/raid1/www/Hosts/bankrupt/TCREUR_Public/230718.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Tuesday, July 18, 2023, Vol. 24, No. 143
Headlines
F R A N C E
CASINO GUICHARD: Daniel Kretinsky Set to Win Takeover Race
G E O R G I A
GEORGIA CAPITAL: Moody's Affirms 'B1' CFR & Alters Outlook to Pos.
GEORGIA: Fitch Affirms 'BB' Long Term IDR, Outlook Positive
G E R M A N Y
HUGO BOSS: Egan-Jones Retains BB+ Senior Unsecured Ratings
NAUGHTY NUTS: Smart Organic Buys Assets for EUR150,000
I R E L A N D
CAIRN CLO III: Fitch Lowers Rating on Class F Notes to 'BB-sf'
MAN GLG I: Fitch Affirms 'B+sf' Cl. F-R Notes Rating, Outlook Neg.
OAK HILL VI: Moody's Cuts Rating on EUR13.5MM Class F Notes to B3
PALMER SQUARE 2023-2: Fitch Assigns 'BB(EXP)sf' Rating to E Notes
RYE HARBOUR CLO: Fitch Affirms 'B+sf' Rating on Class F-R Notes
SEAGATE TECHNOLOGY: Egan-Jones Retains BB+ Sr. Unsecured Ratings
I T A L Y
SOCIETA DI PROGETTO: Fitch Affirms 'BB+' Rating on Sr. Sec. Notes
N E T H E R L A N D S
ESDEC SOLAR: Moody's Ups CFR & $375MM First Lien Term Loan to B2
ESDEC SOLAR: S&P Affirms 'B' LT ICR on Dividend Recapitalization
P O L A N D
BANK MILLENNIUM: Fitch Alters Outlook on 'BB' IDR to Positive
S P A I N
BBVA RMBS 1: Moody's Ups Rating on EUR85MM Class C Notes from Ba2
IM CAJAMAR 6: Moody's Ups Rating on EUR62.4MM Class D Notes to Ba1
S W E D E N
APOLLO SWEDISH: Fitch Assigns 'B' LongTerm IDR, Outlook Stable
T U R K E Y
TURKIYE FINANS: Fitch Affirms 'B-/B' Long Term IDRs, Outlook Neg.
U N I T E D K I N G D O M
FULLER DAVIES: Bought Out of Administration by KNP Litho
LIBERTY GLOBAL: Egan-Jones Retains BB+ Senior Unsecured Ratings
NORMAN AND UNDERWOOD: Goes Into Administration
UNBOUND: To Appoint Administrators After Rescue Efforts Fail
WHEEL BIDCO: Fitch Lowers LongTerm IDR to 'B-'; Outlook Stable
WOVEN GROUP: Administrators Conclude Sale of Business, Assets
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F R A N C E
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CASINO GUICHARD: Daniel Kretinsky Set to Win Takeover Race
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Adrienne Klasa and Leila Abboud at The Financial Times report that
Czech billionaire Daniel Kretinsky is poised to win the battle for
control of Casino Guichard-Perrachon SA after a trio of investors
led by billionaire Xavier Niel dropped out of the running to bail
out the heavily-indebted French food retailer.
Mr. Kretinsky said in an interview with the FT that he had
submitted a revised offer on July 15 to Casino as part of the
company's voluntary debt restructuring negotiation with creditors.
In it, he and Marc Ladreit de Lacharriere's Fimalac would lead a
EUR1.2 billion equity injection to take a 53% stake in the company,
the FT discloses. On top of that, EUR4.9 billion of Casino's debt
would be converted into equity, the FT notes.
"With Fimalac and the support of key secured investors, we have
presented a financial and industrial plan that can restore Casino
to positive and, we hope, dynamic growth," the FT quotes Mr.
Kretinsky as saying following the announcement.
The trio dubbed 3F, including Niel, investment banker Matthieu
Pigasse and retail entrepreneur Moez-Alexandre Zouari, had also
been working on a new offer but decided to abandon it late on July
16, blaming Casino for running "a biased process" and singling out
investment fund Attestor for switching sides to Mr. Kretinsky's
bid, the FT notes.
Casino, France's sixth-biggest food retailer with 53,000 employees
in the country, has been controlled for decades by Jean-Charles
Naouri, who built it up but has saddled it with EUR6.4 billion in
debt that rating agencies doubt it can repay, the FT states.
The company, which has been burning through cash while losing
market share to rivals, has been in a voluntary debt restructuring
negotiation with creditors aimed at saving the company from
bankruptcy, the FT discloses. The process, which started in May,
is being overseen by a court-appointed agent and closely watched by
the French finance ministry, the FT notes.
Casino shares have fallen more than 75% in the past year, according
to the FT.
In an interview before the trio announced they would pull out, Mr.
Kretinsky argued his offer was the best one for the company and its
creditors, the FT relates. He called on creditors to be
"realistic" and that "a business plan that is based on hopes or
imagined hopes will not succeed", according to the FT.
"It is absolutely essential that our consortium hold the clear and
absolute majority in the company . . . which allows us to
ensure that there is a strategy that cannot be challenged by
others. This is absolutely fundamental for me because it is
essential to act quickly," the FT quotes Mr. Kretinsky as saying.
He also proposed that Mr. Naouri stay on in a "respectable" role
once he takes control of the indebted French grocer, which he vowed
to keep together to the "maximum possible" extent, the FT
discloses.
Casino has said all unsecured creditors, as well as those holding
up to EUR1.5 billion in secured debt, should expect to be converted
into equity in the restructuring process, while shareholders would
be "massively" diluted, the FT relates.
According to the FT, Mr. Kretinsky said no agreements to sell
stores to rivals were in place and that he would work to preserve
and eventually create jobs as part of a turnaround focused on
Casino's extensive network of small urban stores.
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G E O R G I A
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GEORGIA CAPITAL: Moody's Affirms 'B1' CFR & Alters Outlook to Pos.
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Moody's Investors Service changed the outlook on JSC Georgia
Capital (Georgia Capital or the company) to positive from stable.
Concurrently, Moody's affirmed Georgia Capital's B1 corporate
family rating and B1-PD probability of default rating.
The rating action follows the announcement by Georgia Capital on
July 12, 2023 of the launch of a tender offer to purchase part or
all of the outstanding USD300 million senior unsecured notes due
March 2024 (the Eurobonds) issued by Georgia Capital. Concurrently,
the company announced its intention to launch the issuance of up to
USD150 million notes governed by Georgian law and denominated in
U.S. dollars (the local bonds) maturing in 2028. Georgia Capital
will use the proceeds from the local bonds issuance alongside cash
on balance sheet to redeem in full the Eurobonds at make whole or
through the tender offer. The B1 rating on the Eurobonds is
unchanged and will be withdrawn upon full redemption, which is
expected to take place in early September 2023.
RATINGS RATIONALE
"The change of outlook to positive from stable reflects
expectations for the extension of the maturity of Georgia Capital's
debt through the issuance of the local bonds due 2028 and
expectations that management will continue to execute on its
demonstrated commitment to a more conservative financial policy, as
well as a continued good track record of performance of the
company's investment portfolio", says Sebastien Cieniewski, a
Moody's Vice President – Senior Credit Officer and lead analyst
for Georgia Capital. Georgia Capital's leverage as measured by
Moody's net Market Value Leverage (MVL) improved to 13.3% as of the
end of 2022 from 24.4% as of 2021, and the rating agency expects it
to trend to or below 10% over the next 12 months thanks to
increasing dividend income and continued net debt reduction.
Furthermore, the defensive nature of Georgia Capital's investment
portfolio and the good momentum of the economy of Georgia
(Government of Georgia, Ba2 negative) will likely support the
valuation of the company's assets.
Nevertheless, the weak interest coverage (as measured by Moody's
taking into consideration regular dividend income, interest income,
and operating expenses over interest expense) experienced over the
last three years, together with execution risk related to the
refinancing transaction indicative of a somewhat risky approach to
liquidity management given the limited time before the Eurobonds
come due in March 2024, weighs negatively on the rating. The rating
agency expects, however, that the interest coverage ratio will
improve meaningfully towards 3.0x by the end of 2023 from 1.2x in
2022. The concentration of its investment portfolio in Georgia and
around certain assets (top 3 holdings accounted for more than 60%
of the total portfolio value as of March 31, 2023) also continues
to constrain the rating, notwithstanding the longer track record of
solid performance and some evidence of the ability to exit these
investments.
The de-leveraging of Georgia Capital in the last twelve months was
supported the strong growth in the value of its investment
portfolio as well as a conservative financial policy. After
decreasing in Q1 2022 because of the disposal of the 80% stake in
the water utility business, geopolitical risks stemming from the
invasion of Ukraine, and a tighter monetary policy, the company's
gross asset value recovered to GEL3,199 million ($1,184 million
equivalent) by the end of 2022 from GEL2,609 million ($844 million
equivalent) at the end of Q1 2022, and further increased to
GEL3,267 million ($1,276 million equivalent) by the end of Q1 2023.
The strong growth in the share price of JSC Bank of Georgia (Bank
of Georgia, Ba2 negative) contributed significantly to the recovery
of the value of the portfolio.
The company's conservative financial policy was evidenced by the
use of a significant portion of excess cash to repurchase part of
the Eurobonds in 2022 and 2023 – USD65 million of Eurobonds were
cancelled in 2022 and additionally USD84 million of these notes
were held in treasury by the company as of July 12, 2023. Georgia
Capital also now looks at refinancing the USD300 million Eurobonds
through smaller-sized USD150 million local bonds through the use
among others of dividend inflows in 2023 – this will contribute
to the reduction of the net MVL towards or below 10% by the end of
the year.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Governance considerations are a key driver of the rating action in
accordance with Moody's ESG framework. Moody's considers that
Georgia Capital is on track to deliver on its publicly stated
leverage target over the next two years. Management's target is to
bring its net capital commitment (NCC) ratio below 15% (excluding
intercompany loans from the gross asset value calculation of the
investment portfolio) by the end of 2025 from 19.7% as of March 31,
2023 and 21.1% as of 31 December 2022, and maintain it at this
threshold throughout the cycle.
LIQUIDITY PROFILE
Moody's expects that Georgia Capital will maintain an adequate
liquidity profile pro forma for the refinancing even though the
company will use part of its cash balance to facilitate the
transaction. Moody's expects that the company will maintain a cash
balance of at least USD40 million pro forma for the refinancing
based on significant growth in dividend income (including proceeds
from share buybacks by Bank of Georgia) projected by the company at
GEL150 million to GEL160 million (USD58 million to USD62 million
equivalent) which represents a significant increase from GEL94
million in 2022.
OUTLOOK
The positive outlook reflects Moody's expectation that the company
will maintain a conservative financial policy leading to
de-leveraging in the next two years while maintaining an adequate
liquidity position. The positive outlook also reflects the rating
agency's expectation that the company will build a track record of
collecting increasing dividend income to maintain interest coverage
at above 3.0x.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade the ratings if Georgia Capital's investments
were to mature further allowing it to generate higher dividend
income and exhibit stronger and sustained interest cover above
3.0x. Moody's would also expect the company to maintain strong
liquidity and establish a track record of sustained net MVL at or
below 15%.
Moody's could downgrade the ratings with expectations for net MVL
above 25% or interest cover below 1.0x, both on a sustained basis.
Lack of progress on timely refinancing of the bonds maturing in
March 2024 or a deterioration of Georgia Capital's liquidity,
because of, for example, significant cash calls or support
requirements for underlying investments, would also lead to
negative pressure on the company's rating. Heightened geopolitical
risk factors that lead to lower asset valuations or the inability
to extract dividends from investments could also result in a
downgrade.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Investment
Holding Companies and Conglomerates published in April 2023.
COMPANY PROFILE
Georgia Capital is a Georgia-based intermediate holding company.
Georgia Capital is ultimately owned by Georgia Capital PLC, the
parent company of the group listed on the London Stock Exchange.
The group's portfolio includes stakes in companies operating in the
following sectors: hospitals (100% ownership), clinics and
diagnostics (100%), pharmacy retail and wholesale (98% stake),
property and casualty (P&C) and medical insurance businesses
(100%), water utility company (20%), renewable energy business
(100%), and education (stakes of 70%-90% in four private K-12
schools spread across six campuses). Other smaller investments
include housing development, hospitality, beverages and auto
services. Georgia Capital also owns a 19.9% stake in Bank of
Georgia, a Georgian bank listed on the premium segment of the
London Stock Exchange.
GEORGIA: Fitch Affirms 'BB' Long Term IDR, Outlook Positive
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Fitch Ratings has affirmed Georgia's Long-Term Foreign-Currency
Issuer Default Rating (IDR) at 'BB' with a Positive Outlook.
KEY RATING DRIVERS
Fundamental Rating Strengths and Weaknesses: The rating is
supported by Georgia's strong governance and economic development
indicators relative to the 'BB' medians, its credible macro-fiscal
policy framework, moderate level of public debt, and sound banking
sector. These factors are balanced by high financial dollarisation
and exposure of public debt to foreign-currency risk, and weaker
external finances, including high net external debt and a large
negative international investment position.
Positive Rating Outlook: The Positive Outlook reflects very strong
economic recovery combined with a fall in inflation and an improved
external position. Macro-policy settings remain sound and Georgia's
record of fiscal prudence helps underpin Fitch expectation of low
and stable general government deficits. Fitch also has greater
confidence that migrant and capital inflows from Russia will not
sharply reverse, although this remains a downside risk.
Extremely Strong Economic Recovery: Real GDP grew 7.5% in 5M23,
from an average 10.3% in 2021-2022, supported by positive
spillovers from the war in Ukraine, notably in the transportation
and information and communications technology sectors, as well as
strong FDI, and recovery in tourism. Net inward migration from
Russia, Ukraine and Belarus is estimated to have exceeded 100,000
in 2022 with only a modest fall this year. Fitch forecasts GDP
growth to ease from 6.9% in 2023 to an average 5% in 2024-2025, as
support from migration flows and external demand weaken. This is
close to Fitch assessment of Georgia's trend rate, and compares
favourably with the projected 'BB' median of 3.1%.
Stronger FX Reserves and Currency: Buoyant remittances and tourism
revenue, boosted by migrant spending, narrowed the current account
deficit by 6.4pp in 2022 to 4.0% of GDP, and to 3.2% in 1Q23.
Strong net FDI of 6.7% of GDP in 2022 and near 6% (annualised) in
1Q23, and a sharp rise in money transfers from Russia contributed
to 13% appreciation of the lari against the US dollar over the last
year. National Bank of Georgia (NBG) has continued to intervene to
limit the appreciation, and international reserves rose to USD5.1
billion at end-June, from USD3.9 billion a year earlier.
Stable Balance of Payments Outlook: Fitch forecasts a gradual
decline in net migration and associated capital flows, which
alongside robust import growth, underpins a widening of the current
account deficit from 4.7% of GDP in 2023 to 5.7% in 2025, well
above the 'BB' median of 2.8%. Fitch project net FDI moderates to
an average 5.3% of GDP in 2023-25, still financing most of the
current account deficit, and for foreign-exchange reserves to end
2025 at 3.2 months of current external payments, from 3.1 at
end-2022, and below the projected peer group median of 4.7 months.
Credible Fiscal Anchor: The general government deficit fell by 3pp
in 2022 to 3.1% of GDP, with tax revenues rising 1.9pp and social
benefit expenditure down 1.7pp, on the back of 19.6% growth in
nominal GDP. Fitch forecasts deficits of 2.4% of GDP in 2023, as
robust tax revenue is partly offset by somewhat greater social and
capital spending, and 2.3% in 2024 incorporating moderate
additional pre-election expenditure. These are broadly in line with
targets under the IMF Stand-by Arrangement where board approval for
the second review appears to have been delayed, partly due to
disagreement on a change to NBG's management structure.
