/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/230816.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 16, 2023, Vol. 24, No. 164 Headlines G E R M A N Y TAKKO FASHION: Simpson Thacher Served as Adviser in Restructuring I R E L A N D METRON STORES: Tesco in Advanced Talks to Rescue Iceland Chain TORO EUROPEAN 4: Moody's Affirms B3 Rating on EUR10.5MM F-R Notes L U X E M B O U R G ENDO LUXEMBOURG: Pioneer Floating Marks $1.4MM Loan at 24% Off FAGE INTERNATIONAL: S&P Ups LT ICR to 'BB-', Outlook Stable R U S S I A APEX INSURANCE: S&P Ups Financial Strength Rating to 'B+' S E R B I A AIK JAGODINA: Mona Fashion Acquires Business for RSD8.6 Million U N I T E D K I N G D O M B&M EUROPEAN: S&P Alters Outlook to Positive, Affirms 'BB' ICR ICELAND BONDCO: Fitch Gives Final 'B+' Rating to GBP265MM Notes MANSARD MORTGAGES 2007-1: Fitch Affirms 'BBsf' Rating on B2a Notes R&W CIVIL: Enters Administration STANLINGTON NO. 2: S&P Affirms 'BB(sf)' Rating on Cl. F-Dfrd Notes TOWD POINT GRANITE 4: Fitch Affirms 'BB+sf' Rating on G-R Notes WILKO LTD: DB Pension Scheme Enters PPF Assessment Period WILKO LTD: Paid Out GBP77 Million to Owners Prior to Collapse - - - - - ============= G E R M A N Y ============= TAKKO FASHION: Simpson Thacher Served as Adviser in Restructuring ----------------------------------------------------------------- Simpson Thacher advised Takko Fashion Gmbh ("Takko Fashion") in connection with the Group's successful cross-border restructuring involving, among other things, a transfer of ownership to certain of Takko Fashion's bondholders and a comprehensive recapitalisation. With the completion of the transaction, Takko Fashion has strengthened its financial profile by reducing leverage by more than EUR250 million and extending debt maturities to 2026. Takko Fashion is now better positioned to further execute on its strategic priorities and expand its presence across Europe. Takko Fashion is a leading European fashion discount retailer with almost 2,000 stores in 17 European countries. The Simpson Thacher team included Nicholas Shaw, Uma Sud, Patrick Kratzenstein and Thomas Flament (Capital Markets); James Watson, Thomas Wilson, Ilaria Olivero and Euan Gillies (Restructuring); Shahpur Kabraji, Matthew Hope, Margareta Chlubnova and Kwasi Mills-Bampoe (Credit) and James Howe, Christopher Vallance and James Evelegh (UK Corporate). ============= I R E L A N D ============= METRON STORES: Tesco in Advanced Talks to Rescue Iceland Chain -------------------------------------------------------------- Tom Lyons at The Currency reports that British retail giant Tesco is in advanced talks to rescue the troubled Irish franchise behind 26 Iceland supermarkets. The company behind Iceland in Ireland, Metron Stores Ltd, went into examinership in June, The Currency relates. It employs 344 people and cited high rents, an employee strike, and a product recall of frozen animal products as among the reasons it required restructuring, The Currency discloses. According to The Currency, there are also believed to be other parties interested in investing in the business, but Tesco is now advancing discussions and due diligence. TORO EUROPEAN 4: Moody's Affirms B3 Rating on EUR10.5MM F-R Notes ----------------------------------------------------------------- Moody's Investors Service has upgraded the ratings on the following notes issued by Toro European CLO 4 Designated Activity Company: EUR19,500,000 Class B-1-R Secured Floating Rate Notes due 2030, Upgraded to Aaa (sf); previously on Mar 21, 2022 Affirmed Aa1 (sf) EUR13,000,000 Class B-2-R Secured Fixed Rate Notes due 2030, Upgraded to Aaa (sf); previously on Mar 21, 2022 Affirmed Aa1 (sf) EUR15,000,000 Class B-3-R Secured Floating Rate Notes due 2030, Upgraded to Aaa (sf); previously on Mar 21, 2022 Affirmed Aa1 (sf) EUR25,000,000 Class C-R Secured Deferrable Floating Rate Notes due 2030, Upgraded to Aa1 (sf); previously on Mar 21, 2022 Upgraded to A1 (sf) EUR20,750,000 Class D-R Secured Deferrable Floating Rate Notes due 2030, Upgraded to A2 (sf); previously on Mar 21, 2022 Affirmed Baa2 (sf) Moody's has also affirmed the ratings on the following notes: EUR240,000,000 (Current outstanding amount EUR 81,669,600) Class A-R Secured Floating Rate Notes due 2030, Affirmed Aaa (sf); previously on Mar 21, 2022 Affirmed Aaa (sf) EUR26,500,000 Class E-R Secured Deferrable Floating Rate Notes due 2030, Affirmed Ba2 (sf); previously on Mar 21, 2022 Affirmed Ba2 (sf) EUR10,500,000 Class F-R Secured Deferrable Floating Rate Notes due 2030, Affirmed B3 (sf); previously on Mar 21, 2022 Affirmed B3 (sf) Toro European CLO 4 Designated Activity Company, issued in September 2014 and reset in July 2017, is a collateralised loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured European loans. The portfolio is managed by Chenavari Credit Partners LLP. The transaction's reinvestment period ended in July 2021. RATINGS RATIONALE The rating upgrades on the Class B-1-R, Class B-2-R, Class B-3-R, Class C-R and Class D-R Notes are primarily a result of the significant deleveraging of the senior notes following amortisation of the underlying portfolio since the last review in December 2022. The affirmations on the ratings on the Class A-R, Class E-R and Class F-R Notes are primarily a result of the expected losses on the notes remaining consistent with their current rating levels, after taking into account the CLO's latest portfolio, its relevant structural features and its actual over-collateralisation ratios. The Class A-R notes have paid down by approximately EUR87.0 million (36.3%) since the last review in December 2022 and EUR158.3 million (66.0%) since closing (reset) in July 2017. As a result of the deleveraging, over-collateralisation (OC) has increased across the capital structure. According to the trustee report dated July 2023 [1] the Class A/B, Class C, Class D and Class E OC ratios are reported at 164.4%, 141.5%, 126.8% and 112.0% compared to November 2022 [2] levels of 147.7%, 132.4%, 121.9% and 110.7%, respectively. Moody's notes that the July 2023 principal payments are not reflected in the reported OC ratios. The key model inputs Moody's uses in its analysis, such as par, weighted average rating factor, diversity score and the weighted average recovery rate, are based on its published methodology and could differ from the trustee's reported numbers. In its base case, Moody's used the following assumptions: Performing par and principal proceeds balance: EUR228.4m Defaulted Securities: EUR2.0m Diversity Score: 35 Weighted Average Rating Factor (WARF): 2990 Weighted Average Life (WAL): 2.75 years Weighted Average Spread (WAS) (before accounting for Euribor floors): 3.60% Weighted Average Coupon (WAC): 3.50% Weighted Average Recovery Rate (WARR): 43.26% Par haircut in OC tests and interest diversion test: none The default probability derives from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The estimated average recovery rate on future defaults is based primarily on the seniority of the assets in the collateral pool. In each case, historical and market performance and a collateral manager's latitude to trade collateral are also relevant factors. Moody's incorporates these default and recovery characteristics of the collateral pool into its cash flow model analysis, subjecting them to stresses as a function of the target rating of each CLO liability it is analysing. Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in December 2021. Counterparty Exposure: The rating action took into consideration the notes' exposure to relevant counterparties, such account bank, using the methodology "Moody's Approach to Assessing Counterparty Risks in Structured Finance" published in June 2022. Moody's concluded the ratings of the notes are not constrained by these risks. Factors that would lead to an upgrade or downgrade of the rating: The rated notes' performance is subject to uncertainty. The notes' performance is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. The collateral manager's investment decisions and management of the transaction will also affect the notes' performance. Additional uncertainty about performance is due to the following: -- Portfolio amortisation: The main source of uncertainty in this transaction is the pace of amortisation of the underlying portfolio, which can vary significantly depending on market conditions and have a significant impact on the notes' ratings. Amortisation could accelerate as a consequence of high loan prepayment levels or collateral sales by the collateral manager or be delayed by an increase in loan amend-and-extend restructurings. Fast amortisation would usually benefit the ratings of the notes beginning with the notes having the highest prepayment priority. -- Recovery of defaulted assets: Market value fluctuations in trustee-reported defaulted assets and those Moody's assumes have defaulted can result in volatility in the deal's over-collateralisation levels. Further, the timing of recoveries and the manager's decision whether to work out or sell defaulted assets can also result in additional uncertainty. Moody's analysed defaulted recoveries assuming the lower of the market price or the recovery rate to account for potential volatility in market prices. Recoveries higher than Moody's expectations would have a positive impact on the notes' ratings. In addition to the quantitative factors that Moody's explicitly modelled, qualitative factors are part of the rating committee's considerations. These qualitative factors include the structural protections in the transaction, its recent performance given the market environment, the legal environment, specific documentation features, the collateral manager's track record and the potential for selection bias in the portfolio. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, can influence the final rating decision. =================== L U X E M B O U R G =================== ENDO LUXEMBOURG: Pioneer Floating Marks $1.4MM Loan at 24% Off -------------------------------------------------------------- Pioneer Floating Rate Fund, Inc has marked its $1,477,992 loan extended to Endo Luxembourg Finance Company I S.a r.l. to market at $1,129,740 or 76% of the outstanding amount, as of May 31, 2023, according to Pioneer's semi-annual report on Form N-CSR for the period from December 1, 2022 to May 31, 2023, filed with the Securities and Exchange Commission. Pioneer Floating is a participant in a 2021 Term Loan to Endo Luxembourg Finance Company I S.a r.l. The loan accrues interest at a rate of 14.25% (LIBOR+400 bps) per annum. The loan matures on March 27, 2028. Pioneer Floating Rate Fund, Inc is organized as a Maryland corporation. Prior to April 21, 2021, the Fund was organized as a Delaware statutory trust. On April 21, 2021, Pioneer Floating redomiciled to a Maryland corporation through a statutory merger of the predecessor Delaware statutory trust with and into a newly established Maryland corporation formed for the purpose of effecting the redomiciling. Pioneer Floating Rate Fund, Inc was originally organized on October 6, 2004. Prior to commencing operations on December 28, 2004, it had no operations other than matters relating to its organization and registration as a diversified, closed-end management investment company under the Investment Company Act of 1940, as amended. Endo Luxembourg Finance Company I S.a r.l is in the pharmaceutical industry. The Company’s country of domicile is Luxembourg. FAGE INTERNATIONAL: S&P Ups LT ICR to 'BB-', Outlook Stable ----------------------------------------------------------- S&P Global Ratings raised its long-term issuer credit rating on yogurt producer FAGE International S.A. (FAGE) to 'BB-' from 'B+'. At the same time, S&P raised the issue rating on the senior unsecured notes to 'BB-' from 'B+'. The stable outlook reflects S&P's expectations that the group will continue experiencing robust operating results from the solid position of plain Greek yoghurt and as the company builds on its existing brand position, despite the current slowdown in volume growth. The planned debt repayment will create leverage headroom. FAGE will repay about $100 million of its remaining $285 million senior unsecured notes, due 2026, creating debt leverage headroom and improving its credit metrics. As a result, S&P forecasts adjusted leverage to be around 1.5x-2.0x on average going forward. S&P expects the repayment to be funded with cash on hand. S&P anticipates a solid operating performance in 2023 with volume decreases offset by net average selling price increases and softened raw material costs. The company finished the first half of 2023 with sales amounting to $309.6 million (an increase of 10.6% from the same period in 2022) and a reported EBITDA of $84.3 million. This resulted in improved margins of 27.2% (versus 12.2% the same period last year). S&P said, "Although we expect 2023 to continue to reflect an overall robust operating performance, as the company further builds on its brand position and product mix, we expect volume growth to remain more subdued in the next two years. The suppressed growth will be caused by strong competition from private label as consumers switch to lower priced products (especially in Greece and Italy), as well as price increases continuing in 2023, which will then moderate in 2024 and 2025. Counterbalancing this, FAGE will benefit this year from lower milk prices--its most important raw material--and lower energy costs. We also expect the company to regain marketing and advertisement momentum this year. We therefore anticipate a step up in selling, general and administrative expenses from 2022 levels. "As such, we expect revenue of $570 million-$600 million in 2023-2024 and an S&P Global Ratings-adjusted EBITDA of about $105 million-$120 million over the same period, with average adjusted margins of 18.5%-20.5%. That said, the company's concentration on one product type and reliance on milk ingredients makes it vulnerable to changing consumer needs and raw material price volatility. Historically, the company's EBITDA margin has shown volatility given its dependence on milk and milk derivatives as a key product ingredient, which weighs on credit metrics. More than 95% of FAGE's product offering is yogurt (including plain and flavored Greek yogurt). Most of its raw material costs are milk and other dairy-derived ingredients. Although milk prices have decreased compared to 2022, exposure to changing market conditions and price fluctuations can cause the company's operating performance and cash generation to rapidly change. S&P said, "Although we expect resilient results in 2023 as milk prices have somewhat decreased, we still include a degree of uncertainty in our base case but consider the company to have headroom in case of changing market conditions. We forecast adjusted leverage of 1.5x-2.0x, which will give the company headroom if needed. That said, we consider the rating on FAGE capped at 'BB-' given the volatility in its cash flow metrics in the past. FAGE has displayed fluctuations in its adjusted debt-to-EBITDA, starting at 2.7x in 2017, reaching about 4.6x and 4.9x in 2018 and 2019, then settling at roughly 3x-4x in in 2020-2022." The new plant facility in the Netherlands will weigh on free operating cash flow (FOCF) from 2025. The upcoming new manufacturing facility in the Netherlands will increase the production capacity in Europe to accommodate growing demand. S&P said, "We expect the construction will require a total capital expenditure (capex) of EUR200 million-EUR250 million, materially suppressing FOCF in 2025 and beyond. While we consider that the company will have solid FOCF generation in 2023 and 2024 of $60 million-$80 million, we project this will reduce to about $20 million from 2025 as capex on the new facility ramps up." S&P said, "The stable outlook reflects our view on FAGE's solid operating profitability. This is despite moderate sales growth and stemming from the company's efforts to build on the brand and product mix, as well as the ongoing solid performance of plain yogurt. In our base case we include volatility to consider changing consumer needs and fluctuations in milk prices. As such, we estimate FAGE to be within 1.5x-2.0x on a weighted average basis with FOCF to debt of about 30%-35%. "A negative rating action could stem from FAGE's operating performance weakening. This could happen, for instance, if the group was unable to mitigate high costs from volatile milk prices or pressure on volume due to changing consumer trends. We could also consider lowering the rating if FAGE made debt-funded investments or acquisitions, resulting in materially weaker credit metrics. In particular, we would likely lower the rating if adjusted debt to