/raid1/www/Hosts/bankrupt/TCREUR_Public/230707.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
Friday, July 7, 2023, Vol. 24, No. 136
Headlines
A L B A N I A
PROCREDIT BANK SH.A: Fitch Affirms 'BB-' IDR, Outlook Stable
C R O A T I A
HRVATSKA POSTANSKA: Fitch Assigns BB LongTerm IDR, Outlook Stable
F R A N C E
EXPLEO SERVICES: Moody's Assigns B3 CFR & Rates Sr. Secured Debt B3
G E R M A N Y
ADLER PELZER: Fitch Assigns Final 'B-' IDR, Outlook Stable
HT TROPLAST: Moody's Ups CFR to B2 & Rates New EUR380MM Notes B2
HT TROPLAST: S&P Raises LongTerm ICR to 'B' on Robust Performance
KIRK BEAUTY A: S&P Affirms 'B-' ICR & Alters Outlook to Stable
I R E L A N D
FIDELITY GRAND 2023-1: S&P Assigns Prelim. B-(sf) Rating on F Notes
JAZZ PHARMACEUTICALS: S&P Affirms BB- ICR & Alters Outlook to Pos.
K O S O V O
PROCREDIT BANK: Fitch Affirms 'BB' LongTerm IDR
L U X E M B O U R G
KLEOPATRA HOLDINGS 2: Moody's Affirms 'B3' CFR, Outlook Negative
LUXEMBOURG INVESTMENT 437: Moody's Cuts CFR to B3 & PDR to B3-PD
TLG FINANCE: Moody's Lowers Rating on Subordinated Notes to Ba1
M A C E D O N I A
PROCREDIT BANK AD SKOPJE: Fitch Affirms BB-(xgs) LongTerm IDR
N E T H E R L A N D S
PETROBRAS GLOBAL: Fitch Gives BB- Rating on Unsec. Notes Due 2033
S E R B I A
PROCREDIT BANK BEOGRAD: Fitch Affirms bb- Viability Rating
S P A I N
CIRSA ENTERPRISES: Moody's Ups CFR to B2 & Alters Outlook to Stable
NOURYON HOLDING: Fitch Affirms B+ LongTerm IDR, Outlook Stable
SANTANDER CONSUMER 5: Fitch Assigns BB(EXP) Rating to Class D Debt
T U R K E Y
VDF FAKTORING: Fitch Assigns 'B' LT Foreign Currency IDR
VDF FILO: Fitch Assigns 'B' LT Foreign Currency IDR
U N I T E D K I N G D O M
BILLING AQUADROME: Set to Go Into Administration
BIRKDALE MANUFACTURING: Enters Administration, Ceases Operations
BLACKMORE BOND: Total Administration Costs Almost GBP3 Million
CURIUM BIDCO: Moody's Affirms B3 CFR & Alters Outlook to Positive
HUNTER HOLDCO 3: S&P Affirms B Issuer Credit Rating, Outlook Stable
IDEAL WORLD: Goes Into Administration, Halts Operations
MICKEY MILLERS: Shuts Down Following Voluntary Liquidation
NEWGATE FUNDING 2007-2: Fitch Affirms B+sf Rating on Class F Debt
OAT HILL NO 3: S&P Assigns Prelim. B-(sf) Rating on F-Drfd Notes
WILKIES: Five Stores to Shut Down Following Administration
X X X X X X X X
[*] BOOK REVIEW: The First Junk Bond
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A L B A N I A
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PROCREDIT BANK SH.A: Fitch Affirms 'BB-' IDR, Outlook Stable
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Fitch Rating has affirmed Albanian ProCredit Bank Sh.a.'s (PCBA)
Long-Term Issuer Default Rating (IDR) at 'BB-' with a Stable
Outlook, its Shareholder Support Rating (SSR) at 'bb-' and its
Viability Rating (VR) at 'b-'.
KEY RATING DRIVERS
PCBA's IDRs and SSR reflect Fitch's view of potential support from
its sole shareholder, ProCredit Holding AG & Co. KGaA (PCH;
BBB/Stable).
The bank's VR of 'b-' is one notch below its implied VR of 'b'.
This reflects the bank's limited franchise and small scale, which
weigh on its capacity to generate solid and sustainable earnings.
PCBA's VR also considers its below-average risk profile and
better-than-sector asset quality in the high-risk Albanian
operating environment.
Country Risks Constrain Support: PCBA is strategically important to
PCH and remains an important part of the group's long-standing and
well-established presence in south eastern Europe (SEE).
Nonetheless, the extent to which potential support can be factored
into PCBA's ratings is constrained by Albania's country risks, in
particular transfer and convertibility. Without these constraints,
the bank's Long-Term IDR would have been notched down once from the
parent's 'BBB' Long-Term IDR.
Challenging Operating Environment: Albania is a small and
cash-based economy dependent on the cyclical tourism and
agricultural sectors, providing narrow opportunities for banks to
grow and diversify loan exposures. The sector's non-performing
loans ratio is still one of the highest in the region and we expect
that inflation and Albanian lek appreciation could result in some
moderate pressure on borrower's repayment capacity, in particular
among exporters.
Cautious Risk-Management Framework: ProCredit Group deploys its
established risk governance at all subsidiaries, including PCBA,
which results in prudent underwriting standards and strict risk
controls. This should be seen in the context of the Albanian
operating environment, which is challenging and presents limited
opportunities for banks to be consistently profitable.
Concentration Weights on Asset Quality: The bank's asset quality
remains better than the sector's as reflected by its 3.1% impaired
loans ratio compared with a 5.2% average for the banking sector at
end-1Q23.
Concentrations in the bank's loan portfolio, exacerbated by its
small size, could result in more volatility in the core metric.
However, we expect the bank to mitigate asset-quality pressures
with ongoing loan workouts, helping to keep its impaired loan ratio
at below 3% by 2024. Further, the bank's ample loan loss allowances
provide headroom to absorb pressures on profitability in the near
term.
Restructuring Helps Operating Profitability: The bank's
profitability remains subdued as reflected by only 0.5% operating
profit to risk-weighted assets (RWAs) in 2022 and 1Q23. We except
profit generation to improve over the next two years, helped by
widening margins, ongoing structural improvements in cost
efficiency and recoveries from loan write-offs in previous years.
Reduced Reliance on Capital Support: PCBA's common equity Tier1
(CET1) ratio of 13.9% at end-1Q23 remains only adequate,
considering its small nominal size and country risks. We expect,
with better internal capital generation, the bank would require
less of parental assistance. In the past five years, the bank's
capitalisation has been sustained by regular capital injections
from the parent for a total equivalent of EUR19 million to support
its growth and strategy execution.
Growing Deposit Base: Efforts to strengthen its depositor base amid
muted loan growth resulted in a loans-to-deposits ratio of below
100% at end-1Q23. Customer deposits are its largest source of
funding (78% of total at end-1Q23). Granular retail deposits
accounted for 44% of customer deposits.
The bank's funding mix remains supplemented by, albeit gradually
declining, funding from PCH and long-term loans from international
financial institutions for SME development projects. Liquidity is
adequate, mainly comprising central government assets and reserves
at the local central bank.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
PCBA's IDR and SSR would be downgraded on adverse changes to
Fitch's perception of country risks in Albania. The ratings could
also be downgraded on a substantial decrease in the bank's
strategic importance to PCH, which is primarily based on PCH's
commitment to the country and the region.
Fitch would downgrade the VR if the bank's capitalisation weakens
materially due to loss-making without prospects for improvement. In
particular, Fitch would downgrade the bank's VR if the CET1 ratio
falls below 10% on a sustained basis.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
PCBA's IDR and SSR could be upgraded as a result of diminished
country risks, which Fitch views as unlikely in the medium term.
The bank's VR could be upgraded on material improvements in its
franchise and resilience in the business model. The latter may be
reflected in a solid record of profitable operations over the
medium term, combined with stable asset-quality ratios.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
PCBA's Long-Term (LT) Foreign-Currency IDR (xgs) is driven by
support from PCH and affirmed at one notch below PCH's LT
Foreign-Currency IDR (xgs). The LT Local-Currency IDR (xgs) is in
line with PCBA's LT Foreign-Currency IDR (xgs). The Short-Term (ST)
Foreign-Currency IDR (xgs) is in accordance with the LT
Foreign-Currency IDR (xgs) and Fitch's short-term rating mapping.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
PCBA's LT IDRs (xgs) are primarily sensitive to changes to the
parent bank's ability or propensity to provide support (ie. if the
parent's LT IDRs (xgs) changes) and Albania's country risks, in
particular transfer and convertibility risks.
Its ST Foreign-Currency IDR (xgs) primarily sensitive to changes in
the LT Foreign-Currency IDR (xgs).
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
PCBA's IDRs and SSR are driven by support from PCH.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section the highest level of ESG
credit relevance is a score of '3'. This means ESG issues are
credit neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Prior
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ProCredit Bank Sh.a.
LT IDR BB- Affirmed BB-
ST IDR B Affirmed B
LC LT IDR BB- Affirmed BB-
LC ST IDR B Affirmed B
Viability b- Affirmed b-
Shareholder Support bb- Affirmed bb-
LT IDR (xgs) BB-(xgs) Affirmed BB-(xgs)
ST IDR (xgs) B(xgs) Affirmed B(xgs)
LC LT IDR (xgs) BB-(xgs) Affirmed BB-(xgs)
LC ST IDR (xgs) B(xgs) Affirmed B(xgs)
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C R O A T I A
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HRVATSKA POSTANSKA: Fitch Assigns BB LongTerm IDR, Outlook Stable
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Fitch Ratings has assigned Croatia-based Hrvatska Postanska Banka,
dionicko drustvo (HPB) a Long-Term Issuer Default Rating (IDR) of
'BB' with a Stable Outlook and a Viability Rating (VR) of 'bb'.
KEY RATING DRIVERS
HPB's IDRs are driven by the bank's standalone strength, as
captured by its 'bb' VR. The VR balances the bank's moderate
franchise, stable funding and liquidity, and moderate
capitalisation against asset quality that is weaker than peers and
profitability that is only stabilising, following the recent
acquisition of a smaller bank.
The Stable Outlook on the bank's Long-Term IDR reflects Fitch's
expectations that the bank's asset quality and profitability will
stabilise gradually under our base case, while HPB will maintain
adequate solvency and liquidity metrics.
Stable Operating Environment: Softer 2023 GDP growth of around 1.7%
(down from 6.3% in 2022) in Croatia and tighter pricing will likely
dampen lending growth, which Fitch expects to moderate to
mid-single digits in 2023 (2022: 9%). Asset quality pressures will
be only moderate, helped by government support measures for
vulnerable businesses and households. Fitch expects banks' solvency
and liquidity metrics to remain strong.
Franchise Drives Business Profile: HPB's market position is
improving, underpinned by the ongoing consolidation with Nova
Hrvatska banka d.d., acquired through the recovery and resolution
process in April 2022. At the same time, HPB's combined market
share of about 8% by total assets at end-1Q23 remains moderate in
Croatia's small and highly concentrated banking sector.
Credit Risks Dominate: HPB's risk profile mainly reflects credit
risk surrounding retail and SME lending, and is commensurate with
its business profile. Concentration risks are primarily driven by
public sector exposures and non-loan exposures are of low risk.
Asset Quality Weaker than Peers: HPB's asset quality metrics remain
weaker than peers with the Stage 3 loans ratio of 8.7% at end-1Q23
(end-2021:13.6%) nearly double the sector average (4.4%). We expect
the Stage 3 loans ratio to remain broadly stable in the next two
years due to slow write-offs and continuing work-outs of legacy
problem loans. Specific coverage of Stage 3 loans is adequate at
75%.
Profitability Yet to Stabilise: HPB's profitability in 2022 has
been affected by the sizeable one-off effects linked to the
consolidation of the acquired bank. Stronger performance in 1Q23
was driven by higher interest rates, and a release of provisions,
which are unlikely to be sustained. Fitch expects core
profitability to improve gradually over the next two years, with
stabilising asset quality and the positive effects of the larger
scale.
Capitalisation Moderate: HPB's capital comprises entirely common
equity Tier 1 (CET1), with the end-1Q23 CET1 ratio of 19.1% down
from 25.7% at end-2021 due to the acquisition-led increase in
risk-weighted assets (RWA). Retention of 2022 earnings, which
includes a sizeable bargain gain on acquisition, softened the
solvency pressures. The bank's management targets managing the CET1
ratio at around 20% in 2023-2024, which Fitch views as moderate
given the bank's risk profile.
Deposit Funding is Core: HPB is almost exclusively funded by
customer deposits, with a sizeable share of highly granular and
sticky retail deposits, complemented by funds from the government
and state-owned enterprises, other corporates and SMEs. Wholesale
funding is limited but may grow in the near term to cover minimum
requirement for own funds and eligible liabilities (MREL)
requirements. Fitch expects liquidity buffers to remain strong.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
HPB's VR, and consequently Long-Term IDR, would be downgraded if
the bank experiences a sharp deterioration in asset quality (Stage
3 loans ratio at above 12%), pressuring its capitalisation and
operating profitability metrics without clear prospects for
recovery.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
An upgrade would require a material strengthening of the bank's
franchise with a record of a stable business model and
profitability and improved asset-quality metrics (Stage 3 ratio at
or below 4%), while maintaining adequate capital ratios and a
stable liquidity profile.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
HPB's 'BB' long-term deposits are rated in line with its Long-Term
IDR as Fitch views the likelihood of default on deposits as the
same as that of the bank. This view considers the absence of the
full depositor preference in Croatia, and HPB's small buffers of
junior and senior non-preferred debt available to protect
depositors in a resolution scenario. At the same time, Fitch
expects HPB to meet its MREL with senior preferred debt and equity,
without using the deposits. The short-term deposit rating of 'B'
maps to a 'BB' long-term deposit rating under Fitch's Bank Rating
Criteria.
HPB's GSR of 'no support' reflect Fitch's view that due to the
implementation of the EU's Bank Recovery and Resolution Directive
(BRRD), senior creditors of the bank cannot rely on full
extraordinary support from the sovereign if the bank becomes
non-viable.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
HPB's deposit ratings are primarily sensitive to the bank's IDRs,
which are driven by the VR. Therefore, any upgrade or downgrade of
the bank's VR and IDRs would result in an upgrade or downgrade of
the bank's deposit ratings.
Deposit ratings are also sensitive to the implementation of the
full depositor preference in Croatia (we do not expect this before
2025), that would make HPB's deposit ratings eligible for a
one-notch uplift over its Long-Term IDR, according to Fitch's
criteria. This is provided the bank has senior preferred debt in
resolution buffer or sufficiently large total debt buffers
(sustainably above 10% of the resolution group RWAs) to accrue
protection to depositors in case of bank resolution.
An upgrade of the GSR would be contingent on a positive change in
the sovereign's propensity to support the bank. While not
impossible, this is highly unlikely, given existing resolution
legislation.
VR ADJUSTMENTS
The asset quality score of 'bb-' has been assigned above the
implied category score of 'b' due to the following adjustment:
historical and future metrics (positive), collateral and reserves
(positive).
The capitalisation & leverage score of 'bb' has been assigned below
the implied category score of 'a' due to the following adjustment:
risk profile and business model (negative), historical and future
metrics (negative).
The funding & liquidity score of 'bb+' has been assigned below the
implied category score of 'bbb' due to the following adjustment:
deposit structure (negative).
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating
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Hrvatska postanska banka,
dionicko drustvo
LT IDR BB New Rating
ST IDR B New Rating
Viability bb New Rating
Gov't. Support ns New Rating
long-term deposits LT BB New Rating
short-term deposits ST B New Rating
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F R A N C E
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EXPLEO SERVICES: Moody's Assigns B3 CFR & Rates Sr. Secured Debt B3
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Moody's Investors Service has assigned B3 corporate family rating,
B3-PD probability of default rating and B3 rating to the backed
senior secured bank credit facilities of Expleo Services SAS. The
outlook is stable.
This rating assignment is based on the amend and extend (A&E)
transaction launched by Expleo to address the upcoming maturities
of the backed senior secured term loan B (TLB) and backed senior
secured revolving credit facility (RCF). Following this
transaction, the maturity of the TLB will be September 2027 and RCF
will be March 2027. A GB50 million TLB will be raised as part of
this A&E transaction and will mature in September 2027.
The rating assignment is based on Moody's assumption of a
successful execution of this A&E transaction with no material stub
debt remaining unextended, such that Expleo will maintain enough
liquidity over the next 12-18 months.
RATINGS RATIONALE
The B3 rating reflects the company's solid operating performance in
2022 and Q1 2023 driven by increased demand for its services,
improvement in profit margin with the use of near shore and off
shore capabilities and reduction in legacy non-recurring charges
related to COVID-19 which helped improve Moody's adjusted EBITDA to
EUR120 million in 2022 from EUR93 million in 2021. The outlook also
reflects Expleo's improved liquidity following the maturity
extension of its TLB and RCF and from the additional GBP TLB
facility.
Despite a challenging macroeconomic and competitive environment,
Expleo managed to grow its revenue and EBITDA by 26% and 29%
respectively in 2022 which reflects the attractiveness of its
service offering and increased presence in high growth areas such
as technological and digital projects. Moody's expects revenue of
around EUR1.4 to 1.6 billion and Moody's adjusted EBITDA of around
EUR130 to 160 million over 2023-2024. Free cash flow generation
(FCF) to debt was negative at 13% for 2022 due to a high amount of
non-recurring charges and exceptional working capital outflows
related to implementation of the company's ERP program. Moody's
expects FCF/debt to improve but still be negative at 5.4% in 2023
and turn positive in 2024 at around 3% as final payments of these
exceptional items stop in 2023.
The rating reflects Expleo's leading position as a provider of
engineering, technology and consulting services to large companies
in the engineering research and development (R&D) industry with a
stronger and more diversified business profile compared to
pre-covid times. This is balanced by its relatively limited scale
in terms of revenue in a highly competitive industry, reliance on
continuous recruitment of skilled staff because of a high turnover
rate and high level of covid related legacy exceptional charges
which are expected to end in 2023.
Governance was a key consideration for the assignment of these
ratings under Moody's ESG framework.
RATING OUTLOOK
The stable outlook reflects Moody's expectation that Expleo's
operating performance will remain strong, and that its
Moody's-adjusted leverage will remain below 6x by 2024 and
Moody's-adjusted FCF/debt will improve to breakeven to positive in
2024 following further cash outflows and leverage increase in 2023.
The outlook also assumes that Expleo will not undertake any
significant dividend recapitalization or debt funded acquisitions
that can delay deleveraging.
LIQUIDITY
Despite the proposed transaction, Expleo's liquidity will remain
limited mainly due to intra-quarter working capital movements. Pro
forma for the transaction, Expleo had cash of around EUR48 million
and undrawn RCF of EUR47 million out of the total EUR108 million as
of April 30, 2023. Moody's expects negative FCF generation of
around EUR5 -10 million through March 2024 including the assumption
of working cash and seasonal outflows in the first quarter of each
year. With this transaction, the nearest debt maturity will be in
March 2027 when the RCF matures.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be downgraded if operating performance weakens,
leading to a Moody's-adjusted debt/EBITDA sustainably above 7.0x,
sustained negative Moody's-adjusted free cash flow, if liquidity
concerns arise, or if the transaction is not completed as expected,
leading to near term refinancing risks.
The ratings could be upgraded if operating performance improves,
leading to Moody's-adjusted debt/EBITDA sustainably below 5.5x,
Moody's-adjusted free cash flow/debt of 3%-5%, and the maintenance
of a solid liquidity profile.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
Expleo Services SAS, headquartered in Paris, France, is a leading
European engineering, technology and consulting service provider
specializing in developing complex products, optimizing
manufacturing processes, and ensuring the quality of information
systems.
Expleo offers services in a wide range of fields including AI
engineering, digitalization, hyper-automation, cybersecurity and
data science. It has a global footprint, with 17,500 highly-skilled
experts across 30 countries in the aerospace, automotive,
transportation, and financial services sectors. It generated
revenue of EUR1.3 billion and Moody's adjusted EBITDA of EUR134
million for the last twelve months ending March 31, 2023.
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G E R M A N Y
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ADLER PELZER: Fitch Assigns Final 'B-' IDR, Outlook Stable
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Fitch Ratings has assigned Adler Pelzer Holding GmbH (APG) a final
Long-Term Issuer Default Rating (IDR) of 'B-' with a Stable Outlook
and a final senior secured instrument rating of 'B' with a Recovery
Rating of 'RR3'.
The IDR reflects APG's high leverage metrics, which are a function
of its lower profitability and cash flow generation than the 'B'
rating median in our auto supplier navigator. This is mitigated by
its leading market position, strong technical knowledge and
established relationships with original equipment manufacturers
(OEM). Fitch regards APG's business profile as broadly in line with
a 'BB' rating category.