Moderate Level of Public Debt: General government debt/GDP fell
20.4pp in 2021-2022 to 39.8%, returning to the pre-pandemic level,
helped by a strong GDP deflator and last year's currency
appreciation. Fitch projects public debt falls to 37.5% of GDP at
end-2023 and stabilises at 38.2% in 2024-2025, on moderating
nominal GDP growth and stable deficits, below the projected 'BB'
median of 52.4% in 2025. Three-quarters of debt is foreign-currency
denominated, compared with the peer group median of 55%, giving
rise to exchange rate risk. However, 68% is on concessional terms,
and the average maturity is 7.6 years.
Sharp Fall in Inflation: CPI slowed to 0.6% in June, from 9.8% at
end-2022, driven by global prices and lari appreciation, with core
inflation easing less, to 4.1% from 6.9%. The policy interest rate
has been cut only 50bp, to 10.5% in May, having been unchanged
since March 2022. Fitch projects inflation remains low at 0.5% at
end-2023, and rises to an average 3.3% in 2024-2025, partly due to
base effects and steadily easing monetary policy, but still within
the target band and below the 'BB' median of 3.9%. Fitch expect
unit labour costs, which rose 13.1% (yoy) in 1Q23, to moderate, but
more persistent wage pressure represents a risk to Fitch forecast.
Governance Challenges: It is unclear whether Georgia will gain EU
candidate status this year, and an oral interim update in June by
the European Commission indicated mixed progress against the 12
priority reform areas. Perceptions of government efforts to manage
its relationship with Russia have created strains with some Western
partners. Georgia's World Bank governance percentile ranking has
declined 1.5pp over the last two years and Fitch do not anticipate
a clear reversal of this trend. Georgia is also exposed to the more
long-standing geopolitical risk from unresolved conflicts involving
Russia in Abkhazia and South Ossetia.
Somewhat Greater Political Uncertainty: Based on current opinion
polls, the ruling Georgia Dream would remain the largest party by a
clear margin following next year's parliamentary elections, with
support for the opposition weak. The large share of undecided
voters and potentially difficult coalition dynamics creates
uncertainty and risk of somewhat greater political instability and
slower structural reform progress, but Fitch does not anticipate
any marked change in macro-fiscal policy settings.
Banks Sound, but High Dollarisation: The Georgian banking sector
has generally sound and improving credit fundamentals, with a fall
in regulatory non-performing loans to 3.8% in 1Q23, sector Tier 1
capital ratio of 17.5%, strong profitability, and a stable liquid
asset ratio of 23.8%, helped by sizeable funding inflows and
moderate credit growth. While macro-prudential measures supported
an 8.9pp fall in the deposit dollarisation ratio in the three years
to May 2023 to 50.5%, it is still well above the 'BB' median of
21.1% and a structural weakness for the banking sector.
ESG - Governance: Georgia has an ESG Relevance Score of '5' and
'5[+]' for political stability and rights, and for the rule of law,
institutional and regulatory quality and control of corruption,
respectively. Theses scores reflect the high weight that the World
Bank Governance Indicators (WBGI) have in Fitch proprietary
Sovereign Rating Model (SRM). Georgia has a medium WBGI ranking at
the 61st percentile, reflecting moderate institutional capacity,
established rule of law, a moderate level of corruption and
political risks associated with the unresolved conflict with
Russia.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
-- External Finances: A marked increase in external vulnerability,
for example, from sharp reversal of capital inflows, sizeable
decline in international reserves, or sustained widening of the
current account deficit
-- Structural: Substantial worsening of domestic political or
geopolitical risks with adverse consequences for economic growth or
the policy framework
-- Public Finances: Increasing government debt/GDP over the medium
term, reflecting fiscal loosening, a weaker growth environment or
further external shocks
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
-- External Finances: A reduction in external vulnerability, for
example from a sizeable increase in international reserves and/or
narrowing in the current account deficit closer to peer levels,
potentially leading to the removal of the -1 notch on external
finances
-- Public Finances: Government debt/GDP being placed on a sharper
downward path over the medium term, for example due to stronger
sustainable revenue growth
-- Macro: Strong and sustained GDP growth leading to a higher GDP
per capita without increasing risks to macro-stability, and a
reduction in macroeconomic vulnerabilities such as the high level
of dollarisation.
SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO)
Fitch's proprietary SRM assigns Georgia a score equivalent to a
rating of 'BB+' on the LTFC IDR scale.
Fitch's sovereign rating committee adjusted the output from the SRM
to arrive at the LTFC IDR by applying its QO, relative to SRM data
and output, as follows:
External Finances: -1 notch, to reflect that relative to its peer
group, Georgia has higher net external debt, a structurally larger
current account deficit, and a large negative net international
investment position.
Fitch's SRM is the agency's proprietary multiple regression rating
model that employs 18 variables based on three-year centred
averages, including one year of forecasts, to produce a score
equivalent to a LT FC IDR. Fitch's QO is a forward-looking
qualitative framework designed to allow for adjustment to the SRM
output to assign the final rating, reflecting factors within Fitch
criteria that are not fully quantifiable and/or not fully reflected
in the SRM.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Sovereigns, Public Finance
and Infrastructure issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of three notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
ESG CONSIDERATIONS
Georgia has an ESG Relevance Score of '5' for political stability
and rights as WBGI have the highest weight in Fitch's SRM and are
therefore highly relevant to the rating and a key rating driver
with a high weight. As Georgia has a percentile rank below 50 for
the respective governance indicator, this has a negative impact on
the credit profile.
Georgia has an ESG Relevance Score of '5[+]' for rule of law,
institutional, regulatory quality and control of corruption as WBGI
have the highest weight in Fitch's SRM and are therefore highly
relevant to the rating and are a key rating driver with a high
weight. As Georgia has a percentile rank above 50 for the
respective governance indicators, this has a positive impact on the
credit profile.
Georgia has an ESG Relevance Score of '4' for human rights and
political freedoms as the voice and accountability pillar of the
WBGI is relevant to the rating and a rating driver. As Georgia has
a percentile rank below 50 for the respective governance indicator,
this has a negative impact on the credit profile.
Georgia has an ESG Relevance Score of '4' for creditor rights as
willingness to service and repay debt is relevant to the rating and
is a rating driver for Georgia, as for all sovereigns. As Georgia
has a fairly recent restructuring of public debt in 2004, this has
a negative impact on the credit profile.
Except for the matters discussed, the highest level of ESG credit
relevance, if present, is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or to the way in which they are being
managed by the entity.
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G E R M A N Y
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HUGO BOSS: Egan-Jones Retains BB+ Senior Unsecured Ratings
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Egan-Jones Ratings Company on July 7, 2023, maintained its 'BB+'
foreign currency and local currency senior unsecured ratings on
debt issued by Hugo Boss AG.
Headquartered in Metzingen, Germany, Hugo Boss AG retails apparel.
NAUGHTY NUTS: Smart Organic Buys Assets for EUR150,000
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Antonia Kokalova-Gray at SeeNews reports that Bulgarian organic
products maker and distributor Smart Organic said that it bought
the assets of insolvent German organic food startup Naughty Nuts
for EUR150,000 (US$163,924), thus expanding its international
operations by focusing on the DACH region.
Smart Organic plans to merge the business operations of Naughty
Nuts into its own German subsidiary of the same name and to
transfer the production of Naughty Nuts to Smart Organic's
manufacturing facilities, which is expected to return the business
to profitability, the Bulgarian company said in a bourse filing.
The transaction does not comprise any of the German company's
liabilities, Smart Organic added.
Cologne-based nut butter maker Naughty Nuts declared bankruptcy
after failing to secure enough investment capital to support its
growth, even though it booked a turnover of EUR2.5 million in 2022,
according to the filing.
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I R E L A N D
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CAIRN CLO III: Fitch Lowers Rating on Class F Notes to 'BB-sf'
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Fitch Ratings has upgraded Cairn CLO III DAC's class C-R notes to
'AAAsf' from 'AAsf', downgraded the class F notes to 'BB-sf' from
'BB+sf' and affirmed the remaining notes.
ENTITY/DEBT RATING PRIOR
----------- ------ -----
Cairn CLO III DAC
A-R XS1692485326 LT AAAsf Affirmed AAAsf
B-R XS1692485672 LT AAAsf Affirmed AAAsf
C-R XS1692486217 LT AAAsf Upgrade AAsf
D-R XS1692486563 LT A+sf Affirmed A+sf
E XS1298616811 LT BBB-sf Affirmed BBB-sf
F XS1298620417 LT BB-sf Downgrade BB+sf
TRANSACTION SUMMARY
Cairn CLO III DAC is a cash flow collateralised loan obligation
(CLO). The underlying portfolio of assets mainly consists of
leveraged loans and is managed by Cairn Loan Investments LLP. The
deal exited its reinvestment period in October 2019.
KEY RATING DRIVERS
Deleveraging of Senior Notes: Since Fitch's last review in
September 2022, the class A-R notes have been paid down by
approximately EUR56.8 million. The deleveraging has increased
credit enhancement (CE) for the senior class A-R and B-R notes by
29.0% and 20.8% respectively, and for the class C-R, D-R, E and F
notes by 14.9%, 10.0%, 3.6% and 1.2%, respectively. This supports
the upgrade of the class C-R notes and affirmation of the class
A-R, B-R, D-R and E notes.
The senior notes and class C-R and D-R notes are highly unlikely to
be affected by any near-term defaults due to the sizeable build-up
of CE from deleveraging, as reflected in their Stable Outlooks. For
the class E notes, the Stable Outlook reflects the rating being at
the 'minus' rating level, so a downgrade to the next lower category
is not likely, given a sufficient default rate cushion at the
current rating.
Par Erosion, Refinancing Risk: The class F notes have a slightly
higher CE since the last review. However, the new EUR3.5 million
default and a par erosion of 5.4% of the transaction has outweighed
the small increase in the CE and resulted in their downgrade.
The Negative Outlook on the class F notes reflects their
vulnerability to near- and medium-term refinancing risk due to
their junior ranking. Approximately 13.3% of the portfolio matures
within the next 18 months, and 20.7% in 2025. About 6% of the
portfolio comprises weak credits of 'CCC+' or below that mature in
2024.
Transaction Failing Reinvestment Criteria: The transaction is
failing the post-reinvestment period reinvestment criteria. For any
reinvestment to occur, the weighted average life test must be
satisfied, among others, immediately after the reinvestment, which
Fitch deems highly unlikely. Consequently, Fitch have analysed the
transaction based on the Negative Outlook portfolio for upgrades
and the current portfolio for downgrades.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the obligors at 'B'/'B-'. The Fitch-calculated weighted average
rating factor of the current portfolio was 27.8 and 28.9 based on
the notching stress for portfolio entities with Negative Outlook.
High Recovery Expectations: Senior secured obligations comprise
98.7% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets. The Fitch-calculated weighted average recovery
rate of the current portfolio as reported by the trustee was
60.2%.
Increased Portfolio Concentrations: The top 10 obligor
concentration as calculated by the trustee is 44.3%, which is above
the limit of 23.0%, and no obligor represents more than 6.1% of the
portfolio balance.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
An increase of the default rate (RDR) at all rating levels by 25%
of the mean RDR and a decrease of the recovery rate (RRR) by 25% at
all rating levels would result in downgrades of one notch for the
class E notes, three notches for class F and has no impact on the
other classes. Downgrades may occur if build-up of the notes' CE
following amortisation does not compensate for a larger loss
expectation than initially assumed due to unexpectedly high levels
of defaults and portfolio deterioration.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A reduction of the RDR at all rating levels by 25% of the mean RDR
and an increase in the RRR by 25% at all rating levels would result
in upgrades of up to two notches for the class D-R and the class E
notes and up to three notches for the class F notes. The class A-R,
B-R and C-R notes are already at the highest rating on Fitch's
scale and cannot be upgraded.
Further upgrades may occur if the portfolio's quality remains
stable and the notes start to amortise, leading to higher CE across
the structure.
DATA ADEQUACY
Cairn CLO III DAC
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
MAN GLG I: Fitch Affirms 'B+sf' Cl. F-R Notes Rating, Outlook Neg.
------------------------------------------------------------------
Fitch Ratings has revised Man GLG Euro CLO I DAC's class E-R and
F-R notes Outlook to Negative from Stable.
ENTITY/DEBT RATING PRIOR
----------- ------ -----
Man GLG Euro
CLO I DAC
A-1R-R XS1802407053 LT AAAsf Affirmed AAAsf
A-2R-R XS1807367278 LT AAAsf Affirmed AAAsf
B-1R-R XS1802407210 LT AA+sf Affirmed AA+sf
B-2R-R XS1802407640 LT AA+sf Affirmed AA+sf
C-R-R XS1802408028 LT A+sf Affirmed A+sf
D-R-R XS1802408457 LT BBB+sf Affirmed BBB+sf
E-R XS1802406675 LT BB+sf Affirmed BB+sf
F-R XS1802406592 LT B+sf Affirmed B+sf
TRANSACTION SUMMARY
Man GLG Euro CLO I DAC is a cash flow collateralised loan
obligation (CLO). The underlying portfolio of assets mainly
consists of leveraged loans and is managed by GLG Partners LP. The
deal exited its reinvestment period on April 2022.
KEY RATING DRIVERS
Sufficient Cushion for Senior Notes: Since Fitch's last rating
action in August 2022, the trustee has reported EUR10.5 million new
defaults. As a result, the portfolio has experienced further value
erosion, to 3.8% below par as of June 2023, from 2% below par in
August 2022. While this has eroded the default rate cushion of all
notes, the senior classes have retained sufficient buffer to
support their current ratings and should be capable of withstanding
further defaults in the portfolio. This supports the Stable Outlook
of the class A-1R-R to D-R-R notes.
High Refinancing Risk: The Negative Outlook on the class E-R and
F-R notes reflects the limited default rate cushion against
credit-quality deterioration. In addition, the notes are vulnerable
to near-term and medium-term refinancing risk, with approximately
4.6% of the portfolio maturing within the next 18 months, and 19.4%
in 2025, which in Fitch's opinion could lead to further
deterioration of the portfolio with an increase in defaults.
Transaction Failing Reinvestment Criteria: The transaction has
failed the class F-R par value test (103.1% versus the limit at
103.8%) and several collateral quality tests including the weighted
average life (WAL) test. For any reinvestment to occur, the class
F-R par value test must be satisfied before and immediately after
such reinvestment and the collateral quality tests must be
maintained or improved. The transaction has to cure a breach of the
class F-R par value test by paying down the most senior notes.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the obligors at 'B'/'B-'. The Fitch-calculated weighted average
rating factor (WARF) of the current portfolio was 25.1. For the
portfolio for entities with Negative Outlook, which Fitch stressed
by notching their ratings down one level, the WARF was 26.1.
High Recovery Expectations: Senior secured obligations comprise
98.7% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets. The Fitch-calculated weighted average recovery
rate (WARR) of the current portfolio as reported by the trustee was
60.9%.
Diversified Portfolio: The top-10 obligor concentration as
calculated by the trustee is 11.9%, which is below the limit of
20%, and no obligor represents more than 1.4% of the portfolio
balance.
