/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/230727.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Thursday, July 27, 2023, Vol. 24, No. 150 Headlines F R A N C E GOLDSTORY SAS: S&P Upgrades ICR to 'B+', Outlook Stable G E R M A N Y STEINHOFF INT'L: Shareholders Vote to Dissolve Business I R E L A N D FIDELITY GRAND 2023-1: S&P Assigns B-(sf) Rating to Class F Notes M A L T A MELITA LTD: S&P Alters Outlook to Positive, Affirms 'B' LT ICR N E T H E R L A N D S EMBRAER NETHERLANDS: S&P Rates New Senior Unsecured Notes 'BB+' R O M A N I A KUSADASI: Files for Insolvency, License Withdrawn MAS PLC: Moody's Downgrades CFR & Senior Unsecured Notes to Ba2 U K R A I N E DTEK RENEWABLES: S&P Raises LT ICR to 'CCC-', Outlook Negative U N I T E D K I N G D O M BIG SMOKE: Bought Out of Administration BVI HOLDINGS: Moody's Lowers CFR to Caa3, Outlook Stable CITY AM: THG Buys Business to Develop Online Presence CURIUM BIDCO: Moody's Rates New Senior Secured 1st Lien Debt 'B3' UTOPIA UK: R&D Division Put Into Liquidation VFS LEGAL: To File for Administration, Owes GBP35.6 Million - - - - - =========== F R A N C E =========== GOLDSTORY SAS: S&P Upgrades ICR to 'B+', Outlook Stable ------------------------------------------------------- S&P Global Ratings raised its long-term issuer credit rating on Goldstory SAS, the parent company of THOM Group, to 'B+' from 'B'. At the same time, S&P raised its issue rating on the group's senior secured notes to 'B+' from 'B' and on its super senior revolving credit facility (RCF) to 'BB' from 'BB-'. S&P's recovery ratings on the notes remain unchanged at '3', although it increased its recovery prospects to 60% from 55%, while the RCF recovery rating remains at '1' (95% recovery prospects). The stable outlook indicates that Goldstory will pursue its revenue and EBITDA growth such that adjusted debt to EBITDA will remain at about 4x and FOCF after leases will remain substantially positive over the forecast period. S&P also expects the company not to releverage above 5.5x in a refinancing scenario, which further underpins the rating. Goldstory has historically demonstrated strong deleveraging capacities despite regular dividend recaps, regardless of the market context, and S&P does not expect majority shareholder Altamir will deviate from the track record in terms of tolerance to leverage. Altamir, Goldstory's private equity sponsor, acquired a majority stake in 2021, at the time of a secondary leveraged buyout on THOM Group. Under Altamir's ownership, Goldstory has significantly improved its EBITDA, reducing S&P Global Ratings-adjusted leverage to 4.1x in 2022 from about 5.6x at the closing of the operation in 2021. During 2022 and 2023, Goldstory distributed a EUR185 million dividend, which allowed Altamir to realize 40% of its initial investment in Goldstory and partially reimburse its vendor loan, which was then purchased from previous sponsors Bridgepoint and Qualium, demonstrating Altamir's commitment to the company. Although the group's current documentation limits its senior secured net leverage ratio at 4.3x, which is about 5.3x-5.8x under our adjusted terms, S&P does not expect the group to materially increase debt to EBITDA durably beyond 5.5x, under its adjusted terms, even in the scenario of refinancing or a dividend recap. While THOM Group regularly services dividends to its shareholders, sometimes through recaps, it does so primarily with cash on the balance sheet and without substantially increasing its financial debt. Furthermore, it has demonstrated rapid deleveraging capacities amid very challenging operating conditions. Consequently, even if S&P cannot rule out further dividend recaps and a temporary spike in leverage, it expects Goldstory to maintain adjusted leverage at below 4.5x over its forecast period. Goldstory's half-year results point toward a structural uplift in revenue and EBITDA compared with pre-pandemic levels. For the first semester of fiscal 2023, Goldstory reported EUR523 million revenue, an increase of 6% compared with the same period last year, and EBITDA of EUR116 million, in line with 2022. It achieved these results thanks to an increase in brand attractiveness, resulting in strong and positive like-for-like growth across all geographies, a favorable mix effect, with stable gold share in jewels and a push toward fashion jewels, and the reorganization of the Italian operations, under its brand Stroili Oro. S&P said, "After weighing on the group's profitability for about three years following its acquisition in 2017, we think Stroili Oro has reached a more mature stage, and the group is starting to extract significant synergies from it. Consequently, for fiscal 2023, we expect the company to report revenue of about EUR940 million-EUR980 million and EBITDA of about EUR180 million-EUR190 million, in line with 2022. This corresponds to an increase in size of about one-third in both revenue and EBITDA compared with 2019. We view this uplift in the company's scale as structural and supportive of deleveraging. As a result, we expect adjusted debt to EBITDA will reduce to about 4.2x in 2023, compared with 4.7x in 2019, and we think it will remain below 4.5x over our entire forecast period." Macroeconomic headwinds will only partially affect Goldstory's profitability thanks to price increases and hedging measures.In 2022, the company decided to increase prices below inflation levels in both France and Italy to support market share gains, a strategy that was carried over in 2023. In our view, this will have an impact of about 200 basis points (bps) on Goldstory's reported EBITDA margin, which will reduce to about 19% in 2023, from 21.4% in 2022. However, the strategy will fuel a growth in volumes in future years, by helping the group's already dominant market positions in what we perceive as a fragmented niche market that is characterized by its small and independent players. Furthermore, S&P thinks Goldstory will be able to navigate the current contraction in discretionary spending by promoting 9 carat gold jewels and increasing prices above its historical levels. Moreover, the company manages the exposure to gold prices, dollar-denominated purchases, and energy prices by implementing hedging strategies that cover between six months and two years of exposure. In particular, the gold price increase over the past six months was covered by arbitraging between paper contracts and physical reserves of gold, which the company buys from its clients. As a result, S&P expects the company's reported EBITDA margin to remain stable at about 19%-20% in 2024 and 2025. Meanwhile, the company's top-line performance, still characterized by an increase in volumes, is comparatively resilient amid a current environment that is not supportive for nonfood retailers. High working capital and capital expenditure (capex) will weigh on FOCF generation in fiscal 2023, but S&P expects to see improvement in fiscal 2024. During the first quarter of fiscal 2023, THOM Group increased its inventory level in an effort to mitigate potential supply chain issues during the end-of-year festivities, which is a key trading period for the group. In addition, the company decided to increase its physical gold inventory by about EUR15 million, to mitigate the precious metal's price increase over the past four months. The additional stock of precious metals represents almost all of the working capital change in fiscal 2023. S&P said, "We expect the company to return to a normal level of inventory over the coming two quarters, although the positive working capital reversal will only be seen in the first quarter of fiscal 2024, because it has already anticipated purchases for the next Christmas season. Moreover, we expect Goldstory to increase its capex level to about EUR55 million in 2023, from EUR40 million in 2022, as it continues the roll-out of its new store concept in in Italy and finalizes the development of IT systems to support the growth of affiliates. "Consequently, we forecast FOCF after leases to reduce to about EUR25 million-EUR30 million in 2023, before growing to about EUR70 million-EUR80 million in 2024 and 2025, in line with historical levels." The stable outlook indicates that Goldstory will continue to deliver a strong operating performance that translates into strong credit metrics. This implies adjusted debt to EBITDA at about 4x, an earnings before interest, taxes, depreciation, amortization, and rent (EBITDAR) coverage ratio of about 2.3x, and substantially positive FOCF after leases. S&P said, "We could lower the rating over the next 12 months if Goldstory's operating performance deteriorates such that its adjusted debt to EBITDA approaches 5x, FOCF after lease payments shrinks significantly, and EBITDAR coverage ratio deteriorates below 1.8x. "We could also lower the ratings if the company undertakes debt-funded acquisitions or dividend