2022 Affirmed Aaa (sf) EUR10,000,000 (Current outstanding balance EUR4,396,516) Class A-2 Senior Secured Fixed Rate Notes due 2030, Affirmed Aaa (sf); previously on Aug 9, 2022 Affirmed Aaa (sf) EUR43,900,000 Class B Senior Secured Floating Rate Notes due 2030, Affirmed Aaa (sf); previously on Aug 9, 2022 Upgraded to Aaa (sf) EUR17,700,000 Class C Deferrable Mezzanine Floating Rate Notes due 2030, Affirmed Aa3 (sf); previously on Aug 9, 2022 Upgraded to Aa3 (sf) EUR17,300,000 Class D Deferrable Mezzanine Floating Rate Notes due 2030, Affirmed Baa2 (sf); previously on Aug 9, 2022 Affirmed Baa2 (sf) EUR19,200,000 Class E Deferrable Junior Floating Rate Notes due 2030, Affirmed Ba2 (sf); previously on Aug 9, 2022 Affirmed Ba2 (sf) Man GLG Euro CLO II D.A.C., issued in December 2016 and partially refinanced in August 2019, is a collateralised loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured European loans. The portfolio is managed by GLG Partners LP. The transaction's reinvestment period ended in January 2021. RATINGS RATIONALE The rating downgrade on the Class F Notes is primarily a result of the deterioration of the key credit metrics of the underlying pool over the last year. The affirmations on the ratings on the Class A-1, A-2, B, C, D and E notes are primarily a result of the expected losses on the notes remaining consistent with their current rating levels, after taking into account the CLO's latest portfolio, its relevant structural features and its actual over-collateralisation ratios. The credit quality of the collateral pool has deteriorated and OC ratios of the junior classes have weakened. The weighted average rating factor, or WARF, was 3272 as reported in April 2023 [1], compared with 3195 in April 2022 [2]. Securities with ratings of Caa1 or lower currently make up approximately 8.6% of the underlying portfolio, versus 6.9% in April 2022. Class F OC has reduced to 104.6% in April 2023 from 106.4% in April 2022[2]. Furthermore, the short remaining weighted average life of the portfolio leads to reduced time for excess spread to cover shortfalls caused by defaults. 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 some of the collateral pool characteristics would maintain an adequate buffer relative to certain covenant requirements. 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: EUR210.5m Defaulted Securities: EUR8.04m Diversity Score: 46 Weighted Average Rating Factor (WARF): 3086 Weighted Average Life (WAL): 3.3 years Weighted Average Spread (WAS) (before accounting for Euribor floors): 3.7% Weighted Average Coupon (WAC): 5.9% Weighted Average Recovery Rate (WARR): 43.8% Par haircut in OC tests and interest diversion test: 1.2% The default probability derives from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The estimated average recovery rate on future defaults is based primarily on the seniority of the assets in the collateral pool. In each case, historical and market performance and a collateral manager's latitude to trade collateral are also relevant factors. Moody's incorporates these default and recovery characteristics of the collateral pool into its cash flow model analysis, subjecting them to stresses as a function of the target rating of each CLO liability it is analysing. Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in December 2021. Counterparty Exposure: The rating action took into consideration the notes' exposure to relevant counterparties, such as account bank, using the methodology "Moody's Approach to Assessing Counterparty Risks in Structured Finance" published in June 2022. Moody's concluded the ratings of the notes are not constrained by these risks. Factors that would lead to an upgrade or downgrade of the ratings: The rated notes' performance is subject to uncertainty. The notes' performance is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. The collateral manager's investment decisions and management of the transaction will also affect the notes' performance. Additional uncertainty about performance is due to the following: Portfolio amortisation: The main source of uncertainty in this transaction is the pace of amortisation of the underlying portfolio, which can vary significantly depending on market conditions and have a significant impact on the notes' ratings. Amortisation could accelerate as a consequence of high loan prepayment levels or collateral sales by the liquidation agent/the collateral manager or be delayed by an increase in loan amend-and-extend restructurings. Fast amortisation would usually benefit the ratings of the notes beginning with the notes having the highest prepayment priority. Recovery of defaulted assets: Market value fluctuations in trustee-reported defaulted assets and those Moody's assumes have defaulted can result in volatility in the deal's over-collateralisation levels. Further, the timing of recoveries and the manager's decision whether to work out or sell defaulted assets can also result in additional uncertainty. Recoveries higher than Moody's expectations would have a positive impact on the notes' ratings. In addition to the quantitative factors that Moody's explicitly modelled, qualitative factors are part of the rating committee's considerations. These qualitative factors include the structural protections in the transaction, its recent performance given the market environment, the legal environment, specific documentation features, the collateral manager's track record and the potential for selection bias in the portfolio. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, can influence the final rating decision. =================== L U X E M B O U R G =================== MALLINCKRODT FINANCE: $369.7M Bank Debt Trades at 29% Discount -------------------------------------------------------------- Participations in a syndicated loan under which Mallinckrodt International Finance SA is a borrower were trading in the secondary market around 70.7 cents-on-the-dollar during the week ended Friday, May 5, 2023, according to Bloomberg's Evaluated Pricing service data. The $369.7 million facility is a Term loan that is scheduled to mature on September 30, 2027. About $362.5 million of the loan is withdrawn and outstanding. Mallinckrodt International Finance SA manufactures and distributes pharmaceutical products. The company’s country of domicile is Luxembourg. ===================== N E T H E R L A N D S ===================== BRIGHT BIDCO: $300M Bank Debt Trades at 38% Discount ---------------------------------------------------- Participations in a syndicated loan under which Bright Bidco BV is a borrower were trading in the secondary market around 62.4 cents-on-the-dollar during the week ended Friday, May 5, 2023, according to Bloomberg's Evaluated Pricing service data. The $300 million facility is a Pik Term loan that is scheduled to mature on October 31, 2027. The amount is fully drawn and outstanding. Amsterdam, The Netherlands-based Bright Bidco B.V. designs and manufactures discrete semiconductor devices and circuits for light emitting diodes (LEDs). ========= S P A I N ========= DURO FELGUERA: EUR85M Bank Debt Trades at 48% Discount ------------------------------------------------------ Participations in a syndicated loan under which Duro Felguera SA is a borrower were trading in the secondary market around 51.6 cents-on-the-dollar during the week ended Friday, May 5, 2023, according to Bloomberg's Evaluated Pricing service data. The EUR85 million facility is a Term loan that is scheduled to mature on July 27, 2023. The amount is fully drawn and outstanding. Duro Felguera, S.A., through its subsidiaries, manufactures industrial equipment for the mining industry. The Company also markets and sells control systems for producing steel for machinery and railroad components. The Company's country of domicile is Spain. =========== S W E D E N =========== VATTENFALL AB: S&P Assigns 'BB+' Rating to Hybrid Capital Notes --------------------------------------------------------------- S&P Global Ratings assigned its 'BB+' long-term issue rating to the proposed 2083, optionally deferrable, and subordinated hybrid capital securities to be issued by Vattenfall AB (BBB+/Positive/A-2). The hybrid amount remains subject to market conditions. S&P expects the proceeds to be used to replace the existing $400 million hybrids (approximately SEK4.2 billion) with a first call date in 2023. Vattenfall AB has launched a new hybrid instrument to replace its NC2023 $400 million (approximately Swedish krona [SEK] 4.2 billion) hybrid. S&P said, "We consider the proposed securities to have intermediate equity content until the first reset date in 2028, because they meet our criteria in terms of their ability to absorb losses and preserve cash in times of stress, including through subordination and the deferability of interest at the company's discretion. "We understand Vattenfall plans to refinance the existing $400 million (SEK4.2 billion) 2078-NC-Nov-23 fixed-rate capital securities. According to our estimates, after this transaction the overall amount of hybrid capital eligible for intermediate equity credit will remain below 15% of capitalization; on a preliminary basis, we expect 9%-11%. We note that the proposed issuance amount is below the existing NC2023 U.S.