The Stable Outlook reflects Fitch's expectation that APG's
post-refinancing capital structure will improve and be consistent
with its rating, although 2023 EBITDA net leverage of 3.5x remains
higher than our 'B' rating median of 3.0x. In May 2023, APG
completed its refinancing, with the issue of a senior secured bond
of EUR400 million and a EUR120 million equity-like injection.
Fitch also expects operating margins and cash flow over the next
two to three years to improve moderately, on easing supply chain
tensions, reduced cost inflation, cost synergy realisation and
better fixed cost absorption from higher utilisation rates.
KEY RATING DRIVERS
High but Declining Leverage: Fitch expecst APG to rebase its EBITDA
gross and net leverage at significantly lower levels, following the
equity-like injection of EUR120 million and EBITDA/funds flow from
operations (FFO) increase. Fitch expects APG's EBITDA net leverage
to be higher than the 'B' rating median until end-2025 but
commensurate with its rating. Stronger-than-expected improvement in
profitability, along with growing volumes and declining raw
material prices, could accelerate deleveraging beyond the Fitch
rating case.
Moderate Profitability Improvements: Fitch expects APG's EBIT
margin to improve moderately towards 4% by 2027, which represents
the 'B' median for car suppliers. Profitability improvement will be
led by volume recovery, subsiding energy and raw material costs and
some cost synergies following full integration of the companies
acquired. The Fitch-adjusted EBIT margin declined to around 1.5% in
2021-2022, from around 3.5% of 2019-2020, following dilutive effect
from the acquisitions and volatile production schedules due to an
unstable supply chain.
Poor Cash Flow Generation: Fitch forecasts APG's free cash flow
(FCF) to be above break-even from 2025, mostly on a higher EBITDA
margin. APG's cash flow generation was historically weak as a
result of thin operating profitability, a high tax burden and
volatile net working capital (NWC) needs. Weak cash flow is also
the result of dividends to minorities because the company has
several fully consolidated, but only 50% controlled, joint ventures
(JVs).
Stretched Trade Payable Terms: Fitch assumes that APG will
progressively reduce its average trade payable days to below 100
days over its five-year forecast period. The company's average
supplier days stood at 158 days in 2021 and 130 days in 2022. We
understand from management that APG seeks to extend its maximum
payment terms with suppliers rather than relying on supply chain
arrangements. Fitch sees stretched conditions as a downside risk
for APG's cash flow and leverage if suppliers start to drastically
tighten payable terms.
Significant Trapped Cash: APG's reported cash at end-2022 was
around EUR230 million, more than 10% of its 2022 turnover. Fitch
deems EUR35 million as not available for debt repayment due to lack
of full ownership in certain consolidated subsidiaries. Fitch
further restricts available cash at 2% of annual sales due to
intra-year NWC swings.
Supportive Industry Trends: APG's business model is supported by an
increasing share of electric vehicles (EVs), as well as by higher
comfort and regulatory standards to reduce internal and external
noise produced by the engine. Acoustic insulation plays an even
more important role in EVs, as the absence of combustion engine
noise generates the need to develop insulation solutions that
cancel other noises emanating from motor vehicles. Moreover, OEMs
and regulators are setting higher standards to increase passenger
comfort and reduce vehicle noise.
Long-Term Partnerships: APG is a strategic supplier for all OEMs in
the development of acoustic and thermal insulation products. It is
involved in new vehicle developments, and in the study and
development of new solutions to reduce vehicle noise. In the
vehicle serial production, APG is awarded multiyear contracts, from
beginning to end of production, with pre-agreed volumes sold.
Market Leadership: APG is small compared with other Fitch-rated car
suppliers. However, the company claims global leadership in
acoustic and soft trim products, with a number one position in
engines, passenger luggage compartments and exteriors.
Even so, APG's reference market is fragmented: 42% market share is
held by companies individually holding a market share equal or
below 5%. We expect some further market consolidation, driven by
disposals or acquisitions of weaker producers.
DERIVATION SUMMARY
APG's business profile is broadly in line with the 'BB' rating
category. APG has a leading market share and an established top
position in the supply chain with longstanding relationships with
OEMs, given its strong technical knowledge in solutions for
acoustic and thermal insulation. APG, despite recent acquisitions,
is substantially smaller than the typical Fitch-rated auto
supplier. US-based producers such as Garrett Motion, Inc.
(BB-/Stable) and Tenneco, Inc (B/Stable) generate revenue from the
more stable and profitable after-market business, which is
virtually non-existent in APG.
APG's operating and cash flow margins are at the lower end of auto
suppliers'. Fitch expects some improvement in operating
profitability and cash flow generation during 2023-2027 with above
break-even FCF in 2025. Fitch also expects APG's leverage to
benefit from the shareholder equity-like injection and sees metrics
improving in line with the 'B' median of car suppliers in 2024.
KEY ASSUMPTIONS
Fitch's Key Assumptions within Its Base Case for the Issuer:
-- Sales CAGR of 3.5% in 2022-2027, supported by end-market
recovery, a solid order book and easing supply chain
constraints
-- Fitch-adjusted EBITDA margin expanding towards the high single
digits on volume growth, while supply chain stabilisation
leads to improving utilisation rates and cost synergies
-- Interest rate of 9.5% on the EUR400 million new notes. We
assume pay-in-kind interest on the shareholder loan in 2023-
2027
-- NWC at 0.4% of sales a year
-- Capex at 3.6% of sales a year to 2027
-- No dividends to common shareholders. Dividends to non-
controlling interests between EUR10 million and EUR15 million
a year
Recovery Assumptions:
-- The recovery analysis assumes that APG would be reorganised as
a going-concern in bankruptcy rather than liquidated
-- A 10% administrative claim
-- Fitch ranks the EUR400 million senior secured notes as
subordinated, in the application of proceeds, to the new super
senior revolving credit facility (RCF) and debt issued by
group subsidiaries
-- Fitch has used a 2022 Fitch-adjusted EBITDA of EUR115 million.
Given the current sector challenges and recent margin-dilutive
acquisition, Fitch does not apply any discount to the 2022
EBITDA
-- Fitch uses a multiple of 4.5x to estimate the GC EBITDA for
APG to reflect its post-reorganisation enterprise value
-- The multiple used reflects the company's technical knowledge,
established OEM relationships and leading market share
-- The multiple is in line with that of other car suppliers with
established market position and larger critical mass
-- The allocation of value in the liability waterfall results in
recovery corresponding to 'RR3'/53% for the senior secured
notes
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- EBIT margin above 4% on a sustained basis
- FCF margin above break-even on a sustained basis
- EBITDA gross and net leverage below 3.5x and 3.0x, respectively,
on a sustained basis
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- EBIT margin below 2% on a sustained basis
- Persistently negative FCF margin on a sustained basis
- EBITDA gross and net leverage above 4.5x and 4.0x, respectively,
on a sustained basis
- EBITDA interest coverage below 2x
LIQUIDITY AND DEBT STRUCTURE
Refinancing Supports Liquidity: APG reported EUR232 million readily
available cash at end-2022, above 10% of its 2022 sales. Fitch
regards around EUR40 million as trapped in intra-year NWC swings.
Fitch also restricts EUR35 million due to lack of ownership of cash
held in fully consolidated but only partly owned JVs.
The refinancing increases the company's financial flexibility via
new super senior revolving credit facility of EUR55 million.
Increased liquidity will provide APG additional flexibility in
funding short-term cash flow shortfalls.
Reduced Short-Term Refinancing Risks: The issue of the EUR400
million new notes and the equity-like injection of EUR120 million
have removed APG's immediate refinancing risks. With the new funds
raised in 2023, the company has refinanced EUR425 million its
existing notes and repaid a super senior term loan of EUR40 million
and EUR11 million other bank debt. APG however saw a significant
increase in refinancing costs because of the current interest-rate
environment.
ISSUER PROFILE
APG is a worldwide leader in design, engineering and manufacturing
of acoustic and thermal components & systems for the automotive
sector. Headquartered in Hagen, Germany, Adler has built a global
network of over 100 facilities close to the main automotive hubs.
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.
HT TROPLAST: Moody's Ups CFR to B2 & Rates New EUR380MM Notes B2
----------------------------------------------------------------
Moody's Investors Service has upgraded HT Troplast GmbH's (profine
or the company) corporate family rating to B2 from B3 and
probability of default rating to B2-PD from B3-PD. Concurrently,
Moody's has also assigned a B2 rating to EUR380 million backed
senior secured fixed rate notes to be issued by HT Troplast GmbH.
The outlook remains stable.
profine will use the proceeds from the proposed EUR380 million
backed senior secured fixed rate notes due 2028 to repay its
existing EUR340 million backed senior secured fixed rate notes due
2025 and EUR20 million will be distributed to shareholders. The
issuance will thus lead to an increase in gross leverage, but
Moody's expects metrics to remain in line with Moody's expectations
for the B2 rating. As part of this transaction, profine will also
increase the size of its revolving credit facility (RCF, unrated)
to EUR85 million, from EUR40 million, extending its maturity to
2028.
The backed senior secured notes due 2025 will be withdrawn upon
repayment.
RATINGS RATIONALE
The rating action reflects:
- profine's Moody's adjusted gross leverage of around 3.9x
pro-forma of the transaction and based on the 12 months ending
March 2023, up from 3.6x on an actual basis, and Moody's
expectations that credit metrics will remain in line with the B2
rating over the next 12-18 months including gross debt/EBITDA of
around 4.0x and EBIT/Interest of around 1.8x. This compares well to
Debt/EBITDA and EBIT/Interest to be maintained below 5.0x and above
1.5x respectively for the maintenance of the B2 rating.
- profine's improved credit quality since 2020 on the back of
strong demand for renovation activities, the company's ability to
increase selling prices, increasing operating leverage and the
repositioning of its product portfolio. These factors supported
sustained earnings growth over the past three years, leading to an
improvement in profine's interest coverage in spite of the high
coupon already paid on the outstanding backed senior secured
notes.
- Moody's expectations that demand for profine's products will
weaken over the next 12-18 months due to lower construction
activities, namely in the residential new build segment (15% of
revenue). This will be partly offset by profine's exposure to the
more stable renovation market (85% revenue) and increasing demand
for energy efficient renovation with rising energy standards across
the globe partly driven by regulation, increasing opportunities to
enter new regions.
- Moody's expectations that Free Cash Flow (including lease and
interest payments) will be negative in 2023 and 2024 because of an
increase in capex to fund capacity expansion in new regions. The
capacity expansion also entails some execution risk, albeit partly
mitigated by the management track record in entering new markets
and the flexibility to reduce capex in case of a more protracted or
sharper decline in construction activities.
profine's rating continues to be supported by its leading position
in the fairly oligopolistic PVC window market, improved liquidity
thanks to the upsized RCF as part of the proposed transaction and
strong management track record. The rating is constrained by
relatively limited geographical diversification with most of its
revenue generated in Europe and some exposure to Russia (c. 9% of
revenue in 2022), and risk of pricing pressure given the declining
PVC prices.
ESG CONSIDERATIONS
Governance considerations are a primary driver for the rating
action because, following the proposed transaction, profine will
improve its liquidity extending maturities and increasing its RCF
which is now more commensurate with the size of the group.
LIQUIDITY
profine's liquidity is adequate and will benefit from the extension
of its debt maturity profile, as well as the upsize RCF as part of
the proposed transaction. The cash balance of around EUR34 million
as of the end of March 2023, undrawn RCF of EUR85 million and
maturity extended to 2028 upon closing, support liquidity. These
sources, together with internally generated cash flows are
sufficient to cover interest payment, intra-year working capital
swings, lease payments and capital spending, which is expected to
increase in 2023 and 2024 to expand and relocate capacity in Europe
and new geographies. The RCF contains a springing net leverage
financial covenant tested only when the facility is more than 35%
drawn.
During 2020, the company entered into various local facilities with
banks partially backed by governmental COVID-19 support schemes,
totaling around EUR16 million as of March 2023. These facilities
have different maturity profiles and amortization schemes, with the
largest loan being a French state guarantee loan agreement due in
2026 totaling EUR9.2 million as of March 2023. There are no other
major debt maturities apart from the backed senior secured notes
until 2028 and following the proposed transaction.
STRUCTURAL CONSIDERATIONS
profine's proposed capital structure consists of backed senior
secured fixed-rate notes and a super senior secured RCF. Both
instruments will be guaranteed by subsidiaries, which account for
at least 70% of consolidated EBITDA and of assets of the group. The
backed senior secured notes will share the same security package as
the super senior RCF, which contains not only shares of the issuer,
but also bank accounts, certain current and fixed assets, trade
receivables and land charge over real property. However, the notes
will rank junior to the super senior RCF upon enforcement.
While the B2 rating on the proposed EUR380 million backed senior
secured fixed rate notes due 2028 is in line with the CFR, the
headroom to maintain the notes instrument rating in line with the
CFR is limited due to the priority ranking of the super senior RCF.
A further increase of the relative size of the super senior RCF
could result in a downward notching of the notes relative to the
CFR. The absence of notching on the notes also reflects Moody's
expectations that the company will rely on the RCF only temporarily
and for smaller amounts to manage its liquidity needs related to
the usual business seasonality. More prolonged drawing on the RCF
to fund acquisitions or other investments could result in a
downward notching of the notes.
OUTLOOK
The stable rating outlook reflects Moody's expectation that
profine's credit metrics will be in line with the B2 ratings over
the next 12-18 months including debt/EBITDA of around 4.0x and
EBIT/Interest of around 1.8x. Moody's forecasts assume a
mid-to-high single digit decline in volume over the next 12-18
months driven by lower demand from the new build residential market
and more stable renovation activities. These forecasts also assume
a mid-single digit decline in selling prices in 2023 reflecting
declining PVC prices.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if strong earnings growth results in
sustained improvement in credit metrics, including:
Moody's-adjusted debt/EBITDA below 4.0x, and
Moody's-adjusted EBIT / Interest above 2.0x,
Moody's-adjusted FCF/debt in the high-single-digit percentages and
good liquidity.
The ratings could be downgraded with expectations for:
Moody's adjusted Debt/EBITDA above 5.0x
Moody's adjusted EBIT/Interest below 1.5x
FCF turns negative, leading to a deterioration in its liquidity
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Building
Materials published in September 2021.
COMPANY PROFILE
HT Troplast GmbH (profine) is the holding entity at the top of the
restricted profine group. Headquartered in Pirmasens, Germany,
profine is one of the leading producers of PVC window and door
profile systems and solutions for use in residential and commercial
buildings, marketed under the Kommerling, KBE and Trocal brands. In
2022, profine generated revenue of around EUR1,049 million. The
group is privately owned, and its largest ultimate shareholder with
a share of around 95% is Peter Mrosik, who is also the CEO of
profine.
HT TROPLAST: S&P Raises LongTerm ICR to 'B' on Robust Performance
-----------------------------------------------------------------
S&P Global Ratings raised its long-term issuer credit rating on
German window profiles manufacturer HT Troplast (Profine) to 'B'
from 'B-' and assigned its 'B' issue rating to the proposed EUR380
million senior secured notes, with a recovery rating of '3'.
S&P said, "The stable outlook reflects our view that in the next
12-18 months, Profine will maintain debt to EBITDA of 4.0x-5.0x
largely reflecting its resilient EBITDA and a stable capital
structure, with FOCF generation remaining positive.
"The upgrade reflects strong deleveraging and cash flow generation
improvement over the past years, combined with our expectation that
after the 2023 refinancing Profine will maintain S&P Global
Ratings-adjusted leverage between 4.0x and 5.0x. Over the past
three years, Profine showed consistent and strong deleveraging,
with S&P Global Ratings-adjusted debt to EBITDA decreasing from
5.9x as of end-2020 to 4.0x as of end-2022. We also note that cash
flow generation has significantly improved in 2022, with positive
FOCF exceeding EUR18 million. Strong deleveraging was mostly driven
by resilient profitability and high demand for Profine's energy
efficient products, leading to S&P Global Ratings-adjusted absolute
EBITDA increasing by 51% in three years. Profine is now targeting
an early refinancing of its existing debt maturing in 2025 by
raising EUR380 million of new senior secured notes maturing in 2028
and upsizing its super senior revolving credit facility (RCF) to
EUR85 million from the current EUR40 million. As part of the
transaction, Profine will pay a special dividend of EUR20 million
to its family shareholders. Despite EUR40 million of additional
debt in the capital structure after the refinancing, we expect that
profitability and cash flow will remain resilient in 2023 and 2024,
leading to S&P Global Ratings-adjusted debt remaining between 4.0x
and 5.0x. We do not expect the company to target other releveraging
transactions.
"Despite lower expected sales in 2023, we believe that Profine will
continue to benefit from the energy saving and climate protection
megatrends. According to our base-case scenario, Profine will
report lower sales in 2023, with revenue declining by about 9%-11%,
before recovering in 2024. According to our base-case scenario,
sales will stand at about EUR935 million-EUR955 million in 2023,
compared with EUR1 billion in 2022. This is due to a combination of
lower selling prices, reflecting a normalization following PVC
price reduction, combined with lower volumes in the newbuild
end-market, which accounts for about 25% of company's sales. We
expect demand to pick up again from the second half of 2023, with
good underlying growth potential, supported by the increasing focus
on energy efficiency and safety features, further boosted by
numerous energy-saving grant schemes and environmental government
programs in Europe. Profine's exposure to the positive market
trends for products related to energy saving and climate protection
is a key support for the rating. In our opinion, Profine has some
pricing power that will support profitability improvements in
future years, and we expect that selling prices will decline less
than raw material prices, leading to an S&P Global Ratings-adjusted
EBITDA margin of about 12.5%-13.5% in 2023-2024, compared with
11.6% in 2022.
"While we expect solid cash flow generation in 2023, it will be
constrained by capex investments in 2024 and 2025. Profine reported
sound cash flow generation in 2022 and we expect the trend will
continue this year, with expected FOCF generation of about EUR20
million-EUR25 million in 2023. The remarkable improvement from 2021
is largely explained by reduced working capital needs thanks to the
improved supply chain combined with lower raw materials prices. We
expect that higher cash outflow related to the planned expansionary
capex investments in 2024 and 2025 will temporarily constrain FOCF,
with total capex of about EUR60 million-EUR70 million compared with
about EUR50 million in 2023 and EUR41 million in 2022. However, we
believe that the company has flexibility to postpone discretionary
capex spending if market conditions are not supportive and
maintenance capex is significantly lower, at about EUR20 million
per year.
"Our business risk assessment remains constrained by Profine's
lower scale and scope compared with other rated building material
companies. Most of Profine's products relate to screens, windows,
and sliding and classic door systems. Product diversity is limited
compared with that of similarly rated peers, with most products
intended for the window manufacturing industry. While the company's
product offering also includes an aluminum system in India as well
as a PVC-aluminum hybrid system, both recently launched, most of
its products are only made of PVC, unlike some competitors from the
aluminum segment offering product ranges focused on aluminum but
also offering PVC solutions to a limited extent. Another ratings
constraint is the company's small size and significant dependence
on the European economy, with revenues just over EUR1 billion in
2022, with as much as 89% generated in Europe.
"We continue to view Profine's solid position in the European PVC
profiles market, combined with high exposure to the renovation
market, as a rating positive. Profine is a leading producer of
energy-efficient, premium quality PVC window and door profile
systems and solutions that are sold to window manufacturers. In the
European windows market, the company has a solid share of almost
20%, ranking second behind its main competitor, Veka. We understand
that the market is somewhat concentrated, with the top eight
players accounting for about 85% of business. Moreover, the company
generates most of its sales (up to 85%) in the renovation market,
which we see as more robust than the newbuild segment.
"While about 9% of the company's sales are exposed to Russia, we
continue to include the contribution from this region in our
base-case scenario. So far, the Russian subsidiaries have not
significantly hurt the company's operating performance given that
their operations are largely independent from the rest of the
group. Over 90% of raw materials are sourced from local suppliers,
and more than 95% of the products are sold to the local market or
Russia supporting countries. Historically, Russian subsidiaries
managed to generate sufficient cash to support their operations and
have very limited inter-company transactions with the rest of the
group. We also note that no member of the group is currently
subject to, or in violation of, any sanctions. For this reason, we
continue to include the revenue and EBITDA contribution of the
Russian business in our base-case scenario.
"The stable outlook reflects our view that Profine will maintain
adjusted debt to EBITDA between 4.0x and 5.0x in 2023-2024,
supported by a stable capital structure combined with improving
profitability, mostly driven by effective price management and
resilient demand in the renovation end-market. We also expect
Profine will continue to generate positive FOCF over the next 12-18
months."
S&P could lower the rating if:
-- Profine's operating performance deteriorates, or the company
pursues large debt-funded acquisitions, capital investments, or
shareholder distributions, leading to a significant deterioration
in credit metrics, with S&P Global Ratings-adjusted debt to EBITDA
approaching 5.5x;
-- The company generates negative FOCF in 2023 and 2024, without
prospects for a swift recovery;
-- The group does not refinance its existing debt maturing in July
2025; or
-- Its liquidity deteriorates materially.