distributions, causing the adjusted leverage ratio to deteriorate beyond 5.5x or weakening the liquidity position of the company. "Although unlikely over the next 12 months, we could raise the rating if Goldstory outperforms our base case, by increasing its EBITDA and FOCF after leases beyond our expectations and resulting in adjusted debt to EBITDA below 4x and FOCF after leases exceeding EUR100 million, alongside a clear commitment from the owners to maintain a financial policy consistent with these levels. A higher rating would also be contingent on a meaningful diversification of its operations and sizable uptick in scale, while maintaining its profitability and cash flow generation." ESG credit indicators: E-2, S-2, G-3 S&P said, "Governance factors are a moderately negative consideration in our credit rating analysis of Goldstory, as is the case for most rated entities owned by private-equity sponsors. We think the company's highly leveraged financial risk profile points to corporate decision-making that prioritizes the interests of the controlling owners. This also reflects generally finite holding periods and a focus on maximizing shareholder returns. "Environmental factors have no material influence on our credit rating analysis of Goldstory. We think that the jewelry retailing segment is less exposed to environmental risks than other retailing subsectors, such as apparel retailing, because of the less-polluting nature of the offering and the industry's ability to recycle precious metals when disposed. "Social factors also have no material influence on our credit rating analysis of Goldstory. The company demonstrated its commitment to integrating social aspects into its business model through the creation of THOMtogether, an employee investment fund invested in company shares." ============= G E R M A N Y ============= STEINHOFF INT'L: Shareholders Vote to Dissolve Business ------------------------------------------------------- Janice Kew at Bloomberg News reports that Steinhoff International Holdings NV shareholders had little choice but to vote to dissolve the shell of the scandal-hit global retailer on July 26, drawing a line under a 5-1/2 year saga that turned into a windfall for lawyers and advisers. According to Bloomberg, those who have held stock via listings in Frankfurt or Johannesburg stand to gain little after the creditors who control the company get paid. But outside parties have received EUR447 million (US$495 million) since late 2017, according to annual reports, and managers have also continued to be remunerated, Bloomberg discloses. Steinhoff, the former owner of Conforama in France and Mattress Firm in the US, has been battling to survive ever since auditors refused to sign off on the company's financials, prompting the resignation of former Chief Executive Officer Markus Jooste and a dramatic share-price collapse, Bloomberg relates. Investigations have since revealed numerous iterations of accounting fraud, and an arrest warrant has been issued against Jooste by a German court, Bloomberg notes. "It's an absolute disgrace," Bloomberg quotes David Shapiro, deputy chairman of Sasfin Securities in Johannesburg, as saying. "Anyone could have seen this company was never going to survive and it would have been better for shareholders if it had been dissolved in late 2017." While Steinhoff has sought to stay afloat by selling some of its prize assets and shares in its subsidiaries, its borrowings kept growing larger, Bloomberg relays. After facing the reality that it would never be able to pay off its EUR10.2 billion debt burden, it changed tack to seek out a deal with financial creditors to forestall a messy liquidation, Bloomberg recounts. In June, a Dutch court confirmed Steinhoff's plan to delist, Bloomberg notes. ============= I R E L A N D ============= FIDELITY GRAND 2023-1: S&P Assigns B-(sf) Rating to Class F Notes ----------------------------------------------------------------- S&P Global Ratings assigned its credit ratings to Fidelity Grand Harbour CLO 2023-1 DAC's class A, B-1, B-2, C, D, E, and F notes. At closing, the issuer also issued unrated subordinated notes. Under the transaction documents, the rated notes will pay quarterly interest unless a frequency switch event occurs. Following this, the notes will switch to semiannual payment. This transaction has a 1.5 year non-call period and the portfolio's reinvestment period will end approximately 4.6 years after closing. The ratings reflect S&P's assessment of: -- The diversified collateral pool, which primarily comprises broadly syndicated speculative-grade senior secured term loans and bonds governed by collateral quality tests. --The credit enhancement provided through the subordination of cash flows, excess spread, and overcollateralization. -- The collateral manager's experienced team, which can affect the performance of the rated notes through collateral selection, ongoing portfolio management, and trading. Portfolio benchmarks CURRENT S&P Global Ratings weighted-average rating factor 2,864.90 Default rate dispersion 507.34 Weighted-average life (years) 4.74 Obligor diversity measure 115.41 Industry diversity measure 19.85 Regional diversity measure 1.24 Transaction key metrics CURRENT Total par amount (mil. EUR) 400.00 Defaulted assets (mil. EUR) 0 Number of performing obligors 127 Portfolio weighted-average rating derived from S&P's CDO evaluator B 'CCC' category rated assets (%) 3.00 'AAA' target portfolio weighted-average recovery (%) 36.15 Covenanted weighted-average spread (%) 4.10 Covenanted weighted-average coupon (%) 4.75 Rating rationale S&P said, "Our ratings reflect our assessment of the collateral portfolio's credit quality, which has a weighted-average rating of 'B'. We consider that the portfolio will primarily comprise broadly syndicated speculative-grade senior secured term loans and senior secured bonds. Therefore, we conducted our credit and cash flow analysis by applying our criteria for corporate cash flow CDOs. "In our cash flow analysis, we modelled the EUR400 million par amount, the covenanted weighted-average spread of 4.10%, the covenanted weighted-average coupon of 4.75%, and the covenanted weighted-average recovery rates. We applied various cash flow stress scenarios, using four different default patterns, in conjunction with different interest rate stress scenarios for each liability rating category. "The transaction's documented counterparty replacement and remedy mechanisms adequately mitigate its exposure to counterparty risk under our counterparty criteria. "Following the application of our structured finance sovereign risk criteria, we consider the transaction's exposure to country risk limited at the assigned ratings, as the exposure to individual sovereigns does not exceed the diversification thresholds outlined in our criteria. "We consider that the transaction's legal structure to be bankruptcy remote, in line with our legal criteria. "Our credit and cash flow analysis indicates that the available credit enhancement for the class B-1 to E notes could withstand stresses commensurate with higher ratings than those we have assigned. However, as the CLO is still in its reinvestment phase, during which the transaction's credit risk profile could deteriorate, we capped our assigned ratings on these notes. The class A notes can withstand stresses commensurate with the assigned rating. "For the class F notes, our credit and cash flow analysis indicates that the available credit enhancement is commensurate with a lower rating. However, we have applied our 'CCC' rating criteria, resulting in a 'B- (sf)' rating on this class of notes." S&P's rating on the class F notes reflects several key factors, including: -- The class F notes' available credit enhancement (8.48%), which is in the same range as that of other recently issued European CLOs we have rated. -- The portfolio's average credit quality, which is similar to other recent CLOs. -- S&P's model generated break-even default rate at the 'B-' rating level of 26.94% (for a portfolio with a weighted-average life of 4.74 years), versus if we were to consider a long-term sustainable default rate of 3.10% for 4.74 years, which would result in a target default rate of 14.69%. -- S&P does not believe that there is a one-in-two chance of this note defaulting. -- S&P does not envision this tranche defaulting in the next 12-18 months. -- Following this analysis, S&P considers that the available credit enhancement for the class F notes is commensurate with the assigned 'B- (sf)' rating. S&P said, "In addition to our standard analysis, to provide an indication of how rising pressures among speculative-grade corporates could affect our ratings on European CLO transactions, we have also included the sensitivity of the ratings on the class A to E notes based on four hypothetical scenarios. "As our ratings analysis makes