/raid1/www/Hosts/bankrupt/TCREUR_Public/230809.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
Wednesday, August 9, 2023, Vol. 24, No. 159
Headlines
A R M E N I A
ARDSHINBANK CJSC: Fitch Ups LongTerm IDR to 'BB-', Outlook Stable
DEVELOPMENT AND INVESTMENT: Moody's Assigns First Time 'Ba3' CFR
YEREVAN CITY: Fitch Raises LongTerm IDRs to 'BB-'; Outlook Stable
B U L G A R I A
EUROINS AD: Fitch Affirms 'B+' IFS, Removes Rating Watch Negative
F R A N C E
FORVIA SE: S&P Alters Outlook to Stable, Affirms 'BB' Long-Term ICR
I R E L A N D
ALME LOAN IV: Fitch Affirms 'B+sf' Rating on Class F-R Notes
LANSDOWNE MORTGAGE 2: Fitch Affirms 'CCsf' Rating on 2 Tranches
L U X E M B O U R G
INEOS GROUP: Moody's Affirms 'Ba2' CFR, Alters Outlook to Negative
U K R A I N E
NAFTOGAZ: Hogan Lovells Advises Noteholders on Debt Restructuring
PROCREDIT BANK: Fitch Affirms 'CCC-/CCC' LongTerm IDRs
U N I T E D K I N G D O M
ASTON MARTIN: Moody's Affirms Caa1 CFR, Alters Outlook to Positive
AWAZE LTD: S&P Places 'B-' Long-Term ICR on CreditWatch Negative
BABYLON HEALTH: Enters Administration After NYSE Delisting
BRITISHVOLT: Australian Buyer Fails to Make Final Payment
CLINTONS: To Shut Down 38 of 179 Shops to Avert Collapse
HASTINGS & ROTHER: Solvency Issues Prompt Administration
SHERWOOD PARENTCO: Moody's Affirms B1 CFR, Outlook Remains Stable
THOMAS DORNAN: August 18 Online Auction Set for Assets
VOYAGE BIDCO: Moody's Affirms 'B2' CFR, Alters Outlook to Negative
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A R M E N I A
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ARDSHINBANK CJSC: Fitch Ups LongTerm IDR to 'BB-', Outlook Stable
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Fitch Ratings has upgraded Ardshinbank CJSC's Long-Term Issuer
Default Rating (IDR) to 'BB-' from 'B+', and the bank's Viability
Rating (VR) to 'bb-' from 'b+'. The Outlook is Stable.
The upgrade of Ardshinbank reflects Fitch view that the bank has
become the largest beneficiary among local peers of an
extraordinary inflow of migrants and their respective money
transfers to Armenia since 2022. The bank has successfully
leveraged on its leading franchise and built up solid capital and
liquidity buffers through earning exceptional profits and gaining
new clientele.
Fitch believe some of the bank's credit factors, particularly
profitability, capitalisation, and funding and liquidity, are
exceptionally strong in the local context. Ardshinbank's upgrade
follows the upgrade of Armenia's sovereign rating.
KEY RATING DRIVERS
IDR Captures Intrinsic Strength: Ardshinbank's IDR is driven by the
bank's standalone profile, as captured by its VR. The ratings
reflect the bank's leading franchise, albeit limited pricing power
in a rather granular sector; its significantly improved
profitability; solid capital buffer; and ample liquidity. These are
balanced by Fitch's assessment of the potentially cyclical
operating environment in Armenia and resulting credit risks from a
highly dollarised and concentrated economy.
Solid Economic Growth: The operating environment for Armenian banks
is supported by the country's buoyant economic growth, strengthened
sovereign credit profile, and strong local-currency appreciation
(20% in 2022-1H23). This is driven by a large influx of migrants
(mainly Russian), surge in remittances, and increased consumption
and exports. Armenia's GDP growth was a very strong 12.6% in 2022,
and Fitch forecasts further robust growth of 7.2% in 2023 and 5.9%
in 2024.
Buoyant Growth in Business Volumes: Ardshinbank has significantly
benefitted from the favourable operating environment. Customer
accounts rose 126% in 2022 (sector average: 28%), while gross
revenues rose 3x (sector average: 2x). The bank has leveraged on
its leading franchise, including in international money transfers.
Revenue generation in 1H23 kept up with the previous year's
exceptional figures. The bank has appetite for opportunistic
strategies, which allowed it to secure large capital gains in
2022-1H23.
Manageable Asset Quality Risks: Impaired loans were a moderate 6%
of gross loans at end-1H23 (end-2022: 5%). Stage 2 loans, which
Fitch view as of high risk, added another 4%. The amount of
impaired and Stage 2 loans (net of specific loan loss allowances)
fell to a moderate 0.3x Fitch Core Capital (FCC) at end-1H23
(end-2021: a high 0.6x) due to capital accretion as well some
reduction in problem loans. The above-average proportion of
foreign-currency loans (41% of loans) remains a fundamental
weakness of asset quality for the bank.
Currently Exceptional Performance: Ardshinbank reported a record
operating profit at 11%-13% of risk-weighted assets (RWAs) in
2022-1H23 (2018-2021 average: 2.2%). The extremely strong
performance was mainly driven by additional income from money
transfers, currency-conversion operations and private banking.
Fitch expect Ardshinbank's profitability to moderate in the medium
term but remaining significantly stronger than the historical
average.
Capitalisation Materially Above Target: The bank's FCC ratio
strengthened to 23% at end-1H23 (end-2021: 16%) on the back of a
very strong operating performance and subdued nominal loan growth.
Fitch expect the ratio to remain high in 2023-2024, even after
scheduled sizeable dividend pay-outs. In the long term, Fitch
believe the current FCC ratio may not be sustainable, as it is
significantly above the bank's target.
Abundant Liquidity: Loans/deposits ratio improved sharply to 63% at
end-1H23 (end-2021: 141%). This was due to a sizeable one-off
deposit inflow from both non-residents and residents in 2022. Risks
are mitigated by the bank's ample liquidity. Its liquid assets
equalled 83% of customer accounts (or 57% of liabilities) at
end-1H23. Wholesale funding due within the next 12 months accounted
for a moderate 9% of liabilities, while the bank plans to roll over
most of them.
Extraordinary Support Unlikely: Ardshin's Government Support Rating
(GSR) of 'no support' reflects Fitch's view that the Armenian
authorities (sovereign IDR: BB-/Stable) have limited financial
flexibility to provide extraordinary support to the bank, given the
banking sector's large foreign-currency liabilities relative to the
country's international reserves.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A downgrade of Ardshin's ratings could result from a material
deterioration in the operating environment, leading to a sharp
increase in problem assets, which would significantly weigh on
profitability and capital. In particular, the ratings could be
downgraded, if higher loan impairment charges consume most of the
profits for several consecutive quarterly reporting periods.
A reduction of the FCC ratio below 15% on a sustained basis, due to
a combination of weaker earnings, faster loan growth and higher
dividend pay-outs, could also be credit-negative.
Material funding disruptions could also result in a downgrade if
they translate into serious refinancing issues for the bank, which
it is unable to mitigate via available local- and foreign-currency
liquidity.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
An upgrade of Ardshinbank's ratings is unlikely in the near term.
In the longer term, an upgrade would require a sovereign upgrade,
coupled with an improvement in Fitch's assessment of the local
operating environment; a more diversified business model that would
strengthen the bank's earning capacity and reduce volatility of
performance; and lower balance-sheet dollarisation.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
The bank's senior unsecured Eurobonds, which were issued by an SPV,
Netherlands-incorporated Dilijan Finance B.V., are rated at the
same level as the bank's Long-Term IDR, as the debt represents its
unsecured and unsubordinated obligations.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The bank's senior debt ratings are likely to move in tandem with
the IDR.
VR ADJUSTMENTS
The operating environment score of 'b+' is below the 'bb' category
implied score, due to the following adjustment reason:
macroeconomic stability (negative).
The business profile score of 'bb-' is above the 'b' category
implied score, due to the following adjustment reason: market
position (positive).
The earnings & profitability score of 'bb-' is above the 'b &
below' category implied score, due to the following adjustment
reason: historical and future metrics (positive).
The funding & liquidity score of 'bb-' is above the 'b & below'
category implied score, due to the following adjustment reason:
liquidity coverage (positive).
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.
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. Fitch's ESG Relevance Scores are not inputs
in the rating process; they are an observation of the materiality
and relevance of ESG factors in the rating decision.
DEVELOPMENT AND INVESTMENT: Moody's Assigns First Time 'Ba3' CFR
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Moody's Investors Service has assigned a Ba3 long-term corporate
family rating, Ba3 long-term issuer ratings and b1 Baseline Credit
Assessment (BCA) to the Development and Investment Corporation of
Armenia (DICA). The outlook is stable.
This is the first time that Moody's has assigned ratings to DICA.
RATINGS RATIONALE
According to Moody's, DICA's Ba3 CFR reflects its BCA of b1 and one
notch of rating uplift, incorporating Moody's assumption of a
"high" probability of support from the Government of Armenia (Ba3
stable). This is based on the current full ownership of DICA by the
Government of Armenia, its public policy role supporting the
development of Armenia's small and medium size enterprise (SME)
sector, and track record of government support in terms of capital
increases and the extension of funding lines. In Moody's view, DICA
is an important policy instrument for the Government of Armenia to
carry out its development policies. DICA's Ba3 long-term issuer
ratings are further aligned with its Ba3 CFR, and reflect the
absence of structural subordination of unsecured obligations.
The rating agency further notes that DICA's b1 BCA primarily
reflects its strong capital metrics, with a tangible common
equity-to-managed assets ratio of around 62% as of December 2022,
and good earnings generating capacity. Access to government funding
sources, combined with good liquidity buffers, are also
instrumental in ensuring that the company can finance new projects
and meet maturing liabilities. At the same time the assigned BCA
reflects Armenia's potentially volatile operating environment and
high industry risks, given DICA's focus on the higher-risk SME
sector, in line with its development mandate. The latter also
signals that asset risks remain high, with problem loans likely to
remain elevated and volatile. The company's small size, and limited
franchise positioning and business diversification also constrain
its BCA at the current level.
DICA is a government-owned development finance institution mandated
to promote the development of small and medium entrepreneurship,
which has a strategic importance for the economy of Armenia. DICA
has a relatively small business franchise, with a total asset base
of AMD 22.7 billion ($58 million) as of December 2022, and with a
primary focus on the agriculture and manufacturing sectors.
