/raid1/www/Hosts/bankrupt/TCREUR_Public/230901.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
Friday, September 1, 2023, Vol. 24, No. 176
Headlines
I R E L A N D
CAIRN CLO III: Moody's Affirms Ba2 Rating on EUR8MM Class F Notes
CARLYLE EURO 2018-2: Moody's Cuts EUR12MM E Notes Rating to Caa1
MAINSTREAM RENEWABLE: Put Into Liquidation by Parent in Dublin
N E T H E R L A N D S
TELEFONICA EUROPE: S&P Rates Proposed Hybrid Securities 'BB'
R U S S I A
HAMKORBANK JSCB: S&P Raises ICR to 'BB-' on Strengthening Capital
U N I T E D K I N G D O M
CUMBRIA CHILDCARE: Put Into Liquidation After Damning Inspection
HAYDON MECHANICAL: Owed GBP10 Mil. at Time of Administration
INLAND HOMES: Warns of Possible Breach on Loan Covenant
PEAK JERSEY: S&P Places 'B-' Long-Term ICR, On Watch Negative
TELEC NETWORKS: Enters Administration, Ceases Trading
TOGETHER 2023-1ST2: S&P Assigns Prelim 'BB' Rating to F-Dfrd Notes
WILKO LTD: To Cut Jobs After M2 Capital Rescue Bid Collapses
X X X X X X X X
[*] BOOK REVIEW: Bailout: An Insider's Account of Bank Failures
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I R E L A N D
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CAIRN CLO III: Moody's Affirms Ba2 Rating on EUR8MM Class F Notes
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Moody's Investors Service has upgraded the ratings on the following
notes issued by Cairn CLO III DAC:
EUR16,500,000 Refinancing Class D Senior Secured Deferrable
Floating Rate Notes due 2028, Upgraded to Aaa (sf); previously on
Apr 4, 2023 Upgraded to Aa1 (sf)
EUR22,000,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2028, Upgraded to Baa1 (sf); previously on Apr 4, 2023
Upgraded to Baa2 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR181,500,000 (current outstanding amount EUR7,168,320)
Refinancing Class A Senior Secured Floating Rate Notes due 2028,
Affirmed Aaa (sf); previously on Apr 4, 2023 Affirmed Aaa (sf)
EUR28,000,000 Refinancing Class B Senior Secured Floating Rate
Notes due 2028, Affirmed Aaa (sf); previously on Apr 4, 2023
Affirmed Aaa (sf)
EUR20,000,000 Refinancing Class C Senior Secured Deferrable
Floating Rate Notes due 2028, Affirmed Aaa (sf); previously on Apr
4, 2023 Affirmed Aaa (sf)
EUR8,000,000 Class F Senior Secured Deferrable Floating Rate Notes
due 2028, Affirmed Ba2 (sf); previously on Apr 4, 2023 Upgraded to
Ba2 (sf)
Cairn CLO III DAC, issued in March 2013 and last refinanced in
October 2017, is a collateralised loan obligation (CLO) backed by a
portfolio of mostly high-yield senior secured European loans. The
portfolio is managed by Cairn Loan Investments LLP. The
transaction's reinvestment period ended in October 2019.
RATINGS RATIONALE
The rating upgrades on the Class D and Class E notes are primarily
a result the significant deleveraging of the Class A notes
following amortisation of the underlying portfolio since the last
rating action in April 2023.
The affirmations on the ratings on the Class A, B, C and F 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 notes have paid down by approximately EUR56.8million
(31.3%) in the last 12 months (EUR36.7 million (20.2%) since the
last rating action in April 2023 and EUR174.3million (96.05%) since
closing. As a result of the deleveraging, over-collateralisation
(OC) has increased. 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 333.7%, 212.7%, 163.8% and 125.3% compared to February
2023 [2] levels of 222.8%, 174.3%, 147.8% and 122.8%,
respectively.
In light of reinvestment restrictions during the amortisation
period, and therefore the limited ability to effect significant
changes to the current collateral pool, Moody's analysed the deal
assuming a higher likelihood that the collateral pool
characteristics would maintain an adequate buffer relative to
certain covenant requirements. In particular, Moody's assumed that
the deal will benefit from a shorter amortisation profile than it
had assumed at the last rating action in April 2023.
