/raid1/www/Hosts/bankrupt/TCREUR_Public/230706.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Thursday, July 6, 2023, Vol. 24, No. 135
Headlines
A U S T R I A
SIGNA DEVELOPMENT: S&P Lowers ICR to 'B-'. Outlook Negative
F R A N C E
AFFLELOU SAS: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
OPTIMUS BIDCO: S&P Affirms 'B-' ICR & Alters Outlook to Positive
I R E L A N D
ATERNA DEVELOPMENTS: Judge Appoints Interim Examiner
CONTEGO CLO XI: S&P Assigns B-(sf) Rating on Class F Notes
GLENBROOK PARK: S&P Assigns Prelim. B-(sf) Rating on Cl. F Notes
MAN GLG II: Fitch Lowers Rating on Class F Notes to B-sf
I T A L Y
HENLEY EURO I: Fitch Affirms B- Rating on Class F-R Notes
L U X E M B O U R G
AMAGGI LUXEMBOURG: Fitch Affirms 'BB' LongTerm IDRs
MALLINCKRODT FINANCE: Calamos CHIF Marks $1M Loan at 28% Off
MALLINCKRODT FINANCE: Calamos COIF Marks $1M Loan at 28% Off
MALLINCKRODT FINANCE: Calamos STRF Marks $1.1M Loan at 28% Off
R U S S I A
GROSS INSURANCE: Fitch Affirms 'B' Insurer Finc'l. Strength Rating
S P A I N
AMARA NZERO: S&P Assigns Preliminary 'B' ICR, Outlook Stable
CIRSA ENTERPRISES: S&P Rates EUR650MM Senior Secured Notes 'B'
FERROVIAL NETHERLANDS: Fitch Affirms BB Rating on Sub. Notes
U K R A I N E
UKRAINE: Fitch Affirms 'CC' LongTerm Foreign Currency IDR
U N I T E D K I N G D O M
EUROSAIL-UK 2007-6: Fitch Affirms CCC Rating on Class D1a Notes
FITNESS FIRST: High Court Okays Restructuring Plan
LUDGATE FUNDING 2006-FF1: S&P Affirms 'B-(sf)' Rating on E Notes
PLANT & BEAN: Heather Mills Buys Business Out of Administration
PREZZO: High Court Approves Restructuring Plan
RIMSTOCK: Enters Administration After Rescue Talks Fail
SILVAN SELECT: Bought Out of Administration
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A U S T R I A
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SIGNA DEVELOPMENT: S&P Lowers ICR to 'B-'. Outlook Negative
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S&P Global Ratings lowered its long-term issuer and issue ratings
on Signa Development Selection AG (SDS) to 'B-' from 'B'. The
recovery rating on the senior unsecured debt changed to '4' from
'3' and indicates its expectation of average (30%-50%; rounded
estimate: 40%) recovery in the event of default.
The negative outlook indicates that S&P could downgrade the rating
if SDS fails to execute deliveries and sale of development projects
in a timely manner, which could translate into an EBITDA interest
coverage of below 1.0x on a sustained basis or liquidity
deteriorating.
S&P said, "The downgrade reflects our expectation that credit
metrics will remain weaker in the next 12 months, as we expect
demand for commercial real estate assets to remain subdued amid
further interest rate increases and tighter financing conditions
for buyers, as well as uncertainty on real estate valuations. SDS's
project sales and project deliveries were affected significantly in
the past 12 months by the sharp increase in interest rates, a
softer transaction market, and uncertainties around future property
valuations. In fiscal year 2022, the company reported a significant
decline in revenue (about 59% versus 2021), which resulted in a
sharp decline in its EBITDA interest coverage to 1.1x from 3.8x in
2021. This is much weaker than our previous expectations of
5.0x-6.0x, and well below our downside threshold of 2.0x for a 'B'
rating. Debt to EBITDA also increased to 19.6x versus 7.5x as of
2021, well beyond our forecast of 5.0x-7.5x. We expect that
investments in real estate from institutional investors--SDS's main
customers--will remain subdued this year, hence we assume that the
development projects would continue to underperform (with delays in
sale and project deliveries), increasing uncertainty around the
group's operating performance and absolute EBITDA generation. We
therefore expect S&P Global Ratings-adjusted interest coverage will
remain around 1.2x-1.4x for 2023, commensurate with a 'B-' rating,
and a ratio of gross debt to EBITDA of 15x-17x in 2023."
SDS's weighted average debt maturity remains stable at about 2.2
years as of March 2023, mainly reflecting short maturities linked
to project loans, which we understand will either be rolled over or
repaid at project delivery. However, there are no large maturities
at SDS corporate group level until the second quarter of 2026. The
average cost of debt remained stable, at about 2.6% as of March
2023 (versus 2.4% as of December 2022). Interest rate hedging is
low, at about 51%, and assuming refinancing of project level loans
with new rates or increasing variable rate on unhedged portion, we
expect average cost of debt to increase to 3.5%-4.0% in the next 12
months.
SDS is streamlining its strategy, which includes more upfront
disposal of nonstrategic development projects and sale of yielding
assets of about EUR1 billion. S&P said, "We understand that the
company has changed its strategy and has identified certain noncore
development projects and yielding assets for sale over the coming
quarters. As part of the new strategy, SDS sold the yielding
portfolio Kika/Leiner in May 2023, as well as a smaller asset
located in Vienna, and a 50% stake in Berlin project BEAM to a
private investor. We understand that the proceeds from the
disposals will be used for debt repayment and capital expenditure
(capex) to support the development pipeline, and would reduce the
company's debt level. However, we think SDS will lose out on the
EBITDA from those projects in future, which would keep the absolute
EBITDA generation weaker for next 12-18 months. We understand that
the company has a gross development value (GDV) of about EUR7.9
billion as of Dec. 31, 2022, and is planning delivery of about
EUR1.2 billion-EUR1.5 billion in 2023-2024, which include assets
such as Schonhauser Allee in Berlin, the Glance, and Hamburg
Fluggerhofe."
SDS's liquidity remains adequate. S&P said, "As of March 31, 2023,
the company had about EUR43.8 million of cash and cash equivalent
available, and we forecast about EUR20 million-EUR25 million of
cash funds from operations (FFO) in the next 12 months.
Additionally, we expect the company to receive about EUR450
million-EUR470 million of cash proceeds from recent signed assets
disposal over the same timeframe. Hence, we anticipate company
sources to uses should be well covered for the next 12 months. We
do not expect SDS to face imminent liquidity stress, despite its
refinancing needs of project loans, which we understand it will be
able to extend or refinance thanks to its solid, long-standing
banking relationships."
S&P said, "We anticipate weaker recovery prospects for the group's
senior unsecured debt. We have revised downward our recovery rating
for SDS's senior unsecured bond and still align the issue ratings
with the issuer credit rating. This follows the material assets
sale announced by the company post first-quarter 2023. The overall
asset base shrank by more than its debt base following recent
disposals of yielding and development assets, which previously
benefited the recovery prospects for bondholders. Furthermore, we
remain cautious about any valuation realization of SDS's
development activities in a downturn scenario. This led us to
revise downward our recovery rating on SDS's unsecured debt to '4'
from '3', and we now expect recovery prospects of about 40%.
"The negative outlook indicates that we could downgrade the rating
if SDS fails to execute deliveries and sale of its development
projects in a timely manner, which could translate into an EBITDA
interest coverage of below 1.0x or liquidity deteriorating."
S&P would downgrade the company if:
-- Operating performance and margins deteriorated further, or the
company failed to execute significant projects or saw a delay in
deliveries that affected overall business growth;
-- Credit metrics deviated meaningfully from S&P's base-case
projections, particularly EBITDA interest cover falling below 1.0x;
or
-- The liquidity position eroded substantially, such that it would
fail to cover the next 12 months' usage from sources, or covenant
headroom tightens, such that the company's capital structure
becomes unsustainable.
S&P would change the outlook on SDS to stable if:
-- EBITDA interest coverage remained above 1.0x on a sustained
basis;
-- SDS maintained sufficient liquidity and headroom under its
financial covenants; and
-- The company managed to execute projects with no significant
delays and achieve higher pre-sales or forward sales on upcoming
projects.
ESG credit indicators: E-3, S-2, G-3
S&P said, "Environmental factors are a moderately negative
consideration in our credit rating analysis of SDS, since
homebuilders and developers have a material environmental impact
across their value chain, primarily associated with the development
and construction of buildings. SDS has defined targets, measures,
and key performance indicators in its sustainability strategy,
which includes 100% green building certifications for its project
development and using low-emission and low-pollutant materials.
Governance factors also are a moderately negative consideration,
given the company is ultimately controlled by one principal
shareholder of Signa Holding with an over-50% stake. We think
individual interests could influence SDS's strategy. At the same
time, the business could generate certain dependence on the founder
of the company and other key individuals, in our view."
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F R A N C E
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AFFLELOU SAS: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
------------------------------------------------------------
Fitch Ratings has affirmed Afflelou S.A.S.'s Long-Term Issuer
Default Rating (IDR) at 'B'. The Outlook is Stable. Fitch has also
affirmed the healthcare products company's senior secured notes at
'B+' and subordinated notes at 'CCC+'. Their Recovery Ratings are
'RR3' and 'RR6', respectively.
The IDR reflects Fitch's view of Afflelou's lack of geographical
and product diversification and moderately high financial leverage,
which are balanced by a sustainable cash-generative business model
and leading positions in its core market. The Stable Outlook
reflects our expectation of steady operating and credit metrics in
a constructive and stable regulatory environment to FY26 (year-end
July).
KEY RATING DRIVERS
Gradual Deleveraging Expected: Fitch expects steady growth
prospects and EBITDA margin improvement as growing hearing aid
activities start contributing to profitability. Fitch also expects
normalising communication activities to allow the company to
continue deleveraging and building further rating headroom. Fitch
forecasts EBITDAR gross leverage to remain close to Fitch's
negative sensitivity at 6.3x in FY23 before slowly trending towards
6.0x by FY26.
Sustained Positive FCF Generation: The business has repeatedly
demonstrated steady cash flow- generative qualities, including
during the pandemic. Fitch projects free cash flow (FCF) margins at
mid-to-high single digits on limited capex and low working capital
requirements, with upside from the growth of hearing aid
activities, whose contribution has remained insignificant at below
10% of revenues.
Fitch's FCF projections assume medium-term capex requirements to
normalise at around 4%-4.5% of revenue from FY24, due to digital
transformation efforts, which represent around a quarter of total
capex in our forecast. Fitch excludes further material shareholder
distributions from Fitch's rating case, treating them as event
risk. Subsequently, positive FCF should strengthen the cash
balance.
Resilient Business Model: Afflelou's business model combines the
typical features of a retailer with a strong franchisor business,
anchored on banner fees and wholesale distribution. Based on the
latest available market information, in 2021 its revenues per store
outperformed the market by 60% in France and by over 100% in Spain,
underscoring the efficiency of its franchise. This operating
profile also leads to contained cash outflows for capex and working
capital, supporting sustained positive FCF.
Afflelou is developing the hearing aids business using the same
franchising model as the optical business in opening separate
hearing aid stores and adding corners to some of its optical
stores. This will help diversify operations on its existing
business infrastructure, with hearing aid products also benefitting
from a constructive regulatory environment in France.
Strong Brand Supports Franchise Model: Afflelou has a strong market
position in its niche in France and Spain, with the highest brand
awareness in France, despite holding a third place in sales at 10%,
behind Krys and Optic 2000. In Spain, it is the fourth-largest
market participant with a 7% market share, but is the largest
franchisor banner by number of stores. Fitch views strong brand
awareness as key to Afflelou's franchisor business model, which
combines a wide product range with low price sensitivity (due to
insurance reimbursement of purchases) by consumers.
Supportive Regulation, Sustainable Demand: Afflelou's predominant
exposure to France is balanced by a supportive healthcare system
that reimburses around 70% of consumers' optical expenditure. In
FY22, over 95% of revenues came from prescription glasses and
hearing aids.
An ageing population and medical advancements for optical and
hearing aid solutions support long-term demand. Fitch forecasts
growth in mid-single digits over the next three to five years, in
line with pre-pandemic trends. We also expect Afflelou chains to
outperform the broader market, especially against independent
stores, due to economies of scale and a broader range of products
and services.
Hearing Aid Supports Medium-Term Growth: Despite a slowdown in the
French hearing aid market in 2023, after exceptional growth on the
introduction of the 100% Santé programme for full reimbursement,
Fitch expects hearing aid to resume growth and bring synergies from
FY25 once consumers that have benefitted from 100% Santé start
replacing their devices.
The fundamentals for the hearing aid market in France remain
strong, with around 60% of patients in need of hearing aid lacking
the appropriate devices, the Sante programme and an ageing
population. In contrast, the penetration rate for the optical
market is estimated at around 95%.
DERIVATION SUMMARY
Afflelou's ratings reflect a business profile characterised by its
healthcare products and retail distribution network, which is
predominantly franchised with owned stores. The credit risk of the
retail component is mitigated by a favourable reimbursement policy
for vision products in France, covered by the state and mutual
insurance policies. This provides greater operational stability
compared with conventional high street retailers, who face less
predictable consumer behaviour, and as a result are exposed to
greater sales and earnings uncertainties.
The business also compares favourably with that of Auris Luxembourg
II S.A. (WS Audiology; B-/Stable), a supplier of hearing aids. WS's
higher leverage and weaker FCF generation justify a lower rating
than Afflelou's.