additional considerations before assigning ratings in the 'CCC' category, and we would assign a 'B-' rating if the criteria for assigning a 'CCC' category rating are not met, we have not included the above scenario analysis results for the class F notes." Environmental, social, and governance (ESG) factors S&P said, "We regard the exposure to ESG credit factors in the transaction as being broadly in line with our benchmark for the sector. Primarily due to the diversity of the assets within CLOs, the exposure to environmental credit factors is viewed as below average, social credit factors are below average, and governance credit factors are average. For this transaction, the documents prohibit assets from being related to the following industries: controversial weapons, conventional weapons, firearms, tobacco and tobacco-related products, fraudulent and coercive loan origination and/or highly speculative financial operations. Accordingly, since the exclusion of assets from these industries does not result in material differences between the transaction and our ESG benchmark for the sector, no specific adjustments have been made in our rating analysis to account for any ESG-related risks or opportunities." Fidelity Grand Harbour CLO 2023-1 DAC is a European cash flow CLO securitization of a revolving pool, comprising euro-denominated senior secured loans and bonds issued mainly by speculative-grade borrowers. FIL Investments International will manage the transaction. Ratings list CLASS RATING* AMOUNT SUB (%) INTEREST RATE§ (MIL. EUR) A AAA (sf) 246.00 38.50 Three/six-month EURIBOR plus 1.90% B-1 AA (sf) 23.20 28.95 Three/six-month EURIBOR plus 3.15% B-2 AA (sf) 15.00 28.95 7.10% C A (sf) 23.00 23.20 Three/six-month EURIBOR plus 4.00% D BBB- (sf) 25.50 16.83 Three/six-month EURIBOR plus 5.90% E BB- (sf) 18.40 12.23 Three/six-month EURIBOR plus 7.69% F B- (sf) 15.00 8.48 Three/six-month EURIBOR plus 10.02% Sub. notes NR 28.43 N/A N/A *S&P's ratings address timely payment of interest and ultimate principal on the class A, B-1, and B-2 notes and ultimate interest and principal on the class C, D, E, and F notes. §The payment frequency switches to semiannual and the index switches to six-month EURIBOR when a frequency switch event occurs. EURIBOR--Euro Interbank Offered Rate. NR--Not rated. N/A--Not applicable. ========= M A L T A ========= MELITA LTD: S&P Alters Outlook to Positive, Affirms 'B' LT ICR -------------------------------------------------------------- S&P Global Ratings revised the outlook to positive from stable and affirmed its 'B' long-term issuer credit rating on Malta-based telecommunications operator Melita Ltd., as well as its 'B' issue ratings on the EUR255 million (post the EUR20 million partial debt repayment) term loan and EUR20 million undrawn revolving credit facility (RCF). S&P said, "The positive outlook reflects a one-in-three likelihood that we raise the rating in the next 12 months if Melita's credit metrics strengthen such that we expect leverage will improve and remain below 4.5x on a sustained basis, with FOCF to debt approaching 5%. "The positive outlook reflects our expectation of faster deleveraging prospects throughout 2023 and 2024 thanks to Melita's robust operating performance. The company's 2022 financial results indicated another year of strong performance across all business segments, improving EBITDA generation, and slightly better FOCF than we anticipated. Against this backdrop, the company voluntarily paid down EUR20 million of debt in 2022, leading to improvements in our adjusted leverage to 4.6x from 5.3x in 2021. We now anticipate that Melita can deliver adjusted debt to EBITDA of 4.3x-4.5x in 2023-2024, reflecting its resilience and sound operating performance, as more customers demand higher-speed products. This implies faster deleveraging than our previously anticipated 4.8x-5.1x in 2022 and 4.6x-4.9x in 2023." Melita is poised for continued organic growth and resilient profitability over the next 12-24 months. This factors its solid and sizeable market share in fixed broadband and well-invested asset base. Melita has maintained, if not improved, its market share since 2019, holding 48% in fixed broadband, 61% in pay-TV, and 29% in postpaid at year-end 2022. A key contributor has been the company's strategic decision to invest a portion of its cash flow in its own infrastructure, with almost EUR200 million of capex over the past six years. Ongoing investments of EUR30 million-EUR40 million annually to further enhance its cable distribution network and internet services by gradually rolling out fiber to the home should further support this growth trajectory. Melita achieved a 3.6% compound annual growth rate (CAGR) in revenue generating units (RGUs) for fixed broadband and an improvement in average revenue per user (ARPU) between 2019 and 2022. It also saw further convergence between fixed and mobile services (37% of RGUs in 2022 from 33% in 2019), and an acceleration in mobile postpaid. Melita's Internet of Things (IOT) connectivity, which will likely provide opportunities to gradually expand beyond Malta, continued to exponentially increase in 2022. S&P expects these trends to persist and forecast 5%-6% revenue and EBITDA growth in 2023-2024. The outlook revision also reflects the financial sponsor's commitment to enhance Melita's strong market position in Malta's telecom market and further deleverage. The company has been owned by EQT Infrastructure since 2019. S&P said, "Even with the recent strong performance, we understand there is no intention from the sponsor to extract dividends from Melita, which has strategically reinvested most cash flow to enhance its strong position in Malta's telecom market. The company also voluntarily repaid EUR20 million of its term loan B in mid-year 2022. This, combined with a positive tax determination from the local authorities on the company's IP rights transfer, should provide potential upside for FOCF, and consequently leverage. In our base case, we assume some savings to partially offset cash tax paid over the forecast period and expect improvements in FOCF, even with the ongoing investments." This should result in Melita's FOCF to debt strengthening to close to 5% (excluding solar investments) in 2023 and 2024. S&P said, "The positive outlook reflects a one-in-three likelihood that we raise the rating in the next 12 months if Melita's credit metrics strengthen such that we expect leverage will improve and remain below 4.5x on a sustained basis, with FOCF to debt approaching 5%. "We could revise the outlook to stable if leverage surpasses 5.0x and adjusted FOCF to debt moves significantly below 5% (excluding solar investments) on a prolonged basis." This could occur if Melita's: -- RGU growth is materially slower than S&P's project. -- ARPU increases slower than anticipated. -- Expansion capex into the network is higher than expected S&P could raise the rating if debt to EBITDA moves below 4.5x and FOCF to debt approaches about 5% (excluding solar investments) on a sustained basis. This could occur if Melita: -- Maintains its solid and sizeable market share. -- Sustains its growth trajectory. -- Fully realizes tax benefit savings from its IP rights transfer. -- Further repays debt. ESG credit indicators: E-2 S-2 G-3 S&P said, "Governance factors are a moderately negative consideration in our credit rating analysis of Melita. Our assessment of the company's financial risk profile as highly leveraged reflects corporate decision-making that prioritizes the interests of the controlling owners, which is the case for most rated entities owned by private-equity sponsors. Our assessment also reflects the generally finite holding periods and a focus on maximizing shareholder returns." ===================== N E T H E R L A N D S ===================== EMBRAER NETHERLANDS: S&P Rates New Senior Unsecured Notes 'BB+' --------------------------------------------------------------- S&P Global Ratings assigned its 'BB+' issue-level rating and '3' recovery rating to Embraer Netherlands Finance B.V.'s proposed senior unsecured notes. The notes are unconditionally and irrevocably guaranteed by the parent company, Embraer S.A. The '3' recovery rating indicates our expectation for a meaningful recovery (rounded estimate: 55%). Embraer will use the proceeds to extend its debt maturity profile through a tender offer for its 2025, 2027, and 2028 notes. The company recently concluded another tender offer on its 2025 senior notes, of $536.2 million, with internal cash generation. These liability management initiatives will allow Embraer to maintain a comfortable average debt maturity and strong liquidity to support an ongoing recovery of its operations. Embraer posted weak first-quarter results due to seasonality of the period and some inventories carryover, pressuring cash generation. It delivered 15 jets, of which seven