/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/230608.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, June 8, 2023, Vol. 24, No. 115 Headlines F R A N C E CMA CGM: Moody's Upgrades CFR to Ba1 & Alters Outlook to Stable G E R M A N Y TELE COLUMBUS: S&P Lowers ICR to 'CCC', Outlook Negative L U X E M B O U R G COVIS MIDCO 2: Moody's Ups CFR to Caa1 & Alters Outlook to Stable N E T H E R L A N D S MAXEDA DIY: Moody's Lowers CFR to B3 & Alters Outlook to Negative P O L A N D GLOBE TRADE: Moody's Withdraws 'Ba1' Corporate Family Rating U N I T E D K I N G D O M BELLIS FINCO: Moody's Affirms 'B2' CFR, Outlook Remains Stable FITNESS FIRST: Landlords Prepare to Challenge Restructuring Plan LONDON CARDS 1: Moody's Assigns (P)Ba3 Rating to Class E Notes LONDON IRISH: Files for Administration, Owes More Than GB30-Mil. PAPER INDUSTRIES: Moody's Rates EUR115MM Bank Loans 'B2' PARTY PIECES: Owed Almost GBP2.6-Mil. at Time of Administration PLEXUS LAW: Set to Go Into Administration, Mulls Sale TELEGRAPH MEDIA: Receivers Take Control, Papers Set to Be Sold VIRIDIS EUROPEAN LOAN 38: S&P Lowers Class E Notes Rating to BB- [*] UK: Craft Brewery Insolvencies Triple to 45 in March 2023 - - - - - =========== F R A N C E =========== CMA CGM: Moody's Upgrades CFR to Ba1 & Alters Outlook to Stable --------------------------------------------------------------- Moody's Investors Service has upgraded the corporate family rating of CMA CGM S.A. to Ba1 from Ba2 and its probability default rating to Ba1-PD from Ba2-PD. The outlook was changed to stable from positive. "The rating action reflects continued high free cash flow generation used to fund both logistics and terminals acquisitions as well further debt reduction, strengthening the company's business profile and balance sheet and thus improving overall credit quality" says Daniel Harlid, the Vice President - Senior Analyst and the lead analyst for CMA CGM. "While market conditions in container shipping will gradually deteriorate in 2023 and 2024, Moody's still expect credit metrics commensurate with a Ba1 rating will be sustained, supported by a more diversified business profile", Mr. Harlid continues. RATINGS RATIONALE Over the last two years CMA CGM has generated Moody's-adjusted free cash flow of $36 billion. Unlike many of its peers, dividends were kept at modest levels and the company has instead reinvested the cash into the business and expanded its footprint both in logistics and container terminals as well as purchasing more energy efficient vessels. This has led to a more diversified business profile, strong liquidity and a conservatively leveraged balance sheet which should provide some cushion in light of more challenging years ahead for the container shipping industry. The rating action also incorporates a continued increase of the unencumbered assets ratio, which stood at 68% as of December 31, 2022, and in addition expectations that the company will continue to pursue a conservatively leveraged balance sheet and strong liquidity. Moody's notes that CMA CGM is currently in a M&A process to acquire the logistics business from French conglomerate Bollore SE, where the current bid stands at EUR4.65 billion. Should the transaction materialize, CMA CGM would effectively be the fifth largest third-party-logistics (3PL) company in the world with 2022 pro forma revenue of around $24 billion. In addition, CMA CGM invested around EUR400 million in Air France - KLM Group's rights issue in June last year which made them the third largest shareholder, controlling 9% of the shares. The investment was part of a broader initiative where the two companies formed a joint venture in air cargo. With some carriers already reporting negative EBIT margins during the first quarter of 2023, as a result of sluggish demand and low spot freight rates, implementing cost reducing initiatives as well as enforcing rigid price discipline will be key to limit the negative impact from an expected overcapacity in the market over the next 18 months because of many new vessels being delivered. Moody's note positively that CMA CGM was able to reduce its operating cost per shipped container by around 16% during the first quarter of 2023 compared with the fourth quarter of 2022 and by 10% compared with the corresponding period last year, materially better than some of its peers. RATIONALE FOR THE STABLE OUTLOOK The stable outlook rests on CMA CGM maintaining debt / EBITDA below 3.0x and retained cash flow (RCF)/net debt at least in the high-20s in percentage terms over the next 12-18 months. Although Moody's expects the company's EBIT margin to through at 1% - 2% in 2024, its strong liquidity and balance sheet will more than offset the temporary headwinds the industry will experience during the next 18 months. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Further positive rating pressure requires a track record of sustaining a higher degree of margin stability with an EBIT-Margin in the high-single digit percentages, a successful integration of recent acquisitions combined with sustained credit metrics reflected in debt / EBITDA at or below 2.0x, retained cash flow / net debt at least in the high 30s in percentage terms. Furthermore a preservation of a strong liquidity profile and a formal financial policy would be required. Negative ratings pressure could be the result of a debt / EBITDA ratio above 3.0x on a sustained basis, an EBIT margin below 5% over the cycle and a retained cash flow / net debt ratio below 20%. Repeated years of negative free cash flow with a deteriorating liquidity profile would also put negative pressure on the rating. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Shipping published in June 2021. COMPANY PROFILE Based in Marseille, France, CMA CGM is the third largest provider of global container shipping services. The company operates primarily in the international containerized maritime transportation of goods, but its activities also include container terminal operations, intermodal, inland transport and logistics. In 2022, the company reported revenue of $75 billion and EBITDA of $33 billion. The company is ultimately owned by the Saade family (73%), Yildrim Holding (24%) and BPI France (3%). ============= G E R M A N Y ============= TELE COLUMBUS: S&P Lowers ICR to 'CCC', Outlook Negative -------------------------------------------------------- S&P Global Ratings lowered its long-term issuer credit and issue ratings on Tele Columbus AG (TC) and its senior secured term loan to 'CCC' from 'B-'. The negative outlook reflects S&P's view of an increasing probability of a liquidity crisis or default -- conventional or through a distressed exchange or restructuring--absent favorable developments in the next six to nine months. TC faces near term liquidity risk. In 2021, TC implemented its fiber champion strategy to expand its coverage to more than 65% of homes from less than 10%, requiring EUR2 billion of investment during a 10-year pipeline. TC is also opening its network to other domestic telecommunications providers such as Telefonica and 1&1. The pace of capital expenditure (capex) for the fiber rollout will depend on the additional funding the company obtains in the coming months. TC currently holds a EUR52 million cash balance and generates negative monthly cash flows. Therefore, absent additional funding, S&P anticipates it will face a liquidity shortfall in the next six to nine months. S&P said, "After recent subdued performance, we anticipate TC will face significant regulatory and competitive challenges in the coming years. The company recorded weak results in 2022, with revenue declining 3.5%. This is because the 4.3% growth in the internet and telephony business segment (about 40% of TC's revenue) was insufficient to offset the 8.1% decline in the cable TV segment (about 50%). Adjusted EBITDA margin decreased to 36.2% in 2022 from 42.8% in 2021, mainly due to increased employee, marketing, and information technology (IT) costs. After broadly flat revenue in first-quarter 2023, we expect 0%-2% growth for the full year, supported by steady expansion of the internet protocol (IP) business and a slowing TV revenue decline. To execute the fiber strategy, we anticipate TC will continue incurring high marketing, employee, and IT costs--also elevated by inflation--although this will be partially offset by cost-reduction measures implemented by the new management team. In turn, we expect an S&P Global Ratings-adjusted EBITDA margin of 38%-39% in 2023. "Despite a partial topline recovery anticipated for 2023, we believe that TC will face significant challenges