Although Afflelou does not directly compete against Sunshine
Luxembourg VII SARL (Galderma, B/Stable), both companies'
performance could be affected by similar spending trends in the
healthcare and consumer products market. Compared with Galderma,
Afflelou is more niche and has smaller scale, which is offset by
its lower EBITDA gross leverage (about 1x) and better FCF margins.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Fitch's Rating Case for the Issuer
- Revenue growth of around 6% in FY23 followed by 3% growth a year
until FY26
- Steady EBITDA margin at 22%-23% until FY26
- Neutral to minimal net working-capital (NWC) outflows and capex
at 4%-5% of revenues a year until FY26
- No acquisitions and shareholder distributions to FY26
Key Recovery Rating Assumptions
The recovery analysis assumes that Afflelou would remain a going
concern (GC) in a restructuring and that it would be reorganised
rather than liquidated. This is because intangible assets,
represented by its relationship with franchisees and suppliers, are
key to the value of the company. Fitch has assumed a 10%
administrative claim in the recovery analysis.
Fitch's GC approach continues to assume a post-restructuring EBITDA
of about EUR64 million, about 30% down on FYE23 EBITDA, at which
Afflelou's capital structure would become untenable, and which
assumes corrective measures have been taken.
Fitch continues to assume a distressed multiple of 5.5x and a fully
drawn super-senior EUR30 million revolving credit facility (RCF).
Fitch's waterfall analysis generated a recovery computation in the
'RR3' band (indicating a 'B+' instrument rating) for the EUR460
million senior secured notes, and in the 'RR6' band (indicating a
'CCC+' instrument rating) for the EUR75 million subordinated notes.
The waterfall analysis based on current metrics and assumptions is
63% for the senior secured debt and 0% for the subordinated debt.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- EBITDA approaching EUR100 million as a result of network and
margin performance and lack of impact from regulatory changes
- EBITDAR gross leverage below 5.0x on a sustained basis
- EBITDAR fixed charge coverage above 2.5x on a sustained basis
- Post-dividends FCF margin at or above 5% on a sustained basis
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- EBITDA below EUR75 million on a sustained basis as a result of
weak network activity or impact of regulatory changes
- EBITDAR gross leverage above 6.5x on a sustained basis due to
debt-funded acquisitions and shareholder distributions or lack
of deleveraging
- EBITDAR fixed charge coverage below 1.5x on a sustained basis
- Post-dividends FCF margin below 3%
LIQUIDITY AND DEBT STRUCTURE
Satisfactory Liquidity: Expected growth and improved profitability
should drive FCF margins above 5% to FY26. We project about EUR80
million cash at FYE23 and expect the EUR30 million RCF to remain
undrawn, providing further liquidity headroom.
Afflelou benefits from the absence of near-term contractual debt
maturities with most of the debt due in May 2026.
ISSUER PROFILE
Afflelou operates as a franchisor in the optical and hearing aid
product markets, primarily in France and Spain.
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.
OPTIMUS BIDCO: S&P Affirms 'B-' ICR & Alters Outlook to Positive
----------------------------------------------------------------
S&P Global Ratings revised its outlook on Optimus Bidco SAS to
positive from stable and affirmed its 'B-' issuer credit rating.
S&P also affirmed its 'B-' issue rating on the company's first-lien
debt, with a '3' recovery rating, and its 'CCC' rating on the
second-lien debt with recovery rating of '6'.
S&P said, "The positive outlook on Optimus reflects our expectation
that the company will keep improving profitability and deliver
consistent growth, in line with our forecast. We would consider an
upgrade if Optimus posts an EBITDA margin of above 10%. We
anticipate that Optimus will generate positive FOCF in 2024, and
maintain S&P Global Ratings-adjusted debt to EBITDA at below 6.5x
and funds from operations (FFO) cash interest of above 2.0x.
"Sustained operating performance with top-line growth and further
improving profitability will enable Optimus to decrease leverage.
The positive outlook reflects our expectation that Optimus will be
able to deleverage to S&P Global Ratings-adjusted gross debt to
EBITDA of about 6.0x-5.5x in 2023 and to about 5.0x-4.5x in 2024.
We also anticipate that the company will maintain FFO cash interest
of about 2.3x-2.4x in 2023-2024. We project margins of 9% in 2023
and 10% in 2024, on an S&P Global Ratings-adjusted basis (8.0% for
2022, 30 basis points lower year-on-year). Optimus' proactive
pricing management, more favorable pricing on newly signed
contracts, a better pricing environment in the U.S. market, and
efficiency gains in its robotics segment should underpin these
improvements. The price increases for Optimus' main materials, like
steel, have been recently decelerating. Moreover, Optimus secures
steel based on received racking orders, buying in advance based on
the projects. We also incorporate one-off charges of EUR8 million
in 2023 and 2024, but expect these to come down from 2025.
"Despite some pockets of softness we expect Optimus to leverage on
the growth areas and expand its business in the next two-to-three
years. Despite a challenging 2022, the company achieved topline
growth of 37.3%, translating into revenues of EUR977 million. This
growth was partially attributable to price increases implemented in
2022. Optimus also improved its business scale via the launch of
Stow robotics and expansion in the U.S. We expect the company will
continue to increase its revenue base and benefit from diverse
end-markets. We project that revenues will rise by about 15% in
2023 and about 14.5% in 2024 (if market activity in EMEA and the
Americas remains supportive and absent recessionary scenarios in
the second half of 2023). We see growth levels slightly normalizing
compared with the 37.3% delivered in the past three years. For
instance, we are taking a more cautious view on some of the
markets, which experienced a temporary post-pandemic boom. These
markets were driven by largely pure play e-commerce participants.
Nevertheless, we believe that growth will still stem from
investment into warehouse automation or expansion of regional
distributions centers. We also see increasing activity in the U.S.
and Optimus following its clients into this market.
"FOCF generation in 2023 will constrain the current rating due to
increased investment into business expansion, but this pressure
will be released in 2024.As Optimus is completing its strategic
investments in the U.S., we expect S&P Global Ratings-adjusted FOCF
to be negative at about EUR25 million in 2023. This assumption
incorporates elevated capital expenditure (capex) of about EUR43
million. This year the company will also incur additional
exceptional growth costs of about EUR15 million, related to
robotics, and a EUR2 million pro forma margin adjustment related to
the renewed contracts with OEMs. All these factors will weigh on
the company's cash flow generation in 2023. In 2024, FOCF should
turn positive on the back of growing volumes and improving
profitability, with capex remaining elevated, at about EUR53
million. During 2022, the company posted working capital outflows
of EUR29 million, driven by higher volumes and a focus on safety
stocks, reflecting stretched supply chains and the company's
efforts to have stock available for its customers, ensuring on-time
delivery. We anticipate that working capital spending will be
relatively low this year compared with 2022. We expect working
capital-related cash outflow of about EUR29 million in 2023 and
EUR16 million in 2024. We do not expect the company to pay any
dividends to its shareholders. Any larger M&A or
shareholder-friendly activity will be reviewed separately in the
context of its effect on future leverage.
"The recent amend-and-extend transaction will improve Optimus'
maturity profile. We consider the recent amendment and extension of
the company's first-lien facilities as opportunistic. The company
has extended maturities on the RCF until September 2028 and the
term loan to December 2028. The transaction entails a 100
basis-point uplift on interest, which we believe the company can
accommodate. We foresee comfortable liquidity headroom in the next
12 months, taking into account EUR51 million cash balances and the
upsizing of the RCF as a part of this transaction to EUR99 million
from EUR75 million. The RCF remains undrawn, and we don't foresee
any maturities pressures in the next 12 months.
"The positive outlook on Optimus reflects our expectation that the
company will keep improving profitability and deliver consistent
growth, in line with our forecast. We anticipate that Optimus will
generate positive FOCF in 2024, and maintain S&P Global
Ratings-adjusted debt to EBITDA of below 6.5x."
Upside scenario
S&P would consider raising the rating in the next 12 months if
Optimus achieved:
-- An EBITDA margin of above 10%;
-- Debt to EBITDA of below 6.5x;
-- FFO cash interest of above 2.0x; or
-- Positive FOCF in 2024 after the peak of its expansion
investments.
Downside scenario
S&P could revise the outlook to stable if it expects Optimus' debt
to EBITDA will deteriorate to above 6.5x and FOCF remains negative.
The likely path for that would be if the company:
-- Significantly underperformed our base-case forecast in the next
12 months;
-- Spent more than expected on investment or restructuring costs;
and
-- Failed to post FFO cash interest of above 2.0x.
Environmental, Social, And Governance
ESG credit indicators: E-2, S-2, G-3
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I R E L A N D
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ATERNA DEVELOPMENTS: Judge Appoints Interim Examiner
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Ray Managh at The Irish Times reports that two companies owned by
Steven Dunne, the son of former property baron Sean Dunne, are
unable currently to pay their debts, a judge was told on July 3.
According to The Irish Times, Barrister Ross Gorman told Judge John
O'Connor in the Circuit Civil Court that Mr. Dunne was seeking the
appointment of an interim examiner to property development and
construction company Aterna Developments and related firm Aterna
Lee on the application of the latter company.
The judge appointed chartered accountant and insolvency expert
Kieran Wallace, managing director of Interpath Advisory Dublin, as
interim examiner to both companies, The Irish Times relates. Mr.
Wallace was represented in court by solicitor Graham Kenny, The
Irish Times discloses.
Mr. Gorman, who appeared with Crowley Millar Solicitors, for the
companies whose director is Steven Dunne, of Waverley Lodge,
Carysfort Avenue, Blackrock, Dublin, said both companies had a
reasonable prospect of survival under examinership, The Irish Times
notes.
An expert report provided to the court by Joseph Walsh of JW
Accountants stated that Mr. Dunne had extensive experience in the
construction sector, including the successful completion of a
number of housing projects, according to The Irish Times.
He said the main project undertaken by Aterna Developments was a
Celbridge development of 75 houses and apartments to provide
critically needed social housing for Kildare County Council, which
would lease the completed homes, The Irish Times relays.
Castlehaven, a specialist property development funder, had
undertaken part-funding of the project but Castlehaven's loan had
been refinanced and it was no longer a creditor of the companies,
The Irish Times recounts.
Mr. Walsh, as cited by The Irish Times, said the Celbridge project
had been split into two phases, firstly the building of 29 houses
and then the build of another 22 houses with 24 apartments and
duplexes. Blacklough Construction had been appointed to complete
the works but was placed into liquidation earlier this year, one of
the key issues faced by Aterna Developments, The Irish Times
notes.
He said Aterna Developments had not been in a position to meet its
loan liabilities by the agreed date of March 31st last, The Irish
Times discloses. Aterna Developments had only one employee but had
employed up to 50 subcontractors in recent times, providing
significant local employment. The secured loan creditor had put a
final settlement date of June 30th, 2023, The Irish Times states.
According to The Irish Times, Mr. Gorman said phase one was
practically completed and there was a contract in place for the
sale of phase one. A period of protection by the court under
examinership would be likely to allow for any remaining issues in
relation to phase one to be resolved and this would enable Aterna
Developments to discharge its debt to the secured creditor, The
Irish Times notes.
He said there was now a contract in place with Manor Mill
Developments for the purchase of phase two and Manor Mill
Developments would complete the works required by Kildare County
Council, The Irish Times discloses. In the circumstances, Mr.
Walsh believed Aterna Developments had a reasonable prospect of
survival, according to The Irish Times.
CONTEGO CLO XI: S&P Assigns B-(sf) Rating on Class F Notes
----------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Contego CLO XI
DAC's class A, B-1, B-2, C, D, E, and F notes. The issuer also
issued unrated subordinated notes.
The class F notes is a delayed draw tranche, which has a maximum
notional amount of EUR13.9 million and a spread of three/six-month
Euro Interbank Offered Rate (EURIBOR) plus 9.50%. The class F notes
can only be issued once and only during the reinvestment period
with an issuance amount totaling EUR13.90 million. The issuer will
use the full proceeds received from the sale of the class F notes
to redeem the subordinated notes. Upon issuance, the class F notes'
spread could be subject to a variation and, if higher, is subject
to rating agency confirmation.
This is a European cash flow CLO transaction, securitizing a pool
of primarily syndicated senior secured loans or bonds. The
portfolio's reinvestment period ends approximately four and half
years after closing. 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.
S&P said, "We consider that the portfolio on the effective date
will be well-diversified, primarily comprising broadly syndicated
speculative-grade senior secured term loans and senior secured
bonds. Therefore, we have conducted our credit and cash flow
analysis by applying our criteria for corporate cash flow
collateralized debt obligations."
Portfolio benchmarks
CURRENT
S&P Global Ratings weighted-average rating factor 2,942.57
Default rate dispersion 431.61
Weighted-average life (years) 4.44
Obligor diversity measure 141.74
Industry diversity measure 21.32
Regional diversity measure 1.31
Transaction key metrics
CURRENT
Total par amount (mil. EUR) 375
Defaulted assets (mil. EUR) 0
Number of performing obligors 154
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 1.47
'AAA' weighted-average recovery (%) 35.56
Weighted-average spread net of floors (%) 4.11
S&P said, "In our cash flow analysis, we modeled the EUR375 million
target par amount, the covenanted weighted-average spread of 3.95%,
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.
"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 documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under our current counterparty criteria.
"We consider the transaction's legal structure to be bankruptcy
remote, in line with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe that our ratings are
commensurate with the available credit enhancement for the class A,
B-1, B-2, C, D, E, and F notes.
'Our credit and cash flow analysis indicates that the available
credit enhancement for the class B-1 to F notes is commensurate
with higher ratings than those we have assigned. However, as the
CLO will have a reinvestment period, during which the transaction's
credit risk profile could deteriorate, we have capped our assigned
ratings on these notes.