-dollar hybrid's about SEK4.2 billion, which implies that the hybrid stock will be slightly lower post the refinancing. However, we view this as immaterial. "Upon completion of the transaction, we will assign intermediate equity content to the new hybrid instrument until the first reset date set 5.25 years after issuance--2028. We will also remove the equity content of $400 million on the hybrid instrument and continue to assess the other outstanding hybrids as having intermediate equity content. "We arrive at our 'BB+' issue rating on the proposed securities by notching down from our 'bbb' stand-alone credit profile (SACP) on Vattenfall. Our long-term issuer credit rating on Vattenfall is 'BBB+', but we we notch down from the 'bbb' SACP because we believe the likelihood of extraordinary government support from the Swedish state to these securities is low." The two-notch differential reflects our notching methodology of deducting: -- One notch for subordination because S&P's long-term issuer credit rating on Vattenfall is investment grade (that is, higher than 'BB+'); and -- An additional notch for payment flexibility, to reflect that the deferral of interest is optional. S&P said, "The notching to rate the proposed securities reflects our view that the issuer is relatively unlikely to defer interest. Should our view change, we may increase the number of notches we deduct to derive the issue rating. "In addition, to reflect our view of the intermediate equity content of the proposed securities, we allocate 50% of the related payments as a fixed charge and 50% as equivalent to a common dividend. The 50% treatment of principal and accrued interest also applies to our adjustment of debt. "Vattenfall can redeem the securities for cash at any time during the three months before the first interest reset date, which we understand will be 2028 (first call date), and on any coupon payment date thereafter. Although the proposed securities are due in 2083, they can be called at any time for tax reasons, rating methodology changes, or upon a substantial repurchase event. If any of these events occur, Vattenfall intends, but is not obliged, to replace the instruments. In our view, this statement of intent mitigates the issuer's ability to repurchase the notes on the open market. Vattenfall can also call the instruments any time prior to the first call date at a make-whole premium (make-whole call). We do not consider that this type of make-whole clause creates an expectation that the issues will be redeemed during the make-whole period. Accordingly, we do not view it as a call feature in our hybrid analysis, even if it is referred to as a make-whole-call clause in the hybrid documentation. "We understand that the interest to be paid on the proposed securities will increase by 25 basis points (bps) from 2033, and a further 75 bps from 2048. We consider the cumulative 100 bps as a material step-up, which is currently unmitigated by any binding commitment to replace the instrument at that time. We believe this step-up provides an incentive for the issuer to redeem the instrument on its first reset date. "Consequently, we will no longer recognize the instrument as having intermediate equity content after its first reset date, in 2028. This is because the remaining period until its economic maturity would, by then, be less than 20 years, the minimum threshold for intermediate equity content under our criteria. Vattenfall's willingness to maintain or replace the instrument in the event of a reclassification of equity content to minimal is underpinned by its statement of intent." Key Factors In S&P's Assessment Of The Securities' Deferability S&P said, "In our view, Vattenfall's option to defer payment on the proposed securities is discretionary. This means that Vattenfall may elect not to pay accrued interest on an interest payment date because it has no obligation to do so. However, any outstanding deferred interest payment, plus interest accrued thereafter, will have to be settled in cash if Vattenfall declares or pays an equity dividend or interest on equally ranking securities, and if Vattenfall redeems or repurchases shares or equally ranking securities. However, once Vattenfall has settled the deferred amount, it can still choose to defer on the next interest payment date." Key Factors In S&P's Assessment Of The Securities' Subordination The proposed securities and coupons are intended to constitute the issuer's direct, unsecured, and subordinated obligations, ranking senior to their common shares and any obligations that rank or are expressed by their terms to rank junior to the securities and parity securities. =========================== U N I T E D K I N G D O M =========================== 3F PELLETS: Enters Administration, Owes GBP9 Million ---------------------------------------------------- Sam Metcalf at TheBusinessDesk.com reports that a supplier of wood-based pellets fell into administration after a failure to break into the biomass market saw it unable to service a GBP9 million debt to a funder, TheBusinessDesk.com understands. 