were commercial and eight were executive, far from company's guidance for the year. But S&P expects a sharp improvement in the coming months. Backlog remains solid at $17.4 billion, with consistent growth in the delivery of executive jets, and service and support. In the 12 months ended March 2023, Embraer posted EBITDA margin of 10.7%, debt to EBITDA of 3.3x, and negative free operating cash flow. S&P assumes the company will deliver 185-200 aircraft this year, leading to net revenue of about $5.4 billion and EBITDA margin of 10%-11%. Additionally, it forecasts debt to EBITDA below 2x and free operating cash flow to debt of 10% and 15%. Issue Ratings – Recovery Analysis S&P's assigning a '3' recovery rating to new senior unsecured notes. It's the same as for the existing rated notes. Key analytical factors -- S&P's simulated default scenario assumes a payment default in 2028 due to sharply weaker revenues and earnings because of lower demand for commercial and executive jets, primarily related to a prolonged deterioration in economic conditions, increased competition, and escalating costs. -- S&P's simulated default scenario assumes the company is restructured as a going concern, rather than liquidated, because of its solid position in markets where it operates. -- S&P assumes some debt reduction in the next few years, given rising cash flow. -- S&P derives its distressed enterprise value for Embraer by applying a 6x multiple to its estimated emergence EBITDA of about $263 million. -- Estimated EBITDA is about 55% lower than S&P's base-case assumption for 2023, and wouldn't sufficiently cover the company's maintenance capex and interest expenses, triggering a payment default. -- The 6x multiple is in line with that of the company's peers and is higher than the multiples applied for aerospace and defense industry suppliers, reflecting Embraer's business strengths as an original equipment manufacturer (OEM). Simulated default assumptions -- Simulated year of default: 2028 -- EBITDA at emergence: $263 million -- Multiple: 6x -- Gross enterprise value (EV): $1.6 billion -- Jurisdiction: Brazil Simplified waterfall -- Consolidated net EV after 5% administrative costs: $1.5 billion -- Net EV of subsidiaries (approximately 60% of EBITDA): $900 million -- Unsecured debt of the subsidiaries: $40 million (working capital bank loans) -- Net EV of Embraer (the parent company; approximately 40% of EBITDA) and remaining equity value from subsidiaries: $1.2 billion -- Senior secured debt: $410 million (BNDES) -- Senior unsecured debt: $1.8 billion (bank loans and senior notes) -- Recovery expectations of senior unsecured notes: 50%-70% (rounded estimate 55%) Note: All debt amounts include six months of prepetition interest. ============= R O M A N I A ============= KUSADASI: Files for Insolvency, License Withdrawn ------------------------------------------------- Iulian Ernst at Romania-Insider.com reports that the Romanian Ministry of Economy announced that it sanctioned the tour operator Kusadasi with a fine and, in addition, withdrew its operating license following the inspection carried out after the agency filed for insolvency. According to Romania-Insider.com, inspections found that the tour operator sold travel services whose total value exceeds the sum insured by guarantee instruments, thus breaching provisions of Art. 18, paragraph (1) of Government Ordinance nr. 2/2018. The remedial measures ordered for Kusadasi refer, first of all, to honoring all obligations assumed through contracts signed with tourists until the date of conclusion of the report of finding and sanctioning contraventions, namely July 24, Romania-Insider.com states. From this date, it is forbidden to conclude new contracts, Romania-Insider.com notes. The ministry states that the company submitted, on July 14, an application to open the general insolvency procedure, with the possibility of reorganizing its activity, Romania-Insider.com discloses. Travel agency Kusadasi benefits from guarantee instruments worth EUR300,000, respectively EUR100,000 at the insurer Omniasig and EUR200,000 at Eurolife FFH, which can be accessed after declaring insolvency in court, according to Romania-Insider.com. MAS PLC: Moody's Downgrades CFR & Senior Unsecured Notes to Ba2 --------------------------------------------------------------- Moody's Investors Service has downgraded the corporate family rating of MAS P.L.C. (MAS or the company) to Ba2 from Ba1. Consequently, it has downgraded the rating of its backed senior unsecured notes to Ba2 from Ba1, the notes were issued by MAS Securities B.V., guaranteed by MAS and are maturing in May 2026. The outlook for both entities remains stable. "MAS' operating performance remains solid, even under the current difficult economic environment, still the downgrade of the ratings reflects a weak funding environment for real estate companies, driven by the sharp increase of interest rates and widening credit spreads that have materially increased marginal financing cost and reduced availability of debt, especially in the public capital markets", says Ana Silva, a Moody's Vice President-Senior Analyst and lead analyst for MAS. "In such an environment the company's sizeable funding commitment to its development joint venture (the "DJV") in combination with a debt repayment wall in May 2026 require that MAS adopts an early action plan to retain earnings, shore up liquidity and secure alternative financing options to reduce refinancing risks", adds Ms. Silva. RATINGS RATIONALE MAS' rating is supported by the company's strong position in its core market Romania (Baa3 stable), where it is a sizeable owner of good-quality, convenience-oriented retail assets. The company's directly-owned investment properties in Central and Eastern Europe (CEE) were valued at EUR882.8 million per end of December 2022 and are located within large catchment areas; which in turn fuels a solid rental income generation from a good-credit-quality tenant base, including several international retailers; footfall and sales at the company's retail assets remain resilient against tougher consumption environment and growing e-commerce, fuelled by solid medium- to long-term macroeconomic fundamentals. The company's value and earnings-based leverage remain moderate on the back of its conservative financial policy. The company's rating is predominantly constrained by a complex corporate structure due to its 40% stake in the ordinary share capital of the DJV, and MAS' biggest shareholders, Prime Kapital, being the other, 60% shareholder, in the DJV. On May 31, 2023, MAS had around EUR160.5 million outstanding preferred equity commitments to be invested until 2030 (latest) to support the funding of an extensive development pipeline, which is now challenged by rising construction costs and the sharp increase in cost of capital. Lingering macroeconomic uncertainty and inflationary pressures across Europe weigh on consumer confidence and thus on the operating environment for retail landlords. MAS' exposure to the less-liquid investment markets in Central and Eastern Europe (CEE) entails higher risks in a downturn with respect to investment sentiment, property valuations and access to capital compared to more liquid European real estate markets. Another long-term risk is the sector-wide structural currency mismatch that is embedded in the leases. RATIONALE FOR THE OUTLOOK The stable outlook reflects Moody's expectation that MAS will continue to generate stable cash flow and retain high occupancy levels. Additionally, Moody's expect MAS to notably reduce the cash outlays for shareholder distributions and that the required preferred equity injections to the DJV will notably reduce as the latter increase its capacity to become largely self-funded. All these will help to protect its standalone liquidity and asset base, hereby minimizing refinancing risks. Moody's rating does not incorporate any additional asset encumbrance that is not specifically earmarked for addressing the backed senior unsecured bond maturity in May 2026. Furthermore, Moody's expect the company to start shortly with initiatives to shore up liquidity and securing alternative financing options to reduce the refinancing wall in 2026. LIQUIDITY As of the end of May 2023, the company's liquidity was adequate, with EUR116.5 million available liquidity (including NEPI shares held as marketable securities plus undrawn amounts under its revolving credit facility that matures in 2024). While the company's portfolio of listed securities provides for some financial flexibility, it also introduces some volatility risks in its total asset value and amount of available liquidity. As of the end of May 2023, MAS is largely financed via unsecured debt with limited debt maturities over the next 12-24 months. The concentration of debt maturities in 2026 will require refinancing to be done well in