/raid1/www/Hosts/bankrupt/TCREUR_Public/230627.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Tuesday, June 27, 2023, Vol. 24, No. 128
Headlines
A U S T R I A
SIGNA DEVELOPMENT: Fitch Alters Outlook on 'B-' LongTerm IDR to Neg
B U L G A R I A
EUROHOLD BULGARIA: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
F R A N C E
CASINO GUICHARD: EUR1.43B Bank Debt Trades at 27% Discount
CASINO: Aims to Conclude Debt Restructuring Talks by End of July
G E R M A N Y
ALPHA GROUP: Fitch Hikes LongTerm IDR to 'B-', Outlook Stable
ROEHM HOLDING: Fitch Affirms 'B-' LongTerm IDR, Outlook Stable
SGL CARBON: Moody's Affirms 'B2' CFR & Alters Outlook to Positive
I R E L A N D
MARGAY CLO I: Fitch Assigns Final BB-sf Rating on Class E Notes
MARGAY CLO I: S&P Assigns 'BB-' Rating on Class F Notes
PALMER SQUARE 2023-1: S&P Assigns B- Rating on Class F Notes
I T A L Y
AUTOFLORENCE 3: Fitch Assigns Final 'B+sf' Rating on Class E Notes
AUTOFLORENCE 3: S&P Assigns B-(sf) Rating on Class E-Dfrd Notes
L U X E M B O U R G
ARTERRSA SERVICES: MetWest FRI Marks $1.4M Loan at 15% Off
ARVOS BIDCO: $100M Bank Debt Trades at 81% Discount
COSAN LUXEMBOURG: Fitch Assigns 'BB' Rating on 2030 Unsecured Notes
N E T H E R L A N D S
BRIGHT BIDCO: $300M Bank Debt Trades at 47% Discount
P O R T U G A L
TAP: IAG's Interest Hinges on Privatisation Conditions
R U S S I A
IPOTEKA BANK: Fitch Affirms LongTerm IDRs at 'BB-', Outlook Stable
U N I T E D K I N G D O M
CINEWORLD GROUP: To File for Administration in Britain
CORNISH LITHIUM: Has Going Concern Doubt, Needs Cash Injection
GATWICK AIRPORT: Fitch Alters Outlook on BB- Note Rating to Stable
GKN HOLDINGS: Moody's Affirms Ba1 Rating on GBP130MM Unsec. Bond
HURRICANE BIDCO: Fitch Alters Outlook on 'B+' LongTerm IDR to Pos.
LIBERTY STEEL: Insolvency Petitions in UK Withdrawn
ROLLS-ROYCE: Fitch Affirms 'BB-' LongTerm IDR, Outlook Positive
TUFFNELLS PARCELS: Bought Out of Administration by Shift
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A U S T R I A
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SIGNA DEVELOPMENT: Fitch Alters Outlook on 'B-' LongTerm IDR to Neg
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Fitch Ratings has revised the Outlook on Signa Development
Selection AG's (Signa Development) Long-Term Issuer Default Rating
(IDR) to Negative from Stable and affirmed the IDR at 'B-' and
senior unsecured rating at 'B+' with a Recovery Rating of 'RR2'.
Fitch has also affirmed Signa Development Finance S.C.S.'s EUR300
million unsecured 2026 bond guaranteed by Signa Development
Selection AG at 'B+'/'RR2'.
The Negative Outlook reflects future development spend
requirements, including bank funding, for Signa Development's
prospective completions. This is balanced by the benefit of planned
monetisations of recent forward-sold and completed projects, and
opportunistic disposals to ensure liquidity for the group. Disposal
proceeds, while protecting the group's above-20% developer profit
margins, have reduced debt. The remaining projects are focussed on
high-end residential units, particularly in Vienna and new offices
in central Berlin locations.
Management set about selling assets at the early stages of the real
estate downturn, so immediate liquidity is less of a concern, with
around EUR1 billion of disposal proceeds announced and expected in
2023.
At end-2022, management-estimated gross development value (GDV,
projected value of completed projects) was EUR7.9 billion and gross
asset value (GAV, reflecting current market values) totalled EUR3.1
billion. Signa Development's debt totalled EUR1.76 billion,
including EUR0.3 billion of debt subordinated to the EUR0.3 billion
unsecured bond dated 2026.
KEY RATING DRIVERS
Active Disposals, Forward-Sales: Signa Development's operating
model is to forward-sale some projects. Consequently, proceeds were
received in 2022 from STREAM (Berlin office) and Donaumarina
(Vienna residential). In 2023, one Berlin office has been
part-pre-sold, while another, Schonhauser Allee, will be completed
and its sale proceeds received. Within the portfolio, some
disposals have been fast-tracked (including various D18 sites) to
procure liquidity and reduce debt. The kika/Leiner portfolio was
sold in May 2023. Totalling around EUR1 billion of monetisations in
2023, these pro-active actions have also reduced group complexity.
Debt Reduction, Refinance Risk: Debt will be reduced from disposal
proceeds, with some project disposals repaying asset-specific
development debt (typically below 40% LTV) and excess proceeds
reducing overall leverage. Fitch calculates that of EUR0.8 billion
of Signa Development's project companies' debt, around 60% is
scheduled to mature in 2023, the bulk of which is covered by
announced or planned disposals. Disposals like kika/Leiner also
repay other group debt.
Thereafter, remaining large debt maturities include EUR250 million
for a Berlin office and mixed-use project's bank funding in 2024
and EUR300 million 2026 unsecured bond (EUR289 million
outstanding). Although more expensive under current market
conditions, Fitch believes that Signa Development can access
asset-specific secured funding.
Re-phasing of Developments: As part of the active disposal
programme, some development projects have been re-phased. The
Berlin forward-funded monetisations of one office and Schonhauser
Allee protected these assets' values, and prospective Berlin office
projects (GLANCE, Urban Docks and Bremsenwerk) plan to achieve the
group's over 20% developer profit margin. Conversely, within the
D18 portfolio, some disposals of various plots and many with the
added complexities of inherited leases, may prioritise expedient
monetisation rather than maximise intended development plans.
In some projects, like the phased and part-owned Vienna 22
(residential, hotel, and part-office), project receipts from
earlier unit sales have been retained and help fund future capex
requirements from this de-risked development. The prospective
Korneuburg, Neue Werft is likely to be similarly funded with
initial sale proceeds funding later phases. Other projects need
debt funding and cash resources from the group to build up a
portfolio for future years' profits.
Construction Costs, Developer Margin: For construction projects,
Signa Development does not deal with general contractors but
instead with sub-contractors on a fixed-price strategy, and has
in-house expertise to project manage, keeping a check on costs and
overruns. Although commodity prices have increased, the group has
maintained its profit development margin. Fitch believes that
potential valuation declines, as assets recalibrate to higher
interest rates, are more likely to reduce developer profits than
increase construction costs.
Core Vienna and Berlin Markets: Alongside the forward-funding model
of residential-for-sale and office properties, Signa Development
has benefited from developing quality, well-located,
green-compliant assets, focussed on key markets including the
stable Vienna residential and Berlin office market. The latter
continues to demonstrate low vacancy rates and examples like the
BEAM office lettings now show rents comparable with the Frankfurt
office CBD.
Residential-for-development projects (like Vienna22) also appeal to
individuals, blocks of units for wealthier individuals or private
family trusts, and blocks for institutional investors. Residential
projects are focussed on Vienna, and smaller projects in St Polten,
and Bolzano (Italy). These projects are targeting the upper-end of
the residential market.
Using POC EBITDA: Fitch has used the more meaningful
(auditor-overseen but not audited) adjusted-revenue and
adjusted-EBITDA figures for 2018 to 2022 and in its forecasts,
based on the percentage of completion (POC) accounting method.
Under POC some lack of synchronisation between the balance sheet
(and resultant net debt/EBITDA ratios) remains as forward funding
liquidity is mainly at completion rather than periodic milestone
payments. This makes Signa Development's cash flow lumpy.
Cashflow Leverage: Signa Development's end-2022 net debt/POC EBITDA
was high at 16x due to lower POC EBITDA as project completions and
sales were delayed, unaided by economic conditions. With some POC
EBITDA timed to flow instead to 2023, the end-2023 ratio is 12.9x
(excluding the subordinated profit participation capital (PPC)
debt: 7.6x).
This POC EBITDA excludes attributable profit from part-owned Vienna
22. Cash-flow leverage remains double-digit as despite active debt
reduction, the development programme requires spend to build-out
projects whose profits then feed net debt/EBITDA to average 7x (6x
excluding PPC debt) in 2025 and 2026, depending on monetisation
values and timings. Interest coverage is above 2x.
Wider Signa Group: As the Signa group is privately held, its public
transparency is not comparable with listed groups. Signa
Development uses and remunerates Signa Real Estate Management GmbH
for its project development services. Signa Development's disclosed
related party transactions are also subject to the oversight of its
six-person supervisory board, which has a fiduciary duty to its
shareholders, both of whom are equipped to investigate the
investment rationale, arm's-length nature, and reporting of
transactions with other Signa group entities.
However, all six of Signa Development's supervisory board members
also serve on the 10-member supervisory board of Signa Prime
Selection AG. Consequently, in Fitch's view, and from Signa
Development creditors' perspective, transactions with Signa Prime
need to demonstrate a high degree of transparency. Even though
Signa Development was conserving its cash with disposal receipts,
in 2022 there was a EUR155 million increase in Signa Development's
other financial receivables, described as interest-bearing "loans
to indirect shareholders".
DERIVATION SUMMARY
Across Fitch's EMEA Housebuilder Navigator peers, there are
different risk profiles for different residential markets. In
France, there is little upfront capital outlay for land, and
purchaser deposits fund capex. In UK and Spain, there is an upfront
cash outlay for the land and the bulk of the purchase price is paid
by purchasers upon completion.
Signa Development's operations require upfront land outlay and
final payment is made upon completion (or scheduled payments, if
this type of financing is arranged). This results in higher
leverage than other geographies' housebuilders, which may receive
staged payments.
Fitch believes that Signa Development's office and residential
development portfolios across different geographies provides some
diversity, but Fitch acknowledges that office development is
potentially more volatile (multi-participants in CBDs, variable
demand, rental levels and values) than necessity-based housing (to
either sell or rent), and requires perceptive and disciplined
management to read relevant markets.
If Signa Development did not have a schedule of agreed sales and
instead relied upon future (potentially volatile) commercial
property yields for valuations and residential apartment prices for
its profits, a lower rating would reflect this speculative approach
to real estate development.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Use of management's schedule of agreed and near-term
likely-to-be-agreed forward sales, and announced asset disposals
(including kika/Leiner).
- Decrease in 2024 and thereafter POC EBITDA by 10% to represent a
stress of increased construction costs relative to values.
- Relative to the POC-adjusted EBITDA, the cash flow forecasts the
timing of scheduled receipts (forward sales, completion of project
dates), but Fitch acknowledges that timings of these cash flows may
vary.
- Fitch assumes refinancing of the subordinated participation
capital notes.
- Signa Development external dividends at 4.5%-6% net asset value.
RECOVERY RATINGS ASSUMPTIONS
The recovery analysis assumes that Signa Development would be
liquidated in the event of bankruptcy rather than re-organised as a
going-concern. Fitch has assumed a 10% administrative claim.
Using the end-2022 GAV of EUR3.1 billion, Fitch deducted the D18
portfolio, and the bespoke-financed kika/Leiner and Optimisation
portfolio. Of the remaining GAV of around EUR1.8 billion, Fitch
applies a standard 25% discount to values. The resultant
liquidation estimate of EUR1.4 billion reflects its view of the
value of Signa Development's GAV that could be realised in a
re-organisation and distributed to creditors.
The total amount of relevant debt claims is EUR0.7 billion of
relevant ProjectCo secured debt, and EUR0.1 billion of profit
participation notes at the ProjectCo (SPV) level, which are senior
to rated Signa Development's debt. Next in the waterfall of debt is
Signa Development's EUR300 million (EUR289.4 million outstanding
after partial buybacks in 1Q22) unsecured bond. The Signa
Development-level EUR310 million profit participation notes are
subordinate to Signa Development's unsecured debt.
The allocation of value in the liability waterfall results in
recovery corresponding to 'RR2' (after application of Fitch's
recovery ratings criteria 'RR2' cap for unsecured debt) for the
rated EUR300 million unsecured bond guaranteed by Signa
Development.
RATING SENSITIVITIES
Factors That Could, Individually Or Collectively, Lead To Positive
Rating Action/Upgrade
- Positive free cash flow generation on a sustained basis
- Sustained improvement in financial metrics leading to net
debt/EBITDA below 4.0x
- EBITDA/interest expense ratio over 2.5x on a sustained basis
- Improved corporate governance attributes
- No adverse asset pricing affecting GAV
Factors That Could, Individually Or Collectively, Lead To Negative
Rating Action/Downgrade
- Constrained liquidity resulting from adverse refinance risk, and
accessing funding for future projects
- Net debt/EBITDA above 6x on a sustained basis (taking into
account POC EBITDA of adjacent years)
- EBITDA/interest expense below 1.5x on a sustained basis
- Reduction in the visibility of forward sales, including increased
speculative developments
- Adverse value transfers to Signa Development, from related party
transactions
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity Management: As at end-2022, Signa Development
had EUR472 million of debt maturing in 2023, around half of which
was connected to secured project debt for the pre-sold Schonhauser
Allee Berlin office and another part-pre-sold Berlin office. The
remaining secured debt is project-specific, averaging around 40%
LTV where these development loans are refinanced upon completion or
assets sold to repay their bespoke loans.
The next bulk debt maturity (EUR250 million in 2024) is the
refinancing of a mixed-scheme project in Berlin, and the unsecured
bond of EUR300 million mid-2026.
In addition, kika/Leiner disposal receipts (undisclosed) will repay
debt of over EUR200 million and other amounts from excess proceeds.
Accelerated D18 and other non-strategic asset disposal receipts are
planned to increase debt prepayments. Signa Development's end-2022
cash was EUR125.1 million. The deferred dividend (EUR110 million)
from 2021 is expected to be paid in 2023 and the decision whether
to pay the 2022 dividend will be made at end-2023 depending on
progress with disposals and general liquidity.
End-2022 subordinated debt was at various development companies,
but senior to the group's unsecured bond, totalling EUR107.5
million with various maturity dates and is likely to be repaid from
disposal of relevant projects. End-2022 EUR310 million of corporate
participation capital, is subordinate to the group's unsecured
bond.
PSL Criteria: Signa Development is part of the wider Signa group.
Fitch has not made a detailed analysis of the significant
shareholder's (Signa Holding's) financial strength. However, under
its Parent and Subsidiary Linkage (PSL) criteria it has assessed
Signa Development as having sufficient ring-fencing in place so
that as a stronger subsidiary, its rating would not be adversely
affected by the Signa parent. Reinforcing its ring-fencing
protection, Signa Development's EUR300 million unsecured bond
requires scrutiny of affiliate transactions, and around 50% of
minority shareholders make any special dividend an inefficient way
to upstream preferential support to the significant shareholder.
Signa Development's debt is segregated with no cross-default to
other group entities.
ESG CONSIDERATIONS
Signa Development has an ESG score of '4' for Governance Structure.
This reflects the active participation of the founder within Signa
Development without being a supervisory or management board member
of Signa Development. This has a negative impact on the credit
profile, and is relevant to the ratings in conjunction with other
factors.
Signa Development has an ESG score of '4' for Group Structure
reflecting its complexity, transparency as an unlisted entity and
levels of related-party transactions. This has a negative impact on
the credit profile, and is relevant to the ratings in conjunction
with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Recovery Prior
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Signa Development Selection AG LT IDR B- Affirmed B-
senior unsecured LT B+ Affirmed RR2 B+
Signa Development Finance S.C.S.
senior unsecured LT B+ Affirmed RR2 B+
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B U L G A R I A
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EUROHOLD BULGARIA: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
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Fitch Ratings has affirmed Eurohold Bulgaria AD's (Eurohold) Long
Term Issuer Default Rating (IDR) at 'B' and removed it from Rating
Watch Negative (RWN). The Outlook is Stable.
The removal from RWN reflects its view of Eurohold's reduced
reputational risk and liquidity crunch risk stemming from the
license withdrawal and bankruptcy procedure of its former material
subsidiary Euroins Romania Asigurare-Reasigurare S.A. (Euroins
Romania). The creditors and bondholders of Eurohold have given
their consent to waive events of default under the group's debt
documentation in relation to Euroins Romania.