EBITDA increased towards 3.0x and FOCF to debt was lower than 25%. "We could raise the rating on FAGE if it generates recurring, healthy FOCF to debt of 30%-40% and maintains adjusted debt to EBITDA closer to 1.0x on a sustained basis. "ESG factors are an overall neutral consideration in our credit rating analysis of FAGE. In terms of governance, we highlight the company has been owned by the family of Athanassios Filippou, the current CEO, since its founding. Working alongside professional management, the owners have delivered a track record of profitable growth, also expanding the business into the U.S. Competing against larger players in a mature industry, FAGE is a well-differentiated leader in the niche Greek yoghurt category that continues to have strong traction with consumers." =========== R U S S I A =========== APEX INSURANCE: S&P Ups Financial Strength Rating to 'B+' --------------------------------------------------------- S&P Global Ratings raised its long-term financial strength rating on Apex Insurance JSC (Apex) to 'B+' from 'B'. The outlook is stable. S&P said, "We view Apex's competitive position as having improved since its inception in 2018. Over the last year, Apex's market share doubled and reached 16% in terms of gross premiums written (GPW) and net premiums written. The company became one of the largest players in Uzbekistan's insurance market with total GWP of about $80 million. While Uzbekistan's property/casualty (P/C) insurance market remains relatively small in absolute terms, Apex's premium volume is now comparable with midsize insurers in bigger markets, such as Kazakhstan. The company's growth was mostly driven by large contracts and the expansion of its sales team and agents network in September 2022, which helped strengthen its franchise in different regions of Uzbekistan as well as the bancassurance channel. Apex's profitability has also increased with an average ROE exceeding 30% over 2019-2022 (and above 60% in 2022) on the back of high premium growth and improved technical results, with the net combined ratio (loss and expense) declining to 94% in 2022 from 100.5% in 2021. Apex's net income reached UZS90 billion ($7.7 million) in first-half 2023, according to local accounting standards, similar to the full-year 2022 results. We expect that the company can maintain stronger profitability metrics than most domestic peers with a combined ratio of 94%-96% compared to the system average of above 100%. This will be supported by an increasing portion of property insurance in its portfolio, which is usually associated with lower losses compared to the financial risk insurance prevailing in the industry. "We expect Apex's capital adequacy will be supported by the recent capital injection and retained earnings but will remain relatively modest amid fast expansion.Apex's capital adequacy was 40% below the 'BBB' level in 2022, according to S&P Global Ratings' capital model. In June 2023, the company received a UZS100 billion ($8.6 million) capital injection from shareholders to support a geographical expansion and increase its international reinsurance portfolio in 2023-2024. However, the portion of such business will not exceed 10% of GWP in the next 12 months, while the maximum net retention on such risks will remain below 5% of capital. Additionally, earnings will likely remain capital accretive, further bolstering Apex's capitalization. That said, we acknowledge the company's capital buffers remain relatively modest in an international context, amid its expected high premium growth of 100% in terms of net premium earned in 2023 and 40%-50% in 2024-2025. We forecast capital adequacy will remain 20%-25% below our 'BBB' benchmark in the next two years. "Apex's solvency level meets local regulatory requirements, although the margin remains relatively narrow (1.14x as of July 1, 2023, versus 1.0x at year-end 2022). Under our base case, we expect it will remain above the regulatory minimum of 1.0x in the next 12 months. Furthermore, our base case does not factor regulatory intervention because we expect that capital will be upheld and/or restored to minimum requirements in case of a temporary shortfall. "We base our analysis of Apex on the consolidated financials of Apex Insurance, which are prepared according to International Financial Reporting Standards.The group also includes Apex's 100% subsidiary, Apex Life JSC. Apex Insurance is an integral part of the group because it represents more than 80% of premiums and consolidated assets and is the driving force behind the group's creditworthiness. The group credit profile (GCP) is 'b+'. Our financial strength rating on Apex Insurance is equalized with the GCP. "The stable outlook reflects our expectation that, over the coming 12 months, Apex will maintain its competitive standing and stronger profitability than peers, while sustaining its capital adequacy." S&P could consider a negative rating action over the next 12 months if it sees: -- Underwriting and overall operating performance are weaker than S&P's expectations or those of peers, indicating potential weaknesses in Apex's competitive standing. -- A deterioration of the capital base and capital adequacy according to S&P's capital model--due to weaker-than-expected operating performance, aggressive growth, and/or investment losses--and this is not offset by shareholder capital injections. -- A deterioration in the regulatory solvency margin due to higher-than-expected growth, for example, resulting in an increased risk of regulatory intervention--although S&P sees this as remote. -- Significant and sustained asset-quality deterioration. -- Deficiencies in management and governance, including financial reporting or risk controls, that S&P views as detrimental for Apex's credit profile. S&P said, "We could take a positive rating action over the next 12 months if the company's risk-adjusted capital adequacy improved significantly above our current expectations. This could, for example, be from higher-than-expected earnings or capital injections, along with Apex diversifying its investment portfolio. "For a positive rating action, we would also expect no significant deficiencies in management and governance, whether in financial reporting standards or risk controls, including related-party transactions." =========== S E R B I A =========== AIK JAGODINA: Mona Fashion Acquires Business for RSD8.6 Million --------------------------------------------------------------- Djordje Jajcanin at SeeNews reports that Serbia sold insolvent agroindustrial company AIK Jagodina to clothing company Mona Fashion for RSD8.6 million (US$80,000/EUR73,400), the bankruptcy supervision agency said. As part of the deal, Mona Fashion acquired 60 hectares of land in the central Serbian town of Jagodina, the agency said in a statement last week, SeeNews relates. AIK Jagodina was declared bankrupt in November 2011, SeeNews discloses. =========================== U N I T E D K I N G D O M =========================== B&M EUROPEAN: S&P Alters Outlook to Positive, Affirms 'BB' ICR -------------------------------------------------------------- S&P Global Ratings revised its outlook on B&M European Value Retail to positive from stable and affirmed its 'BB' long-term issuer credit rating on the company and the 'BB' issue rating on its senior secured notes. The positive outlook reflects the possibility of an upgrade over the next 12-18 months if B&M continues to see positive momentum in trading, maintaining stable profitability and strong cash generation, and executes financial policy, such that its credit metrics sustainably improve, including adjusted funds from operations (FFO) to debt of at least 35%, and FOCF after leases is ample and growing, sufficient to cover payments to shareholders. S&P said, "We forecast B&M's positive revenue growth will continue amid macroeconomic headwinds, because its value proposition will appeal to budget-conscious shoppers. The market has upheld its value appetite for general merchandise and grocery amid the cost-of-living crisis in the U.K.: We see strong 9.2% like-for-like sales growth for the B&M UK brand and 13.5% growth for total group sales in the first quarter of fiscal 2024. The strong sales momentum has outperformed our forecast. Helped by the trend of value shopping that is likely to be prolonged amid anticipated incremental interest rate hikes