3F Pellets, of Saxilby in Lincolnshire, called in Andy Pear and Milan Vuceljic of Moorfields Advisory as joint administrators of 3F Pellets on Feb. 22, TheBusinessDesk.com relates. However, Moorfields first met with 3F Pellets in June 2022, when the secured creditor sought advice on its exit options, TheBusinessDesk.com notes. To bring this forward, it was decided that a review of the company's options would be needed to determine its solvency and any potential restructuring of the debt -- but 3F Pellets' director decided not to enter into this agreement and failed to provide any information on how it would repay the debt to its secured creditor, TheBusinessDesk.com recounts. This is when the firm slipped into administration, TheBusinessDesk.com states. Moorfields is now aiming to sell off 3F Pellets' property assets to try and raise funds to repay the secured creditor, TheBusinessDesk.com discloses. All staff, thought to number approximately 16, have lost their jobs, according to TheBusinessDesk.com. Meanwhile, unsecured creditors are unlikely to receive any of the cash owed to them, the joint administrators have said, TheBusinessDesk.com notes. AMBIVENT LIMITED: On Verge of Administration, Put Up for Sale ------------------------------------------------------------- Sam Metcalf at TheBusinessDesk.com reports that a Northampton-based mechanical and electrical building services contractor that was turning over GBP14 million just two years ago is up for sale. Ambivent has been active for over 25 years and currently employs around 61 people, TheBusinessDesk.com relays, citing the company's last available accounts. The company offers a wide range of design, installation, testing and maintenance services for construction projects in a variety of sectors including health, housing, retail and industry. However, a spokesperson for Begbies Traynor told TheBusinessDesk.com: "Further to reports published on May 5, 2023, we wish to clarify the current position of Ambivent Limited and the Ambivent Group of businesses. "While a Notice of Intention to appoint an administrator was filed by Ambivent Limited on Thursday, May 4, 2023, an administrator is yet to be appointed. It is important to clarify that the potential appointment of an administrator is for Ambivent Limited only. It does not affect the other companies in Ambivent Group, including Ambivent Facilities Management Limited, which remain profitable businesses. "Ambivent Limited's board of directors are currently working with the proposed administrators to explore the options available for the business, including seeking a buyer for the company. This search is being handled by Eddisons Commercial. "Further information on the future of Ambivent Limited will be provided in due course." BCP V MODULAR: Moody's Affirms 'B2' CFR, Outlook Remains Stable --------------------------------------------------------------- Moody's Investors Service has affirmed the B2 corporate family rating of BCP V Modular Services Holdings III Limited (Modular), the top entity in the company's restricted group. Additionally, the agency affirmed the B2 backed senior secured rating of Modulaire Group Holdings Limited's Term Loan B including the company's EUR150 million add-on to the Term Loan B. Moody's also affirmed the B2 backed senior secured rating of the senior secured Revolving Credit Facility, for which Modulaire Group Holdings Limited is the borrower. Furthermore, Moody's affirmed the B2 backed senior secured debt rating of the senior secured notes issued by BCP V Modular Services Finance II PLC and the Caa1 backed senior unsecured debt rating of the senior unsecured notes issued by BCP V Modular Services Finance PLC, which are subsidiaries of Modular. The outlook on the issuers remains stable. RATINGS RATIONALE The affirmation of the CFR reflects Modular's strong and growing revenue base, supported by the steadily increasing EBITDA and cash flow generation due to its growing fleet on the back of strategic acquisitions and investments, high utilization levels and the increasing portion of value-add products and services offered by Modular. As a result, the growing revenue base of Modular will moderate the impact of the increase in Modular's leverage post the issuance of the add-on to the Term Loan B. Despite its steadily increasing EBITDA and cash flow generation, the CFR reflects the company's weak and fluctuating profitability track record due to the impact of past numerous acquisitions and associated investments costs. Modular has a high reliance on secured financing resulting in high asset encumbrance and high gross leverage, which Moody's expects to remain elevated and only gradually improve over medium-term. Furthermore, the B2 CFR takes into account the company's franchise strength given that the company is a leading operator in most markets in which it operates, with no competitor having a similar geographic footprint. The backed Term Loan B and the backed Revolving Credit Facility of Modulaire Group Holdings Limited and the existing backed senior secured notes issued by BCP V Modular Services Finance II PLC, are pari-passu amongst themselves, and they continue to benefit from the presence of a senior unsecured note that is structurally subordinated to them. BCP V Modular Service Finance PLC's Caa1 backed senior unsecured note's rating reflects its subordinated position within the liability structure and higher expected loss. RATIONALE FOR THE STABLE OUTLOOK The stable outlooks reflect Moody's expectation that Modular's credit fundamentals will largely remain in line with the B2 CFR over the outlook period. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Moody's could upgrade Modular's B2 CFR, if Modular improves (i) its cashflow generation, the level and stability of its profitability and debt servicing capacity, (ii) deleverages so that debt / EBITDA is maintained below 4x; and/or (iii) improves its liquidity profile with lower secured debt reliance and higher cashflow generation relative to its debt. An upgrade of the CFR would likely result in an upgrade of all ratings of the group. Conversely, Moody's could downgrade Modular's CFR if the company (i) is unable to maintain its cash flow generation; (ii) fails to maintain a sustainable profitability; and/or (iii) is unable to deleverage, maintaining gross leverage above 6.5x for a prolonged time while consuming its cash balances. Moody's could also change the debt ratings if there are material changes to the liability structure that increase or decrease expected recoveries in a default scenario. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Finance Companies Methodology published in November 2019. BCP V MODULAR: S&P Affirms 'B' LT ICR, Outlook Stable ----------------------------------------------------- S&P Global Ratings affirmed its 'B' long-term issuer credit rating on modular unit company BCP V Modular Services Holdings III Ltd. S&P also affirmed its 'B' issue rating on the senior secured notes, with a recovery rating of '3', and its 'CCC+' issue rating on the senior unsecured notes, with a recovery rating of '6'. The stable outlook reflects S&P's view that Modulaire's operating performance continues to be resilient despite macroeconomic headwinds and challenges in some end-markets, and that the Mobile Mini acquisition will buttress organic growth, increasing revenue and EBITDA in 2023. The term loan B add-on will increase Modulaire's gross debt, but the effect on S&P Global Ratings-adjusted leverage is minimal. The EUR150 million fungible add-on, alongside a term loan A raise of EUR73 million that Modulaire completed to fund the acquisition of Mobile Mini UK, will increase S&P Global Ratings-adjusted gross debt to EUR3.55 billion in 2023. The effect on our adjusted debt to EBITDA, however, is offset by the boost to profitability from the acquisition, which is expected to contribute about EUR45 million in EBITDA in 2023, pre-synergies. As a result, S&P expects Modulaire's adjusted debt to EBITDA to remain at 6.4x-6.7x in 2023, and to trend below 6x in 2024. Including the proposed add-on of EUR150 million and after completing two debt add-ons of EUR250 million and EUR140 million in 2022, the company has increased its outstanding term loan B to EUR1,800 million, from the original EUR1,260 million in 2021. Alongside the term loan A raise, cash interest costs are also expected to materially rise in 2023. Modulaire's term loan B is floating rate, meaning a significant portion of its adjusted debt is exposed to potential changes in the European central bank rate, but S&P notes that Modulaire has taken actions to mitigate the risk of further rising rates, by hedging 50% of its floating term loan B (prior to the proposed EUR150 million add-on). As a result, funds from operations (FFO) cash interest coverage will weaken to about 2.2x in 2023. Mobile Mini UK will complement Modulaire's existing business. The acquisition of Mobile Mini UK provides a strong addition to Modulaire's existing fleet of units. The acquired business has a total fleet size of about 43,000 units, split across containers and modules, with a long average length of contracts of nearly three years, providing visibility on revenue and EBITDA forecasts. The company has a strong track record of customer service and is well-diversified in its customer base, with the top 10 customers only accounting for 12% of its sales. The acquisition consolidates Modulaire's position as the largest player in the modular unit space in the U.K., and diversifies the company's fleet beyond comprising predominantly modules in the U.K. to include Mobile Mini's fleet of containers. This is Modulaire's largest acquisition in the past few years, and S&P expects further opportunities for growth and market consolidation