S&P could take a positive rating action if:
-- Profine continues to improve top-line growth and its EBITDA
margin beyond our base-case scenario, so that the company generates
material FOCF and shows a track record of maintaining S&P Global
Ratings-adjusted debt below 4.0x through the business cycle.
-- S&P would also need to see a strong commitment from management
and shareholder to maintain credit metrics commensurate with a
higher rating.
ESG credit indicators: E2, S2, G2
KIRK BEAUTY A: S&P Affirms 'B-' ICR & Alters Outlook to Stable
--------------------------------------------------------------
S&P Global Ratings assigned its 'B-' rating to Kirk Beauty A GmbH,
with a stable outlook. At the same time, S&P withdrew its 'B-'
rating on Kirk Beauty Two GmbH.
S&P said, "The stable outlook indicates that we expect the group's
operating performance to be stable over the next three years. We
forecast S&P Global Ratings-adjusted debt to EBITDA approaching 6x;
earnings before interest, taxes, depreciation, amortization, and
rent (EBITDAR) to cash interest plus rents exceeding 1.2x; and FOCF
after leases turning positive and gradually rising.
Kirk Beauty's operating performance was bolstered by a substantial
recovery in footfall and profitable e-commerce in 2022. Its free
operating cash flow (FOCF) after leases was also less negative than
we previously forecast, increasing its rating headroom, and
supporting the stable outlook. Kirk Beauty reported record sales of
EUR3.7 billion in the fiscal year to Sept. 30, 2022. Like-for-like
revenue rose 22% in fiscal 2022 and continued to rise, by 18%, in
the first half of fiscal 2023. As a result, the group was better
able to absorb fixed costs and its EBITDA margins improved.
Demand for beauty products has been resilient in Eastern Europe,
where strong growth suggests that operating performance could
improve further. Margins in Eastern Europe are higher than
elsewhere, so growth in the region will uplift the group's overall
margins. The group's recent entry into new markets in Belgium and
Slovenia will also increase its revenue. Under the group's "Let it
Bloom" growth program, revenue is forecast to reach EUR5.0 billion
by 2026.
S&P said, "Discretionary spending could be hit by high inflation,
but we view beauty items as less discretionary. We anticipate that
customers will cut back their consumption of larger articles, such
as washing machines, and more discretionary items, such as
clothing. Fiscal 2023 is the first year since the pandemic began
that consumers have not been subject to restrictions, which should
reinforce the recovery in footfall. We predict that e-commerce will
contribute a stable percentage of sales, given that customers are
now used to combining online and offline shopping.
"In our opinion, higher revenue will enhance EBITDA margins through
better utilization of the company's fixed-cost base. We forecast
that adjusted EBITDA margins will be close to 15% in fiscal 2023
(14.3% in fiscal 2022)." However, further upside is limited by the
following factors:
-- Inflationary pressure on input prices and wages will remain
high.
-- Competition for consumer's limited discretionary spending will
hamper attempts to fully pass through cost inflation via higher
prices.
-- In the near term, the group faces costs and execution risk
associated with its operating efficiency initiatives and the impact
of closing 125 stores in Spain during the fiscal year to Sept. 30,
2023.
S&P said, "We anticipate that results for the full fiscal year will
be in line with trading in the first six months of fiscal 2023. On
a rolling 12-month basis, revenue growth was 15.5% and the adjusted
EBITDA margin was 15.9%, as of March 31, 2023. Kirk Beauty's
adjusted EBITDA margin has historically been 14%-17%. The group's
gross margins are still recovering from the lows of the pandemic
and will need to improve further through effective management of
the cost base, if it is to achieve higher EBITDA margins in the
coming years.
"Our rating is still constrained by Kirk Beauty's limited capacity
to generate positive FOCF after leases, as well as its high
leverage. We forecast that our leverage metric, adjusted debt to
EBITDA, will decrease gradually to 6.5x in fiscal 2023 and 5.9x in
2024, from 7.1x in fiscal 2022. The reduction in leverage depends
on the group's capacity to deliver higher margins and successfully
implement its growth program. We predict that FOCF generation after
leases will turn positive in fiscal 2023, reaching EUR20
million-EUR40 million, and will then improve to EUR50 million-EUR75
million in fiscal 2024."
Further upside potential is limited by the group's high annual
interest expenses, increasing absolute amount of lease payments,
and higher capital expenditure (capex) as it expands into new
markets to grow its revenue. Moreover, this assumes that the group
will continue to pay the interest on its senior payment-in-kind
(PIK) notes in kind through 2025. If it were to switch to cash,
annual cash outflows would increase by about EUR40 million-EUR50
million, which would constrain FOCF generation and limit rating
headroom.
Completion of the corporate reorganization has simplified the
organizational structure. From fiscal 2022, the group will publish
consolidated accounts under Kirk Beauty A GmbH. S&P said, "We have
therefore assigned our long-term issuer credit rating to Kirk
Beauty A and withdrawn our rating on Kirk Beauty Two GmbH. After
reviewing the final capital structure and related terms, we no
longer include any noncommon equity instruments when we calculate
adjusted debt."
S&P said, "The stable outlook indicates that we expect Kirk
Beauty's strong rebound after pandemic restrictions were lifted to
continue throughout our forecast period. We expect it to pursue
growth and that it will prove able to sustain leverage at a lower
level and maintain its positive cash generation momentum. We view
the company as well-positioned within the 'B-' rating category and
forecast that adjusted debt to EBITDA will remain very high at
6.3x-6.7x in fiscal 2023. We expect limited positive FOCF after
leases to be generated in fiscal 2023.
"We could lower the rating if we see a material weakening of
liquidity or if we consider the capital structure unsustainable in
the long term." A downgrade could follow negative development of
the credit metrics during fiscals 2023 and 2024, such that:
-- S&P Global Ratings-adjusted leverage rose above 7.0x;
-- EBITDAR to cash interest plus rent fell below 1.2x; or
-- FOCF after leases was persistently negative.
Negative development could occur if the group:
-- Struggles to maintain expansion of the top line or sustain its
EBITDA margin;
-- Incurs unexpected one-off costs or cash charges linked to its
strategic operating efficiency initiatives and expansion program;
-- Undertakes an unexpected debt-funded acquisition; or
-- Undertakes a distressed debt restructuring, such as buying back
its debt below par.
S&P said, "We could raise the rating if Kirk Beauty realizes
higher-than-expected benefits following completion of its
restructuring, or if its expansion leads to a material improvement
in the group's earnings and cash flows. An upgrade would also
depend on the credit metrics improving and the group committing to
a financial policy that would sustain them at a stronger level.
This would include adjusted debt to EBITDA of less than 6.0x;
EBITDAR to cash interest plus rents of at least 1.5x; and FOCF
after leases being consistently and materially positive."
ESG credit indicators: E-2, S-2, G-3;
Governance factors are a moderately negative consideration, as is
the case for most rated entities owned by private-equity sponsors.
S&P thinks the group's highly leveraged financial risk profile
points to corporate decision-making that prioritizes the interests
of the controlling owners. This also reflects generally finite
holding periods and a focus on maximizing shareholder returns.
=============
I R E L A N D
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FIDELITY GRAND 2023-1: S&P Assigns Prelim. B-(sf) Rating on F Notes
-------------------------------------------------------------------
S&P Global Ratings assigned its preliminary credit ratings to
Fidelity Grand Harbour CLO 2023-1 DAC's class A, B-1, B-2, C, D, E,
and F notes. At closing, the issuer will also issue unrated
subordinated notes.
Under the transaction documents, the rated notes will pay quarterly
interest unless a frequency switch event occurs. Following this,
the notes will switch to semiannual payment.
This transaction has a 1.5 year non-call period and the portfolio's
reinvestment period will end approximately 4.6 years after
closing.
The preliminary ratings reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans and
bonds governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
Portfolio benchmarks
CURRENT
S&P Global Ratings weighted-average rating factor 2,866.03
Default rate dispersion 460.10
Weighted-average life (years) 4.48
Obligor diversity measure 116.51
Industry diversity measure 19.03
Regional diversity measure 1.26
Transaction key metrics
CURRENT
Total par amount (mil. EUR) 400.00
Defaulted assets (mil. EUR) 0
Number of performing obligors 123
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 1.63
'AAA' target portfolio weighted-average recovery (%) 36.34
Covenanted weighted-average spread (%) 4.10
Covenanted weighted-average coupon (%) 4.75
Rating rationale
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
primarily comprise broadly syndicated speculative-grade senior
secured term loans and senior secured bonds. Therefore, we
conducted our credit and cash flow analysis by applying our
criteria for corporate cash flow CDOs.
"In our cash flow analysis, we modelled the EUR400 million par
amount, the covenanted weighted-average spread of 4.10%, the
covenanted weighted-average coupon of 4.75%, and the covenanted
weighted-average recovery rates. We applied various cash flow
stress scenarios, using four different default patterns, in
conjunction with different interest rate stress scenarios for each
liability rating category.
"We expect that the transaction's documented counterparty
replacement and remedy mechanisms will adequately mitigate its
exposure to counterparty risk under our counterparty criteria.
"Following the application of our structured finance sovereign risk
criteria, we consider the transaction's exposure to country risk
limited at the assigned preliminary ratings, as the exposure to
individual sovereigns does not exceed the diversification
thresholds outlined in our criteria.
"At closing, we consider that the transaction's legal structure
will 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-1 to E notes could withstand
stresses commensurate with higher ratings than those we have
assigned. However, as the CLO is still in its reinvestment phase,
during which the transaction's credit risk profile could
deteriorate, we capped our assigned preliminary ratings on these
notes. The class A notes can withstand stresses commensurate with
the assigned preliminary rating.
"For the class F notes, our credit and cash flow analysis indicates
that the available credit enhancement is commensurate with a lower
rating. However, we have applied our 'CCC' rating criteria,
resulting in a 'B- (sf)' preliminary rating on this class of
notes." The preliminary rating on the class F notes reflects
several key factors, including:
-- The class F notes' available credit enhancement (8.48%), which
is in the same range as that of other recently issued European CLOs
S&P has rated.
-- The 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 26.23% (for a portfolio with a weighted-average
life of 4.48 years), versus if it was to consider a long-term
sustainable default rate of 3.10% for 4.48 years, which would
result in a target default rate of 13.87%.
-- 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 'B- (sf)' preliminary rating.
S&P said, "In addition to our standard analysis, to provide an
indication of how rising pressures among speculative-grade
corporates could affect our ratings on European CLO transactions,
we have also included the sensitivity of the ratings on the class A
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 the following industries:
controversial weapons, conventional weapons, firearms, tobacco and
tobacco-related products, fraudulent and coercive loan origination
and/or highly speculative financial operations. Accordingly, since
the exclusion of assets from these industries does not result in
material differences between the transaction and our ESG benchmark
for the sector, no specific adjustments have been made in our
rating analysis to account for any ESG-related risks or
opportunities."
Fidelity Grand Harbour CLO 2023-1 DAC 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. FIL Investments International will manage the
transaction.
Ratings list
CLASS PRELIM PRELIM AMOUNT SUB (%) INTEREST RATE§
RATING* (MIL. EUR)
A AAA (sf) 246.00 38.50 Three/six-month EURIBOR
plus 1.90%
B-1 AA (sf) 23.20 28.95 Three/six-month EURIBOR
plus 3.15%
B-2 AA (sf) 15.00 28.95 7.10%
C A (sf) 23.00 23.20 Three/six-month EURIBOR
plus 4.00%
D BBB- (sf) 25.50 16.83 Three/six-month EURIBOR
plus 5.90%
E BB- (sf) 18.40 12.23 Three/six-month EURIBOR
plus 7.69%
F B- (sf) 15.00 8.48 Three/six-month EURIBOR
plus 10.02%
Sub. notes NR 28.43 N/A N/A
*S&P's ratings address timely payment of interest and ultimate
principal on the class A, B-1, and B-2 notes and ultimate interest
and principal on the class C, D, E, and F notes.
§The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
JAZZ PHARMACEUTICALS: S&P Affirms BB- ICR & Alters Outlook to Pos.
------------------------------------------------------------------
S&P Global Ratings revised its outlook on Ireland–based Jazz
Pharmaceuticals PLC to positive from stable given its strong
operating performance. S&P affirmed all its ratings on the company,
including its 'BB-' issuer credit rating and 'BB-' issue-level
rating on its senior secured debt.
S&P said, "The positive outlook reflects the possibility that we
could raise our ratings on Jazz in the next 12 to 18 months if we
expect the company will generally sustain leverage at or below 4x.
This could occur if we expect the company to rapidly delever
following an acquisition, or if we no longer expect the company to
seek growth through sizable debt-funded acquisitions."
Jazz has reported strong sales since acquiring GW Pharmaceuticals
PLC in 2021, leading to faster-than-anticipated deleveraging.
Specifically, the company reduced its leverage to about 2.7x as of
March 31, 2023, from 4.8x at the end of 2021.
While S&P expects the company will remain active on the acquisition
front as it seeks to achieve roughly $5 billion in annual sales as
outlined in its "Vision 2025" plan, it believes the company's
strengthening credit profile and free cash flow generation could
enable management to maintain long-term S&P Global Ratings-adjusted
leverage below 4x.
Jazz's product offerings and pipeline prospects have materially
strengthened over the last few years, diversifying its product
portfolio. Through a combination of internal development and
acquisitions over the last few years, Jazz has been able to extend
key franchises as well as diversify its portfolio. The company has
successfully developed and launched superior products Xywav and
Rylaze, overcoming the loss of exclusivity on Xyrem and the loss of
its exclusive marketing agreement for Erwinaze, respectively. The
company is now considerably more diversified than it has been over
the last decade, with cannabinoids, sodium oxybates, and oncology
drugs each contributing over 20% of the company's revenues, while
also all growing. Jazz's pipeline also appears stronger than in
recent years with a phase 3 novel oncology product, a phase 3 trial
in conjunction with Roche's Tecentriq, and a phase 2 post-traumatic
stress disorder drug. Given growth in its branded products, no
near-term patent cliffs, and potential for continued growth in its
pipeline, Jazz is positioned well for strong organic growth.
S&P said, "Our ratings are constrained by expectations for
significant acquisition spending and uncertainty regarding
competition in the narcolepsy space, given the recent launch of a
once-nightly high-sodium oxybate. As part of its "Vision 2025"
long-term growth plan, Jazz aims to generate about $5 billion of
annual revenues by year-end 2025, via organic growth and what we
believe will be acquisitions of commercial or near commercial
assets that can generate about $400 million to $500 million in
annual sales. We are uncertain as to how aggressive the company
will be or how mature the acquired asset will be, though we
estimate that acquisitions of more than $4 billion are unlikely to
be consistent with a higher rating.
"We are also somewhat cautious given uncertainty as to how
successful Avadel Pharmaceuticals PLC's (not rated) Lumryz will be
in gaining market share from Xywav, Xyrem, and Xyrem's authorized
generics. In our base case, we expect Jazz will maintain at least
75% of the branded market due to a combination of Xywav's safety
profile and Jazz's incumbent advantage, but note estimates from
equity analysts vary widely. Jazz has sued the U.S. Food and Drug
Administration and the U.S. Department of Health and Human Services
challenging the legality of their approval of Lumryz while Xywav
remains protected under the Orphan Drug Act. Success by Jazz would
provide additional upside to our base-case projections, while
erosion to current sales levels of its oxybates would run counter
to our base case.
"Our ratings continue to reflect Jazz's relatively small scale,
exposure to drug price reform, and dependence on business
development to sustain revenue growth. While scale,
diversification, and pipeline prospects have improved over the last
few years, Jazz remains less than half the size of the smallest
"big pharma" companies, such as Regeneron and Biogen, and has
considerably more concentrated product development pipelines than
its larger, higher-rated peers. As a result, we view Jazz as more
reliant on acquisitions and partnerships to strengthen its
portfolio and maintain growth. Jazz benefits from the Orphan Drug
Act in the U.S., which allows it to focus on unmet needs for
narrower patient populations. Specifically, the Orphan Drug Act
allows for longer exclusivity periods, lower clinical trial costs,
and stronger pricing power, and it benefits several Jazz products,
including Xywav, Epidiolex, Zepzelca, and Rylaze. Given the absence
of Jazz products from the Inflation Reduction Act and the consensus
regarding the value the Orphan Drug Act has to innovation, we see
low risk of drug price reform on orphan drugs in the near term,
which should sustain Jazz's margin profile for the next several
years.
"The positive outlook reflects the possibility that we could raise
our ratings on Jazz in the next 12 to 18 months if we expect the
company will generally sustain leverage at or below 4x. This could
occur if we expect the company to rapidly delever following an
acquisition, or if we no longer expect the company to seek growth
through sizable debt-funded acquisitions.
"We could raise our rating on Jazz within the next 12 to 18 months
if we expect S&P Global Ratings-adjusted debt to EBITDA to remain
below 4x, which it could do if near-term debt-financed acquisitions
remain roughly below $3 billion, while maintaining profit margins
and momentum in its oxybate, oncology, and cannabinoid franchises.
"We could revise the outlook to stable if we expect S&P Global
Ratings-adjusted debt to EBITDA to increase above 4x and remain
there for more than 12 to 18 months. This could occur through
larger-than-expected debt-funded acquisitions, significant erosion
in oxybate sales, or Epidiolex departing from its rapid growth
trajectory."
ESG credit indicators: E-2, S-2, G-2
===========
K O S O V O
===========
PROCREDIT BANK: Fitch Affirms 'BB' LongTerm IDR
-----------------------------------------------
Fitch Rating has affirmed Kosovo's ProCredit Bank Sh.a.'s (PCBK)
Long-Term Issuer Default Rating (IDR) at 'BB' with a Stable
Outlook, its Shareholder Support Rating (SSR) at 'bb' and its
Viability Rating (VR) at 'b+'.
KEY RATING DRIVERS
PCBK's IDRs SSR reflect Fitch's view of potential support from its
sole shareholder, ProCredit Holding AG & Co. KGaA (PCH;
BBB/Stable).
The bank's VR of 'b+' balances Fitch's view of a solid domestic
franchise, expertise in SME lending and low risk appetite,
reflected in its better-than-sector asset quality and good
performance, against risks stemming from its operations in the
high-risk Kosovan operating environment.
Country Risks Constrain Support: PCBK is strategically important to
PCH and remains an important part of the group's long-standing and
well-established presence in south eastern Europe (SEE).
Nonetheless, the extent to which potential support can be factored
into PCBK's ratings is constrained by Fitch's view of Kosovo's
country risks, in particular transfer and convertibility. Without
these constraints, the bank's Long-Term IDR would have been notched
down once from the parent's 'BBB' Long-Term IDR.
High-Risk Operating Environment: Kosovo's business environment is
characterised by high risk due to an underdeveloped legal and
regulatory framework relative to other European emerging markets',
even though the banking system's financial metrics remain sound and
the sector has been delivering solid growth. Fitch expects lower
loan demand - a function of higher interest rates and an increase
in loan impairment charges - to put some pressure on the banking
sector's profitability and asset quality, at least in the short
term.
Cautious Risk-Management Framework: ProCredit Group deploys its
established risk governance at all subsidiaries, including PCBK,
which results in prudent underwriting standards and strict risk
controls. This should be seen in the context of the Kosovan
operating environment, which is challenging and presents limited
opportunities for banks to be consistently profitable.
Asset Quality at Moderate Risk: The bank's impaired loans ratio
further improved to 1.8% at end-1Q23 (end-2022: 2%), which is below
the 2% sector average. We expect the ratio to deteriorate only
modestly, remaining below 2.5% in 2023-2024, as the bank's prudent
underwriting mitigates pressure on borrowers from higher interest
rates. The bank's coverage of impaired loans is ample, providing
headroom to absorb credit losses from increased macro risks in the
near term.
Good Operating Profitability: The bank's operating profit to
risk-weighted assets (RWAs, 1Q23: 3.7%) has been boosted by higher
net interest income, low cost inflation but also by reversal of
loan impairment charges (LICs), which Fitch views as unsustainable.
Fitch expects all three factors to diminish or reverse in 2023 and
2024 and profitability to weaken but to remain above 2.5%.
Reduced Capitalisation: The bank's capitalisation has been trending
down in the past two years, with its common equity Tier 1 (CET1)
ratio weakening to 12.9% at end-1Q23, following a EUR35 million
dividend distribution in 2021 and EUR18 million in 2022 and a 14%
growth in RWAs in 2022. In the medium term, Fitch expects the CET1
ratio to remain flat with RWA optimisation compensating for lower
internal capital generation.