"In addition to our standard analysis, we have also included the
sensitivity of the ratings on the class A to E notes based on four
hypothetical scenarios.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
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:
-- The extraction of thermal coal (more than 10% of revenues);
-- Power generation that has more than 15% of generation
capacities powered by coal;
-- Oil and gas and derives more than 30% of production from shale
and tight reservoirs, 10% of revenues from oil fields located in
the Artic, or 5% of revenues from the oil sands industry;
-- The trade and production of tobacco;
-- An industry facing high or severe controversies related to land
use or biodiversity with the exception of soy, cattle or timber
which require a significant impact on biodiversity and are found to
have a critical impact on deforestation;
-- Participation in short-term instruments based on food
commodities and speculative transactions that may contribute to
price inflation in basic agricultural or marine commodities;
-- The production of or trade in restricted weapons;
-- The upstream production of certain palm oil and palm fruit
products;
-- More than 10% of revenues from the production of or trade in
pornography, adult entertainment or prostitution, the trade in
endangered or protected wildlife or activities adversely affecting
animal welfare;
-- More than 25% of revenues from opioid drug manufacturing and
distribution, payday lending, private prisons, or hazardous
chemicals
-- More than 50% of revenues from gambling related services;
-- Any industry considered to be in breach of UN's Global
Compact's Ten Principles, ILO Conventions; OECD Guidelines for
Multinational Enterprises, or the UN's Guiding Principles on
Business and Human Rights.
Accordingly, since the exclusion of assets from these industries
does not result in material differences between the transaction and
S&P's ESG benchmark for the sector, no specific adjustments have
been made in its 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* 2.09 2.11 2.94
E-1/S-1/G-1 distribution (%) 0.59 0.47 0.00
E-2/S-2/G-2 distribution (%) 75.80 75.75 12.03
E-3/S-3/G-3 distribution (%) 8.03 6.77 67.78
E-4/S-4/G-4 distribution (%) 0.00 1.42 2.59
E-5/S-5/G-5 distribution (%) 0.00 0.00 2.01
Unmatched obligor (%) 10.86 10.86 10.86
Unidentified asset (%) 4.73 4.73 4.73
*Only includes matched obligor.
Ratings list
CLASS RATING AMOUNT SUB (%) INTEREST RATE*
(MIL. EUR)
A AAA (sf) 228.70 39.01 Three/six-month EURIBOR
plus 1.85%
B-1 AA (sf) 25.40 30.11 Three/six-month EURIBOR
plus 3.00%
B-2 AA (sf) 8.00 30.11 7.00%
C A (sf) 21.90 24.27 Three/six-month EURIBOR
plus 3.90%
D BBB (sf) 23.60 17.97 Three/six-month EURIBOR
plus 6.30%
E BB- (sf) 16.70 13.52 Three/six-month EURIBOR
plus 7.66%
F§ B- (sf) 13.90 9.81 Three/six-month EURIBOR
plus 9.50%
Sub NR 42.40 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 was not
issued at closing.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
GLENBROOK PARK: S&P Assigns Prelim. B-(sf) Rating on Cl. F Notes
----------------------------------------------------------------
S&P Global Ratings assigned its preliminary credit ratings to
Glenbrook Park CLO DAC's class A, B, C, D, E, and F notes. At
closing, the issuer will also issue unrated subordinated notes.
The class F notes is a delayed draw tranche, which has a maximum
notional amount of EUR11.50 million, and a spread of
three/six-month Euro Interbank Offered Rate (EURIBOR) plus 10.00%.
They can only be issued once and only during the reinvestment
period with an issuance amount totaling EUR11.50 million. The
issuer will use the full proceeds received from the sale of the
class F notes to redeem the subordinated notes or to purchase
additional assets. Upon issuance, the class F notes' spread could
be subject to a variation and, if higher, is subject to rating
agency confirmation.
The reinvestment period will be 4.53 years, while the non-call
period will be 1.51 years after closing.
Under the transaction documents, the rated loans and notes will pay
quarterly interest unless there is a frequency switch event.
Following this, the notes will switch to semiannual payment.
The preliminary 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.
-- The transaction's legal structure, which S&P expects to be
bankruptcy remote.
-- The transaction's counterparty risks, which S&P expects to be
in line with its counterparty rating framework.
Portfolio benchmarks
CURRENT
S&P Global Ratings weighted-average rating factor 2771.00
Default rate dispersion 534.33
Weighted-average life (years) 4.44
Obligor diversity measure 126.66
Industry diversity measure 20.05
Regional diversity measure 1.20
Transaction key metrics
CURRENT
Total par amount (mil. EUR) 350.00
Defaulted assets (mil. EUR) 0.00
Number of performing obligors 170
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 2.00
Actual 'AAA' weighted-average recovery (%) 36.67
Actual weighted-average spread (%) 4.01
Actual weighted-average coupon (%) 4.65
S&P said, "Our preliminary ratings reflect our assessment of the
preliminary collateral portfolio's credit quality, which has a
weighted-average rating of 'B'. We consider that the portfolio will
be well-diversified on the closing date, 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.
The transaction includes an amortizing reinvestment target par
amount, which is a predetermined reduction in the value of the
transaction's target par amount unrelated to the principal payments
on the notes. This may allow for the principal proceeds to be
characterized as interest proceeds when the collateral par exceeds
this amount, subject to a limit, and affect the reinvestment
criteria, among others. This feature allows some excess par to be
released to equity during benign times, which may lead to a
reduction in the amount of losses that the transaction can sustain
during an economic downturn. Hence, in S&P's cash flow analysis, it
assumed a starting collateral size of EUR339.00 million (i.e., the
EUR350 million target par minus the maximum reinvestment target par
adjustment amount of EUR11.00 million).
S&P said, "In our cash flow analysis, we also modeled the
covenanted weighted-average spread of 4.01%, and the covenanted
weighted-average recovery rates as indicated by the collateral
manager. 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.
"We expect the transaction's documented counterparty replacement
and remedy mechanisms to 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 preliminary ratings, as the exposure to
individual sovereigns does not exceed the diversification
thresholds outlined in our criteria.
"We expect the transaction's legal structure and framework to be
bankruptcy remote, in line with our legal criteria.
"Our credit and cash flow analysis indicates that the available
credit enhancement for the class B, C, and D 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 the effective date, during which the transaction's
credit risk profile could deteriorate, we have capped our
preliminary ratings assigned to the notes.
"The class A and F notes can withstand stresses commensurate with
the assigned preliminary ratings. In our view, the portfolio is
granular in nature, and well-diversified across obligors,
industries, and asset characteristics when compared with other CLO
transactions we have rated recently. As such, we have not applied
any additional scenario and sensitivity analysis when assigning our
preliminary ratings to any classes of notes in this transaction.
"For the class F notes, our credit and cash flow analysis indicates
that the available credit enhancement could withstand stresses
commensurate with a lower rating. However, we have applied our
'CCC' rating criteria, resulting in a preliminary 'B- (sf)' rating
on this class of notes."
The ratings uplift for the class F notes reflects several key
factors, including:
-- The class F notes' available credit enhancement, which is in
the same range as that of other CLOs we have rated and that have
recently been issued in Europe.
-- The preliminary portfolio's average credit quality, which is
similar to other recent CLOs.
-- S&P's model generated break-even default rate at the 'B-'
rating level of 22.52% (for a portfolio with a weighted-average
life of 4.525 years), versus if it was to consider a long-term
sustainable default rate of 3.1% for 4.525 years, which would
result in a target default rate of 14.03%.
-- S&P does not believe that there is a one-in-two chance of this
note defaulting.
-- S&P does not envision this tranche defaulting in the next 12-18
months.
-- Following this analysis, S&P considers that the available
credit enhancement for the class F notes is commensurate with the
assigned preliminary 'B- (sf)' rating.
-- Following S&P's analysis of the credit, cash flow,
counterparty, operational, and legal risks, it believes that its
preliminary ratings are commensurate with the available credit
enhancement for the class A, B, C, D, E, and F notes.
-- In addition to S&P's standard analysis, it has also included
the sensitivity of the ratings on the class A to E notes, based on
four hypothetical scenarios.
S&P said, "As our ratings analysis makes additional considerations
before assigning ratings in the 'CCC' category, and we would assign
a 'B-' rating if the criteria for assigning a 'CCC' category rating
are not met, we have not included the above scenario analysis
results for the class F notes."
Environmental, social, and governance (ESG)
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 the following industries:
-- Production of biological, nuclear, chemical or similar
controversial weapons, anti-personnel land mines, or cluster
munitions.
-- More than 5% of revenue from harmful activities affecting
animal welfare.
-- More than 10% of revenue from trade in weapons or firearms.
-- More than 50% of revenue from the speculative extraction of oil
and gas, trade in hazardous chemicals, pesticides and wastes,
ozone-depleting substances; trade in predatory or payday lending
activities; trade in tobacco; pornography or prostitution; and the
trade in cannabis or opioids.
-- Activities that are in violation of the UN Global Compact's Ten
Principles.
Accordingly, since the exclusion of assets from these industries
does not result in material differences between the transaction and
S&P's ESG benchmark for the sector, no specific adjustments have
been made in its 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* 2.11 2.15 2.88
E-1/S-1/G-1 distribution (%) 0.57 0.54 0.00
E-2/S-2/G-2 distribution (%) 78.62 77.57 16.36
E-3/S-3/G-3 distribution (%) 10.07 8.43 69.61
E-4/S-4/G-4 distribution (%) 0.00 2.73 0.86
E-5/S-5/G-5 distribution (%) 0.00 0.00 2.44
Unmatched obligor (%) 10.74 10.74 10.74
Unidentified asset (%) 0.00 0.00 0.00
*Only includes matched obligor.
Glenbrook Park CLO is a European cash flow CLO securitization of a
revolving pool, comprising euro-denominated senior secured loans
and bonds issued mainly by speculative-grade borrowers. Blackstone
Ireland Ltd. will manage the transaction.
Ratings list
CLASS PRELIM PRELIM AMOUNT SUB (%) INTEREST RATE*
RATING (MIL. EUR)
A AAA (sf) 217.00 8.00 Three/six-month EURIBOR
plus 1.85%
B AA (sf) 34.30 28.20 Three/six-month EURIBOR
plus 3.05%
C A (sf) 18.90 22.80 Three/six-month EURIBOR
plus 3.90%
D BBB- (sf) 22.00 16.51 Three/six-month EURIBOR
plus 5.75%
E BB- (sf) 16.25 11.87 Three/six-month EURIBOR
plus 7.58%
F§ B- (sf) 11.50 8.59 Three/six-month EURIBOR
plus 10.0%
Sub NR 30.675 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.
MAN GLG II: Fitch Lowers Rating on Class F Notes to B-sf
--------------------------------------------------------
Fitch Ratings has downgraded Man GLG Euro CLO II Designated
Activity Company's class E and F notes and revised the Outlook to
Negative from Stable for the class C and D notes.
Entity Rating Prior
------ ------ -----
Man GLG Euro CLO II DAC
A-1-R XS2034711064 LT AAAsf Affirmed AAAsf
A-2 XS1516363576 LT AAAsf Affirmed AAAsf
B XS1516362685 LT AAAsf Affirmed AAAsf
C-R XS2034711734 LT A+sf Affirmed A+sf
D XS1516363733 LT BBB+sf Affirmed BBB+sf
E XS1516363063 LT BB-sf Downgrade BB+sf
F XS1516363147 LT B-sf Downgrade B+sf
TRANSACTION SUMMARY
Man GLG Euro CLO II DAC is a cash flow collateralised loan
obligation (CLO). The underlying portfolio of assets mainly
consists of leveraged loans and is managed by GLG Partners LP. The
deal exited its reinvestment period in January 2021.
KEY RATING DRIVERS
Portfolio Deterioration: Since Fitch's last rating action in August
2022, the transaction trustee has reported EUR7.2 million new
defaults. This does not include Genesis Care with a notional of
EUR3 million, which is not currently reflected in the latest
trustee report. The portfolio is 4.9% below par as of the May 9
investor report.
High Refinancing Risk: The transaction is highly vulnerable to near
term and medium-term refinancing risk, with approximately 10% of
the portfolio maturing within the next 18 months, and 22% of the
portfolio maturing in 2025, which in Fitch's opinion could lead to
further deterioration of the portfolio with an increase in
defaults.
As a result the Negative Outlook on the class C to F notes reflects
the risk of downgrade for the class C and D notes albeit to within
their respective current categories. In contrast, we see a risk for
the class E and F notes to be downgraded to below their respective
current categories.
Deleveraging of Senior Notes: Since Fitch's last review, the class
A-1-R notes and A-2 notes have been paid down by approximately
EUR40 million and EUR2 million, respectively. The deleveraging has
increased credit enhancement for the senior class A and B notes by
9% and 5%, respectively, the junior class C, D, E and F notes by
only 4%, 2.6%, 1.1% and 0.5%, respectively, The senior notes are
highly unlikely to be affected by any near-term defaults due to the
sizeable build-up of credit enhancement benefiting these notes from
deleveraging, as reflected in their Stable Outlooks.
Transaction Failing Reinvestment Criteria: The transaction is
failing the post-reinvestment period reinvestment criteria after it
exit from the reinvestment period. For any reinvestment to occur,
the class F notes' over-collateralisation (OC), the Fitch 'CCC'
test and weighted average life (WAL) test must be satisfied, among
others, immediately after such reinvestment, which Fitch deems
highly unlikely.
Limited Margin of Safety: Fitch sees limited cushion for the class
F notes against credit quality deterioration. The class F notes can
withstand only a small amount of future defaults based on the
current composition of the portfolio, along with expected asset
performance in the next 12 months. This leads to a rating of 'B-sf'
in line with Fitch's definitions.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the obligors at 'B'/'B-'. The Fitch-calculated weighted average
rating factor (WARF) of the current portfolio was 26.1 and based on
the notching stress for portfolio entities with Negative Outlook
was 27.4.