and consumer price inflation, we expect an approximately 6%-7% increase in the group's revenue in fiscal 2024, driven by passing on cost increases via higher prices as well as new store openings and an increasing number of transactions. As the inflation rate subsides, we expect about 4%-5% annual growth in revenue in 2025-2026, largely driven by new store openings. In addition, we expect growth potential and sustained demand in B&M France and Heron Foods will continue to contribute about 20% of the group's revenue. As of first quarter of fiscal 2024 (13 weeks to June 24, 2023), B&M France and Heron Foods grew by about 20% and 30% compared with the previous fiscal year. "Larger revenue scale, margin-enhancing product mix, and operating efficiency initiatives give sufficient buffer as pressure on profitability continues from labor costs inflation and uncertainty over energy prices. We expect the adjusted EBITDA margin will decline by about 50-70 basis points (bps) in 2024 from 15.7% in 2023, under the combined effect of about 10% increase in the U.K. minimum wage and anticipated normalization of input costs and logistics fees. In order to maintain competitive pricing and defend volumes, we expect the group will continue to manage its mostly low-priced product range and absorb part of the cost surge rather than passing it fully to customers. Nonetheless, we believe its direct sourcing model and agile merchandising strategy will continue to support the adjusted EBITDA margin at about 15.0%-16.0%, which is above pre-pandemic levels (14.1% in fiscal 2020) and compares well with the forecast for its Netherlands-based peer, Peer Holdings. "The prospects of sustained improvement in credit metrics relies on maintaining solid cash flow generation. Thanks to stronger trading and working capital inflow than we had expected, the group posted about GBP419 million FOCF after leases as of fiscal year-end 2023, which is GBP100 million above our forecast. After GBP366 million of dividends (of which GBP166 million ordinary) the group posted strong discretionary cash flow (DCF) at GBP221 million. This speaks to the organically cash generative nature of the business, noting that new stores contribute less than 10% of total revenue. We expect B&M to maintain FOCF after leases above GBP340 million for 2024-2025, with sales growth and disciplined capital expenditure (capex) outweighing some softer margins. "The improvement in credit metrics, alongside the group's track record of adhering to its declared leverage guidance, led us to revise our assessment of the group's financial risk profile to intermediate from significant. In our view, however, the group's financial policy will drive DCF and surplus cash (influencing our adjusted net debt calculation). In our base case, we assume GBP200 million special dividends per year, in addition to the common dividends in line with the announced policy (30%-40% of post-tax earnings), which will lead to break-even DCF after leases in 2024 and turning positive in 2025 and beyond. This is per the group's record of shareholder returns and its public guidance of a net reported leverage ceiling of 2.25x (corresponding to our adjusted debt to EBITDA of 3.7x) and operating level of about 1.00x-1.25x. Based on our earnings and cash generation forecast, the group's adjusted credit metrics will improve to around 2.3x-2.5x debt to EBITDA for 2024-2025 (from 2.6x in 2023) and about 29%-32% FFO to debt in 2024-2025, indicating comfortable headroom within the new financial risk profile category. Our base case does not include material debt-funded acquisitions or projects. "B&M's extended debt maturity profile, ample revolving credit facility (RCF) availability, and strong cash flow support liquidity. We view positively the group proactively extending GBP225 million of its GBP300 million term loan maturity by three years to April 2028. Following the repayment of the remaining GBP75 million in fiscal 2024, the next maturity is GBP400 million of senior secured notes due in July 2025. The transaction also included extending and upsizing the RCF to GBP225 million from GBP155 million, also maturing in April 2028. This, together with the over GBP400 million cash FFO we anticipated and about GBP217 million accessible cash as of the end of fiscal 2023, supports B&M's liquidity position. "Reliance on China for its imported general merchandise goods could expose the group to supply chain disruptions amid rising geopolitical tension, although we do not integrate this into our base case. We view the strains between China and other countries, involving tighter scrutiny of suppliers, trade sanctions, and retaliations, as a threat to the global supply chain. With a significant portion of stock imported from China alone, B&M is more vulnerable to such risks compared with retailers that operate with a geographically diverse pool of suppliers. The group runs a policy of maintaining about 12-15 weeks of combined stock in the warehouse and in transit, allowing sufficient cover for a temporary shock in the supply chain, should that occur. That said, our base case does not incorporate such event risk. "The positive outlook reflects our view that B&M's FOCF after leases will remain above GBP340 million per year supported by like-for-like sales growth and store openings again picking up pace, with largely stable EBITDA margins of about 15%-16%, strong EBITDAR-to-cash interest plus rents cover of about 3x in the next two to three years, and FFO to debt rising up to 35% by the end of fiscal 2026. "We could revise the outlook to stable if the group's operating performance and cash flow becomes weaker than our base case or adopts a more aggressive financial policy than we expected, such that the improvement in the credit metrics achieved to date stalls at the current level." A further downgrade could happen if the weakening in the credit metrics substantially exceeded S&P's forecast, such that any of the following occurs: -- Adjusted debt to EBITDA exceeding 3x; -- EBITDAR cover declining toward 2.5x; or -- S&P expects a material weakening in its ability to generate substantial positive FOCF after leases. S&P could raise its rating on B&M if the group executes its strategic and operational initiatives and maintains its financial policy and capital allocation priorities, such that the following metrics reach and sustain at: -- Adjusted FFO to debt over 35%; -- Profitability margins at least at their current level; and -- Ample and growing positive FOCF after leases. S&P said, "We now view governance factors as neutral, compared with the moderately negative consideration in our previous credit rating analysis of B&M. The revision follows Simon Arora's stepping down from the role of CEO in September 2022 and retirement from the board in April 2023, after serving in senior management for almost 20 years. With strengthening corporate governance practices, we believe corporate decision-making is less likely to prioritize the interests of the founding owners than previously estimated. The Arora family continues to exert some influence, by directly and indirectly owning 6.98% (10.98% last year) of B&M equity, being an ultimate landlord to about 8.8% in 2023 (9.0% last year) of B&M UK's stores, owning about GBP247 million (GBP156 million last year) of the group's bonds, and providing additional services to the group. We understand, however, that the potential conflicts of interests are governed by a relationship agreement between the family and B&M. The group is also well positioned in adjusting the strategy to prevailing market conditions while lengthening its track record of a more moderate financial policy." ICELAND BONDCO: Fitch Gives Final 'B+' Rating to GBP265MM Notes ---------------------------------------------------------------- Fitch Ratings has assigned Iceland Bondco PLC's new GBP265 million and EUR250 million senior secured notes (SSNs) final ratings of 'B+' with Recovery Ratings of 'RR3'. The ratings are aligned with its existing SSNs' ratings. Refinancing its GBP550 million existing notes (due in March 2025) at a lower level and reducing its debt by GBP75 million from cash is credit-positive. It will reduce EBITDAR gross leverage to below 6.0x in FY26, which will be more in line with the 'B' rating category. It will also lead to a slightly better EBITDAR coverage ratio than if it was fully refinanced. The