Moody's expects DICA's profitability to be supported by its robust
interest margins of around 7%, while also benefiting from interest
income generated by its large securities portfolio. DICA's
profitability recovered following the pandemic, with a 2022 net
income as a percent of average managed assets of 3.4%, compared to
1.8% in 2020.
Capital adequacy will also remain a key credit strength, sufficient
to support asset growth and absorb losses. Moody's expects that the
company's tangible common equity as a percent of tangible managed
assets ratio to remain above 50% in the next 12-18 months.
Although DICA's asset quality has been gradually improving in
recent years, its problem loans (defined as Stage 3 loans and
finance lease receivables) still remain elevated at above 6% of the
gross loans and lease portfolio, mainly comprising of legacy
problem loans. Problem loan coverage by reserves decreased to
around 40% in 2022 from around 120% in 2020. Moody's expects DICA's
problem loan ratio to remain stable amid favorable economic
conditions in Armenia.
DICA's funding profile reflects its reliance on a limited number of
funding counterparties, which primarily include one international
financial institution and government related funding. Moody's
expects, however, that refinancing risks will be manageable over
the next 12-18 months, given DICA's continued access to funding in
the domestic market.
The ratings of DICA also take into account its high exposure to
governance risks reflected in a Governance Issuer Profile Score
(IPS) of G-4, reflecting its concentrated government ownership
structure, the government's influence over its mandate and
operations, and its focus on the high-risk SME sector in line with
its development mandate. Its CIS-2 (Credit Impact Score) indicates,
however, that ESG considerations have no material impact on the
current ratings.
STABLE OUTLOOK
The stable issuer outlook is in line with the stable outlook on
Armenia's Ba3 sovereign rating, which informs Moody's government
support assumptions. The stable outlook further recognises that the
strong capital buffers help cushion asset risks and pressures from
a potentially fragile operating environment.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
As DICA's ratings are already on par with the government rating,
its CFR and issuer ratings can be upgraded following a material
strengthening of the operating environment and in Armenia's credit
profile. Conversely, downward pressure on the ratings would arise
in case of a deterioration in the sovereign's credit profile, as
would be indicated by a downgrade of the sovereign rating; and/or a
significant deterioration in DICA's BCA, as evident be a rise in
problem loans, a deterioration in capital buffers or a significant
squeeze in liquidity.
PRINCIPAL METHODOLOGY
The methodologies used in these ratings were Finance Companies
Methodology published in November 2019.
YEREVAN CITY: Fitch Raises LongTerm IDRs to 'BB-'; Outlook Stable
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Fitch Ratings has upgraded the City of Yerevan's Long-Term Foreign-
and Local-Currency Issuer Default Ratings (IDRs) to 'BB-' from
'B+'. The Outlook is Stable.
The upgrade follows that of Armenia as Fitch view the city's
ratings as constrained by the sovereign.
CRA3 DEVIATION
Under applicable credit rating agency (CRA) regulations, the
publication of local and regional government reviews is subject to
restrictions and must take place according to a published schedule,
except where it is necessary for CRAs to deviate from this schedule
in order to comply with the CRAs' obligation to issue credit
ratings based on all available and relevant information and
disclose credit ratings in a timely manner. Fitch interprets these
provisions as allowing us to publish a rating review in situations
where there is a material change in the creditworthiness of the
issuer that Fitch believe makes it inappropriate for us to wait
until the next scheduled review date to update the rating or
Outlook/Watch status. The next scheduled review date for Fitch's
rating on Yerevan City is 08 December 2023, but Fitch believes that
developments for the issuer warrant such a deviation from the
calendar and Fitch rationale for this is set out in the first part
(High weight factors) of the Key Rating Drivers.
KEY RATING DRIVERS
The rating action reflects the following key rating drivers and
their relative weights:
HIGH
Sovereign Cap
Yerevan's IDRs continue to be capped by those of Armenia. Fitch
have revised Fitch assessment of the city's Standalone Credit
Profile (SCP) to 'bbb-' from 'bb-' due to an improvement in the
risk profile.
MEDIUM
Risk Profile: Weaker
Fitch has reassessed Yerevan's risk profile at 'Weaker' from
'Vulnerable', since Armenia's IDR is no longer in the 'B' category.
The assessment is driven by five 'Weaker' key risk factors (revenue
robustness and adjustability, expenditure adjustability,
liabilities and liquidity robustness and flexibility) and one
'Midrange' factor (expenditure sustainability), which have not
changed since the last review.
The assessment reflects Fitch's view that there is a high risk of
the issuer's ability to cover debt service with the operating
balance weakening unexpectedly over the scenario horizon
(2023-2027) due to lower revenue, higher expenditure, or an
unexpected rise in liabilities or debt-service requirements.
LOW
Debt Sustainability: aaa category
Fitch expects Yerevan's debt payback ratio will remain strong at
under 5x, which corresponds to a 'aaa' assessment. Actual debt
service coverage ratio (operating balance-to-debt service,
including short-term debt maturities) will stay above 4x during the
rating case. The fiscal debt burden, which will slightly increase
in 2023-2027 from its current level of zero, remains moderate at
below 50%. Fitch strong assessment of all three metrics results in
the city's 'aaa' debt sustainability.
DERIVATION SUMMARY
Fitch classifies Yerevan as a type B local and regional government,
which has to cover debt service from cash flow on an annual basis.
Yerevan's 'bbb-' SCP reflects a 'Weaker' risk profile and
debt-sustainability metrics assessed at 'aaa' under Fitch's rating
case. The 'bbb-' SCP also reflects peer comparison. The IDRs are
not affected by any asymmetric risk or extraordinary support from
the central government, but they are capped by Armenia's sovereign
IDRs at 'BB-'.
KEY ASSUMPTIONS
Qualitative Assumptions and Assessments:
Risk Profile: 'Weaker, Improved with Medium weight'
Revenue Robustness: 'Weaker, Unchanged with Low weight'
Revenue Adjustability: 'Weaker, Unchanged with Low weight'
Expenditure Sustainability: 'Midrange, Unchanged with Low weight'
Expenditure Adjustability: 'Weaker, Unchanged with Low weight'
Liabilities and Liquidity Robustness: 'Weaker, Unchanged with Low
weight'
Liabilities and Liquidity Flexibility: 'Weaker, Unchanged with Low
weight'
Debt sustainability: 'aaa, Unchanged with Low weight'
Support (Budget Loans): 'N/A, Unchanged with Low weight'
Support (Ad Hoc): 'N/A, Unchanged with Low weight'
Asymmetric Risk: 'N/A, Unchanged with Low weight'
Sovereign Cap (LT IDR): 'BB-, Improved with High weight'
Sovereign Cap (LT LC IDR) 'BB-, Improved with High weight'
Sovereign Floor: 'N/A, Unchanged with Low weight'
Quantitative assumptions - Issuer Specific
Fitch's rating case is a "through-the-cycle" scenario, which
incorporates a combination of revenue, cost and financial risk
stresses. It is based on 2018-2022 figures and 2023-2027 projected
ratios. The key assumptions for the scenario include
-- On average 6.9% yoy increase in operating revenue, Unchanged
with Low weight
-- On average 7.1% yoy increase in operating spending, Unchanged
with Low weight
-- Net capital balance on average at a negative AMD9.7 billion,
Unchanged with Low weight
Figures as per Fitch's sovereign actual for 2022 and forecast for
2023, respectively (no weights and changes since the last review
are included as none of these assumptions was material to the
rating action):
-- GDP per capita (US dollar, market exchange rate): 6,432; 8,025
-- Real GDP growth (%): 12.6; 7.2
-- Consumer prices (annual average % change): 8.8; 4.5
-- General government balance (% of GDP): -2.2; -2.5
-- General government debt (% of GDP): 46.7; 44.9
-- Current account balance plus net FDI (% of GDP): 5.6; 0.6
-- Net external debt (% of GDP): 24.6; 19.2
-- IMF Development Classification: EM
-- CDS Market-Implied Rating: N/A
RATING SENSITIVITIES
Factors That Could, Individually Or Collectively, Lead To Positive
Rating Action/Upgrade
-- Yerevan's IDRs are currently constrained by the sovereign
ratings. Therefore, positive rating action on the sovereign could
lead to corresponding action on Yerevan's IDRs
Factors That Could, Individually Or Collectively, Lead To Negative
Rating Action/Downgrade
-- Negative rating action on Armenia would lead to corresponding
action on Yerevan's ratings
-- A downward revision of the SCP below 'bb-', which could be
driven by a material deterioration of the city's debt
sustainability leading to a payback ratio above 9x on a sustained
basis under Fitch's rating case
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.
ISSUER PROFILE
Yerevan is the capital of Armenia and the largest metropolitan area
in the country. At end-2021 it had a population of nearly 1.1
million. The economy is dominated by the services sector and in
comparison with international peers its wealth metrics are modest.
The city's accounts are cash-based, and its budget framework covers
a single year.
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
Yerevan's IDRs are capped by Armenia's sovereign IDRs.
COMMITTEE MINUTE SUMMARY
Committee date: 02 August 2023
There was an appropriate quorum at the committee and the members
confirmed that they were free from recusal. It was agreed that the
data was sufficiently robust relative to its materiality. During
the committee no material issues were raised that were not in the
original committee package. The main rating factors under the
relevant criteria were discussed by the committee members. The
rating decision as discussed in this rating action commentary
reflects the committee discussion.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' 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. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
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B U L G A R I A
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EUROINS AD: Fitch Affirms 'B+' IFS, Removes Rating Watch Negative
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Fitch Ratings has affirmed Insurance Company Euroins AD's and
Insurance Company EIG Re AD's - main operating entities of
Bulgarian Euroins Insurance Group (EIG) - 'B+' Insurer Financial
Strength (IFS) Ratings and removed them from Rating Watch Negative
(RWN). The Outlooks are Stable.
The rating action reflects Fitch's view that reputational risk
arising from the license withdrawal at Euroins Romania
Asigurare-Reasigurare S.A. (Euroins Romania) has not materialised,
and consequently, for EIG's non-Romanian operations. It also
reflects that the financial impact of the Romanian market exit is
fully reflected in the respective operating entities' 2022
financial accounts.
The ratings reflect the companies' weak reserve adequacy and
capitalisation.
KEY RATING DRIVERS
Company Profile not Weakened: The exit from the Romanian market has
not materially weakened the company profile of EIG, although it
will reduce the premium income of the group. Fitch has not observed
any negative impact on its franchise, and expects the lower
operating scale and to offset the resulting better risk profile.
Weak but Improving Reserve Adequacy: EIG's non-life insurance loss
reserve/equity ratio improved during 2022. Fitch expect reserve
adequacy to improve further by end-2023. However, EIG has yet to
establish a longer record of smaller reserve deficiencies to
demonstrate the robustness of insurance reserves.