in the coming years. The change of regulation related to the German Telecommunications Act (TKG) will be implemented in July 2024. Under this, tenants will have to individually choose their TV contracts instead of being billed by housing associations, which currently have bulk contracts. This poses a significant risk of customer losses for TC. Additionally, TC's retail business recovery could be slowed by entering direct competition with larger national vendors that enjoy better brand awareness. "In our view, TC's capital structure is currently unsustainable. With an expected S&P Global Ratings-adjusted leverage of nearly 8.0x for 2023-2024, and significantly negative FOCF anticipated for the next two to three years, potentially exacerbated by higher interest costs upon refinancing, we view TC's capital structure as unsustainable. Therefore, we envisage increased risk of a default--conventional or through a distressed exchange or restructuring--absent favorable developments. "The negative outlook reflects our view of an increasing probability of a liquidity shortfall or a default -- conventional or through a distressed exchange or restructuring -- absent favorable developments in the next six to nine months. "We could lower the rating on TC if it is likely to face a liquidity shortfall or a default within the next six months. This could be due to the company not finding an alternative financing solution to address its current weak liquidity, or if we believe TC is considering a distressed exchange offer for its senior secured term loan and senior secured notes. "We could raise the rating if the company's liquidity position strengthens or if we no longer view a default as likely." ESG credit indicators: E-2, S-2, G-2 =================== L U X E M B O U R G =================== COVIS MIDCO 2: Moody's Ups CFR to Caa1 & Alters Outlook to Stable ----------------------------------------------------------------- Moody's Investors Service has upgraded the long term corporate family rating of Covis Midco 2 S.a r.l. (Covis or the company) to Caa1 from Caa3. The rating agency has also upgraded the ratings on the currently outstanding $688 million equivalent backed senior secured first lien term loan B and $100 million backed senior secured revolving credit facility (RCF) to Caa1 from Caa2, both borrowed by Covis Finco S.a r.l. In addition Moody's has assigned a B1 rating to a new $64 million backed senior secured first lien term loan A, also borrowed by Covis Finco S.a r.l. The outlook on both entities has been changed to stable from negative. The rating action reflects: -- The completion of the restructuring of the company's debt facilities on June 1, 2023, resulting in substantial debt reduction -- Potential for greater stability of performance from 2024 with a degree of resilience of Covis' core respiratory products -- Continued high leverage and weak cash flows following the restructure which will require improved trading performance in order for the revised debt structure to be sustainable -- Ongoing trading challenges in relation to generic competition, competition from new therapies, parallel trading issues and third party distributor resourcing and promotion Moody's has also upgraded the company's probability of default rating (PDR) to Caa1-PD/LD from Caa3-PD. Moody's has appended the limited default ("LD") designation to the PDR reflecting the occurrence of a limited default due to the write down of a proportion of the debt facilities as a result of the restructuring transaction. The LD designation will be removed after three business days. The rating action follows the completion of a financial restructuring in which has included: (1) the reduction in backed senior secured first lien term loan B by $200 million, in return for a proportion of equity in the group; (2) the withdrawal of the $312 million backed senior secured second lien term loan facility in return for a partial cash payment; (3) new funding of $64 million in the form of a new backed senior secured first lien term loan A. Moody's has withdrawn the C rating on the backed senior secured second lien term loan facility on closing of the transaction. RATINGS RATIONALE The Caa1 CFR reflects the company's: (1) poor recent track record following high risk acquisitions, including the withdrawal of Makena and generic competition for Feraheme; (2) high drug concentration with reliance on asthma drug Alvesco and on the company's limited chronic obstructive pulmonary disease (COPD) treatment portfolio; (3) multiple trading challenges across the portfolio including accelerated category decline in COPD following new triple therapy competition, and potential for generic competition for Alvesco following patent expiries in Europe from 2024; (4) reliance on a limited number of third party distributors, contract manufacturers and sales contracts; (5) recent substantial reduction in company headcount which may cause disruption to the business and loss of sales channel control; and (6) history of very high exceptional items which may constrain the ability to generate positive cash flow and sustain the capital structure. The ratings also reflect: (1) the substantial reduction in debt levels and servicing costs, following the restructuring, which has reduced debt by $500 million or around 38% of total debt; (2) the potential for stabilisation of trading performance in 2024 after the effects of Makena and Feraheme declines run off and commercial issues in Europe are addressed; (3) Moody's expectations for improving cash flows as exceptional integration, restructuring, technical transfer costs and royalty payments reduce; (4) a degree of stability within the core respiratory drug portfolio, despite its maturity, with drug / inhaler device combinations providing a barrier to entry. Covis' recent trading performance, in particular following the take private of AMAG Pharmaceuticals in November 2020, and after the acquisition of two respiratory products from AstraZeneca PLC (AstraZeneca, A3 stable), has been very weak. The AMAG transaction was particularly high risk and the two main drugs acquired, Makena and Feraheme, have suffered from major declines, with Makena to be withdrawn from the market following an FDA ruling in April 2023. However trading challenges have been experienced across the business, with multiple issues facing the respiratory portfolio in Europe. It is uncertain the extent to which the company will be able to address these issues through improved promotion, given its lack of control over the sales channel. In addition new triple therapies for COPD are being marketed heavily and are eroding the share for Covis' mono and dual therapy products. Reliance on Alvesco is high and although performance is stable, it remains vulnerable to newer therapies and potential generic entry, with patents expiring in 2024 (Europe) and 2028 (US). Accordingly there remain significant challenges to stabilise performance and generate sufficient cash to meet debt servicing requirements, and the company's substantial underperformance weighs on the credibility of its plans for trading recovery and on the rating. Moody's expects M&A to represent a key component of the company's strategy in order to build a stronger business model with a more diverse mature drug portfolio and to develop a track record of successful drug acquisitions. This will be subject to further execution risks and is likely to require additional support from the company's shareholders. LIQUIDITY Covis' liquidity has been significantly strengthened following the restructuring as the company has raised a new accounts receivable securitisation facility, available until 2026 and with commitments of up to $100 million. Total liquidity at the end of May 2023, pro forma for the restructuring and new securitisation facility was approximately $120m, including $50 million headroom under the company's $100 million backed senior secured revolving credit facility issued by Covis Finco S.a r.l. subject to onboarding further obligors in Canada and Europe, due 2027, and cash of $approximately 70 million. In addition annual debt servicing costs have reduced to around $110 million (interest and scheduled repayments), from around $185 million before the restructuring. However Moody's forecasts the company to experience free cash outflow, after debt repayments, of around $75 million across 2023 and 2024, with a recovery to positive cash flow dependent on reducing the high levels of exceptional items currently incurred whilst stabilising trading performance. The RCF is subject to a springing leverage covenant applicable if drawn by more than 35%. Moody's expects adequate headroom under this test although further severe underperformance would potentially lead to a breach. STRUCTURAL CONSIDERATIONS Covis Finco S.a r.l.'s $64 million backed senior secured first lien term loan A is rated B1, three notches above Covis' CFR, reflecting its small size and priority ranking on enforcement. The company's outstanding $688 million equivalent senior secured first lien term loan B and $100 million RCF issued by Covis Finco S.a r.l. are rated Caa1, in line with the CFR, reflecting the limited amount of priority debt in the capital structure. OUTLOOK The stable outlook balances the reduced leverage and improved free cash flows following the restructuring, with the continued business challenges facing the company which create substantial risks that it will not be able to stem the decline in revenues and EBITDA and generate positive cash flows after debt servicing. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS The ratings could be upgraded if the company trades in line with expectations and achieves stable performance in its core respiratory portfolio, whilst reducing exceptional costs and improving cash generation. In addition an upgrade would require that: -- Moody's-adjusted free cash flow / debt turns materially positive on a sustainable basis; and -- Moody's-adjusted debt / EBITDA reduces to below 6.0x on sustainable basis; and -- The company maintains adequate liquidity; and -- There are no adverse regulatory or competitive developments in relation to the company's portfolio including the entry of new generic products The ratings could be downgraded if: -- There is continued material decline in trading performance including a failure to stabilise sales of the respiratory portfolio; or -- Moody's-adjusted debt / EBITDA increases materially from current levels of around 7.0-7.5x; or -- Liquidity weakens; or -- There are material adverse regulatory or competitive regulatory developments in relation to the company's portfolio PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Pharmaceuticals published in November 2021. CORPORATE PROFILE Covis, based in Zug (Switzerland) and Luxembourg, markets and distributes a portfolio of patent-protected and mature drugs in the respiratory and critical care areas, with a presence in over 50 countries. Founded in 2011, it was acquired by funds affiliated with Apollo Global Management, Inc. in March 2020. In the 12 months ended September 30, 2022, Covis had annualised revenue and EBITDA pre-exceptionals of around $460 million and $200 million respectively, including certain assets acquired from AstraZeneca. ===================== N E T H E R L A N D S ===================== MAXEDA DIY: Moody's Lowers CFR to B3 & Alters Outlook to Negative ----------------------------------------------------------------- Moody's Investors Service downgraded the corporate family rating of Maxeda DIY Holding B.V. to B3 from B2. Moody's also downgraded the company's probability of default rating to B3-PD from B2-PD and the instrument rating on the EUR470 million backed senior secured notes due 2026 to B3 from B2. The outlook has been changed to negative from stable. RATINGS RATIONALE The downgrade reflects Moody's expectations that, given the overall weak macroeconomic outlook for Europe and persistent high inflation, Maxeda's earnings, margins and free cash flow (FCF) are likely to deteriorate in the company's fiscal 2023 (year ending January 31, 2024). Maxeda already had limited cushion in its rating category given its weak credit metrics in fiscal 2022 (year ended January 29, 2023) and limited FCF. While Maxeda's sales and earnings were broadly resilient in 2022, aided by prices increases, the company's Moody's-adjusted EBIT margins declined to 4.4%, back to pre-COVID levels, owing to high cost inflation. In addition, the company's interest cover (calculated as Moody's-adjusted EBIT to interest expense) stood at 1.2x in fiscal 2022, a weak level for the B2 rating category. Moody's expects that consumers will continue to be cautious with discretionary spending, including home improvement projects, because of factors such as persistently high inflation, although softening in recent months, and higher interest costs which have squeezed their disposable incomes. Against this backdrop the rating agency expects Maxeda's earnings and margins to deteriorate in the next 12-18 months, as continued softness in sales volumes along with wage cost inflation will likely outweigh lower freight costs. In light of its base case forecasts for the company's Moody's-adjusted EBITDA to fall by nearly 10% this fiscal year, the rating agency expects Maxeda's credit metrics to remain weak in the next 12-18 months. This will include Moody's-adjusted gross debt to EBITDA approaching 5.5x in fiscal 2023, compared to 5.1x at the end of January 2023, and interest cover declining to around 1.0x. With the exception of its fiscal 2020, when it benefitted from a COVID-related spike in consumers undertaking home improvement projects, the company's Moody's-adjusted EBITDA has not grown materially in the last five or more years. If sustained, this track record and the company's weak FCF generation, could make Maxeda's capital structure unsustainable and more difficult to refinance in a timely manner ahead of its bond maturity (October 2026), particularly in the context of the higher interest rate environment relative to when the bond was last refinanced. Excluding the exceptional pandemic performance, when the company generated EUR130 million of Moody's-adjusted FCF during fiscal 2020 which was largely distributed to shareholders in 2021, Maxeda generated negative or very modest FCF since 2018 (a loss of EUR22 million on average). Moody's base case expectation is that Maxeda's FCF will once more be very modest or slightly negative in fiscal 2023. Moreover, after the record performance during the pandemic, Moody's forecasts limited sales growth in the DIY industry this year and next, which will likely constrain Maxeda's earnings improvement and hence FCF. LIQUIDITY Moody's considers Maxeda's liquidity to be adequate for now, supported by EUR28 million of cash on balance sheet as of January 29, 2023, EUR65 million of undrawn revolving credit facility (RCF) and no meaningful debt amortisation before 2026. That being said, Maxeda posted limited FCFs in fiscal 2023, at only EUR7 million, in part reflecting adverse working capital movements in relation to the phasing of supplier rebates and franchisees' receivables. Part of the RCF (EUR37.5 million) is subject to a springing senior net leverage covenant, with sufficient capacity, tested quarterly if more than 40% of the facility is drawn. STRUCTURAL CONSIDERATIONS Maxeda DIY Holding B.V. is the top entity of the restricted group and issuer of the backed senior secured notes. The parent's issuer, Maxeda DIY Group BV, is the reporting entity. The B3 rating of the EUR470 million backed senior secured notes due October 2026 reflects the upstream guarantees and share pledges from material subsidiaries of the company, and pledges on certain movable assets of the company. The B3 rating also takes into account the presence of a super senior RCF in the structure and the sizeable trade payable claims at the level of operating subsidiaries. Maxeda's B3-PD probability of default rating is in line with the CFR and reflects the use of a 50% family recovery rate, consistent with a capital structure that includes bonds and bank debt. RATING OUTLOOK The negative rating outlook reflects the risk that the underlying earnings trajectory of the business remains at best flat and its FCF generation remains weak which will bring the sustainability of its current capital structure into jeopardy. A stabilisation of the outlook will require Maxeda to improve its operating performance in the next 12-18 months, notably improving its earnings and margins while generating positive and more sustainable FCF. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Upward rating pressure is unlikely in the short term given the negative outlook. Over time, positive pressure could result from (1) a sustained improvement in operating performance, with solid top-line growth and improving margins, (2) the company's Moody's-adjusted debt/EBITDA remains well below 5.5x on a sustainable basis, (3) its Moody's-adjusted EBIT/interest expense ratio improving to 1.5x, and (4) the company generating meaningful and sustained positive FCF while maintaining an adequate liquidity. Downward rating pressure could be exerted on Maxeda's ratings if (1) its market position and operating performance were to deteriorate (for example, because of intense competition, negative like-for-like sales or reduced margins); (2) its EBIT/interest expense declines below 1.0x on a sustained basis; (3) its FCF turns negative on a sustained basis; or (4) its liquidity is no longer adequate and becomes weak. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Retail published in November 2021. COMPANY PROFILE Maxeda DIY Holding B.V., headquartered in Amsterdam, the Netherlands, is a DIY retailer that operates in the Netherlands, Belgium and Luxembourg via various offline and online formats. Its offline network comprises 344 stores, of which 219 are its own stores and the balance are run by franchisees. In the financial year ended January 29, 2023, the company reported revenue of EUR1.5 billion and EBITDA of EUR107 million (company-adjusted, pre-IFRS 16). =========== P O L A N D =========== GLOBE TRADE: Moody's Withdraws 'Ba1' Corporate Family Rating ------------------------------------------------------------ Moody's Investors Service has withdrawn the Ba1 long-term corporate family rating of Globe Trade Centre S.A. (GTC or the company). Concurrently, Moody's has withdrawn the Ba1 rating of the company's backed senior unsecured notes, issued by its subsidiary GTC Aurora Luxembourg S.A., guaranteed by GTC. The stable outlook on both entities has also been withdrawn. RATINGS RATIONALE Moody's has decided to withdraw the ratings for its own business reasons. =========================== U N I T E D K I N G D O M =========================== BELLIS FINCO: Moody's Affirms 'B2' CFR, Outlook Remains Stable -------------------------------------------------------------- Moody's Investors Service has affirmed the B2 long term corporate family rating and the B2-PD probability of default rating of Bellis Finco PLC (Bellis or ASDA). Concurrently, Moody's has assigned a B2 rating to the GBP770 million senior secured term loan issued by Bellis Acquisition Company PLC. The outlook for both entities remains stable. The rating action reflects: -- The announcement that ASDA plans to acquire EG Group Limited's (B3 stable) fuel forecourts operations in the United Kingdom and Ireland (UK&I) for an enterprise value of GBP2.3 billion, equivalent to an EBITDA multiple of 11.6x excluding synergies, comprising approximately GBP1.9 billion of debt and GBP450 million of equity. -- Moody's expectation that key credit metrics will remain commensurate with the current rating category despite a projected weakening of these metrics with the transaction resulting in a deterioration of Moody's-adjusted leverage towards 7x by end 2023 including realized synergies. This compares with Moody's previous expectations of a leverage of around 6.5x at this year's end. Moody's projects leverage to decline towards 6.5x by end 2024, a more appropriate level for the rating category. -- The Rating Agency considers the envisaged transaction as positive in terms of ASDA's business profile, reflecting the increased exposure to the more profitable and faster-growing convenience grocery channel and foodservices sector. The merger will however increase the company's exposure to the longer-term carbon transition risks related to the gradual reduction in fuel demand and increasing investment needs in electric charging infrastructure. Fuel revenue will represent around 20% of the combined group. RATINGS RATIONALE ASDA's B2 CFR reflects (i) the company's established market position and significant scale as the third largest grocer in Great Britain; (ii) the stable demand for grocery products; (iii) ASDA's recovery in market share following proper investment in value and quality; (iv) a strong online offering, holding the number two market share position in UK grocery home shopping according to Kantar Worldpanel; and (v) substantial cash generation that Moody's expect to continue. The rating also reflects (i) the very competitive nature of the UK grocery sector, which hampers profit growth; (ii) low exposure to the convenience format, particularly in urban areas where Moody's believes fundamentals are stronger, although the recent Arthur and EG transactions will result in a more meaningful presence in the channel; (iii) increased execution risks as the company integrates EG UK&I, seeks to realise related synergies, keeps implementing its separation from Walmart, and continues to address the strategic challenge posed by the discounters to the traditional grocers; (iv) the high leverage amid the ongoing rise in the cost of debt; and (v) substantial separation costs which will constrain cash generation over the next two years. EG UK&I generated company-adjusted after-rent EBITDA of about GBP195 million in 2022. The envisaged transaction will increase ASDA's exposure to the more profitable and resilient grocery convenience channel and foodservices and will turn the company into the second largest independent operator of fuel stations in the UK. The transaction also highlights the aggressive financial policy which has been evident under the current ownership, the acquisition is funded primarily through additional debt - GBP770 million of senior secured term loan and GBP1,090 million of sale-and-leaseback and ground rent obligations; a bridge loan will be in place until the property transactions are finalised. GBP450 million of new equity is contributed [1]. The exact transaction structure is subject to finalisation and the deal is expected to close by the fourth quarter of 2023. ASDA's Moody's-adjusted leverage as at December 2022 stood at 6.7x, based on Moody's-adjusted debt of GBP7.4 billion and GBP1.1 billion of Moody's-adjusted EBITDA excluding the exceptional costs related to the separation from Walmart Inc. (Walmart, Aa2, stable). Pro forma for the transaction, leverage would have stood at around 7.0x at December 2022, excluding potential synergies that the company expects will exceed GBP100 million and will be achieved by 2025. Moody's-adjusted EBIT to interest expense coverage was 1.3x as at December 2022. Moody's expect the ratio to remain broadly stable over the next 12-18 months, considering the price of the new funded debt (SONIA+6.75%) and the large interest component relating to the lease and ground rent obligations. ESG CONSIDERATIONS However, the envisaged transaction will also increase ASDA's exposure to environmental and, specifically, carbon transition risks. A key long-term risk for fuel forecourts is the decline in fuel consumption as developed economies like the UK transition to a low-carbon environment. Also, fuel forecourts generally face higher waste and pollution risks compared to other retailers due to the transportation, transfer and storage of combustible products. However, the pace of fuel reduction will likely be gradual, giving fuel forecourts some leeway to adapt their business to changing fuel demand. Investment in the appropriate infrastructure for Alternative Fuel Vehicles (AFVs), which includes both battery electric vehicles (BEVs) and non-BEV plug-in hybrids, will also influence the pace of adoption. Key governance risks for ASDA include (i) an aggressive financial strategy, high leverage, a limited track record in terms of strategy execution, and ii) a concentrated ownership structure due to its private equity ownership. Whilst ASDA has been without a Chief Executive Officer since August 2021 the company has recently announced that it has recommenced its search for that role. LIQUIDITY Moody's considers ASDA's liquidity profile to be adequate, supported by expected positive, albeit limited considering the size of the company's operations, pro forma free cash flow of at least GBP100 million in 2023, GBP663 million of cash on balance sheet as at December 31, 2022 and an undrawn GBP500 million senior secured revolving credit facility (RCF) issued by Bellis Acquisition Company PLC maturing in August 2025. The RCF will be upsized by GBP117 million at signing, with a commitment for a further GBP40 million at the closing of the transaction. The company also has a GBP195 million senior secured term loan A maturing in August 2025 and backed senior secured maturities debt of around GBP3.5 billion (equivalent) in aggregate maturing in February 2026 issued by Bellis Acquisition Company PLC. STRUCTURAL CONSIDERATIONS The senior secured bank credit facility ratings are currently in line with the CFR reflecting the limited cushion provided by the backed senior unsecured notes. RATIONALE FOR THE STABLE OUTLOOK Assuming successful completion of the envisaged transaction and including planned synergies, Moody's currently anticipates leverage will reduce towards 6.5x over the next 12-18 months, in line with Moody's expectations before the transaction, based on Moody's-adjusted debt and EBITDA currently estimated at around GBP9.6 billion and GBP1.5 billion respectively. Moody's base case factors in the challenges stemming from the company's highly competitive market environment, which will continue to constrain its ability to pass on input cost inflation through price increases. Despite lower cost headwinds than previously anticipated as inflationary pressure reduces, expected sizeable buying improvements and planned synergies related to recent acquisitions, the company still needs to establish a track record of successful execution. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS The ratings are considered to be weakly positioned and therefore upward rating pressure is unlikely in the short term. However, the ratings could be upgraded if Moody's-adjusted leverage reduces sustainably below 6.25x; and the EBIT to interest expense ratio improves to at least 2x; and free cash flow to debt is sustained in mid-single-digits in percentage terms. An upgrade would also require the absence of major execution challenges and a strengthening of the liquidity position. The ratings could be downgraded if leverage increases towards 7x on a Moody's-adjusted basis before separation costs, or if EBIT to interest expense ratio fails to improve sustainably above 1.5x, or if separation costs materially increase above expected levels, or if the company generates negative free cash flow. Significant market share losses, material execution issues or failure to maintain at least adequate liquidity could also exert negative pressure on the rating. LIST OF AFFECTED RATINGS Issuer: Bellis Finco PLC Affirmations: LT Corporate Family Rating, Affirmed B2 Probability of Default Rating, Affirmed B2-PD BACKED Senior Unsecured Regular Bond/Debenture, Affirmed Caa1 Outlook Actions: Outlook, Remains Stable Issuer: Bellis Acquisition Company PLC Assignments: Senior Secured Bank Credit Facility, Assigned B2 Affirmations: Senior Secured Bank Credit Facility, Affirmed B2 BACKED Senior Secured Regular Bond/Debenture, Affirmed B2 Outlook Actions: Outlook, Remains Stable PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Retail published in November 2021. COMPANY PROFILE Headquartered in Leeds, West Yorkshire, ASDA is the third largest grocery retailer in the UK with total revenue of GBP24.5 billion in 2022 including fuel. Food sales are generally equally split between fresh & produce and ambient. FITNESS FIRST: Landlords Prepare to Challenge Restructuring Plan ---------------------------------------------------------------- Sky News reports that some of Britain's biggest commercial property-owners are joining forces in a bid to thwart a plot to slash rents at dozens of Fitness First health clubs. Sky News has learnt that landlords including The Crown Estate, M&G Real Estate and Land Securities are preparing to challenge a restructuring plan that is due to be heard in court later this month. According to Sky News, the property giants are said to be furious about the terms of the plan, which has been hatched by Fitness First's owner, the family of former sportswear tycoon and Wigan Athletic Football Club owner Dave Whelan. One real estate source said the landlords' objections related to the depth of the financial information they claimed to have seen, their singling out as a creditor class and the apparent repayment of a loan taken out by Fitness First under one of the government's COVID lending schemes, Sky News relates. Hilton, Legal & General Investment Management and Nuveen are also said to be among the landlords involved in the challenge, Sky News notes. Under Fitness First's plans, ten of its UK sites, representing just under a quarter of its estate, would close permanently, Sky News discloses. Rent cuts would affect many of the remaining 34 sites, according to the proposals circulated to creditors, Sky News states. A court is due to hear the case on June 12, Sky News discloses. Efforts to block restructurings by retailers and restaurant chains were commonplace during the pandemic as landlords sought to avoid being financially compromised on a disproportionate basis. Mr. Whelan bought Fitness First in 2016, with its most recently filed accounts showing a loss of more than GBP10 million in the year to March 31, 2021 -- although its performance during that period was hammered by the pandemic, Sky News recounts. Accounts for the following year are now two months overdue, Sky News states. Filings show that earlier this year, Teneo Financial Advisory was appointed administrator to Fitness First (Curzons) Limited, a company affiliated to the wider group, according to Sky News. The impact on jobs at the company as a result of prospective gym closures could not be ascertained, Sky News notes. Mr. Whelan, who founded JJB Sports, acquired a large chunk of Fitness First's UK operations seven years ago as part of a separate restructuring of the multinational gyms operator, Sky News relays. Under different ownership, Fitness First had previously shed dozens of struggling UK clubs through a mechanism known as a company voluntary arrangement (CVA) in 2013, Sky News discloses. The use of a restructuring plan rather than a CVA to implement its latest overhaul could prove controversial among affected landlords, according to Sky News. LONDON CARDS 1: Moody's Assigns (P)Ba3 Rating to Class E Notes -------------------------------------------------------------- Moody's Investors Service has assigned provisional ratings to Notes to be issued by London Cards No.1 plc: GBP [ ]M Class A Asset Backed Floating Rate Loan Note due April 2033, Assigned (P)Aa3 (sf) GBP [ ]M Class B Asset Backed Floating Rate Notes due April 2033, Assigned (P)A1 (sf) GBP [ ]M Class C Asset Backed Floating Rate Notes due April 2033, Assigned (P)A2 (sf) GBP [ ]M Class D Asset Backed Floating Rate Notes due April 2033, Assigned (P)Baa2 (sf) GBP [ ]M Class E Asset Backed Floating Rate Notes due April 2033, Assigned (P)Ba3 (sf) GBP [ ]M Class F Asset Backed Floating Rate Notes due April 2033, Assigned (P)Caa2 (sf) GBP [ ]M Class X Asset Backed Floating Rate Notes due April 2033, Assigned (P)B2 (sf) Moody's has not assigned ratings to the GBP [ ]M Class G Asset Backed Fixed Rate Notes due April 2033 and the GBP [ ]M Class Z VFN Notes due April 2033. RATINGS RATIONALE The transaction is a 3-years revolving cash securitisation of credit card receivables extended to small and medium sized companies in the UK. This is the first ABS issuance by New Wave Capital Limited (trading as "Capital on Tap") (NR). The receivables arise under designated Visa Inc. revolving credit card accounts originated by Capital on Tap. The originator will also act as the servicer of the portfolio during the life of the transaction. Interest on the notes is paid monthly in order of seniority using the collections. During the revolving period, asset principal collections received will be used to fund the transfer of further receivables which arise under the designated accounts. At the end of the revolving period, principal collections will be accumulated for the benefit of noteholders in order to redeem the notes on their scheduled maturity date. If the issuer does not fully repay the notes by their scheduled redemption date, a rapid amortisation trigger will be breached. According to Moody's, the transaction benefits from credit strengths such as (i) high level of excess spread at closing, (ii) the Class Z VFN notes providing additional funding to purchase eligible receivables from already designated accounts, to purchase additional eligible receivables to cover defaults or dilutions, or to fund the reserve account, (iii) no exposure to set-off risk since the originator is not a deposit taking institution. However, Moody's notes that the transaction features some credit weaknesses such as (i) credit risk exposure to small and medium sized companies, (ii) limited historical data available, (iii) Capital on Tap, an unrated entity, acting as originator and servicer in the transaction and (iv) the pool composition can change during the revolving period which introduces some uncertainty with regards to the quality of the credit card receivables portfolio over time. Moody's analysis focused, among other factors, on (i) the credit quality of Capital on Tap (NR), as the originator, sponsor, seller and servicer of the trust; (ii) the minimum credit enhancement levels of the notes; (iii) the excess spread available to the transaction; (iv) the structural and legal integrity of the