/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/230823.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 23, 2023, Vol. 24, No. 169 Headlines G E O R G I A SILKNET JSC: Fitch Hikes Rating on Sr. Unsecured Debt to 'BB-' I R E L A N D METRON STORES: Frozen Food Ban on Iceland's Ireland Stores Lifted K A Z A K H S T A N KMF LLC: Fitch Affirms 'B+' LongTerm IDR, Outlook Stable MFO ARNUR: Fitch Affirms 'B' LongTerm IDRs, Outlook Stable SAFE-LOMBARD LLP: Fitch Affirms 'B-' LongTerm IDR, Outlook Stable R U S S I A DP RUSSIA: To File for Bankruptcy After Search for Buyer Fails S W E D E N SAMHALLSBYGGNADSBOLAGET I NORDEN: Fitch Cuts LT IDR to 'B-' U N I T E D K I N G D O M ACP LEISURE: Holiday Lodge Park Put Up for Sale for GBP4MM ALPHA HOMES: Bought Out of Administration by AP Apartments FAB UK 2004-1: Fitch Hikes Rating on Class A-3F Debt to BB KIN LTD: On Verge of Collapse, Seeks Buyer for Business RENAISSANCE KITCHENS: Enters Liquidation, Ceases Trading SEADRILL LTD: S&P Assigns 'B+' Long-Term ICR, Outlook Stable SIGNET JEWELERS: Fitch Affirms BB LongTerm IDR, Outlook Stable - - - - - ============= G E O R G I A ============= SILKNET JSC: Fitch Hikes Rating on Sr. Unsecured Debt to 'BB-' -------------------------------------------------------------- Fitch Ratings has upgraded Silknet JSC's senior unsecured debt to 'BB-'/'RR3' from 'B+'/'RR4' and removed the company's ratings from Under Criteria Observation. The upgrades of the instrument and Recovery Ratings follow changes in Fitch's Country-Specific Treatment of Recovery Ratings Criteria published in March 2023. Under the new criteria, Georgia has moved to Group C from Group D countries, so its jurisdiction-based Recovery Rating cap has changed to 'C', allowing for debt to be rated one notch above the Issuer Default Rating (IDR) if recoveries are strong. Under our Recovery Ratings assumptions, the underlying recovery percentage is higher than 70%, capped at 'RR3'. KEY RATING DRIVERS The key rating drivers for Silknet's IDR are detailed in the rating action commentary 'Fitch Upgrades Silknet to 'B+'; Outlook Stable' at https://www.fitchratings.com/research/corporate-finance/fitch-upgrades-silknet-to-b-outlook-stable-28-11-2022. Silknet has an ESG Relevance score of '4' for Governance Structure reflecting the dominant majority shareholder's influence over the company and related-party transactions. This has a negative impact on the credit profile, and is relevant to the rating in conjunction with other factors. KEY ASSUMPTIONS Key Recovery Rating Assumptions - The recovery analysis assumes that Silknet would be deemed a going-concern (GC) in bankruptcy and that it would be reorganised rather than liquidated - USD200 million of unsecured debt outstanding at end-December 2022 following buying back a portion of the USD300 million bond - A 10% fee for administrative claims - GC EBITDA estimate of GEL170 million reflects Fitch's view of a sustainable, post-reorganisation EBITDA upon which we base the valuation of the company - An enterprise value (EV)/EBITDA multiple of 4.0x is used to calculate a post-reorganisation valuation, reflecting a conservative post-distressed valuation ESG CONSIDERATIONS Silknet has an ESG Relevance score of '4' for Governance Structure reflecting the dominant majority shareholder's influence over the company and related-party transactions. This has a negative impact on the credit profile, and is relevant to the rating 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. ============= I R E L A N D ============= METRON STORES: Frozen Food Ban on Iceland's Ireland Stores Lifted ----------------------------------------------------------------- The Journal reports that the prohibition on frozen food at Iceland's Ireland stores has been lifted, the food safety regulator has informed the High Court. According to The Journal, Mr Justice Michael Quinn heard that following a number of actions by an examiner appointed to rescue the Ireland franchise's stores from going under, the order had been lifted on Aug. 18. The ban had been in place since the Food Safety Authority of Ireland (FSAI) ordered a recall on food "of animal origin" -- such as chicken, meat, fish, eggs, and dairy products -- that had been imported to Ireland from the UK since March 3, The Journal notes. The FSAI said at the time that the food showed "inadequate evidence of traceability" and that there had been "a number of incidents of non-compliance with import control legislation", The Journal relates. The news of the lifting of the ban was relayed during the latest High Court sitting around preserving the company's stores in this country, The Journal states. Staff from several of Iceland's Dublin stores packed into the courtroom to hear the latest on efforts by examiner Joseph Walsh to bring investors on board to take over some of the company's 26 stores, The Journal discloses. They also pleaded for the court to issues orders compelling the company to use its cash reserves of EUR300,000 to settle "all outstanding wage issues and unfair dismissals" at the company since the franchise was taken over earlier this year, according to The Journal. The new owner of the Ireland franchise for Iceland was announced in February as Project Point Technologies, and this ownership was later transferred to Metron Stores, The Journal notes. Mr Justice Quinn granted Walsh an extension up to Sept. 27 to allow him to complete negotiations, The Journal recounts. According to The Journal, he said he could not make an order on the company given it is under the protection of the court via its examinership but added that the settlement devised by Walsh would, "as best as he can", allow workers and creditors to receive payments due. The court heard there are up to 150 workers who are owed money by the company, The Journal states. Stephen Brady, barrister for Walsh, told the court that a potential, unnamed investor has carried out "extensive due diligence" on taking over the stores and that further talks are needed to confirm their involvement, The Journal recounts. =================== K A Z A K H S T A N =================== KMF LLC: Fitch Affirms 'B+' LongTerm IDR, Outlook Stable -------------------------------------------------------- Fitch Ratings has affirmed Microfinance organisation KMF LLC's (KMF) Long-Term Issuer Default Rating (IDR) at 'B+' with a Stable Outlook. Fitch has also affirmed KMF's National Long-Term Rating at 'BBB(kaz)' with a Stable Outlook. KEY RATING DRIVERS High-Risk Micro SME Lending: KMF's ratings reflect a business model that is focused on under-banked and higher-risk micro-SMEs, its modest scale (compared with domestic banks'), competition from banks with access to cheaper funding, limited product diversification and reliance on confidence-sensitive wholesale funding. Rating strengths are KMF's leading market share in Kazakhstan's microfinance sector, a long record of stable operations in a developing operating environment, adequate leverage, sound profitability and a granular and short-term loan portfolio. KMF also benefits from low exposure to direct market risk and access to domestic and international funding, including from international developmental financial institutions (IFIs) and impact investors. Outlook Stable: The Stable Outlook reflects KMF's good competitive position relative to local microfinance companies' and its growing business scale, as well as the gradual diversification of its product offering and funding base. In Fitch's view KMF's competitive position has incrementally benefited from the ongoing tightening of prudential regulation, which will challenge smaller non-bank competitors. The Outlook also considers KMF's strategy to improve product diversification and funding access by obtaining a banking licence. Leading Market Share: KMF has a leading market share in the domestic microfinance sector but increasingly competes against Kazakh banks, with the latter benefiting from structurally stronger funding profiles and franchises. Online lenders also present challenges to some KMF loan products. Positively, management continues to gradually diversify its product offering and sales channels. Potential further regulatory tightening, such as lower lending caps and higher capital requirements, would also benefit KMF by reducing