Deviation from Model-implied Ratings: The class B-1R-R and B-2R-R
note ratings at 'AA+sf' are a deviation from their model-implied
ratings (MIR) of 'AAAsf'. The deviation reflects limited cushion on
the Outlook Negative portfolio at their MIRs.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
An increase of the default rate (RDR) at all rating levels by 25%
of the mean RDR and a decrease of the recovery rate (RRR) by 25% at
all rating levels will result in downgrades of no more than one
notch for the class B-1R-R and B-2R-R notes, up to two notches for
the class C-R-R and D-R-R notes, up to three notches for class E-R
notes, to below 'B-sf' for the class F-R notes and will have no
impact on the class A-1R-R and A-2R-R notes. Downgrades may occur
if build-up of the notes' credit enhancement following amortisation
does not compensate for a larger loss expectation than initially
assumed due to unexpectedly high levels of defaults and portfolio
deterioration.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A reduction of the RDR at all rating levels by 25% of the mean RDR
and an increase in the RRR by 25% at all rating levels would result
in upgrades of up to three notches for all notes, except for the
'AAAsf' notes and the class C-R-R notes. Further upgrades except
for the 'AAAsf' notes may occur if the portfolio's quality remains
stable and notes start to amortise, leading to higher credit
enhancement across the structure.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognized statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions, 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.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
OAK HILL VI: Moody's Cuts Rating on EUR13.5MM Class F Notes to B3
-----------------------------------------------------------------
Moody's Investors Service has downgraded the rating on the
following notes issued by Oak Hill European Credit Partners VI
Designated Activity Company:
EUR13,500,000 Class F Senior Secured Deferrable Floating Rate
Notes due 2032, Downgraded to B3 (sf); previously on Feb 14, 2023
Affirmed B2 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR259,000,000 (current outstanding amount EUR216,741,741.59)
Class A-1 Senior Secured Floating Rate Notes due 2032, Affirmed Aaa
(sf); previously on Feb 14, 2023 Affirmed Aaa (sf)
EUR20,000,000 (current outstanding amount EUR16,736,814.08) Class
A-2 Senior Secured Fixed Rate Notes due 2032, Affirmed Aaa (sf);
previously on Feb 14, 2023 Affirmed Aaa (sf)
EUR35,550,000 Class B-1 Senior Secured Floating Rate Notes due
2032, Affirmed Aaa (sf); previously on Feb 14, 2023 Upgraded to Aaa
(sf)
EUR10,550,000 Class B-2 Senior Secured Fixed Rate Notes due 2032,
Affirmed Aaa (sf); previously on Feb 14, 2023 Upgraded to Aaa (sf)
EUR26,500,000 Class C Senior Secured Deferrable Floating Rate
Notes due 2032, Affirmed Aa3 (sf); previously on Feb 14, 2023
Upgraded to Aa3 (sf)
EUR23,000,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2032, Affirmed Baa1 (sf); previously on Feb 14, 2023
Affirmed Baa1 (sf)
EUR30,600,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2032, Affirmed Ba2 (sf); previously on Feb 14, 2023
Affirmed Ba2 (sf)
Oak Hill European Credit Partners VI Designated Activity Company,
issued in January 2018, is a collateralised loan obligation (CLO)
backed by a portfolio of mostly high-yield senior secured European
loans. The portfolio is managed by Oak Hill Advisors (Europe), LLP.
The transaction's reinvestment period ended in January 2022.
RATINGS RATIONALE
The rating downgrades on the Class F notes are primarily a result
of the deterioration in the credit quality of the underlying
collateral pool since the last rating action in February 2023.
The credit quality has deteriorated as reflected in the
deterioration in the average credit rating of the portfolio
(measured by the weighted average rating factor, or WARF) and an
increase in the proportion of securities from issuers with ratings
of Caa1 or lower. According to the trustee report dated June 2023
[1], the WARF was 3201, compared with 3017 the January 2023 [2]
report as of the last rating action. Securities with ratings of
Caa1 or lower currently make up approximately 6.17% of the
underlying portfolio, versus 3.3% in January 2023.
In light of reinvestment restrictions during the amortisation
period, and therefore the limited ability to effect significant
changes to the current collateral pool, Moody's analysed the deal
assuming a higher likelihood that the collateral pool
characteristics would be maintained.
The key model inputs Moody's uses in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers.
In its base case, Moody's used the following assumptions:
Performing par and principal proceeds balance: EUR394.2m
Defaulted Securities: EUR2.9m
Diversity Score: 54
Weighted Average Rating Factor (WARF): 2997
Weighted Average Life (WAL): 3.77years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.60%
Weighted Average Coupon (WAC): 4.46%
Weighted Average Recovery Rate (WARR): 44.4%
Par haircut in OC tests and interest diversion test: none
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties, such as account bank, using the
methodology "Moody's Approach to Assessing Counterparty Risks in
Structured Finance" published in June 2022. Moody's concluded the
ratings of the notes are not constrained by these risks.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes
performance.
Additional uncertainty about performance is due to the following:
-- Portfolio amortisation: the main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales by the collateral manager or
be delayed by an increase in loan amend-and-extend restructurings.
Fast amortisation would usually benefit the ratings of the notes
beginning with the notes having the highest prepayment priority.
-- Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Recoveries higher
than Moody's expectations would have a positive impact on the
notes' ratings.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available to
rating committees, including macroeconomic forecasts, input from
other Moody's analytical groups, market factors, and judgments
regarding the nature and severity of credit stress on the
transactions, can influence the final rating decision.
PALMER SQUARE 2023-2: Fitch Assigns 'BB(EXP)sf' Rating to E Notes
-----------------------------------------------------------------
Fitch Ratings has assigned Palmer Square European Loan Funding
2023-2 DAC notes expected ratings.
The assignment of final ratings is contingent on the receipt of
final documents conforming to information already reviewed.
ENTITY/DEBT RATING
----------- ------
Palmer Square European Loan
Funding 2023-2 Designated
Activity Company
Class A LT AAA(EXP)sf Expected Rating
Class B LT AA(EXP)sf Expected Rating
Class C LT A(EXP)sf Expected Rating
Class D LT BBB(EXP)sf Expected Rating
Class E LT BB(EXP)sf Expected Rating
Sub Notes LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
Palmer Square European Loan Funding 2023-2 DAC is an arbitrage cash
flow collateralised loan obligation (CLO) that is being serviced by
Palmer Square Europe Capital Management LLC (Palmer Square). Net
proceeds from the issuance of the notes will be used to purchase a
static pool of primarily secured senior loans and bonds, with a
target par of EUR350 million.
KEY RATING DRIVERS
'B' Portfolio Credit Quality (Neutral): Fitch places the average
credit quality of obligors in the 'B' category. The Fitch weighted
average rating factor (WARF) of the identified portfolio is 23.33.
High Recovery Expectations (Positive): Senior secured obligations
and first-lien loans make up around 97.7% of the portfolio. Fitch
views the recovery prospects for these assets as more favourable
than for second-lien, unsecured and mezzanine assets. The Fitch
weighted average recovery rate (WARR) of the current portfolio is
65.24%.
Diversified Portfolio Composition (Positive): The three-largest
industries comprise 33.2% of the portfolio balance, the top 10
obligors represent 11.4% of the portfolio balance and the largest
obligor represents 1.1% of the portfolio.
Static Portfolio (Positive): The transaction does not have a
reinvestment period and discretionary sales are not permitted.
Fitch's analysis is based on the identified portfolio, which it
stressed by applying a one-notch reduction to all obligors with a
Negative Outlook (floored at CCC). The latter accounts for 9.6% of
the indicative portfolio. Post the adjustment on Negative Outlook,
the WARF of the portfolio would be 24.
Deviation from Model Implied Rating (MIR): The class B, C, D and E
notes are one notch lower than their model-implied ratings (MIR).
This reflects insufficient break-even default rate cushion on the
Negative Outlook portfolio at their MIRs, given uncertain
macro-economic conditions.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings of
the identified portfolio would lead to a downgrade of up to three
notches for the rated notes.
Downgrades, which is based on the identified portfolio, may occur
if the loss expectation is larger than initially assumed, due to
unexpectedly high levels of default and portfolio deterioration.
Due to the better WARF of the identified portfolio than the Outlook
Negative portfolio and the deviation from their MIRs, class B, C, D
and E notes display a rating cushion of one notch.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR across all ratings and a 25%
increase in RRR across all ratings of the Negative Outlook
portfolio would lead to an upgrade of up to four notches for the
rated notes, except for the 'AAAsf' notes.
Upgrades may occur on stable portfolio credit quality and
deleveraging, leading to higher credit enhancement and excess
spread available to cover losses in the remaining portfolio.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Structured Finance
transactions have a best-case rating upgrade scenario (defined as
the 99th percentile of rating transitions, measured in a positive
direction) of seven notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of seven notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAAsf' to 'Dsf'. Best- and worst-case scenario credit ratings
are based on historical performance.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions, 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.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
REPRESENTATIONS, WARRANTIES AND ENFORCEMENT MECHANISMS
A description of the transaction's representations, warranties and
enforcement mechanisms (RW&Es) that are disclosed in the offering
document and which relate to the underlying asset pool was not
prepared for this transaction. Offering Documents for this market
sector typically do not include RW&Es that are available to
investors and that relate to the asset pool underlying the trust.
Therefore, Fitch credit reports for this market sector will not
typically include descriptions of RW&Es. For further information,
please see Fitch's Special Report titled 'Representations,
Warranties and Enforcement Mechanisms in Global Structured Finance
Transactions'.
RYE HARBOUR CLO: Fitch Affirms 'B+sf' Rating on Class F-R Notes
---------------------------------------------------------------
Fitch Ratings has revised Rye Harbour CLO DAC's Outlook on its
class B-1-R and B-2-R notes to Positive from Stable and on its
class E-R and F-R notes to Negative from Stable. The Outlook
remains Stable for all other rated tranches.
ENTITY/DEBT RATING PRIOR
----------- ------ -----
Rye Harbour CLO DAC
A-1-R XS1596795432 LT AAAsf Affirmed AAAsf
A-2-R XS1596796679 LT AAAsf Affirmed AAAsf
B-1-R XS1596796836 LT AA+sf Affirmed AA+sf
B-2-R XS1596797487 LT AA+sf Affirmed AA+sf
C-1-R XS1596798295 LT A+sf Affirmed A+sf
C-2-R XS1596798881 LT A+sf Affirmed A+sf
D-R XS1596799699 LT A-sf Affirmed A-sf
E-R XS1596800372 LT BB+sf Affirmed BB+sf
F-R XS1596800299 LT B+sf Affirmed B+sf
TRANSACTION SUMMARY
Rye Harbour CLO DAC is a cash flow CLO comprised of mostly senior
secured obligations. The transaction is actively managed by Bain
Capital Credit, Ltd. and exited its reinvestment period in April
2022.
KEY RATING DRIVERS
Mixed Credit Enhancement Prospects: The Positive Outlook revisions
on the class B-1-R and B-2-R notes reflect improved prospects for
credit enhancement given the shortening WAL and gradual
deleveraging of the portfolio. On the other hand, the class E-R and
F-R notes are more sensitive to potential credit quality
deterioration, which is reflected in the revised Negative Outlook
on these notes. For all other notes the Stable Outlooks reflect
sufficient break-even default rate cushion at their current
ratings.
Transaction Outside Reinvestment Period: Following the CLO's exit
from its reinvestment period the manager is unlikely to reinvest
unscheduled principal proceeds and sale proceeds from credit-risk
and credit-improved obligations. This is due to the breach of the
weighted average life (WAL) and the Fitch maximum weighted average
rating factor (WARF) test, which must be satisfied after
reinvestment. The class X notes have now been fully amortised while
the class A-1-R and A-2-R have started to amortise.
Since the manager is unlikely to reinvest, Fitch has assessed the
transaction based on the current portfolio, and has notched down by
one level all assets in the current portfolio with Negative Outlook
on Fitch-Derived Ratings (FDR).
Asset Performance Within Expectations: The transaction has
performed in line with Fitch's expectation. The transaction is
currently 2.7% below par and is passing all coverage tests. It is
failing the WAL test (3.18 versus 2.88) along with the WARF test
(33.72 versus 32.75), WARR test (62.8% versus 63.3%), and the Fitch
'CCC' test (8.4% versus 7.5%) as reported by the trustee. It is
passing all other tests. Last trustee report shows only two names
reported as defaulted at 1.5% of the reinvestment target par
balance.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the obligors at 'B'/'B-'. The Fitch-calculated WARF of the current
portfolio was 24.87 and of the portfolio with Negative Outlook
notching was 25.97.
High Recovery Expectations: Senior secured obligations comprise
98.3% of the portfolio as calculated by the trustee. Fitch views
the recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch-calculated
WARR of the current portfolio is 62.8%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration is 18.83%, and no obligor represents more than 2.21%
of the portfolio balance, as reported by the trustee.
Cash Flow Modelling: Fitch used a customised proprietary cash flow
model to replicate the principal and interest waterfalls and the
various structural features of the transaction, and to assess their
effectiveness, including the structural protection provided by
excess spread diverted through the par- value and interest-coverage
tests.
Deviation from MIR: The class B-1-R and B-2-R notes' 'AA+sf'
ratings are a deviation from their model implied ratings (MIR) of
'AAAsf' while the class D-R notes' rating of 'A-sf' are two notches
below their MIR of 'A+sf'. The deviations reflect the limited
cushion on the portfolio with Negative Outlook notching and
uncertain macro-economic conditions.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
An increase of the default rate (RDR) at all rating levels by 25%
of the mean RDR and a decrease of the recovery rate (RRR) by 25% at
all rating levels would result in downgrades of no more than three
notches depending on the notes. While not Fitch's base case,
downgrades may occur if build-up of the notes' credit enhancement
following amortisation does not compensate for a larger loss
expectation than assumed due to unexpectedly high levels of
defaults and portfolio deterioration.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A reduction of the RDR at all rating levels by 25% of the mean RDR
and an increase in the RRR by 25% at all rating levels would result
in upgrades of up to three notches depending on the notes, except
for the 'AAAsf' notes. Upgrades may also occur, except for the
'AAAsf' notes, if the portfolio's quality remains stable and the
notes continue to amortise, leading to higher credit enhancement
across the structure.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
SEAGATE TECHNOLOGY: Egan-Jones Retains BB+ Sr. Unsecured Ratings
----------------------------------------------------------------
Egan-Jones Ratings Company on June 30, 2023, maintained its 'BB+'
foreign currency and local currency senior unsecured ratings on
debt issued by Seagate Technology Holdings Public Limited Company.
Headquartered in Dublin, Ireland, Seagate Technology Holdings
Public Limited Company offers computer hardware products.
=========
I T A L Y
=========
SOCIETA DI PROGETTO: Fitch Affirms 'BB+' Rating on Sr. Sec. Notes
-----------------------------------------------------------------
Fitch Ratings has affirmed Societa di Progetto Brebemi S.p.A.'s
(Brebemi) senior secured notes at 'BB+'. The Outlook is Negative.
RATING RATIONALE
The affirmation considers the recent positive traffic trend in
Brebemi as well as stronger than expected revenue and debt service
coverage ratio (DSCR) metrics for 2022.
The Negative Outlook reflects the limited visibility of approval of
the economic and final plan and recent regulatory interventions at
the 2023 tariff setting. Together these exert mild pressure on the
DSCR in the short term, given higher mandatory debt service.
Under the updated Fitch Rating Case (FRC), the DSCR remains below
1.3x until 2026, albeit Fitch believes this is mitigated by the
structural protections in form of the lock-up mechanism as well as
strong minimum project life coverage ratio (PLCR) of 1.6x
indicating higher debt capacity.
KEY RATING DRIVERS
Rating Approach Class A3 Rating
The class A3 zero coupon notes' 'BB+' rating reflects the risk
associated with the timely payment of the terminal value (TV) at
concession maturity by the grantor, Concessioni Autostradali
Lombarde (CAL).
Fitch's assessment of CAL's obligation to pay the TV is notched
down from its internal assessment of the Region of Lombardy. CAL is
contractually bound to pay the TV by 2042. A cash sweep mechanism
caps class A3 accretion at EUR760 million, but the TV payment from
CAL remains the sole pledged funding source for the full repayment
of the class A3 notes at maturity.
Fitch views the TV mechanism as robust. The TV payment is
contractually equal to the non-amortised value of the asset and
allows Brebemi to recover its investment. Under the current setup,
the TV will be paid by the new concessionaire at concession
maturity (2040) or in case of delays by CAL, two years later. Amid
the uncertainty of re-tendering the asset, Fitch assesses the
grantor's contractual obligation to pay the TV.