Deposit-Based Funding: The bank's solid domestic franchise is
reflected in its loans-to-deposits ratio consistently at around 75%
over the past five years, sustained by balanced growth of loans and
deposits. Fitch expects PCBK to maintain its market share in
deposits in the medium term while competitive pressures and
customer's shift towards interest-bearing term deposits will raise
funding costs.
The bank's liquidity buffers comprised cash, central- and-regional
government securities and central bank reserves, and resulted in a
high liquidity coverage ratio (LCR) of 180% at end-1Q23.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
PCBK's IDR and SSR would be downgraded on adverse changes to
Fitch's perception of country risks in Kosovo. The ratings could
also be downgraded on a substantial decrease in the bank's
strategic importance for the group, which is primarily based on the
group's commitment to the country and the region.
PCBK's VR could be downgraded on a marked weakening in
asset-quality metrics, in particular if its Stage 3 loans ratio
increases above 5%, accompanied by a sustained weakening of core
profitability and resulting in an erosion of the CET1 ratio to
below 12%, without prospects of recovery in the short term.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
PCBK's IDR and SSR could be upgraded as a result of diminished
country risks, which we view as unlikely in the medium term.
A VR upgrade is unlikely in the medium term unless the operating
environment sees a notable improvement, accompanied by an extended
record of the bank's solid asset quality and profitability metrics,
supported by larger capital buffers.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
PCBK's Long-Term (LT) Foreign-Currency IDR(xgs) is driven by
support from PCH and has been affirmed at one notch below PCH's LT
Foreign-Currency IDR(xgs). The bank's Short-Term (ST)
Foreign-Currency IDR(xgs) is in accordance with its LT
Foreign-Currency IDR(xgs) and Fitch's short-term rating mapping.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
PCBK's LT Foreign-Currency IDR(xgs) could be downgraded if the
parent bank's ability or propensity to provide support weakens, as
assessed by Fitch. A weakening support ability could stem from a
downgrade of PCH's LT Foreign-Currency IDR(xgs) or if country
risks, which constrain PCBK's LT Foreign-Currency IDR(xgs),
increase as assessed by Fitch.
An upgrade of PCBK's LT Foreign-Currency IDR(xgs) would require an
upgrade of the parent bank's LT Foreign-Currency IDR(xgs), provided
Fitch's view on the parent bank's ability and propensity to provide
support and country risks as assessed by Fitch remain unchanged.
PCBK's ST Foreign-Currency IDR(xgs) is primarily sensitive to
changes in it LT Foreign-Currency IDR(xgs).
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
PCBK's IDRs, IDRs(xgs) and SSR are driven by support from PCH.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section the highest level of ESG
credit relevance is a score of '3'. This means ESG issues are
credit neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity Rating Prior
------ ------ -----
ProCredit Bank Sh.a.
LT IDR BB Affirmed BB
ST IDR B Affirmed B
Viability b+ Affirmed b+
LT IDR (xgs) BB-(xgs) Affirmed BB-(xgs)
Shareholder Support bb Affirmed bb
ST IDR (xgs) B(xgs) Affirmed B(xgs)
===================
L U X E M B O U R G
===================
KLEOPATRA HOLDINGS 2: Moody's Affirms 'B3' CFR, Outlook Negative
----------------------------------------------------------------
Moody's Investors Service has affirmed the corporate family rating
of Kleopatra Holdings 2 S.C.A ("Klockner Pentaplast" or "KP") at B3
along with the Caa2 instrument rating of the guaranteed senior
unsecured notes due 2026 issued by Kleopatra Holdings 2 S.C.A. The
agency has downgraded to B3 from B2 the instrument ratings of the
senior secured first lien revolving credit facility (RCF) and
senior secured first lien term loan B, as well as guaranteed senior
secured notes due 2026 issued by Kleopatra Finco S.a r.l. The
rating outlook on all ratings remains negative.
RATINGS RATIONALE
The affirmation of KP's CFR reflects the adequate liquidity
position that was improved by the EUR150 million equity injection
in June 2023, as well as no debt maturities over the next 24 months
until August 2025 when the RCF comes due. The ratings affirmation
also reflects Moody's expectation of a gradual improvement in
performance in both earnings and free cash flow (FCF), on the back
of cost saving and growth initiatives in the business. In Moody's
view, it is crucial that these improvements are delivered in the
next 12-18 months in order to improve refinancing conditions for
the company.
The downgrade of the senior secured notes and term loans reflected
the weak positioning of the CFR in the B3 rating category and the
relatively small amount of unsecured debt in the capital structure,
which is not providing enough cushion for senior secured
instruments to be rated a notch higher than the CFR.
Moody's notes that pricing and cost efficiency initiatives will
need to be executed against a backdrop of a weak economic
environment across many markets coupled with inflationary
pressures. Failure by KP to reduce leverage ahead of any
refinancing could also lead to a potentially unsustainable capital
structure because of the higher associated interest burden, which
would prevent the company from generating sustainable, positive
FCF.
KP targets further cost savings in its Food Packaging (FP)
division, which has experienced a 20% volume decline over the last
four years when KP transitioned towards more sustainable plastic
packaging products. There is an opportunity for consolidation and
footprint rationalization within the FP organization, highlighted
by the recent announcement that the company plans to close a
facility in Germany. Furthermore, Moody's takes into account
benefits from additional production lines across both Pharma,
Health and Durables (PHD) and Food divisions in North America. The
rating agency expects these benefits to be realised in the second
half of 2023 and especially in 2024.
Moody's expects KP's gross leverage to remain close to double
digits in 2023, as positive developments are expected to be offset
by a challenging macro environment that weighs on demand for KP's
products, restructuring costs incurred in relation to the
consolidation of the FP division, as well as headwinds caused by
adverse energy hedging positions. However, Moody's expects leverage
to improve closer to 8.0x in 2024 as unfavourable energy-hedging
will roll-off and growth and cost saving initiatives will deliver
incremental gains.
Moody's adjusted FCF is expected to remain negative in 2023 due to
the expectation of higher cash interest payments and flat capex due
to ongoing development of extrusion and thermoforming capacity for
the North American FP division. Positive FCF generation is expected
in 2024, benefitting from improving EBITDA generation and lower
capex requirements, as KP will have finalized most of its growth
projects. KP has a limited exposure to adverse movements in base
interest rates as 85% of the capital structure is paying fixed
interest owing to interest rate caps that were recently extended
until the end of 2025.
ESG CONSIDERATIONS
Moody's assessed the governance of the group to be a key driver for
the rating action. Supportive sponsor action demonstrated by equity
injection was deemed to be key for affirming the B3 CFR.
OUTLOOK
The negative outlook reflects the company's high leverage and
negative free cash flow generation, which is not expected to
improve until 2024. The rating outlook could be stabilised if KP's
profitability strengthens and its leverage reduces to below 8.0x.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
While unlikely in the near term, the rating could be upgraded if
the company reduces its Moody's-adjusted debt/EBITDA sustainably
below 6.5x (including factoring), combined with Moody's-adjusted
free cash flow/debt at least in the mid-single digits in percentage
terms.
The rating is likely to be downgraded if KP underperforms relative
to its budget in 2023. Continued negative free cash flow and weaker
liquidity could also lead to a downgrade.
STRUCTURAL CONSIDERATIONS
KP's capital structure includes senior secured term loans and
revolving credit facility (RCF), senior secured notes and senior
notes. The RCF, term loans and secured notes rank pari passu, while
the senior notes are subordinated to them in terms of ranking. As
a result of the weak positioning of the CFR in the B3 rating
category and limited cushion from the smaller senior notes, the
instrument ratings for the around EUR1.2 billion of senior secured
term loans and EUR400 million of senior secured notes are rated B3,
in line with CFR. The senior notes rating at Caa2 reflects the
notes' subordination to a substantial amount of secured debt.
LIQUIDITY
The company's liquidity position is adequate and supported by
EUR142 million of cash on balance sheet as of March 2023. KP has a
EUR150 million of committed RCF, of which EUR134 million were drawn
at March 31, 2023. Moody's understanding is that the RCF has been
fully repaid by the end of June 2023 using proceeds from the recent
equity injection.
There is seasonality in cash-flow driven by semi-annual interest
payment profile and working capital build up in the first half,
however, Moody's expects limited drawings under the RCF going
forward given healthy amount of cash on balance sheet. There is one
financial maintenance covenant related to the RCF, which is only
tested if the RCF is drawn by more than 40% (net of cash).
KP uses a range of non-recourse factoring facilities with EUR274
million outstanding as of March 2023. The facilities are all
committed until the end of 2024 and beginning of 2025.
LIST OF AFFECTED RATINGS
Affirmations:
Issuer: Kleopatra Holdings 2 S.C.A
Probability of Default Rating, Affirmed B3-PD
LT Corporate Family Rating, Affirmed B3
Senior Unsecured Regular Bond/Debenture, Affirmed Caa2
Downgrades:
Issuer: Kleopatra Finco S.a r.l.
Senior Secured Bank Credit Facility, Downgraded to B3 from B2
Senior Secured Regular Bond/Debenture, Downgraded to B3 from B2
Issuer: Klockner Pentaplast of America, Inc.
BACKED Senior Secured Bank Credit Facility, Downgraded to B3 from
B2
Outlook Actions:
Issuer: Kleopatra Finco S.a r.l.
Outlook, Remains Negative
Issuer: Kleopatra Holdings 2 S.C.A
Outlook, Remains Negative
Issuer: Klockner Pentaplast of America, Inc.
Outlook, Remains Negative
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Packaging
Manufacturers: Metal, Glass and Plastic Containers published in
December 2021.
COMPANY PROFILE
KP is a plastic packaging manufacturing firm that specialises in
the manufacturing of flexible plastic films and rigid plastic trays
for use across a wide range of end markets, including in its PHD
division for blister packs, medical device packaging, consumer
applications including labels, credit card films, graphics and
home, building and construction and in its FP division for protein,
fruit & produce and food-to-go. KP operates facilities in 31
manufacturing sites across the world and sells its products in more
than 90 countries to approximately 8,000 customers. Total revenue
on LTM March 2023 basis was EUR2.36 billion, company-adjusted
EBITDA was EUR263 million with PHD representing 66% and FP 34% of
the EBITDA.
LUXEMBOURG INVESTMENT 437: Moody's Cuts CFR to B3 & PDR to B3-PD
----------------------------------------------------------------
Moody's Investors Service has downgraded Luxembourg Investment
Company 437 S.a r.l.'s (Heubach or the company) corporate family
rating and probability of default rating to B3 from B2 and to B3-PD
from B2-PD, respectively. Concurrently Moody's downgraded Heubach's
backed senior secured debt instruments, borrowed by Luxembourg
Investment Company 438 S.a r.l., to B3 from B2, which comprise a
CHF560 million dollar equivalent term loan B and a $125 million
revolving credit facility (RCF). The outlook of Luxembourg
Investment Company 437 S.a r.l. has been changed to negative from
stable. The outlook of Luxembourg Investment Company 438 S.a r.l.
is negative.
The rating action reflects:
- The deterioration in operating performance resulting in very
high leverage and weak coverage ratios
- Negative Moody's adjusted free cash flow in 2022 and which the
agency expects to remain negative through 2023
- A deterioration in the company's liquidity position
RATINGS RATIONALE
The B3 rating reflects (1) a cyclical decline in demand resulting
from challenging macroeconomic conditions negatively impacting
end-markets and material customer destocking as companies run down
inventory to generate cash (2) cash restructuring costs that the
agency anticipates will continue through 2023 and H1 2024 (3) lower
asset utilisation as the company adjusts production to lower demand
and (4) low margins and high leverage.
The rating also reflects Heubach's position as the second-largest
and global player in the paint pigments and colourant solutions
business underpinned by its global reach, proximity to its
customers, good product, and long-standing customer relationships.
Heubach has faced challenging market conditions since the inception
of the company in early 2022. The group's operating profitability
has been hurt by rising raw material costs which became difficult
to pass through when demand in H2 2022 declined, shortages in some
key raw materials, rising energy, freight, and labour costs, and
challenges in logistics. Combined with the high one-time
transaction costs and the integration and restructuring costs (a
total EUR158 million in 2022), these factors have resulted in
significantly negative Moody's free cash flow (FCF) which has
increased leverage and put pressure on liquidity.
Moody's expects demand to continue to remain muted through the
first three quarters of 2023, with a moderate improvement toward
the end of the year. Margins will remain weak as the company faces
aggressive pricing in a competitive market and low utilisation at
the main site in Hoechst. Moody's expects the company will remain
free cash flow negative in 2023, to the tune of EUR48 million. The
rating agency estimates leverage at 9.0x (Moody's adjusted
debt/EBITDA) as at December 2022 and likely to increase further
over the course of 2023.
LIQUIDITY
The company's liquidity position is currently adequate but limited.
As of the end of Q1 2023, the company reported a cash balance of
EUR34 million and undrawn availability under the $125 million RCF
of $82 million. The rating agency estimates the company's net
leverage to be high, and as such will limit the headroom under the
springing covenant. The majority of the assets of the group are
encumbered and there is limited possibility of non-core asset
sales. There are, however, no significant maturities until 2027.
STRUCTURAL CONSIDERATIONS
Heubach group's senior secured term loan B and RCF are rated B3
and, in line with the CFR. The company has a simple capital
structure with only two debt instruments and relatively small
pension and lease liabilities. The senior secured debt instruments
are guaranteed by subsidiaries of the group and secured on a
first-lien basis by a significant amount of assets owned by the
group. However, the guarantees from the operating subsidiaries are
likely to only represent around 55% of groupwide EBITDA and around
70% of the company's fixed assets because of the limitations around
providing guarantees from Indian subsidiaries. The loan
documentation contains limitations on investments in, and the
incurrence of debt, by non-guarantors.
RATING OUTLOOK
The negative reflects Moody's expectations that a recovery in
trading conditions will remain unlikely before the end of 2023,
material risks associated with the integration and stand-up of the
business remain and negative free cash flow will require the
company to access its limited sources of liquidity over the next
12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Given the weak positioning of the company in the B3 rating category
and the negative outlook, upward pressure on the rating is unlikely
in the next 12-18 months. Downward pressure would arise if the
company fails to achieve an improvement in operating performance
such that credit metrics remain strained (including, but not
limited to, interest coverage, measured by Moody's adjusted EBITDA
to Interest Expense, falls below 1.5x) or the company's liquidity
position worsens.
LIST OF AFFECTED RATINGS
Downgrades:
Issuer: Luxembourg Investment Company 437 S.a r.l.
Probability of Default Rating, Downgraded to B3-PD from B2-PD
LT Corporate Family Rating, Downgraded to B3 from B2
Issuer: Luxembourg Investment Company 438 S.a r.l.
BACKED Senior Secured Bank Credit Facility, Downgraded to B3 from
B2
Outlook Actions:
Issuer: Luxembourg Investment Company 437 S.a r.l.
Outlook, Changed To Negative From Stable
Issuer: Luxembourg Investment Company 438 S.a r.l.
Outlook, Assigned Negative
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Chemicals
published in June 2022.
COMPANY PROFILE
Heubach emerged from the combination of the German-based pigments
business company Heubach GmbH and the pigments business of Clariant
AG (Ba1 positive). The company is now owned 50.1% by the US private
equity sponsor SK Capital Partners, 29.9% owned by Heubach GmbH and
20% by Clariant AG. Heubach produces a variety of organic and
inorganic pigments and pigment preparations in 19 facilities across
Europe, the Americas, Asia and Africa.
TLG FINANCE: Moody's Lowers Rating on Subordinated Notes to Ba1
---------------------------------------------------------------
Moody's Investors Service has downgraded the rating of the EUR600
million senior unsecured notes maturing in 2026 to Baa2 from Baa1,
originally issued by TLG IMMOBILIEN AG (TLG) and for which the
issuer has been substituted to Aroundtown SA (Aroundtown). TLG
remains the guarantor of the notes. At the same time, Moody's
downgraded the subordinated notes originally issued by TLG Finance
S.a.r.l. to Ba1 from Baa3, for which the issuer has been as well
substituted to Aroundtown SA. TLG is no longer guarantor of the
hybrid notes. The outlook on all ratings has been changed to stable
from negative.
The downgrades reflect (1) a weaker business environment in
particular with higher interest rates, (2) uncertainties around
ongoing property value declines, also considering structurally
lower demand for offices medium term, (3) weakening credit metrics
and (4) execution risks of further disposals. These challenges
combine with ongoing geopolitical and economic concerns as well as
constrained access to public debt and equity capital markets.
Moody's expect Moody's-adjusted debt/total assets to remain above
45% even when adjusting for the currently high cash balance, while
Moody's project fixed charge cover to deteriorate towards 3x in
2023 and beyond in 2024. The stable outlook positively reflects
Aroundtown's strong liquidity profile, which provides some cushion
relative to the upcoming debt maturities over the next years.
RATINGS RATIONALE
The Baa2 senior unsecured rating of TLG mainly reflect its parent
company's robust business profile as one of the largest real estate
companies in Europe, focused on Germany and the Netherlands with a
diversified asset type mix. Aroundtown has a track record of strong
liquidity management and executed material disposals even in a
weaker business environment. Aroundtown has a steady operational
track record with a good tenant roster. A large unencumbered asset
base provides for flexibility in its funding mix.
These positives are challenged by a weak business environment for
real estate companies, mostly stemming from increased interest
rates as well as geopolitical and economic concerns. This results
in higher cost of debt, doubts about property value and execution
risk for disposal plans. Structural changes in the demand for
office properties and a weaker macroeconomic environment provide
for a weaker operating performance outlook. While liquidity is a
persistent credit strength of Aroundtown, access to capital markets
has weakened materially.
Moody's assumes lower disposal volumes in 2023 and 2024 as well as
property value declines above 10% cumulatively, which will keep
Moody's-adjusted debt to gross asset at or above 50%, partially
driven by a high cash balance. Moody's project fixed charge cover
to deteriorate towards 3x in 2023 and beyond in 2024.
RATIONALE FOR THE OUTLOOK
The stable outlook reflects the high cash position of Aroundtown
and the ongoing efforts to dispose assets that result in a
reduction of leverage and reduces the need to refinancing existing
cheaper debt with more expensive new debt.
LIQUIDITY
Aroundtown's rating position is supported by its strong liquidity
position. As of March 2023, the company had EUR2.7 billion cash and
cash equivalents in addition to around EUR1 billion committed
undrawn revolving credit facilities maturing in 2025. Together with
signed disposal proceeds after Q1 2023, potential vendor loans
collection (EUR660 million outstanding as of Q1 2023) and funds
from operations (around EUR700 million), the company's cash sources
will cover expected capital expenditure and all debt maturities up
until end of 2025.
Moody's expect Aroundtown to proactively manage its large bond
maturities and refinancing risk post 2025 through further
discounted bond buy-backs, disposals and vendor loan collections.
The company will also shore up liquidity by taking on further
secured debt. As such Moody's do not expect Aroundtown to access
capital markets in the next 12-18 months given weakened access and
prohibitive pricing. Its large EUR22 billion unencumbered asset
base allows for tapping the bank market. At the same time Moody's
think Aroundtown will require access to debt capital markets over
the next years beyond already covered maturities given the high
absolute debt volumes to be refinanced over time.
OUTLOOK
The stable outlook reflects Aroundtown's strong liquidity profile
and the expectation of further asset disposals over the next
quarters. Credit metrics however have continued to weaken and
provide limited headroom in the Baa2 rating category for a further
contraction of property valuations or interest rate increases.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
FACTORS THAT COULD LEAD TO AN UPGRADE
The business environment for Aroundtown turns more positive with
less uncertainties about interest rates, property values and
economic outlook
Continued steady operating performance
Continued strong liquidity and good access to capital markets
Moody's-adjusted gross debt/total assets sustained below 45% or
Moody's-adjusted fixed-charge coverage ratio sustainable above 3x
FACTORS THAT COULD LEAD TO A DOWNGRADE
- Further material weakening of Aroundtown's business environment
through reduced bank debt availability, continued lack of
transactional evidence
- Greater deterioration of the company's operating performance
through material vacancy increases or negative rental growth
- Moody's-adjusted gross debt/total assets sustained above 50% or
Moody's-adjusted fixed-charge coverage ratio sustainably below
2.75x
- A weakening of Aroundtown's liquidity profile
The principal methodology used in these ratings was REITs and Other
Commercial Real Estate Firms published in September 2022.
Aroundtown SA substituted TLG as the issuer under the senior
unsecured notes in 2020. TLG remains the guarantor of the notes.
Aroundtown also substituted TLG Finance S.a.r.l. as the issuer of
the subordinated (hybrid) notes. TLG is no longer the guarantor of
the hybrid notes.
Aroundtown is the largest office landlord in its top German markets
and one of the most diversified real estate companies in Europe,
holding an investment property portfolio with a market value of
EUR27.9 billion as of December 2022.