Deficiencies in 2020 and 2021 were driven by competitive rates in
Romanian motor business and the Romanian market's limited ability
in calculating adequate reserves. Reserve adequacy is likely to
benefit from EIG's exit from the Romanian motor market in 2022.
Weak Capitalisation: Fitch expect the Prism FBM Score to be at
least 'Somewhat Weak' at end-2023, versus a preliminary 'Adequate'
at end-2022 (end-2021: 'Somewhat Weak'). The decline follows the
negative impact of the exit from Romania. Fitch assessment of
capitalisation is also constrained by uncertainties around reserve
adequacy.
However, EIG's group Solvency II ratio of 132 % at end-2022 is
supportive of the ratings. Fitch understands from management that
any future adverse reserve or capital developments on the Romanian
business will not be borne by EIG. Fitch therefore does not expect
the exit from Romania to have further negative effects on the
group's capitalisation.
Stable reserve development would be key for an improved view of
capital while further restatements of insurance reserves would
likely result in the Prism FBM score falling below the 'Somewhat
Weak' category, potentially triggering negative rating actions.
Romanian Losses Hit Financial Performance: Fitch view on financial
performance reflects the high volatility in EIG's net income. Fitch
expect net income to recover in 2023. EIG accounted the Romanian
operations as a discontinued business and decided to fully write
off the Romanian operations at end-2022. This resulted in a net
income loss of BGN194 million in 2022 (2021: earnings of BGN83
million).
Discontinued operations reported a loss of BGN188 million in 2022
(2021: earnings of BGN83 million). Excluding discontinued
operations, EIG's result was fairly stable in 2022 at a minor loss
of BGN5 million (2021: loss of BGN4 million).
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
-- Continued stabilisation of reserve experience while the Prism
FBM score is at least at the upper end of the 'Somewhat Weak'
category
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
-- Prism FBM Score falling below the 'Somewhat Weak' category for
a sustained period
-- Large losses from reserve development or similar restatements
of insurance reserves
-- A weakening of Fitch assessment of EIG's company profile
following its exit from Romania
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.
ESG CONSIDERATIONS
Insurance Company Euroins AD and Insurance Company EIG Re AD have
an ESG Relevance Score of '4' for Financial Transparency due to the
qualified audit opinion in its consolidated accounts for 2022,
which has a negative impact on the credit profile, and is relevant
to the rating in conjunction with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity. Fitch's ESG Relevance Scores are not inputs
in the rating process; they are an observation of the materiality
and relevance of ESG factors in the rating decision.
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F R A N C E
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FORVIA SE: S&P Alters Outlook to Stable, Affirms 'BB' Long-Term ICR
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S&P Global Ratings revised its outlook on French auto supplier
Forvia SE to stable from negative and affirmed its 'BB' long-term
issuer credit and issue ratings on the company and its unsecured
debt.
S&P said, "The stable outlook reflects our expectation that Forvia
will gradually restore FFO to debt and FOCF to debt above 15% and
5% in the next 12 months thanks to 5%-7% revenue growth, gradually
improving adjusted EBITDA margins to about 9%, and a financial
policy that prioritizes debt reduction. We anticipate Forvia will
gradually deleverage in 2023 and 2024.The company reported strong
organic growth of 18.6% in first-half 2023, supported by higher
global auto production and 7.4% market outperformance driven by
stronger volumes than market average and inflation pass-throughs to
its auto original equipment manufacturer (OEM) clients. As a
result, Forvia's reported operating margin increased to 5.0% from
3.7% a year ago and was broadly in line with second-half 2022
levels. We expect the group's earnings will increase further in
second-half 2023, mainly from the timing of inflation compensation,
increasing synergies from the Hella integration, the termination of
its loss-making seating contract in Michigan, and a higher
proportion of sales in Asia, where the group is more profitable. We
estimate this will result in the adjusted EBITDA margin increasing
to 8.7% in full-year 2023, from 7.9% in the first half and 7.2% in
full-year 2022. Combined with about EUR700 million of proceeds from
the group's disposal program, we project this will translate into
FFO to debt improving to about 15% by year-end. We anticipate
Forvia's favorable operating momentum will carry on next year
thanks to its sound and more selective order backlog (the
book-to-bill ratio was over 1.2x last year and 1.1x in first-half
2023) and further cost savings at the Hella and group levels,
supporting FFO to debt above 15%, which we view as commensurate
with the rating.
"Forvia's cash generation is improving despite increasing interest
charges and high investment requirements. We expect stronger
earnings and controlled capex levels will translate into FOCF
increasing to EUR400 million-EUR450 million this year, from
EUR115.7 million last year and EUR95.8 million in 2021. In
first-half 2023, the company made progress toward its long-term
target of reducing its structural investment intensity, with
reported capex to sales (including capitalized development costs)
decreasing to 7.3% from 8.4% in 2022. We also expect FOCF will be
supported by reduced inventory levels and faster cash conversion,
notably at the Hella level, resulting in positive working capital
contributions (excluding factoring effects) of about EUR100 million
this year and next from about EUR250 million in 2022. We estimate
this should partly offset annual cash interest expense increasing
to about EUR500 million from EUR373 million last year, as well as
the EUR69 million one-off increase in cash tax paid linked to the
special dividend Hella paid to its parent after the disposal of its
stake in the Hella Behr Plastic Omnium joint venture. Overall,
Forvia's ability to generate cash will remain a key rating factor
as global interest rates could remain higher for longer and as it
continues to face high effective cash tax rates. We believe this
will hinge on the group's ability to deliver on its sound order
book while keeping the intensity of associated up-front development
costs under control.
"We expect Forvia's financial policy will continue to prioritize
deleveraging. We think the company remains committed to reducing
its debt load sustainably, as signaled by its target to achieve a
reported net debt to EBITDA of below 1.5x by 2025 from 2.5x at June
30, 2023, and an expected level of 2.0x-2.2x at year-end 2023
following the disposal program. We therefore expect that, to
achieve its leverage target, Forvia will prioritize net debt
reduction over dividends and acquisitions as FOCF increases in the
next two years." This would be in line with the group's most recent
balance sheet remedial actions, including the suspension of common
dividend payments in 2022 and 2023 and the EUR705 million equity
raise completed in June 2022.
Forvia's selective order intake could support it achieving its 2025
operating targets. The group accumulated a solid order intake of
over EUR46 billion over the past 18 months, gaining ground with
OEMs specialized in electric or premium vehicles and dynamic
regions such as China. The company expects these orders will
translate into operating margin above its long-term target of 7% at
the start of production (typically two years after contract award)
given the increasing share of value-added solutions in electronics
and lighting and its focus on components where it has a strong
market position in seating, emission controls, and interiors. In
our view, profitability improvements from these orders will
primarily hinge on the group's ability to pass on or absorb any
cost inflation while managing its research and development (R&D)
budget. Fast-growing advanced driver systems or energy management
electronics typically demand continued research efforts for new
products and up-front costs at launch, which can constrain adjusted
EBITDA margins in case of overspending. In first-half 2023,
Forvia's operating margin was negatively affected by reported R&D
expense to sales increasing to about 3.9% from 3.5% in full-year
2022, primarily attributable to an overrun from Hella's 77
gigahertz radar sensors and new steering electronic products.
S&P said, "The stable outlook reflects our expectation that Forvia
will gradually restore FFO to debt and FOCF to debt above 15% and
5%, respectively, in the next 12 months thanks to 5%-7% revenue
growth, gradually improving adjusted EBITDA margins to about 9%,
and a financial policy prioritizing debt reduction.
"We could lower our rating on Forvia if we anticipate FFO to debt
and FOCF to debt remaining below 15% and 5%, respectively. This
scenario could stem from weaker-than-expected auto production or
setbacks with cost inflation management and the Hella integration
resulting in adjusted EBITDA margins of below 8% and
weaker-than-expected cash generation.
"We could raise our rating on Forvia if we expect it will generate
FFO to debt and FOCF to debt above 25% and 10% sustainably. This
scenario could stem from operating margins rising faster than in
our base-case scenario thanks to stronger outperformance over auto
production growth, increasing commercial and cost efficiencies, and
a faster realization of Hella synergies. An upgrade would also be
contingent on Forvia maintaining a conservative financial policy
that balances debt reduction and dividend payments.
"ESG factors have an overall neutral influence on our credit rating
analysis for Forvia. The company has relatively limited exposure to
the energy transition risks of the auto sector through its Clean
Mobility division, which accounted for about 19% of sales in 2022.
The Clean Mobility division bears displacement risks because its
antipollutant systems are not necessary in electric cars, but we
think the company has the financial flexibility to gradually
diversify away from internal combustion engine-related products
through investments (in hydrogen notably) and its other business
not affected by the powertrain transition. In our base-case
scenario, we include yearly spending of EUR50 million-EUR100
million for bolt-on acquisitions and investments in joint ventures
that should help replace lost sales. By 2030, Forvia is committed
to full carbon neutrality for its own emission and those of e and
its supply chain (excluding use of sold products), in line with
most global peers."
=============
I R E L A N D
=============
ALME LOAN IV: Fitch Affirms 'B+sf' Rating on Class F-R Notes
------------------------------------------------------------
Fitch Ratings has revised ALME Loan Funding IV DAC class B-R notes'
Outlook to Positive from Stable. All notes have been affirmed.
ENTITY/DEBT RATING PRIOR
---------- ------ -----
ALME Loan Funding IV DAC
A-R XS1724884124 LT AAAsf Affirmed AAAsf
B-R XS1724884983 LT AA+sf Affirmed AA+sf
C-R XS1724885527 LT A+sf Affirmed A+sf
D-R XS1724886418 LT BBB+sf Affirmed BBB+sf
E-R XS1724886764 LT BB+sf Affirmed BB+sf
F-R XS1724887143 LT B+sf Affirmed B+sf
TRANSACTION SUMMARY
ALME Loan Funding IV DAC is a cash flow-collateralised loan
obligation (CLO) mostly comprising senior secured obligations. The
transaction is actively managed by Apollo Management International
LLP and exited its reinvestment period in January 2022.
KEY RATING DRIVERS
Transaction Outside Reinvestment Period: Although the transaction
has exited its reinvestment period in January 2022 the manager can
reinvest unscheduled principal proceeds and sale proceeds from
credit-risk obligations also after the reinvestment period, subject
to compliance with the reinvestment criteria. Given the manager's
ability to reinvest, Fitch analysis is based on a stressed
portfolio testing Fitch-calculated weighted average life (WAL),
Fitch-calculated weighted average rating factor (WARF),
Fitch-calculated weighted average recovery rate (WARR), weighted
average spread (WAS) and fixed-rate asset share to their covenanted
limits.