As the class A3 notes are contractually pari passu with the senior
fully amortising tranches, their credit profile is similar to that
of the senior fully amortising debt, but ultimately linked to the
creditworthiness of CAL's obligation to pay the TV in a timely
manner.
Favourable Location, Limited History - Revenue Risk (Volume):
Midrange
Brebemi benefits from its route location linking fairly wealthy and
densely populated Milan and Brescia in the economically diversified
region of Lombardy. Brebemi has a balanced user profile of
commuters and heavy vehicles willing to pay the relatively high
toll rates in exchange for shorter travel times, and high-quality
service compared with the tolled alternative on the A4 motorway.
Brebemi opened to traffic in 2014 but remains in ramp-up due to the
coronavirus impact and a delayed opening of interface connections,
with additional network connections and pandemic-induced delays
expected to extend ramp-up through 2027. Brebemi's toll rates are
relatively high on a euro/km basis compared with the competing A4
motorway, but only moderately higher for a full trip.
The relatively short traffic history limits adequate testing of
price elasticity. Higher annual tariff increases on Brebemi
compared with A4 could impair elasticity over time. Fitch views
positively the wealthy Lombardy region's familiarity with tolling
and its economic strength.
Regulatory Asset Base-Based Pricing - Revenue Risk (Price):
Midrange
The price-cap mechanism allows a fair return (weighted average cost
of capital; WACC) on the asset base and recovery of operating costs
and depreciation of assets, resulting in a residual TV at
concession maturity. The grantor has been supportive of Brebemi
during ramp-up and the pandemic and demonstrated a favourable
rebalancing mechanism in 2014 and in 2022 (although not implemented
to date), which included public grants, extension of concession
tenor and implementing a TV payment at concession maturity to
ensure maintenance of the WACC.
New Road, Minimal Maintenance Needs - Infrastructure Development
and Renewal: Stronger
Brebemi is a new asset, with minimal infrastructure renewal needs
expected over the concession's life. The fixed-price operations &
maintenance agreement covers a modest capex component, which is
expected to be sufficient. No heavy maintenance capex is currently
envisaged in the concession. Fitch expect any additional capex
would be eligible for remuneration, based on guidelines set by the
transport authority (ART) in an updated business plan.
Fully Amortising, Adequate Protections - Debt Structure (Class
A1/A2) Stronger
The debt structure comprises around EUR2.0 billion senior and
junior debt.
Senior debt (EUR1.2 billion split into a bank loan, the class A1
and A2 notes and a restructured swap) is fully amortising and
hedged to almost 100% fixed rate, with adequate protections (robust
forward-and-backward looking lock-up and no re-leverage
undertakings). However, Brebemi only has a six-month debt service
reserve account and a back-ended repayment profile.
The class A3 notes (EUR0.6 billion) are partially reliant on
project cash flows via a two-phase cash sweep mechanism, but their
full repayment is currently expected to rely on the timely payment
of the TV by a new concessionaire or in case of delay by the
grantor. The class A3 notes rank pari passu with the senior
amortising debt and have no unilateral enforcement action until
2040 when non-payment of interest becomes an event of default.
Junior debt (EUR0.2 billion, not rated by Fitch) is repaid through
a cash sweep capped at a target amortisation schedule. It is
floating rate and fully subordinated to senior debt that cannot be
accelerated even in case of a junior event of default.
Financial Profile
Fitch expect the DSCR under the updated FRC to average 1.25x until
2030 and remain around 1.2x until 2026. Fitch expect traffic to be
ramped-up by end-2027, converging with the third-party traffic
forecast by 2030. This results in an average annual DSCR of around
1.4x until 2035.
Fitch also assess Brebemi's reliance on growth as its debt service
escalates. Cash flow available to debt service as at 2022 divided
by the maximum debt service is around 0.7x, indicating a dependence
on consistent traffic growth and tariff implementation.
The TV covers net senior debt throughout the debt term. The minimum
PLCR is around 1.6x and above 2.0x from 2030 to 2038 as senior debt
is repaid and the outstanding class A3 notes balance remains flat
at the agreed threshold of EUR760 million.
PEER GROUP
Brebemi is comparable with Salerno Pompei Napoli S.p.A. (SPN;
BBB/Stable), North Carolina Turnpike Authority (NCTA; BBB/Stable)
and a number of other privately rated toll roads.
SPN and Brebemi have a similar regulatory asset base-based
concession framework while catchment areas are different. Notably,
SPN traffic profile is well-established in a very densely populated
area, while Brebemi is still in ramp-up and exposed to competition.
Conversely, Brebemi has only minimal plain-vanilla capex
requirements, compared with SPN, which needs to undertake some
capex up to 2030. Both projects' debt structures are fully
amortising and strongly covenanted, supporting their 'Stronger'
assessments. The current average DSCR for SPN is around 1.5x
(minimum of 1.3x) while Brebemi's average DSCR is around 1.4x until
2035.
Like Brebemi, NCTA provides peak period time savings for commuters
in a well-developed roadway network in a wealthy and industrialised
catchment area, with competition from larger facilities nearby.
NCTA had a successful ramp-up phase with growth continually
exceeding sponsor expectations, despite being in an area with low
familiarity with toll roads. NCTA further benefits from a backstop
from the State of North Carolina to cover operating expenses if
revenues are insufficient, creating a gross pledge of revenues for
debt. NCTA's current mandatory DSCR of 1.5x is limited by the
completion of an extension of the asset. Lifetime scheduled DSCRs
under the rating case average 2.1x when excluding outliers.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
-- Material worsening of traffic profile compared with Fitch
expectations, resulting in further delays of the expected ramp-up
well beyond 2027.
-- Before the implementation of the ongoing rebalancing process,
Fitch view the grantor's obligation to pay the TV as ranking below
the Region of Lombardy's direct debt and the class A3 notes' rating
could move in tandem with Fitch's internal assessment of the Region
of Lombardy. A change in the assessment of CAL's credit linkage
with the Region of Lombardy could also widen the notching.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
-- Greater visibility in tariff supporting a consistently
projected DSCR higher than 1.3x could lead to a revision of the
Outlook to Stable.
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Sovereigns, Public Finance
and Infrastructure issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of three notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
CREDIT UPDATE
Performance Update
2022 traffic ended 12% above 2021 and 6% above 2019 levels. 1H23
traffic is 15% above that of 1H22. Compared with other Italian
mature networks and assets Fitch rate, Brebemi is materially
outperforming. However, this reflects the still ongoing ramp up in
traffic given delays in developments of the westbound road
connections out of Milan and the pandemic delays.
Regulatory Framework
Brebemi's tariff did not increase in 2023 for the second
consecutive year, which reflects the ongoing discussion of the
2021-2025 economic and financial plan with the grantor and Italian
authorities. Fitch expects a concession extension of seven years
and tariff increases of around 5% per year during the upcoming
regulatory period. Terminal value should remain flat at EUR1.2
billion. As the process is not yet finalised, Fitch do not envisage
any tariff increase for 2024.
Should rebalancing be implemented and concession extended,
zero-coupon bond noteholders would no longer directly rely on TV
payment. Instead, the zero-coupon bond will have to be repaid by
2042 with a new facility that relies on cash flows from the
concession until 2046 and the TV payment. Fitch assumes that the
new loan will be fully repaid from cash-flow generation, assuming a
50% cash sweep from the date of the refinancing until the new
maturity end 2046.
This would impact Fitch rating approach for the class A3 notes as
Fitch may no longer rely on an internal assessment of the Region of
Lombardy to derive their rating. The class A3 notes' rating would
be fully equalised with the class A1 and A2 tranches given their
pari passu ranking.
Liquidity
The liquidity position is adequate as cash available and debt
service reserve account (DSRA) covers six months debt service. As
of end-June, Brebemi had around EUR13 million cash, after the
recent repayment of interests on shareholders loan and EUR41
million DSRA compared with EUR40.3 million debt due in 2H23 and
around EUR40 million to be paid by June 2024.
Asset Description
Brebemi operates a 62.1km stretch of toll road directly linking
Milan and Brescia, in one of the wealthiest and most industrialised
European regions. Traffic is still in ramp-up phase amid delays in
the opening of interface connections as well as expected network
enhancements both east (Brescia) and west (Milan). Brebemi is
exposed to competition from another toll road managed by Autostrade
per l'Italia (A4 Milan-Brescia).
FINANCIAL ANALYSIS
The Fitch base case (FBC) financial projections assume prudent
traffic growth rates, in line with the external traffic
consultant's P90 forecast after considering last actuals up to June
2023. Expected growth for 2023 is around 14% YoY. The resulting
CAGR of traffic is of around 3.8% up to 2039. Fitch assumed that
tariff in 2024 will grow by 3.5% consistent with last year's FBC;
Fitch then align with the sponsor's assumption from 2025.
Fitch has maintained expenses in line with the sponsor's forecast,
as the majority of costs are covered under a fixed-price contract.
However, Fitch updated Fitch forecast with internal long-term
inflation, which affects the portion not covered by fixed
contracts. Fitch also made conservative assumptions on non-toll
revenues.
The FRC has a more conservative stance on traffic. While growth
assumed for 2023 at 11% is not materially below the FBC, Fitch
assume long-term traffic data is unchanged from the still current
traffic study from 2030 onwards. Resulting CAGR in traffic is
around 3.2% up to 2039. The FRC assumes a 0% tariff increase for
2024, 5% for 2025 and 2026, and then aligned with the sponsor's
case. Fitch assumed a mild stress in opex of 5%.
Metrics in the updated FRC are above those published last year in
the short and medium term and aligned or marginally below in the
long term.
Average coverage under the updated FRC of around 1.25x up to 2030
or around 1.4x until 2035 shows ample headroom against triggers
once the ramp up period is finalised. The FBC performs slightly
better and shows an average DSCR of around 1.4x up to 2030 and
around 1.55x up to 2035.
The results of the sensitivities are in line with the rating as the
project shows moderate resilience to stresses such as a delayed
traffic ramp-up, a flat 2% yoy increase in tariff combined with a
10% increase in opex or others. Fitch note that in the short to
medium term, metrics may be still below 1.3x even when assuming
tariff increases.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
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.
=====================
N E T H E R L A N D S
=====================
ESDEC SOLAR: Moody's Ups CFR & $375MM First Lien Term Loan to B2
----------------------------------------------------------------
Moody's Investors Service has upgraded to B2 from B3 Esdec Solar
Group B.V.'s ("Esdec" or "the company") long term corporate family
rating and to B2-PD from B3-PD its probability of default rating.
Concurrently, Moody's upgraded to B2 from B3 the instrument ratings
of the existing $375 million backed senior secured first lien term
loan due 2028 and the $100 million backed senior secured revolving
credit facility (RCF) due 2026. The backed senior secured first
lien term loans and the RCF are both issued by Esdec and
co-borrowed by Esdec Finance LLC. The outlook remains positive.
RATINGS RATIONALE
Following Esdec's publication of its Annual Report for the year
ended December 31, 2022 with an unqualified auditor's report by
KPMG, Moody's decided to remove the notching it previously had on
the rating because of governance concerns. Beyond that the rating
action takes into account Esdec's announcement to raise (i) a
EUR600 million term loan to finance the payment of a material
dividend distribution and use the remaining amount to reduce
drawings under the revolving credit facility and fund transaction
cost and (ii) a EUR200 million delayed draw term loan to build some
additional headroom to fund acquisitions, investments and other
purposes. Pro-forma for the planned re-capitalization Moody's
calculates a pro-forma leverage of about 4.9x gross Debt/EBITDA as
of March 31, 2023 positioning the rating in the mid of the range
expected for a B2 rating of Esdec.
Driven by a benign market environment for solar energy,
additionally supported by governmental incentives and price
increases, Esdec delivered a strong performance throughout 2022
with revenue growing organically by 78% to EUR668 million, Moody's
adjusted EBITDA reaching EUR156 million, up from EUR67 million in
2021. The movement of the EUR/$ exchange rate in Q4 2022 lead to
materially reduced f/x losses on $-denominated loans so that
Esdec's EBITDA margin reached 23.4%. Despite EUR15 million of
dividend paid to equity holders of the parent in connection with
the ownership change in 2022, Esdec generated a free cash flow of
EUR33 million, which lead to a FCF / Debt ratio of 8.8% for the
year 2022. The positive trend continued in Q1 2023 with revenue
growing by 86% year-over-year and a further growth in
profitability. For the twelve months ending March 2023, Esdec
recorded revenue of EUR765 million and an EBITDA margin of 26.8%.
While the overall market conditions are expected to remain
supportive, Moody's sees risks of a slowdown in demand amid higher
funding costs for new projects and a possible deterioration of the
residential housing market. In addition, Moody's considers Esdec's
liquidity management during the acquisition of Sunfer as aggressive
with only limited cash on balance sheet and utilization of the
revolving credit facility. Moody's notes further that Esdec
currently has no interest rate hedges in place, which exposes the
company to interest risk with regard to its outstanding debt of
EUR1.01 billion post completion of the transaction (March 2023
pro-forma).
More generally, the B2 CFR reflects Esdec's Moody's-adjusted
leverage of 4.9x debt/EBITDA as of March 2023 pro-forma for the
incremental EUR600 million TL raising and the risk of further debt
funded acquisitions in the first instance, but also a strong growth
profile that should enable swift deleveraging. It also reflects the
company's limited scale; short track record at current scale given
transformative acquisitions and fast growth in recent years;
focused product offering and some degree of concentration and
complexity in its go-to-market channels; and challenge to manage
the fast growth either through scaling up its operations
sustainably, for example supply chain, or properly integrating
acquired businesses.
However, the rating also considers the company's asset-light
business model with high margins and limited investment needs;
solid market position in core markets with focus on innovation and
new (patented) product launches that positions it well for good
organic growth in a dynamic, fast evolving and high growth
industry; and some geographic diversification.
LIQUIDITY
Despite of a EUR46 million increase in working capital to
accommodate growth and the payment of EUR15 million dividend to
equity holders of the parent in connection with the ownership
change in 2022, Esdec generated EUR58 million of free cash flow
during the twelve months ending March 2023. As per March 31, 2023
Esdec had EUR45 million cash on its balance sheet but with its $100
million backed senior secured revolving credit facility fully
drawn. The facility has been used to bridge liquidity needs for the
acquisition of Sunfer in January 2023, which is one reason why
Moody's considers the company's financial policy as being
aggressive. In June 2023, the company has signed an EUR50 million
RCF under the existing credit agreement. In addition, the company
should be cash flow generative and has no material near-term debt
maturities. Moody's expect the company to retain adequate headroom
under the springing covenant related to the RCF.
ESG CONSIDERATIONS
Governance considerations were among the primary drivers of this
rating action. Esdec's publication of its Annual Report for the
year ended December 31, 2022 with an unqualified auditor's report
by KPMG, alleviates a key component of Moody's prior concerns
regarding governance risks. Therefore, Moody's decided to change
the Credit Impact Score for Esdec to CIS-4 from CIS-5 and to remove
the notching it previously had on the rating.
OUTLOOK
The positive outlook reflects the strong performance Esdec has
shown during 2022 and in 2023 so far, leading to a material
improvement in EBITDA and Moody's expectation that the company will
be able to keep the momentum and sustainably generate key credit
metrics at around the current level even in a less benign business
environment absent further debt-funded acquisitions. The rating
agency anticipates that the delay in delivering audited accounts
for 2021 remains a single event and that the company will deliver
its future audited accounts in a timely manner. The positive
outlook also reflects Moody's expectation that Esdec will use the
flexibility from the repayment of RCF drawings as part of the
pending transaction and the projected positive free cash flow to
safeguard an adequate liquidity position.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive pressure on the ratings could come from continued growth
resulting in Moody's-adjusted debt/EBITDA remaining sustainably at
or below 4.5x also taking into account the company's acquisition
strategy, accompanied by continued high EBITDA margins and
meaningful free cash flow generation as well as adequate liquidity.