transaction; (v) the experience of Capital on Tap in its role as servicer and originator; and (vi) the credit quality of Barclays Bank PLC as the issuer account bank. As is typical in most credit card ABS transactions, there is a high degree of linkage between the rating of the rated notes and the credit quality of Capital on Tap. MAIN MODEL ASSUMPTIONS Moody's determined the maximum portfolio loss that is consistent with an Aaa (sf) rating ("Aaa LGSD") at 49.4%, assuming that the sponsor has closed its cardholders' accounts and that the originator is in or near to default. The key parameters used to derive the Aaa LGSD in UK trusts are: charge off rates (current, long run and peak); payment rates (current and at start of early amortisation); receivable yield rates (current, at start of early amortisation and the compression level due to potential asset-liability mismatches); servicing fees (current and stressed) and the minimum seller's interest (as per the documents). In a second step, the level of credit enhancement that is consistent with an Aaa (sf) rating is determined by lowering the Aaa LGSD by the applicable "dependency ratio" - this ratio varies according to the sponsor's credit rating or counterparty risk assessment ("CR Assessment"), if available. The higher the sponsor's credit rating or CR Assessment as the case may be, the lower the dependency ratio. The ratio reflects the likelihood of the sponsor entering default, and so higher rated sponsors will require lower Aaa credit enhancement all else being equal. The result is the minimum Aaa credit enhancement, absent of other counterparty or operational risks. For credit card receivables-backed securities whose credit enhancement is less than the Aaa credit enhancement, Moody's adjust the rating of the securities based on the available credit enhancement level. Finally, for subordinated notes, additional adjustments are made to account for the higher inherent loss severity due to the smaller sizes and the ranking of those classes of notes. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was 'Credit Card Receivables Securitizations Methodology' published in November 2022. Factors that would lead to an upgrade or downgrade of the ratings: Moody's could downgrade the rating of the rated notes if performance deteriorates materially. Specifically, if the charge off rate rises or the payment rate or yield falls. A downgrade of the sponsor's CR Assessment could also lead to a downgrade of the rating of the rated notes, given the ongoing role of the sponsor as originator, risk manager, servicer and collector. Although certain triggers are in place that help to decrease, to a certain extent, the exposure to the sponsor in its various roles, these will probably not fully mitigate the impact of a significant deterioration in the sponsor credit quality. Hence, the originator's credit quality is always an important input in monitoring the transaction. LONDON IRISH: Files for Administration, Owes More Than GB30-Mil. ---------------------------------------------------------------- Nick Purewal at Evening Standard reports that London Irish have filed for administration, owner Mick Crossan has confirmed in an email to Exiles staff. The west London club was ejected from the Gallagher Premiership on Tuesday night, after failing to meet a raft of conditions for sustainability by the 4:00 p.m. RFU deadline, Evening Standard relates. Mr. Crossan had the chance even as late as Tuesday afternoon to commit to funding Irish for the full 2023/24 campaign, but rejected that opportunity, Evening Standard discloses. So now the Powerday magnate has put the Exiles into administration, with the club weighed down by more than GBP30 million of debt, Evening Standard notes. Mr. Crossan confirmed Irish's administration in an open letter to supporters, insisting that proved "the safest path forward for the club", Evening Standard states. Mr. Crossan only paid 50% of Irish's wage bill for May, leaving more than 100 employees out of pocket while now immediately unemployed, Evening Standard discloses. According to Evening Standard, administrators will now oversee attempts to settle club debts, with the picture bleak in terms of any kind of rescue act. PAPER INDUSTRIES: Moody's Rates EUR115MM Bank Loans 'B2' -------------------------------------------------------- Moody's Investors Service assigned a B2 instrument rating to the EUR115 million backed senior secured bank credit facility borrowed by Paper Industries Holding S.a r.l. (PI Holding), a wholly-owned subsidiary of Paper Industries Intermediate Fin. S.a r.l. (PI Intermediate Financing), under the Amendment and Restatement Agreement dd. November 28, 2022 for PI Intermediate Financing. The backed senior secured bank credit facility borrowed by PI Holding, that matures on January 31, 2024, has a one-year extension option at the election of PI Intermediate Financing and is split into a EUR75 million term Loan A, EUR5 million term loan B and a EUR35 million revolving credit facility. The outlook on PI Holding is stable. Moody's decision mirrors the fact that PI Holding became borrower of the facilities during an amendment of the original Term and Revolving Facilities Agreement dd. January 27, 2020. The facility is fully guaranteed by PI Intermediate Financing. Moody's has withdrawn the B2 rating of the EUR115 million backed senior secured bank credit facility borrowed by PI Intermediate Financing. RATINGS RATIONALE The Caa1 long term corporate family rating (CFR) of Lecta Ltd (Lecta), the ultimate Holding of the group, is primarily supported by the company's market-leading position in coated woodfree (CWF) paper in Southern Europe, where its assets are located close to end-customers and require limited maintenance capital spending; solid and growing market positions in specialty papers, which offer higher average operating profitability than CWF paper, and underlying demand growth for the majority of grades; good vertical integration into energy and base paper for specialty papers, with the latter covering around 90% of its needs; and own distribution network, which is a source of additional EBITDA and provides access to a wider portfolio of customers. At the same time the CFR is primarily constrained by the company's still-sizeable exposure to CWF paper, which is structurally declining in mature markets and requires continuous restructuring and proactive capacity management. The CFR is also constrained by Lecta's limited vertical integration into pulp, with internal production currently covering just about one-third of its needs, exposing the company to the volatility in pulp prices; continued negative free cash flow and still high leverage of 6.0x Moody's adjusted debt/EBITDA seen at the end of 2022. OUTLOOK The stable outlook reflects Moody's expectation that, supported by the completion of the Condat PM8 conversion and on the back of a supporting market environment, Lecta will be able to further strengthen profitability and cash flow generation. While Moody's expect that Lecta's leverage will stabilize around 6.0x Moody's-adjusted debt/EBITDA and free cash flow will improve towards breakeven level Moody's remain cautious that increased geopolitical and macroeconomic risks along with persisting inflationary pressure could lead to a protracted deterioration of global economic activity towards full year 2023, which would inadvertently affect Lecta's operating performance. The stable outlook is based on the expectation that upcoming refinancing needs are addressed proactively. LIQUIDITY Lecta's liquidity is just adequate, supported by EUR149 million of reported cash and cash equivalents on its balance sheet as of December 2022, further supplemented by the fully undrawn EUR35 million backed senior secured revolving credit facility that matures in January 2024 with a one-year extension option. Nevertheless, continued negative free cash flow (FCF), along with volatile working capital, adds to the company's relatively sizeable exposure to various supply-chain financing and factoring arrangements, some of which are short term in nature and uncommitted. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS The rating could be upgraded if Lecta's operating performance improves further and the company successfully executes its commercial strategy and transformation plan. Quantitatively, a rating upgrade would be considered if (1) its Moody's-adjusted EBITDA margin improves towards the high-single-digit percentages; (2) its Moody's-adjusted debt/EBITDA sustainably remains below 7.0x; (3) the company generates positive FCF; (4) interest cover improves to around 1.5x EBIT/interest expense and (5) liquidity improves significantly and there is reduced reliance on short-term funding. Lecta's ratings could be downgraded if the company is unable to timely substitute declining volumes in coated wood free products with a rising share in higher-margin specialty papers. Quantitatively, the ratings could be downgraded if Lecta is unable (1) to improve its free cash flow generation to at least break-even levels; (2) to reduce its reliance on short-term funding; (3) to successfully execute its transformational projects; and (4) to improve its interest coverage to well above 1.0x EBIT/interest expense. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Paper and Forest Products published in December 2021. COMPANY PROFILE With its legal headquarters in London, Lecta Ltd (Lecta) is a leading coated fine paper manufacturer in Italy, France and Spain. The company also has a growing specialty paper offering and a distribution business in Italy, Spain, Portugal and France. Lecta generated around EUR1.9 billion in sales in 2022 and had close to 3,000 employees. PARTY PIECES: Owed Almost GBP2.6-Mil. at Time of Administration --------------------------------------------------------------- Andy Buckwell at Daily Mail reports that the party company run by the parents of the Duchess of Cambridge has gone into administration almost GBP2.6 million in the red. Party Pieces Holdings run by Michael and Carole Middleton owes the taxman GBP612,685, details published reveal. The couple blamed lockdown and the cost of living crisis which caused a sharp downturn in sales and cash flow problems. The company also owes GBP218,749 to RBS bank for a Coronavirus Business Interruption loan, GBP456,008 to other creditors and GBP1.4 million in unsecured loans, a statement published by administrators reveal. Party Pieces has been sold in part to Teddy Tastic Bear Company Limited for GBP180,000, the document says, with the firm keeping on 12 employees and remaining at its current base in Ashampstead, Berkshire. It adds that many owed cash will be out of pocket as a result of the business failure, saying: 'Based on current estimates, it is uncertain whether there will be funds available to enable a distribution to preferential creditors. It is unlikely there will be funds available to enable a distribution to unsecured creditors.' The report details how the pandemic began to cause the company problems saying that revenue contracted from GBP4.5 million to GBP3.2 million between 2021 and 2022, with the company making a loss of GBP900,000. It said: 'Management attributed this to the Covid 19 pandemic resulting in reduced social gatherings and a reduction in discretionary spend due to the cost of living crisis. This caused constraints on the company's cash flows.' In early 2023, the CEO resigned and the Middletons and other members of the board tried to shore up the company and find a buyer. But the report said: 'The company experienced increasing creditor pressure, including threats to present winding up petitions and other legal proceedings.' In the face of the financial challenges, the company approached 175 potential buyers and eventually settled on a deal for GBP180,000 which was for stock worth GBP120,000 and GBP60,000 for intellectual property, computers, contracts and other equipment. All 12 employees will transfer to the new company, the administrator report said. PLEXUS LAW: Set to Go Into Administration, Mulls Sale ----------------------------------------------------- Business Sale reports that Plexus Law, a specialist defendant insurance law firm, is exploring the option of a sale after filing notice of intention to appoint administrators. The notice will give the firm time to explore additional funding options after investor support was withdrawn, Business Sale discloses. According to a company spokesperson, after the firm was acquired in 2019, "serious financial irregularities" were discovered by its management, Business Sale notes. The impact of this meant the company had to secure additional funding from investors, which it successfully did in March 2023, Business Sale states. However, the spokesperson added, the company was "unable to broker the necessary agreements" to meet the conditions upon which the new investment was contingent, resulting in investor support being withdrawn, Business Sale relates. As a result, the company has now filed a notice of intention to appoint administrators as it explores its available options, with the move said to allow the company to take positive action to preserve value, according to Business Sale. The company spokesperson, as cited by Business Sale, said that, prior to investor support being withdrawn, "the business' underlying trading has been running in line with its forecast." The spokesperson added: "In these circumstances, we are now looking to raise fresh funds for the firm from a new investor. This may involve a sale or merger of part or all of the business with another firm." The company's accounts are currently overdue at Companies House, with its most recent accounts, for the year to March 30 2021, showing losses of GBP1.26 million, Business Sale discloses. At the time, the company's net assets were valued at GBP12.3 million, Business Sale notes. TELEGRAPH MEDIA: Receivers Take Control, Papers Set to Be Sold -------------------------------------------------------------- Ben King at BBC News reports that The Daily and Sunday Telegraph newspapers and The Spectator magazine are set to be put up for sale due to debts owed by their parent group. According to BBC, receivers Alix Partners have now taken control of the group, and replaced the current owners, the Barclay family. The receiver said it doesn't expect the changes to affect the operations of the papers, which are profitable, BBC relates. Lender Lloyds Bank is unlikely to recover the original value of the loan, worth hundreds of millions of pounds, BBC discloses. The bank has placed B.UK, a Bermuda-based holding company controlled by the Barclay family, into receivership, BBC recounts. Alix Partners said on June 7 that it has taken control of Telegraph Media Group, which owns the newspapers, and the company which runs The Spectator, BBC relays. Family members Howard and Aidan Barclay have been removed as directors, it said. Lloyds Banking Group, as cited by BBC, said it "regrettably" had no choice other than to appoint receivers, but said "it was willing to continue discussions to find a suitable solution." "The decision . . . follows numerous discussions with B.UK's parent company, Penultimate Investment Holdings Limited (PIHL). The aim of these discussions, which were held over a long period and undertaken in good faith, had been to find a consensual solution and repayment of PIHL's borrowing to Bank of Scotland. "Unfortunately, no agreement could be reached." While the bank remains open to returning the titles to the Barclays' control if the loans are repaid, it is likely that they will now move to a sale, and the investment bank Lazard has been appointed to start exploring options, BBC notes. Lloyds and the receiver say they will not seek to influence the editorial decisions of the newspapers while in receivership, BBC discloses. Analysts estimate the titles to be worth around GBP500 million, though a wealthy buyer keen to acquire the Telegraph as a trophy asset may pay in excess of that figure, according to BBC. For the last few years, the Telegraph's billionaire owners have consistently denied rumours that their newspapers could be sold, BBC relates. VIRIDIS EUROPEAN LOAN 38: S&P Lowers Class E Notes Rating to BB- ---------------------------------------------------------------- S&P Global Ratings lowered to 'AA+ (sf)', 'A+ (sf)', 'A- (sf)', 'BB+ (sf)', and 'BB- (sf)' from 'AAA (sf)', 'AA- (sf)', 'A (sf)', 'BBB- (sf)', and 'BB (sf)' its credit ratings on Viridis (European Loan Conduit No. 38) DAC's class A, B, C, D, and E notes, respectively. Rating rationale S&P said, "The downgrades follow our review of the transaction's credit and cash flow characteristics. Our S&P Global Ratings net cash flow and value have declined due to higher non-recoverable expenses assumption for the property. Although the property vacancy improved to 14.5% from 31.6% at closing, our vacancy assumption remains unchanged at 15.0%. Furthermore, at closing we gave credit to the GBP5 million interest shortfall reserve, which was released to the borrower in early 2022 when the property achieved occupancy above 90% and is no longer available as credit support to the notes." Transaction overview The transaction