advance. As of end of May 2023, MAS has a commitment to provide around EUR160.5 million outstanding preferred equity injections as well as a EUR29.3 million undrawn revolving credit facility to the DJV until 2030 to support the funding of the DJV's development pipeline. MAS is obliged to provide the funding upon DJV's request, but in the event that MAS won't have readily available funds to meet the requested amounts in full, MAS' obligation is limited to EUR120 million on a rolling six-month basis. Over the next six to 24 months, Moody's expect the amounts of preferred equity injections to the DJV to be limited, as the latter is anticipated to become largely self-funded via proceeds from residential sales, rental income, as well as additional external non-recourse debt raised directly by the DJV. STRUCTURAL CONSIDERATIONS The Ba2 backed senior unsecured rating on the notes issued by MAS Securities B.V. is in line with MAS' CFR, considering that MAS majority of debt is still unsecured as of end of December 2022. As of that date the total value of unencumbered investment properties held directly by MAS stood at EUR564.1 million, offering a 1.9x coverage of unsecured debt amount outstanding. In case the company's predominant class of debt shifts sustainably towards secured debt, Moody's could notch down the rating of the existing backed senior notes to reflect a weaker position of unsecured creditors. An absolute minimum of at least 1.5x unencumbered property asset coverage ratio for unsecured creditors, weighted towards stable or liquid investment properties, will be required for maintaining the rating of the backed senior notes at the same level as the long-term CFR. Amid the materially weaker funding environment, the company's complex corporate structure weighs more negatively on Moody's structural considerations. As of end of May 2023, MAS had invested EUR309.5million in preferred equity and had an obligation of EUR160.5 million outstanding. In addition, MAS has committed to provide PKM Development a revolving credit facility of EUR30 million, of which EUR29.3million was undrawn as of the same date. MAS gains profits through a 7.5% coupon on the preference shares and the amounts drawn under the RCF, as well as any potential common dividends from its 40% common equity stake. While the value of MAS' investments year-to-date into the DJV represents around 20% of MAS' total assets, the company's financial flexibility from potential disposal or encumbrance of those assets is limited, because MAS doesn't directly own and control the properties developed or held by the DJV. Furthermore, any preferred equity coupon payments from the DJV to MAS or potential preferred equity redemption will be subordinated to any payments due under potential external debt raised directly by the DJV. ESG CONSIDERATIONS Governance risks that Moody's consider in MAS' credit profile include the company's complex corporate structure, including a 40% stake in the DJV to which MAS has a substantial funding commitment in the form of preferred equity (as discussed above). It also exposes the company to governance risks such as potential conflict of interests or related-party transactions; these risks are partly balanced by the company's publicly communicated financial policy that limits its loan-to-value ratio — computed as the nominal value of debt less cash to investment property, listed security and preference shares — at 40% and its net debt/NRI at 7x (on a proportional consolidated basis) as well as an adequate corporate governance framework between MAS and the DJV that includes limitations for the controlling shareholder with respect to investment decisions and restrictions on gearing (the loan-to-value ratio for the income-generating commercial assets of the DJV is limited to 50%). MAS has representation on the board of the DJV and its approval is required for decisions on reserved matters. At MAS level the board is in its majority independent. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS The rating guidance applies for credit metrics calculated on a standalone basis as well as on a proportionally consolidated basis including MAS' shareholding in DJV. Moody's could consider upgrading MAS' rating if the company: -- Achieves meaningful progress to shore up liquidity and secure alternative refinancing options, well ahead of the maturity of its senior unsecured notes -- Succeeds in maximizing retained earnings and preserved liquidity, which includes an expectation of minimal funding requirements from the DJV -- Continues to grow the scale of its directly-owned portfolio while reducing the complexity of its corporate structure with increasing control over its cash requirements -- Continues with a solid operating performance -- Ensures good liquidity, continues to diversify its funding sources while maintaining the ratio of unsecured properties/unsecured debt (on a MAS standalone basis) at a level well above 1.5x -- Maintains Moody's-adjusted gross debt/assets below 35%, net debt/EBITDA below 5x and a Moody's-adjusted fixed charge coverage ratio of more than 4x All the factors need to be met for a rating upgrade. A rating downgrade may occur if: -- MAS fails to show meaningful progress in shoring up liquidity and secure alternative refinancing options, well ahead of the maturity of its senior unsecured notes -- MAS is required to facilitate significant preferred equity injections to the DJV and hence fails to retain cash for its own refinancing purposes -- The company reduces its financial flexibility for example by encumbering additional properties for any other purpose other than the refinancing of its backed senior unsecured notes -- The company breaches its financial policy or Moody's-adjusted gross debt/assets goes above 40%, net debt/EBITDA is sustained above 6x, or fixed-charge coverage ratio falls below 3x -- There is a deterioration in the company's scale and the quality of its portfolio, leading to decline in occupancy, rental growth, footfall, or overall retail sales, or if there is a structural weakening in the operating environment for MAS Any of the factors can cause a rating downgrade. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was REITs and Other Commercial Real Estate Firms published in September 2022. COMPANY PROFILE MAS P.L.C. (MAS) is a retail real estate landlord and operator focused on CEE, notably in Romania. The value of the company's directly-owned investment properties in CEE stood at EUR882.8 million per end of December 2022, generating EUR64.4 million passing rental income. The company also owns a 40% stake in PKM Development Limited, the development joint-venture (DJV) established with Prime Kapital, which provides construction and development functions to the DJV and has a track record of developing more than 50 assets. The DJV has a substantial, but largely uncommitted, development pipeline with an estimated budget of EUR1.91 billion (of which EUR293.1 million spent by the end of December 2022). Out of the total development pipeline, around EUR869.7 million are related to commercial developments with the remaining being multi-phased build-to-sell residential developments. MAS manages all income-generating properties, owned directly or indirectly via the DJV. Subsequently to establishing the DJV, Prime Kapital also became one of the largest shareholders in MAS. The company's main shareholders as of June 30, 2022 were Prime Kapital Holdings Ltd and associates with a 21.5% stake; Attacq Ltd, a JSE-listed REIT, with a 6.5% stake, the South African public employees' pension fund with 8.6%, and Argosy with 6.2%. MAS is listed on the Johannesburg Stock Exchange (JSE), with a market capitalisation of around EUR710.2 million as of July 20, 2023. ============= U K R A I N E ============= DTEK RENEWABLES: S&P Raises LT ICR to 'CCC-', Outlook Negative -------------------------------------------------------------- S&P Global Ratings raised its long-term foreign currency issuer credit rating on Ukrainian renewables developer DTEK Renewables to 'CCC-' from 'SD' (selective default). At the same time, S&P raised its issue rating on the senior unsecured notes to 'CCC-' from 'D'. S&P also affirmed its long-term local currency issuer credit rating at 'CCC-'. S&P removed the long-term local currency issuer credit rating from CreditWatch negative, where S&P placed it on March 7, 2022. The negative outlook reflects DTEK Renewable's continued very difficult operating conditions and stretched liquidity over the next 18 months. Various negotiations with DTEK Renewables' (DTEK's) creditors alleviate immediate liquidity pressure but could potentially lead to a default. The group's reported debt decreased by roughly 10% to EUR507 million at the end of December 2022 from EUR617 million in 2021. Most of the debt comprises the EUR280 million green bonds, maturing in November 2024. The remainder is