competition from higher-cost lenders. Provisioning, Costs Weigh on Profitability: KMF's profitability is supported by its high net interest margin of 25% in 1H23 (net interest income/average earning assets), which reflects its business model and targeted market. Operating efficiency has been gradually weakening since 2020 as operating expenses have increased. Fitch expects a further increase in operating expenses as KMF invests to improve its compliance and risk functions and IT infrastructure. KMF's pre-tax income/average assets decreased to 5.9% in 1H23 (annualised) from 10.6% in 2021, due to a gradual increase in impairment charges. Asset Quality Pressures: KMF operates in a high-risk segment but has to date reported modest credit losses. Its Stage 3 loans/gross loans increased to 8.1% at end-1H23 from 4.7% at end-2021, reflecting increasing asset quality challenges due to a volatile operating environment. Reserves stood at 86% at end-1H23 (95% at end-2021), providing only moderate coverage. High portfolio growth accompanied with further portfolio seasoning could pressure asset quality further, but mitigating factors include granular lending only in local currency and with a high share of repeat customers (around 80%). Adequate Leverage: KMF's gross debt/tangible equity was unchanged at 3.4x at end-1H23, despite portfolio growth and regular dividend pay-outs, reflecting healthy internal capital generation. KMF's equity-to-assets stood at 22% at end-1H23, well above the company's covenanted level of 14% and regulatory minimum requirement of 10%. Management have expressed their intention to keep the ratio at around 20% in the medium-to-long term. Diversified Funding, Strict Covenants: Relative to its peers', KMF has a more developed funding profile, helped by the length of its relationships with creditors, reputable shareholders, increasing access to domestic funding and a short-term loan portfolio (around 40% maturing within 12 months at end-1H23). We believe refinancing risk is sensitive to covenants imposed by foreign creditors that are tested on a monthly basis, exposing the company to the risk of accelerated debt repayments if waivers are not received. Positive Social Impact Helps Funding: KMF's business model is focused on under-banked borrowers and its positive social impact supports KMF's franchise and funding profile. This facilitates KMF's access to favourable funding from a range of international developmental institutions and impact investors. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - A deterioration in KMF's operating environment, leading to a material weakening of profitability (pre-tax income/average assets below 4% on a sustained basis) or asset quality, coupled with an increase in leverage - An increased risk appetite with expansion into higher-risk products, for instance, in response to continuing competition from domestic banks - A weakening of the funding profile such as constrained funding access, marked increase in funding costs, higher concentrations, and shorter maturities - Regulatory risk adding significant constraints to KMF's business model Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Sustained, profitable growth supported by a more diversified product offering and improved funding diversification (including access to deposits) - Improved financial metrics, with profitability (pre-tax income/average assets) returning to above 10% on a sustained basis could support positive rating action ADJUSTMENTS The business profile score has been assigned below the implied score due to the following reason: business model The earnings and profitability score has been assigned below the implied score due to the following reason: portfolio risk The capitalisation and leverage score has been assigned below the implied score due to the following reason: risk profile and business model ESG CONSIDERATIONS KMF has an ESG Relevance Score of '4[+]' for Exposure to Social Impacts due to its business model focused on under-banked borrowers and its positive social impact supports KMF's franchise and funding profile. This facilitates KMF's access to favourable funding from a range of international developmental institutions and impact investors, which has a positive 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. MFO ARNUR: Fitch Affirms 'B' LongTerm IDRs, Outlook Stable ---------------------------------------------------------- Fitch Ratings has affirmed MFO Arnur Credit LLP's (AC) Foreign- and Local-Currency Long-Term Issuer Default Ratings (IDRs) at 'B'. Fitch has also affirmed AC's National Rating at 'BB+(kaz)'. The Outlooks are Stable. KEY RATING DRIVERS Small Franchise; High-risk Sector: AC's ratings reflect its small franchise in the micro-finance sector in Kazakhstan, its focus on higher-risk customers (including the seasonal agricultural segment and small SMEs), only basic underwriting standards and risk controls, small absolute size of capital and confidence-sensitive wholesale funding. The ratings also reflect AC's modest and well-controlled credit losses, sound capital ratios and a record of solid profitability. Operating in Niche Sector: AC is one of the largest microfinance organisation in Kazakhstan, mostly servicing borrowers from rural areas. AC operates through 44 sale points, predominantly in southern Kazakhstan. The company has made significant steps to diversify its business model, with the total loan portfolio amounting to KZT33 billion (USD75 million) at end-1H23, comprising 54% agricultural loans, 42% SME loans and 4% other consumer loans. In Fitch's view, the company remains a niche market player, competing with larger microfinance companies and banks. Portfolio Seasoning Risk: AC operates in a high-risk segment, but with modest credit losses for the business model. It has well-tested but basic underwriting standards and adequate risk controls. AC's Stage 3 loans ratio demonstrated resilience to Kazakhstan's volatile operating environment: 5.2% at end-1H23 (2022: 4.8%; four-year average of 3.9%). Loan loss reserves comfortably (145%) covered end-1H23 impaired loans. High portfolio growth accompanied with portfolio seasoning could pressure asset quality further, but mitigating factors include granular lending only in local currency. Additionally, AC has to comply with multiple asset-quality covenants from its foreign creditors. Solid Profitability: AC's profitability is supported by its solid interest margins, which reflects its business model and targeted market. AC's pre-tax income/average assets ratio was 6.0% annualised in 1H23 (8.1% in 2022) and the annualised net interest margin was 17% at end-1H23 (19% in 2022). AC's business model is labour-intensive (staff costs accounted for 65% of total operating expenses at end-1H23), and its cost/income ratio was elevated (at 47% at end-1H23 compared with 37% in 2021) but remains acceptable. Adequate Leverage: AC's gross debt/tangible equity stood at 2.9x at end-1H23 (2021: 2.1x) and it maintains substantial buffers against covenanted capital levels (equity/assets 25% at end-1H23, 28% at end-2022 versus a 20% requirement per covenant). Fitch expects profit retention to underpin AC's leverage in the medium term amid asset growth and regular dividend pay-outs. Wholesale-funded: AC relies on international financial institutions (IFIs), which make up 85% of total non-equity funding. A large number of fairly strict covenants might expose AC to accelerated debt repayments if waivers are not granted. AC issued inaugural local bonds in 2022, with a view to increasing the share of bonds to 25% of total funding. ESG Positive Impact: AC's focus on the underbanked population in rural areas and its positive social impact facilitates its access to funding from IFIs. This underpins our assessment of AC's funding profile and is reflected in our ESG score of '4[+]' for Exposure to Social Impacts. NATIONAL RATING AC's 'BB+(kaz)' National Rating reflects our view of its credit strength relative to its Kazakh peers. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Material deterioration of asset quality (e.g. due to a material increase in risk appetite or inability to control the credit quality of planned online lending), coupled with weaker revenue generation, affecting profitability and pressuring capital buffers. Significant deterioration in the company's capital position or materially higher leverage with gross debt/tangible equity exceeding 5.5x. Signs of funding and refinancing problems (including covenant breaches), compromising funding access or ability to grow. A regulatory event or loss event potentially affecting business-model stability and ultimately viability. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Upside is limited in the medium to long term by AC's modest franchise and monoline business model. However, sustained growth of AC's franchise and business scale, while maintaining solid financial metrics could lead to positive rating action in the long term. ADJUSTMENTS The asset quality score has been assigned below the implied score due to the following reason: risk profile and business model The earnings and profitability score has been assigned below the implied score due to the following reason: portfolio risk The capitalisation and leverage score has been assigned below the implied score due to the following reason: size of capital base The funding and liquidity score has been assigned below the implied score due to the following reason: business model/funding market convention ESG CONSIDERATIONS AC has an ESG Relevance Score of '4[+]' for exposure to social impacts due to its business model being focussed on the under-banked population in rural areas. Its positive social impact facilitates AC's access to funding from IFIs. This has a positive impact on its 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. ENTITY/DEBT RATING PRIOR ----------- ------ ----- MFO Arnur Credit LLP LT IDR B Affirmed B ST IDR B Affirmed B LC LT IDR B Affirmed B LC ST IDR B Affirmed B Natl LT BB+(kaz) Affirmed BB+(kaz) SAFE-LOMBARD LLP: Fitch Affirms 'B-' LongTerm IDR, Outlook Stable ----------------------------------------------------------------- Fitch Ratings has affirmed Kazakhstan-based Safe-Lombard LLP's (SL) Long-Term Issuer Default Rating (IDR) at 'B-' with Stable Outlook. Fitch has also upgraded SL's National Long-Term Rating to 'BB-(kaz)' from 'B+(kaz)' and assigned a Stable Outlook. KEY RATING DRIVERS Modest Franchise, Granular Portfolio: SL's ratings reflect its small franchise in the domestic finance sector, concentrated business model, with a focus on micro-loans secured by gold (48% of the total loan portfolio at end-1Q23) and with used cars (41%), basic underwriting standards and risk controls as well as a developing funding profile with assets mostly funded by equity (70% of total assets at end-1H23), as well as other sources including related-party loans, local bank loans and bonds. The ratings also factor in SL's low leverage and solid capital buffers, the benefits of a granular, mostly short-term secured loan portfolio, backed by high-quality liquid collateral and fairly small credit losses. National Rating Upgraded: The upgrade of SL's National Long-Term Rating reflects its more diversified funding base, improving profitability and stabilised asset quality. However, in our view, this could come under pressure in the medium term due to the volatile macroeconomic environment. Growing Scale and Business Diversification: SL operates as a pawn shop issuing secured loans to under-banked borrowers with limited credit history, backed mostly by gold and used cars. The net loan portfolio increased by 18% in 1H23 (69% in 2022) to KZT23 billion (USD50 million), driven by the company's expansion in the existing lending segments and new acquisitions. SL is one of the largest companies in the pawnbroker market, but its franchise is modest relative to local micro-finance companies. In our view, key person risk has a significant effect on company's governance practices due to a high reliance on the sole shareholder in decision-making. Improving Profitability: SL's profitability was stable in 2022 and 1H23, with a pre-tax income/average assets ratio of 23% (2022: 23%), despite a loss in 1H22 driven by a net foreign-exchange (FX) loss. SL maintains a sizable unhedged FX position (short in Russian rouble), which could lead to performance volatility. At the same time, we note that SL's core profitability is strong with a four-year average net interest margin of 50% between 2019 and 2022. Regulatory Risk: Operating in a single jurisdiction means SL's business model relies on the stability of high-cost lending regulation in Kazakhstan. A sharp tightening of loan affordability regulation could compromise the viability of this business. Low Leverage: So far SL has retained its high profits and has very low leverage (gross debt to tangible equity was 0.4x at end-1H23; 0.5x at end-2022). It has comfortable headroom to regulatory limits. We expect the company to increase leverage, provided it secures better funding access to support business expansion. Stabilising Asset Quality: SL's impaired loans ratio improved to 4.3% at end-1H23 from 6.6% at end-2021, as the company tightened underwriting standards and risk policy, and substantially expanded its portfolio. Loan loss provision coverage of impaired loans was a low 23% at end-1H23 (21% at end-2022) partly offset by a record of good recoveries. In Fitch's view, SL's risk profile is largely determined by its business model to service higher-risk, under-banked customers and by its significant unhedged FX exposure, with 59% of total non-equity funding foreign-currency-denominated at end-1H23. Improved Funding Profile: SL has slightly diversified its funding. It currently includes secured local bank funding (22% of total non-equity funding at end-1H23), local- and foreign-currency bonds (59%), related-party loans (11%), and loans from international financial institutions (IFIs), mostly specialised microfinance funds. SL remains largely equity funded, but management aims to increase borrowings. SL's liquidity profile benefits from solid cash buffers of 45% of the company's short-term borrowings (which could be volatile) at end-1H23 and its cash-generative business model with high portfolio turn-over, allowing to quickly deleverage if ever required. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - FX-induced losses or material asset-quality deterioration, coupled with a weaker revenue generation ability, weighing on both profitability and capital buffers. - A regulatory event or loss event potentially affecting business model stability and ultimately viability. - Signs of funding and refinancing problems, leading to inability to grow and loss of market share. - A material governance event threatening SL's access to funding markets. - Significant deterioration of the company's capital position or gross debt/tangible equity exceeding 4x. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Upside is limited in the short to medium term by the company's modest franchise and scale. Over the medium to long term, sustained growth of SL's franchise and scale and gradual diversification into products less sensitive to regulatory lending caps could lead to an upgrade. - Further sustained funding diversification through the addition of new funding sources from third parties and stable and proven access to bank and IFI funding could also support positive rating action in the long term. DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS SL's local bond's rating is equalised with its Long-Term Local-Currency IDR, reflecting our view that the likelihood of default on the senior unsecured obligation is the same as that of the company. Its KZT3 billion senior unsecured local bonds have a fixed coupon of 14% paid quarterly and mature in November 2024. DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Negative rating action on SL's Long-Term IDR. - Weaker recovery expectations, for instance, due to materially weaker capitalisation or higher asset encumbrance. Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Positive rating action on SL's Long-Term IDR. ADJUSTMENTS SL's 'b-' assessed Standalone Credit Profile (SCP) is below its 'b' implied SCP due to the following adjustment reason: business profile The sector risk operating environment score has been assigned below the implied score due to the following reason: regulatory and legal framework, business model The earnings and profitability score has been assigned below the implied score due to the following reason: portfolio risk The capitalisation and leverage score has been assigned below the implied score due to the following reason: size of capital base, risk profile and business model The funding and liquidity score has been assigned above the implied score due to the following reason: cash-flow generative business model ESG CONSIDERATIONS SL has an ESG Relevance Score of '4' for customer welfare given its exposure to higher-risk underbanked borrowers with limited credit history and variable incomes. This highlights social risks arising from increased regulatory scrutiny and policies to protect more vulnerable borrowers (such as lending caps) regarding its lending practices, pricing transparency and consumer data protection. This has a moderately negative impact on SL's credit profile and is relevant to the ratings in conjunction with other factors. SL has as ESG Relevance Score of '4' for exposure to social impacts. This reflects risks arising from a business model focused on extending credit at high rates, which could give rise to potential consumer and market disapproval, as well as to potential regulatory changes and conduct-related risks that could impact the company's franchise and performance metrics. This has a moderately negative impact on SL's credit profile and is relevant to the ratings in conjunction with other factors. SL has an ESG Relevance Score of '4' for governance structure. This reflects high key-person risk due to significant dependence in decision-making on the sole shareholder, which has a negative impact on the credit profile, and is relevant to the rating 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. ENTITY / DEBT RATING RECOVERY PRIOR ------------- ------ -------- ----- Safe-Lombard LLP LT IDR B- Affirmed B- ST IDR B Affirmed B LC LT IDR B- Affirmed B- LC ST IDR B Affirmed B Natl LT BB-(kaz) Upgrade B+(kaz) senior unsecured LT B- Affirmed RR4 B- =========== R U S S I A =========== DP RUSSIA: To File for Bankruptcy After Search for Buyer Fails -------------------------------------------------------------- Alex Turner-Cohen at news.com.au reports that Domino's Pizza will shut down all 142 of its stores in Russia after failing to find a buyer for the flailing business. Instead, the company will file for bankruptcy, news.com.au discloses. DP Eurasia operates the Domino's Pizza brand in Russia, as well as in Turkey, Russia, Azerbaijan and Georgia. Its subsidiary DP Russia is the one slated to go bankrupt, with the others continuing operations as per usual, news.com.au states. The fast food giant faced significant woes in the Russian market, having been on the lookout for a buyer since December last year, news.com.au relates. In a London Stock Exchange announcement on Aug. 21, DP Eurasia said the company would no longer look in vain for a buyer, news.com.au notes. "With the increasingly challenging environment, DP Russia's immediate holding company is now compelled to take this step, which will bring about the termination of the attempted sale process of DP Russia as a going concern and, inevitably, the group's presence in Russia," news.com.au quotes the company as saying. The company received little western interest for the brand off the back of sanctions imposed on Russia for starting a war with Ukraine, according to news.com.au. =========== S W E D E N =========== SAMHALLSBYGGNADSBOLAGET I NORDEN: Fitch Cuts LT IDR to 'B-' ----------------------------------------------------------- Fitch Ratings has downgraded Swedish property company SBB - Samhallsbyggnadsbolaget i Norden AB's (SBB) Long-Term Issuer Default Rating (LT IDR) to 'B-' from 'BB+'. The senior unsecured debt rating has been downgraded to 'B+' from 'BB+' and its Recovery Rating revised to 'RR2' from 'RR4'. The ratings remain on Rating Watch Negative (RWN). The downgrades reflect SBB's deteriorating liquidity stemming from i) insufficient progress on raising enough liquidity - primarily through asset disposals - to reduce refinancing risk as it approaches its SEK6.8 billion February 2024 bond maturities and ii) unfavourable real estate and capital-market conditions. SBB continues to undertake asset disposals but execution risk remains high. Fitch had previously expected the disposal of SBB's remaining stake in EduCo to alleviate SBB's near-term debt maturity profile but that sale is now on hold. Fitch expects to resolve its RWN on further news on raising sufficient liquidity, particularly as it approaches its February 2024 maturities. KEY RATING DRIVERS Deteriorating Liquidity: SBB's available liquidity at end-1H23 (SEK4.1 billion of cash and available credit lines) was insufficient to cover its debt maturities within the next 12 months (end-1H23: SEK14.6 billion) despite an additional SEK2.4 billion from its August 2023 preference share issue. A combination of further completed disposals, successful refinancing of secured bank debt, and other efforts to raise cash will be key to meeting SBB's refinancing needs. Additionally, SBB's postponed dividend is payable in 2Q24. Pressure on SBB's liquidity will remain, given its SEK12.7 billion debt maturing within the next 12-24 months. Asset Disposals Continue: SBB continues to complete disposals, and announced sales, once completed, could yield up to SEK4.6 billion additional liquidity during 3Q23. Fitch calculates that these disposals, together with cash raised from SBB's recent preference share issue, will cover its 2H23 and 1H24 bond maturities, and its commercial paper totaling SEK8.7 billion. The remaining SEK5.9 billion debt maturing within the next 12 months comprise secured bank debt, for which Fitch believes the lenders are more likely to refinance than the unsecured bond market. Breakdown of Announced Disposals: At end-1H23, SBB had SEK795 million of signed disposals, of which SEK400 million was part of the earlier EduCo transaction with Brookfield, and a further SEK3 billion in signed letters of intent (LOIs) for other reported property disposals. During 3Q23, SBB also received SEK491 million from the sale of its Heba shares and signed a SEK104 million disposal with Hoganas Municipality. These disposals total up to SEK4.6 billion. Preference Share Issue: On 21 July 2023, SBB issued SEK2.4 billion in preference shares in a newly established subsidiary, SBB Residential Property AB, to Morgan Stanley Real Estate Investing. The proceeds are used to strengthen SBB's liquidity. The subsidiary's portfolio comprises SEK6.2 billion of Swedish residential properties managed by SBB. Fitch treats the preference shares without payment obligation as 100% debt as they were issued by a subsidiary, and structurally rank ahead of SBB's senior unsecured bonds. EduCo Disposal on Hold: SBB's negotiations to sell its remaining EduCo 51% stake (including related shareholder loans) to Brookfield have been discontinued. A disposal at expected value would have materially improved SBB's liquidity and reduced its refinancing risk. These events now put pressure on SBB to find other disposals, or raise further asset proceeds by other means, to manage upcoming debt maturities. Completing Developments: SBB has SEK1.8 billion remaining development capex to complete its pre-let development projects (through to 2025), which will add SEK256 million of net operating income in the next two years. Fitch expects the developments to be funded with cash flow from operations and committed construction loans. Operations Continues to Perform: SBB's portfolio liquidity and its ability to leverage assets is supported by continued operational performance. Like-for-like rental growth in 1H23 was 9.5%, vacancy is a low 3.7%, while the average lease length remains at 11 years. Its community service properties have an indirect and a direct government tenant base, including government departments, municipalities, education, elderly care, and LSS (disabled) housing. Fitch views SBB's long-term, government-linked rental income from CPI-indexed rents as lower risk and being able to carry higher leverage than commercial properties. DERIVATION SUMMARY The lower-yielding nature of SBB's residential rental portfolio and longer lease length than peers' (from both community-service assets and given the average tenure of residential assets), plus its portfolio mix, allow SBB more leverage headroom and lower interest cover than that of (i) commercial property-orientated Swedish peers; and (ii) EMEA commercial property peers that underpin its EMEA REIT Navigator mid-point ratio guidelines. Fitch views SBB's real estate portfolio as stable, due to the strength of Swedish residential properties with regulated below-open market rents and community-service properties' stable government-entity tenant base with longer-term leases. This is tempered by the regional location of some assets within SBB's portfolio. Its portfolio fundamentals are less sensitive to economic cycles than commercial office property companies that are reliant on open market conditions with multiple participants affecting market fundamentals. Before SBB's ratings were downgraded for its heightened refinance risk, see previous rating action commentaries for peer analysis justifying the investment-grade quality of SBB's property portfolio. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer: - Disposals of primarily community-service properties during 2023 amounting to SEK6 billion - Moderate 2.5%-4% rental growth in 2023-2026, driven by CPI indexation and moderate inflation - Around SEK1 billion in residential and community-service refurbishment capex per year, with a net 4%-6% income return on spend - No acquisitions to 2027 - Building-rights profits and disposal proceeds amounting to SEK0.8 billion-SEK1 billion per year in cash flow for the next four years - Payment of postponed 2023 dividend in 2Q24, followed by cash dividends at 90% of funds from operation to 2027 KEY RECOVERY RATING ASSUMPTIONS Its recovery analysis assumes that SBB would be liquidated rather than restructured as a going concern in a default. Recoveries are based on the 1H23 independent valuation of the investment property portfolio. Fitch has deducted disclosed encumbered assets to total SEK69.1 billion of unencumbered investment property assets. Fitch applies a standard 20% discount to these valuations. The total amount Fitch assumes available to unsecured creditors is around SEK50.2 billion. Fitch assumes no cash is available in recovery scenarios. After deducting a standard 10% for administrative claims, Fitch has assumed that SBB's SEK2.5 billion of undrawn unsecured revolving credit facilities (RCFs) would be fully drawn at the time of default. In the debt hierarchy Fitch has deducted the recent SEK2.4 billion SBB Residential Property AB preference shares, which rank ahead of SBB's unsecured creditors. Fitch's principal waterfall analysis generates a ranked recovery for senior unsecured debt of 'RR2' (a waterfall generated recovery computation output percentage of 78%) based on current metrics and assumptions. The 'RR2' indicates a 'B+' unsecured debt instrument rating. Given the structural subordination of SBB's hybrids, Fitch estimates a ranked recovery of 'RR6' with 0% expected recoveries. The 'RR6' band indicates a 'CCC' instrument rating, two notches below SBB's 'B-' IDR. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: - Net debt/EBITDA less than 16.0x based on the current portfolio mix of around 20% residential by EBITDA - EBITDA net interest cover greater than 1.2x - Eighteen-month liquidity score above 1.0x - Proof of easing refinancing risk, including improved capital markets' receptivity to SBB Factors That Could, Individually or Collectively, Lead to a Downgrade: - Lack of progress in refinancing secured bank funding - Lack of progress by end-October 2023 to materially reduce 1Q24 refinance risk - Six-month liquidity score below 1.0x - Actions pointing to a potential renegotiation of debt terms and conditions, including any material reduction in lenders' terms sought to avoid a default LIQUIDITY AND DEBT STRUCTURE Tight Liquidity: At end-1H23, SBB's readily available cash declined to SEK1.6 billion (end-1Q23: SEK4.3 billion) in addition to SEK2.5 billion of undrawn credit facilities. This compares with SEK14.6 billion in debt maturities within the next 12 months including commercial paper, and a further SEK12.7 billion within the next 12-24 months. The resultant 12-month liquidity score is below 1x. During 3Q23, SBB received proceeds from various disposals, issued SEK2.36 billion in preference shares, and signed various disposals some with LOIs. If these disposal proceeds are received, Fitch calculates that SBB has liquidity to cover 2H23 and 1H24 bonds maturities, and its commercial paper, assuming that secured bank financings are refinanced. SBB's average interest cost was 2.2% at end-1H23, excluding hybrid coupons. Fitch does not expect SBB's liquidity to be sufficient to immediately repay all debt to unsecured bondholders, in the unlikely event that a covenant breach (detailed in previous Fitch reports) takes place. ESG CONSIDERATIONS SBB has an ESG credit relevance score of '4' for Governance Structure to reflect previous key person risk and continuing different voting rights among shareholders affording greater voting rights to the key person. SBB has an ESG relevance score '4' for Financial Transparency, reflecting ongoing investigation by the Swedish authorities into application of accounting standards and disclosures. These considerations have a negative impact on the credit profile, and are relevant to the ratings 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. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- SBB - Samhallsbyggnadsbolaget i Norden AB LT IDR B- Downgrade BB+ ST IDR B Rating Watch On B senior unsecured LT B+ Downgrade RR2 BB+ subordinated LT CCC Downgrade RR6 BB- senior unsecured ST B Rating Watch On B SBB Treasury Oyj senior unsecured LT B+ Downgrade RR2 BB+ =========================== U N I T E D K I N G D O M =========================== ACP LEISURE: Holiday Lodge Park Put Up for Sale for GBP4MM ---------------------------------------------------------- Michael Crossland at Yorkshire Post reports that a modern holiday lodge park located near to Stokesley in North Yorkshire has been put up for sale for GBP4 million. The park came to market after previous joint owners ACP Leisure Limited and Ace Aluminium & Architectural Services Limited fell into administration and liquidation over the last 12 months, Yorkshire Post relates. According to Yorkshire Post, the holiday lodge park has been brought to market by Yorkshire-based property consultancy Walker Singleton on behalf of Richard Cole and Steve Kenny of KBL Advisory Limited, Joint Administrators of ACP Leisure Limited and Joint Liquidators of Ace Aluminium & Architectural Services Limited. ALPHA HOMES: Bought Out of Administration by AP Apartments ---------------------------------------------------------- Business Sale reports that a student accommodation development in Aberdeen has been acquired out of administration by a serviced accommodation provider. According to Business Sale, AP Apartments has acquired Alpha Homes (Leicester), which is part of UK student accommodation provider Alpha Homes Group, following a lengthy administration process. RSM Restructuring Advisory's Paul Dounis and Gareth Harris were appointed as joint administrators to Alpha Homes in December 2021, after unpaid rent on the firm's 30-bedroom Highgate site had been built up under various lease agreements, Business Sale relates. In order to ensure continuity for the students living in the development, the company continued to trade under the administrators, who worked with Sutton Real Estate Consultants to market the site for sale, Business Sale states. A sale of the business and its assets to AP Apartments was ultimately secured, with the sale proceeds distributed to the joint owners and investors following settlement, Business Sale notes. FAB UK 2004-1: Fitch Hikes Rating on Class A-3F Debt to BB ---------------------------------------------------------- Fitch Ratings has upgraded FAB UK 2004-1 Ltd's class A-3E and A-3F notes and removed them from Rating Watch Positive. Fitch has also affirmed the class A-2E notes and removed them from Rating Watch Evolving, as detailed below. ENTITY / DEBT RATING PRIOR ------------- ------ ----- FAB UK 2004-1 Ltd A-2E XS0187962799 LT BBBsf Affirmed BBBsf A-3E XS0187962872 LT BBsf Upgrade CCCsf A-3F XS0187963094 LT BBsf Upgrade CCCsf TRANSACTION SUMMARY The transaction is a securitisation of UK