Likewise, Esdec's ability to alleviate Moody's concerns regarding
its corporate governance could trigger a positive rating action.
The ratings could come under downward pressure as the result of
aggressive debt-funded acquisitions or materially deteriorating
underlying performance leading to margin pressure so that leverage
rises towards 6.0x or higher or EBITDA margin falls sustainably
below mid-teens. Negative free cash flow or otherwise weakening
liquidity could also pressure the rating. An inability to continue
to integrate acquisitions well could also weigh on the rating.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Manufacturing
published in September 2021.
COMPANY PROFILE
Headquartered in Deventer, Netherlands, Esdec designs, develops and
distributes solar mounting solutions predominantly for residential
end markets, but also increasingly for the commercial & industrial
(C&I) market. The company is owned by private equity company Rivean
Capital (formerly known as Gilde Buy Out Partners) and Blackstone,
both holding an equal stake alongside management (16%). For the
twelve months ending March 2023, Esdec reported revenue of EUR765
million and an EBITDA of EUR221 million (adjusted by Esdec for
extraordinary items).
ESDEC SOLAR: S&P Affirms 'B' LT ICR on Dividend Recapitalization
----------------------------------------------------------------
S&P Global Ratings affirmed its 'B' long-term issuer credit and
issue ratings on Dutch provider of rooftop solar mounting solutions
Esdec Solar Group B.V. (Esdec) and its outstanding EUR324
million-equivalent TLB and $154 million equivalent RCF, for which
the recovery rating remains '3' (50%). The new EUR600 million
tranche is not rated.
S&P said, "The stable outlook reflects our view that demand for
solar energy in Europe and the U.S. will remain solid, allowing
Esdec to maintain profitability above 20% and S&P Global
Ratings-adjusted debt to EBITDA comfortably below 6.0x, combined
with continued positive free operating cash flow (FOCF) over
2023-2024.
"We view the dividend distribution as aggressive from a financial
policy perspective, since the company would use a large part of the
rating headroom built in 2022 for shareholder remuneration. Esdec
is planning to issue EUR600 million of new TLB to fund a large
dividend distribution, repay outstanding RCF drawings of about
EUR75 million, and pay transaction fees and expenses of about EUR19
million. The remaining balance will be funded through cash on the
balance sheet. As part of the transaction, Esdec is also planning
to issue EUR200 million of delayed-draw TLB to fund M&A and for
other purposes permitted within the existing credit agreement. The
company increased its existing RCF by EUR50 million in June 2023.
Pro forma the latest transaction, with an LTM S&P Global
Ratings-adjusted EBITDA of about EUR175 million at March 31, 2023,
S&P Global Ratings-adjusted leverage would stand at 5.4x from 2.9x
in 2022. We note that leverage significantly improved in 2022
compared with 5.5x at year-end 2021, reflecting much stronger
EBITDA amid higher sales and margins. Although we anticipate
leverage will improve to 4.3x-4.6x at year-end 2023, supported by
continued revenue and EBITDA growth, we believe that credit metrics
could quickly deteriorate if Esdec is unable to preserve its
current elevated profitability--for example, due to margin pressure
or loss of market share to competitors. In our opinion, its
relatively small size, low geographical diversification, and
limited product offering mean Esdec has more vulnerable and
volatile credit metrics than other larger and better-diversified
building material companies. We also note Esdec has continuingly
and significantly improved its revenue and EBITDA in recent years,
with like-for-like compound annual growth rates (CAGRs) of about
53% and 58% respectively, but there is not a sufficient track
record of the company preserving its current revenue and
profitability.
"Although we expect Esdec's FOCF will remain positive in 2023-2024,
it will be constrained by higher interest expenses and continued
working capital needs. Following solid FOCF in 2022, despite higher
working capital outflows and some restructuring costs, we expect a
solid but somewhat limited EUR10 million-EUR15 million in 2023.
This will be mostly constrained by significantly higher interest
expenses, which are more than doubling compared with 2022,
still-elevated working capital needs of about EUR60 million-EUR65
million, and increased capital expenditure (capex) of about EUR25
million-EUR30 million. We note that the company is exposed to
rising interest rates given that all the debt is at floating rates
and it has no hedging instruments in place. Although we continue to
expect high growth and resilient profitability, with EBITDA margins
standing above 20%, we note future FOCF will remain constrained,
with FOCF to debt expected at 1%-3% in 2023 and 4%-6% in 2024
compared with almost 13% in 2022.
"We think Esdec's financial-sponsor ownership limits the potential
for leverage reduction over the near term.We do not deduct cash
from debt in our calculations, owing to Esdec's private-equity
ownership. Although the company has a current long-term leverage
target of 2.0x-3.0x, we believe that it will use most rating
headroom to finance opportunistic and strategic M&A, as well as
possible further shareholder remuneration, which could result in
leverage remaining elevated in the near term. We assume that the
EUR200 million of delayed-draw TLB will be undrawn at transaction
closing, given that the transaction means the company has reached
the maximum leverage allowed under the existing creditor agreement.
Therefore, Esdec could only use this facility if it deleverages
thanks to higher absolute EBITDA.
"Market conditions should continue to support operating performance
over 2023 and 2024, with high revenue growth and resilient
profitability. Despite the challenging macroeconomic environment in
2022, with record-high raw materials and energy prices, Esdec
reported like-for-like sales growth of about 87%, with revenue
reaching EUR669 million (EUR732 million pro forma the Sunfer
acquisition) versus EUR357 million in 2021. This was mostly driven
by high demand for secure and sustainable energy sources and
further supported by governmental incentives. Although Esdec
reported substantial growth in the U.S. business, with sales
increasing about 53%, the European business also saw record
reported growth exceeding 160% thanks to high costs for traditional
energy further boosting demand for solar panels. In our view,
Esdec's operating performance will be more resilient in 2023 and
2024 compared with other building materials segments but we expect
a significantly slower sales increase than 2022 of about 20%-30%,
also due to the recent sharp decline in gas and electricity prices.
Nevertheless, positive market momentum for solar panels should
remain, notably considering governmental incentives. Despite the
inflationary cost environment, combined with some restructuring and
one-off costs, profitability remained resilient in 2022 with S&P
Global Ratings-adjusted EBITDA at about 20%, compared with about
19% in 2021. We expect that Esdec will improve profitability to
about 22%-24% in 2023-2024, supported by declining raw material
costs and lower restructuring costs.
"Our business risk profile for Esdec remains constrained by its
limited geographical diversity, with weak scale and scope. Although
Esdec recently expanded its operations to emerging
markets--including greenfield operations in India--most sales are
generated in the U.S. and Europe, accounting for about 52% and 48%
of revenue respectively in 2022 pro forma the acquisition of
Sunfer. We also note that most sales generated in Europe relate to
the Netherlands and Belgium. Despite Esdec's revenue having
significantly increased over the past three years, with more than
EUR1 billion expected in 2023 from about EUR357 million in 2021, we
believe that the company's size and scope remain limited versus
comparable rated building material players. Specifically, Esdec's
product offering remains limited to mounting systems for rooftop
solar panels, which is only a very small portion of the entire
solar energy value chain, and it is exposed to the threat of new
entrants or disruptive technology.
"The stable outlook reflects our view that Esdec will continue to
show more resilient performance in 2023-2024 compared with other
building materials players, but it will not maintain the
exceptional levels of 2022. We expect S&P Global Ratings-adjusted
debt to EBITDA of 4.3x-4.6x in 2023, with deleveraging to 3.3x-3.5x
in 2024, and anticipate that Esdec will continue to generate
positive FOCF. Although rating headroom is comfortable, we think
the company will use financial flexibility to pursue M&A activities
and other shareholder distributions."
S&P could lower the rating if:
-- Deterioration of business conditions or adverse regulatory
changes hamper Esdec's business performance and result in much
weaker margins that could reduce FOCF, with leverage staying above
6.0x ; or
-- The company undertakes more aggressive financial policies (such
as additional dividend payouts or unexpectedly large debt-financed
M&A), which would result in significantly higher leverage.
S&P considers a positive rating action unlikely at this stage,
since it believes that most rating headroom will be used to pursue
acquisitions or distribute dividends to shareholders. Nevertheless,
S&P could consider an upgrade if:
-- The company shows a track record of maintaining S&P Global
Ratings-adjusted debt to EBITDA below 4.0x on a prolonged basis,
with FOCF remaining solid; and
-- It makes an explicit commitment to maintain lower leverage.
ESG credit indicators: E-1, S-2, G-3
===========
P O L A N D
===========
BANK MILLENNIUM: Fitch Alters Outlook on 'BB' IDR to Positive
-------------------------------------------------------------
Fitch Ratings has revised Polish-based Bank Millennium S.A.'s
(Millennium) Outlooks to Positive from Stable. Its Long-Term
Foreign- and Local-Currency Issuer Default Ratings (LTFC and LTLC
IDRs) have been affirmed at 'BB' and Viability Rating (VR) at 'bb'.
The revision of the Outlooks reflects Fitch base-case expectation
for medium-term improvement of the bank's risk profile through
further gradual reduction of risks related to its foreign-currency
mortgage loan portfolio. It also reflects Fitch expectations that
its improved core profitability will absorb ongoing legal costs and
potential government intervention, leading to a further recovery of
the bank's capitalisation.
At the same time, Fitch has upgraded the bank's Shareholder Support
Rating (SSR) to 'b+' from 'b'. The upgrade reflects Fitch view of
improved ability of the bank's parent Banco Comercial Portugues
S.A. (BCP; BB+/Stable/bb+) to provide support in light of the
recent one-notch upgrade of its Long-Term IDR.
KEY RATING DRIVERS
Moderate Franchise, Risk Profile: Millennium's ratings balance the
benefits of a well-stablished retail franchise and a record of
adequate asset quality with negative implications of an
above-average exposure to non-financial risks from the
foreign-currency mortgage loans. A materialisation of the latter
combined with the high cost of mortgage credit holiday imposed by
the authorities has led to sizeable losses and capital erosion
triggering the launch of a capital recovery plan in 2022. The bank
has been progressing well with its implementation.
Millennium's National Ratings reflect the bank's creditworthiness
relative to Polish peers'. The Outlook revision to Positive from
Stable mirrors that for LTLC IDR.
Intervention Risk Drives Operating Environment: The 'bbb' operating
environment score for Polish banks reflects the willingness of the
authorities to intervene in the banking sector and impose large
additional costs on banks. Mortgage credit holidays that might be
prolonged for another year follow a sizeable bank tax and the
substantial provisions banks have made for legal risks relating to
Swiss franc-denominated mortgage loans. This is also reflected in
Millennium's high ESG Relevance Score of '4' for Management
Strategy.
Easing Business Profile Pressures: Millennium's business profile
reflects its traditional business model focused on the domestic
market and skewed towards retail customers. The bank's franchise in
its key market segments is adequate, but without pricing power.
The outlook revision on its business profile score to stable from
negative reflects Fitch view that the bank's franchise did not
materially suffer from the implementation of the recovery plan and
a more limited ability to underwrite new business than historically
and peers'.
Exposure to Non-financial Risks: Fitch assessment of the bank's
risk profile considers its prudent underwriting standards compared
with domestic peers' and its modest risk appetite in lending, but
also an above-average exposure to products that have become subject
to government or judicial intervention and their impact on the
bank's ability to generate capital. Appetite for interest-rate risk
is material, while currency risk is high but diminishing.
Reasonable Asset Quality: The bank's conservative underwriting and
investment policies resulted in quite stable average asset-quality
metrics in the last 10 years with an impaired loan ratio of 4%-5%.
Loan impairment charges (LICs) were maintained within 40bp-80bp,
reflecting some variability. Fitch expect asset quality to
moderately deteriorate over the coming quarters as slowing economic
growth and shrinking disposable incomes lead to a rise in default
rates.
Volatile Profitability, Better Prospects: The higher interest rate
environment coupled with modest LICs support the bank's core
performance, while the burden of legal risk provisions and cost of
government interventions weighed on reported 2022 profitability
metrics, leading to large losses. Fitch expect its core performance
to remain robust over the next two to three years, allowing the
bank to absorb additional legal costs without denting capital.
Moderate Capital Buffers: The bank is in the midst of its capital
recovery plan following the breach of regulatory capital buffers in
mid-2022. By end-1Q23 capitalisation metrics partly recovered with
a Tier 1 buffer at around 80bp above the required minimum
(excluding Pillar 2 guidance). In Fitch base case Fitch expect
capitalisation to recover further on a combination of improved
internal capital generation and risk weighted asset (RWA)
optimisation.
Fairly Stable Funding and Liquidity: Millennium benefits from a
stable, granular and predominantly retail deposit base, which more
than funds its lending. Liquidity metrics have improved recently on
continued deposit inflow and a slowly shrinking loan book.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The downgrade of the IDRs is unlikely, given that they are now on
Positive Outlook. A failure of the capital recovery plan and a
renewed breach of capital buffers, without credible prospects to
restore them over the medium term, would lead to a downgrade. This
could most likely result from larger-than-expected legal provisions
or costs of state interventions. It could also stem from
asset-quality deterioration beyond Fitch current expectations.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Fitch would upgrade the ratings on firm prospects for the common
equity Tier 1 (CET1) ratio to recover comfortably and durably above
13% and the risk profile to improve through a significant reduction
of risks related to its foreign-currency mortgage loan portfolio.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Millennium's 'b+' SSR reflects limited potential support available
from the bank's 50.1% owner, BCP. The rating reflects the
subsidiary's large size relative to the parent (27% of consolidated
assets at end-1Q23) and inconsistent record of support. Fitch also
consider Millennium's moderate strategic importance for BCP and
high reputational risks for the parent from a subsidiary default.
BCP's standalone credit profile has strengthened, but is still
moderate, which in Fitch view constrains the parent's ability to
provide extraordinary support.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The SSR would be downgraded if the parent's Long-Term IDR is
downgraded, the parent's propensity to support the bank weakens, or
if BCP fails to provide support in times of acute need.
A further upgrade of the SSR would require an upgrade of the
parent's Long-Term IDR and a stronger propensity to support
Millennium.
VR ADJUSTMENTS
The earnings & profitability score of 'bb-' is above the 'b &
below' implied category score due to the following adjustment
reason: historical and future metrics (positive).
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Millennium's SSR is linked to BCP's Long-Term IDR.
ESG CONSIDERATIONS
Millennium's ESG Relevance Score for Management Strategy is '4',
reflecting Fitch view of higher government intervention risk in the
Polish banking sector, which affects the banks' operating
environment and their ability to define and execute on strategy,
and has negative implications for the rating in combination 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 P A I N
=========
BBVA RMBS 1: Moody's Ups Rating on EUR85MM Class C Notes from Ba2
-----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings of five notes in
BBVA RMBS 1, FTA and BBVA RMBS 3, FTA. The rating action reflects
better than expected collateral performance in both transactions
and the increased levels of credit enhancement for the affected
notes in BBVA RMBS 3, FTA.
Moody's affirmed the ratings of the notes that had sufficient
credit enhancement to maintain their current ratings.