mostly amortizing, and relates to project finance debt tied to the company's wind and solar farms. S&P said, "We understand DTEK has been engaged in various negotiations with both bank and bond lenders. DTEK has so far completed two tender offers on its green bonds, with the total amount bought back amounting to EUR44.4 million. We view one of these exchanges as distressed." The company has negotiated the following: -- The bondholders agreed to waive certain events of default on the green bonds while martial law is in effect in Ukraine and a waiver will still be in place until the second interest payment date expires, which will end after the martial law is lifted. -- Additionally, the bondholders waived any default that may occur as a result of acceleration or nonpayment under any bank and nonbank borrowings, unless the group is unable to pay any due amount of principal or interest on the green bonds. -- Other than the green bonds, DTEK has four commercial loans totaling EUR226 million. As DTEK is negotiating various loan amendments--notably to change the repayment schedule—S&P will monitor progress and evaluate if any potential revised terms would constitute a default under our definitions. DTEK's cash collection from the guaranteed buyer has been volatile since January 2023 and remains subject to the energy market in Ukraine. DTEK continues to generate its electricity mostly from solar assets in southern Ukraine as well as from newly launched turbines at the Tiligul wind farm (about 114 megawatts [MW]), a project with 500 MW total planned capacity. All the company's other wind farms are no longer operational because the grid they were connected to was damaged and repair is not possible due to the ongoing Russia-Ukraine conflict. During 2022, DTEK's cash collection from the guaranteed buyer, the state-owned monopoly offtaker of its electricity, reached 66% on average but remained very volatile. Since May 2022, the company's payments from its guaranteed buyer improved and from August 2022, Ukraine began exporting electricity that increased the guaranteed buyer and Ukrenergo NPC's ability to repay debts to all renewable producers in Ukraine. However, it only lasted until October 2022, when exports were suspended due to massive missile strikes. In January 2023, collections reached 90% but have been gradually decreasing and since then and until the end of June remained between 40 and 50%. DTEK has accumulated historical receivables from the state-owned offtaker, which increased further from the beginning of the Russia-Ukraine conflict. As of January 2023, the guaranteed buyer's outstanding debt to DTEK was about EUR32.4 million equivalent. S&P said, "We do not include additional payments from the guaranteed buyer in our base case as we have no clarity on when and how these receivables will be settled. On the other hand, we understand DTEK expects the state-owned offtaker to compensate the feed-in tariff with settlements reaching above 80%. We assume settlements of 50%-60% on average for 2023, which we also incorporate in our base case. Even though we see such payment as a positive for DTEK's liquidity position, we will monitor the level of the settlements reached as there is a lot of uncertainty over whether the company can maintain such a distribution rate to all the renewable producers given the ongoing conflict." S&P said, "Although improved, we believe liquidity will remain challenging over the next 18 months. DTEK has accumulated sufficient funds to cover its debt service related to its bond debt for the next nine to 12 months. Despite most of this cash being held in Ukraine, where the company is restricted to transfer cash abroad, it has been able to service its outstanding EUR280 million bond maturing November 2024, either through dedicated debt service; an interest reserve account; or through other subsidiaries located outside of Ukraine. The next coupon on the EUR280 million green bond is due in November 2023 and amounts to EUR13.8 million. We estimate DTEK has sufficient cash available as of June 30, 2023, to cover the coupon. "The negative outlook reflects our view that the effects of the military conflict on DTEK's operations and liquidity may weaken the company's ability to stay current on its debt. "We could lower our ratings on DTEK if we see a default risk as virtually certain over the next 18 months. This could occur if the operating environment remains challenging and uncertain because of the war, reducing the company's ability to generate cash flows to repay its financial obligations. We could also lower the ratings if we see another distressed exchange or similar action. "We could revise outlook to stable if DTEK's operations resume on the back of an end to the Russia-Ukraine war leading to improved cash flows and liquidity." ESG credit indicators: E-2, S-3, G-5 S&P said, "Social factors are now a moderately negative consideration in our credit rating analysis, because we see a blow to cash flow as a result of the Russia-Ukraine conflict that started in February 2022, given the low cash collection from the guaranteed buyer. The cash collection decreased substantially at the beginning of the conflict and remained at around 66% on average for 2022 and has then fallen back to around 50% for 2023. Governance factors are also a negative consideration in our credit rating analysis of DTEK. Country risk in Ukraine weighs on our assessment as DTEK is a Ukraine-based 100% sustainable power producer focused on expanding its solar and wind production fleet." =========================== U N I T E D K I N G D O M =========================== BIG SMOKE: Bought Out of Administration --------------------------------------- Jessica Mason at The Drinks Business reports that Big Smoke Pub Co has been "acquired out of administration" in a move that will see all staff retained and allow all pubs to continue trading. The news, which followed earlier reports that Big Smoke Pub Co had appointed administrators, with the situation affecting five of the pubs from the estate, led to speculation over the fragility of the beer business in connection to the development, db notes. However, speaking to the drinks business, Big Smoke co-founder Richard Craig quashed claims that there would be lay-offs and claimed the brewery would remain unaffected, yet failed to highlight who the new buyers would be or any further details regarding the price of the sale, db relates. Craig told db: "The pub business has already been acquired out of administration with all staff transferred into the new entity and no redundancies. The pubs will continue to trade in exactly the same way as they have done." BVI HOLDINGS: Moody's Lowers CFR to Caa3, Outlook Stable -------------------------------------------------------- Moody's Investors Service downgraded BVI Holdings Mayfair Limited's ("BVI" or "the company") Corporate Family Rating to Caa3 from Caa1 and Probability of Default Rating to Caa3-PD from Caa1-PD. Moody's also downgraded BVI Medical Inc.'s (a subsidiary of BVI) senior secured first lien term loan and revolver ratings to Caa3 from Caa1. The outlook is stable. The ratings downgrade reflects the company's very high leverage, sustained negative free cash flow and an uncertain path to recovery in the next 12-18 months. The company's financial leverage exceeded 15.0 times (Moody's calculation) at the end of March 2023, primarily because of significant expenses related to EU MDR readiness, business rationalization and transformational initiatives. Moody's expects that these expenses are unlikely to decline meaningfully in the next 12-18 months and as a result the company will struggle to improve its financial leverage and cash flow metrics. The outlook is stable. Moody's expects that the company's operating performance has a potential upside if it regains the business volume for prime intraocular lenses (IOLs) and effectively execute its transformation initiatives. However, significant uncertainties remain on both fronts making the company's capital structure unsustainable and increasing the likelihood of a default. Governance risk considerations are material to the rating action. The company's financial leverage remains very high at a time when access to capital markets has worsened due to economic conditions. Moreover, the company's term loans have a bullet structure which concentrates refinancing risk close to the maturity dates. Downgrades: Issuer: BVI Holdings Mayfair Limited Corporate Family Rating, Downgraded to Caa3 from Caa1 Probability of Default Rating, Downgraded to Caa3-PD from Caa1-PD Issuer: BVI Medical, Inc. Backed Senior Secured 1st Lien Term Loan, Downgraded to Caa3 from Caa1 Backed Senior Secured 1st Lien Revolving Credit Facility, Downgraded to Caa3 from Caa1 Outlook Actions: Issuer: BVI Holdings Mayfair Limited Outlook, Changed To Stable From Negative Issuer: BVI Medical, Inc. Outlook, Changed