KEY RATING DRIVERS
Waived Events of Default: On April 4, 2023, under the consent
solicitation process initiated by Eurohold, bondholders gave their
consent to waive historical, present or future events of default
relating to Euroins Romania and agreed to exclude Euroins Romania
from the definition of a "material subsidiary" under the group's
EUR70 million bonds documentation. Eurohold agreed similar waivers
also with other creditors.
This has reduced the risk of a liquidity crunch stemming from
Eurohold's bondholders demanding early repayment of debt and a lack
of sufficient liquidity.
Bankruptcy Procedure Against Euroins Romania: Eurohold has written
off Euroins Romania business from its 2022 annual accounts as it
has lost control of the Romanian subsidiary to the regulator. On
June 9, 2023, the Bucharest Court started bankruptcy proceedings
against Euroins Romania following the Romanian insurance
regulator's (ASF) request and appointed a judicial liquidator. In
March 2023, ASF withdrew Euroins Romania's insurance license and
appointed the Insured Guaranteed Fund (Fondului de Garantare a
Asiguraților) as interim administrator of Euroins Romania.
2022 Results Better Than Expected: Eurohold's financial performance
in 2022 was better than its expectations, with net debt (excluding
the insurance business's EBITDA and net debt) at 4.7x EBITDA versus
its 6.1x forecast. This was because of stronger EBITDA led by the
energy segment, especially regulated energy distribution, and
despite a 15% increase in debt (reaching BGN1.39 billion at
end-2022) due to a buyout of minority shareholders in its energy
business.
Leverage Below Negative Sensitivity: In its updated projections,
net debt of the group (excluding the insurance business) will
remain below its negative rating sensitivity of 6x EBITDA. It will
bottom out at 4.4x in 2023 on high EBITDA in distribution as a
result of energy purchase costs for covering technological losses
being lower than approved in its distribution tariff. Fitch
projects net debt to average 5.9x EBITDA in 2024-2027 following
normalisation of EBITDA in distribution.
Rating Approach: Fitch rates Eurohold using a consolidated approach
but excluding the insurance business's EBITDA and net debt, except
for its dividends. This is because access to the insurance
business's cash flow is limited, due to regulatory requirements to
keep a minimum solvency ratio at insurance companies.
Eurohold's IDR is notched down two levels below the group's
consolidated profile (excluding the insurance business) given its
structural subordination. Eurohold's debt service capacity is
contingent on dividend income streams from intermediate holding
companies and operating subsidiaries (assuming covenant compliance)
and it does not have direct access to the underlying operating cash
flows.
Corporate Governance Limitations: The rating reflects Eurohold's
complex group structure, significant related-party transactions and
lower financial transparency than its EU peers, including qualified
audit opinions for the last four years.
DERIVATION SUMMARY
Eurohold is smaller than other rated European utilities, such as
Energa S.A. (BBB+/Stable) or Bulgarian Energy Holding EAD
(BB+/Stable), although it is one of the largest utilities in
Bulgaria. The company is focused on distribution of energy and
supply. Historically, its EBITDA has been more volatile than that
of many peers, but the Fitch rating case assumes stabilisation of
EBITDA over 2024-2027, supported by the regulated distribution
segment.
Compared with peers, the company's consolidated credit profile
(after excluding its insurance business) is weaker due to high
leverage. Eurohold's integrated business structure and strategic
position in the domestic market make the group comparable with some
central European peers such as Poland's Energa. However, Eurohold
operates in a more volatile and less transparent regulatory
environment than Energa, has higher leverage and its results are
less predictable with some corporate governance limitations.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Consolidated EBITDA (excluding the insurance business)
normalising at an average BGN208 million in 2024-2027
- Consolidated capex on average at BGN110 million annually in
2023-2027
- Working-capital outflow in 2024-2027
- Cash outflows for net acquisitions of almost BGN264 million in
2023 and averaging BGN16 million in 2024-2027
Key Recovery Rating Assumptions
- Its recovery analysis assumes that Eurohold would be reorganised
as a going concern (GC) in bankruptcy rather than liquidated
- A 10% administrative claim
- GC EBITDA of BGN180 million is roughly 24% lower than 2022
EBITDA, reflecting adverse changes in market conditions leading to
lower profitability in supply and in distribution
- Fitch applies a distressed enterprise value (EV)/EBITDA multiple
of 6.5x to calculate a GC EV, reflecting its large share of
regulated earnings, but also a volatile and less transparent
operating environment
- With these assumptions, its analysis resulted in a
waterfall-generated recovery computation (WGRG) for the senior
unsecured notes of Eurohold in the 'RR4' band, indicating a 'B'
instrument rating. The WGRC output percentage on current metrics
and assumptions was 48%
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- An improved consolidated group financial profile (excluding the
insurance business) with net debt below 4.5x EBITDA on a sustained
basis
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- Delay in refinancing of upcoming maturities
- Net debt of the consolidated group (excluding the insurance
business) above 6x EBITDA on a sustained basis, for instance due to
more aggressive financial policy, higher distributions to
shareholders and lower profitability and cash generation
- Significant weakening of the business profile with lower
predictability of cash flows may lead to a tighter leverage
sensitivity or a downgrade
LIQUIDITY AND DEBT STRUCTURE
Weak Liquidity: The rating is constrained by weak liquidity at the
Eurohold holding company level. As of March 2023 the holding
company had BGN108,000 of cash and cash equivalents compared with
BGN157.7 million of current financial liabilities. In December 2022
Eurohold signed a new credit agreement with JP Morgan for EUR40
million with maturity in 2023 as a refinancing option of the bonds
maturing in December 2022. In June 2023 Eurohold repaid EUR22
million (BGN43 million) of this loan, while the remainder has been
extended to December 2023.
Liquidity may be also improved by proceeds from the disposal of
North Macedonia and Georgia insurance businesses. In addition,
Eurohold holds its own bonds of EUR30.3 million (BGN59.2 million)
purchased in December 2022, which may be sold in case of need,
although Fitch does not treat them as liquidity sources in its
analysis.
ISSUER PROFILE
Eurohold is a public company. It is majority-owned by Starcom
Holding AD (50.08% at end-2022), which is ultimately owned by three
individuals. The remaining shares are publicly listed on the stock
exchange. The group's core activities are energy and insurance.
SUMMARY OF FINANCIAL ADJUSTMENTS
Eurohold's consolidated profile excludes the insurance business,
ie. excluding the insurance business's EBITDA and net debt when
calculating the main financial ratios of Eurohold.
ESG CONSIDERATIONS
Eurohold has an ESG Relevance Score of '4' for Group Structure due
to a fairly complex group structure, which has a negative impact on
the credit profile, and is relevant to the ratings in conjunction
with other factors.
Eurohold has an ESG Relevance Score of '4' for Financial
Transparency due to lower financial transparency than EU peers and
qualified audit opinion, which has a negative impact on the credit
profile, and is relevant to the ratings in conjunction with other
factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Recovery Prior
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Eurohold Bulgaria AD LT IDR B Affirmed B
senior unsecured LT B Affirmed RR4 B
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F R A N C E
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CASINO GUICHARD: EUR1.43B Bank Debt Trades at 27% Discount
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Participations in a syndicated loan under which Casino Guichard
Perrachon SA is a borrower were trading in the secondary market
around 73.1 cents-on-the-dollar during the week ended Friday, June
23, 2023, according to Bloomberg's Evaluated Pricing service data.
The EUR1.43 billionfacility is a Term loan that is scheduled to
mature on August 31, 2025. The amount is fully drawn and
outstanding.
Casino Guichard-Perrachon SA operates a wide range of hypermarkets,
supermarkets, and convenience stores. The Company operates stores
in Europe and South America. The Company's country of domicile is
France.
CASINO: Aims to Conclude Debt Restructuring Talks by End of July
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Tassilo Hummel and Chiara Elisei at Reuters report that French
supermarket retailer Casino on June 26 said it aims to conclude a
debt restructuring agreement with its creditors by the end of July,
telling creditors it needed an equity contribution of "at least
EUR900 million" (US$982 million).
Casino and the holders of its EUR6.4 billion of debt began talks
this month as the group races to stay afloat through divestments
and an agreement to defer taxes and social charges with the
government, Reuters relates.
In an updated strategic plan, Casino also said it aims to convert
all its unsecured debt into equity in order to put its finances on
a more sustainable path, Reuters notes.
The remaining debt would be extended so that Casino has enough
headroom to execute its turnaround plan, it added, according to
Reuters.
Some of Casino's unsecured bonds dropped by around four cents on
the euro -- a sign that recovery prospects for unsecured creditors
may be worse than expected, Reuters discloses.
According to Reuters, an investor noted that a potential agreement
between Casino and unsecured creditors will depend on the price at
which the debt conversion is executed and whether creditors will
eventually be able to recover their money.
In an updated strategic plan, Casino also said it aims to convert
all its unsecured debt into equity in order to put its finances on
a more sustainable path, Reuters relates.
The remaining debt would be extended so that Casino has enough
headroom to execute its turnaround plan, it added, Reuters notes.
Casino shares fell by more than 10%, while some of its unsecured
bonds dropped by around four cents on the euro -- a sign that
recovery prospects for unsecured creditors may be worse than
expected, Reuters discloses.
An investor noted that a potential agreement between Casino and
unsecured creditors will depend on the price at which the debt
conversion is executed and whether creditors will eventually be
able to recover their money, Reuters relays.
The firm's consultancy Accuracy "does not anticipate any liquidity
issue" until late October, when the legal conciliation period with
creditors ends, Casino said, Reuters notes.
It added that a recently announced sale of an equity stake in
Brazil's Assai would likely raise 326 million euros after costs and
taxes, Reuters recounts.
Casino added that, assuming the continuation of the standstill of
financial charges and debt repayments after the conciliation period
and taking into account the sale of some supermarkets to the
company Les Mousquetaires, there would not be any liquidity issues
until the end of the 2023 financial year, Reuters states.
Casino faces two EUR1.1 billion bid proposals to boost its equity
base, one from main shareholder Jean-Charles Naouri teamed up with
French tycoon Xavier Niel and another from billionaires Daniel
Kretinsky and Marc Ladreit de Lacharriere.
Creditors are considering presenting their own proposal to try to
maximise their chances of recovering their money, Reuters relays,
citing the investor and a source close to the situation. However,
the amount of new money needed by Casino could be too large for the
creditors to provide, they added, according to Reuters.
About Casino Guichard Perrachon SA
Casino Guichard Perrachon SA -- https://www.groupe-casino.fr/ -- is
a France-based food retailer company that manages stores in France
and abroad. The Company operates across all food and non-food
formats: hypermarkets, supermarkets, convenience stores, discount
stores and wholesale stores. In France, the Company operates under
diversified brands such as: hypermarkets, Casino Supermarkets,
Monoprix, Franprix, Leader Price, Spar, Vival, Le Petit Casino,
Casino Restauration. Abroad, the Company operates in South America
particularly in Brazil and Columbia. The Company is active in other
sectors, such as energy where its subsidiary GreenYellow is engaged
in energy production (particularly solar photovoltaic) and other
energy services. In financial sector, its subsidiary Banque Casino
is the retail bank that simplifies access to banking and insurance
products.
=============
G E R M A N Y
=============
ALPHA GROUP: Fitch Hikes LongTerm IDR to 'B-', Outlook Stable
-------------------------------------------------------------
Fitch Ratings has upgraded Alpha Group SARL's (A&O) Long-Term
Issuer Default Rating (IDR) to 'B-' from 'CCC+' and senior secured
rating to 'B+' with a Recovery Rating of 'RR2' from 'B-'. The
Outlook on the IDR is Stable.
The upgrade reflects the company's strong business recovery and
improved liquidity position in 2022 and its expectation that
deleveraging will continue in 2023-2024. Fitch considers that its
smaller scale and lack of geographical diversification are balanced
by additional financial flexibility from its portfolio of owned
hotels.
The Stable Outlook reflects its expectation that Alpha Group will
maintain adequate liquidity, while post-pandemic business recovery
and projected deleveraging will help it manage refinancing risk
from its debt maturities in 2025. Material progress with
refinancing its 2025 debt maturities and clarity around target
leverage could lead to a revision of the Outlook to Positive.
KEY RATING DRIVERS
Business Recovery: A&O has benefited from the market-wide
post-pandemic rebound in travel and leisure demand. This resulted
in significant revenue growth and EBITDA margin improvement in 2022
at 31.6%, which Fitch expects to be maintained around 32%-33% over
the forecast period. Its revenue per available bed was 5.0% above
2019, supported by industry-wide growth in average daily rates
(ADR), and occupancies close to pre-pandemic levels. Fitch expects
RevPAB (Revenue per available bed) to grow in 2023 despite a
potential weakening in consumer demand in Europe due to a low
comparison base from 1Q22 that was hampered by lockdowns and
restrictions.
Deleveraging Ahead of Refinancing: Deleveraging remains critical to
the company as its debt matures in January 2025. Fitch projects
that recovering activity will result in EBITDAR leverage falling
below 5.5x in 2024 (2022: 6.7x), allowing A&O to build up good
headroom under its rating and reduce refinancing risks. As
deleveraging capacity is good and the business model is sustainable
and recovering, this could contribute to positive rating action
once debt refinancing is agreed. Conversely, lack of progress on
debt refinancing or repayment 12 months before maturity could lead
to negative rating action.
Private Equity Ownership: The capital structure includes a EUR140
million shareholder loan. During the pandemic, the sponsors
provided support via a EUR15 million injection. However, in the
context of the more recent improving trading performance and
possible cash accumulation over 2023-2026 in the absence of further
large expansionary projects, Fitch sees scope for some resource
upstreaming by the shareholder. More clarity around the company's
financial policy and target capital structure, including a
commitment to lower leverage could support an upgrade once the
refinancing is completed.
Strong Cash Flow Generation: Fitch projects the company to achieve
a sound performance in 2023, with business recovering, working
capital normalising and lower capex than-pre pandemic resulting in
a double digit free cash flow (FCF) margin and FCF of around EUR20
million to EUR30 million.
Fitch believes capex should remain lower than pre-pandemic as the
company has completed a major renovation of its assets. Combined
with its restored profitability, this should translate into
sustained sizeable FCF and high FCF margins in the low double
digits, which is solid for the rating. However, given the private
equity ownership, Fitch does not rule out the company engaging in
more expansionary projects.
Concentration Risk: A&O has steadily grown to become one of the
largest hostel chains in Europe. It continued expanding during the
pandemic, with a recent new leased opening in Rotterdam and
openings planned in Barcelona and Florence. However, its
predominant exposure to Germany and low-budget groups of travellers
makes it vulnerable to potential shocks, given its concentration
risk in narrowly-defined addressable markets and its urban
positioning, which is attracting less demand than holiday
destinations.
Sustainable Business Model: A&O is an attractive lodging option for
large and small groups in several cities across Europe, coupled
with an efficiently managed low-cost base. The company has the
potential to capitalise on supportive market trends and grow into a
Europe-wide brand benefiting from travellers switching to budget
alternatives and from its lower-than-average break-even
occupancies. A&O owns 12 of its hotels, which provides it with
additional financial flexibility compared with peers that lease
their properties.
DERIVATION SUMMARY
A&O is one of the largest hostel chains in Europe, with a strong
market position in Germany. However, it ranks significantly behind
global peers such as NH Hotel Group S.A. (B/Positive), Radisson
Hospitality AB or Whitbread PLC (BBB-/Stable) in revenues and
number of rooms.
Based on daily rates charged, A&O is one of the cheapest
accommodation options for travellers, particularly compared with
other urban operators in the economy segment, such as Accor SA
(BBB-/Stable) and Travelodge, or with the midscale segment, such as
NH Hotels.
A&O's profitability is structurally above that of other operators
with a similar portfolio mix.
Fitch expects the strong recovery of traveller flows and increased
daily rates to result in EBITDAR leverage below 6.5x in 2023, a
level lower than Sani/Ikos Group S.C.A. (B-/Negative) consistent
with a 'B'- rating. Similar to Sani/Ikos, A&O's business profile is
constrained by concentration at one pricing point, limited
geographic diversification and a relatively small size in terms of
EBITDA.
KEY ASSUMPTIONS
- Revenue up 18% in 2023 driven by both ADR and occupancy
increases,
- Revenue growing at low mid-single digit in 2024-25, reflecting
two new hotel additions
- EBITDA margin at 33% on average in 2023-26, and sustained by
higher occupancy level vs. 2022 and inflationary pressure abiding
- Capex increase to EUR15 million and EUR22 million for 2023 and
2024 reflecting two new properties investments; lower, at EUR12
million per year thereafter
- Annual net working capital change returning to low digit positive
inflows, following a one-off EUR26 million outflow in 2022
- Refinancing of EUR300 million term loan to lead to higher
interest charges of around EUR32 million from 2025
- No dividend distribution.