Stable Asset Performance: The transaction metrics indicate a stable
asset performance. The transaction is currently 0.14% above par. It
is passing all collateral quality tests, all portfolio profile
tests and all coverage tests. Exposure to assets with a
Fitch-derived rating of 'CCC+' and below is 3.3% according to the
latest trustee report versus a limit of 7.5%. The portfolio has no
defaulted assets.
The Positive Outlook revision on the class B-R notes reflect the
shortening WAL of the transaction, as well as improved prospects
for credit enhancement due to gradual deleveraging of the portfolio
given the senior status of the notes. For all other notes the
Stable Outlooks reflect sufficient break-even default rate cushion
at their current ratings to absorb losses and limited refinancing
risk for the rest of 2023 and in 2024.
'B/B-' Portfolio: Fitch assesses the average credit quality of the
transaction's underlying obligors at 'B'/'B-'. The WARF, as
calculated by Fitch under the updated criteria, is 24.8.
High Recovery Expectations: Senior secured obligations comprise
99.7% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets. The WARR, as calculated by Fitch, is 62.8%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration is 14.3%, and no obligor represents more than 1.6% of
the portfolio balance.
Deviation from Model-implied Ratings: The class B-R and D-R notes'
ratings are one notch below respective their model -implied ratings
(MIRs). The deviation reflects limited cushion on the stressed
portfolio at the MIRs.
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 current portfolio would have no impact on all notes, except for
the class E and F notes, which would be downgraded by no more than
one notch.
Based on the current portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration. Due to the
better metrics and shorter life of the current portfolio than the
Fitch-stressed portfolio, the class D and F notes display a rating
cushion of three notches and the class B and E notes of one notch.
Should the cushion between the current portfolio and the
Fitch-stressed portfolio be eroded either due to manager trading or
negative portfolio credit migration, a 25% increase of the mean RDR
across all ratings and a 25% decrease of the RRR across all ratings
of the stressed portfolio would lead to downgrades of up to three
notches for the rated notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings of the Fitch-stressed
portfolio would lead to upgrades of up to three notches for the
rated notes, except for the 'AAAsf' rated notes.
After the end of the reinvestment period, upgrades, except for the
'AAAsf' notes, 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
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, 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.
LANSDOWNE MORTGAGE 2: Fitch Affirms 'CCsf' Rating on 2 Tranches
---------------------------------------------------------------
Fitch Ratings has affirmed Lansdowne Mortgage Securities No. 1 Plc
(LMS1) and Lansdowne Mortgage Securities No. 2 Plc (LMS2).
ENTITY/DEBT RATING PRIOR
----------- ------ -----
Lansdowne Mortgage
Securities No. 2 Plc
Class A2
XS0277482286 LT Bsf Affirmed Bsf
Class B XS0277483417 LT CCsf Affirmed CCsf
Class M1
XS0277482526 LT B-sf Affirmed B-sf
Class M2
XS0277482955 LT CCsf Affirmed CCsf
Lansdowne Mortgage
Securities No. 1 Plc
Class A2
XS0250832614 LT B+sf Affirmed B+sf
Class B1
XS0250834404 LT CCsf Affirmed CCsf
Class B2
XS0250835120 LT CCsf Affirmed CCsf
Class M1
XS0250833695 LT Bsf Affirmed Bsf
Class M2
XS0250834073 LT CCsf Affirmed CCsf
TRANSACTION SUMMARY
The transactions are securitisations of Irish non-conforming
residential mortgage loans originated by Start Mortgages Ltd.
KEY RATING DRIVERS
High Arrears, Delayed Foreclosures: In LMS1, 32.5% of the portfolio
is in arrears over 90 days, while in LMS2 they represented 29.5% as
of the June 2023 payment date, down from 34.1% and 30.3%,
respectively, at as the June 2022 interest payment date.
The majority of borrowers in arrears have been subject to
restructuring measures. The provisioning mechanism is defined on
losses rather than defaults. As foreclosure timing in Ireland is
often long, crystallisation of losses and subsequent provisioning
in the revenue waterfall is being delayed. This leads to the
transactions' high sensitivity to a longer foreclosure timing and
is particularly relevant for the ratings of LMS1's class M1 notes,
and LMS2's class A2 notes.
Increased PAF Floor: Fitch have applied an increased floor of 100%
for the Performance Adjustment Factor (PAF), as per Fitch European
RMBS Rating Criteria, as Fitch consider the reported levels of
defaults understated by the late default definition in transaction
documents (as loans are rather restructured than repossessed).
Fitch also applied the compressed rating multiples for Ireland
alongside an originator adjustment of 2.0x, to account for the weak
asset performance persisting.
Payment Interruption Risk Constrains Ratings: The transactions'
reserve funds may be drawn to cover losses. If the high arrears
translate into foreclosures and then losses within a short period,
reserves could be depleted imminently. As a result, in Fitch's
view, payment interruption risk is not adequately addressed and the
non-dedicated nature of the reserve limits upgrading the notes,
driving the affirmations.
Fitch expect some of the subordinated notes in both transactions
(class B1 and B2 in LMS1 and class B in LMS2) to experience
interest deferral in an expected case scenario. Fitch consider this
is adequately reflected in the notes' 'CCsf' rating.
CE Build-up Supports Senior Notes: The sequential amortisation of
the notes has led to an increase in credit enhancement (CE),
particularly for the senior notes. As arrears remain elevated, the
transactions will continue paying sequentially, due to the arrears'
triggers breach. CE may continue to increase further as long as
losses continue to be limited. However, the notes' ratings remain
constrained.
Collection Account Bank Rating Withdrawn: In January 2023, Fitch
withdrew the rating on the collection account nank, Allied Irish
Bank plc. Prior to the withdrawal, Allied Irish Bank was rated
'BBB+'/Stable, which was sufficient to mitigate the commingling
risk in the transaction, according to Fitch's minimum primary risk
rating requirement.
After the rating withdrawal, Fitch has assessed the potential
impact of the commingling loss in the transaction following the
default of the collection account bank and concluded that the
commingling exposure has no impact on the rating.
Lansdowne Mortgage Securities No.1 and No.2 Plc have ESG Relevance
Scores of '5' for Governance (Rule of Law, Institutional and
Regulatory Quality) due to exposure to jurisdictional legal risks;
regulatory effectiveness; supervisory oversight; foreclosure laws;
government support and intervention, which has a negative impact on
the credit profile, and is highly relevant to the rating, resulting
in a change to the rating.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The majority of the loans in the portfolios have been subject to
restructuring arrangements rather than being foreclosed. An
increasing number of defaulted loans and lower recovery proceeds
combined with longer foreclosure timing may result in downgrades of
the notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
If the transactions continue to make timely payments while
withstanding negative carry and losses from delinquencies and
foreclosures, leading to a decrease in late-stage arrears, Fitch
may revise its foreclosure frequency assumptions down. This could
result in upgrades of the notes.
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
Lansdowne Mortgage Securities No. 1 Plc, Lansdowne Mortgage
Securities No. 2 Plc
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset
pools and the transactions. Fitch has not reviewed the results of
any third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
Fitch did not undertake a review of the information provided about
the underlying asset pools ahead of the transactions' initial
closing. The subsequent performance of the transactions over the
years is consistent with the agency's expectations given the
operating environment and Fitch is therefore satisfied that the
asset pool information relied upon for its initial rating analysis
was adequately reliable.
Overall, and together with any assumptions, 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.
ESG CONSIDERATIONS
LMS1 and LMS2 each has an ESG Relevance Score of '5' for rule of
law, institutional and regulatory quality due to exposure to
jurisdictional legal risks; regulatory effectiveness; supervisory
oversight; foreclosure laws; government support and intervention,
which has a negative impact on the credit profile, and is highly
relevant to the rating.
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.
===================
L U X E M B O U R G
===================
INEOS GROUP: Moody's Affirms 'Ba2' CFR, Alters Outlook to Negative
------------------------------------------------------------------
Moody's Investors Service affirmed the Ba2 corporate family rating
and Ba2-PD probability of default rating of Ineos Group Holdings
S.A., as well as the Ba2 instrument ratings on the backed senior
secured facilities and backed senior secured bonds issued by Ineos
Finance plc and the Ba2 instrument ratings on the backed senior
secured term facilities issued by Ineos US Finance LLC. The rating
outlook on all entities (INEOS) was changed to negative from
stable.
RATINGS RATIONALE
The rating action reflects INEOS' soft performance in the first
half of 2023 coupled with expected recovery delayed to 2024
resulting in weakened credit profile likely continuing for a longer
period than previously anticipated. INEOS' leverage reached 5.6x
for the twelve months ending June 2023, a sharp increase over 3.3x
in 2022 reflecting the quick move from the cyclical peak in the
second quarter of 2022 closer to the cyclical trough a year later.
Moody's expects the company's leverage to be at approximately 6x in
2023 and to reduce therafter as the cycle turns again.
The negative outlook also considers the sudden revocation of the
permit for construction of Project One, a EUR4 billion cracker
development project in Belgium where INEOS commenced construction
earlier in the year. The permit was revoked following an
unexpected court ruling which the company is presently appealing;
however, neither the outcome nor the timing of this issue is
currently clear. If Project One is completed in 2026/2027 as
currently planned, it is expected to increase INEOS' olefin
production capacity in Europe and take advantage of cheaper US
feedstocks, similar to its cracker in Rafnes, Norway. While the
completion of the project is currently uncertain, Moody's notes
positively that the reduction in capital expenditures associated
with Project One would alleviate pressure on INEOS' cash flows and
leverage since the project is largely debt-financed.
In the second quarter, INEOS also extended a $900 million
related-party loan which is expected to be partially repaid in 2023
(~$600 mm) from the proceeds of acquisition financing with the
remainder coming from operating cash flows of the related party in
2024. While the company has a history of supporting its sister
companies, a large cash advance at the time of pressured earnings
weighs negatively on INEOS' rating positioning.
Counterbalancing these challenges, INEOS continues to benefit from
good liquidity including no maturities ahead of November 2025 and
over EUR2 billion of cash at June 2023, along with an undrawn
securitisation facility.