new notes rank equally with existing senior secured notes, but behind Iceland's revolving credit facility (RCF). KEY RATING DRIVERS Improved Leverage Headroom: Fitch estimate improved leverage headroom under the rating with EBITDAR gross leverage projected to gradually reduce to around 6.0x in FY25 (year-end March), due to the GBP75 million lower debt, and to below 6.0x in FY26. This leverage profile is more in line with the 'B' rating category. Fitch rating case captures refinancing GBP475 million of its existing GBP550 million notes, with a GBP25 million reduction in debt from cash at the point of refinancing and a further GBP50 million in FY25 from Iceland's comfortable cash balance ahead of their maturity in March 2025. Fitch expect average EBITDAR coverage at around 1.6x, which is adequate for the rating, aided by lower debt. Fitch understand from management that Iceland plans to hedge the interest rate and currency exposure on the floating-rate euro-denominated portion of the new notes. Expected EBITDA Recovery: Fitch forecast FY24 EBITDA at around GBP150 million (after Fitch's GBP15 million deduction for leases) up from GBP113 million in FY23. The uplift is due to continued sales growth, benefiting from Iceland's value positioning; lower energy cost; and savings that help to offset cost inflation. Fitch forecast of GBP40 million FY24 EBITDA uplift prudently factors in some margin pressure versus management's guided GBP50 million reduction from locked-in lower energy cost. Profit Pressures Managed: Fitch expect Iceland to continue to benefit from various cost-saving measures to help offset cost inflation. Iceland outperformed Fitch rating case in FY23 due to cost savings and disposal of its loss-making business in Ireland (which it treated as discontinued). Generally, cost inflation is harder to absorb for smaller-scale grocers such as Iceland that operate with thinner EBITDA margins (2.9% in FY23) than large and more diversified mainstream grocers (around 5%-6%). Energy costs are over 95% locked in for FY24, and Fitch factor in a further GBP15 million reduction in costs on the back of current market prices, but this is yet to be locked in. Cash-generative Business: Similar to other food retailers, Iceland is a cash-generative business. Fitch expect neutral to positive free cash flow (FCF) margins of close to 1% in FY26, which is in line with peers', and reflected in the Stable Outlook. This is after GBP40 million-GBP55 million capex, of which only GBP15 million is for maintenance, and higher interest cost. Limited Outflows from Restricted Group: Fitch rating case does not capture further material outflows to support, or dividends from, its non-core restaurant business as its trading recovers. Instead Iceland has taken the first step to reduce its debt by GBP75 million. Iceland has invested nearly GBP50 million in its restaurant business, which remains outside the restricted group. Iceland initially extracted from the core business GBP31 million (3Q21), subsequently funded the restaurant business's trading losses and now has repaid the restaurant business's GBP15 million bank loan during FY24. Value Positioning Benefits: Consumer focus on value amid living cost pressures puts Iceland in a good position to gain, or at least hold onto, market share. Iceland is UK's second-largest frozen food retailer after Tesco. Iceland grew its sales during the global financial crisis and slightly increased its share in the UK grocery market between 2008 and 2023, despite competitive pressures and the rapid growth of discount stores. This was achieved by greater differentiation in its product offering, improved pricing, investment in its stores and formats, and improved brand positioning with regard to the environment and sustainability. Fitch expect the UK food industry to continue to see stiff competition. DERIVATION SUMMARY Iceland's business risk profile, as a mostly UK-based specialist food retailer, is constrained by the company's modest size and lower diversification than that of other Fitch-rated European food retailers, such as Tesco Plc (BBB-/Stable), Bellis Finco Plc (ASDA; B+/Stable) and Market Holdco 3 Ltd (Morrisons; B+/Stable). All three peers have higher market shares, larger scale, and greater diversification than Iceland. Fitch expect Iceland's EBITDAR gross leverage to reduce to around 6.5x in FY24 from 7.6x in FY23, which is higher than other Fitch-rated UK peers' (Morrisons: to 6.3x by FYE24 (year-end October) from around 7.0x in FYE23; ASDA: to 5.0x by end-2024 from around 6.0x for 2023; Tesco around 3.5x). Peers also benefit from stronger coverage ratios than Iceland. Iceland is larger than Picard Bondco S.A. (B/Negative), a French specialist food retailer also active in frozen foods, but its profitability is materially weaker (EBITDAR margin of 6% versus Picard's 17%). Picard operates mostly in the higher-margin premium segment and benefits from strong brand awareness. Picard's financial leverage is currently similar to Iceland's EBITDAR gross leverage. Fitch expect leverage for Picard to remain above 7.0x in FY23-FY26, but it has a stronger business profile. KEY ASSUMPTIONS Fitch's Key Assumptions Within its Rating Case for the Issuer: -- Retail revenue (excluding restaurants) growth of 4.0% in FY24, driven by consumer focus on value, and Food Warehouse store openings offsetting core Iceland store closures. This is followed by growth of about 1.0%-1.6% to FY26 -- Four Food Warehouse openings in FY24, increasing to 20-25 stores per year in the following three years, partly offset by core Iceland store closures of 10-20 per year -- EBITDA margin to recover to 3.7% in FY24 and 4% by FY25, as cost savings more than offset wage inflation and on some normalisation in energy cost -- Working capital outflow of GBP16 million in FY24 and neutral in the following three years -- Capex of GBP40 million in FY24 in line with management guidance, increasing to GBP55 million to fund Warrington depot in FY25 and then reverting to GBP40 million-GBP50 million in FY26 -- Refinancing of GBP550 million SSNs in FY24 with around GBP475 million-equivalent SSNs and GBP75 million repaid from cash -- No dividends or other distributions over the rating horizon -- Repayment of its restaurant business's bank loan (GBP12.5 million) in FY24 Fitch's Key Recovery Rating Assumptions: Fitch's recovery analysis assumes that Iceland would be reorganised as a going-concern in bankruptcy rather than liquidated. Fitch have assumed a 10% administrative claim. Iceland's going-concern EBITDA assumption reflects the scale of the company's business with new stores openings each year, improved cost base with visibility on energy cost and its disposed loss-making business in Ireland. Fitch have excluded the restaurant business from Fitch going-concern EBITDA calculation as the lenders under the rated debt instruments have no recourse to these cash flows. The going-concern EBITDA estimate of GBP120 million reflects Fitch view of a sustainable, post-reorganisation EBITDA on which Fitch base the enterprise valuation (EV), and excluding the loss-making Irish operations following their disposal. The assumption also reflects corrective measures taken in the reorganisation to offset the adverse conditions that trigger its default, such as cost-cutting efforts or a material business repositioning. Fitch apply an EV multiple of 4.5x to the going-concern EBITDA to calculate a post-reorganisation EV. Iceland's RCF at GBP50 million is assumed to be fully drawn on default. The RCF is super-senior to the company's senior notes in the debt waterfall. The waterfall analysis generates a ranked recovery for Iceland's new GBP475 million SSNs in the 'RR3' category, resulting in a 'B+' rating with a recovery percentage of 56%. This is in line with existing senior secured notes (from 55% previously), following a GBP25 million debt reduction. Fitch expect further improvement in recovery percentage within the 'RR3' range, once the remaining GBP50 million outstanding amount of initial GBP550 million notes is repaid with cash before its maturity in March 2025. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/An Upgrade (to B+): -- Fitch view an upgrade of the IDR as unlikely over the next two years, unless Iceland adopts and follows a more conservative financial policy -- Evidence of positive and profitable like-for-like sales growth and the maintenance of stable market shares, leading to increases in EBITDA margin towards 5% -- EBITDAR gross leverage below 5.5x on a sustained basis -- EBITDAR fixed-charge coverage above 2.0x on a sustained basis Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade (to B-): -- Evidence of decline in like-for-like sales, with loss of market shares due to competition or to permanently lower capex, or inability to pass onto consumers, or to mitigate, cost inflation, leading to accelerating EBITDA margin erosion or neutral FCF on a sustained basis -- Tightening of liquidity amid unexpected cash outflows -- EBITDAR gross leverage above 6.5x on a sustained basis -- EBITDAR fixed-charge coverage below 1.5x on a sustained basis BEST/WORST CASE RATING SCENARIO International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. LIQUIDITY AND DEBT STRUCTURE Comfortable Liquidity: Fitch views Iceland's current liquidity as comfortable, comprising around GBP139 million at FYE23, which excludes a restricted GBP20 million for working-capital purposes (Fitch's adjustment) along with an around GBP46 million undrawn RCF. Iceland has used GBP12.5 million of cash to repay its restaurant business debt after FYE23. Iceland's liquidity will tighten as Iceland has chosen to part refinance its existing GBP550 million SSNs with cash of GBP75 million ahead of maturity in 2025. Fitch expect available liquidity to remain satisfactory at around GBP115 million at FYE25 (after the restriction for working capital), which includes a GBP50 million RCF that has been extended to 2027. After the refinancing and full repayment of 2025 notes, financial debt maturities will be in 2027 and 2028. 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 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. MANSARD MORTGAGES 2007-1: Fitch Affirms 'BBsf' Rating on B2a Notes ------------------------------------------------------------------ Fitch Ratings has affirmed all Mansard Mortgages 2007-1 Plc notes. ENTITY/DEBT RATING PRIOR ---------- ------ ----- Mansard Mortgages 2007- 1 PLC Class A2a XS0293441241 LT AAAsf Affirmed AAAsf Class B1a XS0293458054 LT A+sf Affirmed A+sf Class B2a XS0293460381 LT BBsf Affirmed BBsf Class M1a XS0293442215 LT AAAsf Affirmed AAAsf TRANSACTION SUMMARY The transaction is securitisation of residential mortgages originated by Rooftop Mortgages Limited, a non-conforming mortgage lender that ceased lending activities in 2007. KEY RATING DRIVERS Credit Enhancement (CE) Accumulation: The transaction's cash reserve is non-amortising due to irreversible trigger breaches, and as a result, CE for all notes has continued to increase. Fitch expect the increasing CE trend to continue for the life of the transaction, despite the notes' current pro-rata amortisation. CE for the senior notes increased to 61.8% from 61% over the past 12 months, and for the most junior tranche to 5.3% from 4.5%. Uncertain Asset Performance: Fitch expects asset performance in non-conforming pools to deteriorate as a result of rising inflation and interest rates. A modest increase in arrears could result in lower model-implied ratings (MIR) in future model updates, as the small remaining pool balance amplifies the potential impact of a small number of loans falling into arrears. Class B1a Constrained Below MIR: Fitch expects the collateral pool granularity to be eroded as the transaction pays down. The transaction will irreversibly switch to sequential paydown once the 10% switchback trigger is hit. Fitch expects the loan count will decrease to less than 100 obligors once the class B1a notes reach the most senior position in the capital structure. As the loan count shrinks performance can become increasingly volatile, which has prompted Fitch to constrain the rating of the class B1a notes in the 'Asf' category, three notches below their MIR. Increased Senior Fees: The transaction has incurred an increased and volatile level of senior fees over the last 24 months. A moderate increase in senior fees from the baseline assumed by Fitch in its modelling assumptions has a negative impact on the class B2a notes' MIR. This vulnerability contributed to Fitch's decision to constrain the notes' rating one notch below their MIR. Payment Interruption Risk Mitigated: The transaction benefits from a static reserve fund and a non-amortising liquidity facility, the latter solely dedicated to cover senior fees and interest shortfalls on all notes. The reserve fund can be used to cover senior fees, interest shortfalls on the class A2 to B2 notes and losses. For notes below the class A notes the liquidity facility's availability is subject to a principal deficiency ledger condition. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade The transaction's performance may be affected by changes in market conditions and economic environment. Weakening economic performance is strongly correlated to increasing levels of delinquencies and defaults that could reduce CE available to the notes. Fitch found that a 15% increase in weighted average foreclosure frequency (WAFF) and a 15% decrease in weighted average recovery rate (WARR) would result in at least a four-notch downgrade of the most junior tranche. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Stable to improved asset performance driven by stable delinquencies and defaults would lead to increasing CE and, potentially, upgrades. Fitch found that a decrease in the WAFF of 15% and an increase in the WARR of 15% would lead to upgrades of up to six notches for the junior 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 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. Fitch did not undertake a review of the information provided about the underlying asset pool ahead of the transaction's initial closing. The subsequent performance of the transaction 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 Mansard Mortgages 2007-1 PLC has an ESG Relevance Score of '4' for Customer Welfare - Fair Messaging, Privacy & Data Security due to a significant proportion of the pool containing owner-occupied loans advanced with limited affordability checks, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Mansard Mortgages 2007-1 PLC has an ESG Relevance Score of '4' for Human Rights, Community Relations, Access & Affordability due to accessibility to affordable housing and compliance risk including fair lending practices, mis-selling, repossession/foreclosure practices and consumer data protection (data security), which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. 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. R&W CIVIL: Enters Administration -------------------------------- Anita Merritt at DevonLive reports that already delayed roadworks in the centre of Exeter have been hampered yet again as the contractor appointed to carry out the job enters administration. Construction work began on April 17 to make one-way road changes permanent by widening the footway on the southern side of Queen Street, DevonLive relates. Initially, Devon County Council (DCC) said the roadworks -- primarily on the section of Queen Street between Northernhay Street and Paul Street -- were expected to last for two months until mid-June, DevonLive notes. However, they remain ongoing, DevonLive states. Last month, DevonLive reported how the owner of long-established independent gift shop Hyde and Seek in Queen Street said her struggling business could close due to the financial impact of the delayed roadworks directly outside her premises. Justine Hyde, who has run the award-winning shop for the past 10 years, says she has not seen any work take place for over a month until Wednesday, Aug. 15, DevonLive discloses. According to DevonLive, DCC has said it has found a new contractor and that the works are now scheduled to be completed next month, but no exact date has been confirmed. A Devon County Council spokesperson, as cited by DevonLive, said: "Unfortunately the principal contractor -- R&W Civil Engineering -- announced on July 14 that they had issued a notice of intention to appoint an administrator. This has meant that the principal contractor has not been able to obtain further resources from their supply chain and work on site has stopped. "Having explored options to complete the scheme, we have a contractor lined up to finish the scheme and work will restart imminently. There are around two