High Recovery Expectations: Senior secured obligations comprise
98.5% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets. The Fitch-calculated weighted average recovery
rate (WARR) of the current portfolio as reported by the trustee was
64.9%.
A caveat to the above is Fitch's recovery expectations for Genesis
Care, which are low, but still higher than that associated with
latest reported market price for this asset. The depressed market
price is due to the reported uptier priming transaction by this
issuer.
Increased Portfolio Concentrations: The top-10 obligor
concentration as calculated by the trustee is 22.5%, which is above
the limit of 20%, and no obligor represents more than 2.74% of the
portfolio balance.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
An increase of the default rate (RDR) at all rating levels by 25%
of the mean RDR and a decrease of the recovery rate (RRR) by 25% at
all rating levels will result in downgrades of no more than five
notches depending on the notes. While not Fitch's base case,
downgrades may occur if build-up of the notes' credit enhancement
following amortisation does not compensate for a larger loss
expectation than initially assumed due to unexpectedly high levels
of defaults and portfolio deterioration.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A reduction of the RDR at all rating levels by 25% of the mean RDR
and an increase in the RRR by 25% at all rating levels would result
in upgrades of up to three notches depending on the notes except
for the class A-1, A-2 and B notes, which are already at the
highest rating on Fitch's scale. Further upgrades except for the
'AAAsf' notes may occur if the portfolio's quality remains stable
and notes start to amortise, leading to higher credit enhancement
across the structure.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations 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.
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.
=========
I T A L Y
=========
HENLEY EURO I: Fitch Affirms B- Rating on Class F-R Notes
---------------------------------------------------------
Fitch Ratings has upgraded Henley Euro CLO I's class D notes and
affirmed the rest. The Outlooks are Stable
Entity Rating Prior
------ ------ -----
Henley CLO I DAC
A-R XS2360085760 LT AAAsf Affirmed AAAsf
B-1R XS2360086065 LT AAsf Affirmed AAsf
B-2R XS2360086495 LT AAsf Affirmed AAsf
C-R XS2360086578 LT Asf Affirmed Asf
D-R XS2360086735 LT BBBsf Upgrade BBB-sf
E-R XS2360086909 LT BB-sf Affirmed BB-sf
F-R XS2360087113 LT B-sf Affirmed B-sf
TRANSACTION SUMMARY
The transaction is a cash flow CLO mostly comprising senior secured
obligations. It is actively managed by Napier Park Global Capital
and will exit its reinvestment period in January 2026.
KEY RATING DRIVERS
Reinvesting Transaction: The manager can reinvest unscheduled
principal proceeds and sale proceeds from credit-impaired and
credit-improved obligations also after the transaction exits its
reinvestment period in January 2026, subject to compliance with the
reinvestment criteria. Given the manager's ability to reinvest,
Fitch's analysis is based on a stressed portfolio testing the
Fitch-calculated weighted average life (WAL), Fitch-calculated
weighted average rating factor (WARF), Fitch-calculated weighted
average recovery rate (WARR), weighted average spread (WAS),
weighted average coupon and fixed-rate asset share to their
covenanted limits.
Stable Asset Performance: The rating actions reflect the shorter
WAL and therefore shorter risk horizon, as well as stable asset
performance. The transaction is currently 0.54% above par. It is
passing all collateral quality tests, portfolio profile tests and
coverage tests. Exposure to assets with a Fitch-derived rating of
'CCC+' and below is 1.38%, according to the latest trustee report,
versus a limit of 7.5%. There are no defaulted assets in the
portfolio.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the transaction's underlying obligors at 'B'/ 'B-'. The WARF, as
calculated by Fitch under its latest criteria, is 25.7.
High Recovery Expectations: Senior secured obligations comprise
97.1% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets. The WARR, as calculated by Fitch, is 60.5%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration is 15%, and no obligor represents more than 2% of the
portfolio balance, whereas the exposure to the three-largest
Fitch-defined industries is 36.8%. The transaction includes one
Fitch matrix corresponding to a top 10 obligor concentration limit
at 26.5% and a fixed-rate asset limited to 15%, while they
currently account for 13.4% of the portfolio balance.
Cash Flow Modelling: The WAL used for the Fitch-stressed portfolio
and matrices analysis is floored at six years and shorter than the
WAL covenant, to account for structural and reinvestment conditions
after the reinvestment period, including the over-collateralisation
and Fitch 'CCC' limitation tests, among others. Fitch believes
these conditions would reduce the effective risk horizon of the
portfolio during the stress period.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A 25% increase of the mean default rate (RDR) and a 25% decrease of
the recovery rate (RRR) across all ratings of the identified
portfolio would have no impact on all the notes' ratings.
Based on the identified portfolio, downgrades 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 Fitch-stressed portfolio, the class B, D, E and F notes display
a rating cushion of two notches, and the class C notes a rating
cushion of one notch.
Should the cushion between the identified portfolio and the
Fitch-stressed portfolio be eroded, either due to manager trading
or negative portfolio credit migration, a 25% increase of the mean
RDR and a 25% decrease of the RRR across all ratings of the
stressed portfolio would lead to downgrades of no more than one
notch for the rated notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR and a 25% increase in the RRR
across all ratings of the Fitch-stressed portfolio would lead to
upgrades of up to five notches for the rated notes, except for the
'AAAsf' rated notes.
During the reinvestment period, based on the Fitch-stressed
portfolio, upgrades may occur on better-than-expected portfolio
credit quality and a shorter remaining WAL test, allowing 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
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations 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.
Overall, 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.
===================
L U X E M B O U R G
===================
AMAGGI LUXEMBOURG: Fitch Affirms 'BB' LongTerm IDRs
---------------------------------------------------
Fitch Ratings has affirmed Andre Maggi Participacoes S.A.'s
(Amaggi) Long-Term Foreign and Local Currency Issuer Default
Ratings (IDRs) at 'BB' and National Long-Term rating at 'AA+(bra)'.
Fitch has also affirmed Amaggi Luxembourg International S.a r.l.'s
senior debt at 'BB'. The Rating Outlook is Stable.
KEY RATING DRIVERS
Slight increase in RMI-Adjusted Net Leverage Ratio: Amaggi's RMI
net-adjusted leverage is projected to increase to about 3.5x in
2023 (3.2x in 2022) due to lower profitability of the commodities
division after a strong 2022 performance, while the agro division
is expected to perform well thanks to better yields for cotton. For
credit purposes, Fitch considers RMI-adjusted leverage when
evaluating agricultural processors and calculates RMI-adjusted
leverage by first subtracting the structural inventory required to
operate a downstream processing facility on a steady state basis.
This inventory is generally not readily available for liquidation
purposes with a going-concern entity. A 10% discount is taken for
the remaining merchandisable inventory (25% of cotton) to account
for potential basis risk loss. Fitch factors in an RMI of USD408
million at YE 2023 (USD498 million in 2022).
Lower Capex and Positive FCF: Fitch expects Amaggi to generate
positive FCF thanks to lower capex and improved working capital.
Capex is due to decrease toward USD150 million in 2023 compared to
USD308 million (excluding other investments) in 2022 as Amaggi
doesn't aim for significant investments or expansion capex. Working
capital is expected to be a resource thanks to lower margin call
and soybean prices. Net derivatives exposure (foreign exchange,
commodities, interest rates) was approximately USD96 million in
2022 (-USD18 million at YE 2021).
Business Diversification: The group's business diversification
provides stability in cash flow generation and mitigates volatility
inherent to the agribusiness industry. Amaggi has a
regionally-integrated agribusiness footprint in the production,
origination, and commercialization of grains from Mato Grosso state
in Brazil, and approximately 81% of revenues are from exports. The
company also owns 314,000 hectares of agricultural land, of which
185,000 hectares are farmable, and leases another 53 thousand
hectares of farmable land from third parties, for a total of 238
thousand hectares of land available for production. The company is
self-sufficient in terms of energy and benefits from its logistic
segment, which includes the management of its hydro transportation
system (Hermasa) and access to other navigation routes, warehouses,
and terminals through joint ventures or companies where the group
has a minority interest.
Origination and Counterparty Risks: Amaggi's capacity to process
large volumes thanks to its logistics, enables the group to compete
with large multinational grain companies (Archer Daniels Midland
Company [ADM], LDC, Cargill Incorporated [Cargill], Bunge Limited
[Bunge]) in the acquisition of grains in Mato Grosso, which is an
abundant region for soy and corn. Advances in financing to farmers
are provided under strict criteria with the use of CPRs (rural
credit notes) for collateral. No single producer represents more
than 1.4% of Amaggi's annual origination.
No Country Ceiling Cap: The Foreign Currency IDR is not capped by
Brazil's 'BB' Country Ceiling rating, due to the company's exports
in hard currency and cash abroad that cover Foreign Currency
interest expenses. A multi-notch downgrade of Brazil's Country
Ceiling could lead to a downgrade of the company's ratings.
DERIVATION SUMMARY
Fitch views Amaggi's business risk profile as weak relative to
peers, Bunge (BBB/RW Positive), Cargill (A/Stable), and ADM
(A/Stable), due to its smaller operational scale, lower
diversification, and substantial concentration in one region. Fitch
also considers the risks related to the agribusiness industry in
Brazil, which includes the exposure to great supply and demand
imbalances, weather patterns, trade-related wars, government
policies, agricultural crop breaks, deforestation and alternative
usage of the land.
Although Amaggi's consolidated profitability is satisfactory, it
remains exposed to strong competition within the industry, with the
presence of important international groups operating with strong
credit profiles.
The company's operations are concentrated in Mato Grosso, Brazil,
which would subject the company to the Brazil's 'BB' Country
Ceiling. As most revenues are derived from export markets, Fitch
believes the rating could be maintained if the Brazilian Country
Ceiling were downgraded by no more than one notch. When combined
with higher average leverage, these factors result in lower ratings
than peers.
KEY ASSUMPTIONS
-- Steady revenues due to lower grains prices;
-- EBITDA close to USD500 million in 2023;
-- Capex of about USD150 million in 2023;
-- RMI Net debt/ EBITDA close to 3.5x as of YE 2023.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
-- Improved scale and geographical diversification;
-- RMI-adjusted net leverage (RMI adjusted total net debt to
operating EBITDA) below 2.5x range on a sustained basis;
-- Liquidity ratio (cash and marketable securities + RMI + account
receivables/Total short-term liability) above 1x on a
sustainable
basis;
-- Secured debt/EBITDA below 1x.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- Loss of business diversification;
-- RMI-adjusted net leverage (RMI adjusted total net debt to
operating EBITDA) sustained above 3.5x range on a sustainable
basis;
-- Liquidity ratio (cash and marketable securities + RMI + account
receivables/Total short liabilities) below 0.8x at year-end;
-- Secured debt/Ebitda above 2.5x;
-- A multi-notch downgrade of Brazil Country Ceiling and inability
to cover hard currency interest expenses by offshore cash and
exports.
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: The diversified sources of external liquidity
used for short-term working capital financing — combined with
cash, short-term marketable securities and high levels of liquid
RMI — provide Amaggi with adequate financial flexibility. Amaggi
reported consolidated cash and marketable securities of USD1
billion, covering 1.3x times (x) the USD811 million of short-term
debt as of 1Q23 (1.1x at YE22). The company also has access to
several uncommitted bank lines and maintains a minimum cash policy
of USD400million. The company's liquidity ratio based on total
current liabilities was about 1x as of YE22.
ISSUER PROFILE
Amaggi operates in an integrated and synergistic way throughout the
agribusiness chain: agricultural production, river and road
transport, port operations, origination, processing and
commercialization of grains and inputs, generation and
commercialization of electricity.
ESG CONSIDERATIONS
Andre Maggi Participacoes S.A. has an ESG Relevance Score of '4'
for Waste & Hazardous Materials Management; Ecological Impacts
related to land use, as a large part of the volume of grains coming
from the commodities business come from Amazon and Cerrado Biomes
that are exposed to deforestation, which has a negative impact on
the credit profile, and is relevant to the rating[s] in conjunction
with other factors.
Andre Maggi Participacoes S.A. has an ESG Relevance Score of '4'
for Group Structure due to lack of board independence as the
company is privately-controlled, which has a negative impact on the
credit profile, and is relevant to the rating[s] in conjunction
with other factors.
Andre Maggi Participacoes S.A. has an ESG Relevance Score of '4'
for Governance Structure due to the existence of related parties
transaction, which has a negative impact on the credit profile, and
is relevant to the rating[s] 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 Rating Prior
------ ------ -----
Amaggi Luxembourg
International S.a r.l.
senior unsecured LT BB Affirmed BB
Andre Maggi
Participacoes S.A.
LT IDR BB Affirmed BB
LC LT IDR BB Affirmed BB
Natl LT AA+(bra) Affirmed AA+(bra)
MALLINCKRODT FINANCE: Calamos CHIF Marks $1M Loan at 28% Off
------------------------------------------------------------
Calamos Convertible and High Income Fund has marked its $1,016,070
loan extended to Mallinckrodt International Finance SA to market at
$728,080, or 72% of the outstanding amount, as of April 30, 2023,
according to a disclosure contained in Calamos CHIF's Form N-CSR
for the fiscal year ended April 30, 2023, filed with the Securities
and Exchange Commission on June 28, 2023.
Calamos CHIF is a participant in a Bank Loan that accrues interest
at a rate of 10.198% per annum (3 mo. LIBOR + 3.75%) to
Mallinckrodt International Finance SA. The loan is scheduled to
mature on September 30, 2027.