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: EUR118.7m
Defaulted Securities: EUR3.51m
Diversity Score: 19
Weighted Average Rating Factor (WARF): 3208
Weighted Average Life (WAL): 2.97 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.51%
Weighted Average Recovery Rate (WARR): 45.99%
Par haircut in OC tests and interest diversion test: 1.765%
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties, such as account bank, using the
methodology "Moody's Approach to Assessing Counterparty Risks in
Structured Finance" published in June 2022. Moody's concluded the
ratings of the notes are not constrained by these risks.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.
Additional uncertainty about performance is due to the following:
-- Portfolio amortisation: The main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales by the collateral manager or
be delayed by an increase in loan amend-and-extend restructurings.
Fast amortisation would usually benefit the ratings of the notes
beginning with the notes having the highest prepayment priority.
-- Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. 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.
-- Long-dated assets: The presence of assets that mature beyond
the CLO's legal maturity date exposes the deal to liquidation risk
on those assets. Moody's assumes that, at transaction maturity, the
liquidation value of such an asset will depend on the nature of the
asset as well as the extent to which the asset's maturity lags that
of the liabilities. Liquidation values 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.
CARLYLE EURO 2018-2: Moody's Cuts EUR12MM E Notes Rating to Caa1
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Moody's Investors Service has downgraded the rating on the
following notes issued by Carlyle Euro CLO 2018-2 Designated
Activity Company:
EUR12,000,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2031, Downgraded to Caa1 (sf); previously on Nov 11, 2022
Downgraded to B3 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR232,000,000 (current outstanding amount EUR213,551,181.88)
Class A-1-A Senior Secured Floating Rate Notes due 2031, Affirmed
Aaa (sf); previously on Nov 11, 2022 Affirmed Aaa (sf)
EUR16,000,000 Class A-1-B Senior Secured Floating Rate Notes due
2031, Affirmed Aaa (sf); previously on Nov 11, 2022 Affirmed Aaa
(sf)
EUR7,868,000 Class A-2-A Senior Secured Floating Rate Notes due
2031, Affirmed Aa1 (sf); previously on Nov 11, 2022 Upgraded to Aa1
(sf)
EUR20,000,000 Class A-2-B Senior Secured Fixed Rate Notes due
2031, Affirmed Aa1 (sf); previously on Nov 11, 2022 Upgraded to Aa1
(sf)
EUR12,632,000 Class A-2-C Senior Secured Floating Rate Notes due
2031, Affirmed Aa1 (sf); previously on Nov 11, 2022 Upgraded to Aa1
(sf)
EUR7,802,000 Class B-1 Senior Secured Deferrable Floating Rate
Notes due 2031, Affirmed A2 (sf); previously on Nov 11, 2022
Affirmed A2 (sf)
EUR18,948,000 Class B-2 Senior Secured Deferrable Floating Rate
Notes due 2031, Affirmed A2 (sf); previously on Nov 11, 2022
Affirmed A2 (sf)
EUR20,000,000 Class C Senior Secured Deferrable Floating Rate
Notes due 2031, Affirmed Baa2 (sf); previously on Nov 11, 2022
Affirmed Baa2 (sf)
EUR25,750,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2031, Affirmed Ba2 (sf); previously on Nov 11, 2022
Affirmed Ba2 (sf)
Carlyle Euro CLO 2018-2 Designated Activity Company, issued in
August 2018, is a collateralised loan obligation (CLO) backed by a
portfolio of mostly high-yield senior secured European loans. The
portfolio is managed by CELF Advisors LLP. The transaction's
reinvestment period ended in November 2022.
RATINGS RATIONALE
The rating downgrade on the Class E notes is primarily a result of
the deterioration of the credit quality of the portfolio and the
further weakening in over-collateralisation ratios since the last
rating action in November 2022 as a result of an increase on the
exposure to defaults.
The affirmations on the ratings on the Class A-1-A, Class A-1-B,
Class A-2-A, Class A-2-B, Class A-2-C, Class B-1, Class B-2, Class
C and Class D notes are primarily a result of the expected losses
on the notes remaining consistent with their current ratings after
taking into account the CLO's latest portfolio, its relevant
structural features and its actual over-collateralization (OC)
levels.