to three weeks work remaining to be completed, predominantly at the junction with Paul Street. We expect the work to be complete in September." In the meantime, Mr. Hyde says her business is continuing to struggle and its future still remains certain, DevonLive notes. STANLINGTON NO. 2: S&P Affirms 'BB(sf)' Rating on Cl. F-Dfrd Notes ------------------------------------------------------------------ S&P Global Ratings affirmed its 'AAA (sf)', 'AA+ (sf)', 'A+ (sf)', 'A- (sf)', 'BBB (sf)', and 'BB (sf)' credit ratings on Stanlington No. 2 PLC's class A, B-Dfrd, C-Dfrd, D-Dfrd, E-Dfrd, and F-Dfrd notes, respectively. The affirmations reflect that while there has been a significant increase in loan-level arrears since closing, there has been a relatively high level of prepayments in this transaction, resulting in increased credit enhancement for the outstanding notes as the transaction has been amortizing sequentially. Loan-level arrears currently stand at 14.1%, up from 8.2% at closing. Arrears exceeding 90 days stand at 8.2%, which is 2.9 percentage points higher than at closing. Higher levels of defaults (defined as arrears exceeding 90 days) may materialize if the performance of the borrowers responsible for the increase in the 30-60 days and 60-90 days arrears buckets continues to deteriorate. To capture this risk, S&P has performed cash flow runs with higher levels of defaults. Both total arrears and arrears exceeding 90 days are currently slightly below its U.K. nonconforming index for pre-2014 originations. No losses are currently booked to the principal deficiency ledger, though there have been 14 repossessions since closing with cumulative net losses standing at 0.04%. S&P applies additional valuation haircuts in its standard analysis based on historical loss severity data S&P received at closing. Since closing, S&P's weighted-average foreclosure frequency (WAFF) assumptions have increased at all rating levels driven by increased loan-level arrears and a corresponding reduction in seasoning credit, which is not applied to loans in arrears. At the same time, the pool's weighted-average original loan-to-value (LTV) ratio has increased, and the proportion of loans receiving the self-certified income adjustment has increased. This has been partially offset by the fact that S&P is no longer applying the reperforming adjustment. Additional data received from the servicer indicated that the current reperforming exposure, excluding positive restructures such as arrangements to pay, is low. The pool's weighted-average indexed current LTV ratio has increased by 1.2 percentage points over the same period, before applying valuation haircuts, but this has been offset by a reduction in the proportion of properties with jumbo valuations. Overall, our weighted-average loss severity (WALS) assumptions have remained broadly stable at all rating levels. Credit Analysis Results RATING LEVEL WAFF (%) WALS (%) CREDIT COVERAGE (%) AAA 35.15 39.04 13.72 AA 29.05 31.12 9.04 A 25.50 18.67 4.76 BBB 21.76 11.74 2.56 BB 16.88 7.82 1.32 B 15.67 5.34 0.84 WAFF--Weighted-average foreclosure frequency. WALS--Weighted-average loss severity. S&P Said, "Overall, the required credit coverage has increased at all rating levels since closing. However, we have also seen high levels of prepayments since closing and the three-month constant prepayment rate has averaged 19.5%. This has resulted in an increase in credit enhancement on all rated notes since closing. Credit enhancement on the class A notes has increased by 3.2 percentage points and credit enhancement on the class F-Dfrd notes (the most junior class) has increased by 0.67 percentage points. Our credit and cash flow results indicate that the available credit enhancement for the class A and B-Dfrd notes continues to be commensurate with the assigned ratings. We have therefore affirmed our 'AAA (sf)' and 'AA+ (sf)' ratings on the class A and B-Dfrd notes, respectively. "The ratings on the class C-Dfrd and D-Dfrd notes are below the levels indicated by our cash flow analysis. The assigned ratings reflect qualitative factors such as the current macroeconomic environment and the negative performance trend we have observed since closing. The ratings assigned also reflect the type of collateral that has been securitized: legacy pre-2014 originations of nonconforming, largely interest-only collateral. We have therefore affirmed our 'A+ (sf)' and 'A- (sf)' ratings on the class C-Dfrd and D-Dfrd notes, respectively. "The rating on the class E-Dfrd notes is below the level indicated by our cash flow analysis. The assigned rating reflects the results of sensitivities with higher levels of defaults and extended recovery timing. We have therefore affirmed our 'BBB (sf)' rating on the class C-Dfrd notes. "Our credit and cash flow results indicate that the available credit enhancement for the class F-Dfrd continues to be commensurate with the assigned rating. Since closing, the increase in loan-level arrears has led to an increase in required credit coverage at the 'BB' rating level of 0.36 percentage points. However, the increase in credit enhancement since closing of 0.67 percentage points has offset this increase. As a result, we affirmed our 'BB (sf)' rating on the class F-Dfrd notes. "Macroeconomic forecasts and forward-looking analysis We expect U.K. inflation to remain high for the rest of 2023 and house prices to decline by 6.6% in 2023. Although high inflation is overall credit negative for all borrowers, inevitably some borrowers will be more negatively affected than others, and to the extent inflationary pressures materialize more quickly or more severely than currently expected, risks may emerge. "We consider the borrowers to be nonconforming and as such are generally less resilient to inflationary pressure than prime borrowers. At the same time, all of the borrowers are currently paying a floating rate of interest and so will be affected by rate rises. "Given our current macroeconomic forecasts and forward-looking view of the U.K. residential mortgage market, we have performed additional sensitivities related to higher levels of defaults due to increased arrears and house price declines." The assigned ratings are robust to a 10% increase in defaults and can withstand a house price decline of up to 10%. S&P said, "If defaults increase by 10%, absent an increase in credit enhancement, there would be a maximum one notch impact on the class F-Dfrd notes, with no impact on the other rated notes. We are comfortable with the results of this run as the failures are relatively small and the results are in line with the maximum deterioration we would expect from a credit stability perspective. To date, the increase in required credit coverage has been offset by an increase in credit enhancement. We will continue to monitor the performance of the transaction as part of our ongoing transaction surveillance. "We have also tested a sensitivity with extended recovery timing for near-term defaults to reflect both the court backlogs observed in the U.K. and the recently announced repossession moratorium. Both factors may lead to delays to repossession. There is limited deterioration from the assigned ratings in this sensitivity and the class F-Dfrd notes are the only class of notes to exhibit deterioration, with three principal failures out of eight cash flow scenarios. The court backlogs observed in the U.K. vary from region to region, while our sensitivity extends recovery timing for all defaults, which provides additional comfort on the results of this sensitivity. At the same time, the failures are all in scenarios with back-loaded defaults while our expectation is that delays to repossession are a short-term issue. "We have also tested sensitivities with extended maturity for interest-only loans. While there is a negative effect on the cash flow results for the class D-Dfrd and F-Dfrd notes, we take comfort from the fact that there has been relatively high interest-only repayment success rates in this transaction compared with peer transactions. "Counterparty risk does not constrain the ratings on the notes. The replacement language in the documentation is in line with our counterparty criteria." The transaction is backed by a pool of nonconforming owner-occupied and buy-to-let mortgage loans secured on properties in the U.K. TOWD POINT GRANITE 4: Fitch Affirms 