Issuer: BBVA RMBS 1, FTA
EUR495M Class A3 Notes, Affirmed Aa1 (sf); previously on Aug 3,
2021 Affirmed Aa1 (sf)
EUR120M Class B Notes, Affirmed Aa2 (sf); previously on Aug 3,
2021 Upgraded to Aa2 (sf)
EUR85M Class C Notes, Upgraded to Baa3 (sf); previously on Aug 3,
2021 Upgraded to Ba2 (sf)
Issuer: BBVA RMBS 3, FTA
EUR595.5M Class A2 Notes, Upgraded to Aa1 (sf); previously on Aug
3, 2021 Upgraded to A1 (sf)
EUR681.0M Class A3a Notes, Affirmed Aa1 (sf); previously on Aug 3,
2021 Affirmed Aa1 (sf)
EUR136.2M Class A3b Notes, Upgraded to Aa2 (sf); previously on Aug
3, 2021 Affirmed A1 (sf)
EUR63.6M Class A3c Notes, Upgraded to A2 (sf); previously on Aug
3, 2021 Upgraded to Ba1 (sf)
EUR27.2M Class A3d Notes, Upgraded to Baa2 (sf); previously on Aug
3, 2021 Upgraded to B1 (sf)
The maximum achievable rating is Aa1 (sf) for structured finance
transactions in Spain, driven by the corresponding local currency
country ceiling of the country.
RATINGS RATIONALE
The rating action is prompted by decreased key collateral
assumptions, namely the portfolio Expected Loss (EL) assumptions
for both transactions and the MILAN CE assumption for BBVA RMBS 1,
FTA due to better than expected collateral performance. The rating
action is also prompted by an increase in credit enhancement for
the affected tranches in BBVA RMBS 3, FTA.
Revision of Key Collateral Assumptions
As part of the rating action, Moody's reassessed its lifetime loss
expectation for the portfolio reflecting the collateral performance
to date.
The performance of both transactions has continued to improve since
the last rating action.
In BBVA RMBS 1, FTA, total delinquencies have remained stable in
the past year, with 90 days plus arrears currently standing at
0.21% of current pool balance. Cumulative defaults currently stand
at 6.47% of original pool balance up from 6.43% a year earlier.
For BBVA RMBS 1, FTA, Moody's decreased the expected loss
assumption to 2.94% as a percentage of current pool balance due to
the good performance, which corresponds to 4.59% expressed as a
percentage of original pool balance down from the prior assumption
of 5.13%.
In BBVA RMBS 3, FTA, total delinquencies have increased in the past
year, with 90 days plus arrears currently standing at 0.43% of
current pool balance. Cumulative defaults currently stand at 14.34%
of original pool balance up from 14.26% a year earlier.
For BBVA RMBS 3, FTA, Moody's decreased the expected loss
assumption to 4.57% as a percentage of current pool balance due to
the improving performance, which corresponds to 10.18% expressed as
a percentage of original pool balance down from the prior
assumption of 10.79%.
Moody's has also assessed loan-by-loan information as part of its
detailed transaction review to determine the credit support
consistent with target rating levels and the volatility of future
losses. As a result, Moody's has reduced the MILAN CE assumption to
12.50% from 15.0% for BBVA RMBS 1, FTA. For BBVA RMBS 3, FTA,
Moody's has maintained the current MILAN CE at 16.50%.
Increase in Available Credit Enhancement
For BBVA RMBS 1, FTA the credit enhancement available for Class C
notes has remained broadly stable due to the pro-rata amortization
of the notes. For instance, the credit enhancement for the Class C
notes decreased slightly to 4.02% from 4.40% since the last rating
action. While the notes reached their target capital structure in
June 2023 and are currently paid pro rata, the amortization will
switch to sequential if the reserve fund is not at required amount
or upon the pool factor decreasing below 10% (currently the pool
factor is 22.38%).
In BBVA RMBS 3, FTA the reserve fund remains fully depleted and the
unpaid principal deficiency ledger ("PDL") has reduced to EUR119.9
million in May 2023 from EUR140.3 million as of the last rating
action. The decreasing amount of PDL in combination with sequential
amortization led to the increase in the credit enhancement
available in this transaction. For instance, the credit enhancement
for Class A3c and Class A3d notes, whose amortization is on a
sequential basis amongst Classes A3a, A3b, A3c and A3d, increased
to 11.52% from 7.93% since the last rating action.
If certain performance-related triggers were to be cured, including
the reserve fund being replenished to its target level, then issuer
available funds could be allocated to repay mezzanine and junior
notes to reach target ratios (percentages of outstanding notes)
contemplated in the transactions' documentation. Given the current
level of unpaid PDL and the fact that the reserve fund is currently
fully drawn, this is not likely to happen soon in BBVA RMBS 3,
FTA.
The principal methodology used in these ratings was Moody's
Approach to Rating RMBS Using the MILAN Framework published in July
2022.
The analysis undertaken by Moody's at the initial assignment of
ratings for RMBS securities may focus on aspects that become less
relevant or typically remain unchanged during the surveillance
stage.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors or circumstances that could lead to an upgrade of the
ratings include (1) performance of the underlying collateral that
is better than Moody's expected, (2) an increase in available
credit enhancement and (3) improvements in the credit quality of
the transaction counterparties and (4) a decrease in sovereign
risk.
Factors or circumstances that could lead to a downgrade of the
ratings include (1) an increase in sovereign risk, (2) performance
of the underlying collateral that is worse than Moody's expected,
(3) deterioration in the notes' available credit enhancement and
(4) deterioration in the credit quality of the transaction
counterparties.
IM CAJAMAR 6: Moody's Ups Rating on EUR62.4MM Class D Notes to Ba1
------------------------------------------------------------------
Moody's Investors Service has upgraded the ratings of fifteen notes
in four IM Cajamar transactions. The rating action reflects better
than expected collateral performance and increased levels of credit
enhancement for the affected notes. Also, the higher interest rate
environment benefits the yield and excess spread available in the
transactions.
Moody's affirmed the rating of the notes that had sufficient credit
enhancement to maintain their current ratings.
Maximum achievable rating is Aa1 (sf) for structured finance
transactions in Spain, driven by the corresponding local currency
country ceiling of the country.
Issuer: IM CAJAMAR 3, FTA
EUR1155M Class A Notes, Upgraded to Aa1 (sf); previously on Apr
26, 2021 Upgraded to Aa2 (sf)
EUR28.8M Class B Notes, Upgraded to A2 (sf); previously on Apr 26,
2021 Upgraded to Baa2 (sf)
EUR6M Class C Notes, Upgraded to Baa3 (sf); previously on Apr 26,
2021 Upgraded to Ba3 (sf)
EUR10.2M Class D Notes, Upgraded to Ba1 (sf); previously on Apr
26, 2021 Upgraded to B2 (sf)
Issuer: IM CAJAMAR 4, FTA
EUR961.5M Class A Notes, Upgraded to Aa1 (sf); previously on Aug
4, 2020 Affirmed A1 (sf)
EUR25M Class B Notes, Upgraded to Baa1 (sf); previously on Aug 4,
2020 Affirmed Ba1 (sf)
EUR5M Class C Notes, Upgraded to Ba3 (sf); previously on Aug 4,
2020 Confirmed at B2 (sf)
EUR8.5M Class D Notes, Upgraded to B3 (sf); previously on Aug 4,
2020 Confirmed at Caa1 (sf)
Issuer: IM CAJAMAR 5, FTA
EUR962M Class A Notes, Upgraded to Aa1 (sf); previously on Apr 26,
2021 Upgraded to A2 (sf)
EUR11.5M Class B Notes, Upgraded to A3 (sf); previously on Apr 26,
2021 Upgraded to Ba1 (sf)
EUR12M Class C Notes, Upgraded to Baa3 (sf); previously on Apr 26,
2021 Upgraded to B2 (sf)
EUR14.5M Class D Notes, Upgraded to Ba3 (sf); previously on Apr
26, 2021 Upgraded to Caa3 (sf)
Issuer: IM CAJAMAR 6, FTA
EUR1836.2M Class A Notes, Affirmed Aa1 (sf); previously on Jul 29,
2021 Upgraded to Aa1 (sf)
EUR31.2M Class B Notes, Upgraded to Aa3 (sf); previously on Jul
29, 2021 Upgraded to A1 (sf)
EUR19.5M Class C Notes, Upgraded to A2 (sf); previously on Jul 29,
2021 Upgraded to Baa1 (sf)
EUR62.4M Class D Notes, Upgraded to Ba1 (sf); previously on Jul
29, 2021 Upgraded to Ba3 (sf)
RATINGS RATIONALE
The rating action is prompted by:
-- decreased key collateral assumptions, namely the portfolio
Expected Loss (EL) and, for IM CAJAMAR 5, FTA and IM CAJAMAR 6,
FTA, the MILAN CE assumptions due to better than expected
collateral performance,
-- an increase in credit enhancement for the affected tranches due
to reserve fund for all four transactions fully funded at the
minimum floor amount. As pools amortise, the fixed reserve fund
amount drive credit enhancement increase benefitting the tranches.
Also, asset yields increased as reference interest rates have
materially increased, following a prolonged negative interest rate
environment, which benefits excess spread available in the
transactions.
Revision of Key Collateral Assumptions:
As part of the rating action, Moody's reassessed its lifetime loss
expectation for the portfolio reflecting the collateral performance
to date.
Total delinquencies have remained stable in the past year, with 90
days plus arrears as of March 2023 reporting date standing at
0.25%, 0.14%, 0.08% and 0.16% of current pool balance for IM
CAJAMAR 3, FTA ("CM3"), IM CAJAMAR 4, FTA ("CM4"), IM CAJAMAR 5,
FTA ("CM5") and IM CAJAMAR 6, FTA ("CM6"). Cumulative defaults
currently stand at 3.72%, 4.04%, 5.80% and 8.25% of original pool
balance and unchanged from a year earlier.
Moody's decreased the expected loss assumption to 2.03%, 2.15%,
1.76% and 2.24% as a percentage of current pool balance from 2.14%,
2.57%, 2.08% and 2.63% due to the good performance for CM3, CM4,
CM5 and CM6, respectively. The revised expected loss assumption
corresponds to 1.71%, 2.28%, 2.55% and 4.40% expressed as a
percentage of original pool balance for CM3, CM4, CM5 and CM6.
Moody's has also assessed loan-by-loan information as a part of its
detailed transaction review to determine the credit support
consistent with target rating levels and the volatility of future
losses. As a result, Moody's has decreased the MILAN CE assumption
to 8.0% from 9.0% for both CM5 and CM6. MILAN CE assumption for CM3
and CM4 has been maintained at 8.0%.
Increase in Available Credit Enhancement
A non-amortizing reserve fund (fully funded and at floor for all
four transactions) led to the increase in the credit enhancement
available in these transactions. As all four transactions are
amortizing pro rata due to good performance, the reserve fund is
the driver of credit enhancement increase for the tranches.
For instance, the credit enhancement for the most senior tranche
affected by the rating action increased to 13.18%, 11.37%, 12.08%
and 14.49% for CM3, CM4, CM5 and CM6 since the last rating action.
Counterparty Exposure
The rating actions took into consideration the notes' exposure to
relevant counterparties, such as servicer, account banks or swap
providers.
Moody's assessed the exposure to Banco Bilbao Vizcaya Argentaria,
S.A. acting as swap counterparty for CM3 and CM4. Moody's analysis
considered the risks of additional losses on the notes if they were
to become unhedged following a swap counterparty default by using
the CR assessment as reference point for swap counterparties.
Moody's concluded that the ratings of the Class B and Class C notes
for CM3 and Class C notes for CM4 are constrained by the swap
agreement entered between the issuer and the swap counterparty.
The principal methodology used in these ratings was "Moody's
Approach to Rating RMBS Using the MILAN Framework" published in
July 2022.
The analysis undertaken by Moody's at the initial assignment of
ratings for RMBS securities may focus on aspects that become less
relevant or typically remain unchanged during the surveillance
stage.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors or circumstances that could lead to an upgrade of the
ratings include (1) performance of the underlying collateral that
is better than Moody's expected, (2) an increase in available
credit enhancement and (3) improvements in the credit quality of
the transaction counterparties and (4) a decrease in sovereign
risk.
Factors or circumstances that could lead to a downgrade of the
ratings include (1) an increase in sovereign risk, (2) performance
of the underlying collateral that is worse than Moody's expected,
(3) deterioration in the notes' available credit enhancement and
(4) deterioration in the credit quality of the transaction
counterparties.
===========
S W E D E N
===========
APOLLO SWEDISH: Fitch Assigns 'B' LongTerm IDR, Outlook Stable
--------------------------------------------------------------
Fitch Ratings has assigned Apollo Swedish Bidco AB (Apollo; trading
as Assemblin) a Long-Term Issuer Default Rating (IDR) of 'B' with a
Stable Outlook. Fitch has also assigned its EUR480 million senior
secured floating-rate notes (FRNs) a rating of 'B' with a Recovery
Rating of 'RR4'.
Fitch has also affirmed its 100% subsidiary Assemblin Group AB's
IDR at 'B' with a Stable Outlook and withdrawn its rating.
The ratings of Apollo reflect its new capital structure under
ownership by Triton IV Continuation Fund. Apollo redeemed its
shareholder bridge loan of EUR125million and the EUR350 million
senior secured noted (SSNs) issued by Assemblin Group AB with the
new FRNs.
The ratings reflect higher leverage following the FRNs issue,
albeit remaining within Fitch rating sensitivities. Fitch view the
company's performance as resilient despite high inflation and
temporary supply chain disruptions.
Fitch believe continued organic and acquisition growth and tight
cost control will result in strong performance in the medium term.
This is balanced against the company's high leverage and
significant geographic concentration in Sweden.
Fitch has withdrawn the IDR of Assemblin Group AB as the company's
SSNs were redeemed together with a reorganization of the rated
entity following the creation of the new debt issuing and
consolidating entity Apollo.
KEY RATING DRIVERS
High Leverage Following Refinancing: Fitch forecasts EBITDA gross
leverage will rise to 5.2x and 4.8x in 2023 and 2024, respectively,
after having deleveraged to 3.9x in 2022. With the addition of
SEK1.7 billion of debt at refinancing, leverage metrics remain
high, albeit in line with the current rating. Fitch expect
deleveraging to 4.5x in 2025 on profitability improvement and
EBITDA-accretive bolt-on acquisitions.
Improving Margins: Assemblin reported solid EBITDA growth in 2022
on acquisitions and price increases. The company kept its margin
fairly stable compared with 2021 despite material underperformance
at its Finnish operations. Fitch sees scope for improvement in the
Finnish segment given its lowest EBITA margin relative to the
group's (as reported by Assemblin) and a turnaround plan for the
Finland region. Fitch views tight cost control, the restructuring
of unprofitable branches and EBITDA-accretive acquisitions will
further lift margin by around 20bp annually in the next two to
three years.
Free Cash Flow Allocation: Fitch forecasts free cash flow (FCF)
margins of 2.1%-3.4% in the medium term, which are lower than
previously expected, largely due to higher interest payments.
However, Fitch believe it is strong enough to continue funding
ongoing bolt-on acquisitions. Fitch does not assume any dividend
distributions or debt repayment. Fitch believe any large
acquisitions are likely to be funded through own cash and
additional debt.
Sponsor's Longer Investment Horizon: The private equity sponsor
Triton has extended its investment in Assemblin with the
acquisition of Assemblin by Triton IV Continuation Fund in May
2023. This transaction does not entail any change in the business
strategy and financial policy, growth prospects or the management
team. However, the associated refinancing has resulted in higher
leverage. With continued strong profitability, leverage metrics
have remained commensurate with the current rating.
Sound Business Profile: Assemblin's solid business profile is
supported by good service offering and end-market diversification,
a brand that is appreciated for its strong technical expertise and
committed skilled employees. The Nordic installation market enjoys
sound demand from energy efficiency projects, smart buildings and
urbanisation trends. The regulatory environment targeting a low
emission economy also drives demand for Assemblin's services. Their
business profile is further supported by a fairly high share of
contracted revenue with a good mix of project and service revenue
that support visibility, leading to resilience against end-market
cyclicality.
Limited Geographical Diversification: Assemblin has diversified its
geographic exposure with acquisitions in Norway and Finland.