Recovery Assumptions
- Fitch estimates that A&O would be liquidated in bankruptcy rather
than restructured as a going-concern
- 10% administrative claim
- The liquidation estimate reflects Fitch's view that the hotel
properties (valued by an external third party in 2022) and other
assets can be realised in a liquidation and distributed to
creditors in a default
- Haircut of 45% applied to the value of owned properties based on
company's valuations.
- Fitch assumes that the EUR35 million revolving credit facility
(RCF), which ranks pari passu with the EUR300 million senior
secured Term Loan B, would be fully drawn in a distress scenario
These assumptions result in a recovery rate for the EUR300 million
senior secured loan and for the EUR30 million RCF within the 'RR2'
range leading to a two-notch uplift to the debt rating of these two
instruments to 'B+' from the IDR. This results in a waterfall
generated recovery computation output percentage of 83%, based on
current metrics and assumptions.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action
- Successful refinancing of the term loan B (TLB) and RCF
- Financial policy supporting EBITDAR leverage falling below 5.5x
- EBITDAR fixed charge cover around 2.0x
Developments That May, Individually or Collectively, Lead to
Negative Rating Action
- No evidence of refinancing possibilities 12 months ahead of
maturity
- EBITDAR leverage consistently above 6.5x
- EBITDAR fixed charge cover weakening below 1.2x
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: At March 2023, A&O had EUR61 million of
unrestricted cash on balance sheet and a EUR21 million undrawn RCF.
Fitch views this level of cash as satisfactory to repay the
remainder undrawn RCF of EUR14 million and finance investments in
new rooms in the coming two years.
For the purpose of its liquidity analysis, Fitch excludes EUR3
million of cash (considered restricted cash), blocked as a deposit
for landlords or required in daily operations not available for
debt servicing. A&O has a concentrated funding structure, with its
RCF maturing in January 2024 and a EUR300 million TLB due in
January 2025.
ISSUER PROFILE
Alpha Group SARL is the top entity in a restricted group that owns
A&O, a Germany-based youth travel hotel and hostel operator with a
leading network of leased and owned properties in major European
cities (mostly in Germany), particularly focused on low budget
group travellers.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Alpha Group SARL LT IDR B- Upgrade CCC+
senior secured LT B+ Upgrade RR2 B-
ROEHM HOLDING: Fitch Affirms 'B-' LongTerm IDR, Outlook Stable
--------------------------------------------------------------
Fitch Ratings has affirmed Roehm Holding GmbH's Long-Term Issuer
Default Rating (IDR) and senior secured debt rating at 'B-' and
removed them from Rating Watch Negative (RWN). The Outlook on the
Long-term IDR is Stable. The Recovery Rating on the senior secured
debt is 'RR4'.
The removal of the RWN reflects its view of sufficient liquidity -
provided through new shareholder funds - to carry out Roehm's capex
and acquisition. It also reflects its expectations of strong
improvement in leverage once its U.S. ethylene-based production
plant LiMA comes online and supports higher EBITDA and cash
generation.
The IDR reflects Roehm's high leverage since its buyout by Advent
in 2019, earnings volatility driven by methyl methacrylate (MMA)
prices, and cyclical demand in key end-industries such as
construction or automotive. It also captures execution risks
related to the completion of the construction of LiMA and ramp-up
of its production as planned. These weaknesses are mitigated by
Roehm's position as leading European producer of MMA and its
derivatives, its diversification by product, geography and
end-market.
KEY RATING DRIVERS
Swift Deleveraging after 2023 Peak: Fitch expects the bulk of
LiMA-related capex amid weak MMA demand and prices will increase
EBITDA gross leverage to 7x in 2023. This is despite its forecast
of a 7% EBITDA growth to EUR251 million supported by lower gas
prices, which is both a feedstock and a fuel for Roehm. Market
recovery and contribution from the low-cost LiMA plant will drive
EBITDA growth to EUR434 million in 2026, which will reduce EBITDA
gross leverage to 4.5x with adequate interest coverage of about
2.6x.
Strong Shareholder Support: Advent's commitment to provide Roehm
with USD300 million additional funding for LiMA's construction and
the acquisition of the polycarbonate sheets and films business of
Saudi Basic Industries Corporation (SABIC, A+/Stable) demonstrate
strong shareholder support. This alleviates liquidity risks
stemming from possible cost overrun, slower-than-expected
production ramp-up or weakening market conditions.
LiMA Execution Risks: Fitch sees the addition of an ethylene-based
production plant in the US as positive for Roehm's cost position as
it will provide it with a large and cost-competitive capacity.
However, the project exposes Roehm to execution risk due to the
size of the capex, which has almost been completed, and uncertainty
related to its proprietary technology that has never been used on a
commercial scale. Roehm is mitigating these risks by building the
plant on its partner's site, and through extensive testing. Volume
ramp-up risk is also mitigated by the possibility to switch volumes
from their existing US plant, which is less competitive.
LiMA Cost Inflation Mitigated: Fitch does not anticipate further
material cost inflation for LiMA given that machineries and
equipment have been ordered, and the recently announced cost
increase will be covered by shareholder injections.
Diversified Despite Germany Exposure: Roehm's largest assets are
currently located in Germany, which expose the group to the
region's volatile gas prices. It faces competition from lower-cost
producers in Asia, where most of the global capacity is installed.
However, Roehm's leadership in Europe has increased following the
decision of a competitor to close its plant, and it also operates
assets in the U.S. and China. Roehm's products are used in a broad
range of sectors including automotive, construction, medical,
packaging, lighting and electronics.
Commodity, Automotive Exposure: Roehm's upstream division remains
the main contributor to its consolidated EBITDA, although the group
is vertically-integrated and generates 60% of its revenue from its
downstream division. Falling MMA prices can have a dramatic impact
on profitability, especially when coupled with weak demand for
high-margin automotive uses, as seen in 2019 and 1H20. Roehm is
expanding its downstream capacity, which will support more steady
margins, but Fitch expects MMA prices to remain a significant
driver of profitability.
European Market and Cost Leader: Roehm is the leader in the
European market and its integrated plants in Germany are the most
competitive in the region. It is number two worldwide after
Mitsubishi Chemicals, with a presence in China, where its cost
position is average, and in the U.S., where its Fortier plant is
less competitive. The industry is consolidated and has high
barriers to entry including technological knowledge and
raw-material access. However, high and volatile European natural
gas prices reduce the competitiveness of European producers
compared with global competitors.
DERIVATION SUMMARY
Root Bidco S.a.r.l. (B/Stable) has similar ownership and leverage
profile to Roehm, significantly weaker scale and diversification,
but more stable markets with better growth prospects supporting its
deleveraging capacity.
Nobian Holding 2 B.V. (B/Stable) is a European salt, chlor-alkali
and chloromethanes producer with high leverage since its carve-out
from Nouryon Holding B.V. (B+/Stable) in 2021. Nobian has weaker
geographical diversification and similar exposure to cyclical
sectors, but stronger profit margins and higher barriers to entry
based on its dominant position in high-purity salt and pipeline
supply of chlorine to large off-takers with effective cost
pass-through mechanisms.
Nitrogenmuvek Zrt (B-/Stable) is a smaller fertiliser producer with
high exposure to gas prices, weaker diversification and
single-plant operations, but has less debt and benefits from
barriers to entry in landlocked Hungary.
KEY ASSUMPTIONS
- Volumes sold of about 620,000 tonnes in 2023, and to grow above
700,000 tonnes from 2024
- EBITDA margin of about 15% in 2023-2024, and to increase to
about 20% from 2025
- No dividends in 2023-2027
- Annual capex in line with management guidance
- Euro at 1.05 to the US dollar
- Planned acquisition of SABIC's polycarbonate sheets and films
business to close in 1H24
KEY RECOVERY ANALYSIS ASSUMPTIONS
The recovery analysis assumes that Roehm would be reorganised as a
going-concern in bankruptcy rather than liquidated.
Post-restructuring going-concern EBITDA is estimated at EUR230
million, reflecting significant capacity additions in Roehm's
markets, together with limited demand, driving MMA spreads lower
for a prolonged period with slow recovery.
Fitch used a distressed enterprise value (EV) multiple of 4.5x,
which reflects the group's scale, market position and growth
prospects.
Fitch expects Roehm to use about EUR90 million of factoring, which
will be replaced by an equivalent super-senior facility. Fitch also
assumes its EUR300 million revolving credit facility (RCF) to be
fully drawn.
After deducting 10% for administrative claims, its analysis
resulted in a waterfall-generated recovery computation (WGRC) in
the 'RR4' band, indicating a 'B-' senior secured rating. The WGRC
output percentage on current metrics and assumptions was 46%.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- EBITDA gross leverage below 6x for a sustained period
- EBITDA interest coverage above 2.5x on a sustained basis
- Progress with the construction of LiMA in line with its
expectations and production ramp-up largely as planned
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- Worsened liquidity resulting from financial and/or operational
underperformance
- EBITDA gross leverage above 7.5x for a sustained period, which
could result from high natural gas prices leading to protracted
production disruptions or material delays and cost overruns in
the LiMA project, or from debt-funded acquisitions
- EBITDA interest coverage below 1.25x on a sustained basis
- EBITDA margin below 15% and negative free cash flow (FCF)
generation on a sustained basis
LIQUIDITY AND DEBT STRUCTURE
Capex, M&A Reduce Liquidity: At 31 March 2023, Roehm's liquidity
was about EUR339 million, consisting of EUR59 million of cash and
EUR280 million of an undrawn RCF due in 2026. Fitch expects
liquidity to fall below EUR100 million in 2024 due to capex related
to the construction of the LiMA plant and for the acquisition of
SABIC's polycarbonate sheet and films business.
This improved liquidity position captures USD100 million of
shareholder support for the acquisition and the shareholder
commitment of USD200 million announced in May 2023. Roehm has no
significant debt maturities until its term loan B matures in 2026.
ISSUER PROFILE
Roehm is a vertically integrated manufacturer of MMA and its
derivatives, owned by Advent International since 2019. It has the
production capacity for 580 thousand tonnes of MMA across its
plants in Germany, the US and China.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Roehm Holding GmbH LT IDR B- Affirmed B-
senior secured LT B- Affirmed RR4 B-
SGL CARBON: Moody's Affirms 'B2' CFR & Alters Outlook to Positive
-----------------------------------------------------------------
Moody's Investors Service changed the outlook on SGL Carbon SE to
positive from stable. Concurrently, Moody's affirmed SGL Carbon's
B2 corporate family rating and B2-PD probability of default rating,
as well as the B2 rating of SGL Carbon's guaranteed senior secured
notes.
The proceeds from the proposed EUR120 million debt issuance, in the
form of convertible notes, along with EUR75 million from a term
loan facility and around EUR40 million of cash on balance will be
used to refinance the company's existing guaranteed senior secured
notes. Moody's expects to withdraw the instrument rating on the
company's existing guaranteed senior secured notes upon repayment.
The ratings and outlook incorporate the expectation that the
company will execute the proposed transaction and address any
outstanding debt maturity well ahead of the due date.
RATINGS RATIONALE
The contemplated refinancing transaction would lower gross debt and
extend the company's maturity profile so that SGL Carbon has no
major debt maturity until 2026. The company balances the interest
of creditors and shareholders by reducing the outstanding debt
amount, mitigating to a large degree the impact of higher interest
rates. Expectations for continued solid operating performance also
support the positive outlook.
Moody's expects that SGL Carbon will maintain strong credit metrics
for its B2 rating over the next 12-18 months, with Moody's-adjusted
debt/EBITDA below 4x and Moody's-adjusted EBITDA/interest expense
above 3.5x, on the back of high demand from silicon carbide (SiC)
semiconductors companies for its high margin graphite materials. In
first quarter of 2023, SGL Carbon's EBITDA generation increased
year-over-year to EUR40 million from EUR37 million despite weaker
business conditions in its carbon fiber business segment, leading
to a Moody's-adjusted debt/EBITDA of 3.4x for the last twelve
months ended March 2023.
Graphite solutions benefits from growing demand for its specialty
graphite products, in particular applications for SiC
semiconductors, and SGL Carbon's graphite solutions recorded a
strong year-on-year increase in EBITDA of around 19% to around
EUR31 million in Q1-23.
Moody's expects continued sales growth to this market over next the
next few years. The main end markets for SiC semiconductors are
electric vehicle chargers and inverters, photovoltaic, wind energy
and energy storage. The company entered into long-term supply
agreements with several SiC companies, which provides order
visibility over the next years and demonstrates SGL Carbon's
technological know-how in specialty graphites. Furthermore, these
customers committed to prepayments, that SGL Carbon will use to
fund additional growth capex in this area, which supports the
company's liquidity.
SGL Carbon's B2 rating positively reflects its solid credit
metrics; global production footprint; exposure to high growth
markets such as semiconductor or fuel cells; and supportive
shareholder structure. Its high cash balance and the track record
under the current management team further support the credit
profile.
However, the company's modest scale; weaker business environment in
its carbon fiber business segment; and lack of track record of
generating consistent positive free cash flow prior to 2020;
continue to weigh negatively on the credit profile.
RATING OUTLOOK
The positive outlook highlights the potential that a continued
solid operating trajectory could result in an upgrade. The outlook
also incorporates the expectation that the company will
successfully close the proposed transaction.
ESG CONSIDERATIONS
Governance considerations were a key driver in this action,
reflecting the company's proposed actions to refinance its debt
maturity and to lower the outstanding debt amount. Moody's
governance assessment for SGL Carbon incorporates the company's
shareholder base, which includes, SKion GmbH and Bayerische Motoren
Werke Aktiengesellschaft, and the current management's track record
since late 2020. Furthermore, the company is committed to a net
leverage target, which improves the transparency of its risk
management framework.
LIQUIDITY CONSIDERATIONS
SGL Carbon's liquidity is good. Liquidity sources consist of an
undrawn EUR100 million RCF, around EUR189 million cash on its
balance sheet as of the end of March 2023 and expected internal
cash generation. These sources are sufficient to cover the
company's capital spending and working cash needs over the next
12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could consider upgrading SGL Carbon's rating if the company
continues to generate positive FCF on a sustainable basis and
Moody's adjusted leverage would remain sustainably below 4.5x. In
addition, the company needs to build a track record of EBITDA
growth and lower earnings' volatility.
Moody's could downgrade SGL Carbon's rating with expectations for
Moody's adjusted gross leverage above 5.5x or EBITDA/interest
expense below 2.5x on a sustainable basis. A downgrade would also
be likely if the company proves unable to generate sustained
positive free cash flow or its liquidity profile deteriorates.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Chemicals
published in June 2022.
COMPANY PROFILE
Headquartered in Wiesbaden, Germany, SGL Carbon SE is one of the
world's leading manufacturers of carbon fiber and specialty
graphite solutions and applications. In 2022, the company reported
company-adjusted EBITDA of EUR173 million on sales revenue of
around EUR1,136 million, equivalent to a company-adjusted EBITDA
margin of around 15%. The company supplies a broad range of
industries ranging from the more traditional industrial sectors,
such as chemical and automotive industries, to high-growth areas
such as the solar, lithium-ion battery, fuel cell and LED
industries. SGL Carbon is listed on the Frankfurt Stock Exchange.
As of December 31, 2022, the company's largest shareholders were
SKion GmbH, Bayerische Motoren Werke Aktiengesellschaft (A2 stable)
and Volkswagen Aktiengesellschaft (A3 stable).
=============
I R E L A N D
=============
MARGAY CLO I: Fitch Assigns Final BB-sf Rating on Class E Notes
---------------------------------------------------------------
Fitch Ratings has assigned Margay CLO I DAC final ratings as
detailed below.
Entity/Debt Rating
----------- ------
Margay CLO I DAC
A XS2612524657 LT AAAsf New Rating
A-loan LT AAAsf New Rating
B XS2612525035 LT AAsf New Rating
C XS2612525381 LT Asf New Rating
D XS2612525621 LT BBB-sf New Rating
E XS2612525548 LT BB-sf New Rating
Subordinated Notes
XS2612526272 LT NRsf New Rating
TRANSACTION SUMMARY
Margay CLO I DAC is a securitisation of mainly senior secured
obligations (at least 90%) with a component of senior unsecured,
mezzanine, second-lien loans and high-yield bonds. Note proceeds
were used to purchase a portfolio with a target par of EUR400
million. The portfolio is actively managed by M&G Investment
Management Limited. The collateralised loan obligation (CLO) has a
reinvestment period of 4.6 years and an 8.5-year weighted average
life (WAL) test.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch places the
average credit quality of obligors at 'B'/'B+'. The Fitch weighted
average rating factor (WARF) of the identified portfolio is 22.93.