Calamos Convertible and High-Income Fund was organized as a
Delaware statutory trust on March 12, 2003 and is registered under
the Investment Company Act of 1940 as a diversified, closed-end
management investment company. The Fund commenced operations on May
28, 2003.
Mallinckrodt International Finance SA manufactures and distributes
pharmaceutical products. The company's country of domicile is
Luxembourg.
MALLINCKRODT FINANCE: Calamos COIF Marks $1M Loan at 28% Off
------------------------------------------------------------
Calamos Convertible Opportunities and Income Fund has marked its
$1,007,673 loan extended to Mallinckrodt International Finance SA
to market at $722,063, or 72% of the outstanding amount, as of
April 30, 2023, according to a disclosure contained in Calamos
COIF's Form N-CSR for the fiscal year ended April 30, 2023, filed
with the Securities and Exchange Commission on June 28, 2023.
Calamos COIF is a participant in a Bank Loan that accrues interest
at a rate of 10.198% per annum (3 mo. LIBOR + 5.25% to Mallinckrodt
International Finance SA. The loan is scheduled to mature on
September 30, 2027.
Calamos Convertible Opportunities and Income Fund was organized as
a Delaware statutory trust on April 17, 2002 and is registered
under the Investment Company Act of 1940 as a diversified,
closed-end management investment company. The Fund commenced
operations on June 26, 2002.
Mallinckrodt International Finance SA manufactures and distributes
pharmaceutical products. The company's country of domicile is
Luxembourg.
MALLINCKRODT FINANCE: Calamos STRF Marks $1.1M Loan at 28% Off
--------------------------------------------------------------
Calamos Strategic Total Return Fund has marked its $1,125,234 loan
extended to Mallinckrodt International Finance SA to market at
$806,857,303, or 72% of the outstanding amount, as of April 30,
2023, according to a disclosure contained Calamos STRF's Form N-CSR
for the fiscal year ended April 30, 2023, filed with the Securities
and Exchange Commission on June 28, 2023.
Calamos STRF is a participant in a Bank Loan that accrues interest
at a rate of 10.198% per annum (3 mo. LIBOR + 5.25% to Mallinckrodt
International Finance SA. The loan is scheduled to mature on
September 30, 2027.
Calamos Strategic Total Return Fund was organized as a Delaware
statutory trust on December 31, 2003 and is registered under the
Investment Company Act of 1940 as a diversified, closed-end
management investment company. The Fund commenced operations on
March 26, 2004.
Mallinckrodt International Finance SA manufactures and distributes
pharmaceutical products. The company's country of domicile is
Luxembourg.
===========
R U S S I A
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GROSS INSURANCE: Fitch Affirms 'B' Insurer Finc'l. Strength Rating
------------------------------------------------------------------
Fitch Ratings has affirmed Uzbekistan-based Gross Insurance Company
JSC's Insurer Financial Strength (IFS) Rating at 'B+'. The Outlook
is Stable.
The rating reflects the company's favourable business profile, weak
capital position, adequate financial performance and low investment
risk relative to peers'.
KEY RATING DRIVERS
Favourable Business Profile: Fitch ranks Gross's business profile
as 'Favourable' compared with other Uzbek insurers'. This
assessment is driven by its favourable diversification and
competitive positioning and moderate business risk profile. Gross
has a well-diversified business mix and maintains a reasonably
stable business focus on property and casualty lines, which
accounted for 34% of its net business in 2022.
Its moderate business risk profile is attributable to a fairly
mixed risk appetite, as reflected in a high exposure to financial
risk insurance. However, Fitch believes Gross has a prudent and
sophisticated underwriting approach in motor lines, compared with
peers'.
Modest Operating Scale: Fitch views Gross's operating scale metrics
as limited, as reflected in gross written premiums (GWP) of UZS1.01
trillion reported on a consolidated basis in 2022 (USD92 million
based on the average official exchange rate). Gross, as a group,
remains a sizeable domestic insurer in Uzbekistan's non-life and
life insurance sectors, with a market share of 5% and 47%,
respectively, despite fierce competition in the domestic market.
In 2023-2024, Gross plans to increase inwards reinsurance premium
from abroad via active participation in treaty agreements. Growing
volumes of inwards reinsurance could expose the company's financial
performance to increased volatility.
Weak Capital Position: Gross's capital position, as measured by
Fitch's Prism Factor-Based Model (FBM), was below 'Somewhat Weak'
at end-2022. The target capital remained high due to heightened
asset risks stemming from its investment portfolio. Fitch expects
its risk-adjusted capital position to remain weak due to increasing
net business volumes, stemming from the company's growth strategy.
Slightly Improved Solvency Margin: The insurer's regulatory
solvency margin slightly improved to 113% and to 119% at end-2022
and at end-1Q23, respectively, from a fairly stretched 105% at
end-2021. The improvement was mainly attributable to an increase of
share capital by UZS10 billion, in line with current tightened
regulatory capital requirements. Unlike in previous years, the
current year's profit of was retained as earnings rather than
distributed as dividends.
Adequate Financial Performance: Gross's Fitch-calculated return on
equity (ROE) dropped to 4% in 2022 from 34% in 2021 and from a
three-year average of 41% in 2021-2018. Strong investment returns
and foreign-exchange (FX) gains offset the negative underwriting
profitability. Its combined ratio worsened to 105% in 2022 from 86%
in 2021 mainly due to sizeable large losses in financial risk
insurance. Despite the worsening financial performance, Fitch
continues to view it as adequate for the rating category.
Investment Risk Lower Than Peers: The insurer predominantly invests
in fixed-income instruments in the form of bank deposits, which are
mainly placed with state-owned and large private local banks.
Gross's investment portfolio is of better credit quality and more
diversified by issuer compared with rated local peers'.
Catastrophe Risk Not Being Modelled: Like its local peers, Gross is
exposed to high catastrophe risk. The company does not have any
catastrophe cover and nor conducts any internal assessments of the
possible maximum exposure on its business portfolio. In the absence
of catastrophe protection, the insurer's capital is exposed to
potentially large unmodelled losses.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
-- Capital strengthening on a sustained basis, as reflected in a
Prism FBM score of 'Strong'
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
-- A weakened business profile on a sustained basis, as
manifested, for example, by a higher business risk profile or a
lower market share
-- A weakening of financial performance on a sustained basis, as a
reflected in negative ROEs
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.
=========
S P A I N
=========
AMARA NZERO: S&P Assigns Preliminary 'B' ICR, Outlook Stable
------------------------------------------------------------
S&P Global Ratings assigned its preliminary 'B' ratings to
Spain-based energy transition player Amara NZero's (Green Bidco
S.A.U.) holding company, Green Bidco, and the proposed EUR270
million green senior secured notes. The preliminary '3' recovery
rating indicates its expectation of meaningful recovery prospects
(50%-70%; rounded estimate 55%) in the event of payment default.
S&P said, "The stable outlook reflects our view that Amara will
continue to see healthy organic sales and EBITDA growth driven by
favorable industry trends and increasing scale, underpinning funds
from operations cash interest coverage of about 2.0x and positive
free operating cash flow from 2024."
In April 2023, private equity firm Cinven announced the acquisition
of a majority stake in Amara NZero, a Spanish business-to-business
(B2B) distributor of products and services used in the energy
transition sector, via a new holding company Green BidCo S.A.U. The
acquisition will be funded by new green senior secured notes of
EUR270 million and an equity contribution of EUR545 million from
Cinven and rolling shareholders.
"Our preliminary 'B' rating captures the creation of holding
company Green Bidco S.A.U. by private equity firm Cinven in April
2023 to acquire 63% of Amara in April 2023. Amara's existing
shareholders and management will retain about 37% ownership. To
finance the transaction, Green Bidco will issue EUR270 million
five-year green senior secured notes, supported by a EUR50 million
super senior secured revolving credit facility (RCF). The
transaction will include an equity contribution from Cinven and
rolling existing shareholders of EUR545 million, largely taking the
form of preference shares. We treat the latter as equity and
exclude it from our leverage and coverage calculations because we
see an alignment of interest between noncommon and common equity
holders.
"Favorable industry trends support Amara's revenue growth. Amara
operates as a B2B distributor of products and services in the
energy transition market with a global (excluding China) total
addressable market of EUR82 billion, and the group forecasts a
compounded annual growth rate (CAGR) of about 9% between 2023 and
2027. We project that growth will continue from favorable
regulations and incentives to meet the ambitious net zero emissions
targets, particularly in Europe. These regulations, alongside
higher energy costs, are driving corporate and residential
investments in renewable energy installations like solar and wind.
We see this growth, mostly organic, in the jump in Amara's revenue
to EUR732 million in 2022 from EUR244 million in 2020. We forecast
a strong revenue growth of about 29% in 2023 as the company scales
up its solar energy operations in Spain, Brazil, and Mexico. We
also expect the company, in line with the industry, to exhibit a
healthy mid-single-digit growth in 2024-2025.
"Despite Amara's strong relationships with its suppliers,
concentration is a key constraint to its business risk profile, in
our view. The major proportion of Amara's purchases originate from
China (in line with the market) and its top-five suppliers
accounted for about 62% of total supplies in 2022. Supplier
concentration is even higher in its fastest-growing solar segment,
where the top-five suppliers contributed even higher to purchases.
In comparison, Amara contributes about 5% of the sales of its
largest vendors. This exposes Amara to supply-chain disruption or
higher import costs in case of new trade barriers and protectionist
measures in a context of increasing geopolitical tensions, or loss
of business in case of loss of a key supplier. At the same time, we
also note that Amara's strong and long-term relationships with its
suppliers have helped the company to enter into several global
purchasing agreements and obtain relatively favorable purchasing
conditions, including pricing, product availability, and payment
terms. As per management, it would take 12-18 months for the
company to shift its supplier base away from China, if any of the
supply chain risks materialize and suppliers are also considered
interchangeable. In the long term, moving the manufacturing
capabilities to the EU is also supported by the Net-Zero Industry
Act that aims at strengthening the European manufacturing capacity
of net-zero technologies.
"Amara operates in a competitive and fragmented market. Amara
generated 56% of its revenue in Spain, where the company is the
leading solar distributor but by a relatively smaller margin. Even
though the company is among top-five operators in Italy and Brazil,
its presence is smaller. Furthermore, we see Amara's product and
service differentiation as limited and barriers to entry in the
market as low. This constrains the company's pricing power and
profitability. In the recent past, the company adopted an
aggressive pricing policy in Brazil to expand its market presence,
which has squeezed its profitability. Despite Amara's impressive
growth in the recent past, its scale of operations remains smaller
than peers' like OptiGroup BidCo AB and EOS Finco S.a.r.l., and of
that of larger distributors like Quimper AB and BME Group Holding
BV. This prompts us to assess Amara's business risk profile at the
lower end of our weak category.
"A scale-driven increase in profitability and steady expansion will
support Amara's cash flow in the coming years. We forecast Amara's
S&P Global Ratings-adjusted EBITDA margin will improve to about
8.0% in 2024 from 7.1% in 2022. The margins will expand thanks to
increasing revenue contribution from higher-margin batteries
business due to an agreement with Tesla in Spain and our
expectation that penetration of solar panels, alongside battery
solutions and kits, will increase at a steady rate. The company
will also benefit from better absorption of fixed costs due to
increasing scale of business and the current cost-optimization
plan. In addition to reduced working capital requirements directly
linked to moderating pace of expansion, tight working capital
management via focused initiatives and low capital expenditure
(capex) needs of about 0.5% of sales, will support our forecasted
adjusted FOCF generation of about EUR18 million in 2024, after
breakeven reported FOCF in 2023 (excluding transaction expenses).
In our base case, S&P Global Ratings-adjusted EBITDA of EUR80
million in 2024 (versus EUR52 million in 2022 and our expectation
of EUR67 million in 2023) will help the company maintain an
adjusted FFO cash interest coverage of 2.0x or more in 2024.
"The rating is constrained by Amara's financial sponsor ownership.
We forecast Amara's adjusted debt to EBITDA at 4.8x at end-2023
declining to 4.0x in 2024, with FFO to debt around 10% in both
years. However, Amara's limited scale of operations exposes it to
earnings volatility and credit metric sensitivity. Moreover,
although we understand that Cinven has no near-term plan for a
major acquisition or dividend payments, our assessment of the
company's financial risk profile as highly leveraged reflects
corporate decision-making that prioritizes the interests of the
controlling owners.
"The final ratings will depend on our receipt and satisfactory
review of all final transaction documentation. Accordingly, the
preliminary ratings should not be construed as evidence of final
ratings. If S&P Global Ratings does not receive final documentation
within a reasonable time frame, or if final documentation departs
from materials reviewed, we reserve the right to withdraw or revise
our ratings. Potential changes include, but are not limited to, use
of loan proceeds, maturity, size and conditions of the loans,
financial and other covenants, security, and ranking.
"The stable outlook reflects our view that Amara will continue to
see healthy organic sales and EBITDA growth driven by favorable
industry trends and increasing scale. This will support FFO cash
interest coverage around 2.0x and positive free operating cash flow
from 2024."
S&P could lower the rating if:
-- The company is unable to generate positive FOCF in absence of
significant EBITDA growth;
-- Weaker earnings due to macroeconomic headwinds, operational
issues, or increased competition leads to FFO cash interest
coverage declining below 2.0x; or
-- The company adopts a more aggressive financial policy, with
debt-funded acquisitions or shareholder friendly returns that push
adjusted debt to EBITDA above 6.5x.
Although S&P considers an upgrade unlikely in the coming 12 months,
it could raise the rating if the shareholders demonstrate a prudent
financial policy, maintaining adjusted debt to EBITDA comfortably
below 5x and FFO to debt above 12%. Ratings upside would also hinge
on sound operating performance, continued improvements in scale,
and solid FOCF.