However, it remains highly concentrated in Sweden with 71% of
revenue in 2022 compared with 77% in 2021. Offsetting this are
benefits from a diversified end-market exposure across public
infrastructure, hospitals, schools, as well as local smaller
customers and projects.
Acquisitive Growth Strategy: Fitch believe Assemblin will continue
with bolt-on acquisitions to grow its revenue and EBITDA. The
integration of acquisitions has mostly been successful and Fitch
assess its strategy and execution risk as moderate rather than
meaningful. This is supported by a focus on smaller acquisitions
operating in its core technical services and with a good cultural
fit with existing operations. Fitch believe a prudent acquisition
strategy prioritising sustainable growth with sound margins over
market share support both its business and financial profiles.
New FRNs Rating Equalised: The senior secured debt rating of 'B' is
equalised with Apollos's IDR to reflect Fitch's expectations of
average recoveries for the senior secured notes in a default. In
its recovery assessment, Fitch expects that Apollo will achieve
better recoveries on a going-concern basis and conservatively
values Apollo at a 5.5x distressed multiple of an estimated
post-restructuring EBITDA of SEK700 million. The output from
Fitch's recovery waterfall suggests average recovery prospects of
31%-50%, resulting in a 'RR4' Recovery Rating.
DERIVATION SUMMARY
Assemblin compares favourably with major Nordic industrial
competitors, with strong market positions in its prioritised local
markets and margins that are in line with or better than
competitors'. Within Fitch's rated universe, Assemblin has a strong
business profile with a well-diversified service offering, customer
and end-user base that is fairly in line with that of Polygon Group
AB (Polygon, B/Negative), albeit with a limited presence outside of
Sweden. Similarly to Polygon, Assemblin is small in size compared
with Nordic building products distributors Quimper AB (B/Positive)
and Winterfell Financing S.a.r.l. (B/Positive).
Assemblin's EBITDA margins of around 7% are similar to Polygon's,
weaker than Quimper's 10%-11% and stronger than Winterfell's around
5%.
Assemblin's financial profile is weaker than Quimper's and
Winterfell's, but stronger than Polygon's, which reflects the
peers' Positive and Negative Outlook, respectively. Fitch forecast
EBITDA gross leverage at 5.2x-4.5x in 2023-2025 for Assemblin
compared with around 4x-5x for Quimper and Winterfell and above 7x
for Polygon. A higher-rated peer Irel Bidco S.a.r.l. (IFCO,
B+/Stable), German-based logistics services provider, generates
stronger margins with a similar leverage profile as Assemblin's.
KEY ASSUMPTIONS
Key Rating Assumptions Within Fitch Rating Case for the Issuer:
-- Revenue growth of 8.6% in 2023 and on average 5% in 2024-2026,
supported by organic and inorganic growth
-- EBITDA margin improving to 7.1% in 2023, followed by steady
growth to 7.4% in 2026
-- Capex at 0.3% of sales to 2026
-- M&A spend of SEK441 million in 2023, and additional SEK221
million of bolt-ons annually in 2024-2026
RECOVERY ASSUMPTIONS
-- The recovery analysis assumes that Assemblin would be
reorganised as a going-concern (GC) in bankruptcy rather than
liquidated
-- Fitch have assumed a 10% administrative claim
-- The GC EBITDA estimate of SEK700 million reflects Fitch's view
of a sustainable, post-reorganisation EBITDA level on which Fitch
base the enterprise valuation, and the acquisitive acquisition
strategy of Assemblin
-- An enterprise value multiple of 5.5x is used to calculate a
post-reorganisation valuation. It reflects low operating margins,
but good growth prospects relative to peers'. The company benefits
from a dominant market share and high barriers to entry due to the
nature of the market it is operating in
-- Assemblin's super senior SEK1.1 billion revolving credit
facility (RCF) is fully drawn in post-restructuring according to
Fitch's criteria and ranks ahead of senior secured debt. Fitch do
not view its pension guarantee facility of SEK325 million
(outstanding amount as at December 2022) provided by banks as a
debt obligation for the purpose of computing leverage metrics under
Fitch criteria. However, in a recovery this guarantee facility is
treated as a super senior facility as the pension administrator can
make a cash claim under a guarantee issued to cover pension
payments
-- The waterfall analysis output for the senior secured FRNs of
EUR480 million (SEK5.4 billion equivalent) generated a ranked
recovery in the 'RR4' band, indicating an instrument rating of 'B',
which is in line with the IDR. The waterfall analysis output
percentage on current metrics and assumptions was 38%
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
-- EBITDA gross leverage below 4.0x on a sustained basis
-- Increase in EBITDA margin towards 7.5%
-- FCF margin above 2% on a sustained basis
-- Successful M&A improving scale and/or market position without
negatively affecting credit metrics
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
-- EBITDA dilution due to unsuccessful M&A resulting in an EBITDA
margin of less than 5% on a sustained basis
-- EBITDA gross leverage above 6.0x on a sustained basis
-- EBITDA interest coverage below 2x on a sustained basis
-- Lack of consistently positive FCF generation
LIQUIDITY AND DEBT STRUCTURE
Comfortable Liquidity: Assemblin had around SEK421million of cash
adjusted by Fitch for intra-year working capital changes at 1% of
sales. Under the new capital structure liquidity will be supported
by a SEK1.1 billion RCF. Fitch expect FCF margins of 2.1%-3.4% in
the next two to three years as sound working capital management and
low capex requirements offset high interest payments. Cash
generation is adequate to fund ongoing bolt-on acquisitions.
Reasonable Debt Structure: Assemblin's new capital structure
consists of a 5.75-year RCF of SEK1.1 billion and the six-year FRNs
of EUR480 million.
ISSUER PROFILE
With revenue of SEK13.5 billion (EUR1.1 billion) and close to 6,900
employees, Assemblin is a leading provider of installation and
service solutions in electrical engineering, heating and
sanitation, ventilation and automation across the Nordic region.
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
===========
TURKIYE FINANS: Fitch Affirms 'B-/B' Long Term IDRs, Outlook Neg.
-----------------------------------------------------------------
Fitch Ratings has affirmed Turkiye Finans Katilim Bankasi A.S.'s
(Turkiye Finans) Long-Term Foreign-Currency (LTFC) and Long-Term
Local-Currency (LTLC) Issuer Default Ratings (IDR) at 'B-' and 'B',
respectively. The Outlooks are Negative. Fitch has also affirmed
the bank's Viability Rating (VR) at 'b-'.
KEY RATING DRIVERS
Intervention Risks Caps IDR: Turkiye Finans's LTFC IDR is
underpinned by both its VR and its Shareholder Support Rating
(SSR). The LTFC IDR is capped at 'B-', one notch below Turkiye's,
despite a high support propensity from its parent, The Saudi
National Bank (SNB; A-/Stable), due to government intervention
risk. The LTLC IDR is one notch above its LTFC IDR as intervention
risk is lower in LC. The Negative Outlooks on the bank's LT IDRs
mirror those on the sovereign, while that on the LTFC IDR also
reflects operating-environment risks. The 'B' Short-Term (ST) IDRs
are the only option mapping to LT IDRs in the 'B' category.
Concentration in Turkish Market: The VR reflects Turkiye Finans's
concentrated operation in the challenging Turkish market and the
bank's small but reasonable franchise in the participation-banking
segment, ordinary support from parent, and adequate FC liquidity.
However, it also considers Turkiye Finans's only adequate core
capitalisation.
Shareholder Support Capped: Turkiye Finans's SSR considers
potential support from its 67% owner, SNB, reflecting its strategic
importance to SNB as its largest international bank subsidiary,
role within the wider group, and reputation risks. However,
government intervention risk caps the SSR at one notch below the
sovereign LTFC IDR, reflecting Fitch's view that the likelihood of
government intervention that would impede Turkiye Finans's ability
to service its FC obligations is higher than that of a sovereign
default.
Small Franchise: Turkiye Finans is ranked fourth among six
participation banks in Turkiye, a niche segment of strategic
importance to the authorities, accounting for 8% of total sector
assets at end-1Q23. The bank has a small market share (1% of total
banking system assets), operating almost exclusively in Turkiye,
which results in limited competitive advantages.
Asset-Quality Risks: Turkiye Finans's impaired financing ratio
further improved to 2.7% at end-1Q23 (end-2022: 3%, end-2021:
4.6%), reflecting financing growth (1Q23: 15% adjusted for
foreign-exchange (FX) movements), collections and write-offs. Stage
2 loans were moderate at 6% of gross financing, although adequately
covered at 22%, and of which around 28% were restructured.
Asset-quality risks remain given the bank's high exposure to SMEs
(end-1Q23: 43% of total financing) and macro and market volatility.
FC financing (end-1Q23: 25%) remains a source of risk as not all
borrowers are hedged against lira depreciation.
Moderate Profitability: Turkiye Finans's operating profit/average
total assets increased to 5.6% at end-1Q23 from 3.2% at end-2022,
benefiting from increased fees and commission income, high nominal
financing growth and gains on CPI linkers. Fitch expects
profitability to weaken in 2023 amid slower GDP growth and expected
margin contractions.
Only Adequate Capitalisation: The bank's common equity Tier 1
(CET1) ratio (end-1Q23: 14.5% including a 244bp uplift for
regulatory forbearance) is only adequate given Turkiye Finans's
fairly low equity/assets ratio (end-1Q23: 7.9%; sector average:
10.1%) and volatility of the operating environment. The bank's
capital ratios benefit from a favourable risk-weighting on
profit-sharing financing, providing a further uplift of 400bp-500bp
to its CET1 ratio.
Limited Refinancing Risk: Turkiye Finans is largely funded by
customer deposits (end-1Q23: 86%). FC wholesale funding comprised a
fairly low 9% of total funding, which, along with support from SNB,
limits refinancing risk. FC liquidity, mainly comprising
unencumbered government securities, was sufficient to cover
maturing FC debt due within a year and 31% of FC deposits. However,
FC liquidity could come under pressure from sector-wide deposit
instability.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A downgrade of Turkiye Finans's LTFC IDR would follow a downgrade
of both the VR and the SSR. A downgrade of the bank's LTLC IDR
would follow a downgrade of the SSR.
A downgrade of Turkiye's sovereign ratings or Fitch view of
increased government intervention risk could lead to a downgrade of
Turkiye Finans's SSR. Turkiye Finans's SSR is also sensitive to an
adverse change to Fitch's view of SNB's ability and propensity to
provide support.
The bank's VR could be downgraded on further deterioration in the
operating environment, a material erosion in the bank's FC
liquidity buffers, for example due to a prolonged funding market
closure or deposit instability, or in the capital buffers, if not
offset by shareholder support. The VR is also sensitive to a
sovereign downgrade.
The Short-Term IDRs are sensitive to a downgrade in the bank's
Long-Term IDRs.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Rating upgrades are unlikely given heightened operating-environment
risks and market volatility, the Negative Outlook on Turkey's
sovereign ratings, and Fitch view of government intervention risk.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Turkiye Finans's National Rating reflects Fitch view that the
bank's creditworthiness in local currency relative to other Turkish
issuers' is unchanged. The National
Rating is underpinned by support from its parent SNB and is in line
with foreign-owned peers'.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The National Rating is sensitive to a change in the bank's
creditworthiness in LC relative to that of other Turkish issuers.
VR ADJUSTMENTS
The operating environment score of 'b-' for Turkish banks is lower
than the category implied score of 'bb', due to the following
adjustment reasons: sovereign rating (negative) and macroeconomic
stability (negative).
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Financial Institutions and
Covered Bond issuers have a best-case rating upgrade scenario
(defined as the 99th percentile of rating transitions, measured in
a positive direction) of three notches over a three-year rating
horizon; and a worst-case rating downgrade scenario (defined as the
99th percentile of rating transitions, measured in a negative
direction) of four notches over three years. The complete span of
best- and worst-case scenario credit ratings for all rating
categories ranges from 'AAA' to 'D'. Best- and worst-case scenario
credit ratings are based on historical performance.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF
RATING
The principal sources of information used in the analysis are
described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Turkiye Finans's ratings are either underpinned or driven by
shareholder support from its majority shareholder, SNB.
ESG CONSIDERATIONS
Fitch has revised Turkiye Finans's ESG Relevance Score for
Management and Strategy to '4' from '3' to reflect an increased
regulatory burden on all Turkish banks. Management ability across
the sector to determine their own strategy and price risk is
constrained by increased regulatory interventions and also by the
operational challenges of implementing regulations at the bank
level. This has a moderately negative impact on the credit profile
and is relevant to the rating in combination with other factors.
Turkiye Finans's ESG Relevance Score of '4' for Governance
Structure reflects its Islamic banking nature (in contrast to a
typical ESG Relevance Score of '3' for comparable conventional
banks). These banks' operations and activities need to comply with
sharia principles and rules, which entails additional costs,
processes, disclosures, regulations, reporting and sharia audit.
This has a negative impact on their credit profiles and is relevant
to the ratings in conjunction with other factors.
The Islamic banks also have an ESG Relevance Score of '3' for
Exposure to Social Impacts (in contrast to a typical ESG Relevance
Score of '2' for comparable conventional banks), which reflects
that Islamic banks have certain sharia limitations embedded in
their operations and obligations, although this only has a minimal
credit impact on Islamic banks.
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.
===========================
U N I T E D K I N G D O M
===========================
FULLER DAVIES: Bought Out of Administration by KNP Litho
--------------------------------------------------------
Business Sale reports that Ipswich-based litho and digital printer
Fuller Davies has been acquired out of administration by Bury St
Edmunds firm KNP Litho.
Fuller Davies, which has been operating for more than 30 years,
fell into administration earlier this month, Business Sale
relates.
The company had suffered as a result of numerous pressures,
including COVID-19, bad debts and rising costs, Business Sale
discloses. Administrators from The Debt Agency were appointed on
July 5, subsequently concluding a sale of the business to KNP,
which is based just 27 miles from Fuller Davies, Business Sale
recounts.
According to Business Sale, speaking to industry publication
Printweek, Fuller Davies managing director Neil Stones said that
the pressures facing the firm had prompted it to seek a "rigorous
review" of its operations from a business advisory in April of this
year with the aim of finding "the most appropriate course of
action".
After the business' operations were reviewed, it was recommended
that it be placed into administration, at which point the company
began seeking an appropriate buyer, Business Sale notes.
In KNP's most recent accounts, for the year ending September 30,
2021, its fixed assets were valued at slightly over GBP1 million,
with current assets valued at GBP659,379, Business Sale states. At
the time, the company owed around GBP1.3 million in total to
creditors, with net assets standing at GBP185,878, according to
Business Sale.
LIBERTY GLOBAL: Egan-Jones Retains BB+ Senior Unsecured Ratings
---------------------------------------------------------------
Egan-Jones Ratings Company on July 3, 2023, maintained its 'BB+'
foreign currency and local currency senior unsecured ratings on
debt issued by Liberty Global, Inc.
Headquartered in London, United Kingdom, Liberty Global, Inc.
provides communications services.
NORMAN AND UNDERWOOD: Goes Into Administration
----------------------------------------------
Business Sale reports that Norman and Underwood Group, an
architectural roofing, cladding and glazing specialist based in
Leicester, has fallen into administration.
The company, which dates back to 1825, has appointed joint
administrators from Begbies Traynor, Business Sale relays, citing
The Gazette.
The company had filed notices of intention to appoint
administrators last month as it sought to find a buyer, Business
Sale discloses. According to Business Sale, on July 13, the
company appointed administrators, with Begbies Traynor also
appointed to oversee the administration of Norman and Underwood
Ltd, Norman & Underwood (Glazing Systems) Ltd, Norman & Underwood
Group Ltd and Norman & Underwood Conservation Ltd.
In the group's last available accounts at Companies House, for the
year ending December 31, 2021, it reported operating profit of
GBP115,019 and pre-tax profits of close to GBP70,000, Business Sale
states. At the time, its fixed assets were valued at GBP4.7
million and current assets at GBP2.5 million, with total equity
standing at GBP5.9 million, Business Sale notes.