High Recovery Expectations (Positive): At least 90% of the
portfolio will comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate of the identified portfolio is 61.9%.
Diversified Portfolio (Positive): The transaction includes two
Fitch matrices. One is effective at closing and corresponding to a
top 10 obligor concentration limit at 20%, fixed-rate asset limit
at 10% and a 8.5 year WAL test. The second one can be selected by
the manager at any time from one year after closing as long as the
aggregate collateral balance (including defaulted obligations at
their Fitch-calculated collateral value) is at least at the target
par and corresponding to the same limits as the closing matrices,
but with a 7.5 year WAL test.
The transaction also includes various concentration limits,
including the maximum exposure to the three-largest Fitch-defined
industries in the portfolio at 40%. These covenants ensure that the
portfolio will not be exposed to excessive concentration.
Portfolio Management (Neutral): The transaction has a 4.6-year
reinvestment period and includes reinvestment criteria similar to
those of other European transactions. Fitch's analysis is based on
a stressed-case portfolio with the aim of testing the robustness of
the transaction structure against its covenants and portfolio
guidelines.
Cash Flow Modelling (Positive): The WAL used for the transaction's
stressed portfolio analysis was 12 months less than the WAL test
covenant to account for the strict reinvestment conditions
envisaged after the reinvestment period. These include passing the
coverage tests, Fitch WARF and Fitch 'CCC' bucket limitation,
together with a gradually decreasing WAL covenant. In Fitch's
opinion, these conditions reduce the effective risk horizon of the
portfolio during stress periods.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings of
the identified portfolio would have no impact on the class A, C and
D notes and would lead to a downgrade of no more than one notch for
the class B and E notes.
Downgrades, which are based on the identified portfolio, may occur
if the loss expectation is larger than initially assumed, due to
unexpectedly high levels of default and portfolio deterioration.
Due to the better metrics and shorter life of the identified
portfolio than the stressed portfolio, rating cushion for the class
E notes is three notches, class B and D notes two notches each and
class C notes one notch. The class A notes display no rating
cushion.
Should the cushion between the identified portfolio and the
stressed portfolio be eroded either due to manager trading or
negative portfolio credit migration, a 25% increase of the mean RDR
across all ratings and a 25% decrease of the RRR across all ratings
of the stressed portfolio would lead to a downgrade of four notches
for the class E notes and three notches each for the class A, B, C
and D notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings of the stressed portfolio
would lead to an upgrade of up to three notches for the rated
notes, except for the 'AAAsf' rated notes.
During the reinvestment period, upgrades, which are based on the
stressed portfolio, may occur on better-than-expected portfolio
credit quality and a shorter remaining WAL test, leading to the
ability of the notes to withstand larger-than-expected losses for
the remaining life of the transaction.
After the end of the reinvestment period, upgrades may occur on
stable portfolio credit quality and deleveraging, leading to higher
credit enhancement and excess spread available to cover losses in
the remaining portfolio.
DATA ADEQUACY
Margay CLO I DAC
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
MARGAY CLO I: S&P Assigns 'BB-' Rating on Class F Notes
-------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Margay CLO I
DAC's class A loan and class A to E European cash flow CLO notes.
At closing, the issuer will issue EUR42.60 million of unrated
subordinated notes.
Under the transaction documents, the notes and loan pay quarterly
interest unless there is a frequency switch event. Following this,
they will switch to semiannual payment.
The portfolio's reinvestment period will end approximately 4.6
years after closing, and the portfolio's maximum average maturity
date will be approximately 8.5 years after closing.
The ratings reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated loan and notes through collateral
selection, ongoing portfolio management, and trading.
-- The transaction's legal structure, which is bankruptcy remote.
-- The transaction's counterparty risks, which are in line with
S&P's counterparty rating framework.
Portfolio benchmarks
CURRENT
S&P Global Ratings weighted-average rating factor 2,583.28
Default rate dispersion 591.81
Weighted-average life (years) 4.57
Obligor diversity measure 108.89
Industry diversity measure 19.09
Regional diversity measure 1.19
Transaction key metrics
CURRENT
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.00
Covenanted 'AAA' weighted-average recovery (%) 37.01
Covenanted weighted-average spread (%) 3.92
Covenanted weighted-average coupon (%) 4.50
S&P said, "Our ratings reflect our assessment of the collateral
portfolio's credit quality, which has a weighted-average rating of
'B'. We consider that the portfolio is well-diversified, primarily
comprising broadly syndicated speculative-grade senior secured term
loans and senior secured bonds. Therefore, we conducted our credit
and cash flow analysis by applying our criteria for corporate cash
flow CDOs.
"In our cash flow analysis, we used the EUR400 million target par
amount, the covenanted weighted-average spread of 3.92%, the
covenanted weighted-average coupon of 4.50%, and the covenanted
weighted-average recovery rates.
"We applied various cash flow stress scenarios, using four
different default patterns, in conjunction with different interest
rate stress scenarios for each liability rating category.
"The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under our current counterparty criteria.
"Following the application of our structured finance sovereign risk
criteria, we consider the transaction's exposure to country risk to
be limited at the assigned ratings, as the exposure to individual
sovereigns does not exceed the diversification thresholds outlined
in our criteria.
"The transaction's legal structure and framework is bankruptcy
remote, in line with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our ratings are
commensurate with the available credit enhancement for the class A
loan and class A to E notes. Our credit and cash flow analysis
indicates that the available credit enhancement for the class B, C,
D, and E notes could withstand stresses commensurate with higher
ratings than those we have assigned. However, as the CLO will be in
its reinvestment phase starting from closing, during which the
transaction's credit risk profile could deteriorate, we have capped
our ratings assigned to the notes. Our ratings on the class A loan,
and class A and B notes address timely payment of interest and
ultimate payment of principal, while our ratings on the class C, D,
and E notes address the payment of ultimate interest and
principal.
"In addition to our standard analysis, to provide an indication of
how rising pressures among speculative-grade corporates could
affect our ratings on European CLO transactions, we have also
included the sensitivity of the ratings on the class A loan and
class A to E notes to five of the 10 hypothetical scenarios we
looked at in our publication, "How Credit Distress Due To COVID-19
Could Affect European CLO Ratings," published on April 2, 2020."
Environmental, social, and governance (ESG) factors
S&P said, "We regard the exposure to ESG credit factors in the
transaction as being broadly in line with our benchmark for the
sector. Primarily due to the diversity of the assets within CLOs,
the exposure to environmental credit factors is viewed as below
average, social credit factors are below average, and governance
credit factors are average." For this transaction, the documents
prohibit assets from being related to certain activities,
including, but not limited to, the following:
-- Production, maintenance, use, trade, or transport of
controversial weapons;
-- Exploration, mining, extraction, distribution, or refining of
thermal coal, and conventional and unconventional oil and gas;
-- Producing or selling cannabis for non-medical or recreational
purposes;
-- Distribution of adult entertainment;
-- Provision of gambling-related services; and
-- Production and/or distribution of products containing any trace
of tobacco.
Accordingly, since the exclusion of assets from these industries
does not result in material differences between the transaction and
our ESG benchmark for the sector, no specific adjustments have been
made in S&P's rating analysis to account for any ESG-related risks
or opportunities.
Environmental, social, and governance (ESG) corporate credit
indicators
S&P said, "The influence of ESG factors in our credit rating
analysis of European CLOs primarily depends on the influence of ESG
factors in our analysis of the underlying corporate obligors. To
provide additional disclosure and transparency of the influence of
ESG factors for the CLO asset portfolio in aggregate, we've
calculated the weighted-average and distributions of our ESG credit
indicators for the underlying obligors. We regard this
transaction's exposure as being broadly in line with our benchmark
for the sector, with the environmental and social credit indicators
concentrated primarily in category 2 (neutral) and the governance
credit indicators concentrated in category 3 (moderately
negative)."
Corporate ESG credit indicators
ENVIRONMENTAL SOCIAL GOVERNANCE
Weighted-average credit indicator* 2.01 2.07 2.78
E-1/S-1/G-1 distribution (%) 1.03 1.09 0.00
E-2/S-2/G-2 distribution (%) 81.23 77.19 20.86
E-3/S-3/G-3 distribution (%) 2.23 5.10 62.05
E-4/S-4/G-4 distribution (%) 0.00 1.11 0.46
E-5/S-5/G-5 distribution (%) 0.00 0.00 1.11
Unmatched obligor (%) 15.51 15.51 15.51
Unidentified asset (%) 0.00 0.00 0.00
*Only includes matched obligors.
Ratings list
AMOUNT CREDIT
CLASS RATING (MIL. EUR) ENHANCEMENT (%) INTEREST RATE*
A AAA (sf) 178.00 38.00 Three/six-month EURIBOR
plus 1.95%
A Loan AAA (sf) 70.00 38.00 Three/six-month EURIBOR
plus 1.95%
B AA (sf) 40.00 28.00 Three/six-month EURIBOR
plus 3.30%
C A (sf) 21.50 22.63 Three/six-month EURIBOR
plus 4.20%
D BBB (sf) 25.00 16.38 Three/six-month EURIBOR
plus 6.40%
E BB- (sf) 16.50 12.25 Three/six-month EURIBOR
plus 8.35%
Sub NR 42.60 N/A N/A
*The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
PALMER SQUARE 2023-1: S&P Assigns B- Rating on Class F Notes
------------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Palmer Square
European CLO 2023-1 DAC's class A loan and class A, B-1, B-2, C, D,
E, and F notes. The issuer also issued unrated subordinated notes.
Under the transaction documents, the rated notes pay quarterly
interest unless there is a frequency switch event. Following this,
the notes will switch to semiannual payment.
The transaction has a 1.5 year non-call period and the portfolio's
reinvestment period will end approximately 4.57 years after
closing.
The ratings assigned to the notes reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
Portfolio Benchmarks
CURRENT
S&P Global Ratings weighted-average rating factor 2603.09
Default rate dispersion 615.45
Weighted-average life (years) 4.57
Obligor diversity measure 151.55
Industry diversity measure 21.57
Regional diversity measure 1.36
Transaction Key Metrics
CURRENT
Total par amount (mil. EUR) 400.00
Defaulted assets (mil. EUR) 0
Number of performing obligors 177
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.75
'AAA' weighted-average recovery (%) 38.21
Actual weighted-average spread (%) 4.01
Reference weighted-average coupon (%) 4.00
Rating rationale
S&P said, "Our ratings reflect our assessment of the collateral
portfolio's credit quality, which has a weighted-average rating of
'B'. The portfolio primarily comprises broadly syndicated
speculative-grade senior secured term loans and senior secured
bonds. Therefore, we conducted our credit and cash flow analysis by
applying our criteria for corporate cash flow CDOs.
"In our cash flow analysis, we used the EUR400 million par amount,
the actual weighted-average spread of 4.01%, and the actual
weighted-average recovery rates for all rated notes. We applied
various cash flow stress scenarios, using four different default
patterns, in conjunction with different interest rate stress
scenarios for each liability rating category.
"The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under our current counterparty criteria.
"Following the application of our structured finance sovereign risk
criteria, we consider the transaction's exposure to country risk to
be limited at the assigned ratings, as the exposure to individual
sovereigns does not exceed the diversification thresholds outlined
in our criteria.
"The transaction's legal structure is bankruptcy remote, in line
with our legal criteria.
"Our credit and cash flow analysis indicate that the available
credit enhancement for the class B-1 to F notes could withstand
stresses commensurate with higher rating levels than those we have
assigned. However, as the CLO is still in its reinvestment phase,
during which the transaction's credit risk profile could
deteriorate, we have capped our assigned ratings on the notes. The
class A loan and class A notes can withstand stresses commensurate
with the assigned ratings. Our ratings on the class A loan and
class A, B-1, and B-2 notes address timely payment of interest and
ultimate payment of principal, while our ratings on the class C, D,
E, and F notes (once drawn upon) address the payment of ultimate
interest and principal.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe that our ratings are
commensurate with the available credit enhancement for the class A
loan and class A, B-1, B-2, C, D, E, and F notes.
"In addition to our standard analysis, to indicate how rising
pressures among speculative-grade corporates could affect our
ratings on European CLO transactions, we have also included the
sensitivity of the ratings on the class A loan and class A to E
notes based on four hypothetical scenarios."
Environmental, social, and governance (ESG) credit factors
S&P said, "We regard the exposure to ESG credit factors in the
transaction as broadly in line with our benchmark for the sector.
Primarily due to the diversity of the assets within CLOs, the
exposure to environmental credit factors is viewed as below
average, social credit factors are below average, and governance
credit factors are average. For this transaction, the documents
prohibit assets from being related to the following industries:
production or marketing of controversial weapons, tobacco or
tobacco-related products, nuclear weapons, thermal coal production,
speculative extraction of oil sands and fossil fuels, pornography
or prostitution, illegal drugs, sale or production of civilian
firearms, opioid manufacturing and distribution, coal, and payday
lending. Accordingly, since the exclusion of assets from these
industries does not result in material differences between the
transaction and our ESG benchmark for the sector, no specific
adjustments have been made in our rating analysis to account for
any ESG-related risks or opportunities."
Environmental, social, and governance (ESG) corporate credit
indicators
S&P said, "The influence of ESG factors in our credit rating
analysis of European CLOs primarily depends on the influence of ESG
factors in our analysis of the underlying corporate obligors. To
provide additional disclosure and transparency of the influence of
ESG factors for the CLO asset portfolio in aggregate, we've
calculated the weighted-average and distributions of our ESG credit
indicators for the underlying obligors. We regard this
transaction's exposure as broadly in line with our benchmark for
the sector, with the environmental and social credit indicators
concentrated primarily in category 2 (neutral) and the governance
credit indicators concentrated in category 3 (moderately
negative)."
Corporate ESG Credit Indicators
ENVIRONMENTAL SOCIAL GOVERNANCE
Weighted-average credit indicator* 2.13 2.17 2.83
E-1/S-1/G-1 distribution (%) 0.00 1.62 0.00
E-2/S-2/G-2 distribution (%) 78.16 75.57 18.72
E-3/S-3/G-3 distribution (%) 11.97 9.93 69.15
E-4/S-4/G-4 distribution (%) 0.00 2.25 0.75
E-5/S-5/G-5 distribution (%) 0.00 0.76 1.50
Unmatched obligor (%) 9.87 9.87 9.87
Unidentified asset (%) 0.00 0.00 0.00
*Only includes matched obligors.
Ratings
CLASS RATING AMOUNT SUB (%) INTEREST RATE*
(MIL. EUR)
A AAA (sf) 165.03 38.50 Three-month EURIBOR
plus 1.90%
A loan AAA (sf) 80.97 38.50 Three-month EURIBOR
plus 1.90%
B-1 AA (sf) 30.75 28.56 Three-month EURIBOR
plus 3.25%
B-2 AA (sf) 9.00 28.56 7.00%
C A (sf) 24.00 22.56 Three-month EURIBOR
plus 3.65%
D BBB- (sf) 25.50 16.19 Three-month EURIBOR
plus 6.20%
E BB- (sf) 17.25 11.88 Three-month EURIBOR
plus 7.59%
F§ B- (sf) 11.50 9.00 Three-month EURIBOR
plus 10.00%
Sub notes NR 45.75 N/A N/A
*The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
§The class F notes is a delayed drawdown tranche, which is not
issued at closing.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
=========
I T A L Y
=========
AUTOFLORENCE 3: Fitch Assigns Final 'B+sf' Rating on Class E Notes
------------------------------------------------------------------
Fitch Ratings has assigned Autoflorence 3 S.r.l.'s notes final
ratings, as detailed below.
Entity/Debt Rating Prior
----------- ------ -----
Autoflorence 3
S.r.l.
Class A notes
IT0005545709 LT AAsf New Rating AA(EXP)sf
Class B notes
IT0005545717 LT A+sf New Rating A+(EXP)sf
Class C notes
IT0005545725 LT BBBsf New Rating BBB(EXP)sf
Class D notes
IT0005545733 LT BBsf New Rating BB(EXP)sf
Class E notes
IT0005545741 LT B+sf New Rating B+(EXP)sf
Class F notes
IT0005545758 LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
The transaction is a 12-month revolving securitisation of Italian
auto loans originated by Findomestic Banca S.p.A., which
specialises in consumer lending and is part of BNP Paribas S.A.