is backed by one loan, which Morgan Stanley Bank N.A. originated in June 2021 to facilitate the refinancing of the Aldgate Tower office building located in the City of London. The GBP192.0 million loan backing this true sale transaction is split into two pari passu facilities. Facility A is securitized in this transaction and equals GBP150 million, while Facility B, accounting for GBP42 million, does not form part of this securitization. The loan does not provide for default financial covenants. Instead, there are cash trap mechanisms set at 70.0% loan-to-value (LTV) ratio throughout the loan term, or minimum debt yields set at 7.0% (year 2) and 8.0% (year 3). There is no amortization scheduled during the three-year loan term. Transaction performance The property's market value is GBP300.0 million as of August 2022, which equates to an LTV ratio of 64.0% (including pari passu debt). The market value has declined by 9.1% since closing from GBP330.0 million. As of April 2023, the property vacancy improved to 14.5% compared to 31.6% at closing in April 2021. Vacancy decreased to 9.7% in April and July 2022 but increased again at the end of 2022 when Ince Gordon Dadds LLP exercised its break option and vacated part of its space. The building vacancy is comparable to the submarket office vacancy for Aldgate/Whitechapel of 15.7% as of first quarter (Q1) 2023 per Knight Frank, almost doubling from 7.7% in Q1 2021. The increase in market vacancy is a result of the wider adoption of hybrid and work from home policies and lower demand for office space. Contractual rental income has increased to GBP15.0 million from GBP12.1 million. The current average rent per square foot (psf) is approximately GBP55. The property is multi-tenanted and leased to 16 tenants. The tenant profile is diversified by industry, with the top five tenants accounting for 86.1% of contracted rent. The second largest tenant, InfinitSpace, benefits from free rent until Oct. 31, 2023, then half rent payable from Nov. 1, 2023, to July 21, 2025. The weighted-average unexpired lease term to break has increased to 5.9 years as reported in April 2023 compared to 4.8 years at closing. Table 1 Tenant profile TENANT SECTOR % OF TOTAL LEASE CONTRACTED BREAK/EXPIRY RENT Aecom Ltd. Engineering 33.2 Sept. 30, 2031 InfinitSpace Flexible 21.9 Jan. 31, 2037 working space MyCityDeal Ltd. E-commerce 13.8 June 23, 2025 marketplace Uber London Ltd. Ride-sharing 9.9 May 31, 2025 Ince Gordon Dadds LLP Law 7.3 April 30, 2024 Top five total 86.1 Credit evaluation S&P said, "We consider the portfolio's net cash flow (NCF) to be GBP13.9 million on a sustainable basis. This is based on a fully let rent of GBP17.5 million and adjusted for 15% vacancy and 7.0% non-recoverable expenses. Our vacancy assumption is unchanged from closing and is in line with the current property vacancy as well as the Aldgate submarket as reported by Knight Frank. Our non-recoverable expenses assumption has increased to 7.00% from 5.25% at closing based on the property's recent operating expenses. "We applied a 6.0% capitalization (cap) rate against this S&P Global Ratings NCF, unchanged from closing. We deducted GBP4.1 million of free rent under the InfinitSpace lease. We then deducted 5% of purchase costs to arrive at our S&P Global Ratings value. Our S&P Global Ratings value of GBP215.9 million represents a 28.0% haircut to the August 2022 market value of GBP300.0 million." Table 2 Loan and collateral summary CURRENT REVIEW CLOSING Data as of April 2023 April 2021 Loan outstanding principal (mil. GBP) 192.0 192.0 Annual contracted rent (mil. GBP) 15.0 12.1 Vacancy (%) 14.5 31.6 Market value (mil. GBP) 300.0 330.0 LTV ratio (%) 64.0 58.2 Debt yield (%) 7.24 N/A N/A--Not applicable. Table 3 S&P Global Ratings key assumptions CURRENT REVIEW CLOSING S&P Global Ratings rent fully let (mil. GBP) 17.5 17.9 S&P Global Ratings vacancy (%) 15.0 15.0 S&P Global Ratings expenses (%) 7.0 5.3 S&P Global Ratings NCF (mil. GBP) 13.9 14.4 S&P Global Ratings value (mil. GBP) 215.9 217.8 S&P Global Ratings cap rate 6.0 6.0 Haircut to reported market value (%) 28.0 34.0 S&P Global Ratings LTV before recovery rate adjustments (%) 88.9 88.2 NCF--Net cash flow. LTV--Loan to value. Other analytical considerations S&P also analyzed the transaction's payment structure and cash flow mechanics. S&P assessed whether the cash flow from the securitized assets would be sufficient, at the applicable rating, to make timely payments of interest and ultimate repayment of principal by the legal maturity date of each class of notes, after considering available credit enhancement and allowing for transaction expenses and liquidity support. At closing, the issuer deposited GBP5 million in an interest shortfall reserve, which could be released on the later of (i) the interest coverage ratio (ICR) reaching 1.8x, and (ii) the property achieving 90% occupancy. The reserve was released to the borrower in 2022 when occupancy increased to 90.3%. At closing, S&P gave credit for this interest shortfall reserve, which is no longer available as credit support. At closing, the issuer also issued an additional GBP5.5 million of class A notes, the proceeds of which, together with a portion (GBP289,473.68) of the vertical risk retention loan, is held in cash in the transaction account. These funds serve as a liquidity reserve in lieu of a traditional liquidity facility. The total note issuance is therefore larger than the outstanding loan balance. As of the April 2023 note payment date, the liquidity reserve balance was GBP5.8 million, same as at closing. There have been no liquidity reserve drawings. S&P said, "Our analysis also included a full review of the legal and regulatory risks, operational and administrative risks, and counterparty risks. Our assessment of these risks remains unchanged since closing and is commensurate with the assigned ratings." Rating actions S&P's ratings address the issuer's ability to meet timely interest payments and principal repayment no later than the legal final maturity in July 2029. S&P's opinion of the property's long-term sustainable value is now about 1% lower than at closing because of S&P's increased non-recoverable expenses assumption. In addition, the transaction no longer benefits from the GBP5 million interest shortfall reserve, which was released to the borrower. The S&P Global Ratings LTV ratio is 88.9%, compared to 88.2% at closing. After considering transaction-level adjustments, S&P lowered to 'AA+ (sf)', 'A+ (sf)', 'A- (sf)', 'BB+ (sf)', and 'BB- (sf)' from 'AAA (sf)', 'AA- (sf)', 'A (sf)', 'BBB- (sf)', and 'BB (sf)' S&P's ratings on the class A, B, C, D, and E notes, respectively. [*] UK: Craft Brewery Insolvencies Triple to 45 in March 2023 ------------------------------------------------------------- Business Sale reports that the number of craft breweries going into insolvency has tripled over the past year as the industry is hit by rising costs and an oversaturated market. According to Business Sale, as cheaper options continue to swell the market, the impact is being most keenly felt by smaller craft breweries. Brewery insolvencies rose to 45 in the year to March 31, 2023, up from 15 in the previous year, Business Sale relays, citing figures from accountancy firm Mazars. This comes after a decade in which the craft brewery industry has seen massive expansion, Business Sale notes. Growing from a relatively small market made up of local operators, the craft brewing industry has expanded dramatically, with brands now sold across major supermarkets and pubs nationwide and subject to major M&A activity -- most notably the GBP85 million acquisition of Camden Town Brewery by Anheuser-Busch InBev in 2015, Business Sale discloses. As a result, the market has been flooded with brands, with Mazars associate director Paul Maloney commenting that the boom in startups "meant that there were too many breweries competing for limited shelf space in supermarkets and bar space within pubs." "The craft beer market became heavily overpopulated over the last decade. The cost of living crisis now means many of these brewers are fighting for a place in a shrinking market. Some of them will not make it," Business Sale quotes Mr. Maloney as saying. This has now been exacerbated further by the soaring costs that craft breweries are facing, with the prices of energy and raw materials continuing to rise, pushing insolvencies up at a dramatic rate. ********* 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. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter Chapman at 215-945-7000. * * * End of Transmission * * *