INEOS' Ba2 corporate family rating reflects the company's (1)
robust business profile including its leading market position as
one of the world's largest chemical groups across a number of key
commodity chemicals; (2) vertically integrated business model,
which helps the group capture margins across the whole value chain
and economies of scale advantages, (3) well-invested production
facilities, most of them ranking in the first or second quartile of
their respective regional industry cost curve; and (4) experienced
management team. These positives are offset by (1) the cyclical
nature of the commodity chemical industry currently facing weak
end-market demand; (2) expected deterioration in INEOS' credit
profile as a result of market softness and planned large expected
capital outlays; and (3) history of large shareholder
distributions.
ESG
While ESG considerations did not drive this rating action, Moody's
revised two sub-scores in INEOS' governance issuer profile score
(G-IPS). The Financial Strategy and Risk Management score was
lowered to 4 from 3 to better reflect the company's financial
policy which has at times incorporated aggressive dividend
distributions and advances to related parties. Also, the
Management Credibility and Track Record score was lowered to 3 from
2 to better reflect key person risk. Further, Moody's notes the
unfavourable legal ruling with respect to Project One and views
this risk as incorporated in its E-5 and S-4 environmental and
social scores, respectively.
LIQUIDITY
INEOS' liquidity is strong with over EUR2 billion of cash at June
30, 2023 and undrawn working capital facilities of EUR579 mm. The
company's nearest debt maturity is EUR550 million senior secured
notes due November 2025. INEOS has recently been successful in
refinancing its upcoming maturities in the capital markets.
STRUCTURAL CONSIDERATIONS
All of INEOS' rated debt is secured and consists of senior secured
term loans and senior secured notes. All of the rated instruments
are pari passu and secured on the same collateral pool; therefore,
all of the debt instruments are rated Ba2, in line with the CFR.
RATING OUTLOOK
Negative rating outlook reflects Moody's expectation that INEOS'
earnings will continue to be pressured by reduced demand globally
through the second half of 2023 and into 2024, thereby delaying the
company's return to a credit profile commensurate with the current
rating.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
While unlikely in the near term, positive pressure on the rating
may arise if (i) retained cash flow to debt is consistently above
25%; (ii) Moody's-adjusted total debt to EBITDA is sustained below
3x; and (iii) INEOS maintains good liquidity. Furthermore, a
moderate approach to shareholder distributions would be important
for an upgrade.
Conversely, the ratings could come under further downward pressure
if (i) Moody's-adjusted total debt to EBITDA is over 4x and
retained cash flow to debt is below 20% for a prolonged period of
time or its net leverage increases to above 3.5x for over 12
months; (ii) the group's liquidity profile weakens; or (iii) INEOS
chooses to make material dividend distributions such that its
leverage levels become elevated.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Chemicals
published in June 2022.
COMPANY PROFILE
INEOS is one of the world's largest chemical companies in terms of
revenue and a large global manufacturer of petrochemical products,
mainly olefins and polyolefins. In the first half of 2023, INEOS
reported EBITDA before exceptional items of EUR831 million
(EUR1,938 mm in the first half of 2022) on revenue of EUR7,842
billion (EUR11,715), equivalent to a 10.5% margin. The key olefins
manufactured by INEOS are ethylene and propylene, and these olefins
are in turn used to produce polyolefins and other derivatives. The
company has leading global market positions for most of its key
products, along with a strong and stable customer base.
=============
U K R A I N E
=============
NAFTOGAZ: Hogan Lovells Advises Noteholders on Debt Restructuring
-----------------------------------------------------------------
Global law firm Hogan Lovells has advised an ad hoc group of 2026
noteholders of Naftogaz, the largest state-owned national oil and
gas company of Ukraine, on the amendment and extension of its
US$500 million 7.625% 2026 Eurobonds.
Naftogaz has been heavily impacted by the ongoing conflict in
Ukraine resulting in the default of its 2022 notes and subsequently
its 2024 and 2026 notes. A Hogan Lovells team, led by Business
Restructuring and Insolvency partners Alex Kay (London) and Chris
Donoho (New York), with support from senior associates Alex Snell
and Rob Peel (London), worked with the ad hoc group, navigating
them through the associated complexities of the deal and the
competing interests of other stakeholders.
The negotiated terms, which received over 91% of the 2026
bondholders support and approval from the Cabinet Ministers of
Ukraine, saw an extension of the maturity dates for the 2026 notes,
(with 50% of the outstanding principal being redeemed in November
2027 and the remainder in November 2028) with similar adjustments
made for the 2022 notes. In addition, the team negotiated for the
creation of a 2026 interest payment fund, the amendment of
covenants, cash payment for the last semi-annual coupon in the
two-year deferral period and a restructuring fee.
Further details of the amendments and extension to the 2026 notes
can be found at
https://www.naftogaz.com/en/news/_-8ce0a5fc-ec34-489e-9efe-9928d3e8e8ae
PROCREDIT BANK: Fitch Affirms 'CCC-/CCC' LongTerm IDRs
------------------------------------------------------
Fitch Ratings has upgraded ProCredit Bank (Ukraine)'s (PCBU)
Viability Rating to 'ccc-' from 'cc' and affirmed its Long-Term
Foreign-Currency (LTFC) Issuer Default Rating (IDR) at 'CCC-' and
Long-Term Local-Currency (LTLC) IDR 'CCC'. The IDRs do not carry an
Outlook at this level.
The upgrade of the VR reflects Fitch view of PCBU's moderately
lower risk of failure as a result of its more resilient asset
quality and profitability due to a less severe operating
environment than Fitch previously expected. Nonetheless, Fitch
believe failure remains a real possibility.
KEY RATING DRIVERS
Potential Constraints on Support: PCBU's LTFC IDR is driven by
support from ProCredit Holding AG & Co. KGaA (PCH; BBB/Stable/bb).
PCBU's Shareholder Support Rating (SSR) of 'ccc-' reflects Fitch's
view of the bank's strategic importance to PCH, but also potential
constraints on the bank's ability to utilise support from its
parent, in particular to service FC obligations.
High Risk of Default: PCBU's LTFC IDR reflects Fitch's view that a
default on its senior FC obligations remains a real possibility due
to the war. Nonetheless, the bank maintains generally adequate FC
liquidity relative to its needs, helped by various regulatory
capital and exchange controls in place since the outbreak of the
war to reduce the risks of deposit and capital outflows and
maintain stability and confidence in the banking system.
Manageable External Obligations: While FC repayments remain subject
to considerable uncertainty, Fitch base-case expectation is that
PCBU will continue to service its external obligations. Its
external debt accounted for a moderate 10% of its total funding at
end-1Q23 and consists of a EUR20 million subordinated bond and
international financial institution funding.
IDRs, VR Above Sovereign: PCBU's LTFC IDR and VR are one notch
above Ukraine's LTFC IDR of 'CC' and its LTLC IDR is one notch
above the sovereign LTLC IDR of 'CCC-'. This reflects Fitch view of
a lower risk the authorities will impose restrictions on banks
servicing their FC and LC obligations, or of the bank failing, than
non-payment by the sovereign. This approach is consistent with
Fitch's criteria under certain circumstances when bank and
sovereign ratings are both at very low levels.
Lower LC Default Risk: PCBU's 'CCC' LTLC IDR, one notch above its
LTFC IDR, reflects limited regulatory restrictions and constraints
on LC operations. The banking sector's LC liquidity management is
currently supported by limits on cash withdrawals and a guarantee
of all retail deposits for the duration of the war and three months
thereafter.
VR Upgrade, Lower Failure Risk: Incrementally better operating
conditions for Ukrainian banks have resulted in greater credit
quality resilience in PCBU's loan portfolio and better earnings and
profitability than Fitch previously expected. As a result, although
risks to capital remain very high, Fitch believe the bank is now
less likely to suffer a material capital shortfall and require
regulatory capital forbearance to continue operating.
Asset Quality Risks: PCBU's asset quality metrics worsened sharply
after the beginning of the war, which led to significant impairment
charges (2022: 3.4x pre-impairment operating profit). The risks to
asset quality remain elevated and dependent on the progress of the
war, despite improved operating environment conditions in 1Q23.
Fitch see risks of further increases in impaired loans due to the
protracted war, particularly from potential migration of its very
high Stage 2 loans ratio (33.6%), but the less severe operating
conditions, if sustained, may lessen the extent of this
deterioration.
Impairments Threaten Profitability: PCBU reported a regulatory net
profit of UAH211 million in 1Q23, following a sizable UAH1.8
billion loss in 2022 due to the surge in loan impairment charges
(LICs) caused by the war. These spiked to UAH2.9 billion in 2022,
equivalent to a high 12% of gross loans. Fitch expect LICs to
moderate in the near term, albeit remaining elevated and subject to
high volatility due to the war.
Modest Core Capitalisation: PCBU's Fitch core capital ratio
improved to 11.7% at end-1Q23 (end-2022: 9.6%) on the back of a
return to profitability in 1Q23. However, the bank's tangible
common equity/tangible assets ratio of 6.3% demonstrates core
capitalisation vulnerability to potential losses through loan
impairment.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Fitch would downgrade PCBU's IDRs in the event of a sovereign LTLC
IDR downgrade or if Fitch perceive an increased likelihood that the
bank would default on or seek a restructure of its senior
obligations. The LTFC IDR could be downgraded if Fitch believed the
parent had a lower propensity to support its subsidiary and PCBU's
VR was also downgraded. A downgrade of the sovereign LTFC IDR due
to a debt restructuring that excluded Ukrainian banks' FC
obligations would not directly affect PCBU's LTFC IDR.
A marked further deterioration in asset quality that erodes the
bank's loss absorption buffers would lead to a VR downgrade. The VR
could be downgraded to 'f', indicating the bank has failed, if this
resulted in a material capital shortfall and necessitated
regulatory capital forbearance. A sovereign LTLC IDR downgrade
would also likely result in a VR downgrade.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Fitch believes positive rating action on the IDRs is unlikely in
the near term. However, the LTFC IDR could be upgraded if Fitch
viewed the bank had a greater ability to use potential support from
its parent. The ratings could also be upgraded in the event the
sovereign IDRs were upgraded.
An upgrade of the VR would likely require an upgrade of the
sovereign LTFC IDR, a considerable improvement in the operating
environment and significantly smaller than expected loan losses,
leading to lower solvency risk.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
PCBU's Short-Term IDR of 'C' is in line with Fitch's rating
correspondence table.
PCBU's LTFC and LTLC IDRs (xgs) are notched from their parent's
'BB(xgs)' Long-Term IDR (xgs) and are in line with the bank's LTFC
and LTLC IDRs, respectively. PCBU's LTLC IDR (xgs) is one notch
above its LTFC IDR (xgs) reflecting limited regulatory restrictions
and constraints on local-currency operations in Ukraine relative to
those in foreign currency. The STFC IDR (xgs) and STLC IDR (xgs)
are mapped to the bank's LTFC IDR (xgs) and LTLC IDR (xgs),
respectively, taking into account the parent's ST IDR (xgs).