(A+/Stable/F1) banking group.
KEY RATING DRIVERS
Performance in Line with Peers: The pool includes loans to buy auto
(new and used) and other vehicles (motorcycles and recreational
vehicles). Historical performance has been broadly in line with
that of other non-captive auto loans lenders in Italy. Fitch
assumes base-case lifetime default and recovery rates of 2.6% and
20%, respectively, in a worst-case portfolio, based on the
documented revolving concentration limits.
Revolving-Period Risk Mitigated: Fitch views some of the
revolving-period termination triggers relatively loose compared
with the expected performance of the portfolio and has taken this
into account in default stress multiples. Fitch has applied a
'AAsf' stress multiple of 4.5x to its base-case default rate.
Deteriorating Asset Performance Outlook: Fitch expects some
moderate asset performance deterioration stemming from inflationary
pressures and rising rates, which may squeeze borrowers'
affordability. Asset assumptions reflect Fitch's forward-looking
view and are supported by the performance of outstanding
transactions and the originator loan's book in periods of economic
stress.
Decreasing Rates Limit Available Funds: The structure is
particularly sensitive to decreasing interest rate scenarios.
However, Fitch believes that decreasing interest rates are
unlikely, given the current interest rate environment, the short
weighted-average life of the portfolio of around two years and its
expectations for policy rates. This is taken into account by the
class C notes' rating being a notch higher than their model-implied
rating.
Sequential Switch Softens Pro- Rata: The class A to F notes can
repay pro-rata until a sequential redemption event occurs if, among
others, cumulative defaults on the portfolio exceed certain
thresholds. Fitch believes the switch to sequential amortisation in
its expected case is unlikely during the first four years after
closing, given its expectations of portfolio performance compared
with defined triggers. The mandatory switch to sequential pay-down
when the outstanding collateral balance falls below 10%
successfully mitigates tail risk.
'AAsf' Sovereign Cap: The class A notes are rated 'AAsf', six
notches above Italy's rating (BBB/Stable/F2), which is the highest
achievable rating for Italian structured finance and covered bonds.
The Stable Outlook on the senior notes reflects that on the
sovereign Long-Term Issuer Default Rating (IDR).
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A downgrade of Italy's IDR and the related rating cap for Italian
structured finance transactions, currently 'AAsf', could trigger a
downgrade of the class A notes' ratings.
Unexpected increases in the frequency of defaults or decreases in
recovery rates that could produce larger losses than the base case
and could result in a negative rating action on the notes. For
example, a simultaneous increase in the default base case by 25%
and a decrease in the recovery base case by 25% would lead to
downgrades of two notches for the class A, B, C and E notes and one
notch for the class D notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
An upgrade of Italy's IDR and the related rating cap for Italian
structured finance transactions, currently 'AAsf', could trigger an
upgrade of the class A notes' ratings if available credit
enhancement is sufficient to withstand stresses associated with
higher ratings.
For the class B, C, D and E notes, an unexpected decrease in the
frequency of defaults or increase in recovery rates that would
produce smaller losses than the base case could result in a
positive rating action. For example, a simultaneous decrease in the
default base case by 25% and increase in the recovery base case by
25% would lead to upgrades of two notches for the class B, D and E
notes and one notch for the class C notes.
DATA ADEQUACY
Fitch reviewed the results of a third-party assessment conducted on
the asset portfolio information, and concluded that there were no
findings that affected the rating analysis.
Fitch conducted a review of a small targeted sample of the
originator's origination files and found the information contained
in the reviewed files to be adequately consistent with the
originator's policies and practices and the other information
provided to the agency about the asset portfolio.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
AUTOFLORENCE 3: S&P Assigns B-(sf) Rating on Class E-Dfrd Notes
---------------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Autoflorence 3
S.R.L.'s asset-backed floating-rate class A, B-Dfrd, C-Dfrd,
D-Dfrd, and E-Dfrd notes. At closing, Autoflorence 3 also issued
unrated class F notes.
This is Findomestic Banca S.p.A's (Findomestic) third auto loan
transaction and its eighth ABS transaction S&P rates. The
underlying collateral comprises Italian loan receivables for new
and used cars and other vehicles, mainly motorcycles and campers.
Findomestic originated and granted the loans to its private
customers. The loans do not feature balloon payments.
The transaction revolves for 12 months if no stop-revolving
triggers are hit. The transaction has separate interest and
principal waterfalls. The interest waterfall features a principal
deficiency ledger mechanism, by which the issuer can use excess
spread to cure defaults.
Different from the previous transaction, the reserve provides
liquidity support to all the rated notes, while in Autoflorence 2
it was available for the class A, B, and C notes only. Likewise,
the issuer is able to use principal proceeds to cure interest
shortfalls for all the rated classes of notes, while in the
previous transaction this was possible only for the class A, B, and
C notes.
The notes amortize pro rata, unless one of the sequential
amortization events occurs. From then, the transaction will switch
permanently to sequential amortization.
The assets pay a monthly fixed interest rate, and the rated notes
pay one-month Euro Interbank Offered Rate (EURIBOR) plus a
class-specific margin subject to a floor of zero. The notes benefit
from two interest rate swaps which, in our opinion, mitigate the
risk of potential interest rate mismatches between the fixed-rate
assets and floating-rate liabilities.
S&P said, "Our rating on the class A notes addresses the timely
payment of interest. Our ratings on the other classes instead
address the ultimate payment of interest until each class becomes
the most senior class outstanding, and timely payment of interest
from then. For all the rated notes, our ratings address the
ultimate payment of principal by legal final maturity.
"The class C-Dfrd notes can withstand our stresses at a higher
rating than that assigned. However, our structured finance
sovereign risk criteria constrain our rating on the class C-Dfrd
notes at the unsolicited long-term sovereign rating on Italy
('BBB') as they are not able to withstand our 'A' stresses. We
assigned a 'BBB' rating to the class C-Dfrd notes.
"The class E-Dfrd notes are not able to withstand our stresses at
the 'B' rating level. We believe the repayment of this class does
not depend on favorable conditions, as in a steady state scenario
the issuer would be able to meet its obligations under this class.
We have therefore assigned our 'B- (sf)' rating to the class E-Dfrd
notes in line with our criteria.
"The ratings on the class B-Dfrd and E-Dfrd notes are one notch
higher than the preliminary ratings because these classes
benefitted from the large reduction in the cost of the class B-Dfrd
to E-Dfrd notes and of the swaps compared to what we initially
modelled.
"Our operational and counterparty risk criteria do not cap our
ratings in this transaction."
Ratings
CLASS RATING AMOUNT (MIL. EUR)
A AA (sf) 440.0
B-Dfrd A+ (sf) 13.5
C-Dfrd BBB (sf) 14.0
D-Dfrd BB+ (sf) 9.5
E-Dfrd B- (sf) 8.0
F NR 15.0
NR--Not rated.
===================
L U X E M B O U R G
===================
ARTERRSA SERVICES: MetWest FRI Marks $1.4M Loan at 15% Off
----------------------------------------------------------
Metropolitan West Fund's Floating Rate Income Fund has marked its
$1,473,750 loan extended to Arterrsa Services LLC to market at
$1,255,849 or 85% of the outstanding amount, as of March 31, 2023,
according to a disclosure contained in MetWest Fund's Form N-CSR
for the Fiscal year ended March 31, 2023, filed with the Securities
and Exchange Commission.
Floating Rate Income Fund is a participant in a First Lien Term
Loan (LIBOR plus 3.50%) to Arterrsa Services LLC. The loan accrues
interest at a rate of 8.44% per annum. The loan matures on March 6,
2025.
The Metropolitan West Funds is an open-end management investment
company organized as a Delaware statutory trust on December 9, 1996
and registered under the Investment Company Act of 1940, as
amended. Metropolitan West Asset Management, LLC, a federally
registered investment adviser, provides the Funds with investment
management services. The Trust currently consists of 14 separate
portfolios.
ARVOS BIDCO: $100M Bank Debt Trades at 81% Discount
---------------------------------------------------
Participations in a syndicated loan under which Arvos BidCo Sarl is
a borrower were trading in the secondary market around 18.7
cents-on-the-dollar during the week ended Friday, June 23, 2023,
according to Bloomberg's Evaluated Pricing service data.
The $100 million facility is a Term loan that is scheduled to
mature on August 29, 2023. The amount is fully drawn and
outstanding.
Arvos BidCo S.a.r.l., is the parent company of the Arvos Group.
Arvos is an auxiliary power equipment provider operating in new
equipment and offering aftermarket services through two business
divisions: Ljungström for Air Preheaters (APH), including air
preheaters and gas-gas heaters for thermal power generation
facilities; and Schmidt'sche Schack for Heat Transfer Solutions
(HTS) for a wide range of industrial processes mainly in the
petrochemical industry (Transfer Line Exchangers, Waste Heat Steam
Generators and High-Temperature Products). Arvos Group is a
carve-out from Alstom and is fully owned by Triton funds and by its
management. Arvos Midco S.a r.l. (formerly Alison Midco S.a.r.l.)
is the parent company of Arvos BidCo.
COSAN LUXEMBOURG: Fitch Assigns 'BB' Rating on 2030 Unsecured Notes
-------------------------------------------------------------------
Fitch Ratings has assigned a 'BB' to the proposed benchmark size
senior unsecured 2030 notes issued by Cosan Luxembourg S.A. (Cosan
Luxembourg). The notes are unconditionally and irrevocably
guaranteed by Cosan S.A.'s (Cosan; Long-Term Local Currency [LC]
and Foreign Currency [FC] Issuer Default Rating [IDR] BB/Stable).
The use of proceeds are general corporate purposes and debt
refinancing.
Cosan's credit profile benefits from its strong and diversified
asset portfolio, underpinned by leading positions in key business
segments. The ratings incorporate the continued strengthening of
cash generation by its subsidiaries.
The recent 4.9% stake acquisition of Vale S.A. (Vale;
BBB/BBB/AAA(bra)/Stable), improved the company's geographic and
product diversification, as Vale is a leader in the mining sector
and generates most of its revenues outside Brazil. This
debt-financed acquisition weakened Cosan's credit metrics with
lower dividends estimates from subsidiaries to service its debt,
which limits its LC IDR. Cosan heavily depends on significant
divestments to reduce its high indebtedness. Higher pressure on
debt amortization starting in 2025 allows time to materialize
potential sales.
KEY RATING DRIVERS
Positive Asset Diversification: Vale's share acquisition further
enhanced Cosan's asset portfolio diversification and consolidated
business profile. It also reduced the company's risk of generating
almost all of its cash flow in Brazil. Cosan's operating assets are
leaders in the sugar and ethanol businesses, distribution of fuel
and lubricant, railroad operations and natural gas distribution.
Raízen S.A. (Raízen; BBB/BBB/AAA(bra)/Stable) is the leading
global producer of sugar and ethanol and energy from sugar cane
bagasse and currently accounts for more than 15% of Brazil's sugar
cane crushing capacity. The company is also the second-largest fuel
distributor in Brazil, with over 20% market share by volume in 2022
operating under the Shell brand.
Cosan's stake in Compass Gas e Energia S.A. (Compass;
BB/BB/AAA(bra)/Stable) provides access to the natural gas
distribution sector, considered a low-to-moderate risk industry.
Compass' key asset is Companhia de Gas de Sao Paulo (COMGAS;
BB/BBB-/AAA(bra)/Stable), the largest company in this sector in
Brazil, with operations in the state of Sao Paulo and robust credit
metrics and a solid business profile. COMGAS' ratings benefit from
its long-term concession contract with pass-through mechanisms of
non-manageable costs, mitigated supply risks, and robust operating
cash flow.
Cosan's stake into Rumo S.A. (Rumo; BB/BB+/AAA(bra)/Stable) adds to
the group's cash flow visibility in an economically resilient
industry. Rumo benefits from its market position as the sole
railroad transportation company in Brazil's South and Midwest
regions through five concessions that operate more than 14,000
kilometers of tracks, with access to Brazil's three main ports. Due
to a low-cost structure and solid presence in transportation of
agricultural goods, the company enjoys solid competitive advantages
over truck transportation, which limits volume volatilities over
different economic cycles.
Asset Sales to Reduce Leverage: Cosan heavily depends on asset
sales to reduce its high leverage on standalone and consolidated
basis. The holding had around BRL27 billion in adjusted debt at the
end of March 2023, compared with an expected flow of dividends of
BRL2.7 billion in 2023 and BRL3.4 billion on average in 2024 and
2025. Vale's acquisition weakened the flow of dividends to the
holding company, given the sale of preferred shares in Compass and
Raízen used to amortize BRL8 billion bridge loan of the BRL17.1
billion raised to finance the transaction. Fitch also forecasts the
group's consolidated adjusted net leverage at 5.4x by the end of
2023 and 4.8x in 2024.
Cash Flow Generation to Moderate: Fitch expects Cosan group to
report consolidated adjusted EBITDA of BRL5.1 billion in 2023 and
BRL6.1 billion in 2024, including dividends from Raízen and
COMGAS, according to Fitch adjustments. High interest payments due
to the substantial debt volume and high interest rates in Brazil
should contribute to pressure cash flow from operations, estimated
at around BRL100 million in 2023 and BRL1.8 billion in 2024. Total
capex of approximately BRL4.0 billion and dividends of BRL1.0
billion in 2023 and 2024 should pressure FCF. Fitch forecasts
negative FCF of around BRL2.6 billion this year and BRL600 million
in 2024.
Adjusted Consolidated Financials: Fitch's analysis is based on
Cosan's adjusted consolidated financials, which exclude 70% of
Rumo's and 100% of COMGAS's results, and includes dividends
received from COMGAS, Raizen and Vale in adjusted EBITDA. The
proportional consolidation of 30% of Rumo recognizes economic
rather than voting control of the subsidiary as per Fitch's
Corporate Rating Criteria. COMGAS is deconsolidated due to its
insulated and ring-fenced structure. Raizen, a joint venture with
Royal Dutch Shell plc, has its own financing and investing
strategies, and Cosan's access to its cash is also only through
dividends received.
DERIVATION SUMMARY
Cosan's ratings compare unfavorably with Votorantim S.A.'s (VSA; FC
and LC IDRs BBB-/Stable and National Scale Rating AAA(bra)/Stable),
also one of Latin America's largest industrial conglomerates. VSA
has a diversified business portfolio, strong market position in the
industries it participates in and geographic diversification with
strong operations in the Americas, while Cosan's assets are still
primarily located in Brazil and with a representative share of its
cash flow generation capacity in the more volatile S&E business.
Cosan is in a weaker position in terms of cash flow generation and
leverage compared with VSA.
Cosan similarly compares with Grupo KUO, S.A.B. de C.V.'s (KUO; FC
and LC IDRs BB/Stable), a Mexican Group with diversified business
portfolio in the consumer, automotive and chemical industries. KUO
is exposed to volatility in product demand and input costs across
its business units. Fitch expects KUO's net leverage level to be
moderately lower as compared with expectations for Cosan's net
leverage level.
KEY ASSUMPTIONS
- Adjusted consolidated revenues of BRL16.9 billion and BRL18.5
billion in 2023 and 2024, respectively;
- Average EBITDA margin, including dividends received, of 31% in
2023 and 2024;
- Cosan's payment of loan amortization and retention of Vale's
shares.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- An upgrade is unlikely in the near term given the sizable
indebtedness and net leverage level.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Adjusted consolidated net leverage sustained above 6.0x;
- Inability to sell assets in timely manner.
LIQUIDITY AND DEBT STRUCTURE
High Financial Flexibility: Cosan's debt at the holding level of
BRL27 billion as of March 2023 is high compared with the expected
flow of dividends to the holding company. Its financial flexibility
to dispose of assets and access debt and capital markets is crucial
to support estimated refinancing needs and collar obligations. The
holding debt amortization schedule brings lower pressure in 2023
and 2024, with BRL1.1 billion and BRL2.6 billion, respectively,
which gives time to address the BRL7.5 billion amortization in the
following two years. By the end of March 2023, its cash and
equivalents totaled BRL2.3 billion.
Fitch estimates that Cosan will maintain an adequate liquidity
profile on adjusted consolidated basis over the next three years,
with pro forma adjusted liquidity of around BRL10 billion during
this period. Cosan's group's consolidated adjusted net debt should
reach BRL41 billion by the end of 2023 and BRL44 billion in 2024.
Fitch considers 50% of Cosan group's BRL8.1 billion outstanding
issued preferred shares as debt, according to the agency's
criteria.