Since the last rating action the credit quality has deteriorated as
reflected in the deterioration in the average credit rating of the
portfolio (measured by the weighted average rating factor, or WARF)
and an increase in the proportion of securities from issuers with
ratings of Caa1 or lower. According to the trustee report dated
July 2023 [2], the WARF was 3177, compared with 3089 on the October
2022 [1] report. Securities with ratings of Caa1 or lower on July
2023 [2] make up approximately 6.8% of the underlying portfolio,
versus 3.7% in October 2022 [1].
The over-collateralisation ratios of the rated notes have
deteriorated since the rating action in November 2022. According to
the trustee report dated October 2022 [1] the Class A, Class B,
Class C, Class D and Class E OC ratios are reported at 135.94%,
124.41%, 116.99%, 108.64% and 105.15% compared to July 2023 [2]
levels of 135.85%, 123.91%, 116.26%, 107.71% and 104.14%,
respectively.
In light of reinvestment restrictions during the amortisation
period, and therefore the limited ability to effect significant
changes to the current collateral pool, Moody's analysed the deal
assuming a higher likelihood that the collateral pool
characteristics would maintain an adequate buffer relative to
certain covenant requirements. In particular, Moody's assumed that
the deal will benefit from a shorter amortisation profile than it
had assumed at the last rating action in November 2022.
Key model inputs:
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: EUR354.7m
Principal proceeds balance: EUR12.7m
Defaulted Securities: EUR7.0m
Diversity Score: 51
Weighted Average Rating Factor (WARF): 3015
Weighted Average Life (WAL): 3.7 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.79%
Weighted Average Coupon (WAC): 4.52%
Weighted Average Recovery Rate (WARR): 44.27%
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.
Moody's notes that the August 2023 trustee report was published at
the time it was completing its analysis of the July 2023 data. Key
portfolio metrics such as WARF, diversity score, weighted average
spread and life, and OC ratios exhibit little or no change between
these dates. Moody's have incorporated the latest information in
the payment date report to reflect the updated performing par,
defaulted securities, principal proceeds balance and class A-1-A
outstanding amount.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties, such as account bank, using the
methodology "Moody's Approach to Assessing Counterparty Risks in
Structured Finance" published in June 2022. Moody's concluded the
ratings of the notes are not constrained by these risks.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change.
Additional uncertainty about performance is due to the following:
-- Portfolio amortisation: The main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales by the collateral manager or
be delayed by an increase in loan amend-and-extend restructurings.
Fast amortisation would usually benefit the ratings of the notes
beginning with the notes having the highest prepayment priority.
-- Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Recoveries higher
than Moody's expectations would have a positive impact on the
notes' ratings.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available to
rating committees, including macroeconomic forecasts, input from
other Moody's analytical groups, market factors, and judgments
regarding the nature and severity of credit stress on the
transactions, can influence the final rating decision.
MAINSTREAM RENEWABLE: Put Into Liquidation by Parent in Dublin
--------------------------------------------------------------
The Currency reports that Mainstream Renewable Power has put one of
its subsidiaries into liquidation as it pushes ahead with judicial
reorganisation proceedings.
The move comes despite opposition from one of the financiers of its
Chilean business, Ares Management, a US$295 billion alternative
investment manager, The Currency notes.
According to The Currency, Mainstream Renewable Power Group Lending
Ltd, a company used by Mainstream to provide funding to its Chilean
entities, was put into liquidation on Aug. 30 by its parent
company.
A statutory meeting of the subsidiary's creditors took place on
Aug. 30 in Dublin with accountant Stephen Scott of Evelyn Partners
being appointed as liquidator, The Currency discloses.
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TELEFONICA EUROPE: S&P Rates Proposed Hybrid Securities 'BB'
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S&P Global Ratings assigned its 'BB' long-term issue rating to the
proposed hybrid securities to be issued by Telefonica Europe B.V.
(BBB-/Stable/--), the Dutch finance subsidiary of Spain-based
telecom group Telefonica S.A. (BBB-/Stable/A-3), which will
guarantee the proposed securities.