The affirmation of PCBU's National Long-Term Rating at 'AA(ukr)'
with a Stable Outlook reflects the bank's unchanged
creditworthiness in LC relative to other Ukrainian issuers.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The Short-Term IDR is sensitive to change in the LTFC IDR.
PCBU's LTFC IDR (xgs) and LTLC IDR (xgs) are sensitive to changes
in the bank's LTFC and LTLC IDRs, respectively, an upgrade of its
VR, and the parent's ability or propensity to provide support. The
STFC IDR (xgs) and STLC IDR (xgs) are sensitive to changes in
PCBU's LTFC IDR (xgs) and LTLC IDR (xgs), respectively.
A change in PCBU's National Long-Term Rating would likely arise
from a weakening or strengthening in its overall credit profile
relative to other Ukrainian entities rated on the National Rating
scale.
VR ADJUSTMENTS
The operating environment score of 'ccc-' is below the 'b' category
implied score due to the following adjustment reason: sovereign
rating (negative).
The business profile score of 'ccc-' is below the 'b' category
implied score due to the following adjustment reason: business
model (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
PCBU's ratings are linked to PCH's ratings.
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.
===========================
U N I T E D K I N G D O M
===========================
ASTON MARTIN: Moody's Affirms Caa1 CFR, Alters Outlook to Positive
------------------------------------------------------------------
Moody's Investors Service has changed Aston Martin Lagonda Global
Holdings plc's (AML, Aston Martin or the company) outlook to
positive from stable. Concurrently, Moody's has affirmed AML's Caa1
corporate family rating and Caa1-PD probability of default rating,
and the Caa1 instrument rating of the backed senior secured
first-lien notes due November 2025 issued by Aston Martin Capital
Holdings Limited.
RATINGS RATIONALE
The affirmation of AML's ratings and the outlook change to positive
from stable reflects the company's improving operating performance
in the first half of 2023, which Moody's expects to be sustained
over the next 18 months on the back of the company's ongoing launch
of the next generation sports cars. The rating action further
reflects AML's recently completed placing of GBP210 million of new
shares and its plan to use the proceeds mostly for the early
redemption of its second-lien notes with a face value of around
GBP186 million. The planned repayment of the second-lien notes is
evidence of a more balanced financial policy which includes the
accelerated target to achieve a company-adjusted net leverage of
around 1.0x by 2024-25.
Moody's forecasts AML to achieve strong revenue growth of about 15%
to GBP1.6 billion revenue in 2023, and a further 25% increase in
2024 to reach close to its GBP2 billion revenue ambition. The
recently launched and well-received DB12, the additional new model
launches planned for the next 12 months, as well as the continued
success of its DBX should support strong volume growth over the
next 18 months, and Moody's forecasts wholesales to exceed 8,000
units by the end of 2024. While volume growth is considered a key
driver to achieve its revenue and EBITDA targets, Moody's
understands that AML no longer has specific volume targets. Instead
the company focuses on increasing its average selling price (ASP)
and achieving a gross margin of above 40% for new models launched
to drive its revenue and EBITDA growth.
Based on the assumptions of higher volumes and an ASP exceeding
GBP220k in 2023 and trend towards GBP230k in 2024, Moody's
forecasts AML's Moody's-adjusted EBITDA (adjusted for capitalised
development cost) to turn positive and reach just over GBP100
million in 2024. In combination with the redemption of the
second-lien notes, which will reduce the company's Moody's-adjusted
debt by around 13% to GBP1.1 billion, Moody's expects AML's
adjusted leverage to decrease towards 10x by year-end December 31,
2024.
Furthermore, Moody's forecasts AML's adjusted free cash flow to
improve to around break-even in 2024, after remaining substantially
negative by about GBP200 million in 2023. This improvement is
supported by a significantly higher EBITDA and an estimated GBP12
million decrease in interest expenses following the planned debt
repayment.
Considering the anticipated improvements in the company's cash
generation from 2024 onwards, and its GBP400 million cash position
at the end of June 2023, Moody's does not expect AML to require
additional debt or equity funding over the next two years. If AML
is able to also refinance the $1.155 billion of backed senior
secured first-lien notes well ahead of their maturity in November
2025, and simultaneously extend its revolving credit facility (RCF)
due August 2025, Moody's would view the company's capital structure
as sustainable which could support a rating improvement.
ESG CONSIDERATIONS
AML's ratings also reflect a number of environmental, social and
governance (ESG) considerations that are inherent to the automotive
industry. This includes higher environmental standards, stricter
emission regulations and electrification; autonomous driving and
connectivity; increasing vehicle safety regulations; and the entry
of new market participants. In line with the company's guidance to
invest GBP2 billion over five years, including technology access
fees, Moody's expects AML as well as its peers to continue to
require sizeable investments to cope with these challenges, which
will continue to constrain free cash flows in the coming years.
RATING OUTLOOK
The positive outlook reflects Moody's expectation that AML's credit
metrics will notably improve over the next 12-18 months, supported
by strong revenue and EBITDA growth, fuelled by multiple new model
launches and a substantial order book. The outlook further assumes
that AML will follow a more balanced financial policy with a clear
focus on deleveraging whilst maintaining an adequate liquidity.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure on the rating could materialise if AML 's
successfully completes the launch and commences deliveries of its
next generation sports cars, and as such continues to improve its
average wholesale price and grow its revenue. It would also require
Moody's-adjusted free cash flow to sustainably improve to around
break-even, liquidity to remain at least adequate, Moody's-adjusted
Debt/EBITDA to improve towards 7.0x on a sustained basis, and the
Moody's-adjusted EBITA margin to turn sustainably positive.
The rating is currently strongly positioned, as expressed by the
positive outlook, as a result of which limited negative rating
pressure is expected. However, downward pressure on the rating
could develop if AML fails to further improve its profitability,
leverage remains very high or free cash flow continues to be
substantially negative. A weakening in AML's liquidity profile or
an increase in debt would also put pressure on the rating.
LIQUIDITY ANALYSIS
Moody's considers AML's liquidity to be adequate. As of June 30,
2023, the company had GBP400 million of cash on the balance sheet
and access to its GBP90.6 million RCF due in August 2025, which was
drawn down by GBP29 million. In addition, the company has an
inventory repurchase programme in place. AML's RCF is subject to a
springing net leverage covenant which is tested when the facility
is drawn by more than 40% and Moody's expects the company to
maintain sufficient headroom going forward as it continues to
reduce its leverage as defined by the covenant.
Moody's forecasts AML's free cash flow (Moody's-adjusted) to be
marginally positive in the second half of 2023, following an
outflow of around GBP230 million in the first half of the year, and
to be close to break-even in financial year 2024. As such Moody's
expects AML's liquidity to remain adequate over the next 12-18
months, and to improve further through free cash flow generation
beyond 2024.
STRUCTURAL CONSIDERATIONS
The Caa1 rating of the backed senior secured first-lien notes due
in November 2025 ranks in line with the Caa1 CFR, despite the
priority position of the GBP90.6 million super senior RCF and
because of its relatively small size compared to the $1.155 billion
of backed senior secured first-lien notes. Both the first- and
second-lien notes, the latter expected to be repaid, have been
issued by Aston Martin Capital Holdings Limited, while the RCF was
issued by Aston Martin Lagonda Limited.
The shared security and guarantee package for the notes and RCF
cover 79% of AML's revenue and 113% of AML's assets, and includes
the main factory in Gaydon and significant intellectual property.
Other debt includes various working capital financing arrangements
and some smaller debt facilities.
LIST OF AFFECTED RATINGS
Affirmations:
Issuer: Aston Martin Lagonda Global Holdings plc
Probability of Default Rating, Affirmed Caa1-PD
LT Corporate Family Rating, Affirmed Caa1
Issuer: Aston Martin Capital Holdings Limited
BACKED Senior Secured Regular Bond/Debenture, Affirmed Caa1
Outlook Actions:
Issuer: Aston Martin Lagonda Global Holdings plc
Outlook, Changed To Positive From Stable
Issuer: Aston Martin Capital Holdings Limited
Outlook, Changed To Positive From Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Automobile
Manufacturers published in May 2021.
CORPORATE PROFILE
Based in Gaydon in the UK, Aston Martin Lagonda Global Holdings plc
is a luxury car manufacturer and has generated GBP1.4 billion of
revenue from the sale of 6,690 cars (based on wholesale units)
during the twelve months to June 30, 2023. AML is a UK-listed
business and its largest shareholder is Yew Tree Overseas Limited,
a consortium led by the executive chairman of the company Lawrence
Stroll.
AWAZE LTD: S&P Places 'B-' Long-Term ICR on CreditWatch Negative
----------------------------------------------------------------
S&P Global Ratings placed its 'B-' long-term issuer credit rating
on Awaze Ltd. on CreditWatch with negative implications. At the
same time, S&P lowered its issue rating on the EUR105 million
revolving credit facility (RCF) and EUR444 million first-lien debt
to 'B-' from 'B', and placed it on CreditWatch negative. S&P also
revised the recovery rating downward to '3' from '2'. The '3'
recovery rating reflects its expectation of meaningful (50%-70%)
recovery in the event of a payment default. Finally, S&P withdrew
its issue rating on the second-lien debt due to the prepayment in
June 2023.
The CreditWatch negative placement reflects the increased risk of a
downgrade if Awaze is unable to refinance its upcoming debt
maturities, address its fragile liquidity position, and demonstrate
a clear path to deleveraging.
Following Awaze's sale of Landal in April 2023, S&P now assesses
its business risk profile as weak. Landal, a holiday park operator
in the Netherlands, generated about 50% of Awaze's revenue and
almost 60% of its management-adjusted EBITDA in 2022. Following the
sale of this business, Awaze has significantly reduced its size and
business diversification. In addition, its focus has shifted to
providing a technology platform to holiday property owners both in
the U.K., through Awaze UK, and Europe, through Novasol.
Awaze no longer owns any asset-heavy businesses, entailing a lower
lease burden. It now focuses on the vacation rental management
market, a market with low barriers to entry and an asset-light
business proposition. S&P said, "We view Awaze's competitive
advantage as significantly weaker following the Landal sale, as it
has several large competitors, such as AirBnB and Vrbo (part of
Expedia), that offer a wider range of accommodation options in a
larger number of countries. We recognize that some of these
platforms are part of Awaze's indirect channels and offer a
slightly different proposition (with rentals directly by the owner
versus Awaze's vacation rental management proposition), but we see
a risk of them cannibalizing the demand for Awaze's direct
offerings."