ISSUER PROFILE
Cosan is the holding company of a Brazilian conglomerate with
presence in sugar, ethanol and energy production, natural gas
distribution, railroad operations and distribution of fuels &
lubricants. The group is controlled by Mr. Rubens Ometto with 35.9%
ownership.
SUMMARY OF FINANCIAL ADJUSTMENTS
Net derivative balances for foreign exchange risk management have
been added to Cosan's adjusted debt figures.
Cosan's Fitch-adjusted consolidated financials for 2021 onward
depart from published consolidated financials minus 70% of Rumo and
100% of Comgas. Cosan's adjusted consolidated EBITDA includes
dividends paid out by Raizen and Comgas.
Entity/Debt Rating
----------- ------
Cosan Luxembourg S.A.
senior unsecured LT BB New Rating
=====================
N E T H E R L A N D S
=====================
BRIGHT BIDCO: $300M Bank Debt Trades at 47% Discount
----------------------------------------------------
Participations in a syndicated loan under which Bright Bidco BV is
a borrower were trading in the secondary market around 53
cents-on-the-dollar during the week ended Friday, June 23, 2023,
according to Bloomberg's Evaluated Pricing service data.
The $300 million facility is a Payment in kind 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). The Company's country of domicile is the
Netherlands.
===============
P O R T U G A L
===============
TAP: IAG's Interest Hinges on Privatisation Conditions
------------------------------------------------------
Corina Pons at Reuters reports that British Airways and Iberia
owner IAG may be interested in acquiring Portugal's state-owned
airline TAP if conditions are right, its Chief Executive Luis
Gallego said on June 26.
"The TAP operation may make sense from a strategic point of view
because of the Brazilian market, they are complementary . . . but
we have to look at the other conditions under which it is
privatised," Gallego said.
The Portuguese government has said it wants to sell TAP as early as
July, once the company's value is established, but intends to keep
a strategic stake.
At least three major global carriers -- IAG, Lufthansa, Air
France-KLM -- have so far shown an interest.
As reported by the Troubled Company Reporter-Europe, Reuter
disclosed that that Portugal's government has mandated state
holding company Parpublica to pick two independent assessors to
value airline TAP ahead of its privatisation, which could be
launched in July, the finance minister said on April 27, 2023.
According to Reuters, the state owns 100% of TAP, which is
currently restructuring under a Brussels-approved EUR3.2 billion
(US$3.5 billion) rescue plan, and the government is considering an
outright or partial sale. He said the government sought to
preserve TAP's "intrinsic value, as a company that generates value
from its hub in Lisbon", highlighting also that the airline swung
to a profit in 2022, earlier than expected in its restructuring
plan, Reuters related.
===========
R U S S I A
===========
IPOTEKA BANK: Fitch Affirms LongTerm IDRs at 'BB-', Outlook Stable
------------------------------------------------------------------
Fitch Ratings has affirmed Joint-Stock Commercial Mortgage Bank
Ipoteka-Bank's Long-Term Foreign- and Local-Currency Issuer Default
Ratings (IDRs) at 'BB-' with Stable Outlooks. The bank's Viability
Rating (VR) has been affirmed at 'b'.
Fitch has withdrawn Ipoteka's Government Support Rating and its
'xgs' ratings as they are no longer relevant to the agency's
coverage following the sale of the bank's controlling stake to
Hungary-based OTP Bank Plc. (OTP) on 13 June 2023. Fitch has
therefore assigned Ipoteka a Shareholder Support Rating (SSR) of
'bb-'.
KEY RATING DRIVERS
Ipoteka's Long-Term IDRs are based on potential support from the
bank's new majority shareholder OTP, which acquired 73.7% of
Ipoteka's common shares from the government of Uzbekistan in June
2023. Its view on OTP's ability and propensity to support Ipoteka
reflects its majority ownership, strategic importance of
Uzbekistan's market for the group as well as the low cost of
potential support given Ipoteka's small size relative to the parent
bank (4.5% of its total assets at end-1H22).
IDRs Capped by Country Ceiling: The bank's SSR and Long-Term
Foreign-Currency IDR are constrained by Uzbekistan's 'BB-' Country
Ceiling, which captures transfer and convertibility risks and the
risk that the subsidiary may not be able to benefit from parent
support to service its own foreign-currency obligations.
Emerging, Structurally Weak Economy: Despite recent market reforms
and privatisation plans, Uzbekistan's economy remains heavily
dominated by the state resulting in weak governance and generally
poor financial transparency. Sector risks stem from high
dollarisation, significant exposure to long-term project finance
and reliance on external debt.
Main Mortgage Bank, Commercial Focus: Ipoteka is the fifth-largest
bank in Uzbekistan with leading positions in the mortgage market
(25% of sector mortgages at end-1Q23). In preparation for
privatisation, the bank has focused on commercial lending. Fitch
expects further material improvements in management and governance
quality under the new shareholder, which should be beneficial for
the bank's business profile in the medium term.
Risk Management Framework to Strengthen: Post-acquisition, Fitch
expects the bank to align its underwriting standards with OTP's and
retain its mortgage focus while also developing unsecured retail
lending. This should further reduce loan concentrations and
dollarisation (the latter at 34% of gross loans at end-1Q23, well
below the sector average of 47%).
Loan-Quality Risks Largely Crystallised: Impaired loans equalled 8%
of gross loans at end-1H22, up 80bp from end-2021 mainly due to the
bank's SME book seasoning. Fitch forecasts the impaired loans ratio
will stabilise in 2023 given higher quality of new loan issuance
coupled with the work-out and write-off of legacy problem loans.
Impaired loans were 75% reserved at end-1H22, which Fitch views as
adequate given good loan coverage by hard collateral and state
guarantees.
Record of Improved Profitability: Due to commercial lending focus,
Ipoteka's margins have widened in the last three years to 7% at
end-6M22 (annualised). A solid pre-impairment profit buffer (6% of
average loans in 6M22) was well above the cost of risk (1%),
feeding into a healthy annualised return on equity (22% in 6M22),
which Fitch expects the bank to maintain in 2023.
Moderate Capital Ratios: Ipoteka's Fitch Core Capital (FCC) ratio
has stabilised at around 14% in the last three years while headroom
over statutory minimums improved to about 500bp at end-1Q23 from
just over 100bp at end-2021. Fitch expects the bank's capital
ratios to increase moderately in 2023 due to stronger performance
and profit retention while OTP could also provide capital to
stimulate growth.
State Funding Prevails; Reasonable Liquidity: State-related funds
(mainly long-term loans for financing subsidised mortgages) made up
a material 45% of total liabilities at end-1Q23. Wholesale debt
equalled 27% of liabilities while non-state deposits were another
25%. Liquid assets accounted for 17% of total assets and covered
0.8x non-state deposits at end-1Q23.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Ipoteka's support-driven IDRs could be downgraded following a
downgrade of Uzbekistan's Country Ceiling or if Fitch's assessment
of OTP's ability or propensity to provide support to the subsidiary
weakens substantially.
The VR could be downgraded on a material deterioration of the
bank's asset quality resulting in a loss-making performance so that
the bank's capital ratios approach statutory minimums. Pressure on
capital from rapid lending growth or an aggressive dividend policy
could also be credit-negative, although it is currently not
expected by Fitch.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
The IDRs could be upgraded if the Country Ceiling is upgraded
provided that Fitch's view that ability or propensity of OTP to
provide support to the subsidiary remains intact or improves.
An upgrade of the bank's VR would require further improvements in
the bank's business model and risk management under the new
shareholder translating into improved asset quality and stronger
profitability and capitalisation, with the FCC ratio reaching 20%.
Notable improvements in the Uzbek operating environment would also
be positive for its assessment of the VR.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Ipoteka's senior unsecured debt rating is in line with the bank's
'BB-' Long-Term Foreign-Currency IDR.
The bank has issued a five-year US dollar-denominated Eurobond and
a soum-denominated three-year Eurobond. Both issue ratings are
anchored to Ipoteka's Foreign-Currency IDR, as all settlements are
in US dollars. For the soum-denominated issue, settlements are in
US dollars at the exchange rate set by the Central Bank of
Uzbekistan (CBU) on each settlement date. The notes' ratings are in
line with Ipoteka's Long-Term IDR, as they represent unconditional,
senior unsecured obligations of the bank, which rank pari passu
with its other senior unsecured obligations.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The bank's long-term debt rating is sensitive to changes to its
Long-Term IDRs.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Ipoteka's IDRs are driven by potential support from OTP.
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
----------- ------ -----
Joint-Stock Commercial
Mortgage Bank
Ipoteka-Bank LT IDR BB- Affirmed BB-
ST IDR B Affirmed B
LC LT IDR BB- Affirmed BB-
LC ST IDR B Affirmed B
Viability b Affirmed b
Government Support WD Withdrawn bb-
LT IDR (xgs) WD Withdrawn B(xgs)
Shareholder Support bb- New Rating
ST IDR (xgs) WD Withdrawn B(xgs)
LC LT IDR (xgs) WD Withdrawn B(xgs)
LC ST IDR (xgs) WD Withdrawn B(xgs)
senior
unsecured LT BB- Affirmed BB-
senior
unsecured LT (xgs) WD Withdrawn B(xgs)
===========================
U N I T E D K I N G D O M
===========================
CINEWORLD GROUP: To File for Administration in Britain
------------------------------------------------------
Eva Mathews at Reuters reports that embattled cinema chain operator
Cineworld Group on June 26 said it will file for administration in
Britain and suspend trading on the London Stock Exchange next
month, as part of a restructuring plan to reduce its massive debt.
The company had disclosed a net debt of about US$8.8 billion,
Reuters relays, citing its latest results at the time.
The British company said administrators, once appointed, would
shift all of its assets to a wholly owned subsidiary called Crown,
and a newly incorporated company controlled by the group's lenders
will become the sole owner of Crown, with Cineworld ceasing to have
any interest in the parties, Reuters relates.
Its London-listed shares will also be suspended as a result,
Reuters discloses.
According to Reuters, Cineworld said the proposed restructuring
will involve the release of about US$4.53 billion of the group's
debt, a rights offering to raise gross proceeds of $800 million and
the provision of US$1.46 billion in new debt financing.
The owner of Regal in the United States and Picturehouse, Planet
and Cinema City across Europe had scrapped plans to sell some or
all of its businesses after failing to find a buyer, Reuters
recounts.
It opted for a restructuring plan that effectively wipes out
existing shareholders' equity, Reuters notes.
Hit hard by the COVID-19 pandemic that shuttered cinemas and halted
releases of blockbluster films, Cineworld also faced increased
competition from streaming services, Reuters states.
The company continues to expect to emerge from Chapter 11
bankruptcy protection in July, having said in May that its proposed
debt restructuring had the backing of most of its lenders,
according to Reuters.
However, the restructuring plan would still not provide for any
recovery for its existing shareholders, Cineworld added.
The company operates about 128 theatres in the United Kingdom and
the Republic of Ireland, and over 700 worldwide.
CORNISH LITHIUM: Has Going Concern Doubt, Needs Cash Injection
--------------------------------------------------------------
Harry Dempsey at The Financial Times reports that UK lithium
project developer Cornish Lithium has warned that it could go bust
if it fails to secure a GBP10 million cash injection by next
month.
According to the FT, the private company, which aims to produce the
battery metal in Cornwall, needs to secure short-term funds to give
it breathing space to obtain a longer term financing arrangement.
“All of the scenarios modelled require the receipt of further
funding by July 2023,” the FT quotes the company as saying in its
annual accounts.
“Without this, a material uncertainty exists that may cast
significant doubt on the group’s ability to continue as a going
concern.”
Cornish Lithium is one of the UK’s few groups aiming to produce
the element, which is a vital material in electric car batteries.
Its problems come as the UK struggles to attract investment in
battery plants and the US and the EU grow increasingly serious
about securing supplies of critical minerals following Russia’s
invasion of Ukraine, the FT discloses.
The UK currently produces none of its own lithium, with most of the
world’s supply coming from Australia and Chile. Cornish Lithium
hopes to produce the element by 2026.
Cornish Lithium is banking on completing a deal to raise GBP10
million in cash from existing investors, including TechMet, a
Dublin-based and US government-backed investment vehicle, the FT
states. It is also in “advanced negotiations” with potential
new investors as part of a wider refinancing, the FT notes.
The group has managed to raise GBP20.8 million to date through
angel investors, crowdfunding and government grants, and a further
GBP18 million from TechMet, which also counts commodity trader
Mercuria as an investor, the FT relays, citing a company
presentation.
GATWICK AIRPORT: Fitch Alters Outlook on BB- Note Rating to Stable
------------------------------------------------------------------
Fitch Ratings has revised the Outlook on Gatwick Funding Limited's
(GF) notes to Stable from Negative and affirmed the ratings at
'BBB+'. Fitch has also revised the Outlook on Gatwick Airport
Finance plc's (GAF) notes to Stable from Negative and affirmed the
ratings at 'BB-'.
RATING RATIONALE
The revision of the Outlooks to Stable reflects Gatwick's strong
financial performance with leverage falling below downgrade
sensitivities, traffic recovery and normalisation of group
operations.
The affirmation reflects GF's financial flexibility, solid
liquidity position and leverage sustained below its 'BBB+' rating
sensitivity of 6.5x, due to traffic recovery as well as deferrable
capex and shareholder distributions. In Fitch's view, the airport's
strong catchment area and modern facilities continue to make the
airport attractive to airlines and should support the recovery.
Fitch currently expects traffic to fully recover to 2019 levels by
2025.
The affirmation of GAF's notes at 'BB-' reflects unchanged
structural subordination of GAF's debt to the GF ring-fenced group
(the group), and the current lock-up at the group level preventing
dividend distributions until mid-2024 under all Fitch's cases.
Fitch notches GAF's debt rating down from the consolidated profile,
which includes GF and GAF. GAF's full ownership of and dependency
on the group, underlined by the one-way cross-default provision
with the group as well as GAF's covenants tested at the
consolidated level, drive the consolidated approach.
KEY RATING DRIVERS
Volume Risk - High Midrange: Second-Largest Airport in Strong
Catchment Area
Gatwick is the second-largest airport in the UK serving as an
origin-and-destination, leisure-oriented airport within a strong
and wealthy catchment area (London and south-east UK) of around 15
million people. It competes with Heathrow, the region's primary hub
and long-haul full-service airport, as well as Stansted Airport,
which focuses on low-cost airlines.
Gatwick's traffic has demonstrated weaker resilience (compared with
EMEA peers, including Heathrow and Aeroports de Paris) to economic
downturns in the past with a maximum peak-trough fall in traffic of
11.6% through the 2008 economic crisis. However, Fitch believes
Gatwick's resilience has improved since then due to its focus on
the growing low-cost carriers (LCCs) market and its long-term
contracts with financially robust airlines.
The airport has high exposure to leisure-related traffic and some
airline concentration risk, with EasyJet representing about 50% of
traffic in 2022 (up from 40% in 2019). During the pandemic,
Gatwick's traffic performance lagged other UK airports, mostly
driven by the state policy on travel restrictions and British
Airways' consolidation at Heathrow, but traffic recovery has now
caught up with the rest of the market.
Price Risk - Midrange: Commitments Monitored by Regulator
The airport has operated under revised "light-handed" economic
regulation since April 2014. The contracts and commitments
framework established legally-binding commitments between the
airport and its airlines, creating a default airport tariff
covering price and service levels available to all airlines. In
2021 the regulator, Civil Aviation Authority (CAA), adopted a
simplified price commitment for Gatwick, which limits the maximum
annual rate of increase in its gross yield to RPI+0%, referencing
the gross yield of GBP10.29 for the year ending March 2019.
The current commitments are in place until March 2025. Extension of
the commitments framework for 2025-2029 is currently under
discussion. The new proposed price ceiling is substantially similar
to the current one and so this is credit neutral.
The framework enables bespoke bilateral contracts with airlines
providing the airport with more pricing flexibility. The contracts
incentivise traffic and protect revenue against moderate downside.
Infrastructure Development and Renewal - Stronger: Flexible Capex,
Largely Deferred
Gatwick has considerable experience of managing its own asset base
and has performed significant works over recent years, maintaining
and improving its infrastructure. The airport has a relatively
complex operational footprint with a fully-owned single main
runway, standby runway and two terminals. In the medium term, there
are no capacity constraints with regards to the runway, while the
terminals' capacity can be increased by modular capex projects.
Short- and medium-term maintenance needs are well-defined. The
investment programme is significant but modular.
The regulatory framework allows flexibility in investments compared
with price cap regulation and Fitch expects Gatwick to spend
significantly more than committed under the current framework.