ESG credit indicators: E-1, S-2, G-3
S&P said, "Environmental factors are a positive consideration in
our credit rating analysis for Amara. The company's results should
benefit from high customer demand and government policy support for
renewable energy solutions, considering entities' need to comply
with increasingly stringent regulations of greenhouse gases.
Governance factors are a moderately negative consideration in our
credit analysis. Our assessment of the company's financial risk
profile as highly leveraged reflects the corporate decision-making
that prioritizes the interests of the controlling owners, in line
with our view of most rated entities owned by private-equity
sponsors. Our assessment also reflects generally finite holding
periods and a focus on maximizing shareholder returns."
CIRSA ENTERPRISES: S&P Rates EUR650MM Senior Secured Notes 'B'
--------------------------------------------------------------
S&P Global Ratings assigned its 'B' issue rating and '3' recovery
rating to the proposed EUR650 million senior secured notes to be
issued by Cirsa Finance International S.a.r.l., a finance
subsidiary of Cirsa Enterprises S.L.U. (Cirsa).
The company intends to use the note proceeds to refinance its debt
and extend its maturity profile, specifically repaying the
outstanding EUR160 million senior notes due December 2023 and its
EUR490 million floating-rate notes due 2025. The proposed notes
will not affect the company's capital structure.
The 'B' long-term issuer credit rating on Cirsa is unchanged. The
outlook is positive.
Issue Ratings – Recovery Analysis
Key analytical factors
-- S&P assigned its 'B' issue rating to the proposed EUR650
million senior secured notes.
-- The recovery is '3' indicating S&P's expectation of meaningful
(50%-70%; rounded estimate: 60%) recovery in a default scenario.
-- Cirsa's existing senior notes are rated 'B', in line with the
issuer credit rating, and the recovery rating is unchanged at '3'.
This includes Cirsa's outstanding EUR390 million fixed-rate notes
due 2025, its EUR615 million senior secured notes due 2027, and the
EUR425 million notes due 2027.
-- Cirsa's outstanding payment-in-kind (PIK) matures in 2025.
While the PIK doesn't benefit from the same security package and is
structurally subordinated to the senior notes, S&P does note a time
subordination of the capital structure.
-- The issue rating on the outstanding EUR483 million of PIK notes
due 2025 is 'CCC+'. The recovery rating is '6', indicating S&P's
expectation of no recovery (0%) in the event of payment default.
-- S&P's hypothetical default scenario assumes unfavorable
regulatory changes and worsening economic conditions in Latin
America and Europe.
-- S&P values Cirsa on a going-concern basis, given its leading
market positions in its key markets and its ability to renew its
gaming licenses.
-- For S&P's recovery analysis, it considers the EUR275 million
revolving credit facility (RCF) to rank ahead of the other secured
debt, although the RCF is not rated.
Simulated default assumptions
-- Year of default: 2026
-- Jurisdiction: Spain
Simplified waterfall
-- Emergence EBITDA: EUR292 million (capex represents 4.5% of
annual sales based on the company's historical trends and future
expectations). The cyclicality adjustment is 10%, in line with the
specific industry subsegment.
-- EBITDA multiple: 6.0x
-- Net enterprise value after administrative costs (5%): EUR1,663
million
-- Estimated priority claims: EUR58 million
-- Value available to priority claims: EUR1,605 million
-- Estimated first-lien senior secured claims: EUR243 million
-- Value available to second-lien senior secured claims: EUR1,363
million
-- Estimated second-lien senior secured notes claims: EUR2,153
million
-- Recovery rating: 3
-- Recovery range: 50%-70% (rounded estimate 60%)
-- Estimated LHMC Finco 2 S.a.r.l. subordinated PIK notes claims:
EUR661 million
-- Recovery rating: 6
-- Recovery expectations: 0%
Note: All debt amounts include six months' prepetition interest and
the RCF, which is assumed to be 85% drawn at default.
FERROVIAL NETHERLANDS: Fitch Affirms BB Rating on Sub. Notes
------------------------------------------------------------
Fitch Ratings has assigned Spanish construction and concessions
operator Ferrovial SE (Ferrovial) Long-Term Issuer Default Ratings
(IDR) of 'BBB'. The Rating Outlook is Stable. At the same time,
Fitch has withdrawn Ferrovial, S.A.'s Long-Term IDR of 'BBB'/Stable
and long-term senior unsecured rating of 'BBB'.
The Long-Term IDR reflects Ferrovial's continued prudent
balance-sheet management and investment-grade business profile. It
has a strong market position as one of the leading international
contractors and an attractive concession portfolio. Fitch expects
Ferrovial's current significant cash consumption to be temporary
and a return to positive free cash flow (FCF) generation in 2024.
Fitch has withdrawn the ratings of Ferrovial, S.A. due to the
reorganisation of the rated entity as the group has completed the
reverse merger and Ferrovial, S.A. no longer exists as a standalone
entity. Accordingly, Fitch will no longer provide ratings or
analytical coverage for Ferrovial, S.A.
KEY RATING DRIVERS
Adequate Leverage Profile: Fitch expects EBITDA net leverage of
around 1x in 2024-2026 following a temporary spike to 1.6x in 2023.
We forecast EBITDA gross leverage to decrease to around 3.6x in
2023 and to below 3x in 2024-2026, following its heightened level
of about 7.5x in 2022. The deleveraging will mainly be driven by a
combination of increasing dividends from concessions, improving
cash flow profile in the construction business and an assumed issue
of a new EUR500 million hybrid bond in 2024.
Increasing Dividends from Concessions: Fitch expects a gradual
increase in dividends received from concessions to around EUR0.7
billion in 2023 and EUR0.8 billion-EUR1 billion in 2024-2026 from
around EUR0.5 billion in 2022. In 2022, dividends remained limited
by the lingering impact of mobility and travel restrictions in the
US and Canada. We forecast rising dividends from recovering toll
road assets, including its 407 ETR highway in Canada and the US
managed lanes, with the latter strongly supported by first
dividends from NTE35W, I-66 and I-77.
In 1Q23, Ferrovial recorded a continued recovery in traffic across
its main toll road and airport assets. Fitch forecasts continued
resilience of toll road concessions but a slow recovery in airport
concessions with only limited improvements in 2023.
Temporary Cash Consumption: Fitch expects negative FCF for 2023,
followed by a return to positive FCF in 2024-2026. The temporary
cash consumption will be driven by large investments, muted but
increasing dividends received from concession assets, ongoing
shareholder remuneration and working-capital outflows in the
construction business.
Fitch expects the temporary negative impact on cash flow from
recent investments to be offset by structural improvements to
Ferrovial's business profile through enhanced concession assets.
Fitch expects the increasing size and diversification of the
concessions portfolio to gradually lead to a rising amount and
enhanced stability of dividends.
Muted Profitability in Construction: Fitch expects muted
profitability in the construction segment with a protracted
stabilisation of net working-capital requirements and subdued, but
improving, margin. Its performance has been temporarily affected
mainly by large working-capital outflows for the completion of toll
road projects in the US (I-66, I-285 and I-77). Fitch assumes
gradual improvements in both operating margins and cash flow
generation on subsiding inflationary pressures, a strong order
backlog and diminishing negative cash flow impact from the US toll
road projects.
Investment-Grade Business Profile: Fitch believes that its sale of
the services division has not significantly changed Ferrovial's
business profile. The loss of end-market diversification is
mitigated by Ferrovial's diverse geographic footprint (mainly
focusing on mature markets), leading market shares, strong customer
relationships and a record of effective working-capital
management.
It has an attractive concession portfolio, especially toll roads
with a long average duration and healthy tariff growth prospects.
The share of construction profitability is also likely to gradually
decrease in the long term, as greenfield concessionary investments
materialise and the share of mature concession profitability
increases.
Robust Construction Order Book: Fitch expects strong activities to
support cash flow recovery in the construction business. At
end-March 2023, Ferrovial's order book reached EUR14.5 billion,
excluding pre-awarded contracts of around EUR1.5 billion. Its
recent disposals in the services business have significantly
reduced the size of the group's total order book. However, Fitch
does not believe that this will affect the rating, as the impact of
reduced scale is mitigated by the group's overall sound
diversification and increasing cash flows from infrastructure
assets.
DERIVATION SUMMARY
Ferrovial is among the top Fitch-rated engineering and construction
companies. Solid construction operations and significant geographic
diversification underpin its investment-grade ratings.
The contribution of recurring dividends from infrastructure assets
is a credit strength as it is for peer Vinci S.A. (A-/Stable).
Ferrovial has a fairly attractive concession portfolio including
toll roads with a longer average duration than most peers and a
healthy tariff growth outlook. This differentiates Ferrovial from
Webuild S.p.A. (BB/Stable), which is a pure constructor with a
limited concessions business.
KEY ASSUMPTIONS
- Fitch focuses its analysis of Ferrovial on its recourse
activities, adjusting leverage calculations to exclude EBITDA
and non-recourse debt from the ring-fenced concession business,
but including sustainable dividends from the non-recourse
concessions, in line with its criteria.
- Construction revenue of around EUR6.2 billion in 2023, EUR6.3
billion in 2024, EUR6.7 billion in 2025 and EUR7.6 billion in
2026
- EBITDA margin at around 2.7% in 2023, and 3.3% in 2024 and 3.5%
in 2025-2026
- Total dividends received from concessions increasing to EUR0.7
billion in 2023, EUR0.8 billion-EUR1billion in 2024-2026
- Capex at 6% of revenue annually to 2026
- Working-capital outflow at 8% of construction revenue in 2023,
3% in 2024 followed by 1% inflow in 2025 and broadly neutral
requirement in 2026
- Total cumulative net acquisitions of around EUR0.3 billion in
2023-2026
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- Increase in diversification and quality of dividend streams
- Positive FCF on a sustained basis
- EBITDA gross leverage below 1.5x on a sustained basis
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- Significant decrease in the order backlog or loss of cash flow
visibility
- Evidence that the recourse group is providing material financial
support or guarantees to underperforming, non-recourse projects
- EBITDA gross leverage above 3.0x on a sustained basis
- EBITDA net leverage above 1.5x on a sustained basis
- Material debt-funded M&A
LIQUIDITY AND DEBT STRUCTURE
Ample Liquidity: At December 31, 2022, Ferrovial's liquidity was
supported by around EUR4.2 billion of readily available cash and
around EUR1.1 billion of undrawn committed credit facilities,
including a EUR0.9 billion revolving credit facility (RCF) maturing
in 2025. This easily covers short-term recourse debt maturing over
the next 12 months (mainly an around EUR0.7 billion euro commercial
paper (ECP)) and expected negative FCF, after net acquisitions in
2023, of around EUR0.7 billion.
Debt Structure: At December 31, 2022, Ferrovial's recourse debt
mainly consisted of four corporate bonds totalling around EUR2.1
billion maturing between 2024 and 2028, a hybrid perpetual bond of
EUR500 million (assumed 50% equity credit), six loans with a total
amount of EUR560 million maturing in 2027, committed credit
facilities of EUR1.1 billion (EUR250 million drawn at end-2022) and
an ECP with a EUR1.5 billion limit (about EUR0.7 billion drawn at
end-2022).
ISSUER PROFILE
Ferrovial is a Spanish engineering and construction group and a
leading infrastructure operator focused on toll roads and airports
in six main markets: Canada, the US, Spain, Poland, the UK and
Australia.
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.
RATING ACTIONS
Entity Rating Prior
------ ------ -----
Ferrovial, S.A. LT IDR WD Withdrawn BBB
senior unsecured LT WD Withdrawn BBB
Ferrovial Netherlands B.V.
Subordinated LT BB+ Affirmed BB+
Ferrovial SE LT IDR BBB New Rating
senior unsecured LT BBB New Rating
Ferrovial Emisiones S.A.U.
senior unsecured LT BBB Affirmed BBB
=============
U K R A I N E
=============
UKRAINE: Fitch Affirms 'CC' LongTerm Foreign Currency IDR
---------------------------------------------------------
Fitch Ratings has affirmed Ukraine's Long-Term Foreign-Currency
Issuer Default Rating (IDR) at 'CC'. Fitch typically does not
assign Outlooks to sovereigns with a rating of 'CCC+' or below.
KEY RATING DRIVERS
Foreign-Currency Debt Restructuring Probable: The affirmation of
Ukraine's Long-Term Foreign-Currency IDR at 'CC' reflects Fitch's
expectation of a further commercial debt restructuring before the
two-year standstill on Eurobond payments expires in September 2024.
The 24-month payment deferral effected in August 2022 constituted a
distressed debt exchange (DDE) under Fitch's sovereign rating
criteria. External sovereign debt service rises to USD7.6 billion
in 2025, large fiscal deficits into the medium term will add to
already high public debt, and burden sharing with commercial
creditors is a likely condition of ongoing official sector
support.
Specifics of Restructuring Still Unclear: The framework for
Ukraine's four-year, USD15.6 billion IMF Extended Fund Facility
(EFF) incorporates the commitment by The Group of Creditors for
Ukraine to extend the official sector standstill to end-2026, with
final debt treatment later in the programme once macro-uncertainty
subsides, and the Ukrainian authorities' intention to seek
comparability of treatment with commercial creditors. The
authorities would likely prefer a single comprehensive debt
restructuring next year, but if security-related uncertainty
precludes this, we would still anticipate an intermediate step of
further deferral on Eurobond payments, triggering another DDE.
'CCC-' Local-Currency IDRs Affirmed: The higher rating than
foreign-currency debt reflects greater disincentives to restructure
local-currency debt, given only 4% is held by non-residents, with
48% held by National Bank of Ukraine and 38% by the domestic
banking sector, half of which is state-owned. Fitch does not see
significant international pressure to bring domestic debt into a
restructuring, also due to risks to domestic demand for government
debt and confidence in banks. Nevertheless, over a longer time
horizon, there is still substantial credit risk given uncertainty
over financing sources to fund a potentially protracted war, and a
large recovery effort.