S&P said, "We expect Awaze's revenue to be below EUR400 million in
2023, with the EBITDA margins deteriorating below 20% before
recovering in 2024.The group's ability to increase revenue relies
on its ability to add new properties to its portfolio and the
willingness of the ultimate owners of these properties to increase
prices. We expect Awaze UK's growth to remain subdued in 2023 due
to the macroeconomic pressures in the U.K. At the same time,
Novasol's revenue, which comes mainly from Continental Europe,
should grow by 3%-5% in 2023, on the back of strong property
recruitment in the second half of 2023.
"Overall, we expect Awaze's revenue to fall below EUR400 million in
2023, before recovering in 2024. This will affect EBITDA
generation. Furthermore, while we understand that the group has
made several operational improvements, we do not expect the
benefits to fully materialize until 2024. We anticipate that the
EBITDA margin will fall toward 17%-18% in 2023. This is below the
20%-30% average for a typical lodging and hotel operator. Under our
base case, Awaze's margins only increase marginally to above 20% in
2024.
"Despite the large debt prepayment, we continue to view Awaze as
highly leveraged, with mounting refinancing risk and an aggressive
financial policy. The group completed the sale of Landal in April
2023 and received proceeds of EUR1.18 billion. It used the proceeds
to make a mandatory prepayment of 25% of its first-lien debt, equal
to EUR271 million, and pay EUR716 million of dividends to
shareholders. It held onto EUR162 million of cash and subsequently
used it to repay the second-lien debt in full in June 2023. The
current capital structure includes EUR444 million of first-lien
senior secured debt maturing in May 2025, and a EUR105 million
undrawn RCF maturing in May 2024. This implies adjusted leverage of
around 9.0x-10.0x by year-end 2023, in the absence of further debt
repayments.
"We view Awaze's liquidity profile as weak as a result of negative
free operating cash flow (FOCF) and large intra-year working
capital swings. The group had approximately EUR170 million of cash
as of the end of June 2023, following the prepayment of the
second-lien debt, as well as the fully available EUR105 million RCF
maturing in May 2024. We expect the group to draw on its RCF in the
fourth quarter of 2023 to cover the large working capital swings
during the year. We estimate these swings at about EUR200 million,
with the lowest cash point occurring in the fourth quarter and the
highest cash point the second quarter, when the group receives cash
from the summer bookings. We expect lower EBITDA generation and
higher interest expenses due to the unhedged exposure to EURIBOR
increases to significantly weaken FOCF generation, despite lower
capital expenditure (capex). This will result in FOCF after leases
of negative EUR50 million-EUR60 million in 2023.
"The CreditWatch negative placement reflects the increased risk of
a downgrade if Awaze is unable to refinance its upcoming debt
maturities in a timely fashion in the next few months, including
the RCF maturing in May 2024, and address its fragile liquidity
position. We view the RCF availability as critical to the group's
operations, particularly when working capital increases in the
latter part of the year, and our liquidity assessment is now weak
to reflect this.
"Our base-case forecast for Awaze shows very high adjusted leverage
of above 9.0x and negative FOCF after leases in 2023. In our view,
our forecasts imply a degree of weakness and a lack of headroom at
the current rating. Awaze's financial position places it at an
increasing risk of a deterioration in the macroeconomic environment
or operational underperformance. We intend to monitor and review
Awaze's ability to deleverage and demonstrate sustainable FOCF
generation."
S&P could lower the ratings on Awaze if:
-- The group is unsuccessful in the timely refinancing of its debt
instruments in the next few months, increasing the pressure on its
liquidity position; or
-- Having refinanced, the group has what S&P deems to be an
unsustainable capital structure, or is increasingly vulnerable to
external shocks. This could result, for example, from operational
underperformance, or an inability to demonstrate a clear path to
deleveraging and sustainable FOCF generation.
S&P could remove the ratings from CreditWatch and affirm them if
Awaze addresses the imminent maturity of its RCF within the coming
weeks or months, puts in place a sustainable capital structure
relative to its business size and needs, and maintains an adequate
liquidity position at all times.
BABYLON HEALTH: Enters Administration After NYSE Delisting
----------------------------------------------------------
John Leonard at Computing reports that the UK AI health company
touted by Matt Hancock was delisted by the New York Stock Exchange
last month and has now called in the administrators.
Babylon Health, the UK AI firm promoted as the future of the NHS by
former health secretary Matt Hancock, has entered UK administration
just two years after a high-profile listing on the New York Stock
Exchange, Computing relates.
According to Computing, Babylon Health was delisted from the NYSE
last month and is now facing collapse, after losing nearly all of
its US$4.2 billion valuation. The company's demise comes amid
allegations of overhyped technology, questionable ties to the
Conservative Party, and terminated contracts with UK hospitals,
Computing notes.
Babylon went public in New York in 2021 at a US$4.2 billion
valuation, making Parsa a billionaire, Computing recounts. But
following the loss of Wolverhampton and Birmingham trusts, the
company's share price fell by 85%, Computing discloses.
In July 2023, in the face of continuing financial problems, Babylon
was delisted from the NYSE, Computing relays. This month it
announced that London-based investment firm AlbaCore Capital would
take over its assets without shareholders' approval, and that it
was calling in administrators in the UK, Computing states.
According to Computing, in a statement on its website published
Aug. 7, the company said it was in discussions to seek additional
funding.
"Following Babylon's receipt of funding under its amended bridge
notes facility with AlbaCore, Babylon has no binding commitment for
additional financing to continue its business operations,"
Computing quotes the statement as saying.
"As a result, the Group is exploring new strategic alternatives in
order to find the best possible outcome for its UK business," it
continued.
"Babylon remains focused on continuing the day-to-day operations of
its UK business, providing accessibility of its healthcare services
and the highest standards of care for its patients and members.
The Group is pursuing the divestiture of its UK business to third
parties that may provide financing to assure the continuity of the
operations."
BRITISHVOLT: Australian Buyer Fails to Make Final Payment
---------------------------------------------------------
BusinessMatters reports that the Australian company that rode to
the rescue of the failed car battery firm Britishvolt earlier this
year has failed to make the final payment in its purchase of the
company, throwing the future of the deal into doubt.
Britishvolt's administrators, EY, said the buyer, Recharge
Industries, bought the business and assets for GBP8.57 million in a
deal finalised in February but had yet to make the final payment,
due on April 5, BusinessMatters relates.
"The final instalment remains unpaid and overdue. As a result, the
buyer is in default of the business sale agreement,"
BusinessMatters quotes EY as saying in a progress report.
However, Scale Facilitation, the Manhattan-based parent company of
Recharge, denied that it had defaulted on the deal, BusinessMatters
notes. The company, which is run by the Australian entrepreneur
David Collard, told ITV, which first reported the story: "We
dispute we are in default."
According to BusinessMatters, Scale said: "The timing of the final
instalment to the administrator is linked to a funding facility,
which when closed will also cover the cost of the land acquisition
and provide additional working capital for the project. The
financier is in direct contact with the counterparties, and we
anticipate closing in August following a period of significant due
diligence."
EY, as cited by BusinessMatters, said the joint administrators were
using "the protections and guarantees afforded in connection with
the business sale agreement to pursue the outstanding amounts due"
from Scale, raising hopes the deal could still go through.
Britishvolt had planned to build a GBP3.8 billion gigafactory in
northern England to supply the next generation of UK-built electric
vehicles, backed by GBP100 million in conditional funding from the
UK government. However, it collapsed into administration in late
January after running out of cash, BusinessMatters recounts.
CLINTONS: To Shut Down 38 of 179 Shops to Avert Collapse
--------------------------------------------------------
Joanna Partridge at The Guardian reports that the greetings card
chain Clintons is reportedly looking to close about a fifth of its
stores, as it tries to avoid going bust again.
According to The Guardian, the retailer is understood to have
appointed restructuring advisers from business advisory firm FRP to
help it draw up plans to prevent insolvency.
Under the move it would swap its debt for equity and shut 38 of its
179 shops, because of the "acute financial distress" it is facing,
The Guardian relays, citing the Times. It had reportedly been
exploring a tie-up with stationery and cards retailer Paperchase,
before the rival chain's brand and intellectual property, but not
its stores, were bought out of administration by Tesco, The
Guardian notes.
Clintons has struggled in recent years amid tough competition from
cheaper high street retailers as well as the big supermarkets and
internet rivals such as Moonpig, which said it was well positioned
to benefit from a "long-term structural market shift to online"
when it reported rising sales in the year to the end of April, The
Guardian discloses.
If Clintons does move to shut more stores, it would be just its
latest round of closures, The Guardian states. The company was
bought out of administration in late 2019 with its existing US
owners, which safeguarded 2,500 jobs and 332 stores, and closed a
significant number of its sites as a result, The Guardian
recounts.
The chain had hoped to carry out an insolvency procedure known as a
company voluntary arrangement (CVA), as it looked to slash rents
and close up to 66 of its branches, but it failed to get support
from its landlords, The Guardian notes.
Clintons entered administration in 2012, when it had about 784
stores, The Guardian relates. The company has permanently closed
branches in locations including Dorchester, Bolton and Ayr in the
past 18 months, The Guardian discloses.
HASTINGS & ROTHER: Solvency Issues Prompt Administration
--------------------------------------------------------
Flaminia Luck at BBC News reports that an East Sussex credit union
with 590 members has gone into administration.
Hastings & Rother Credit Union Limited, trading as 1066 Community
Bank, entered administration due to regulatory and solvency issues
on Aug. 9, BBC relates.
According to BBC, the Financial Services Compensation Scheme (FSCS)
said it will compensate most of the members within seven days.
Dina Devalia and James Varney, of business advisory firm Quantuma,
have been appointed as joint administrators of the credit union,
BBC discloses.
"Members of the Hastings & Rother Credit Union do not need to
worry," BBC quotes Ms. Devalia as saying. "Their money is safe and
the FSCS will return 100% of members' deposits, subject to the FSCS
limit."
She said they are working closely with the FSCS to ensure all
members will receive their money.
The credit union said all members' funds, below the GBP85,000
limit, will be protected and repaid in full by the FSCS, BBC
notes.
All members will be required to continue repaying any loans, in
line with their agreement, they added.
The credit union said its office in Hastings will close
immediately, BBC relays.
SHERWOOD PARENTCO: Moody's Affirms B1 CFR, Outlook Remains Stable
-----------------------------------------------------------------
Moody's Investors Service affirmed Sherwood Parentco Limited's
("Sherwood") B1 corporate family rating and Sherwood Financing
plc's B1 senior secured debt rating. The issuer outlook remains
stable.