Investments are funded by internal cash flows and committed
facilities.
Debt Structure at GF - Midrange: Bullet Debt with Creditor
Protective Features
GF's debt programme benefits from a strong security and covenant
package. All debt is senior ranking with no material exposure to
interest rate risk. The reliance on bullet debt creates refinance
risk, although near-term refinancing needs are low, maturities are
fairly evenly spread and Gatwick has a record of access to capital
markets. GF's debt assessment benefits from a strong liquidity
position with GBP12 million cash as of May 2022, committed undrawn
revolving credit facilities (RCF) of GBP355 million and a dedicated
GBP150 million undrawn liquidity facility. There are no outstanding
maturities until 2024.
Debt Structure at GAF - Midrange: Reliance on Dividends Upstream
Debt service at GAF (Holdco) is reliant on dividends being
upstreamed from the ring-fenced group. The group is currently in
lock-up and is not expected to make distributions to GAF until
2024. A debt service reserve account (GBP31 million as of May 2023)
supports interest payments during the lock-up period. In all
Fitch's cases, dividend lock-up ends in 2024 with the start of
dividend upstreaming in 2H24.
GAF's debt has no material exposure to interest-rate risk, but the
reliance on bullet debt (single bullet GBP450 million in 2026)
creates refinance risk, although near-term refinancing needs are
low. The group has a strong liquidity buffer, fairly evenly spread
maturities and a record of capital-market access.
Distributions from the group are GAF's sole source of earnings and
cash flow to support its debt interest costs. Fitch views GAF's
cash flow as having minimal or no diversity and its obligations as
structurally subordinated to the group's operating needs. Fitch
notes that distributions could be volatile and pressure debt
service at GAF if the group's cash flow is impaired. GAF's debt has
a lower rating due to its deep structural subordination to GF's
debt.
Financial Profile
Under the Fitch base case (FBC) and Fitch rating case (FRC), the
projected net debt to EBITDA at GF falls in 2024 to 5.7x and 6.5x,
respectively. From 2025 and in the long term, leverage remains at
6.5x in both cases due to shareholder distributions.
The consolidated net debt to EBITDA including GAF's debt exceeds
the leverage of the ring-fenced group by approximately one turn,
with leverage falling to 6.5x and 7.4x in FBC and FRC,
respectively. From 2025 and in the long term, leverage remains at
7.2x to 7.3x for both cases.
Finance and operating leases are captured as an operating expense,
reducing EBITDA.
PEER GROUP
Heathrow Funding Limited (class A notes A-/Stable) is a larger
company in terms of traffic and has a stronger operational profile
as its traffic is more resilient. Consequently, Heathrow can
tolerate higher levels of leverage with a debt structure broadly
aligned with GF's notes. Heathrow's class B notes (BBB/Stable) are
a notch below GF's notes as Heathrow's stronger operations are
offset by higher leverage.
Manchester Airport Group Funding PLC (MAG; BBB/Negative) is a
larger company in terms of traffic and has higher geographical
diversification with three airports (Manchester Airport, Stansted
Airport in London and East Midlands Airport). However, MAG
experienced a larger decline in traffic during the financial crisis
than Gatwick. This is due to Gatwick's more competitive position in
the strong London market. The rating difference is driven by
Gatwick's stronger business profile and more protective debt
features, specifically dedicated reserves and liquidity facilities
for debt service.
Compared with Brussels Airport Company S.A./N.V. (BBB+/Negative),
GF's higher projected leverage broadly offsets a stronger catchment
area.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
GF: Projected Fitch net debt/EBITDA above 6.5x on a sustained basis
under the rating case or failure to prefund its bullet debt 12
months in advance of legal maturities.
GAF: Weaker-than-expected financial performance, which would
trigger dividend lock-up after June 2024 and liquidity not being
replenished.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
GF: Projected Fitch net debt/EBITDA below 5.5x on a sustained bases
under the rating case with shareholders' commitment to not
releverage the company.
GAF: An upgrade is currently unlikely given GF is still in lock
up.
TRANSACTION SUMMARY
Gatwick is one of five airports servicing London and south-east
England. It is London's and the UK's second-largest airport. It
primarily acts as an origin-and-destination airport and is
generally focused on leisure services.
Debt issued at GF is senior secured and ring-fenced long-term
financing of Gatwick. Debt at GAF was issued in 2021 to improve
Gatwick's liquidity during the pandemic and deleverage the
ring-fenced group. GAF's debt is structurally subordinated to GF's
debt.
CREDIT UPDATE
Operational Performance
Gatwick's traffic profile considerably improved in 2022-1H23 and is
now closing the gap with its European peers. Traffic recovery
improved from 73% of the 2019 level in January 2023 to 89% in May
2023, compared with 87% and 90%, respectively, for the Fitch-rated
airport portfolio. This was supported by the relaxation of
international travelling rules since January 2022, including the
removal of all UK travel restrictions in March, release of pent-up
demand and removal of waiver on the use-it or-lose it slot
allocation rule. Traffic recovery was driven by European traffic,
while domestic was slightly lagging. In 2022 short-haul traffic
reached 77% of 2019, while long-haul was at 44%.
Regulatory Update
In 2023, the CAA opened a consultation on Gatwick's proposals to
extend its commitments tariff framework from 2025 to 2029.
Gatwick's proposal includes switch of base benchmark to the
Consumer Prices Index (CPI) instead of the Retail Prices Index and
a revised price ceiling (two years of CPI -1% followed by two years
of CPI + 0%). Other conditions on minimum investment, service
quality targets and rebates are largely unchanged.
Debt Prepayment
In December 2022, GF launched a tender offer to purchase part of
the outstanding class A bonds. This was funded from excess
liquidity generated from GBP354 million equity injection in 2021
coupled with strong performance in 2022. A total GBP463 million of
nominal debt was purchased at a cost of GBP351 million.
Liquidity
Gatwick maintained strong liquidity throughout the pandemic. It
also retained strong market access, which Fitch expects to support
continued strong liquidity.
As of May 2023, available cash at GF was GBP12 million, which adds
to the undrawn RCFs of GBP355 million and liquidity facility of
GBP150 million. There are no outstanding maturities until 2024.
GAF's available cash is minimal, but creditors benefit from a
dedicated debt service reserve account of GBP31 million covering
interest payments until 2024 under the FRC.
FINANCIAL ANALYSIS
Under the FRC, Fitch assumes traffic recovers to 82% of the 2019
level in 2023 and 100% by 2025. In addition, Fitch assumes
structural reduction in aero-yield in 2023 compared with 2022 due
to a higher passenger base and airline mix. In 2023-2026, Fitch
assumes fall in aero-yield in real terms. Commercial yield is
assumed to fall in 2023-2026 in real terms and then grow at a flat
rate in real terms afterwards as a result of uncertainty about
consumer behaviour and pressure on discretionary spending amid
period of high inflation.
Fitch expects moderate increases in opex from much-reduced levels
in 2020-2021, in line with traffic recovery and inflation. Fitch
assumes capex ramp-up from low base of GBP68 million in 2022 to
accommodate projects, which were postponed during pandemic. Fitch
expects constant releveraging to 6.5x at the GF level due to
shareholder distributions.
GF has significant financial flexibility in its balance sheet in
the form of dividends and capex, which could be reduced or deferred
in a downside scenario.
Summary of Financial Adjustments
Finance and operating leases are removed from financial
liabilities. Lease expenses are captured as an operating expense,
reducing EBITDA.
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
----------- ------ -----
Gatwick Funding
Limited
Gatwick Funding
Limited/Debt/1 LT LT BBB+ Affirmed BBB+
Gatwick Airport
Finance plc
Gatwick Airport
Finance plc/Debt/1 LT LT BB- Affirmed BB-
GKN HOLDINGS: Moody's Affirms Ba1 Rating on GBP130MM Unsec. Bond
----------------------------------------------------------------
Moody's Investors Service affirmed the Ba1 rating on the
outstanding GBP130 million backed senior unsecured bond due 2032
issued by GKN Holdings Limited and guaranteed by Melrose Industries
PLC, the parent of GKN Holdings Limited, as well as a number of
other operating subsidiaries. The rating outlook remains stable.
RATINGS RATIONALE
The rating action reflects Melrose's future sole focus on the
remaining aerospace business with the conclusion of the "Buy,
Improve, Sell" strategy following the demerger of the automotive
businesses. The affirmation of the bond rating also incorporates
Moody's expectation of material earnings and margins improvement
underpinned by market growth in both defense and civil aerospace.
In addition, Moody's expects GKN to have a stable credit profile
with manageable leverage and coverage and to abide by its stated
financial policy. These positives are counterbalanced by the
uncertainty associated with the company's ability to sustain its
financial policy in light of expected large share buy backs, as
well as the management evolution as the business operates as a
stand-alone entity.
GKN benefits from strong expected cash flows from the engines
business due to many of GKN's risk and revenue sharing partnership
(RRSP) platforms entering the cash generative portion of their
lifecycle. Moody's also expects the company's structures segment
to improve its margin on the back of pruning the business portfolio
through exits and repricings, as well as significant footprint
consolidation and quality improvement measures. Positively, the
market environment is favourable with growth in both US military
budget and NATO countries' defense budgets driven by geopolitical
tensions, as well as an increase in flight hours on the back of
resurging post-pandemic demand. Importantly, increase in flight
hours drives the profitable aftermarket repair business. Melrose's
business profile is also supported by long-standing relationships
with customers, complexity of the value chain along with specific
know-how and the flight-critical nature of GKN products which
create barriers to entry for potential competitors.
Moody's expects Melrose to manage its leverage comfortably within
its stated goal of less than 2.5x net leverage and to stay well
below this boundary depending on the amount of share buy backs the
company completes. Melrose's Moody's adjusted leverage computed as
total debt/EBITDA is expected to be comfortably below 3.0x while
its coverage (EBITDA/interest) exceeds 6.0x. Moody's expects
Melrose to consume cash in 2023 and 2024 owing to large working
capital outflows, restructuring and material capex, as well as a
regular dividend; the agency anticipates Melrose to become cash
generative by 2025.
ESG CONSIDERATIONS
Environmental and social considerations have a limited impact on
the current rating with potential for greater impact over time.
Being a manufacturer of airframe structures and airplane engines,
the company is exposed to physical climate and waste management
risks in line with industry peers. The company is publicly listed
and has set out a clear financial policy of managing net leverage
to below 2.5x, but it needs to establish a track record of
governance as it has only been de-merged from Melrose (which
previously included automotive and powder metallurgy divisions) in
April 2023. These governance considerations have been a key driver
for the rating action.
LIQUIDITY
Pro-forma for the demerger, Moody's views Melrose's liquidity as
good. It is underpinned primarily by the company's recently
established bank facility of approximately GBP1.55 billion
consisting of multi-currency term loans and RCFs. The term loans
totaling $300 million and EUR100 million are fully drawn. Moody's
understands that the RCF has an undrawn headroom of more than GBP1
billion. The bank facility matures in 2026 with a portion of the
RCF being extendible for an additional two years at Melrose's
option.
STRUCTURAL CONSIDERATIONS
Melrose's debt consists of the undrawn RCF, term loans and the
outstanding GBP130 million backed senior unsecured bond due 2032
issued by GKN Holdings Limited and guaranteed by Melrose Industries
PLC, as well as a number of other operating subsidiaries. All debt
instruments are unsecured and rank pari passu.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Moody's views positive rating pressure as unlikely in the near term
as the business will need to establish a track record of successful
operations and consistent financial policies. In addition, the
company would need to sustain its leverage measured as
Moody's-adjusted gross debt/EBITDA below 2.5x and free cash flow
(after working capital, capex and dividends)/debt above high single
digits in percentage terms.
Negative rating momentum could be precipitated by leverage in
excess of 3.5x total debt/EBITDA including Moody's standard
adjustments, sustained negative free cash flow, aggressive
shareholder distributions or weakening liquidity.
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Aerospace and
Defense published in October 2021.
COMPANY PROFILE
Headquartered in the UK, GKN Holdings Limited is a global tier-one
supplier to the aerospace industry with operations in 12 countries.
The GKN Holdings Limited group operates through two main divisions:
engines and structures. The company supplies the commercial and
military aircraft market. In 2022, GKN Holdings Limited reported
adjusted revenues of GBP8.2 billion and adjusted operating profit
of GBP480 million; year-end figures include the contribution of
automotive businesses that had been demerged into a separately
listed entity, Dowlais plc. Since June 2018, former GKN Plc has
been a fully owned subsidiary of Melrose and, following business
disposals in 2021, accounted for nearly all of Melrose's
operations. Melrose is listed in the UK and had a market
capitalisation of around GBP7.6 billion on June 17, 2023.
HURRICANE BIDCO: Fitch Alters Outlook on 'B+' LongTerm IDR to Pos.
------------------------------------------------------------------
Fitch Ratings has revised Hurricane Bidco Limited's (Paymentsense)
Outlook to Positive from Stable, while affirming its Long-Term
Issuer Default Rating at 'B'. Fitch has also affirmed
Paymentsense's senior secured ratings at 'B+' with a Recovery
Rating of 'RR3'. The debt is issued by its subsidiary Hurricane
Finance Plc.
The Outlook revision reflects Paymentsense's strong growth profile,
improving profitability and its expectation that the company's
EBITDA gross leverage will decline to below 5.0x in FY24 (year-end
March). While Fitch expects the company's free cash flow (FCF)
generation will be negative in FY24-FY25 due to high capex, it
should turn positive in FY26 subject to the trend in future
financing costs.
Improved quality of earnings with higher-than-expected EBITDA
growth that translates into positive FCF would reflect the
increasing maturity of the business model with higher financial
flexibility, supporting a rating upgrade within the next 18-24
months.
The IDR reflects the company's small scale and limited geographic
and value-chain diversification. Rating strengths are a recurring
revenue business model, a diversified SME customer base and
supportive industry fundamentals as consumers continue to prefer
card payments over cash.
KEY RATING DRIVERS
Deleveraging on Track: Fitch estimates the company's EBITDA gross
leverage to have decreased to 6.2x in FY23 from 10.4x in FY22 and
expect it to decline further and remain below its upgrade
sensitivity of 5.0x in FY24-FY26. Deleveraging is supported by
revenue growth and improvements in profitability. The reduction in
leverage provides Paymentsense with some headroom for inorganic
investments. However, if the company funds large client expansion
with debt alone this could increase leverage and lead to a negative
rating action.
Good Organic Growth, Execution Risks: Paymentsense has been growing
sales rapidly over the last four years with organic CAGR of 23.5%
on market share expansion and supportive industry dynamics. Fitch
sees execution risks in such rapid growth, particularly as economic
conditions are likely to deteriorate. However, Fitch believes such
risks are party mitigated by the company's track record of customer
acquisition and increasing market share.
Improving EBITDA margin: Fitch estimates the company's EBITDA
margin to have improved to 27% in FY23 from 18% in FY22 on
economies of scale and tight control of commission costs. Fitch
expects customer-acquisition costs (CAC) will remain high as
Paymentsense continues to rapidly roll out its merchant service
provider and acquirer platform Dojo and enters the mid-market
segment. However, Fitch estimates their impact on EBITDA will
diminish as customers onboarded in the previous year fully
contribute to profitability, leading to a gradual increase in
EBITDA margin to 34% by FY27 under its base case.
Growth Weighs on Liquidity: Fitch anticipates that growth will
continue to consume Paymentsense's liquidity during FY24-FY25. With
operational cash and equivalents of around GBP35 million at FYE23,
Fitch sees additional financing may be needed if growth investments
result in higher negative FCF than Fitch expects. Even should
external funding be unavailable or a deterioration in economic
conditions have a negative impact on card turnover, Paymentsense
can scale back CAC and related costs and product development
investments.
Refinancing Risk Manageable: Paymentsense's existing senior secured
notes and revolving credit facility (RCF) mature in October 2025
and in March 2025, respectively. Fitch expects refinancing to be
manageable, based on the company's declining leverage and improving
FCF trend. Fitch expects FCF to turn positive in FY26-FY27 despite
factoring in increasing interest payments. It also demonstrated
good access to debt markets, with its additional debt-raising in
FY23 including a term loan of GBP22 million and a senior secured
tap issue of GBP15 million.
Electronic Payment Shift Supports Growth: Fitch estimates
Paymentsense's FY23 revenue to have increased by a significant 47%,
mostly on customer growth and increased card turnover to GBP34
billion. Fitch believes Paymentsense is well-positioned to continue
benefiting from supportive cash-to-card migration dynamics. Fitch
does not expect the shift of customer expenditure to card payments
during the pandemic to reverse to cash usage.