Telefonica plans to use the proceeds to refinance an equivalent
amount of hybrids that have first call dates in September 2023 and
March 2024. S&P said, "The company said it might also repurchase
some of these instruments via a tender offer, and we understand
that Telefonica does not intend to permanently increase its stock
of hybrids. After the replacement and liability management
transaction, Telefonica expects its hybrid portfolio to be similar
in size to the current portfolio. We expect to assess the new
issuance as having intermediate equity content and an equivalent
amount of the existing hybrids as having minimal equity content."
S&P said, "We calculate that hybrids comprised about 11% of
Telefonica's S&P Global Ratings-adjusted capitalization, as of
end-2022, and do not expect this to alter as a result of the
proposed issuance and replacement of hybrid securities. We cap at
15% the proportion of capital that may be comprised of hybrids
classified as having equity content, under our criteria."
The proposed hybrid will be classified as having intermediate
equity content until the first reset date, which is expected to be
seven to nine years after issuance. S&P said, "During this period,
it will meet our criteria for subordination, permanence, and
optional deferability. Consequently, when we calculate Telefonica
S.A.'s adjusted credit ratios, we will treat 50% of the principal
outstanding under the proposed securities as equity, rather than
debt; and 50% of the related payments on these securities as
equivalent to a common dividend."
The two-notch difference between S&P's 'BB' issue rating on the
securities and its 'BBB-' issuer credit rating (ICR) on Telefonica
S.A. reflects the following downward adjustments from the ICR:
-- One notch for the proposed securities' subordination, because
S&P's long-term ICR on Telefonica S.A. is investment-grade; and
-- An additional notch for payment flexibility due to the optional
deferability of interest.
The notching indicates that in S&P's view there is a relatively low
likelihood that Telefonica Europe will defer interest payments.
Should its view change, S&P may significantly increase the number
of downward notches that it applies to the issue rating. S&P may
lower the issue rating before it lowers the ICR.
Key Factors In S&P's Assessment Of The Securities' Permanence
Although the proposed securities have no maturity date, Telefonica
Europe can redeem them on any date between the first call date and
the first reset date, and on every interest payment date
thereafter. The first call date will be a few months before the
first reset date, itself likely to be seven to nine years after
issuance.
In addition, Telefonica can call the instrument any time, at a
premium, through a make-whole redemption option. S&P said,
"Telefonica has stated that it has no intention of redeeming the
instrument before the first reset date, and we do not consider that
this type of make-whole clause creates an expectation that the
proposed securities will be redeemed before then. Accordingly, we
do not view it as a call feature in our hybrid analysis, even
though the documentation for the hybrid instrument refers to it as
a make-whole option clause."
More generally, S&P understands that the group intends to replace
the proposed hybrid securities, although it is not obliged to do
so. In its view, this statement of intent, combined with the
group's record of replacing hybrid securities, mitigates the
likelihood that it will repurchase the securities without
replacement.
Telefonica Europe will pay a coupon on the proposed securities
equal to the applicable benchmark rate plus a margin. The margin
will increase by 25 basis points (bps) 10 years after issuance, and
by a further 75 bps 20 years after the first reset date. We view
the cumulative 100 bps increase as a moderate step-up that provides
Telefonica Europe with an incentive to redeem the instruments 20
years after the first reset date.
After the first reset date, S&P will no longer recognize the
proposed securities as having intermediate equity content because
the remaining period until economic maturity would, by then, be
less than 20 years.
Key Factors In S&P's Assessment Of The Securities' Subordination
The proposed securities will be deeply subordinated obligations of
Telefonica Europe and will have the same seniority as the hybrids
issued in 2013, 2014, 2016, 2017, 2018, 2019, 2020, 2021, 2022, and
2023. As such, they will be subordinated to the senior debt
instruments and are only senior to common and preferred shares. S&P
understands that the group does not intend to issue any such
preferred shares.
Key Factors In S&P's Assessment Of The Securities' Deferability
In S&P's view, Telefonica Europe's option to defer payment of
interest on the proposed securities is discretionary. It may,
therefore, choose not to pay accrued interest on an interest
payment date. However, if an equity dividend or interest on any
equal-ranking or junior securities is paid, or if there is a
redemption or repurchase of the hybrid or any equal-ranking or
junior securities, Telefonica Europe would have to settle any
deferred interest payment in cash.