Norman and Underwood originally specialised in general plumbing and
glazing, before expanding its business to provide architectural and
structural glazing, metal roofing and cladding, as well as building
conservation solutions such as stained-glass restoration and
leadwork.
UNBOUND: To Appoint Administrators After Rescue Efforts Fail
------------------------------------------------------------
TheBusinessDesk.com reports that Unbound Group, the parent of the
Skelmersdale-based Hotter Shoes brand, will appoint administrators
and has suspended its shares on AIM after failing to conclude a
rescue deal for the struggling business.
It warned on July 12 that it could go into administration if
restructuring plans, including an equity raise, failed,
TheBusinessDesk.com notes.
On July 17, it confirmed the intention to appoint Will Wright and
Rick Harrison of Interpath Advisory as administrators to OpCo,
which is Beaconsfield Footwear, the main operating subsidiary which
includes Hotter Shoes, TheBusinessDesk.com relates.
In May this year, the group revealed it had engaged turnaround
specialists from Interpath Advisory after Marwyn Investment
Management withdrew its GBP10 million fundraising offer over
concerns about current trading, TheBusinessDesk.com recounts.
Just over a week later, Unbound announced it was offering itself
for sale, TheBusinessDesk.com discloses. But late last month, the
business admitted that hopes of a sale were fading and turnaround
specialists were considering a formal restructure,
TheBusinessDesk.com relays.
Then, four days later, Unbound said it was considering an equity
fundraise of between GBP1.5 million and GBP2 million after formally
closing its sale process having receiving no offers that the board
"considered capable of receiving shareholder and wider stakeholder
support", according to TheBusinessDesk.com.
The company, as cited by TheBusinessDesk.com, said it was in talks
with its bankers regarding potential and expected breaches of its
loan covenants and any deal would have to be acceptable to them,
which has also created "liquidity constraints" and the company
needs the bankers to waive "certain covenants under existing
borrowing facilities".
Turnaround expert Interpath was advising the board on a strategic
review process in respect of the group's main operating subsidiary,
Hotter Shoes, which could be sold off separately,
TheBusinessDesk.com discloses.
On July 12, Unbound issued a statement responding to press
speculation, admitting administration was a possibility,
TheBusinessDesk.com relates.
And on July 17, the board admitted the game was up, saying it is
now required to take the necessary steps to preserve value for the
group's creditors and avoid OpCo trading insolvently, and intends
to appoint Interpath Advisory as administrator, TheBusinessDesk.com
notes.
It said the group is not a trading company and has no operating
revenues, TheBusinessDesk.com notes. The company currently has
minimal cash balances and known creditors of approximately GBP0.9
million, TheBusinessDesk.com discloses.
While the company holds certain investments that the board believes
are likely to have a value in excess of the amounts due, it is also
likely to take some time to realise these assets,
TheBusinessDesk.com states. So, in light of the latest
developments, there is uncertainty as to whether the company is
able to pay its debts as they fall due, TheBusinessDesk.com says.
The board has, therefore, requested a suspension of trading in the
company's ordinary shares on AIM with effect from 7:30 a.m. on July
17 pending clarification of the company's financial position,
TheBusinessDesk.com relates. The board, TheBusinessDesk.com says,
is now reviewing the options available.
Notice of the company's annual general meeting has been posted to
shareholders. It will be held on July 31, at the London offices of
Singer Capital Markets, TheBusinessDesk.com discloses.
WHEEL BIDCO: Fitch Lowers LongTerm IDR to 'B-'; Outlook Stable
--------------------------------------------------------------
Fitch Ratings has downgraded Wheel Bidco Limited's (PizzaExpress)
Long-Term Issuer Default Rating (IDR) to 'B-' from 'B'. The Outlook
is Stable.
The downgrade reflects Fitch view that the company's EBITDA
recovery and deleveraging will be slower than Fitch previously
projected, resulting in a financial structure more consistent with
a 'B-' rating over 2023-2026. This is because of weak consumer
sentiment constraining the recovery in covers and significant cost
inflation, which in Fitch view cannot be fully passed on to
consumers over the medium term.
The Stable Outlook reflects Fitch expectation that PizzaExpress's
established brand in a popular pizza category and wide consumer
appeal across the demographic spectrum will help it maintain
like-for-like (lfl) sales growth in a difficult consumer
environment in 2023-2024. This is supported by the company's
ability to perform ahead of the UK casual dining market despite
high competition in 4Q22 and 1Q23.
Even in a stress scenario with weaker than expected trading,
PizzaExpress has substantial flexibility to protect its liquidity
by cutting expansionary capex. The fixed interest rate on its debt
also protects the company from currently heightened interest rates,
preserving operating cash flow generation. This further supports
the Stable Outlook on the rating.
KEY RATING DRIVERS
Slow Post-Pandemic Recovery: PizzaExpress lfl sales exceeded
pre-pandemic levels in 2022 by 4.8%. However, this was achieved due
to expansion of the delivery segment and average spend per head
growth, reflecting price increases. Lfl covers in the important and
most profitable dine-in segment remained 16% below 2019.
Weak Consumer Environment: In Fitch view, a strong recovery in
covers in 2023-2024 is unlikely as consumers become more cautious
about spending on discretionary items, such as eating out or
ordering food delivery. Despite Fitch expectation of a mild
recession in the UK from 3Q23, Fitch rating case still assumes slow
growth in covers in 2023-2024. This is because of the company's
positioning in the pizza category with broad consumer appeal and
some potential customer migration from higher-priced competition.
Growth in covers will be also supported by contracts signed with
new delivery partners Just Eat and Uber Eats in 4Q22, in addition
to Deliveroo. However, there is limited historical data on this
business's cyclicality and Fitch believe it may be more sensitive
to weakening consumer sentiment than dine-in.
Late Pricing Actions: PizzaExpress consciously held prices in 1H22
to address customer value for money issues, despite cost inflation
already coming through. The company increased prices below
competition and this did not lead to any reduction in covers,
according to management. PizzaExpress may increase prices again in
2H23, with increases from 2024 being more limited as the market
remains highly competitive.
VAT Support Expired in 2022: As part of government support during
the pandemic, VAT rates for the UK hospitality sector were
temporarily reduced until end-March 2022. This helped PizzaExpress
generate more revenue and profits than if rates had been at the
standard 20% rate. The removal of VAT benefit will constrain EBITDA
recovery in 2023.
CVA Protection Terminates in 2023: As part of its restructuring
plan, PizzaExpress optimised its restaurant portfolio in 2020 and
reduced rents following company voluntary arrangement (CVA). CVA
protection will continue until September 2023, and once it expires,
the annual rent expense will increase, weighing on the company's
EBITDA.
EBITDA Margins Under Pressure: PizzaExpress's 2022 EBITDA margin
was below Fitch expectations due to significant inflation in food
and beverage, energy and labour costs, which was not passed on to
consumers due to late pricing actions and competition in the
market. Fitch expect price increases to drive revenue growth in
2023 and help offset the pressures on EBITDA. As a result, Fitch
expect Fitch-adjusted EBITDA to grow only slightly or be flat in
2023 (2022: GBP49 million, after lease expense as per Fitch
criteria).
Structural EBITDA Reduction: Fitch believe that the reduction in
PizzaExpress's profitability is structural in nature. Although
Fitch project gradual improvement over 2024-2026, a full recovery
to 2019 levels is unlikely in the medium term. From 2024, EBITDA
growth will be supported by acceleration of new restaurant openings
and cost-efficiency programmes, including those targeting labour
productivity.
Elevated Leverage: PizzaExpress's EBITDAR gross leverage increased
to 7.3x in 2022 (2021: 6.6x). Fitch project it to remain around the
same level in 2023, which is high relative to 'B' rating category
medians in the restaurant sector. However, Fitch expect the company
to deleverage over 2024-2026 and build comfortable rating headroom
for the 'B-' IDR as its EBITDA grows.
Neutral to Negative FCF: Fitch expect PizzaExpress to generate
neutral to negative free cash flow (FCF) over the next four years
(2022: GBP5 million) as Fitch assume its operating cash flow will
be fully reinvested in capex. Capex was low during the pandemic and
Fitch project it to increase to GBP25 million-GBP35 million per
year over 2023-2026 due to a greater number of restaurant
refurbishments and new openings. With 26% of the estate refurbished
since 2018, the refurbishments programme is core to enabling
PizzaExpress to sustainably maintain its competitiveness.
Small Scale, Limited Diversification: PizzaExpress's business
profile is consistent with 'B' category rating due to its small
scale in a fragmented UK restaurant sector, limited diversification
in international markets and only one brand. The company operates
454 restaurants (including 65 franchised restaurants) in a casual
dining segment of the market and has around a 9% share in the UK
market. While the market provides some long-term growth
opportunities, Fitch do not expect PizzaExpress to substantially
grow its network and increase its EBITDAR (2022: GBP85 million)
towards 'BB' category medians in the sector.
DERIVATION SUMMARY
PizzaExpress has same rating as UK pub companies Stonegate Pub
Company Limited (B-/Negative) and Punch Pubs Group Limited
(B-/Stable), all rated under Fitch's global Restaurants Navigator
framework.
Although all three companies are highly leveraged, Fitch project
lower leverage for PizzaExpress than the pub groups over the next
three years. This is somewhat balanced by the pub groups' stronger
business profile with a different business model, larger size,
better financial and operational flexibility, given their freehold
property, and quicker recovery post-pandemic, given their limited
exposure to labour costs. Stonegate's Negative Outlook reflects
weaker financial flexibility than Punch and PizzaExpress.
PizzaExpress has same rating as Sizzling Platter, LLC (B-/Stable),
a US-based franchisee for quick-service restaurant chains with a
slightly larger restaurant portfolio than PizzaExpress. Both
companies are similarly leveraged, with Sizzling Platter's faster
post-pandemic EBITDA recovery balanced by its more acquisitive
nature than PizzaExpress.
KEY ASSUMPTIONS
-- High single-digit revenue growth in 2023, driven by price
increases executed over 2022-2023, growth in delivery covers and
recovery in international segment due to the lifting of pandemic
restrictions in Hong Kong
-- Mid single-digit revenue growth over 2024-2026, driven by new
site openings and gradual recovery in covers towards pre-pandemic
levels
-- EBITDA under pressure from the absence of VAT benefits and
termination of CVA protection in 2023-2024; gradual EBITDA recovery
towards GBP70 million over 2025-2026, supported by cost-efficiency
programmes, operating leverage and new store openings
-- Capex at GBP25 million in 2023, before increasing to GBP30
million-GBP35 million per year from 2024 due to acceleration in new
restaurant openings
-- No dividends or M&A to 2026
KEY RECOVERY RATING ASSUMPTIONS
The recovery analysis assumes that PizzaExpress would be
reorganised as a going concern (GC) in bankruptcy rather than
liquidated. Fitch have assumed a 10% administrative claim.
The GBP50 million GC EBITDA is similar to GBP49 million
Fitch-estimated EBITDA in 2022, which was under pressure from high
cost inflation, late pricing actions and covers challenged by weak
consumer sentiment. The GC EBITDA estimate reflects Fitch's view of
a sustainable, post-reorganisation EBITDA level, on which Fitch
base the enterprise value (EV).
Fitch have applied a 5.0x EV/EBITDA multiple to the GC EBITDA
valuation to calculate a post-reorganisation EV. This is within the
4.0x-6.0x range Fitch have used across publicly and privately rated
peers. It considers the scale, limited international
diversification and single core brand of PizzaExpress.
The company's senior secured notes rank behind GBP30 million super
senior revolving credit facility (RCF), which is assumed to be
fully drawn upon default.
Fitch waterfall analysis generates a ranked recovery for the GBP335
million senior secured notes in the 'RR3' band, indicating a 'B'
instrument rating, one notch above the IDR of 'B-'. The waterfall
generated recovery computation (WGRC) on current metrics and
assumptions is 58%.
The ranked recovery for the GBP30 million super senior RCF is in
the 'RR1' band with a WGRC of 100%, indicating a 'BB-' instrument
rating, three notches up from the IDR.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action
-- Higher-than-expected EBITDA recovery, leading to neutral to
positive FCF
-- Visibility of EBITDAR leverage falling below 6.0x on a
sustained basis
-- EBITDAR fixed charge coverage above 1.6x on a sustained basis
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action
-- Weaker-than-expected recovery, due to the macro environment,
competitive pressures or higher inflation meaning lower sales and
lower-than-expected profit and cash margins
-- EBITDAR leverage above 7.5x on a sustained basis
-- EBITDAR fixed charge coverage trending towards 1x on a sustained
basis
-- Negative FCF leading to tightening liquidity headroom or
heightened refinancing risk
BEST/WORST CASE RATING SCENARIO
International scale credit ratings of Non-Financial Corporate
issuers have a best-case rating upgrade scenario (defined as the
99th percentile of rating transitions, measured in a positive
direction) of three notches over a three-year rating horizon; and a
worst-case rating downgrade scenario (defined as the 99th
percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and
worst-case scenario credit ratings for all rating categories ranges
from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are
based on historical performance.
LIQUIDITY AND DEBT STRUCTURE
Satisfactory Liquidity: On April 2, 2023, PizzaExpress's liquidity
was satisfactory, with Fitch-adjusted cash of GBP39.6 million
(after excluding GBP20 million, which Fitch deem restricted for
daily operations and therefore not available for debt service) and
GBP26 million available under the GBP30 million RCF. GBP4 million
under the RCF was blocked against an electricity letter of credit.
Fitch forecast does not envisage cash drawings under the RCF, even
though Fitch project a mildly negative FCF over the next three
years.
Additional flexibility comes from PizzaExpress's option to curtail
expansion and refurbishment capex to preserve liquidity if needed.
Non-discretionary maintenance capex is around GBP8 million-GBP10
million out of GBP25 million-GBP35 million assumed in Fitch rating
case.
The company does not face any near-term refinancing risks as its
RCF and notes mature in 2026.
ISSUER PROFILE
PizzaExpress is a leading casual dining operator with 454
restaurants, of which 363 are own operated in the UK and Ireland.
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.
WOVEN GROUP: Administrators Conclude Sale of Business, Assets
-------------------------------------------------------------
Business Sale reports that administrators from FRP Advisory have
concluded the sale of the various business and assets that
comprised customer outsourcing group The Woven Group.
The group had UK offices in Bristol and Ipswich, as well as an
operating in Cape Town, South Africa.
FRP Advisory insolvency practitioners were appointed as joint
administrators to various entities within the group on March 28,
March 29 and April 13 of this year, Business Sale recounts. The
administration was led by FRP's Geoff Rowley and Luke Wilson, with
the support of a multi-disciplinary team, Business Sale discloses.
The Woven Group was comprised of companies providing BPO (Business
Process Outsourcing) services, with a focus on quality assurance
and customer contact centres. The group worked with clients in
automotive, utilities, retail and travel and tourism.
The group had traded for close to 20 years and built a strong
reputation in that time. However, according to administrators, it
suffered as a result of rising inflation, growing competition and
the impact of COVID-19 on its client base, Business Sale relates.
Despite significant investment over recent years, the group's
ongoing trading losses became unsustainable, Business Sale notes.
Following their appointment, administrators from FRP engaged with
numerous parties in an effort to secure suitable offers for the
business and its assets, according to Business Sale. The group
continued to operate during this time, with the joint
administrators successfully trading the business for three months
prior to the final sale contracts being completed at the end of
June 2023, Business Sale states.
*********
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
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re-mailing and photocopying) is strictly prohibited without prior
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Information contained herein is obtained from sources believed to
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delivered via e-mail. Additional e-mail subscriptions for
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or balance thereof are US$25 each. For subscription information,
contact Peter Chapman at 215-945-7000.
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