RATINGS RATIONALE
The affirmation of Sherwood's B1 ratings with a stable outlook
reflects the continued progress the firm has made in shifting its
business model towards integrated fund management, with a growing
proportion of capital-light, recurring fee-based revenue sources,
which Moody's expects to reduce the firm's earnings volatility and
facilitate deleveraging. Sherwood's diversified business model now
incorporates complementing businesses, with its non-performing loan
(NPL) investments segment co-investing with the managed funds
business, further supported by the firm's asset management and
servicing capabilities.
Moody's expects Sherwood's presently elevated Debt/EBITDA leverage
levels (approximately 5x as of March 2023 based on last
twelve-month EBITDA), to decline to below 4x by the end of 2023,
facilitated by the divestment of certain of the firm's UK assets to
Intrum AB (publ) (Intrum, Ba3 stable) in May 2023. Going forward,
the rating agency expects Sherwood to maintain leverage of up to
3.5x, in-line with the firm's leverage target of approximately 3x
(net debt basis). The achievement of a lower leverage level will be
supported by growth in EBITDA from the anticipated increase in cash
flows from the deployment of capital in discretionary credit funds
as well as by the continued expansion of the asset management and
servicing businesses.
With the growth in its integrated fund management business,
Sherwood will reduce the size of its direct balance sheet NPL
business, which will in turn drive down the utilization of its
credit facility, also supporting its deleveraging. Indeed, the
firm's co-investment percentage (through its direct balance sheet
investment business) in the second credit opportunity discretionary
investment fund (ACO 2) in the amount of EUR2.75 billion, the close
of which was announced in 1Q 2023, will be just 10%, as compared to
the co-investment percentage of 25% in the inaugural EUR1.7 billion
credit opportunity fund (ACO 1), closed in 2020.
Sherwood's CFR also incorporates: 1) moderate interest coverage,
having been negatively impacted by higher interest rates, but also
2) absence of debt maturities until 2026; 3) weak profitability
with high earnings volatility; 4) weak capitalisation, with a
tangible equity deficit; 5) geographical concentrations, with a
relatively large exposure to the countries in Southern Europe; and
6) regulatory risk inherent to the debt collection business.
The rating of B1 of Sherwood Financing plc's senior secured debt
reflects their priorities of claims in Sherwood's liability
structure.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Sherwood's CFR could be upgraded if the firm's profitability and
interest coverage levels improve as the firm continues to expand
its integrated fund management business, while maintaining its
Debt/EBITDA leverage at the targeted level (approximately 3x on a
net debt basis) on a consistent basis.
Sherwood's CFR could be downgraded if the firm's direct balance
sheet business continues to exhibit high earnings volatility or if
the deployment of capital in its discretionary funds proves to be
slower than anticipated, delaying the anticipated deleveraging. The
ratings could also be downgraded if Moody's comes to believe that
the firm's expansion into other asset classes, including real
estate assets, presents additional credit risks given these assets'
characteristics, that are not commensurate with the B1 rating.
Sherwood Financing plc's senior secured ratings could be downgraded
if the firm does not reduce the utilization of its revolving credit
facility as anticipated.
The senior secured ratings could be upgraded or downgraded with a
corresponding change in the CFR.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Finance
Companies Methodology published in November 2019.
THOMAS DORNAN: August 18 Online Auction Set for Assets
------------------------------------------------------
Business Sale reports that the assets of Oldham-based Thomas Dornan
(Printers) are set to be sold after the company fell into
administration.
According to Business Sale, the assets are set to be brought to
market in an online auction closing Aug. 18, after initial attempts
to sell all the business and assets as a whole failed to find a
buyer.
Thomas Dornan (Printers) was founded in 1848, reportedly making it
the UK's third-oldest printing firm. The company specialises in
digital, litho and large format printing and had an average team of
15 employees during the year ending May 31, 2022.
Despite the company's longstanding operation, it was hit by the
impact of COVID-19, as well as more recent challenges, Business
Sale relates. As a result, the firm was forced to enter
administration, with Christopher Lawton and Gary Lee of Begbies
Traynor appointed as joint administrators on June 29, 2023,
Business Sale discloses.
The administrators initially sought to sell the business and assets
as a whole, Business Sale notes. However, they will now market the
assets on a break-up basis, while continuing to field offers to
acquire all assets, should there be any interest, Business Sale
states.
In Thomas Dornan's accounts for the year to May 31, 2022, its net
assets were valued at GBP227,565, down from GBP291,122 in its
accounts for the previous year, according to Business Sale.
VOYAGE BIDCO: Moody's Affirms 'B2' CFR, Alters Outlook to Negative
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Moody's Investors Service affirmed the B2 corporate family rating
and B2-PD probability of default rating of Voyage Bidco Limited
(Voyage or the company), a UK based behavioural care provider.
Concurrently, Moody's affirmed the B2 rating of the GBP250 million
backed senior secured notes issued by Voyage Care BondCo PLC. The
outlook on all ratings was changed to negative from stable.
The rating action reflects the company's weak credit metrics
resulting from a challenging fiscal 2023 (ended March 31, 2023).
The company's performance in fiscal 2023 was negatively impacted by
significant macroeconomic challenges, most notably the tight labour
market in the UK and the high inflationary environment. This
constrained EBITDA generation pushing its Moody's adjusted debt/
EBITDA up to 7.5x in fiscal 2023 from 5.7x in 2022. Although
management has a track record of successfully negotiating fee
increases to compensate for costs increases, during the last year
there were timing delays between cost increases and implementing
fee increases. In addition, Voyage's customers had their own
budgetary constraints, with their budgets having been approved
prior to the start of the war in Ukraine and the peak of the
cost-of-living crisis in the UK. Leverage is only expected to
recover in fiscal 2025, when Moody's expects EBITDA to grow again
when staffing pressures reduce off the back of prior year staff
retention investments and to reduce leverage towards 6.5x.
RATINGS RATIONALE
Voyage's B2 CFR is supported by (1) its strong position in a niche
market benefitting from non-discretionary demand; (2) long-term
care needs translating into long-term contracts and long-lasting
customer relationships with key public payers; (3) the company's
quality leadership with excellent Care Quality Commission (CQC)
ratings; (4) a solid track record of high occupancy and increasing
fees and; (5) relatively fast growth in Community-Based Care
Services. The credit profile further benefits from Voyage's
conservative use of leases, which limits the group's exposure to
increasing rents and provides a high level of balance sheet asset
backing.
The B2 CFR is constrained by (1) its relatively limited scale
compared with Moody's rated universe, despite its leading positions
in a fragmented market; (2) high leverage; (3) budgetary pressures
on public payers, which could limit Voyage's pricing power and; (4)
increasing costs, including inflationary wage pressure and
continuing increases in the National Living Wage (NLW) and National
Minimum Wage (NMW).
ENVIRONMENTAL, SOCIAL & GOVERNANCE CONSIDERATIONS
Voyage's ESG Credit Impact Score is CIS-4, driven by the financial
structure of the company and sector exposure. Governance risks
primarily relate to the company's concentrated ownership and its
tolerance for high leverage. The main social risks that Moody's
considers in Voyage's credit profile are (1) tariff regulation
given that the group derives nearly all its revenue from work
commissioned by public payers, and (2) tight labour supply
maintaining inflationary pressure on the cost base.
LIQUIDITY
Moody's expects Voyage's liquidity to remain adequate over the next
12-18 months. As of March 31, 2023, the company had an unrestricted
cash balance of GBP13.2 million and GBP48 million available under
its revolving credit facility (RCF). Moody's expects the RCF to be
drawn further to fund its internal capital investments.
The RCF contains one springing financial covenant tested at 40%
utilisation. The test level is a minimum EBITDA of GBP26.2 million,
for which Moody's expect headroom to remain strong. The company has
no short-term debt maturities (apart from limited lease
obligations) and the first upcoming long-term debt maturity is the
RCF in November 2026 followed by the bond maturing in February
2027.
STRUCTURAL CONSIDERATIONS
Voyage's GBP250 million backed senior secured notes due 2027 are
rated B2, in line with the CFR and are issued by Voyage Care BondCo
PLC. The backed senior secured notes benefit from (1) guarantees by
the parent company and certain subsidiaries that must represent at
least 80% of the restricted group's EBITDA and assets; and (2)
security over the share capital and substantially all assets of the
issuer and the guarantors, including most of Voyage's freehold and
certain long leasehold properties, the freehold properties net book
value as of March 31, 2023 was GBP318.4 million. The backed senior
secured notes share the same collateral package but will rank
behind the GBP50 million super senior RCF borrowed by Voyage Bidco
Limited under the terms of an intercreditor agreement.
RATING OUTLOOK
The negative outlook reflects Voyage's current very weak credit
metrics and slower path to de-lever to levels in line with a B2
CFR.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
While an upgrade is unlikely, given the weak rating position,
upward rating pressure could occur if the company were to (1)
increase scale and generate substantial Moody's-adjusted free cash
flow (FCF) such that the ratio of FCF/Debt is in the high single
digits and (2) maintain conservative financial policies that would
reduce Moody's-adjusted leverage below 5.5x on a sustainable
basis.
Negative rating pressure could develop if (1) trading performance
were to deteriorate significantly or (2) Moody's-adjusted leverage
increased sustainably well above 6.5x, or (3) FCF turned negative
on a sustained basis. Furthermore, any major debt-funded capital
spending, acquisition or shareholder return could trigger a
negative rating action.
LIST OF AFFECTED RATINGS
Affirmations:
Issuer: Voyage Bidco Limited
Probability of Default Rating, Affirmed B2-PD
LT Corporate Family Rating, Affirmed B2
Issuer: Voyage Care BondCo PLC
BACKED Senior Secured Regular Bond/Debenture, Affirmed B2
Outlook Actions:
Issuer: Voyage Bidco Limited
Outlook, Changed To Negative From Stable
Issuer: Voyage Care BondCo PLC
Outlook, Changed To Negative From Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
CORPORATE PROFILE
Headquartered in Lichfield, UK, Voyage Bidco Limited is a
behavioural care provider for people with complex needs, notably
learning disabilities and autism, as well as physical disabilities
and acquired brain injuries. Voyage cares for 3,395 people in the
UK (1,900 through its Registered Care services and 1,495 through
its Community Based Care services), the large majority of which
have lifelong conditions and high acuity needs and are assessed as
critical or substantial (takes much longer than usual to complete a
daily task) by local authorities and the National Health Service
(NHS).
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