structured finance assets. At closing, the SPV issued GBP204.5 million of fixed- and floating-rate notes and used the proceeds to buy a GBP200 million portfolio managed by Gulf International Bank (UK) Ltd. The transaction is currently amortising with a performing and non-performing balance of GBP26.9 million and GBP35.5 million, respectively. At Fitch's last review, the class A-2E and A-3E notes were paying a margin over six-month synthetic sterling LIBOR, which has now ceased. To address this issue, the issuer has transitioned the notes to SONIA, and the class A-2E and A-3E notes now pay a margin over daily compounded SONIA. KEY RATING DRIVERS SONIA Transition: The transaction has successfully transitioned to daily compounded SONIA according to a deed of amendment that has been shared with Fitch. The Rating Watch on the notes reflected the risk that the switch may not take place. Fitch has now removed the notes from Rating Watch and incorporated the new adjusted margins and daily compounded SONIA into its cash flow modelling for this analysis. Positive Outlook: Fitch has assigned the class A-2E notes a Positive Outlook as it expects the notes to pay down assuming the principal inflows match those observed in the last 24 months. These notes are currently capped at 'BBBsf' due to the portfolio's large concentration in the RMBS sector. Post-transition Rates For Modelling: Only one asset in the underlying portfolio (Ludgate 2007-1, which has a notional of approximately EUR2.6 million of a performing portfolio size of approximately EUR27 million) has not yet transitioned to SONIA. Consequently, the margin used in our analysis is the current LIBOR margin. All other floating-rate assets have been modelled with the credit adjustment spread of 0.119% to reflect the transition to SONIA. Amortisation Increases CE: Since the last review in February 2023, the class A-2E notes have paid down by approximately GBP2 million. Credit enhancement (CE) for this class has increased to 89% from 83.1%. CE for the class A-3E and A-3F notes has increased to 40% from 36%. Stable Portfolio Quality, High Concentration: The portfolio's credit quality has been stable, with the average rating at 'BBB'/'BBB-' and there have been no new defaults. However, the portfolio is concentrated by industry and by obligor. Of the performing portfolio, 93% is in the UK RMBS sector. The largest and the top 10 largest obligors represent 19% and 90% of the performing portfolio balance, respectively. Since our last review, only one underlying asset's rating has changed, to 'A-' from 'BBB+'. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Downgrades may occur if the principal amortisation slows to the extent that it may not be able to cover the negative carry, leading to a timely-interest payment shortfall on the most senior notes. In addition, downgrades may occur if build-up of the notes' CE following amortisation does not compensate for a larger loss expectation than initially assumed due to unexpectedly high levels of default and portfolio deterioration. A 25% increase in the asset default probability and a 25% reduction in expected recovery rates would not lead to downgrades. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Fitch could upgrade the class A-2E, A-3E and A-3F notes if the portfolio's credit quality remains stable and the portfolio continues to amortise, and for the class A-2E notes, they are expected to be paid in full within 12 months and the 'BBBsf' rating cap is no longer applied. A 25% decrease in the asset default probability and a 25% increase in expected recovery rates would not lead to upgrades. DATA ADEQUACY FAB UK 2004-1 Ltd 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 referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. KIN LTD: On Verge of Collapse, Seeks Buyer for Business ------------------------------------------------------- Ellie Smitherman at The Sun reports that a Wilko beauty brand loved by shoppers is on the brink of collapse following the bargain chain crashing into administration. The company behind cosmetic brand Skin Therapy has filed a notice of intention to appoint administrators, The Sun relates. Kin is a sister company of beloved discounter Wilko, which is searching for a rescue buyer in the hope of saving hundreds of shops and thousands of jobs. The business creates a range of products for Wilko and other stores, including B&Q. The Skin Therapy brands is popular with Wilko shoppers and known for beauty bargains like sun cream, face wipes and skincare, with prices starting from just 65p. According to The Sun, Kin Ltd, which is privately owned by the Wilkinson family, is said to be close to collapse. Kin has filed a notice of intention to appoint administrators, giving it 10 days protection from creditors and to find new backing, The Sun relays, citing TheBusinessDesk.com. Kin reported a loss for the financial year to January 29, 2022 of GBP29.9 million and said that trading conditions remained "challenging", citing fragile consumer confidence, rising cost inflation and supply chain disruption, The Sun discloses. At the time it said that it was securing financial support from Wilko which would keep it going until January 28, 2024, but that was not in place at the time of filing its accounts, The Sun notes. It concluded that there was "material uncertainty" over Wilko's ability to offer this financial support, casting "significant doubt" over Kin's ability to continue as a going concern, according to The Sun. RENAISSANCE KITCHENS: Enters Liquidation, Ceases Trading -------------------------------------------------------- Sam Metcalf at TheBusinessDesk.com reports that a Lincoln firm which specialised in kitchen refits has ceased trading. Renaissance Kitchens, trading as Dream Doors, was incorporated in 2014 and was based on the Sunningdale Trading Estate in the city. The company's latest available accounts show that it made a loss of over GBP120,000 over 2021 and 2022, TheBusinessDesk.com discloses. According to TheBusinessDesk.com, more than 75 items from the company's showroom are now up for sale by online auction, which closes at 12:00 p.m. on Friday, Aug. 25. Asset advisory firm Walker Singleton, which is hosting the online auction, has invited bids on the company's showroom appliances and displays and support equipment, following the appointment of liquidators, TheBusinessDesk.com relates. These include ex-display appliances such as ovens, microwaves, cooking hobs, extractors, as well as a fridge-freezer, washing machine and dishwasher, from brands like Samsung, Indesit and Neff, TheBusinessDesk.com notes. SEADRILL LTD: S&P Assigns 'B+' Long-Term ICR, Outlook Stable ------------------------------------------------------------ S&P Global Ratings assigned its 'B+' long-term issuer credit rating to offshore drilling company Seadrill Ltd. and its 'BB' issue rating and '1' recovery rating to its senior secured notes. The stable outlook reflects its expectation that Seadrill will preserve the headroom under the rating in the coming 12 months, supported by healthy industry conditions. Refinancing helped to simplify the capital structure and extend the maturities until 2028 at the earliest. S&P said, "Following the refinancing, we estimate our adjusted debt at $640 million, consisting of the new $575 million senior secured notes, $50 million unsecured convertible bond, and small adjustments like leases and pension obligations. Our adjusted debt is on gross basis, in line with our approach to similarly rated peers in the industry. At the same time, we estimate available cash of close to $710 million (on a pro-forma basis), taking into account $412 million of available cash at the end of the second quarter of 2023, $230 million of net proceeds from new debt issuance, and the funds from the sale of three tender-assist units completed in July 2023. This supports a comfortable liquidity cushion, especially considering our expectation that free operating cash flow (FOCF) should be broadly neutral in 2023." The new capital structure consists of the following instruments: -- $225 million senior secured first-lien revolving credit facility (RCF) due August 2028 (undrawn); -- $575 million senior secured second-lien notes due August 2030; -- $50 million unsecured convertible bond