This condition remains acceptable under S&P's rating methodology
because, once the issuer has settled the deferred amount, it can
choose to defer payment on the next interest payment date.
The issuer retains the option to defer coupons throughout the life
of the securities. The deferred interest on the proposed securities
is cash-cumulative and compounding.
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R U S S I A
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HAMKORBANK JSCB: S&P Raises ICR to 'BB-' on Strengthening Capital
-----------------------------------------------------------------
S&P Global Ratings raised its long-term issuer credit rating on
Uzbekistan-based Hamkorbank JSCB to 'BB-' from 'B+'. The outlook is
stable. S&P also affirmed the 'B' short-term issuer credit rating
on Hamkorbank.
Hamkorbank has materially strengthened its capitalization and S&P
expects it will remain strong in the next 18-24 months thanks to
solid profitability. Over the past two years, the bank continued to
actively expand its retail and micro, small, and midsize enterprise
(MSME) franchise, which translated into net interest margins of
9.3%-9.5% and returns on average equity of 27.3% in 2021 and 30.9%
in 2022. At the same time, the bank has been capitalizing profits
instead of distributing dividends to support further business
growth.
Over the next 18-24 months, our capital adequacy measure--the
risk-adjusted capital ratio (RAC)--will likely remain sustainably
above 10%, from about 11.7% at year-end 2022, despite expected
strong loan book growth of about 25%-28% per year. This is based on
our assumption that the bank's focus on retail and MSME business
will continue supporting its solid profitability metrics and our
expectation it will not distribute dividends to shareholders over
the next two years. S&P's forecast incorporates the assumption that
the bank can maintain asset quality in line with the metrics
reported in 2021-2022. If the planned aggressive lending growth
results in materially higher credit costs, this will result in
additional pressure on capital due to higher provisioning costs.
S&P said, "We think the bank will maintain its strong positions in
the retail and MSME segment, benefitting from its established
franchise, good brand recognition, and supportive shareholders. We
expect the bank to continue its focus on servicing retail customers
and small entrepreneurs, with the share of its retail loans likely
increasing from the current 37%. We also believe the bank will
continue investing in digital innovation and transformation to
improve its product offering."
However, managing very strong lending growth will be a challenge
for management. In 2022, Hamkorbank improved its asset quality with
nonperforming loans (NPLs) under International Financial Reporting
Standards (IFRS) reducing to 2.0% of total loans from 3.6% in 2021.
This compares well with an estimated sector average of 7.4% at
year-end 2022. The bank also improved its loan reserves coverage
ratio to 67.9% from 39.3% a year ago. S&P said, "That said, we
believe the quality of the bank's control and risk management
systems and the ability of management to build a good quality
lending book will be tested by planned strong lending growth of
about 25% per year. In our base-case scenario, we expect that
Hamkorbank's NPLs will remain at about 1.8%-2.0% while loan loss
reserves coverage could further deteriorate toward 55%-57% over the
next two years."
S&P said, "We also expect that competition in the retail and MSME
segment will intensify. Many domestic players are looking to
improve their margins via expanding their retail and SME banking,
and there is potential interest in the Uzbekistani market from
regional players looking for revenue and exposure diversification.
Also, we consider that the recent acquisition by OTP Bank of 75% of
the government's stake in retail-focused Ipoteka Bank could change
the competitive landscape, since we expect that OTP will bring its
strong retail expertise to the market. In our view, intensifying
competition will somewhat limit growth opportunities in this
segment.
"The stable outlook on Hamkorbank reflects our view that it should
maintain its creditworthiness over the next 12 months. We expect
strong lending growth focused on retail and MSME business will
result in solid profitability, while capitalization of profits
should support its capital, with our forecast RAC ratio sustainably
above 10%. At the same time, the bank's growth plans will test
management's ability to keep asset quality under control and the
quality of its risk management and underwriting systems.
"A negative rating action on Uzbekistan would lead to a similar
rating action on the bank. We could also take a negative rating
action if the bank's forecast capital buffer came under pressure
from higher asset growth and lower profitability. A significant
deterioration of capital adequacy ratios, with a buffer of lower
than 100 basis points above the regulatory threshold, might also
prompt us to consider a negative rating action.