=================
M A C E D O N I A
=================
PROCREDIT BANK AD SKOPJE: Fitch Affirms BB-(xgs) LongTerm IDR
-------------------------------------------------------------
Fitch Ratings has affirmed ProCredit Bank AD Skopje's (PBNM)
Long-Term Issuer Default Rating (IDR) at 'BBB-' with a Stable
Outlook, its Shareholder Support Rating (SSR) at 'bbb-' and its
Viability Rating (VR) at 'bb-'.
KEY RATING DRIVERS
PCBNM's IDRs and SSR reflect Fitch's view of potential support from
the bank's sole shareholder, ProCredit Holding AG & Co. KGaA (PCH;
BBB/Stable).
The bank's VR at 'bb-' balances Fitch's view of PCBNM's solid
domestic franchise, its expertise on the SME sector and its low
risk appetite, resulting in above-sector-average asset quality,
against risks stemming from its operations in North Macedonia's
developing economy.
Shareholder Support Drives IDRs: PCBNM is strategically important
to PCH and remains an important part of the group's long-standing
and well-established presence in south-eastern Europe (SEE). This
is reflected in PCBNM's IDR being one notch lower than the
parent's.
PCBNM's SSR at 'bbb-' is in line with north Macedonia's Country
Ceiling of 'BBB-', reflecting its moderate influence in the
assessment of the parent's ability to support and, consequently,
the Stable Outlook on PCBNM's Long-Term IDR reflects that on both
North Macedonia's sovereign rating and PCH's IDR.
Stable Operating Environment: North Macedonia's operating
environment reflects its small economy with some volatility in real
GDP growth and stability of the local currency supported by a
long-standing exchange rate peg to euro. North Macedonia's economy
has demonstrated resilience to the global pandemic and the
spillovers from the war in Ukraine, but Fitch expects subdued
growth in 2023 at 2.2% due to pressure on real incomes and sluggish
demand from key trading partners.
Fitch expects North Macedonia banks' good profitability and
reasonable capital metrics will allow the sector to absorb moderate
asset-quality deterioration.
Cautious Risk-Management Framework: ProCredit Group deploys its
established risk governance at all subsidiaries, including PCBNM,
which results in prudent underwriting standards and strict risk
controls. This should be seen in the context of the North Macedonia
operating environment, which is challenging and presents moderate
opportunities for banks to be consistently profitable.
Resilient Asset Quality: PCBNM's impaired loans ratio (2% at
end-1Q23) compares well with that of other North Macedonian banks
as well as with other ProCredit banks. Fitch expects that despite
some deterioration in 2023 asset quality will remain sound with its
impaired loans ratio at below 2.5%. This considers the bank's
prudent underwriting and moderate exposure to vulnerable sectors.
Higher Rates Support Profitability: PCBNM's operating profitability
remains modest by international standards. The improvement of its
operating profit to 2.6% of risk-weighted assets (RWAs) in 1Q23
from 0.8% in 2021, despite increased operating expenses, was mainly
driven by higher net interest income, following the increase of the
reference rate, and by loan recoveries. Fitch expects the ratio to
moderate to under 2% over the next 18 months due to higher loan
impairment charges (LICs) and operating expenses.
Adequate Capitalisation: The bank's regulatory common equity Tier 1
(CET1; 13.4%) and total capital (15.8%) ratios at end-1Q23 were
supported by profit retention, despite a 3% increase in RWAs. We
expect the bank will retain its profits in 2023 and may seek
ordinary support from the parent to meet higher regulatory
requirements as the Pillar 2 and countercyclical buffers were
revised recently.
Adequate Funding: The bank's funding profile has been
strengthening, supported by the exit of more volatile SME deposits
and reduced reliance on intragroup funding. Fitch expects this to
support overall cost of funding. Customer deposits represented
nearly 80% of total funding at end-1Q23, supplemented by
international financial institutions (IFIs) funding (14% but down
from 25% in 2019) that is earmarked for various SME development
projects.
Liquidity buffers were reasonable and liquidity ratios remained
comfortably above their regulatory minimum requirements.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
PCBNM's IDR and SSR would be downgraded if North Macedonia's
Country Ceiling is downgraded. The ratings would also be downgraded
if PCH's Long-Term IDR is downgraded, or if Fitch perceives a
decrease in the bank's strategic importance for the group, which is
primarily based on the group's commitment to the country and the
region.
PCBNM's VR may be downgraded on a marked weakening in asset-quality
metrics, in particular if its Stage 3 ratio increases above 5%,
accompanied by a significant acceleration in LICs above our
expectations leading to the bank's CET1 ratio falling below 12% on
a sustained basis.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
PCBNM's IDR and SSR could be upgraded if both the parent's IDR and
North Macedonia's Country Ceiling are upgraded. However, Fitch
views an upgrade of PCBNM as unlikely over the rating horizon given
the Stable Outlook on both PCH's and the sovereign's IDR.
An upgrade of PCBNM's VR would require an improvement in its
operating environment accompanied by a stable financial profile.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
PCBNM's Long-Term (LT) Foreign- and Local-Currency IDRs (xgs) are
at the level of the bank's VR and they are also underpinned by
support from PCH. The Short-Term (ST) Foreign-Currency IDR (xgs) is
in accordance with the bank's LT Foreign-Currency IDR (xgs) and
Fitch's short-term rating mapping.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
PCBNM's LT IDRs (xgs) could be downgraded if the bank's VR is
downgraded and if simultaneously the parent bank's ability or
propensity to provide support weakens, as assessed by Fitch. The
latter could stem from a downgrade of the respective parent bank's
LT IDRs (xgs).
An upgrade of LT IDRs(xgs) would require an upgrade of the bank's
VR. An upgrade could be also triggered by an upgrade of the parent
bank's LT IDRs (xgs), provided Fitch's view on the parent bank's
ability and propensity to provide support remains unchanged.
PCBNM's ST Foreign-Currency IDR (xgs) is primarily sensitive to
changes in the LT Foreign-Currency IDR (xgs).
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
PCBNM's IDRs and SSR are driven by support from PCH.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section the highest level of ESG
credit relevance is a score of '3'. This means ESG issues are
credit neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Prior
----------- ------ -----
ProCredit Bank AD Skopje
LT IDR BBB- Affirmed BBB-
ST IDR F3 Affirmed F3
LC LT IDR BBB- Affirmed BBB-
LC ST IDR F3 Affirmed F3
Viability bb- Affirmed bb-
LT IDR (xgs) BB-(xgs) Affirmed BB-(xgs)
Shareholder Support bbb- Affirmed bbb-
ST IDR (xgs) B(xgs) Affirmed B(xgs)
LC LT IDR (xgs) BB-(xgs) Affirmed BB-(xgs)
LC ST IDR (xgs) B(xgs) Affirmed B(xgs)
=====================
N E T H E R L A N D S
=====================
PETROBRAS GLOBAL: Fitch Gives BB- Rating on Unsec. Notes Due 2033
-----------------------------------------------------------------
Fitch Ratings has assigned a 'BB-' rating to Petrobras Global
Finance B.V.'s new issuance of senior unsecured notes due 2033. The
proceeds of the notes will be used to prepay existing debt and for
general corporate purposes.
Petrobras' ratings and Rating Outlook are linked to Brazil's
sovereign ratings (BB-/Stable) due to the company's strategic
importance to the country and the government's strong ownership and
control. Petrobras' dominant market share in the supply of liquid
fuels in Brazil coupled with its large hydrocarbon production
footprint in the country expose the company to government
intervention through pricing policies and investment strategies.
KEY RATING DRIVERS
Sovereign Linkage: Petrobras' ratings are linked to Brazil's
sovereign ratings as a result of the influence the government may
have over the company's strategies and investments. This is despite
material improvements in the company's capital structure and
efforts to isolate itself from government intervention. By law, the
federal government must hold at least a majority of Petrobras'
voting stock, and currently owns 50.3% of Petrobras' voting rights,
directly and indirectly. The government has a 36.8% overall
economic stake.
Strong SCP: Petrobras' standalone credit profile (SCP) of 'bbb'
reflects the company's operational scale, proved reserves, and
leverage profile, all of which are comparable with investment-grade
international oil companies. Fitch forecasts Petrobras' production
will reach 2.9 million barrels of oil equivalent per day (mmboed)
by 2025 compared with 2.7mmboed in 2022, and will maintain its 1P
reserve life of nearly 10 years. Gross leverage, as measured by
gross financial debt to EBITDA was 0.5x in 2022, assuming USD31.0
billion in debt and for the company to remain at this level
throughout 2025, when applying Fitch's price deck.
Solid Cash Flow Generation: Fitch expects Petrobras to continue
reporting positive FCF over the rating horizon while investing
enough to replenish reserves and grow production. Petrobras is the
lowest cost producer in the region. In 2022, Fitch estimated its
half-cycle cost was USD15bbl and its full-cycle cost of production
was USD30bbl. Its low cost of production led to strong cash flow
generation in 2022, where Fitch estimates the company generated
USD65 billion in EBITDA. The company's cash flow comfortably covers
its capex, as laid out in its current strategic plan.
Bylaws Deter Political Interference: Petrobras' bylaws are expected
to deter political interference to execute on non-strategic and
uneconomical policies and investments. Fitch understands, per the
bylaws of the company, board members and executives have a
fiduciary responsibility to ensure the company implements business
strategies that are profitable, otherwise they may face personal
legal liabilities. This consideration should reduce the risk of
strong negative impacts on Petrobras coming from non-technical
decisions on the company.
Recently, the company announced its revised commercial strategy for
refined product, which raised concerns regarding political meddling
in the company, but even though the policy is less transparent than
its previous import parity policy, Petrobras is expected to remain
profitable and able to pass through costs incurred with a marginal
profit.
DERIVATION SUMMARY
Petrobras' linkage to the sovereign is similar in nature to its
peers, namely Petroleos Mexicanos (PEMEX; BB-/Stable), Ecopetrol
S.A. (BB+/Stable) and YPF S.A. (CCC-). It also compares with
Empresa Nacional del Peru (ENAP; A-/Stable), and Petroleos del Peru
- Petroperu (BB+/Negative Watch). All these companies have strong
linkages to their respective sovereigns, given their strategic
importance and the potentially significant social-political and
financial implications a default could have for their countries.
Petrobras' SCP is commensurate with a 'bbb' rating, which is
materially higher than PEMEX's 'ccc-', as a result of Petrobras'
positive deleverage trajectory compared with PEMEX's increasing
leverage. Furthermore, Petrobras has reported and is expected to
continue to report positive FCF and production growth, which Fitch
expects to reach approximately 3.0 million boe/d in the next three
to five years. In contrast, PEMEX's production has declined in
recent years and requires material capex to sustain the production
stabilization trend reported since 2019.
These production trajectories further support the notching
differential between the two companies' SCPs. Petrobras' SCP is in
line with that of Ecopetrol at 'bbb' given both companies' strong
credit metrics and deleveraging trajectories.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within The Rating Case for the Issuer:
-- Gross production to increase to approximately 3.3 million
boe/d over the next four years;
-- Ten production units come online during the next four years;
-- Lifting cost average of $5.5bbl over the next four years;
-- Brent Crude trends toward USD53/bbl by 2025;
-- Average FX rate trends toward BRL5.25/USD1;
-- Dividend payouts are 60% of cash flow from operations-capex;
-- No further proceeds of asset sales considered over the rated
horizon besides what has already been announced.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A positive rating action on the Brazilian sovereign could lead
to a positive rating action on Petrobras.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
-- A negative rating action on Petrobras could result from a
downgrade of the sovereign and/or the perception of a lower
linkage between Petrobras and the government coupled with a
material deterioration of Petrobras' SCP;
-- An increase of gross leverage to 3.5x or above may result in a
downgrade of the SCP.
LIQUIDITY AND DEBT STRUCTURE
Strong Financial Flexibility: Petrobras' liquidity is robust and
provides an added comfort during periods of volatility in
hydrocarbon prices. The company's liquidity is supported by
approximately USD13.2 billion of cash and marketable securities as
of 1Q23, compared with current financial debt maturities of
approximately USD4.1 billion. The majority of Petrobras' available
liquidity is composed of readily available liquidity held abroad.
ISSUER PROFILE
Petrobras is a government-related entity and one of the world's
largest integrated oil and gas companies, operating primarily in
Brazil where it is the dominant participant and the largest liquid
fuels supplier.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The ratings are directly linked to that of the sovereign.
ESG CONSIDERATIONS
Petroleo Brasileiro S.A. (Petrobras) has an ESG Relevance Score of
'4' for Governance Structure due to government ownership of the
company }, which has a negative impact on the credit profile, and
is relevant to the rating[s] in conjunction with other factors.
Petroleo Brasileiro S.A. (Petrobras) has an ESG Relevance Score of
'4' for GHG Emissions & Air Quality due to {DESCRIPTION OF
ISSUE/RATIONALE}, which has a negative impact on the credit
profile, and is relevant to the rating[s] in conjunction with other
factors.
Petroleo Brasileiro S.A. (Petrobras) has an ESG Relevance Score of
'4' for Human Rights, Community Relations, Access & Affordability
due to {DESCRIPTION OF ISSUE/RATIONALE}, 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.
===========
S E R B I A
===========
PROCREDIT BANK BEOGRAD: Fitch Affirms bb- Viability Rating
----------------------------------------------------------
Fitch Rating has affirmed Serbian ProCredit Bank a.d. Beograd's
(PCBS) Long-Term Issuer Default Rating (IDR) at 'BBB-' with a
Stable Outlook, its Shareholder Support Rating (SSR) at 'bbb-' and
its Viability Rating (VR) at 'bb-'.
KEY RATING DRIVERS
PCBS's IDRs and SSR reflect Fitch's view of potential support from
the bank's sole shareholder, ProCredit Holding AG & Co. KGaA (PCH;
BBB/Stable).
The bank's VR at 'bb-' balances Fitch's view of a moderate domestic
franchise, its expertise in SME lending, solid capitalisation and
below-average risk appetite, as reflected in a
better-than-sector-average asset quality, against only adequate
profitability and risks stemming from operations in Serbia's
developing economy.
Shareholder Support Drives IDRs: PCBS is strategically important to
PCH and remains an important part of the group's long-standing and
well-established presence in south-eastern Europe (SEE). This is
reflected in PCBS's IDRs being one notch lower than the parent's.
Fitch's assessment of the parent's ability to support is moderately
influenced by Serbia's Country Ceiling of 'BBB-', and,
consequently, the Stable Outlook reflects that on both Serbia's
sovereign rating and PCH's IDR.
Stable Operating Environment: Serbia's stable operating environment
is underpinned by a resilient economy. GDP growth has slowed, with
Fitch projecting it at 1.8% in 2023, down from 2.3% in 2022, while
balance-of-payment trends should support continued exchange-rate
stability. Fitch expects Serbian banks' good profitability and
abundant capitalisation will allow the sector to absorb moderate
asset-quality deterioration.
Cautious Risk-Management Framework: ProCredit Group deploys its
established risk governance at all subsidiaries, including PCBS,
which results in prudent underwriting standards and strict risk
controls. This should be seen in the context of the Serbian
operating environment, which is challenging and presents moderate
opportunities for banks to be consistently profitable.
Modest Asset-Quality Deterioration: PCBS's impaired loans ratio
weakened to 2.6% at end-2022 (end-2021: 2%), and was flat in 1Q23.
PCBS's large exposure to SMEs leaves its asset quality more
vulnerable to the expected economic slowdown with high inflation
and rising lending rates. However, Fitch expects the bank to
mitigate asset-quality pressures with effective loan workouts,
resulting in an impaired loan ratio of around 3% by 2024.
Higher Rates Support Profitability: In 2022, PCBS's operating
profitability improved to 1.6% of risk-weighted assets (RWAs) and
3.6% in 1Q23 (annualised), mainly supported by higher yield. Fitch
expects it to moderate to 2.5% as wider margins will mitigate
potential increase in operating cost and loan impairment charges
(LICs).
Sizeable Capital Buffers: PCBS's common equity Tier 1 (CET 1) ratio
of 19.3% at end-1Q23 was supported by full profit retention amid
stable loan portfolio in 2020-2022. Fitch believes the capital
buffer of 830bp above regulatory requirement provides sufficient
absorption of the risks PCBS faces and is supportive of growth.
Fitch's assessment of capitalisation also takes into account the
bank's access to ordinary support from the parent.
Evolving Funding Profile: The bank's funding base has been
improving, driven by a growing customer deposit base. Funding is
supplemented by long-term loans from international financial
institutions earmarked for SME development projects and, recently
to a lower extent, funding from PCH. PCBS's liquidity buffers are
sound with a liquidity coverage ratio comfortably above 100% and
comprise placements at the central bank, short-term local
government securities, and cash.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
PCBS's IDR would be downgraded if either PCH's rating or Serbia's
Country Ceiling is downgraded. The Long-Term IDR and SSR of PCBS
could also be downgraded if Fitch perceives a decrease in the
bank's strategic importance for PCH, which is primarily based on
the group's commitment to the country and the region.
PCBS's VR may be downgraded on a marked weakening in asset-quality
metrics, in particular if its Stage 3 ratio increases above 5%,
accompanied by a significant acceleration in LICs above our
expectations.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
PCBS's Long-Term IDR and SSR could be upgraded if both the parent's
rating and the Country Ceiling are upgraded. However, this is
unlikely over the rating horizon given the Stable Outlook on PCH's
Long-Term IDR and on the sovereign rating.
An upgrade of PCBS's VR would require a combination of an
improvement in its operating environment and a strengthening of its
franchise and financial profile, especially improved profitability
with an operating profit above 1.25% of RWAs for a sustained
period.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
PCBNM's Long-Term (LT) Foreign- and Local-Currency IDRs (xgs) are
at the level of the bank's VR and they are also underpinned by
support from PCH. The Short-Term (ST) Foreign-Currency IDR(xgs) is
in accordance with the bank's LT Foreign-Currency IDR (xgs) and
Fitch's short-term rating mapping.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
PCBS's LT IDRs (xgs) could be downgraded if the bank's VR is
downgraded and if simultaneously the parent bank's ability or
propensity to provide support weakens, as assessed by Fitch. The
latter could stem from a downgrade of the parent bank's LT IDRs
(xgs).
An upgrade of LT IDRs (xgs) would require an upgrade of the bank's
VR. An upgrade could be also triggered by an upgrade of the parent
bank's LT IDRs (xgs), provided Fitch's view on the parent bank's
ability and propensity to provide support remains unchanged. PCBS's
ST Foreign-Currency IDR (xgs) is primarily sensitive to changes in
the LT Foreign-Currency IDR (xgs).
VR ADJUSTMENTS
The funding and liquidity score of 'bb-' is above the 'b & below'
category implied score due to the following adjustment reason:
liquidity access and ordinary support (positive).
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
PCBS's IDRs and SSR are driven by support from PCH.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section the highest level of ESG
credit relevance is a score of '3'. This means ESG issues are
credit neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Prior
----------- ------ -----
ProCredit Bank a.d. Beograd
LT IDR BBB- Affirmed BBB-
ST IDR F3 Affirmed F3
LC LT IDR BBB- Affirmed BBB-
LC ST IDR F3 Affirmed F3
Viability bb- Affirmed bb-
LT IDR (xgs) BB-(xgs) Affirmed BB-(xgs)
Shareholder Support bbb- Affirmed bbb-
ST IDR (xgs) B(xgs) Affirmed B(xgs)
LC LT IDR (xgs) BB-(xgs) Affirmed BB-(xgs)
LC ST IDR (xgs) B(xgs) Affirmed B(xgs)
=========
S P A I N
=========
CIRSA ENTERPRISES: Moody's Ups CFR to B2 & Alters Outlook to Stable
-------------------------------------------------------------------
Moody's Investors Service has upgraded to B2 from B3 the corporate
family rating of Cirsa Enterprises, S.L.U. (Cirsa or the company),
an international gaming operator based in Spain. Concurrently,
Moody's has upgraded to B2-PD from B3-PD the company's probability
of default rating and to B2 from B3 the instrument ratings on the
existing guaranteed senior secured notes issued by Cirsa Finance
International S.a r.l. Finally, Moody's has also assigned a B2
rating to the proposed EUR650 million backed senior secured notes
due 2028 to be issued by Cirsa Finance International S.a r.l.
The outlook on all ratings has been changed to stable from
positive.
Proceeds from the issuance of the backed senior secured notes will
be used to repay the EUR490 million guaranteed senior secured notes
maturing in September 2025 and the EUR160 million outstanding
guaranteed senior secured notes maturing December 2023.
RATINGS RATIONALE
The upgrade to B2 from B3 reflects the company's strong operating
performance and improved credit metrics, as well as the reduced
refinancing risk following the proposed EUR650 million notes
issuance.
This issuance will allow Cirsa to refinance the EUR160 million
guaranteed senior secured notes due in December 2023 and the EUR490
million guaranteed senior secured notes due in September 2025.