due August 2028. S&P said, "We believe Seadrill should be able to accommodate the announced $250 million buyback. The company's board approved the buyback, although the details on the timeline are not available at this stage. Given the significant cash cushion and our expectation of broadly neutral FOCF in 2023, we believe the full amount can be accommodated with no significant pressure on our credit metrics, as soon as 2023. We expect that the company will remain prudent when making the decision on the timing of share repurchases. According to Seadrill, it will prioritize liquidity and a strong balance sheet over growth investments and shareholder distributions. Seadrill intends to maintain net debt to EBITDA below 1x during healthy market conditions and to limit it to a maximum of 2x during weaker market conditions (net debt is currently negative)." S&P said, "The stable outlook reflects our expectation that Seadrill will benefit from the improving offshore drilling market over the next 12 months, leading to comfortable headroom under the rating. We also anticipate that the company will integrate the recently acquired driller Aquadrill, realizing synergies in line with its expectations. "We expect Seadrill will post adjusted EBITDA of $435 million-$485 million in 2023, compared with $261 million in 2022. This should result in broadly neutral FOCF and funds from operations (FFO) to debt of close to 50%-55%, which we view as commensurate with the current rating." S&P might downgrade Seadrill if its credit metrics weakened, with FFO to debt declining below 30% and no expectation of a near-term recovery. This could result from the following: -- Reduced demand for offshore drilling, likely because of lower exploration and production industry capital expenditure (capex) amid low oil and gas prices; -- A deviation from the company's financial policy, with reported net debt to EBITDA going above 2x; or -- Continuously negative FOCF, ultimately resulting in weakening liquidity headroom. S&P could upgrade Seadrill if it successfully integrated Aquadrill and demonstrated improved operating results that would support FFO to debt above 60%. In addition, S&P would require the following: -- Strong positive FOCF, highlighting the company's ability to reduce debt over time; -- A longer track record of applying the financial policy, including capital allocation priorities (capex, dividends, and acquisitions); and -- At least adequate liquidity, supported by diverse liquidity sources. SIGNET JEWELERS: Fitch Affirms BB LongTerm IDR, Outlook Stable -------------------------------------------------------------- Fitch Ratings has affirmed Signet Jewelers Limited's and Signet Group Limited's ratings, including their Long-Term Issuer Default Ratings (IDR) at 'BB'. The Rating Outlook is Stable. Signet's ratings reflect its leading market position as a U.S. specialty jeweler with an approximately 10% share of a highly fragmented industry. The ratings consider Signet's good execution both from a topline and a margin standpoint, which support Fitch's longer-term expectations of low-single digit revenue and EBITDA growth. Although there is some near-term pressure to operating results given ongoing shifts in consumer behavior, difficult comparisons, and global macroeconomic uncertainty, Fitch expects that Signet will be able to sustain EBITDAR leverage (adjusted debt/EBITDAR, capitalizing leases at 8x) in the low-4x range, as appropriate for the 'BB' rating. KEY RATING DRIVERS Good Medium-Term Performance: For the LTM period ended April 29, 2023, Signet generated USD7.67 billion in revenue and approximately USD970 million in EBITDA relative to USD6.1 billion in revenue and USD504 million in EBITDA in 2019. Signet's results have been aided by an overall shift in consumer spending habits in 2020 and 2021 toward goods, including jewelry. Beyond these industry tailwinds, Signet has benefitted from the introduction of a number of strategies in recent years to improve same store sales (SSS), including increasing the pace of product innovation, and investing in its omnichannel platform. Fitch expects organic sales could decline in the low-double digits in 2023, due in-part to some pulled-forward demand in the jewelry category during 2020-2021 and consumers refocusing budgets toward services, including travel and other experiences. Approximately 50% of Signet's sales are in the bridal category and the company has stated that 2023 topline results are challenged given an ongoing drop in engagements, although it expects engagement trends to improve into 2024. Beginning in 2024, Fitch projects Signet's revenue could stabilize around USD7.2 billion-USD7.3 billion range, as consumer trends normalize versus 2019 revenue levels of USD6.1 billion. The company has closed approximately 15% of its store base since 2019 and the volume has been more than offset by the acquisitions of Diamond Direct in 4Q21 and Blue Nile in 3Q22, which together contributed approximately USD1.0 billion in annualized sales, and the improvement in its base business. Focused Strategy Supports Margin Profile: Signet's EBITDA margins are expected to trend in the upper-10% range beginning in 2023, well above the low-8% seen in pre-pandemic 2019, yielding EBITDA in the upper USD700 million range. In recent years, Signet has been focused on structural cost reductions, including consolidation of distribution centers and sourcing optimization. Additionally, Signet's store fleet optimization efforts yielded a gross margin benefit of over 500 bps. During 2018-2022, the company achieved over USD600 million in annualized savings across a number of functions. In 2023, the company expects to achieve an additional USD225 million-USD250 million in cost savings. Fitch expects the company to redeploy a significant level of these savings into topline investments as it has in the past. Moderate Leverage; Strong FCF: Signet currently has approximately USD800 million of debt outstanding. The company has a public leverage target of below 2.75x (capitalizing rent at 5x; Fitch-adjusted equivalent is the low-4.0x range). Fitch projects that, absent a debt-financed transaction, Signet's leverage could trend in the high-3x range across the forecast period, below the mid-to-upper 5x range seen pre-pandemic based on EBITDA growth and debt reduction. Per Signet's leverage calculations, this equates to leverage trending in the mid-2x range. With USD656 million of cash as of April 29, 2023, and positive FCF expected over the rating horizon, Signet has good liquidity and financial flexibility. The company could deploy FCF generation toward a combination of debt reduction, share repurchases, dividends, and acquisitions. Signet repurchased approximately USD376 million in shares in 2022 and repurchased an additional USD39 million in 1Q23. Signet has recently been acquisitive, purchasing Diamond Direct in November 2021 for USD490 million and Blue Nile in August 2022 for USD360 million. Both of these transactions were funded with cash on hand. Leading Jeweler Position: Signet is the leading U.S. specialty jeweler with an approximately 10% share of a fragmented USD65 billion market. The company ended 2022 with 2,808 stores across well-known brands like Kay, Jared, Zales and Banter by Piercing Pagoda in the U.S.; Peoples in Canada; and H.Samuel and Ernest Jones in the U.K. Signet benefits from its scale and ability to invest in its omnichannel platform. If executed effectively, these investments could provide Signet competitive advantages against smaller and independent jewelers with limited capacity to invest. Longer term, Signet's ability to grow its share of the fragmented mid-tier jewelry market will depend on execution against its omnichannel and other growth initiatives. Parent Subsidiary Linkage: Fitch's analysis includes a strong subsidiary/weak parent approach between the parent, Signet Jewelers Limited and its subsidiaries Signet UK Finance, PLC and Signet Group Limited. Fitch assesses the quality of the overall linkage as high, which results in an equalization of IDRs. DERIVATION SUMMARY Signet's 'BB'/Stable ratings consider Signet's good execution both from a topline and a margin standpoint, which support Fitch's longer-term expectations of low-single digit revenue and EBITDA