'BB+sf' Rating on G-R Notes --------------------------------------------------------------- Fitch Ratings has affirmed Towd Point Mortgage Funding 2019 - Granite 4 plc. ENTITY/DEBT RATING PRIOR ---------- ------ ----- Towd Point Mortgage Funding 2019 - Granite 4 plc Class A1 XS1968576568 LT AAAsf Affirmed AAAsf Class A2 - R XS2395599132 LT AAAsf Affirmed AAAsf Class B - R XS2395707636 LT AAAsf Affirmed AAAsf Class C - R XS2395708014 LT A+sf Affirmed A+sf Class D - R XS2395709848 LT A+sf Affirmed A+sf Class E - R XS2395712396 LT Asf Affirmed Asf Class F - R XS2395714681 LT BBBsf Affirmed BBBsf Class G - R XS2395715738 LT BB+sf Affirmed BB+sf TRANSACTION SUMMARY The transaction is a securitisation of prime UK owner-occupied mortgages originated by Northern Rock plc prior to the 2008 global financial crisis. KEY RATING DRIVERS Increasing Credit Enhancement: Credit enhancement (CE) has increased since the last rating action due to sequential amortisation. CE for the class A1 notes increased by 6pp, to 38% from 32%. Liquidity Access Constrains Class C: Only the class A1, A2 and B notes have access to dedicated liquidity. Fitch tests the ability of all 'AAsf' category rated notes and above to withstand a payment interruption event. The liquidity provisions are insufficient for the class C notes and junior notes to achieve a rating above 'A+sf'. Deteriorating Asset Performance: As of May 2023, one-month plus arrears were 14%, a 4% increase since the last rating action. Fitch expects asset performance could deteriorate further as a result of rising inflation and interest rates. A modest increase in arrears could result in a reduction of the model-implied rating (MIR) in future model updates. The ratings on the class E, F and G notes have been constrained at one notch below the MIR to account for this risk. Back-loaded Default Risks: The pool contains a large share of interest-only loans, resulting in elevated refinancing risks later in the life of the transaction. This led Fitch to apply a performance adjustment factor floor at 100%, in line with its UK RMBS Rating Criteria RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade The transaction's performance may be affected by changes in market conditions and economic environment. Weakening economic performance is strongly correlated with increasing levels of delinquencies and defaults that could reduce CE available to the notes. Additionally, unanticipated declines in recoveries could also result in lower net proceeds, which may make certain notes susceptible to potential negative rating action depending on the extent of the decline in recoveries. Fitch tested a 15% increase in the weighted average (WA) foreclosure frequency (FF) and a 15% decrease in the WA recovery rate (RR). The results indicate a negative impact of up to four notches on the notes' ratings. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Stable to improved asset performance driven by stable delinquencies and defaults would lead to increasing CE levels and potential upgrades. Fitch tested an additional rating sensitivity scenario by applying a decrease in the WAFF of 15% and an increase in the WARR of 15%. The ratings on the subordinated notes could be upgraded by up to four notches. 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. Prior to the transaction closing, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information and concluded that there were no findings that affected the rating analysis. 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 Towd Point Mortgage Funding 2019 - Granite 4 plc has an ESG Relevance Score of '4' for Customer Welfare - Fair Messaging, Privacy & Data Security due to a high proportion of interest-only loans in legacy owner-occupied mortgages, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. 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. WILKO LTD: DB Pension Scheme Enters PPF Assessment Period --------------------------------------------------------- Jack Gray at Pensions Age reports that Wilko's defined benefit (DB) pension scheme has entered the Pension Protection Fund (PPF) assessment period following the company's fall into administration. Jane Steer, Zelf Hussain and Edward Williams of PwC have been appointed as joint administrators of Wilkinson Hardware Stores Ltd, Wilko Ltd and Wilko.com Ltd., Pensions Age relates. According to Pensions Age, the company's DB pension scheme, which has been closed since 2013, has a GBP50 million deficit on a buyout basis. PwC confirmed that the DB scheme has entered the PPF assessment period after Wilko's fall into administration, Pensions Age notes. Wilko will continue trading without immediate redundancies as discussions with interest parties continue, Pensions Age discloses. However, if buyers for some or all of the group are not found, it is likely that store closures and redundancies will follow, Pensions Age states. WILKO LTD: Paid Out GBP77 Million to Owners Prior to Collapse ------------------------------------------------------------- Patrick Tooher at This is Money reports that Wilko paid out a total of GBP77 million to the owners and former shareholders of the stricken retail chain in the decade before its collapse. The chain, which recently fell into administration putting 12,000 jobs at risk, was controlled by descendants of the founder, James Kemsey Wilkinson, This is Money discloses. According to This is Money, the biggest payout was a GBP63 million jackpot in 2015 when -- after 85 years of running the business together -- one side of the Wilkinson family sold their shares to the other. Analysis of Wilko's accounts shows that multi-million-pound dividends continued even as the company headed for the rocks, This is Money discloses. These included a GBP3 million dividend last year, which was paid despite Wilko racking up losses of GBP39 million, This is Money notes. A total of GBP3.2 million was doled out in 2018 when Wilko slid to a GBP65 million loss, This is Money states. Wilko's failure has left the retirement fund with a multi-million pound shortfall and pensioners may end up with a reduced annual income for life, This is Money discloses. The scheme is likely to be bailed out by the Pension Protection Fund (PPF), the industry lifeboat, This is Money says. However, workers who have not yet retired could see their pensions reduced, This is Money notes. The dividend payouts were branded "a disgrace", This is Money recounts. According to This is Money, Nadine Houghton, national officer at the GMB union, said: "The business could have thrived under strong market conditions for bargain retailers. But with owners prioritising their own dividends it has been left to go under." The 93-year-old discount retailer called in administrators PwC after failing to secure a cash lifeline, This is Money relays. Its 400 stores will continue to trade for now as talks with potential buyers continue, according to This is Money. Wilko's final-salary pension scheme -- which closed a decade ago -- has almost 1,900 members, many of them retired, This is Money discloses. Despite Wilko raising its contributions to the scheme in recent years, it has a GBP16 million shortfall and may be heading for the PPF, which looks after the pension funds of more than 5,000 failed companies, This is Money notes. The PPF promises to pay in full pensions that are already being drawn, but only around 90% of payments due to members who had not retired when their employer went bust, This is Money states. The process of assessing whether a scheme can be taken on by the PPF can take up to two years, This is Money notes. According to This is Money, a spokesperson for AHWL, the management company for the remaining family owners after the split, said that family members personally had not received any dividends since 2017 when AHWL was formed. AHWL owned 99.7% of Wilko up to its administration, This is Money discloses. "The dividends received have been invested in property and businesses in the UK, including over 20 high risk investments into young businesses as the family seek to help entrepreneurs have the success from business that they had over 90 years," This is Money quotes the spokesperson as saying. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2023. All rights reserved. ISSN 1529-2754. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. 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