While the company will still need to address the refinancing of its
EUR390 million guaranteed senior secured notes maturing in May
2025, the B2 rating with a stable outlook assumes that Cirsa will
proactively approach this refinancing at least 12 months ahead of
maturity.
The company reported strong revenue (+29% YoY) and EBITDA growth
(+28%) in the first quarter of 2023. Cirsa also reported strong
growth in its online business, which nevertheless has lower margins
but has a solid growth potential and offsets slower trends in other
businesses.
Moody's expects Cirsa's EBITDA to be above pre-pandemic levels in
2023, at around EUR615 million, leading to a decrease in its
Moody's-adjusted leverage towards 4.0x. This level of leverage
positions the company well in the B2 category, but the presence of
the EUR400 million PIK toggle notes at LHMC Finco 2 S.a.r.l. level,
and which mature in October 2025, creates the risk that they could
be refinanced within the restricted group. Moody's estimates that
the PIK notes, including accrued interests, would add roughly 0.8x
of leverage in the event they were refinanced within the restricted
group.
Despite the expected increase in borrowing costs following the
refinancing, Moody's expects that the company will continue to
generate positive free cash flow (FCF) over the next two years.
There are, however, downside risks stemming from the current
challenging macroeconomic outlook and its impact on consumer
disposable income.
Cirsa's B2 CFR reflects the company's leading market positions in
Spain and Latin America, its geographical and business segment
diversification, and its solid performance after the pandemic.
Cirsa's credit quality continues to be constrained by the company's
material presence in emerging markets, which represent around 45%
of the company's EBITDA, the company's limited although increasing
online offering, its exposure to foreign-exchange fluctuations and
reliance on repatriation of cash from Latin American countries as
well as the regulatory risks inherent to the gambling industry.
STRUCTURAL CONSIDERATIONS
Cirsa's PDR is B2-PD, in line with the CFR, reflecting Moody's
assumption of a 50% recovery rate, as is customary for capital
structures that include notes and bank debt. The guaranteed senior
secured notes issued at Cirsa Finance International S.a.r.l. are
rated B2, in line with the CFR, as they represent the majority of
the company's financial debt. There is also a small amount of bank
debt at operating company level, as well a super senior RCF at
Cirsa Enterprises level, which rank ahead of the debt at holdco
given the relatively low guarantor coverage of 46%, but its size is
not material enough to drive notching on the notes.
LIQUIDITY
Following the proposed refinancing, Cirsa's liquidity is adequate,
supported by EUR193 million of cash at the end of March 2023,
combined with EUR230 million availability under its EUR275 million
revolving credit facility (RCF) pro forma for the proposed
transaction.
The RCF is subject to a springing maturity date mechanism. Pro
forma for the refinancing, the maturity date changes to February
2025 in the event there are still amounts outstanding under the
2025 guaranteed senior secured notes by this time. Moody's does not
expect the springing maturity date condition to be triggered on the
expectation that Cirsa will refinance the May 2025 guaranteed
senior secured notes outstanding well ahead of the February
springing maturity date.
Cirsa's liquidity is also supported by a solid free cash flow (FCF)
generation of around EUR100 million in 2023, assuming the company
does upstream EUR20 million of cash to pay interest on the PIK
toggle notes in July.
The RCF documentation contains a springing financial covenant based
on a senior secured net leverage set at 7.52x, tested on a
quarterly basis when the RCF is drawn by more than 40%. A breach
only triggers a drawstop event and not an event of default. Moody's
expects Cirsa to maintain a good headroom under this covenant.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects Moody's expectation that Cirsa's
Moody's-adjusted leverage will reduce towards 4.0x and its
Moody's-adjusted EBIT/Interest will improve to above 1.5x over the
next 12-18 months.
The stable outlook also assumes that Cirsa will generate positive
free cash flow and maintain an adequate liquidity at all times,
including the successful refinancing of the guaranteed senior
secured notes maturing in May 2025 at least 12 months ahead of
maturity.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure could develop on the rating if Cirsa's operating
performance continues to improve, with solid revenue and margin
growth driven by a growing online segment, such that (1) its
Moody's adjusted leverage reduces towards 4.0x, (2) its Moody's
adjusted EBIT/interest ratio improves well above 2.0x; (3) the
company continues to generate solid positive free cash flow and
maintains good liquidity, and (4) it demonstrates a track record of
conservative financial policies, including a prudent management of
debt maturities.
Given the presence of the PIK instrument due in October 2025 and
sitting outside of the restricted group, upward pressure on the
rating is limited until there is visibility into the refinancing of
this instrument, as it could add around 0.8x of leverage if it were
to be refinanced inside the restricted group.
Downward pressure on the rating could arise if: (1) Cirsa's Moody's
adjusted leverage increases to above 5.5x; (2) its Moody's adjusted
EBIT/interest ratio decreases to below 1.5x; (3) free cash flow
turns sustainably negative; or (4) if the company's liquidity
deteriorates or the company does not proactively address the
refinancing of debt maturities at least 12 months ahead of
maturity.
LIST OF AFFECTED RATINGS
Issuer: Cirsa Enterprises, S.L.U.
Upgrades:
Corporate Family Rating, Upgraded to B2 from B3
Probability of Default Rating, Upgraded to B2-PD from B3-PD
Outlook Actions:
Outlook, Changed To Stable From Positive
Issuer: Cirsa Finance International S.a r.l.
Upgrades:
Senior Secured Regular Bond/Debenture, Upgraded to B2 from B3
Backed Senior Secured Regular Bond/Debenture, Upgraded to B2 from
B3
Assignments:
Backed Senior Secured Regular Bond/Debenture, Assigned B2
Outlook Actions:
Outlook, Changed To Stable From Positive
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Gaming
published in June 2021.
COMPANY PROFILE
Cirsa Enterprises, S.L.U. (Cirsa) was founded in 1978 following the
liberalisation of the Spanish private gaming market. Headquartered
in Terrassa, Spain, Cirsa is an international gaming operator. The
company is present in nine countries where it has market-leading
positions: Spain and Italy in Europe; Panama, Colombia, Mexico,
Peru, Costa Rica and the Dominican Republic in Latin America; and
Morocco in Africa. Cirsa operates casinos, slot machines, bingo
halls and betting locations. In 2022, the company reported net
revenue of around EUR2.0 billion and company-adjusted EBITDA of
EUR552 million.
NOURYON HOLDING: Fitch Affirms B+ LongTerm IDR, Outlook Stable
--------------------------------------------------------------
Fitch Ratings has affirmed Nouryon Holding B.V.'s Long-Term Issuer
Default Rating (IDR) at 'B+' with Stable Outlook. Fitch has also
affirmed Nouryon Finance B.V.'s senior secured rating at 'BB-' and
assigned its new term loan B's (TLB) senior secured ratings of
'BB-' with a Recovery Rating of 'RR3'.
The rating is constrained by Nouryon's high EBITDA gross leverage,
which Fitch expects to remain at 5.1x on average in 2023-2026.
Rating strengths include Nouryon's diversified specialty chemical
focus, stable margins and resilient cash flows. Fitch also
considers Nouryon's continued portfolio refinement and investments
within its existing business segments as supportive of the business
profile.
The Stable Outlook reflects Fitch's expectation that Nouryon's
EBITDA will remain resilient, despite weaker demand across some
end-markets in 2023, which will support gradual deleveraging in the
coming years.
KEY RATING DRIVERS
Resilient Cash Flows: Nouryon's specialty focus, product
differentiation and business diversification support resilient
profit margins and cash flows. It focuses on non-industrial markets
that are less cyclical. In 2023, Fitch assumes a conservative 9%
decline in EBITDA due to an adverse economic environment
characterised by substantial destocking, especially in consumer
goods, and weak economic growth, which will impact volumes.
Nouryon's strong pricing power was demonstrated in 2022 with EBITDA
up 16%, despite severe raw-material cost inflation and some volume
pressure. Its cash flow from operations remained positive despite a
significant outflow from changes in working capital. Fitch expects
Nouryon's EBITDA to recover and grow by about 5% per year from
2024.
Deleveraging Despite Dividends: Fitch expects Nouryon's EBITDA
gross leverage to fall to 4.8x in 2026 from 5.5x in 2023 as EBITDA
grows and gross debt remains broadly stable throughout Fitch's
forecast. Deleveraging could be faster if the company prioritises
debt reduction over dividends, as it did in 2020-2021, or if EBITDA
grows in line with or above management's expectations. However,
based on the amounts paid in 2022 and 2023, Fitch conservatively
assumes an annual dividend payment of USD100 million per year.
The USD500 million dividend paid in 2023 increased EBITDA gross
leverage from 4.5x in 2022, but the company had achieved
significant deleveraging and market conditions have not been
supportive of a public listing so far.
Portfolio Refinement: Nouryon continues to refine its portfolio and
has made acquisitions and disposals, to focus on specialty
chemicals and key sectors of agriculture, home and personal care,
and paints and coatings. It achieved a significant milestone in
2021 with the disposal of its industrial chemical segment, Nobian
Holdings 2 B.V. (B/Stable). The recent acquisition of Poland-based
ADOB fertilisers illustrate the company's strategy to grow through
bolt-on acquisitions in targeted markets. The business will double
Nouryon's presence in crop nutrition and complement its existing
chelated micronutrients offering.
Investing for Growth: Nouryon invests in growth within its existing
business lines. New microspheres and colloidal silica plants are
being commissioned this year in the US following the ramp up of new
chelates and micronutrients capacity in Europe. We forecast capex
of USD350 million to USD400 million per year as Nouryon increases
renewable fibres capacity and undertakes de-bottlenecking projects
across its assets.
Interest-Rate Rise Mitigated: The majority of Nouryon's debt, which
is mainly composed of floating-rate instruments, is protected
against high benchmark rates through hedging until 2025, and until
2026 for the US dollar part. This mitigates rising interest rates,
especially in 2023. However, the margin on the extended term loans
and new term loans raised in 2023 increased, which together with
higher benchmark rates will increase Nouryon's debt burden. Fitch
expects the average cost of debt will increase to about 7%-8% in
2023-2026 from 4%-5% in 2020-2022, and EBITDA interest coverage on
average at 2.6x in 2023-2026.
Barriers to Entry: Fitch sees significant barriers to entry to
Nouryon's leading positions in niche markets, as the company
specialises in products that are either with differentiated or
bespoke properties, or that are key in the manufacturing process of
a final product. This supports resilient volumes, as seen during
the pandemic in 2020 when they declined only 2%. Nouryon's R&D
investments amount to around 3% of sales, and result in several new
product launches every year.
Sustainability Push, Regulatory Risks: Demand for Nouryon's
products is influenced by sustainability trends that drive demand
for bio-based alternatives to oil-derived raw materials, the need
to improve agriculture's efficiency, or increasing plastic
recycling, which requires catalysts. This is the focus of Nouryon's
R&D and capex, and led to about 34% of 2022 revenues derived from
eco-premium solutions. Nouryon will face regulatory challenges due
to changing legislation on the classification and labelling of
chemical products, but its product diversification and innovation
focus supports its ability to find alternatives, if demand for some
of its products is affected.
IPO Remains Target: Fitch believes that Nouryon's shareholders will
continue to look for an opportunity to list the company depending
on market conditions, given that Nouryon has spun off its commodity
business, reshuffled its portfolio through acquisitions and
disposals, deleveraged and has global scale and leading position in
its markets. The recent extension of term loans will provide more
flexibility to wait for improved market appetite.
DERIVATION SUMMARY
Most of Nouryon's specialty chemicals peers in EMEA, such as BASF
SE (A/Stable) or Akzo Nobel N.V. (BBB/Stable), are higher-rated due
to significantly lower leverage, and their leading positions in
larger-scale products globally. However, Nouryon has higher EBITDA
and free cash flow (FCF) margins, and is a leader in its niche
markets.
Compared with Italmatch Chemicals S.p.A. (B/Stable), Nouryon is
significantly larger, more diversified, has higher profit margins
and less cash flow volatility, which support a higher debt
capacity.
Root Bidco S.a.r.l. (B/Stable) has a similar specialty focus and
benefits from dynamic growth of its markets, but is smaller, less
diversified and has higher leverage than Nouryon.
Compared with Envalior Finance GmbH (B/Positive), Nouryon is
larger, more diversified and generates more stable cash flows due
to its exposure to more resilient sectors. We expect Nouryon's
leverage to be lower.
Similar to Nouryon, Nobian Holdings 2 B.V. (B/Stable) has high
margins and strong pricing power. However, Nobian is smaller, less
diversified geographically, and more exposed to fluctuations in the
prices of energy and of the commodities it produces.
KEY ASSUMPTIONS
- Revenue decrease of 3% in 2023 before growing at low single-
digits in 2024-2026
- EBITDA margin of 19.4% in 2023, then 20.8% on average in 2024-
2026
- Annual capex on average at 6.3% of sales in 2023-2026
- M&A of USD220 million in 2023, and USD100 million per year in
2024-2026
- Dividends of USD500 million in 2023, and USD100 million per
year in 2024-2026
Key Recovery Analysis Assumptions
The recovery analysis assumes that Nouryon would be reorganised as
a going-concern (GC) in bankruptcy rather than liquidated.
The GC EBITDA estimate reflects Fitch's view of a sustainable,
post-reorganisation EBITDA level, upon which we base its enterprise
valuation (EV).
The GC EBITDA of USD800 million reflects changes in regulation or
substantial external pressures, such as a severe global downturn
that particularly hits Nouryon's main end-markets, resulting in
heavily reduced demand for Nouryon's products, but also considers
corrective measures taken to offset adverse conditions.
Fitch uses a multiple of 5.5x to estimate a GC enterprise value for
Nouryon because of its leadership position, resilient exposure to
non-cyclical end-markets, solid profitability and high barriers to
entry due to substantial R&D requirements for product development.
Fitch assumes the company's revolving credit facility (RCF) to be
fully drawn and to rank pari passu with its TLB, and that its
securitisation facility would be replaced by an equivalent
super-senior facility.
After deducting 10% for administrative claims, Fitch's analysis
resulted in a waterfall-generated recovery computation (WGRC) for
the senior secured instrument in the 'RR3' band, indicating a 'BB-'
instrument rating. The WGRC output percentage on current metrics
and assumptions was 58% for the senior secured debt.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- EBITDA gross leverage below 4.5x on a sustained basis
- EBITDA interest coverage above 3.5x on a sustained basis
- EBITDA margin sustained above 23% and FCF margins above 5%
through synergies and cost savings
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- EBITDA gross leverage above 6.5x on a sustained basis
- EBITDA interest coverage below 2x on a sustained basis
- Weakening EBITDA and FCF margins, for example, as a result of a
loss of market share or adverse regulatory changes
LIQUIDITY AND DEBT STRUCTURE
Liquidity Management: As of March 31, 2023, pro forma for the new
debt facilities issued in April and May 2023, Fitch estimates that
Nouryon's liquidity stood at USD0.9 billion. Its RCF was recently
upsized to USD783 million, of which USD33 million will expire in
2024. The remainder will expire in July 2025 if a certain amount of
term loans remains due in October 2025, otherwise in October 2026.
Maturities Manageable: In May 2023, Nouryon extended the maturities
on 84% of its existing US dollar and euro TLBs (excluding the
incremental USD750 million issuance in April 2023) to 2028 from
2025. Following the amend and extend transaction, just over USD800
million of Nouryon's term loans remain due in 2025 and USD5 billion
due in 2028. The extended term loans would effectively mature in
2025 if a certain amount of senior secured term loans remains due
in that year. However, Fitch expects Nouryon to successfully
refinance the remaining part of the debt, which will push the
maturities of the TLBs to 2028.
ISSUER PROFILE
Nouryon is a global producer of specialty chemicals headquartered
in the Netherlands and controlled by The Carlyle Group and GIC.
SUMMARY OF FINANCIAL ADJUSTMENTS
For FY2022:
Fitch excludes USD168 million lease liabilities in the calculation
of financial debt and treats USD44 million right-of-use asset
depreciation and USD8 million lease-related interest expense as
cash operating expenses.
Fitch adds back USD46 million deferred financing costs to the
financial debt.
Fitch adds back USD43 million non-recurring and non-cash items to
EBITDA.
SANTANDER CONSUMER 5: Fitch Assigns BB(EXP) Rating to Class D Debt
------------------------------------------------------------------
Fitch Ratings has assigned Santander Consumo 5, F.T. expected
ratings.
The assignment of final ratings is contingent on the receipt of
final documents conforming to information already received.
Santander Consumo 5
Class A ES0305715007 LT AA+(EXP)sf Expected Rating
Class B ES0305715015 LT A+(EXP)sf Expected Rating
Class C ES0305715023 LT BBB+(EXP)sf Expected Rating
Class D ES0305715031 LT BB(EXP)sf Expected Rating
Class E ES0305715049 LT NR(EXP)sf Expected Rating
Class F ES0305715056 LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
The transaction is a securitisation of a revolving portfolio of
fully amortising general-purpose consumer loans originated by Banco
Santander S.A. (Santander, A-/Stable/F2) to Spanish residents.
Around 80% of the portfolio balance is linked to pre-approved loans
underwritten to existing Santander customers.
KEY RATING DRIVERS
Asset Assumptions Reflect Pool Profile: Fitch calibrated a base
case lifetime default and recovery rate of 3.75% and 20.0%,
respectively, for the portfolio. This reflects the historical data
provided by Santander, Spain's economic outlook and the
originator's underwriting and servicing strategies. For a 'AA+'
scenario commensurate with the class A notes' rating, the lifetime
default and recovery rates are 16.25% and 11.33%, respectively.
Short Revolving Period: The transaction features a five-month
revolving period, during which new receivables can be purchased by
the special purpose vehicle. Fitch deems any credit risk linked to
the revolving period as sufficiently captured by the default
multiples. Fitch has not assumed a stressed portfolio in relation
to the limits permitted by the transaction covenants given the
short duration of the revolving period, which implies only a small
share of the pool balance (estimated at 8%) is expected to be
replenished.
Pro Rata Amortisation: After the revolving period, the class A to E
notes will be repaid pro rata unless a sequential amortisation
event occurs, primarily linked to cumulative defaults exceeding
certain thresholds or a principal deficiency greater than EUR 12.0
million. Fitch views these triggers as sufficiently robust to
prevent the pro rata mechanism from continuing on early signs of
performance deterioration. The tail risk posed by the pro rata
pay-down is mitigated by the mandatory switch to sequential
amortisation when the outstanding collateral balance (inclusive of
defaults) falls below 10% of the initial balance.
Counterparty Arrangements Cap Ratings: The maximum achievable
rating for the transaction is 'AA+sf', in line with Fitch's
counterparty criteria. This is due to the minimum eligibility
rating thresholds defined for the transaction account bank and the
hedge provider of 'A-' or 'F1', which are insufficient to support
'AAAsf' ratings.
Interest Rate Hedge: An interest rate balanced guaranteed swap will
hedge the risk arising from 100% of the portfolio paying a fixed
interest rate for life and the floating-rate notes. The swap
notional is the outstanding balance of the non-defaulted
receivables (i.e. performing loans and in arrears up to 90 days).
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A long-term asset performance deterioration such as increased
delinquencies or reduced portfolio yield, which could be driven by
changes in portfolio characteristics, macroeconomic conditions,
business practices or the legislative landscape.
- For the class D notes in particular, the combination of
back-loaded timing of defaults and a late activation of junior
interest deferrals would erode cash flow and in turn could lead to
a downgrade.
Sensitivity to Increased Defaults:
Original ratings (class A/B/C/D): 'AA+(EXP)sf' / 'A+(EXP)sf' /
'BBB+(EXP)sf' / 'BB(EXP)sf'
Increase defaults by 10%: 'AA+(EXP)sf' / 'A+(EXP)sf' /
'BBB+(EXP)sf' / 'BB(EXP)sf'
Increase defaults by 25%: 'AA(EXP)sf' / 'A(EXP)sf' / 'BBB(EXP)sf' /
'B+(EXP)sf'
Increase defaults by 50%: 'A+(EXP)sf' / 'A-(EXP)sf' / 'BBB+(EXP)sf'
/ 'B(EXP)sf'
Sensitivity to Reduced Recoveries:
Original ratings (class A/B/C/D): 'AA+(EXP)sf' / 'A+(EXP)sf' /
'BBB+(EXP)sf' / 'BB(EXP)sf'
Reduce recoveries by 10%: 'AA+(EXP)sf' / 'A+(EXP)sf' /
'BBB+(EXP)sf' / 'BB(EXP)sf'
Reduce recoveries by 25%: 'AA+(EXP)sf' / 'A+(EXP)sf' /
'BBB+(EXP)sf' / 'B-(EXP)sf'
Reduce recoveries by 50%: 'AA+(EXP)sf' / 'A+(EXP)sf' / 'BBB(EXP)sf'
/ 'CCC(EXP)sf'
Sensitivity to Increased Defaults and Reduced Recoveries:
Original ratings (class A/B/C/D): 'AA+(EXP)sf' / 'A+(EXP)sf' /
'BBB+(EXP)sf' / 'BB(EXP)sf'
Increase defaults by 10%, reduce recoveries by 10%: 'AA+(EXP)sf' /
'A+(EXP)sf' / 'BBB+(EXP)sf' / 'CCC(EXP)sf'
Increase defaults by 25%, reduce recoveries by 25%: 'AA-(EXP)sf' /
'A(EXP)sf' / 'BBB-(EXP)sf' / 'CCC(EXP)sf'
Increase defaults by 50%, reduce recoveries by 50%: 'A(EXP)sf' /
'BBB(EXP)sf' / 'BB(EXP)sf' / 'NR(EXP)sf'
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- For the senior notes rated 'AA+sf', modified transaction account
bank and derivative provider minimum eligibility rating thresholds
compatible with 'AAAsf' ratings under the agency's Structured
Finance and Covered Bonds Counterparty Rating Criteria.