To Stable From No Outlook RATINGS RATIONALE BVI's Caa3 CFR reflects Moody's expectations that the company's debt/EBITDA will remain above 10 times and BVI will struggle to generate positive free cash flow in the next 12 to 18 months. The company faces headwind due to one-off restructuring/transformational costs and upfront expenses for new product launches making the company's profit recovery uncertain. BVI also competes against many larger peers who have significantly greater financial resources. Partially offsetting some of these challenges, BVI's rating benefits from the company's long-standing presence in the cataract surgery materials, equipment and intraocular lens (IOL) market and a diverse global customer base. The company's liquidity is weak -- with $10.9 million in cash and approximately 65% availability under its EUR65 million revolving credit facility at the end of March 31, 2023. Moody's estimate that the company will burn up to $10 million cash in 2023, but is likely to breakeven or generate small positive free cash flow in 2024. The Caa3 ratings on BVI's first lien senior secured term loan and revolver are at the same level as the company's Corporate Family Rating because the first lien senior secured debt represents a large proportion of total debt within the capital structure. The company's second lien debt is not rated by Moody's. BVI's CIS-5 score indicates that the rating is lower than it would have been if ESG risk exposures did not exist and that the negative impact is more pronounced than for issuers scored CIS-4. The CIS-5 score reflects the company's aggressive financial strategy as it operates with very high financial leverage. BVI has executed several acquisitions in recent years to drive business diversification and growth. The company's large one-off expenses, some related to past acquisitions, have resulted in persistent negative free cash flow. BVI's S-4 score reflects social risk considerations arising from responsible production including compliance with regulatory requirements for the safety of its products as well as adverse reputational risks arising from recalls associated with manufacturing defects. Some of the company's products are implanted inside the human eye and are exposed to severe regulatory actions and product liability litigations. BVI's G-5 score considers management credibility and track record demonstrated by the company's weak financial performance and aggressive debt-funded growth strategy. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Ratings could be upgraded if the company's operating performance recovers, liquidity improves and the company is able to generate positive free cash flow. Ratings could be downgraded if operating performance deteriorates, liquidity weakens further and free cash flow remains negative for an extended period of time. Ratings could also be downgraded if the company pursues a transaction that Moody's considers to be a distressed exchange and hence a default under Moody's definition. BVI Holdings Mayfair Limited is a UK-registered company. The company's US operation is represented by BVI Medical Inc. (the borrower) and is headquartered in Waltham, Massachusetts. Through subsidiaries, BVI manufactures and sells products used in eye surgeries (primarily cataract procedures). BVI is owned by private TPG Capital, a private equity firm. The company generated approximately $321 million in revenue in the last twelve months ended on March 31, 2023. The principal methodology used in these ratings was Medical Products and Devices published in October 2021. CITY AM: THG Buys Business to Develop Online Presence ----------------------------------------------------- BBC News reports that in a surprise move, health and beauty retail group THG has bought business newspaper City AM. THG, which owns brands including Cult Beauty and LookFantastic, has never owned a newspaper but has an online publishing arm with two magazines. The free London-based newspaper was put up for sale earlier in July after it was impacted significantly by the pandemic and a reduction in commuters, the BBC relates. City AM co-founder Lawson Muncaster said the deal was "brilliant news." According to the BBC, Mr. Muncaster -- who owns a quarter of the business -- said the deal would help it develop its online presence, which it hadn't been able to do before due to funding issues. He told the BBC THG's previous experience in online publishing makes him optimistic about the newspaper's future. "We can draw on THG's expertise and given they are a global business this is a chance to get our content out on an international level." Described by Mr. Muncaster as a "pro-business, pro-libertarian" business, THG has committed to the editorial independence of the paper and will not be closing the print arm of the company. The deal will secure the future of City AM's roughly 40-strong workforce, the BBC notes. Following the deal, co-founder and CEO Jens Torpe has announced his retirement from the business, the BBC discloses. CURIUM BIDCO: Moody's Rates New Senior Secured 1st Lien Debt 'B3' ----------------------------------------------------------------- Moody's Investors Service has assigned B3 ratings to the new senior secured first lien bank credit facilities of Curium Bidco S.a.r.l. The new facilities comprise a EUR300 million senior secured first lien term loan B due 2029, a EUR975 million USD equivalent ($1,066 million) senior secured first lien term loan B due 2029, and a EUR210 million senior secured first lien revolving credit facility (RCF) also due 2029. The company's existing ratings are unchanged, including its B3 corporate family rating (CFR), B3-PD probability of default rating and the B3 ratings of its existing senior secured first lien bank credit facilities. The positive outlook is also unchanged. The rating action reflects the company's proposed extension of its existing senior secured first lien bank credit facilities to 2029, from 2026 and 2027. The transaction is expected to be leverage neutral on a Moody's-adjusted basis. RATINGS RATIONALE The B3 CFR reflects the company's: (1) leading share globally in growing markets; (2) complex supply chains and dual regulation pathways which provide high barriers to entry; (3) long-term contracts providing good revenue and supply-side visibility; and (4) strong ability to generate cash before growth capex. The ratings also reflect the company's: (1) high Moody's-adjusted leverage of 6.6x at March 2023, with new product investments slowing the pace of deleveraging and limiting cash generation; (2) risks of supply chain or regulatory disruption, although its track record is good; (3) execution risks of new product launches particularly in the new segment of therapeutics; and (4) presence of separate subsidiary (Calyx) and large PIK outside the restricted group which may result in a releveraging transaction for Curium. Curium has performed well following the pandemic and in 2022 grew revenues and company-adjusted EBITDA by 8% in constant currencies, driven by new product launches and growing demand for radiopharmaceutical diagnostics. This was achieved despite disruption to supply of the key radioactive isotope Molybdenum-99 in November. Further strong growth was achieved in the first quarter of 2023 leading to Moody's-adjusted leverage reducing to 6.6x at March 2023, compared to 7.9x at December 2021. Moody's expects continued mid-single digit EBITDA growth leading to further gradual deleveraging towards 6x over the next 12-18months. The company is making substantial investments in new products, in particular in the therapeutic space. This represents a potentially very large opportunity, although execution risks exist as this is a new segment for Curium, large pharmaceutical companies are active and Novartis AG (A1 positive) has already launched products in the same indication. Curium has a large range of potential development opportunities and whilst it will be selective and seek to minimise risks, Moody's expects the company to allocate most of its excess cash generation to new product development. This will slow the pace of deleveraging, and the company may also carry out debt-funded medium sized acquisitions particularly to boost its presence in growing markets in APAC. Nevertheless the company is expected to generate solid cash flows from its base business prior to expansionary spending. The rating action also considers Curium's strong business model with high barriers to entry and in a market with solid mid-single digit growth potential driven by nuclear imaging's earlier detection of disease and lower cost relative to other types of scan, the increase in installed base of scanners, and an ageing population with increasing prevalence of cancer and other indications. Competition is relatively limited and the focus of new drug development is largely on new diagnostic possibilities and the