in the future. Modulaire's revenue and profitability should increase in 2023 through organic growth and the integration of Mobile Mini, though challenges remain in some end-markets. The U.K. construction market was a particularly challenging environment for Modulaire in 2022, due to the uncertain macroeconomic backdrop and slightly subdued economic activity. S&P said, "This resulted in slightly lower revenues generated in 2022 than previously expected, at EUR1,668 million, and we expect some of these challenges to persist in the U.K. In 2022, revenues rose by about 17.8% year on year, and while we anticipate further growth--thanks to the slightly higher rents for units and increasing value-added products and services (VAPS) penetration--we expect Modulaire's rate of revenue growth to slow to about 4%-8% in 2023 and 2024. In our view, gross margins will remain similar to 2022, despite some inflationary pressures, thanks to average unit rental rates expected to incrementally rise, as they did in 2022, to EUR181 per unit per month, from EUR178 in 2021. After adjusting for the expected accretive EBITDA through the acquisition of Mobile Mini, as well as expected one-off costs of about EUR20 million, we expected S&P Global Ratings-adjusted EBITDA to rise from EUR490 million in 2022 to EUR540 million-EUR575 million in 2023, at margins of around 31%-32%, slightly higher than 2022." S&P said, "We expect free cash flow generation to revert to positive in 2023, though Modulaire's capital intensity remains elevated. Delays at some larger projects and increased levels of inventory to protect against any supply chain disruptions resulted in working capital outflows of more than EUR100 million in 2022, which contributed to negative adjusted free operating cash flow (FOCF) generation in 2022 of EUR106 million. Capital expenditure (capex) remains high, which is typical for an asset-heavy company like Modulaire, at around EUR240 million-EUR260 million for both 2023 and 2024, similar to 2022. However, the unwind of the working capital position expected in 2023, and the projected higher cash flow from operations should see FOCF generation in 2023 rise slightly to EUR60 million-EUR95 million. The increase is slightly offset by the surging cash interest costs from increased floating-rate debt." The stable outlook reflects S&P's view that Modulaire's operating performance will remain resilient, despite macroeconomic headwinds and challenges in some end-markets, and that organic growth will be complemented by the acquisition of Mobile Mini, bolstering revenue and EBITDA in 2023. S&P could lower the rating if revenue and EBITDA growth were less than it currently forecast, with debt to EBITDA rose to more than 7x. Furthermore, S&P could lower the rating if: -- FFO cash interest coverage trended sustainably below 2.5x without prospects of recovery; -- FOCF generation remained negative; or -- Liquidity came under any strain. S&P said, "We could raise the rating if debt to EBITDA is sustainably below 5x, with FFO to debt above 12% at the same time. An upgrade would also depend on FFO cash interest coverage remaining consistently above 3x coupled with EBITDA margins of comfortably above 30%. We would also expect the company to generate consistently positive FOCF, which would likely require supportive macroeconomic and industry conditions." Environmental, Social, And Governance ESG credit metrics: E-2, S-2, G-3 S&P said, "Governance is a moderately negative consideration in our credit rating analysis of Modulaire. Our assessment of the company'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 their generally finite holding periods and a focus on maximizing shareholder returns. "Environmental and social factors have no material influence on our rating analysis of Modulaire. In our view, Modulaire can meet the capex required for a new fleet that meets rising demand from its customers for more environmentally sustainable rental equipment." SAPIENT COMMERCIAL: On Brink of Administration Following CVA ------------------------------------------------------------ Sam Metcalf at TheBusinessDesk.com reports that a Nottinghamshire-based manufacturer and installer of aluminium glazing systems has moved closer to calling in administrators less than a year after it entered a Company Voluntary Arrangement (CVA). Sapient Commercial Aluminium Glazing, which trades as Insight Architectural Glazing, has posted a second notice of intention to appoint administrators in two weeks and faces an uncertain future, TheBusinessDesk.com relates. The company was established in 1998, operates from Brookhill Industrial Estate in Pinxton and provides commercial glazing solutions for companies and organisations across a wide range of sectors including retail, industry, education and health. The firm, which employs around 35 