Protracted War: Fitch's base case is for the war to extend into
2024, within its current broad parameters. Fitch considers Ukraine
currently has the strategic military advantage, bolstered by
upgraded weaponry, Western intelligence, and strong resolve.
However, in Fitch's central scenario, there is insufficient
military superiority to decisively deliver objectives. There also
appears an absence of politically credible concessions that could
form the basis of a negotiated settlement, potentially resulting in
a very protracted conflict. Over a longer period, Fitch expects
some form of settlement to end the war, although see a frozen
conflict as more likely than a sustainable peace deal.
Moderate Growth, Huge Reconstruction Costs: Fitch projects GDP
grows 3.5% in 2023 and 4.0% in 2024, having contracted 29% in 2022.
Fitch assumes some recovery in consumption on easing fears of
broader military escalation, but still depressed investment.
According to UN data, there are 6.3 million Ukrainian refugees, and
a sizeable return represents an upside to Fitch's forecast. The
World Bank estimates infrastructure damage at USD135 billion (84%
of 2022 GDP), with reconstruction and recovery costs totalling
USD411 billion. Fitch anticipates under-execution of the planned
USD14 billion of critical infrastructure spending this year.
Large Fiscal Deficits to Persist: The general government deficit
widened by 12pp in 2022 to near 16% of GDP (25% of GDP excluding
international grants) driven by military spending. Fitch projects a
deficit of 17.3% of GDP in 2023 as a full-year of war-related
expenditure and a reduction in the grant component of budget
support offset moderate real-term cuts in recurrent social
spending. Fitch anticipates the deficit remains high into the
medium term, partly given huge reconstruction needs, and
structurally higher defence outlays than pre-war.
High and Rising Public Debt: The large deficit, and hryvnia
devaluation drove a 30pp rise in general government debt/GDP in
2022 to 78.5% (71.6% excluding government guarantees), despite
support from a GDP deflator of 34%. The foreign-currency share of
state debt has risen to 69%, although there has also been an
increase in concessional and longer-term debt. The war has led to
higher risk of crystallisation of SOE contingent liabilities and
government guarantees. Fitch forecasts debt rises to 85% of GDP at
end-2023 and 94% at end-2024.
High Dependence on Official Financing: Committed budget aid support
for 2023 totals USD43 billion and could increase with additional US
finance in 4Q, up from USD32 billion in 2022. There is less detail
on commitments for 2024 but Fitch assumes a broadly unchanged
level, and the IMF EFF is underpinned by funding assurances from
official creditors. Despite the EU's EUR50 billion funding proposal
to 2027, Fitch sees greater financing uncertainty beyond next year,
partly due to potential for donor fatigue.
Domestic Financing Conditions Improve: The rollover rate of
government domestic debt has averaged more than 110% so far this
year, up from 68% in 2022, partly due to a one-off boost from
regulatory changes to bank reserve requirements. Fitch assumes a
full-year rate of close to 100%, supported by strong liquidity in
the Ukrainian banking sector, which was driven by 41% growth in
deposits since the war started, boosted by military wages. This
should be sufficient to prevent recourse to deficit financing from
National Bank of Ukraine (which accounted for 42% of 2022
financing), although Fitch sees a greater risk to domestic funding
from 2024.
Rise in International Reserves: FX reserves rose to USD37.3 billion
in May, from USD28.5 billion at end-2022 (and a low of USD22.4
billion in July 2022) as strong international aid and stable
remittances more than offset a large trade and services deficit.
Spending by overseas migrants has recently edged down, and greater
confidence in the exchange rate has slowed private sector capital
outflows. Fitch projects the USD/UAH peg remains through 2023, with
moderate depreciation in 2024 as greater exchange rate flexibility
is introduced, and FX controls are relaxed only gradually.
Current Account Set to Widen: Fitch forecasts the current account
deficit widens to a deficit of 1.8% of GDP in 2023 and 3.5% in
2024, from a surplus of 5% in 2022, as imports recover more quickly
than exports. Large official sector loans and gradually improving
net migration help underpin our projection for international
reserves to increase to USD38.9 billion at end-2023, equivalent to
4.8 months of current external payments, above the median for all
sovereigns rated in the 'B' category and below of three months.
Inflation Still High But Falling: Inflation fell to 15.3% at
end-May (core inflation 15.6%) from 26.6% at end-December, on base
effects, lower food and fuel prices, easing supply chain
disruptions, and appreciation of the unofficial exchange rate.
Fitch forecasts inflation falls to 14.5% at end-year, with a 5pp
cut in the policy interest rate to 20%, but risks remain skewed to
the upside, including the fallout from destruction of the Kakhovka
dam. Fitch projects inflation averages 12.7% in 2024, still well
above the peer group median of 6.2%.
ESG - Governance: Ukraine has an ESG Relevance Score (RS) of '5'
for both political stability and rights and for the rule of law,
institutional and regulatory quality and control of corruption.
These scores reflect the high weight that the World Bank Governance
Indicators (WBGI) have in Fitch's proprietary Sovereign Rating
Model (SRM). Ukraine has a low WBGI ranking at the 32nd percentile,
reflecting the Russian-Ukrainian conflict, weak institutional
capacity, uneven application of the rule of law and a high level of
corruption.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- The Long-Term Foreign-Currency IDR would be downgraded on signs
that a renewed default-like process has begun, for example, a
formal launch of a debt exchange proposal involving a material
reduction in terms and taken to avoid a traditional payment
default.
- The Long-Term Local-Currency IDR would be downgraded to 'CC' on
increased signs of a probable default event, for example from
severe liquidity stress and reduced capacity of the government
to access financing, or to 'C' on announcement of restructuring
plans that materially reduce the terms of local-currency debt
to avoid a traditional payment default.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- The Long-Term Foreign-Currency IDR would be upgraded on de-
escalation of conflict with Russia that markedly reduces
vulnerabilities to Ukraine's external finances, fiscal position
and macro-financial stability, reducing the probability of
commercial debt restructuring.
- The Long-Term Local-Currency IDR would be upgraded on reduced
risk of liquidity stress, potentially due to more predictable
sources of official financing, greater confidence in the ability
of the domestic market to roll over government debt, and/or
lower expenditure needs.
SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO)
Fitch's proprietary SRM assigns Ukraine a score equivalent to a
rating of 'CCC+' on the LTFC IDR scale. However, in accordance with
its rating criteria, Fitch's sovereign rating committee has not
utilised the SRM and QO to explain the ratings in this instance.
Ratings of 'CCC+' and below are instead guided by Fitch's rating
definitions.
Fitch's SRM is the agency's proprietary multiple regression rating
model that employs 18 variables based on three-year centred
averages, including one year of forecasts, to produce a score
equivalent to a LT FC IDR. Fitch's QO is a forward-looking
qualitative framework designed to allow for adjustment to the SRM
output to assign the final rating, reflecting factors within
Fitch's criteria that are not fully quantifiable and/or not fully
reflected in the SRM.
ESG CONSIDERATIONS
Ukraine has an ESG Relevance Score of '5' for political stability
and rights as WBGI have the highest weight in Fitch's SRM and are
highly relevant to the rating and a key rating driver with a high
weight. As Ukraine has a percentile below 50 for the respective
governance indicator, this has a negative impact on the credit
profile. The invasion by Russia and ongoing war severely
compromises political stability and the security outlook.
Ukraine has an ESG Relevance Score of '5' for rule of law,
institutional & regulatory quality and control of corruption as
WBGI have the highest weight in Fitch's SRM and in the case of
Ukraine weaken the business environment, investment and reform
prospects; this is highly relevant to the rating and a key rating
driver with high weight. As Ukraine has a percentile rank below 50
for the respective governance indicators, this has a negative
impact on the credit profile.
Ukraine has an ESG Relevance Score of '4' for human rights and
political freedoms as the voice and accountability pillar of the
WBGI is relevant to the rating and a rating driver. As Ukraine has
a percentile rank below 50 for the respective governance indicator,
this has a negative impact on the credit profile.
Ukraine has an ESG Relevance Score of '5' for creditor rights as
willingness to service and repay debt is relevant to the rating and
is a rating driver for Ukraine, as for all sovereigns. Given
Ukraine's 2022 deferral of external debt payments which Fitch
deemed as a distressed debt exchange, and that another DDE is
probable in our view, this has a negative impact on the credit
profile.
Ukraine has an ESG Relevance Score of '4' for international
relations and trade, reflecting the detrimental impact of the
conflict with Russia on international trade, which is relevant to
the rating and a rating driver with a negative impact on the credit
profile.
Except for the matters discussed above, the highest level of ESG
credit relevance, if present, 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 to the way in which they
are being managed by the entity.
Entity Rating Prior
------ ------ -----
Ukraine LT IDR CC Affirmed CC
ST IDR C Affirmed C
LC LT IDR CCC- Affirmed CCC-
LC ST IDR C Affirmed C
Country Ceiling B- Affirmed B-
senior unsecured LT CCC- Affirmed CCC-
senior unsecured LT CC Affirmed CC
===========================
U N I T E D K I N G D O M
===========================
EUROSAIL-UK 2007-6: Fitch Affirms CCC Rating on Class D1a Notes
---------------------------------------------------------------
Fitch Ratings has upgraded Eurosail-UK 07-2 NP plc's (Eurosail
2007-2) class D notes and affirmed the other classes. Fitch has
also affirmed Eurosail-UK 07-6 NC plc's (Eurosail 2007-6) notes.
Entity Rating Prior
------ ------ -----
Eurosail-UK 2007-6 NC Plc
Class A3a XS0332285971 LT AAAsf Affirmed AAAsf
Class B1a XS0332286862 LT BBB-sf Affirmed BBB-sf
Class C1a XS0332287084 LT B-sf Affirmed B-sf
Class D1a XS0332287597 LT CCCsf Affirmed CCCsf
Eurosail-UK 2007-2 NP Plc
Class A3a XS0291422623 LT AAAsf Affirmed AAAsf
Class A3c XS0291423605 LT AAAsf Affirmed AAAsf
Class B1a XS0291433158 LT AAAsf Affirmed AAAsf
Class B1c XS0291434123 LT AAAsf Affirmed AAAsf
Class C1a XS0291436250 LT AAAsf Affirmed AAAsf
Class D1a XS0291441417 LT A+sf Upgrade A-sf
Class D1c XS0291442498 LT A+sf Upgrade A-sf
Class E1c XS0291443892 LT CCCsf Affirmed CCCsf
Class M1a XS0291424165 LT AAAsf Affirmed AAAsf
Class M1c XS0291426889 LT AAAsf Affirmed AAAsf
The transactions comprise non-conforming UK mortgage loans
originated by Southern Pacific Mortgage Limited (formerly a
wholly-owned subsidiary of Lehman Brothers) and Preferred Mortgages
Limited.
KEY RATING DRIVERS
Increasing Credit Enhancement: Eurosail 2007-2's credit enhancement
(CE) is continuing to build up as a result of sequential
amortisation and a non-amortising reserve fund. This is reflected
in the upgrade of the class D notes, for which CE has increased to
5.0% from 4.5% at the last review.
Deteriorating Asset Performance: Fitch expects asset performance in
non-conforming pools could deteriorate as a result of rising
inflation and interest rates as well as an increase in the
proportion of loans past maturity. A modest increase in arrears
could result in a reduction of the model-implied rating (MIR) in
future model updates. The ratings on Eurosail 2007-2's class D
notes and Eurosail 2007-6's class B notes have been constrained at
one notch below the MIR to account for this risk.
Sequential Payments to Continue: Fitch expects the transactions to
continue to amortise sequentially. Pro rata amortisation is being
prevented by a number of trigger breaches, such as the
non-reversible principal loss trigger (Eurosail 2007-2) and the
late-stage delinquencies trigger, which is currently at 28%, above
the 22.5% threshold (Eurosail 2007-6).
Liquidity Facility Mitigates PIR: Eurosail 2007-2 features a
non-amortising liquidity facility sized at GBP32.2 million. All the
notes have access to the liquidity facility, but apart from the
class A and M notes are subject to a 50% principal deficiency
ledger lock-out trigger. In Fitch's expected case, the lock-out
trigger is not breached and the liquidity facility is sufficient to
mitigate payment interruption risk (PIR) for all notes.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The transactions' performance may be affected by changes in market
conditions and economic environment. Weakening economic performance
is strongly correlated with increasing levels of delinquencies and
defaults that could reduce CE available to the notes.
Additionally, unanticipated declines in recoveries could also
result in lower net proceeds, which may make certain notes
susceptible to potential negative rating action depending on the
extent of the decline in recoveries. Fitch tested a 15% increase in
the weighted average foreclosure frequency (WAFF) and a 15%
decrease in the weighted average recovery rate (WARR). The results
indicate downgrades of up to one notch.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Stable to improved asset performance driven by stable delinquencies
and defaults would lead to increasing CE levels and potential
upgrades. Fitch tested an additional rating sensitivity scenario by
applying a decrease in the WAFF of 15% and an increase in the WARR
of 15%. The results indicate upgrades of up to four notches.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset
pools and the transactions. Fitch has not reviewed the results of
any third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
Fitch did not undertake a review of the information provided about
the underlying asset pools ahead of the transactions' initial
closing. The subsequent performance of the transactions over the
years is consistent with the agency's expectations given the
operating environment and Fitch is therefore satisfied that the
asset pool information relied upon for its initial rating analysis
was adequately reliable.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Eurosail UK 2007-2 and Eurosail 2007-6 have an ESG Relevance Score
of '4' for human rights, community relations, access &
affordability due to a significant proportion of the pool
containing owner-occupied loans advanced with limited affordability
checks, which has a negative impact on the credit profile, and is
relevant to the ratings in conjunction with other factors.