Small Scale: Paymentsense's limited geographic and value-chain
diversification is underlined by a focus on the SME segment, and on
the UK and Ireland. Paymentsense has been growing rapidly over the
last four years, successfully gaining market share, but with a FY23
EBITDA of GBP64 million it remains small. Further scale gains,
while improving profit resilience and positive FCF will be
important drivers of positive rating actions.
Resilient in Competitive Market: Paymentsense operates in a
fragmented and competitive market with competition coming from
incumbents and fintech companies. However, underpinned by a strong
network of independent payment consultants, and its
collaboration/integration with independent software vendors and
value-added resellers, its customer acquisition strategy allows
Paymentsense to increase its market share and economically win
lifetime value (LTV) customers with an attractive LTV/CAC
multiple.
Long-term Disintermediation Risk: New payment technologies employed
by other participants in the payment ecosystem are a long-term
threat to disintermediate the current payment infrastructure
dominated by Visa and Mastercard. However, the decision by tech
giants and mobile-pay companies such as Google and Apple to
collaborate with payment networks and merchant acquirers rather
than try and develop a proprietary system mitigates this risk in
the next five years.
DERIVATION SUMMARY
Paymentsense has a weaker operating profile than European peers
Nexi S.p.A. (BB/Stable), which following its merger with Nets holds
leading positions in the Nordic and Italian payment markets with a
full-service offering across the entire payment value chain.
Paymentsense's lower rating than peers' reflects its smaller scale,
weaker market positions, and limited geographic and value-chain
diversification. This is partly mitigated by the company's strong
growth prospects, a similar cash flow-generative business model and
deleveraging prospects.
Compared with US peer Block, Inc. (BB/Positive), which is one of
the market leaders in small business point-of-sale
hardware-software solutions, in peer-to-peer payments and crypto
trading, Paymentsense has a higher EBITDA margin, plus a similar
record of strong growth and deleveraging profile. However, Block
has a stronger market presence, better financial flexibility, and
larger scale with higher product diversification.
KEY ASSUMPTIONS
- Revenue to continue growing strongly at 28% in FY24 and 18% in
FY25, followed by growth in high single digits or double digits in
the next two years on customer acquisition and cash-to-card
transition
- Fitch-defined EBITDA margin to improve to 31% in FY24 from 27% in
FY23, as the impact of growth investment cost on EBITDA wanes
relative to revenue. Further EBITDA margin expansion to 34% by
FY27
- Working-capital outflow at 2% of revenue over the next four
years
- Capex at 20% of net revenue in FY24, declining to 15%-18% in
FY25-FY27
- No dividends for the next five years
- No M&A to FY27
Key Recovery Assumptions
- The recovery analysis assumes that Paymentsense would be
considered as a going concern in a bankruptcy and that it would be
reorganised rather than liquidated. Fitch has assumed a 10%
administrative claim in the recovery analysis
- The analysis assumes a post-restructuring Fitch-defined EBITDA of
GBP50 million, which is 46% below Fitch-forecast FY24 EBITDA. Fitch
has increased the GC EBITDA by GBP10 million reflecting the
increased size of the company. Paymentsense has been rapidly
growing over the last four years on successful acquisition of new
customers.
- For its recovery analysis, Fitch applies a post-restructuring
enterprise value (EV)/EBITDA multiple of 6.0x. This leads to an
approximately 67% recovery of the company's senior secured notes,
in the RR3 band, based on total senior debt of GBP383 million and a
fully drawn GBP15 million super senior RCF, in a default scenario.
This results in a senior secured debt rating of 'B+', one notch
above the 'B' IDR.
- Payment-in-kind (PIK) loan is treated as equity
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to an
Upgrade:
- Successful execution of the business plan with an increasing
market share leading to continued revenue and EBITDA growth,
in a stable competitive and regulatory environment
- EBITDA gross leverage below 5.0x on a sustained basis
- Visibility on low- to mid-single digit positive FCF margin on a
sustained basis
- EBITDA interest coverage above 3.0x on a sustained basis
- EBITDA above GBP100 million
Factors That Could, Individually or Collectively, Change the
Outlook to Stable:
- EBITDA gross leverage remaining above 5.0x
- Slower-than-expected revenue and EBITDA growth resulting in
sustained neutral to negative FCF
Factors That Could, Individually or Collectively, Lead to a
Downgrade:
- Slower revenue growth, weaker EBITDA margin and negative FCF
- EBITDA gross leverage remaining above 6.5x due to operational
underperformance and/or acceleration in CAC (which may require
additional external funding)
- EBITDA interest coverage below 2.0x
LIQUIDITY AND DEBT STRUCTURE
Satisfactory Liquidity: Paymentsense had GBP35 million of operating
cash and cash-equivalents at FYE23. With a fully drawn GBP15
million RCF, the company has no other available liquidity sources
at present and Fitch expects it to generate negative FCF in
FY24-FY26. However, Fitch believes both debt and equity-like
financing options are available as demonstrated by additional debt
raised by the company in FY23. While growth may weigh on liquidity,
Paymentsense has levers to balance liquidity and growth in a
manageable manner.
ISSUER PROFILE
Paymentsense provides payment processing solutions in the UK and
Ireland. The company offers merchant acquiring, credit card and
electronic payment methods, terminals, and security and reporting
services.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Hurricane Finance Plc
senior secured LT B+ Affirmed RR3 B+
Hurricane Bidco Limited LT IDR B Affirmed B
LIBERTY STEEL: Insolvency Petitions in UK Withdrawn
---------------------------------------------------
Mark Kleinman at Sky News reports that the steel tycoon Sanjeev
Gupta has won a partial reprieve over attempts to force his British
operations into insolvency after two winding-up petitions against
them were dropped.
Sky News has learnt that long-running legal claims against parts of
Mr. Gupta's Liberty Steel empire in the UK, which employs thousands
of people, were withdrawn last week.
Originally filed in March 2021, the petitions sought to force
Liberty's Speciality Steel arm and a division formally known as
Liberty MDR Treasury Company into insolvency, Sky News recounts.
According to Sky News, the case is understood to have been
adjourned on several previous occasions following requests from Mr.
Gupta's lawyers, although the circumstances behind the petitions'
withdrawal were unclear on June 26.
One source suggested that Liberty may have succeeded in persuading
the applicants that they were more likely to see money returned to
them if they provided more breathing space than if the steelmaker's
operations were forced into insolvency at this juncture, Sky News
notes.
The collapse of Greensill Capital and associated entities in 2021
became one of the most notorious corporate failures in recent UK
corporate history.
The winding-up applications name Citigroup as the petitioner, with
the US bank acting on behalf of a group of Greensill fund
investors, including Credit Suisse, Sky News discloses.
In May 2022, the Financial Times reported that Credit Suisse's
negotiating team had become frustrated at the repeated delays to
the case and was pressing for it to proceed through the legal
system, Sky News recounts.
Previous reports have said that the creditors are owed more than
US$1 billion by Mr. Gupta's businesses, according to Sky News.
Along with larger competitors Tata Steel UK and British Steel,
which is owned by China's Jingye Group, Liberty Steel has faced a
torrid environment for steelmakers in recent years, Sky News
relates.
The government has been in talks to provide separate packages of
financial support worth GBP300 million for the two biggest players
in the industry, but had not extended a similar offer to Mr. Gupta,
Sky News notes.
In 2021, he wrote to ministers seeking a GBP170 million taxpayer
bailout for Liberty Steel UK, but was turned down amid concerns
about the opacity of its finances, according to Sky News.
Liberty Steel has operations at multiple sites across the UK,
including the country's biggest electric arc furnace in Rotherham,
south Yorkshire.
ROLLS-ROYCE: Fitch Affirms 'BB-' LongTerm IDR, Outlook Positive
---------------------------------------------------------------
Fitch Ratings has affirmed Rolls-Royce & Partners Finance Limited's
(RRPF) Long-Term Issuer Default Rating (IDR) at 'BB-' with a
Positive Outlook. Fitch has also affirmed RRPF's Short-Term IDR at
'B' and RRPF's and RRPF Engine Leasing Limited's senior secured
debt long-term ratings at 'BBB-'.
The Positive Outlook mirrors that on RRPF's 50% owner, Rolls-Royce
plc (RR; BB-/Positive).
KEY RATING DRIVERS
Creditworthiness Correlated With RR: RRPF's IDRs are based on
Fitch's assessment of the company's standalone creditworthiness,
but the ratings are constrained by the strong correlation between
RR and RRPF's risk profiles. RRPF's Long-Term IDR is two notches
below its implied standalone credit profile as its assessment of
its funding, liquidity and coverage, which is closely linked to
RR's Long-Term IDR, has a strong impact on its overall view of
RRPF's credit profile.
RRPF's debt includes a clause resulting in an event of default on
all RRPF's debt in case of a default of RR's debt. Specifically,
should RR's borrowings (more than GBP150 million or 2% of RR's
consolidated net worth) be subject to acceleration (due to an event
of default at RR being triggered), it would trigger an event of
default at RRPF and give noteholders the provision to declare all
outstanding notes immediately due and payable. As this applies to
all of RRPF's debt, it results in a strong correlation between RR
and RRPF's default probabilities and constrains RRPF's Long-Term
IDR.
Contained leverage, steady profitability, a staggered funding
profile and a record of stable utilisation rates and profitable
asset disposal underpin RRPF's standalone assessment. The
assessment also reflects RRPF's monoline business model, the
overall modest size and cyclicality of the spare engine lease
sector and the individual significance within the lessee base of RR
(29% by revenue).
Sector Recovery: Air traffic has shown a significant degree of
recovery in the post-pandemic period. Furthermore, RRPF's revenue
profile benefits from long-dated leases to a fairly diversified
lessee base, including original equipment manufacturers, which
should protect its profitability in the event of an unexpected
decline in activity.
Steady Profitability: RRPF's net spread (lease yield-funding costs)
of 6.1% in 2022 is commensurate with the rating. The ratio of
pre-tax profit to average assets was 1.7%, despite a USD48 million
impairment related to Russian exposure. Fitch expects RRPF's sound
revenue margin to continue providing a buffer against unexpected
impairment losses, protecting the company's capital base.
Widebody-Focused Asset Base: RRPF has a leading franchise in its
niche market and its credit profile benefits from the company's
focus on new technology engines (April 2023; 61%), which are
typically liquid in secondary markets and have a lower near-term
risk of value impairment. This underpins RRPF's strong utilisation
rate and consistent record of residual value gains on disposal.
However, RRPF's business is concentrated in engines for widebody
aircraft, which in its view may carry higher risks than
narrowbodies during the post-pandemic travel recovery.
Recent Low Leverage: Balance-sheet leverage (defined as gross
debt/tangible equity) reduced at end-2022 at 3.3x (3.7x at
end-2021). Fitch expects RRPF to continue its de-leveraging path
through 2023, as demand for long-haul travel recovers, but in the
medium term, leverage could rise within RRPF's maximum gross
debt/tangible net worth covenant of 5.7x.
Adequate Liquidity and Cash Generation: A long-dated, albeit
secured, funding profile exceeding the average lease term underpins
RRPF's liquidity. RRPF has demonstrated its ability to limit
capital expenditure during stress periods, while liquidity benefits
from limited forward commitments. Liquidity is further supported by
sound cash generation and an undrawn revolving credit facility
(RCF) comfortably covering RRPF's moderate liquidity needs.
Limited Refinancing Risk: RRPF's funding base is secured and
reliant on wholesale sources. Upcoming debt maturities are limited
to USD300 million in 2023. RRPF maintains comfortable headroom on
debt covenants, including its EBITDA/interest expense covenant (set
at a minimum of 2.75x).
RRPF is a joint-venture (JV) between UK-based RR and US-based
leasing group GATX Corporation. Established in 1989, RRPF
specialises in the leasing of spare aircraft engines (largely from
RR) to around 60 airlines globally. RRPF is the world's largest
lessor of RR engines.
RRPF Engine Leasing Limited is a fully owned UK-domiciled
subsidiary of RRPF. RRPF provides an unconditional and irrevocable
guarantee on the notes issued by RRPF Engine Leasing Limited.
SSR: RRPF's 'b+' Shareholder Support Rating (SSR) is one notch
below RR's Long-Term IDR as Fitch believes that RR's propensity to
support RRPF is high, but that its ability to do so is constrained
by its own rating. RRPF's SSR primarily reflects RR's ownership
level of only 50% given its JV nature.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A downgrade of RR would likely lead to a downgrade of RRPF's
Long-Term IDR, in view of the cross-acceleration clauses included
in RRPF's debt terms.
- Absent a downgrade of RR, a significant increase in leverage or
an unexpected material weakening of RRPF's franchise could also
lead to a downgrade.
- A downgrade of RR or a reduced propensity to provide support
would result in a downgrade of RRPF's SSR.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- An upgrade would be likely to require an upgrade of RR's IDR or a
removal of the cross-acceleration clause in RRPF's debt terms.
- An upgrade of RR would result in an upgrade of RRPF's SSR.
DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS
The affirmation of RRPF Engine Leasing Limited's senior secured US
private placement notes, which are guaranteed by RRPF, and RRPF's
senior secured RCF reflects Fitch's expectation of outstanding
recovery prospects for the RCF and the notes, even under a stress
scenario where engine values drop materially. Under Fitch's
criteria, secured debt of issuers with a sub-investment-grade
Long-Term IDR can be rated up to three notches above the Long-Term
IDR in case of outstanding recovery expectations.
Noteholders and RCF counterparties benefit from an identical
security package (i.e. direct security interests over spare
engines) and financial covenants include a requirement for
outstanding debt not to exceed the lower of either the net book
value of pledged spare engines or 80% of their externally appraised
market value. The asset pool backing the liabilities is also
subject to concentration limits regarding engine types, lessees and
the proportion of off-lease engines.
Fitch's expectations of outstanding recoveries are primarily
underpinned by consistently low loan-to-market value ratios (LTV;
defined as current market values/outstanding gross debt; broadly
unchanged yoy at around 50% at end-2022 and remaining below 60%
following the 2008 global financial crisis) and the young average
age. This is supported by spare engines' typically better value
retention (compared with aircraft assets) and more favourable
depreciation profile (in particular during the first phase of their
useful economic life).
DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES
Factors That Could, Individually Or Collectively, Lead To Negative
Rating Action/Downgrade
- A downgrade of RRPF's Long-Term IDR.
- A material increase in RRPF's LTV ratio (and therefore its
covenant headroom), or changes to the underlying security package
indicating weaker recoveries would lead to narrower notching
between RRPF's Long-Term IDR and the senior secured debt rating and
a downgrade of the senior secured notes. In addition, any
indication that projected engine market value declines exceeded
Fitch's current expectations would lead to a downgrade of the
notes.
Factors That Could, Individually Or Collectively, Lead To Positive
Rating Action/Upgrade
- Under Fitch's criteria, the senior secured debt ratings of
issuers with a sub-investment-grade Long-Term IDR are capped at
'BBB-'. Consequently, any upgrade of the notes would be contingent
on RRPF achieving an investment-grade Long-Term IDR, which would
require a three-notch upgrade.
ADJUSTMENTS
The Standalone Credit Profile has been assigned below the implied
Standalone Credit Profile due to the following adjustment
reason(s): Weakest Link - Funding, Liquidity & Coverage
(negative).
The Capitalisation & Leverage score has been assigned below the
implied score due to the following adjustment reason(s): Historical
and future metrics (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
----------- ------ -----
Rolls-Royce & Partners
Finance Limited LT IDR BB- Affirmed BB-
ST IDR B Affirmed B
Shareholder Support b+ New Rating
senior secured LT BBB- Affirmed BBB-
RRPF Engine
Leasing Limited
senior secured LT BBB- Affirmed BBB-
TUFFNELLS PARCELS: Bought Out of Administration by Shift
--------------------------------------------------------
Business Sale reports that assets of Tuffnells Parcels Express have
been understood to have been acquired out of administration.
According to Business Sale, the freight distribution business which
is headquartered in Sheffield and has 33 depots across the UK, has
agreed on a deal with Shift, a logistics technology business for
the Tuffnells IP, brand and selected assets.
Shift, which was founded in 2017 is run by 29-year-old
entrepreneur, Jacob Corlett and uses smart algorithms to give
customers and businesses a lower-cost, on-demand delivery service
as it filters through the pre-existing routes of registered
independent drivers and fleets of vehicles.
Richard Harrison and Howard Smith from Interpath Advisory were
appointed as joint administrators to Tuffnells Parcels Express Ltd
earlier this month, Business Sale relates.
*********
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.
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