- Increasing credit enhancement ratios as the transaction
deleverages to fully compensate the credit losses and cash flow
stresses commensurate with higher rating scenarios may lead to
upgrades.
DATA ADEQUACY
Santander Consumo 5, F.T.
Fitch reviewed the results of a third party assessment conducted on
the asset portfolio information, and concluded that there were no
findings that affected the rating analysis.
Fitch conducted a review of a small targeted sample of the
originator's origination files and found the information contained
in the reviewed files to be adequately consistent with the
originator's policies and practices and the other information
provided to the agency about the asset portfolio.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
===========
T U R K E Y
===========
VDF FAKTORING: Fitch Assigns 'B' LT Foreign Currency IDR
--------------------------------------------------------
Fitch Ratings has assigned VDF Faktoring A.S. a Long-Term
Foreign-Currency Issuer Default Rating (LTFC IDR) at 'B' and a
National Long-Term Rating at 'AAA(tur)'. The Outlook on the LTFC
IDR is Negative while the Outlook on the National Long-Term Rating
is Stable.
KEY RATING DRIVERS
IDR, SHAREHOLDER SUPPORT RATING AND NATIONAL RATING
Support-Driven Ratings: VDF Faktoring's ratings are driven by
support from its controlling shareholder, Volkswagen Financial
Services AG (VWFS) and, ultimately, Volkswagen AG (VW, A-/Stable),
as underlined by a Shareholder Support Rating (SSR) of 'b' .
Fitch sees VDF Faktoring as a strategically important subsidiary of
VW, given its mandate to promote and support VW's operations in
Turkiye.
Constrained by Country Ceiling: VDF Faktoring's LTFC IDR and SSR
are both constrained by Turkiye's 'B' Country Ceiling. The Country
Ceiling captures transfer and convertibility risks and caps the
extent to which support from VWFS or VW can be factored into LTFC
IDR. The Negative Outlook on the LTFC IDR mainly reflects the risks
stemming from the operating environment as well as the Negative
Outlook on Turkiye's sovereign rating.
Joint-Venture Structure: VDF Faktoring is fully owned by VDF Servis
ve Ticaret (VDF Servis) which is in turn 51% owned by VW (via VWFS)
and 49% by Dogus Group. Dogus is a large Turkish conglomerate with
diverse operations and the sole importer of VW vehicles in Turkiye.
VW exercises operational control over VDF entities while Dogus
maintains a significant role in running the company.
Reliance on VW Group: VDF Faktoring's operations completely rely on
VW activity in Turkiye as it finances VW's car dealers and all of
the business is generated within the group. Moreover, a
considerable, albeit fluctuating, share of VDF Faktoring's funding
is provided by VW (12% at end-2022; 0% at end-2021; 52% at
end-2020).
Proven Shareholder Support: VDF Faktoring has benefited from
previous capital injections from its shareholders, receiving
capital injections of TRY10 million in 2019 (around 8% of end-2018
equity) and TRY20 million in 2020 (around 15% of end-2019 equity).
VDF Servis, the group's holding company, redistributes dividends
extracted from other profitable subsidiaries into group companies
that require support. VW has also contributed capital when needed.
Fitch believes further capital injections would be forthcoming to
maintain adequate capitalisation.
High Leverage: VDF Faktoring's gross debt substantially increased
to 11x tangible equity at end-2022 from 2.3x at end-2021. The fresh
debt proceeds were primarily used to finance new factoring
receivables, which grew 230% in 2022. As a result, VDF Faktoring's
regulatory equity-to-assets ratio weakened to 9% at end-2022 from
31% at end-2021.
Fitch expects leverage to remain high in Turkiye's highly
inflationary environment but this is mitigated by the presence of a
strong shareholder that would provide capital and/or liquidity
support.
Sound Asset Quality: VDF Faktoring has reported strong asset
quality metrics since 2021 with no record of non-performing loans.
Given its concentrated portfolio, a failure from one dealer would
have a material negative impact on asset quality. Fitch expects
slight deterioration in asset quality in 2023 and 2024 amid rising
interest rates and a volatile operating environment.
Stable National Rating: VDF Faktoring's 'AAA(tur)' National
Long-Term Rating reflects its strong credit profile compared with
that of other issuers in Turkiye due to the high propensity of
support from VWFS and VW. The Stable Outlook reflects our
expectations of no changes to VDF Faktoring's creditworthiness
relative to other Turkish issuers'.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
VDF Faktoring's LTFC IDR and SSR would likely be downgraded
following a downgrade of Turkiye's Country Ceiling, which would
most likely be triggered by a sovereign rating downgrade.
Changes in propensity of support from VW, for example, as a result
of dilution of ownership, a loss of operational control or
diminishing of importance of the Turkish market, could also trigger
a downgrade of the IDR and SSR.
Deterioration of VDF Faktoring's creditworthiness relative to other
Turkish issuers' would likely trigger a downgrade in its National
Ratings although this is unlikely given the high level of potential
support from VW.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
An upgrade of the Long-Term IDR is unlikely in the short term,
given the Negative Outlook, but an upgrade of Turkiye's Country
Ceiling as a result of a sovereign rating upgrade would likely be
reflected in VDF Faktoring's LTFC IDR.
A revision of sovereign Outlook to Stable would also be reflected
in VDF Faktoring's LTFC IDR Outlook.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
VDF Faktoring's ratings are linked to the ratings of VW and
constrained by Turkiye's Country Ceiling.
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Prior
----------- ------ -----
VDF Faktoring A.S.
LT IDR B New Rating WD
ST IDR B New Rating WD
Natl LT AAA(tur) New Rating WD(tur)
Shareholder Support b New Rating
VDF FILO: Fitch Assigns 'B' LT Foreign Currency IDR
---------------------------------------------------
Fitch Ratings has assigned VDF Filo Kiralama A.S. (VDF Filo) a
Long-Term Foreign-Currency Issuer Default Rating (LTFC IDR) at 'B'
and a National Long-Term Rating at 'AAA(tur)'. The Outlook on VDF
Filo's LTFC IDR is Negative while the Outlook on its National
Long-Term Rating is Stable.
KEY RATING DRIVERS
IDRS, SHAREHOLDER SUPPORT RATING AND NATIONAL RATING
Support-Driven Ratings: VDF Filo's ratings are driven by support
from its controlling shareholder, Volkswagen Financial Services AG
(VWFS) and, ultimately, Volkswagen AG (VW, A-/Stable). Fitch sees
VDF Filo as a strategically important subsidiary of VW, given its
mandate to support VW's activity in Turkiye.
Constrained by Country Ceiling: VDF Filo's LTFC IDR and SSR are
both constrained by Turkiye's 'B' Country Ceiling. The Country
Ceiling captures transfer and convertibility risks and caps the
extent to which support from VWFS or VW can be factored into LTFC
IDR. The Negative Outlook on the LTFC IDR mainly reflects the risks
stemming from the operating environment as well as the Negative
Outlook on Turkiye's sovereign rating.
Joint-Venture Structure: VDF Filo is fully owned by VDF Servis ve
Ticaret (VDF Servis), which is in turn 51% owned by VW (via VWFS)
and 49% by Dogus Group. Dogus is a large Turkish conglomerate with
diverse operations and the sole importer of VW vehicles in Turkiye.
VW exercises operational control over VDF entities while Dogus
maintains a significant role in running the company. VDF Filo is
reliant on funding from the group, with VW providing 54% of VDF
Filo's total funding at end-2022.
Reliance on VW Brands: VDF Filo relies significantly on VW's
franchise in Turkiye. At end-2022, around half of VDF Filo's fleet
comprised VW group's brand vehicles and it serves almost
exclusively to VW dealers and operates through over 100 sale points
across Turkiye.
Proven Shareholder Support: VDF Filo has previously benefited from
ordinary capital injections, receiving TRY25 million in equity in
2020 (around 23% of end-2019 equity) and TRY34 million in 2019
(around 66% of end-2018 equity) from VDF Servis, the holding
company of the group. VDF Servis redistributes dividends extracted
from other profitable subsidiaries into group companies that need
support. VW has also contributed capital when needed. Fitch
believes further capital injections would be forthcoming to
maintain adequate capitalisation.
Good Profitability; Sound Asset Quality: VDF Filo reported an
improved return on average assets (ROAA) at a very strong 16.3% in
2022, compared with 9.5% in 2021. This was helped by higher
residual value gains on the fleet, mainly due to a sharp increase
in car demand in Turkiye as vehicles are seen as good hedge against
inflation. VDF Filo's asset quality metrics are strong, with a
non-performing loans (NPL) ratio of 1.2% at end-2022 (2021: 0.4%).
We expect a slight deterioration in asset quality in 2023 and 2024
amid rising interest rates.
Stable National Rating: VDF Filo's 'AAA(tur)' National Long-Term
Rating reflects its relatively strong credit profile versus that of
other issuers in Turkiye due to the high propensity of support from
VWFS and VW. The Stable Outlook reflects our expectations of no
changes to VDF Filo's relative creditworthiness in Turkiye.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
VDF Filo's Long-Term IDR and SSR would likely be downgraded
following a downgrade of Turkiye's Country Ceiling, which would
most likely be triggered by a sovereign rating downgrade.
Changes in VW's propensity support to VDF Filo, for example, as a
result of dilution of ownership, a loss of operational control or
diminishing of importance of the Turkish market, could also trigger
a downgrade of the IDRs and SSR.
A deterioration of VDF Filo's creditworthiness relative to other
Turkish issuers' would likely trigger a downgrade in its National
Ratings although this is unlikely given the high level of potential
support from VW.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
An upgrade of the LTFC IDR is unlikely in the short term given the
Negative Outlook, but an upgrade of Turkiye's Country Ceiling as a
result of a sovereign rating upgrade would likely be reflected in
VDF Filo's LTFC IDR.
A revision of sovereign Outlook to Positive would also be reflected
in the Outlook on VDF Filo's LTFC IDR.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
VDF Filo's ratings are linked to the ratings of the ultimate
parent, VW, and constrained by Turkiye's Country Ceiling.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating
----------- ------
VDF Filo Kiralama A.S.
LT IDR B New Rating
ST IDR B New Rating
Natl LT AAA(tur) New Rating
Shareholder Support b New Rating
===========================
U N I T E D K I N G D O M
===========================
BILLING AQUADROME: Set to Go Into Administration
------------------------------------------------
Sam Metcalf at TheBusinessDesk.com reports that Billing Aquadrome,
the 235-acre leisure park in Northamptonshire, is facing an
uncertain future after it cleared a pathway for an administrator to
be appointed to the resort.
Earlier this year, controversial GBP30 million plans by its owners
Royale Resorts to add more 1,000 more caravans to the site were
passed by West Northamptonshire Council, TheBusinessDesk.com
recounts.
However, on July 6, The BusinessDesk.com understands that Billing
Aquadrome Limited posted a notice of intention to appoint an
administrator, paving the way for an outside company to take over
the day-to-day control of the firm.
In its latest accounts, made up to January 31 2022, Billing
Aquadrome saw its profits rise to almost GBP6.9 million on the back
of a steady turnover of GBP16.7 million, TheBusinessDesk.com
states. At the time, the company employed 99 people,
TheBusinessDesk.com notes.
BIRKDALE MANUFACTURING: Enters Administration, Ceases Operations
----------------------------------------------------------------
Lincolnshire Today reports that Scunthorpe-based Birkdale
Manufacturing Group Limited has entered administration.
According to Lincolnshire Today, the business had been experiencing
trading difficulties which led to cash flow pressure, and in recent
weeks, was also subject to a winding-up petition from one of its
creditors.
Prior to the appointment of James Lumb and Howard Smith from
Interpath Advisory as joint administrators, the company ceased to
trade, Lincolnshire Today relates.
The administrators are seeking interest in a going concern sale,
and at this point, no redundancies have been made while this
interest is explored, Lincolnshire Today discloses.
"Companies across the sector have experienced significant
difficulties in recent months, including softening demand, as well
as rising input costs and interest rates,"
Lincolnshire Today quotes James Lumb, Managing Director at
Interpath Advisory and joint administrator, as saying.
"Unfortunately, these challenges proved insurmountable for Birkdale
Manufacturing Group. However, we are presently working towards a
solution which could see the business rescued as a going concern.
We will continue to update workers regularly while this process
unfolds."
Birkdale Manufacturing Group Limited is an established manufacturer
of garage doors and roller shutters, and in more recent years
increased its range to include composite front entrance doors,
window security shutters, awnings, pergolas, patios and fence
panels.
BLACKMORE BOND: Total Administration Costs Almost GBP3 Million
--------------------------------------------------------------
Kathryn Gaw at Peer2Peer Finance News reports that the cost of the
Blackmore Bond administration has almost reached GBP3 million, but
bondholders have been warned that they are "expected to suffer a
substantial shortfall in the value of their security," by
liquidators Kroll.
In the latest update, published on Companies House, Kroll revealed
that the cumulative costs of liquidation and administrator expenses
had reached GBP2.9 million, Peer2Peer Finance News relates.
The former joint administrators incurred time costs of just over
GBP1.73 million during the administration process, Peer2Peer
Finance News discloses. This represented 4,044 hours at an average
hourly rate of GBP428, Peer2Peer Finance News states.
The joint liquidators incurred total costs of GBP820,622, Peer2Peer
Finance News notes.
Meanwhile, the total cost of expenses added up to GBP362,145, with
just over GBP100,000 paid to date, according to Peer2Peer Finance
News.
The latest report from Kroll stated that all properties associated
with Blackmore Bond have now been sold, and a total of GBP271,837
has been realised by the company's special purpose vehicles,
Peer2Peer Finance News discloses.
Earlier this year, the Financial Conduct Authority (FCA) has
admitted that "human error" contributed to its failure to protect
investors in collapsed mini-bond provider Blackmore Bond, Peer2Peer
Finance News recounts.
Blackmore Bond went into administration in April 2020, with
thousands of investors being told that they will not receive any
money despite being owed over GBP46 million, Peer2Peer Finance News
relates.
CURIUM BIDCO: Moody's Affirms B3 CFR & Alters Outlook to Positive
-----------------------------------------------------------------
Moody's Investors Service has affirmed the B3 corporate family
rating of Curium Bidco S.a.r.l. Moody's has also affirmed the
company's B3-PD probability of default rating and the B3 ratings of
its senior secured first lien bank credit facilities. The outlook
has been changed to positive from stable.
The rating action and outlook change reflects:
- The company's strong trading in 2022 and growth prospects for
2023 and beyond
- Expectations that the company will reduce Moody's-adjusted debt
/ EBITDA towards 6x in the next 12-18 months, from 6.6x at March
2023
- The company's strong business profile with global leadership in
diagnostic radiopharmaceuticals and high barriers to entry across
medical and nuclear materials regulations, compliance, materials
handling, and manufacturing processes
- The factors being partially offset by the potential for
releveraging M&A and limited cash flows as the company invests in
new diagnostic products and large therapeutic opportunities
RATINGS RATIONALE
The B3 CFR reflects the company's: (1) leading share globally in
growing markets; (2) complex supply chains and dual regulation
pathways which provide high barriers to entry; (3) long-term
contracts providing good revenue and supply-side visibility; and
(4) strong ability to generate cash before growth capex.
The ratings also reflect the company's: (1) high Moody's-adjusted
leverage of 6.6x at March 2023, with new product investments
slowing the pace of deleveraging and limiting cash generation; (2)
risks of supply chain or regulatory disruption, although its track
record is good; (3) execution risks of new product launches
particularly in the new segment of therapeutics; and (4) presence
of separate subsidiary (Calyx) and large PIK outside the restricted
group which may result in a releveraging transaction for Curium.
Curium has performed well following the pandemic and in 2022 grew
revenues and company-adjusted EBITDA by 8% in constant currencies,
driven by new product launches and growing demand for
radiopharmaceutical diagnostics. This was achieved despite
disruption to supply of the key radioactive isotope Molybdenum-99
in November. Further strong growth was achieved in the first
quarter of 2023 leading to Moody's-adjusted leverage reducing to
6.6x at March 2023, compared to 7.9x at December 2021. Moody's
expects continued mid-single digit EBITDA growth leading to further
gradual deleveraging towards 6x over the next 12-18 months.
The company is making substantial investments in new products, in
particular in the therapeutic space. This represents a potentially
very large opportunity, although execution risks exist as this is a
new segment for Curium, large pharmaceutical companies are active
and Novartis AG (A1 positive) has already launched products in the
same indication. Curium has a large range of potential development
opportunities and whilst it will be selective and seek to minimise
risks, Moody's expects the company to allocate most of its excess
cash generation to new product development. This will slow the pace
of deleveraging, and the company may also carry out debt-funded
medium sized acquisitions particularly to boost its presence in
growing markets in APAC. Nevertheless the company is expected to
generate solid cash flows from its base business prior to
expansionary spending.
The rating action also considers Curium's strong business model
with high barriers to entry and in a market with solid mid-single
digit growth potential driven by nuclear imaging's earlier
detection of disease and lower cost relative to other types of
scan, the increase in installed base of scanners, and an ageing
population with increasing prevalence of cancer and other
indications. Competition is relatively limited and the focus of new
drug development is largely on new diagnostic possibilities and the
largely untapped therapeutic market, rather than on cannibalising
existing diagnostic drugs.
ESG CONSIDERATIONS
Curium is exposed to environmental risks associated with the
manufacture of radioactive materials leading to site
decommissioning liabilities on the balance sheet, which, although
long-dated, increase over time. It has exposure to several social
risks, including product safety, and in this regard the company has
a good long term track record, and the short half-life of its
isotopes reduces product liability risks. Its supply chain is long
and complex and it relies on a limited number of facilities where
unplanned stoppage could be highly disruptive. Its financial
policies include a tolerance for high leverage and potential for
releveraging to support acquisitions or refinancing the PIK outside
the restricted group.
LIQUIDITY
Curium maintains solid liquidity. As at March 31, 2023 the group
held cash of EUR143 million, of which EUR92 million was held within
the restricted group level, and Curium had an undrawn revolving
credit facility (RCF) of EUR210 million. Moody's forecasts a small
proportion of the RCF to be drawn to part finance pipeline
development projects, and further discretionary utilisation of the
RCF may occur in the event of bolt on acquisitions. The RCF
contains a net senior leverage springing covenant tested if
drawings reach or exceed 40% of facility commitments. Should it be
tested, Moody's expect that Curium would retain ample headroom
against the test level of 10.15x.
STRUCTURAL CONSIDERATIONS
The B3 ratings on Curium's first lien debt instrument ratings
comprising its RCF and term loan tranches are in line with the CFR,
reflecting the fact that they are essentially the only financial
instruments in the company's capital structure and rank pari
passu.
The senior secured facilities have a security package comprising
direct guarantees from material operating subsidiaries on a first
ranking basis, with security in the form of share pledges,
intra-group receivables and material bank accounts.
RATING OUTLOOK
The positive outlook reflects expectations that the company will
continue to grow revenues and EBITDA leading to Moody's-adjusted
leverage reducing towards 6x over the next 12-18 months. It is also
reflects continued high capex investments in new products, leading
to breakeven or low positive free cash flow. The outlook assumes no
material supply chain disruption, that there are no material
debt-funded acquisitions causing leverage to increase on a
sustained basis and that liquidity remains solid.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Curium's ratings could be upgraded if (1) continue to grow revenue
and EBITDA organically, supported by a track record of successful
product launches, coupled with (2) Moody's adjusted leverage
sustainably reducing towards 6.0x and, (3) FCF/debt rising towards
5%.
The outlook could return to stable if any of the conditions for a
positive outlook are not met and in particular if the company does
not remain on a deleveraging trajectory due to a slowdown in
trading performance, new product investments or debt-funded M&A.
Curium's ratings could be downgraded if (1) Moody's adjusted
leverage increases sustainably above 7.5x or, (2) FCF generation
were to turn negative on a sustainable basis or (3) the liquidity
position deteriorates.