Eurosail UK 2007-2 and Eurosail 2007-6 have an ESG Relevance Score
of '4' for customer welfare - fair messaging, privacy & data
security due to the pool exhibiting an interest-only maturity
concentration of legacy non-conforming owner-occupied loans of
greater than 20%, 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.
FITNESS FIRST: High Court Okays Restructuring Plan
--------------------------------------------------
Paul Norman at CoStar News reports that gym chain Fitness First's
contentious plan for the restructuring of its estate has been
approved at the High Court.
According to CoStar News, Mr. Justice Michael Green has approved
the plan via an oral judgment with the written judgment to be
provided in due course.
A month ago, it emerged that landlords including the Crown Estate,
M&G Real Estate and Landsec were planning to combine to challenge
the restructuring plan, CoStar News recounts. Sky first reported
that the groups are "furious" about the terms of the plan overseen
by Fitness First's owner, the family of former sportswear tycoon
and Wigan Athletic Football Club owner, Dave Whelan, CoStar News
notes.
The hearing began on June 26 after being postponed for two weeks,
CoStar News relays.
Sources involved in the talks told CoStar News none of the
landlords have exposure to large numbers of centres but are
concerned that if the process is voted through without challenge it
will open the door to other companies using it to "cram down" or
shift the financial burden of operating difficulties to landlords,
away from private shareholders and secured creditors.
Real estate sources have confirmed to CoStar News that the
objections focus on the level of financial information they have
been shown, their singling out as a creditor class and the apparent
repayment of a loan taken out by Fitness First under one of the
government's COVID lending schemes. Sources also said there is
confusion as to how Fitness First is presenting its membership
numbers and the information available on the usage of clubs, given
a member at one club may use the other clubs.
Sky reported Hilton, Legal & General Investment Management and
Nuveen are also among the landlords involved in the challenge,
CoStar News discloses.
Fitness First is planning to use a "cram down" restructuring plan,
a relatively new proposal in real estate, rather than the more
familiar company voluntary arrangement, CoStar News states. Under
the proposals, 10 or just under a quarter, of its 44 UK sites would
be closed. Rent cuts would be sought at many of the remaining
sites, most of which are in London, CoStar News discloses.
Fitness First's most recently filed accounts show a loss of more
than GBP10 million in the year to March 31, 2021, CoStar News
notes. Teneo Financial Advisory was appointed administrator to
Fitness First (Curzons) Limited, a company affiliated to the wider
group, earlier this year, and has been contacting landlords, CoStar
News relates.
As with other restructuring plans such as company voluntary
arrangements, it is understood that the centres have been batched
into different buckets or classes of trading difficulty, with Class
B gyms those where Fitness First is seeking the largest rent
reductions, while Class C gyms may be subject to 10% reductions,
CoStar News states. No rent reductions are being sought at some
gyms.
In March 2021, some landlords of fitness chain Virgin Active,
including British Land and Landsec, hired a leading lawyers as they
fought a proposed restructuring that they said would create a new
and "dangerous precedent", CoStar News recounts.
The landlords were fighting the first use of the new procedure, now
being employed by Fitness First, which they said forced property
owners to write off rent debt arrears, reduce future rents and
accept other changes to leases that were freely entered into,
CoStar News relates.
The restructuring plan is a court-supervised business rescue
procedure introduced by the Corporate Insolvency and Governance Act
2020. The process was backed at the High Court of England and
Wales in May 2021.
LUDGATE FUNDING 2006-FF1: S&P Affirms 'B-(sf)' Rating on E Notes
----------------------------------------------------------------
S&P Global Ratings took various rating actions on Ludgate Funding
PLC's series 2006-FF1, series 2007-FF1, and series 2008-W1.
Specifically, S&P:
-- Raised to 'A+ (sf)' from 'A (sf)' its ratings on series
2006-FF1's class A2a, A2b, Ba, and Bb notes, series 2007-FF1's
class A2a, A2b, Ma, Mb, Bb, and Cb notes, and series 2008-W1's
class A1, A2b, Bb, and Cb notes.
-- Lowered to 'BBB+ (sf)' from 'A- (sf)' its ratings on series
2007-FF1's class Da and Db notes.
-- Affirmed its 'A (sf)' rating on series 2006-FF1's class C
notes, 'A- (sf)' rating on the class D notes, and 'BBB (sf)' rating
on the class E notes.
-- Affirmed its 'BB+ (sf)' rating on series 2007-FF1's class E
notes.
-- For series 2008-W1, S&P affirmed its 'BBB+ (sf)' rating on the
class D notes and 'B- (sf)' rating on the class E notes.
In these transactions, our ratings address timely receipt of
interest and ultimate repayment of principal for all classes of
notes. The notes in all three series are amortizing pro rata.
Collateral performance has generally deteriorated since our
previous reviews. Based on loan-level information as of March 2023,
total arrears have risen to 5.3% (from 1.9% a year earlier), 4.7%
(3.7%), and 8.5% (2.8%) for series 2006-FF1, 2007-FF1, and 2008-W1,
respectively.
S&P's credit results have deteriorated for all three transactions,
particularly our weighted-average foreclosure frequency (WAFF)
assumptions, which are affected by increased arrears.
Table 1
WAFF and WALS levels
RATING LEVEL WAFF (%) WALS (%)
SERIES 2006-FF1
AAA 19.17 32.87
AA 13.89 25.01
A 10.98 12.93
BBB 8.01 7.17
BB 4.83 4.06
B 4.12 2.05
SERIES 2007-FF1
AAA 19.98 39.57
AA 14.52 32.00
A 11.61 19.97
BBB 8.65 13.09
BB 5.38 8.77
B 4.65 5.32
SERIES 2008-W1
AAA 24.54 44.12
AA 1825 36.61
A 14.82 24.55
BBB 11.25 17.36
BB 7.42 12.39
B 6.56 8.40
WAFF--Weighted-average foreclosure frequency.
WALS--Weighted-average loss severity.
The notes in all three transactions benefit from a liquidity
facility and a reserve fund, none of which is amortizing as the
respective cumulative loss triggers were breached in November 2011.
In addition, all three series are paying pro rata, enabling the
principal payment of all classes.
For each of the three transactions, S&P's conclusions on
operational, legal, and counterparty risk analysis remain unchanged
since its previous full reviews.
The rating actions also reflect our May 19, 2023 raising of the
long-term issuer credit rating (ICR) to 'A+' from 'A' on Barclays
Bank PLC, the liquidity facility and bank account provider..
S&P said, "Our cash flow analysis indicates that, with the
exception of series 2006-FF1's class C notes, available credit
enhancement for all classes previously rated 'A (sf)' is now
commensurate with higher ratings. We therefore raised to 'A+ (sf)'
from 'A (sf)' our ratings on these classes of notes. Under our
counterparty criteria, the ratings are capped at our 'A+' long-term
ICR on Barclays Bank.
"We affirmed our 'A (sf)' rating on series 2006-FF1's class C
notes, given the lower credit enhancement than the more senior
tranches and considering rising arrears.
"We also affirmed our 'B- (sf)' rating on series 2008-W1's class E
notes as the cash flows failed our stress levels. However, the
series' reserve fund is fully funded, the transaction is paying pro
rata, and prepayments are low. Therefore, we do not expect the
issuer to be dependent upon favorable business, financial, and
economic conditions to meet its financial commitments on the notes
under our 'CCC' ratings criteria.
"In our analysis, we considered the stable or slightly improved
cash flow results, and the general increase in credit enhancement
for the junior notes. However, we also considered the relatively
high arrears, tail risk in the transactions due to relatively low
pool factors, the high percentage of interest-only loans, and
macroeconomic uncertainties including the increased cost of living.
As a result, we did not raise our ratings on series 2006-FF1's
class D and E notes, series 2007-FF1's class E notes, and series
2008-W1's class D notes.
"We lowered to 'BBB+ (sf)' from 'A- (sf)' our ratings on series
2007-FF1's class Da and Db notes as a result of weaker cash flow
results driven by a higher WAFF since our previous review. For all
of the transactions, the cash flow results are particularly
sensitive to higher arrears."
Ludgate Funding series 2006-FF1, series 2007-FF1, and series
2008-W1 are U.K. RMBS transactions, which securitize pools of
nonconforming loans secured on first-ranking U.K. mortgages.
PLANT & BEAN: Heather Mills Buys Business Out of Administration
---------------------------------------------------------------
Business Sale reports that two companies led by entrepreneur and
animal rights activist Heather Mills have acquired the assets of
plant-based meat alternative maker Plant & Bean out of
administration.
Plant & Bean called in administrators earlier this year after being
hit by inflation and operational issues, Business Sale relates.
Interpath Advisory's Howard Smith and James Clark were appointed as
joint administrators on May 31 2023, Business Sale recounts.
According to Business Sale, the joint administrators have now
secured a sale of the business' manufacturing facilities and
equipment -- including its 26.3 hectare facility -- to Vegan Solo
Consulting and Duo Renovations. Heather Mills is a director at
both firms.
Plant & Bean's Boston, Lincolnshire facility manufactures products
for brands including Quorn, Wicked Kitchen and Princes. Using peas
and beans as protein, the facility produces a wide range of
meat-free products, including sausages, mince, burgers and
nuggets.
Commenting on the acquisition, Heather Mills, as cited by Business
Sale, said that the companies plan to keep the facility as a
non-meat factory. According to reports in food industry
publication The Grocer, the facility's production capabilities will
be renovated and upgraded, with Interpath saying that "a lack of
investment" had contributed to Plant & Bean's operational issues,
Business Sale notes.
PREZZO: High Court Approves Restructuring Plan
----------------------------------------------
Sophie Witts at The Caterer reports that Prezzo is to close almost
a third of its restaurants after its restructuring plan was
approved by the High Court.
According to The Caterer, the casual dining chain said the move
would bring an end to the "strategic reshaping of the business" and
allow it to focus on a "sustainable future".
In April, Prezzo chief executive Dean Challenger admitted soaring
inflation had made it "impossible" for all its restaurants to stay
profitable, The Caterer recounts.
The group will be left with 97 restaurants, which it said had
delivered strong like-for-like sales in 2023, The Caterer
discloses.
HM Revenue and Customs (HMRC) had objected to the restructure and
claimed it was being used by Prezzo to avoid paying more than GBP11
million worth of tax, while around GBP32 million owed to landlords
would also be compromised by the restructure, The Caterer relays,
citing Bloomberg.
However, the Honourable Mr Justice Richard Smith said in his
ruling: "I am satisfied in all the circumstances of this case that
the plan is a fair one."
Jo Harrison, former director of finance at retailer Hotel Chocolat,
recently joined Prezzo as its new chief financial officer amid the
restructure, The Caterer notes.
The plans are backed by Prezzo's private equity owner, Cain
International, The Caterer states.
RIMSTOCK: Enters Administration After Rescue Talks Fail
-------------------------------------------------------
Rachel Covill at TheBusinessDesk.com reports that a manufacturer of
alloy wheels, supplying into some of the world's most prestigious
automotive OEMs, has called in administrators.
Located in West Bromwich, Rimstock is the only manufacturer in
Europe with specialist rotary forge capabilities, which allows the
business to produce stronger and more complex wheel designs.
According to TheBusinessDesk.com, the company has been facing
financial difficulties over the last 12 months and management
engaged Interpath Advisory to support in ongoing discussions with
key stakeholders and investors in an attempt to secure funding for
the business.
The negotiations were unsuccessful and without additional funding,
management took the decision to place the company into
administration, TheBusinessDesk.com discloses.
The administrators are working with management and the company's
key customers to ascertain the level of support for ongoing
trading, TheBusinessDesk.com notes. They are also continuing to
review all of the options for the business and any parties that
wish to express an interest are advised to contact the joint
administrators as soon as possible, TheBusinessDesk.com states.
There have been no redundancies amongst the company's 74 staff
while options are explored, TheBusinessDesk.com relays.
SILVAN SELECT: Bought Out of Administration
-------------------------------------------
Business Sale reports that Silvan Select, a Leicestershire-based
supplier of sustainable wood and laminate flooring, has been
acquired after falling into administration last month.
According to Business Sale, the company, which operates from the
Thurlaston Sawmill, Enderby Road, has been acquired by an
undisclosed buyer.
The firm, which trades as Silvan Floors, produces handmade flooring
sourced from sustainable timber, with its brands including Axedo,
Genus and Silvan. The firm supplies its products to "leading
international designers, architects and individuals around the
world".
However, the company struggled as a result of adverse trading
conditions, with directors attributing its problems to price rises
and the war in Ukraine, which they said affected the supply of raw
materials, Business Sale discloses. According to the company's
accounts for 2021, it also owed creditors over GBP709,000 in 2021,
Business Sale notes.
In June, the company posted a notice of intention to appoint
administrators, before subsequently appointing Phil Ballard of
Ballard Business Recovery and Craig Ridgley of Mercian Advisory as
joint administrators on the same day, Business Sale recounts.
Following the appointment of the joint administrators, the
company's business and assets were sold to an undisclosed buyer,
with the majority of its employees transferring to the purchaser
immediately, Business Sale states.
According to Silvan Select's most recent accounts at Companies
House, for the year ending December 31 2021, its fixed assets were
valued at GBP178,642 and current assets at around GBP898,000,
Business Sale notes. However, the company's significant
liabilities meant that its net assets were valued at just under
GBP125,000, according to Business Sale.
*********
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-
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Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2023. All rights reserved. ISSN 1529-2754.
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