"We consider a positive rating action remote over the next 12
months. This would require a similar rating action on the sovereign
alongside a further strengthening of the bank's creditworthiness."
===========================
U N I T E D K I N G D O M
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CUMBRIA CHILDCARE: Put Into Liquidation After Damning Inspection
----------------------------------------------------------------
Dan Taylor at The Mail reports that a company behind a Barrow
nursery that closed following a damning inspection by Ofsted is now
in liquidation.
Cumbria Childcare went into liquidation as an order to wind up the
company was secured after a High Court petition by HM Revenue and
Customs, The Mail relates.
The company formerly ran a nursery in Barrow's High Street, which
closed down after being rated "inadequate" by Ofsted inspectors in
2022.
According to The Mail, inspectors said the safety of children at
the nursery was "compromised due to the significant weaknesses in
the leadership and management of the nursery and several breaches
of the legal requirements".
Following the inspection, Ofsted served a welfare requirements
notice ordering action to be taken, The Mail recounts.
But the nursery closed down, The Mail relays.
The provider offered full daycare for zero to seven-year-olds and
had 30 children on roll.
The nursery employed seven members of childcare staff, according to
Ofsted.
The winding-up order was made at the High Court earlier this month
by Insolvency and Companies Court Judge Burton, The Mail notes.
According to Companies House, Cumbria Childcare was registered at
the nursery until May 2022 and is now registered in
Ashton-under-Lyne, Greater Manchester, The Mail states.
HAYDON MECHANICAL: Owed GBP10 Mil. at Time of Administration
------------------------------------------------------------
Grant Prior at Construction Enquirer reports that Haydon Mechanical
& Electrical fell into administration owing nearly GBP10 million to
suppliers and subcontractors.
The scale of the debts is highlighted in an update from
administrators at insolvency specialist Leading.
The report also confirms that Leading will be looking-into the
novation of contracts to a sister company called Millharbour FM Ltd
before Haydown went into administration in early August,
Construction Enquirer discloses.
Companies house records show that Millharbour FM has some of the
same directors as Haydon, Construction Enquirer notes.
According to Construction Enquirer, the report states that the
contracts were novated for GBP100,000 and "effected the release of
significant retention funds to the company" and "avoided
significant damages claims against the company in respect of these
contracts."
It adds: "We shall consider the novation agreement in further
detail to ensure that it does not constitute a transaction at an
undervalue."
The collapse comes a year after Haydon entered a Company Voluntary
Arrangement with its creditors in August 2022 following cash flow
pressures, Construction Enquirer relays.
The CVA deal was designed to distribute at least GBP7.2 million to
creditors at the rate of GBP200,000 a month starting in November
2022 with suppliers getting at least 80p in the GBP1 back for their
debts, Construction Enquirer states.
At the time of the CVA, Haydon had a loan agreement in place with
its former parent company Mears who sold the firm to its management
for GBP1 in 2013, Construction Enquirer recounts. Mears agreed to
postpone all loan repayments for at least 18 months while Haydon
worked through the CVA, Construction Enquirer relates.
The administrator's report reveals Mears was owed GBP2.2 million,
according to Construction Enquirer.
INLAND HOMES: Warns of Possible Breach on Loan Covenant
-------------------------------------------------------
Aaron Morby at Construction Enquirer reports that cash-strapped
house builder and brownfield developer Inland Homes has warned that
it is possible the firm will breach a loan covenant.
According to Construction Enquirer, the south east developer is
considering possible provisions to be made against certain asset
values in its accounts with its auditors.
This follows a tightening up of its corporate procedures after an
independent report by accountant FRP Advisory discovered
"significant and repeated failures" in previous board level
corporate governance, Construction Enquirer notes.
While the amount of such provisions have still to be fully
determined, the AIM-listed firm warned the market late on Aug. 30
that "it appeared likely to trigger a breach of the asset cover
covenant applicable to the loan between Inland ZDP and Inland
Homes", Construction Enquirer discloses.
The latest warning comes just over a month after veteran house
builder Jolyon Harrison was appointed as CEO in a bid to turn the
business around, Construction Enquirer states.
He joined after Inland delayed publishing its latest results for
the year to September 2022 while a series of accountants went
through transactions in the books, Construction Enquirer recounts.