growth. The rating reflects its leading market position as a U.S. specialty jeweler with an approximately 10% share of a highly fragmented industry. Fitch expects that Signet will be able to sustain EBITDAR leverage in the low-4x range, as appropriate for the 'BB' rating. Similarly rated peers include: Capri Holdings Limited (BBB-/RWN), Levi Strauss & Co. (BB+/Stable) and Samsonite International S.A. (BB/Stable). Capri's 'BBB-'/Rating Watch Negative (RWN) rating reflects its strong positioning in the U.S. handbag market and, good growth at its various brands along with its demonstrated commitment to debt reduction. The rating also considers the fashion risk inherent in the accessories and apparel space. The RWN reflects the potential for a sustained increase in leverage, pro forma for the acquisition by Tapestry, above Fitch's current expectations for EBITDAR leverage to sustain in the low-3x range. Levi's 'BB+'/Stable rating considers the company's good execution from a top-line and margin standpoint, which support Fitch's longer-term expectations of low-single-digit revenue and EBITDA growth. Although operating results could experience some near-term pressure given ongoing shifts in consumer behavior, difficult comparisons and global macroeconomic uncertainty, Fitch expects that Levi will maintain EBITDAR leverage below 3.5x over time. Levi's ratings reflect its position as one of the world's largest branded apparel manufacturers, with broad channel and geographic exposure, while also considering the company's narrow focus on the Levi brand and in bottoms. Samsonite's 'BB'/Stable rating reflects the company's position as the world's largest travel luggage company, with strong brands and historically good organic growth. The rating recognizes Samsonite's strong topline rebound, following weak pandemic-era performance in 2020, led by a continued strong recovery in global travel. This, alongside effective cost reductions and the company's progress on paying down pandemic-era debt, has increased Fitch's confidence that Samsonite will be able to sustain EBITDA in the low-USD600 million range and EBITDAR leverage (adjusted debt/EBITDAR, capitalizing leases at 8x) in the low-4.0x range beginning in 2023, as appropriate for the 'BB' rating. KEY ASSUMPTIONS -- Signet's revenue is expected to decline in the high-single digits in 2023 as the incremental revenue benefit of the Blue Nile acquisition, which was completed in August 2022, only partially offsets a shift in consumer spending patterns toward services and away from goods like jewelry. Thereafter, revenue is expected to grow in the low-single digit range, supported by the company's topline initiatives, including its omnichannel focus. Revenue is expected to trend in the USD7.2 billion- USD7.3 billion range, beginning in 2024, relative to 2019 levels of USD6.1 billion. Across 2021 and 2022, the company made two sizable acquisitions of Diamond Direct and Blue Nile, which, together, accounted for approximately USD1.0 billion in incremental revenue. -- EBITDA is expected to decline from USD1.0 billion in 2022 to around approximately USD770 million in 2023, largely driven by the high-single-digit top-line decline expected for the year, as well as heightened markdown activity. EBITDA is expected to grow modestly beginning in 2024 in the USD760 million-USD780 million range relative to 2019 levels of USD504 million. EBITDA margins could trend in the high-10%, low-11% range beginning 2024, higher than the low-8% range in 2019 given strong top- line growth and expense management initiatives. -- Fitch expects 2023 FCF to be around USD290 million, below the USD590 million generated in 2022 given EBITDA declines and some reversal in working capital benefits. FCF could be in the USD380 million-USD400 million range annually beginning 2024 assuming modest EBITDA expansion and neutral working capital. -- Signet could use its strong cash balances of USD656 million as of April 2023 and good FCF to reinvest in its business, continue share buybacks, and reduce debt over the next two to three years. The company's USD147 million of unsecured notes matures in June 2024. In 2021 and 2022, the company deployed approximately USD900 million in cash toward its Diamond Direct and Blue Nile acquisitions. -- EBITDAR leverage (capitalizing leases at 8.0x) is expected to trend in the high-3.0x range across the forecast, lower than the 5.4x level seen in 2019 based on EBITDA expansion and debt reduction. Fitch recognizes the company could undertake capital structure actions to increase adjusted leverage to the low-4x range, in concert with its publicly articulated financial policy. -- The company's unsecured notes are a fixed rate instrument. The revolving credit facility is floating rate (SOFR + 1.5%). RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: -- A positive rating action could occur if the company revised its financial policy thereby increasing Fitch's confidence of Signet maintaining EBITDAR leverage (capitalizing leases at 8x) below 4.0x, while also performing in line with Fitch's current base case forecast. Factors that could, individually or collectively, lead to negative rating action/downgrade: -- A downgrade could occur if operating performance is below expectations, yielding EBITDA declines toward USD500 million and EBITDAR leverage (capitalizing leases at 8.0x) sustained above 4.5x. LIQUIDITY AND DEBT STRUCTURE Strong Liquidity: As of April 29, 2023, Signet had USD655.9 million in cash and cash equivalents and no borrowings on its USD1.5 billion ABL facility due July 2026, with USD1.3 billion in available borrowing capacity. As of April 29, 2023, the company's capital structure consists of USD147.5 million in unsecured notes due June 2024 and USD654.3 million of preferred equity, which receives 0% equity credit. Permanence in the capital structure -- in this case permanence of the convertible preferreds -- is necessary for equity credit recognition. Fitch views these securities as not conducive to being maintained as a permanent part of the capital structure, with the main purpose being to support the company's stock price. Given current cash balances and cash flow generation, the company could pay-off outstanding debt maturities when they come due using cash. The company has a public leverage target of below 2.75x adjusted leverage. The target capitalizes leases at 5.0x, equating to a target of approximately 4.0x on Fitch's leverage calculation, which capitalizes rent at 8.0x. RECOVERY CONSIDERATIONS Fitch does not employ a waterfall recovery analysis for issuers' assigned ratings in the 'BB' category. The further up the speculative-grade continuum a rating moves, the more compressed the notching between the specific classes of issuances becomes. Fitch has affirmed Signet's secured ABL facility at 'BBB-'/'RR1' indicating outstanding recovery prospects (91% to 100%). Fitch has affirmed the unsecured notes at 'BB'/'RR4' indicating average recovery prospects (31% to 50%). Fitch has affirmed the preferred equity at 'BB-'/'RR5', indicating below-average recovery prospects (11% to 30%). ISSUER PROFILE Signet, incorporated in Bermuda, is the world's largest diamond jewelry retailer, with 2,808 stores and kiosks (as of the end of 2022) in the U.S., U.K. and Canada operating under a variety of national and regional brands. Signet's largest brands include Kay (36% of 2022 sales), Zales (18%), and Jared (17%), all of which operate in North America. SUMMARY OF FINANCIAL ADJUSTMENTS Historical and projected EBITDA is adjusted to add back non-cash stock-based compensation expense and exclude non-recurring charges. For the year ended Jan. 28, 2023, Fitch added back USD42.0 million in stock-based compensation expense. Fitch has adjusted the historical and projected debt by adding 8x annual gross rent expense. 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. ENTITY/DEBT RATING RECOVERY PRIOR ----------- ------ -------- ----- Signet Group Limited LT IDR BB Affirmed BB senior secured LT BBB- Affirmed RR1 BBB- Signet Jewelers Ltd. LT IDR BB Affirmed BB preferred LT BB- Affirmed RR5 BB- Signet UK Finance plc senior unsecured LT BB Affirmed RR4 BB ********* 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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