largely untapped therapeutic market, rather than on cannibalising existing diagnostic drugs. ESG CONSIDERATIONS Curium is exposed to environmental risks associated with the manufacture of radioactive materials leading to site decommissioning liabilities on the balance sheet, which, although long-dated, increase over time. It has exposure to several social risks, including product safety, and in this regard the company has a good long term track record, and the short half-life of its isotopes reduces product liability risks. Its supply chain is long and complex and it relies on a limited number of facilities where unplanned stoppage could be highly disruptive. Its financial policies include a tolerance for high leverage and potential for releveraging to support acquisitions or refinancing the PIK outside the restricted group. LIQUIDITY Curium maintains solid liquidity. As at June 30, 2023 the group held cash of EUR136.7 million, of which EUR90.4 million was held within the restricted group level, and Curium had an undrawn RCF of EUR210 million. Moody's forecasts a small proportion of the RCF to be drawn to part finance pipeline development projects, and further discretionary utilisation of the RCF may occur in the event of bolt on acquisitions. The RCF contains a net senior leverage springing covenant tested if drawings net of cash and cash equivalent reach or exceed 40% of facility commitments, under which Moody's expects ample headroom. STRUCTURAL CONSIDERATIONS The B3 ratings on Curium's first lien debt instrument ratings comprising its RCF and term loan tranches are in line with the CFR, reflecting the fact that they are essentially the only financial instruments in the company's capital structure and rank pari passu. The senior secured facilities have a security package comprising direct guarantees from material operating subsidiaries on a first ranking basis, with security in the form of share pledges, intra-group receivables and material bank accounts. RATING OUTLOOK The positive outlook reflects expectations that the company will continue to grow revenues and EBITDA leading to Moody's-adjusted leverage reducing towards 6x over the next 12-18months. It is also reflects continued high capex investments in new products, leading to breakeven or low positive free cash flow. The outlook assumes no material supply chain disruption, that there are no material debt-funded acquisitions causing leverage to increase on a sustained basis and that liquidity remains solid. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Curium's ratings could be upgraded if (1) continue to grow revenue and EBITDA organically, supported by a track record of successful product launches, coupled with (2) Moody's adjusted leverage sustainably reducing towards 6.0x and, (3) FCF/debt rising towards 5%. The outlook could return to stable if any of the conditions for a positive outlook are not met and in particular if the company does not remain on a deleveraging trajectory due to a slowdown in trading performance, new product investments or debt-funded M&A. Curium's ratings could be downgraded if (1) Moody's adjusted leverage increases sustainably above 7.5x or, (2) FCF generation were to turn negative on a sustainable basis or (3) the liquidity position deteriorates. LIST OF AFFECTED RATINGS Assignments: Issuer: Curium Bidco S.a.r.l Senior Secured Bank Credit Facility, Assigned B3 PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Pharmaceuticals published in November 2021. CORPORATE PROFILE Curium, dual-headquartered in the UK and France, is a global producer and supplier of nuclear medicine and radiopharmaceutical products mainly for the diagnosis of cancer, cardiology as well as renal, lung and bone diseases. The group was formed in January 2017 when financial investor CapVest acquired Mallinckrodt's (Mallinckrodt International Finance S.A. – Ca negative) SPECT assets and combined them with IBA Molecular, which CapVest had acquired in 2016. In 2022 Curium reported revenue of EUR804 million and company-adjusted EBITDA of EUR263 million. UTOPIA UK: R&D Division Put Into Liquidation -------------------------------------------- Andy Malta at Complete Music Update reports that late last week, Utopia Music announced that it was winding down its UK R&D division. However, on July 25 CMU has learned that Utopia UK (R&D) Ltd -- the entity through which Utopia's UK R&D team were employed -- has in fact been put into liquidation, as confirmed by a spokesperson for the company. According to CMU, sources close to the business say that staff employed by the R&D division were expecting to be paid their regular monthly salary on July 25. Instead, it is claimed that they have been told to pursue the appointed liquidators for the wages that they are owed, CMU notes. In response to that allegation, a spokesperson for Utopia told CMU: "We cannot comment on any individual cases as this is managed by the liquidator. An independent specialised company not affiliated with Utopia has been engaged to provide specialised assistance to each employee in claiming their entitlements. Our commitment remains steadfast in ensuring that all aspects are handled with utmost care and diligence". Commenting on this, Utopia's spokesperson, as cited by CMU, said: "A liquidator has been appointed to manage the process concerning Utopia UK (R&D) Ltd. The proceedings concerning the affected individuals are managed by this liquidator and are subject to local regulations. Unfortunately, we cannot provide detailed information about the specific processes related to individual cases. All impacted employees will be considered for new positions". The R&D restructure reportedly involves around 25 people -- although it is not clear how many of those were employed in the UK, CMU states. The sudden liquidation of the UK R&D company opens the wider question of why parent company Utopia Music AG couldn't send funds to Utopia UK (R&D) Limited to wind the operation down cleanly, according to CMU. VFS LEGAL: To File for Administration, Owes GBP35.6 Million ----------------------------------------------------------- John Hyde at The Law Society Gazette reports that a major lender to the legal sector is preparing to go into administration, leaving firms relying on its support scrambling for alternative finance arrangements. According to court documents, VFS Legal Limited gave notice on July 21 of its intention to appoint an administrator, The Law Society Gazette relates. The company specialises in funding low value litigation claims and in particular the cost of disbursements. But the most recently-published accounts for VFS Legal, covering the year to June 30, 2022, suggest the business was facing a looming problem in the form of a bank loan of GBP35.6 million, which required "significant monthly repayments" until September 2024, The Law Society Gazette discloses. This loan was not sufficient to finance the activities of the company until September 2024 and the accounts stated it would "severely impact" cash flow of the company, which had not been able to secure additional finance, The Law Society Gazette states. The accounts said this outstanding loan created a "material uncertainty which may cast doubt on the company's ability to continue as a going concern", The Law Society Gazette notes. While VFS Legal was owed around GBP49.6 million by law firms, the outstanding loan had increased its debts due within the next year from GBP2.8 million to GBP38.7 million, according to The Law Society Gazette. There is now the question of whether administrators will attempt to claw back monies owed by law firms, The Law Society Gazette relays. One industry expert told the Gazette that firms could go into insolvency due to a lack of essential working capital, according to The Law Society Gazette. Steve Din, founder of Doorway Capital, a provider of risk capital to law firms, said six firms had been in contact over the weekend asking to refinance their borrowings with VFS Legal, The Law Society Gazette relates. He said: "Whilst clients of VFS Legal have so far only been asked for proposals to repay what is owing, they should now be concerned that is followed by a formal demand for repayment. "It appears that VFS have the right to force clients with disbursement facilities to repurchase disbursements at par, which many clients will probably be unable to honour." According to The Law Society Gazette, in a statement on July 25, the firm said: "Slater and Gordon has not drawn on funding from VFS for some time, their administration has not come as a surprise to us, and we have planned accordingly. As a result, this is not anticipated to have any impact on our day-to-day business." ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2023. All rights reserved. ISSN 1529-2754. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. 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