people according to its latest available accounts, entered a CVA -- an arrangement between companies at risk of insolvency and their creditors -- in August last year, TheBusinessDesk.com recounts. According to TheBusinessDesk.com, accounts show the firm was owed just over GBP588,000 during the period -- but owed its creditors GBP1.4 million. Sapient Commercial Aluminium Glazing Limited posted losses of GBP922,265 in 2020/21, TheBusinessDesk.com discloses. UK: More Insolvencies in Construction Sector, Report Shows ---------------------------------------------------------- Joshua Stein at Construction News reports that construction firms made up nearly one in five of the insolvencies recorded during the first quarter of 2023, official data shows. According to the government's Insolvency Service, 4,165 construction firms became insolvent in the first three months of 2023 -- 19% of all cases where the industry of an insolvent firm is known, Construction News relates. Building firms have struggled with high energy costs, inflation and having to pay repay Covid-era loans, forcing record numbers into administration, Construction News notes. The sector with the second highest number of insolvencies during the period was the wholesale and retail trade and repair of vehicles sector, where 3,518 firms collapsed, Construction News states. Last week, exclusive Construction News data revealed that 28 construction firms fell into administration during April, a higher total than all but two months in 2022. According to Construction News, the data showed that a record 38 firms entered administration in March, the most of any month since the coronavirus pandemic began. These figures do not include other insolvency types, such as liquidations. Commenting on the April administration data, Chris Davies, managing director of DRS Bond Management, told Construction News that time is "increasingly running out" for firms kept afloat by government-backed coronavirus loans. He added that he expected administration levels to stay higher than 2022 throughout 2023, but could begin to level-off in the final quarter of the year, Construction News relays. VURGER CO: Bought Out of Administration, Three Sites Saved ---------------------------------------------------------- Business Sale reports that vegan burger chain Vurger Co has been acquired out of administration by a new company formed by its founders with support from several investors. According to Business Sale, the pre-pack sale will see the chain's Canary Wharf restaurant close, but saves three sites in Manchester, Brighton and Shoreditch. The chain was founded in 2016 and started with a stall in Tottenham, North London, before expanding to four branches as the business grew. After opening its fourth location at Canary Wharf in 2019, however, the company's operations were impacted by the COVID-19 pandemic, Business Sale states. Co-founder Rachel Hugh said that the business had seen "strong growth" but that the pandemic brought "enormous challenges" and forced the firm "to move from developing and growing our brand to simply firefighting to keep our doors open", Business Sale notes. The chain was subsequently hit by issues relating to Brexit and the cost of living crisis, which has impacted high street footfall and consumer spending power, as well as rising prices and increases in VAT and business rates, Business Sale discloses. As a result, the company had reached a "pivotal" moment by the end of last year, asking existing investors for support and seeking a buyer for the business, Business Sale relays. A potential buyer had reportedly been found, but pulled out at the last minute, leaving the company's founders facing the choice of either seeking additional investment or closing the business down, according to Business Sale. However, the company has now secured the additional funding it needed, with support from new and existing investors enabling co-founders Neil Potts and Rachel Hugh to acquire the business out of administration, Business Sale notes. The founders commented that the deal would enable the business to move forward with a "restructured model". Insolvency and business rescue specialist McTear Williams & Woods oversaw the pre-pack sale, with the transaction completed within six working days of the firm's advisors meeting with Vurger Co's directors, Business Sale relays. In Vurger Co's accounts for the year ending December 31 2021, its fixed assets were valued at GBP710,473 and current assets at GBP365,425, Business Sale states. At the time, the firm's net liabilities amounted to GBP469,398, Business Sale 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. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Europe subscription rate is US$775 per half-year, delivered via e-mail. 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