LIST OF AFFECTED RATINGS
Affirmations:
Issuer: Curium Bidco S.a.r.l
Probability of Default Rating, Affirmed B3-PD
LT Corporate Family Rating, Affirmed B3
Senior Secured Bank Credit Facility, Affirmed B3
Outlook Action:
Issuer: Curium Bidco S.a.r.l
Outlook, Changed To Positive From Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Pharmaceuticals
published in November 2021.
CORPORATE PROFILE
Curium, dual-headquartered in the UK and France, is a global
producer and supplier of nuclear medicine and radiopharmaceutical
products mainly for the diagnosis of cancer, cardiology as well as
renal, lung and bone diseases. The group was formed in January 2017
when financial investor CapVest acquired Mallinckrodt's
(Mallinckrodt International Finance S.A. – Caa1 negative) SPECT
assets and combined them with IBA Molecular, which CapVest had
acquired in 2016. In 2022 Curium reported revenue of EUR804 million
and company-adjusted EBITDA of EUR263 million.
HUNTER HOLDCO 3: S&P Affirms B Issuer Credit Rating, Outlook Stable
-------------------------------------------------------------------
S&P Global Ratings affirmed all its ratings on U.K.-based Hunter
Holdco 3 Ltd. (d/b/a Inizio), including the 'B' issuer credit
rating and the 'B' ratings on the first-lien debt. The '3' recovery
on this debt is unchanged.
The stable outlook reflects S&P's expectation for strong organic
revenue growth, margin expansion, and subsiding nonrecurring costs,
enabling the company to reduce leverage to below 8x and increase
FOCF to debt to around 3% over the coming year.
S&P said, "We expect Inizio's comprehensive portfolio of drug
commercialization services will support robust organic revenue
growth, even as relatively low barriers to competition constrain
EBITDA margins. Inizio has demonstrated a strong track record of
organic revenue growth as pharmaceutical customers seek to promote
adoption of new drug products. With five core business units
spanning the full spectrum of drug commercialization services, we
continue to view the company as well positioned to capitalize on
the trend of pharmaceutical companies outsourcing noncore
activities to increase their focus on their core areas of
expertise. The company's pipeline for new business remains robust,
especially in the high-growth Advisory and Engage units. We expect
organic revenue growth of around 12% in 2023 and in the
high-single-digit percent range beyond then.
"That said, we view the market Inizio operates in as highly
competitive with relatively low barriers to entry. Moreover, the
company's sole focus on the health and life sciences industry
leaves it vulnerable to adverse shifts in areas such as
pharmaceutical R&D spend, biotech funding, and regulation."
Inizio competes with a variety of industry participants including
full-service consultancies, the health care divisions of large
advertising agencies, and midsized companies such as LSCS Holdings,
Inc. (B-/Stable/--). Although Inizio serves a diverse range of
customers, a significant portion of its revenue comes from a few
large pharmaceutical clients. This risk is partially offset by its
track record of high customer retention.
Despite lower-than-expected margins and cash flow deficits in 2022,
the 'B' rating is supported by our expectation for a significant
improvement in 2023 and 2024 as transformational costs subside and
Inizio realizes synergies from recent transactions.
Transformational costs related to strategic M&A from 2021 (Ashfield
merger) and early 2022 (Research Partnership acquisition and Sharp
divestiture) weighed on EBITDA margins in 2022. Employee costs,
which represent between 80%-90% of Inizio's operating expense base,
also increased significantly as headcount rose. S&P said, "Our
base-case scenario assumes an improvement in S&P Global
Ratings-adjusted EBITDA margins to around 19% in 2023 as
transformational costs subside, rising employee costs are partially
defrayed through contract pricing increases, and the company
continues to capitalize on its operating leverage. We expect Inizio
will realize cost synergies from its various acquisitions as back
office and IT systems are consolidated. To this end, the company
demonstrated solid progress in the first quarter. However, EBITDA
margins could remain under pressure should integration or synergies
take longer than expected to achieve or if intensifying competition
prevents the company from raising prices to offset rising costs."
S&P said, "We expect Inizio's FOCF will improve significantly in
2023 and 2024, despite higher interest expense. Inizio delivered
breakeven FOCF in 2022, excluding the impact of a one-time tax
payment related to the sale of its Sharp packaging business last
February. This weakness was primarily a result of elevated
benchmark interest rates, which led to a 69% increase in interest
expense compared to 2021. While we expect higher interest rates
will continue to weigh on FOCF over our forecast horizon, we expect
the company to strengthen FOCF helped by robust organic revenue
growth, improved EBITDA margins, better management of working
capital, a hedging program that fixes 50% of its floating rate debt
through 2026, and subsiding one-time costs. In the first quarter of
2023, the company experienced a working capital outflow of $33
million, primarily reflecting bonus payments and new contract wins.
We expect an improvement in cash flow conversion for the remainder
of the year."
M&A activity will slow down in 2023, which will contribute to
deleveraging. The market for drug commercialization services is
highly fragmented, which has led to a significant amount of M&A
activity in this space. Inizio has been very acquisitive,
completing six acquisitions in 2022, including the $176 million
acquisition of health care research and consulting provider
Research Partnership.
S&P said, "We expect the company will slow the pace of M&A in 2023
pursuing smaller, tuck-in acquisitions using cash and deferred
considerations in 2023, given the increase in interest rates,
still-elevated private market valuations, and the company's already
high adjusted leverage and interest burden. Coupled with expected
EBITDA growth, this should help meaningfully contribute to
deleveraging to around 7.5x in 2023. Our forecast for leverage also
considers upcoming deferred acquisition payments and third-party
preferred shares, both of which are included in adjusted debt.
Preferred shares held by Inizio's financial sponsor, CD&R, are
treated as equity.
"The stable outlook reflects our expectation for strong organic
revenue growth, margin expansion, and subsiding nonrecurring costs,
enabling the company to reduce leverage to below 8x and increase
FOCF to debt to around 3% over the coming year."
S&P could lower its rating if the company underperforms its base
case, such that adjusted leverage remains above 8x or FOCF to debt
remains below 3% with no clear prospect for near-term improvement.
This could most likely occur if:
-- Benchmark interest rates remain higher than expected for a
longer duration;
-- The company fails to achieve consistent and material EBITDA
margin expansion due to competitive pressure, inflation, or ongoing
integration costs; or
-- The company is financially aggressive in pursuing debt-funded
acquisitions.
S&P said, "Given the company's highly leveraged profile and
financial-sponsor ownership, we believe an upgrade is unlikely over
the next 12 months. However, we could raise the ratings if we
become convinced that adjusted leverage will remain below 6x and
FOCF to debt will remain above 5%."
ESG credit indicators: E-2, S-2, G-3
S&P said, "We view governance as a moderately negative
consideration. Our assessment of the company's financial risk
profile as highly leveraged reflects corporate decision-making that
prioritizes the interests of the controlling owners, in line with
our view of most rated entities owned by private equity sponsors.
Our assessment also reflects the generally finite holding periods
and a focus on maximizing shareholder returns."
IDEAL WORLD: Goes Into Administration, Halts Operations
-------------------------------------------------------
BBC News reports that a TV shopping channel has suspended
broadcasting and will make the "majority" of its staff redundant
after hiring insolvency experts.
According to BBC, administrators for Peterborough-based Ideal World
said overall trading was "not strong enough" for business to
continue after a slump in viewers.
The company employed about 275 people at its head office.
Administrators Kroll Advisory UK said it would fulfil existing
customer orders where possible, BBC relates.
However, it added trading operations had been suspended prior to
the administration and would not restart, BBC notes.
"Over the last few years, the Direct Response TV sector globally
has suffered a decline in viewer and customer numbers as consumer
spending habits changed," BBC quotes Michael Lennon, managing
director of restructuring at Kroll, as saying.
"Whilst Ideal World TV had brought in a significant number of new
brands and retail partners to the channel over the last year,
overall trading was not strong enough for the business to continue
in its present format."
MICKEY MILLERS: Shuts Down Following Voluntary Liquidation
----------------------------------------------------------
BBC News reports that a play barn has closed after getting into
financial difficulty.
According to BBC, Mickey Millers Playbarn in Craven Arms,
Shropshire, told customers "due to circumstances beyond our control
we are no longer able to operate".
The business, on Oakland Farm, Watling Street, went into voluntary
liquidation earlier in the year, BBC relates.
NEWGATE FUNDING 2007-2: Fitch Affirms B+sf Rating on Class F Debt
-----------------------------------------------------------------
Fitch Ratings has affirmed 19 tranches of the Newgate Funding plc
2007 series and placed four tranches on Rating Watch Negative
(RWN).
Newgate Funding Plc Series 2007-1
Class A3 XS0287753775 LT AAAsf Affirmed AAAsf
Class Ba XS0287757255 LT AA+sf Affirmed AA+sf
Class Bb XS0287757412 LT AA+sf Affirmed AA+sf
Class Cb XS0287759624 LT Asf Affirmed Asf
Class Db XS0287767304 LT BBBsf Affirmed BBBsf
Class E XS0287776636 LT BBB-sf Affirmed BBB-sf
Class F XS0287778095 LT BB+sf Rating Watch On BB+sf
Class Ma XS0287755713 LT AAAsf Affirmed AAAsf
Class Mb XS0287756877 LT AAAsf Affirmed AAAsf
Newgate Funding Plc Series 2007-3
Class A2b 651357AF2 LT AAAsf Affirmed AAAsf
Class A3 651357AG0 LT AAAsf Affirmed AAAsf
Class Ba 651357AH8 LT AA+sf Affirmed AA+sf
Class Bb 651357AJ4 LT AA+sf Affirmed AA+sf
Class Cb 651357AK1 LT AA-sf Affirmed AA-sf
Class D XS0329654312 LT A+sf Rating Watch On A+sf
Class E XS0329655129 LT A+sf Rating Watch On A+sf
Newgate Funding Plc Series 2007-2
Class A3 XS0304280059 LT AAAsf Affirmed AAAsf
Class Bb XS0304284630 LT AAsf Affirmed AAsf
Class Cb XS0304285959 LT A-sf Affirmed A-sf
Class Db XS0304286254 LT BBB-sf Affirmed BBB-sf
Class E XS0304280489 LT BB+sf Affirmed BB+sf
Class F XS0304281024 LT B+sf Rating Watch On B+sf
Class M XS0304280133 LT AAAsf Affirmed AAAsf
TRANSACTION SUMMARY
The three transactions are seasoned true-sale securitisations of
mixed pools containing mainly residential non-conforming
owner-occupied mortgage loans with a few residential buy-to let
mortgage loans.
KEY RATING DRIVERS
RWN Reflects Libor Transition: The RWN on Newgate Funding 2007-1
and Newgate Funding 2007-2's class F notes and Newgate Funding
2007-3's class D and E notes reflects that the transactions feature
notes linked to sterling Libor that have not yet transitioned to an
alternative reference rate. In November 2022, the Financial Conduct
Authority announced that three-month sterling Libor would cease to
be published at the end of March 2024. If notes linked to sterling
Libor have not transitioned by this time, the existing fall back
provisions mean that the note coupons may become fixed.
Fitch has tested a scenario assuming a Libor rate at cessation in
line with market-implied forward rates, scheduled principal
redemptions at the contractual rate and unscheduled principal
redemptions at the rate observed in the last year. Where this
scenario suggests a downgrade, the tranche has been placed on RWN.
The Outlooks on the remaining tranches are Negative, reflecting
ongoing uncertainty in the period to cessation and in potential
costs that may be incurred by the issuer.
Libor Expectations Constrain Ratings: With the exception of the
class A and M notes in all three transactions, the ratings are
below the model-implied ratings. This reflects the risk from rising
1m+ and 3m+ arrears levels. Increasing arrears serve as a precursor
to potential defaults. Combined with the potential interest rate
exposure associated with LIBOR discontinuation, this has led to the
affirmations.
Back-loaded Default Risks: The pools contain a high share of
interest-only loans and a significant share of borrowers with
self-certified income, resulting in elevated refinancing risks
later in the life of the transactions. This led Fitch to apply a
performance adjustment factor floor at 100% for the non-conforming
sub-pools, in line with its UK RMBS Rating Criteria.
Pro-Rata Amortisation: All three transactions have been repaying
notes on a pro-rata basis, which resulted in the non-amortising
fully funded reserve fund being the sole driver of an increase in
credit enhancement.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
Fitch conducted sensitivity analyses by stressing each
transaction's base case foreclosure frequency (FF) and recovery
rate (RR) assumptions, and examining the rating implications for
notes. A 15% increase in the weighted average (WA) FF and a 15%
decrease in the WARR indicates downgrades of no more than six
notches for Newgate Funding 2007-1, four notches for Newgate
Funding 2007-2 and four notches for Newgate Funding 2007-3.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
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
Newgate Funding Plc Series 2007-1, 2007-2, 2007-3 has an ESG
Relevance Score of '4' for Customer Welfare - Fair Messaging,
Privacy & Data Security due to the underlying asset pools with
limited affordability checks and self-certified income, which has a
negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
Newgate Funding Plc Series 2007-1, 2007-2, 2007-3 has an ESG
Relevance Score of '4' for Human Rights, Community Relations,
Access & Affordability due to a material concentration of
interest-only loans, which has a negative impact on the credit
profile, and is relevant to 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.
OAT HILL NO 3: S&P Assigns Prelim. B-(sf) Rating on F-Drfd Notes
----------------------------------------------------------------
S&P Global Ratings assigned preliminary credit ratings to Oat Hill
No.3 PLC's class A loan note, as well as the class B-Dfrd to F-Dfrd
notes. At closing, Oat Hill No.3 will also issue unrated class Z
VFN notes.
The securitized assets were previously securitized by Oat Hill No.2
PLC, which S&P rated.
Of the pool, 93.9% comprises buy-to-let (BTL) loans and the
remaining 6.1% are owner-occupied loans. The loans were originated
by Capital Home Loans Ltd. (CHL), which ceased lending in 2008, and
are highly seasoned, with a weighted-average seasoning of 16.4
years.
CHL, which historically serviced the loans, is the servicer in this
transaction.
The transaction benefits from a fully funded liquidity reserve fund
providing liquidity support to the rated notes, subject to
conditions. Principal can also be used to pay senior fees and
interest on the rated notes, subject to conditions.
At closing, the issuer will use the issuance proceeds to purchase
the full beneficial interest in the mortgage loans from the seller.
The issuer will grant security over all its assets in favor of the
security trustee.
Counterparty, operational, or structured finance sovereign risks do
not constrain S&P's ratings under its applicable criteria. S&P
considers the issuer to be bankruptcy remote.
In S&P's analysis, additional cash flow sensitivities consider its
current macroeconomic forecasts and forward-looking view of the
U.K. residential mortgage market.
Preliminary ratings
CLASS PRELIM. RATING* CLASS SIZE (%)
A loan note AAA (sf) 86.00
B-Dfrd AA (sf) 3.50
C-Dfrd A (sf) 2.25
D-Dfrd BBB+ (sf) 1.90
E-Dfrd BBB- (sf) 1.40
F-Dfrd B- (sf) 1.40
Z VFN NR 5.00
esidual certs NR N/A
NR--Not rated.
N/A--Not applicable
WILKIES: Five Stores to Shut Down Following Administration
----------------------------------------------------------
Peter A Walker and Katie Williams at edinburghlive report that
Wilkies announced they were closing a number of stores after they
fell into administration.
First founded in Edinburgh in 1898, the family-owned Wilkies had 11
branches stretching across Scotland. However, the shop in
Morningside suddenly announced its closure along with four others
after the clothing company fell into administration, edinburghlive
relates.
According to edinburghlive, a number of shops were saved following
a sale of the business and certain assets out of administration but
five, including Edinburgh's Morningside branch, were not included.
As Insider reports, the company faced trading challenges as a
result of the pandemic. Unfortunately, sales did not recover to
pre-pandemic levels in some locations and this, coupled with rising
labour and energy costs, led to significant losses being incurred,
edinburghlive discloses.
Despite the directors' efforts, a solution could not be found and
administrators were appointed which sold six stores to a new
company, Wilkies Trading -- in Largs, Castle Douglas, Peebles,
Perth, Ballater and Helensburgh, edinburghlive notes.
A total of 55 employees have transferred to the purchaser as part
of the transaction.
However, five stores were not included as part of the transaction,
four of which will close with immediate effect: Edinburgh, North
Berwick, Hamilton and Falkirk.
A total of 30 employees have been made redundant as a result of
these closures, edinburghlive states.
The joint administrators are continuing to trade the Kirkcaldy
store for a short period in order to sell stock which was not sold
as part of the transaction, according to edinburghlive. Ten
members of staff have been retained by the administrators while the
store continues to trade, edinburghlive relays.
===============
X X X X X X X X
===============
[*] BOOK REVIEW: The First Junk Bond
------------------------------------
Author: Harlan D. Platt
Publisher: Beard Books
Softcover: 236 pages
List Price: $34.95
http://www.beardbooks.com/beardbooks/the_first_junk_bond.html
Only one in ten failed businesses is equal to the task of
reorganizing itself and satisfying its prior debts in some
fashion.
This engrossing book follows the extraordinary journey of Texas
International, Inc. (known by its New York Stock Exchange stock
symbol, TEI), through its corporate growth and decline, debt
exchange offers, and corporate renaissance as Phoenix Resource
Companies, Inc. As Harlan Platt puts it, TEI "flourished for a
brief luminous moment but then crashed to earth and was consumed."
TEI's story features attention-grabbing characters, petroleum
exploration innovations, financial innovations, and lots of risk
taking.
The First Junk Bond was originally published in 1994 and received
solidly favorable reviews. The then-managing director of High Yield
Securities Research and Economics for Merrill Lynch said that the
book "is a richly detailed case study. Platt integrates corporate
history, industry fundamentals, financial analysis and bankruptcy
law on a scale that has rarely, if ever, been attempted." A retired
U.S. Bankruptcy Court judge noted, "[i]t should appeal as
supplementary reading to students in both business schools and law
schools. Even those who practice.in the areas of business law,
accounting and investments can obtain a greater understanding and
perspective of their professional expertise."
"TEI's saga is noteworthy because of the company's resilience and
ingenuity in coping with the changing environment of the 1980s, its
execution of innovative corporate strategies that were widely
imitated and its extraordinary trading history," says the author.
TEI issued the first junk bond. In 1986 it achieved the largest
percentage gain on the NYSE, and in 1987 suffered the largest
percentage loss. It issued one of the first bonds secured by a
physical commodity and then later issued one of the first PIK
(payment in kind) bonds. It was one of the first vulture investors,
to be targeted by vulture investors later on. Its president was
involved in an insider trading scandal. It innovated strip
financing. It engaged in several workouts to sell off operations
and raise cash to reduce debt. It completed three exchange offers
that converted debt in to equity.
In 1977, TEI, primarily an oil production outfit, had had a
reprieve from bankruptcy through Michael Milken's first ever junk
bond. The fresh capital had allowed TEI to acquire a controlling
interest of Phoenix Resources Company, a part of King Resources
Company. TEI purchased creditors' claims against King that were
subsequently converted into stock under the terms of King's
reorganization plan. Only two years later, cash deficiencies forced
Phoenix to sell off its non-energy businesses. Vulture investors
tried to buy up outstanding TEI stock. TEI sold off its own
non-energy businesses, and focused on oil and gas exploration. An
enormous oil discovery in Egypt made the future look grand. The
value of TEI stock soared. Somehow, however, less than two years
later, TEI was in bankruptcy. What a ride!
All told, the book has 63 tables and 32 figures on all aspects of
TEI's rise, fall, and renaissance. Businesspeople will find
especially absorbing the details of how the company's bankruptcy
filing affected various stakeholders, the bankruptcy negotiation
process, and the alternative post-bankruptcy financial structures
that were considered. Those interested in the oil and gas industry
will find the book a primer on the subject, with an appendix
devoted to exploration and drilling, and another on oil and gas
accounting.
Dr. Harlan D. Platt is a professor of Finance at D'Amore-McKim
School of Business at Northeastern University. He is a member of
the Board of Directors of Millennium Chemicals Inc. and is on the
advisory board of the Millennium Liquidating Trust. He served as
the Associate Editor-Finance for the Journal of Business Research.
He received a Ph.D. from the University of Michigan, and holds a
B.A. degree from Northwestern University.
This book may be ordered by calling 888-563-4573 or by visiting
www.beardbooks.com or through your favorite Internet or local
bookseller.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2023. All rights reserved. ISSN 1529-2754.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers.
Information contained herein is obtained from sources believed to
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The TCR Europe subscription rate is US$775 per half-year,
delivered via e-mail. Additional e-mail subscriptions for
members of the same firm for the term of the initial subscription
or balance thereof are US$25 each. For subscription information,
contact Peter Chapman at 215-945-7000.
* * * End of Transmission * * *