Losses are expected to hit GBP91 million, according to Construction
Enquirer.
PEAK JERSEY: S&P Places 'B-' Long-Term ICR, On Watch Negative
-------------------------------------------------------------
S&P Global Ratings placed its 'B-' long-term issuer credit and
issue ratings on Peak Jersey Holdco (operating as Stats Perform)
and its debt on CreditWatch with negative implications.
The negative CreditWatch reflects the increased risk of a downgrade
if Peak Jersey Holdco doesn't materially improve its operating
performance in the coming quarters and timely refinance the RCF.
Sustainability of the group's capital structure relies heavily on
the significant improvement in the group's earnings in the coming
months. S&P said, "In our previous publication on Oct. 4, 2022, we
had expected Stats Perform to reduce leverage to about 7.5x-8.0x
and positive FOCF after leases in 2023. As we said then, very high
leverage and meaningfully negative FOCF contribute to the lack of
headroom at the current rating level. Based on the group's
first-half 2023 results, we now forecast Peak Jersey Holdco's S&P
Global Ratings-adjusted leverage will be above 11x and it will post
negative FOCF after leases in 2023, which are the main drivers of
our CreditWatch placement. Stats Perform's operating performance in
the coming quarters will inform us about its ability to grow its
business to a scale to support its current capital structure. The
group has had good traction for its new product launches, such as
"Instant highlights and replay" and "Smart stats overlay" and plans
to employ AI-driven data collection strategy. Stats Perform enjoys
access to valuable sports rights content, high customer retention,
and large subscription-based revenue stream, all of which we
consider credit strengths. However, in our view, the group will
need to achieve robust revenue growth and consistently achieve S&P
Global Ratings-adjusted EBITDA of about $90 million-$100 million
(after deducting capitalized development costs of $20 million and
exceptional costs) to support its S&P Global Ratings-adjusted debt
of about $650 million and rising interest cost burden."
S&P said, "A timely extension of the group's GBP50 million RCF
maturing in July 2024 is needed to support liquidity, in our view.
We view the RCF availability as critical to the group's operations,
particularly when working capital increases in the fourth quarter
of the year. The facility matures in less than 12 months, and so
our liquidity assessment is now less than adequate. We exclude the
RCF availability as a potential source of liquidity for the
quantitative analysis. Failure to extend the RCF's maturity would
mean the group is entirely dependent on its cash balance for its
liquidity. The group had cash of $35 million on June 30, 2023."
Exposure to variable rate debt increases potential for further
negative pressure on the group's FOCF from macroeconomic factors.
Peak Jersey Holdco's entire financial debt is subject to variable
interest rates. The rising interest rate in the U.S. and the $100
million add-on facility drawn down in November 2022 will result in
the group's cash interest being about $73 million in 2023 compared
with $50 million in 2022.
Currency imbalance between revenue and costs results in
transactional impact on the group's 2022 EBITDA. Stats Perform
generated about 40% of its 2022 revenue in pounds Sterling, 35% in
euros, and 20% in U.S. dollars. However, its costs are largely
denominated in U.S. dollar (about 40% of operating costs). This
mismatch had a significant impact on the group's earning profile in
2022 when the U.S. dollar strengthened relative to Sterling and
euro pairs. S&P estimates this currency mismatch reduced the
group's S&P Global Ratings-adjusted EBITDA by $14 million in 2022
and was one of the contributors to a reduction in S&P Global
Ratings-adjusted EBITDA to $38 million in 2022 compared with $59
million in 2021.
S&P placed Peak Jersey Holdco on CreditWatch negative to reflect
the increased risk of a downgrade if Stats Perform doesn't
materially improve its operating performance in the coming quarters
and reduce its persistent negative FOCF and high leverage, which
could indicate an unsustainable capital structure.
S&P intends to monitor and review Peak Jersey Holdco's ability to
deleverage and demonstrate sustainable FOCF generation in the
coming quarters.
In resolving the CreditWatch placement, S&P plans to monitor Stats
Perform's operating performance. S&P could lower the ratings on
Peak Jersey Holdco if:
-- The group is unsuccessful in extending the RCF's maturity in
the coming weeks, which we believe would increase the pressure on
its liquidity position; or
-- Having refinanced, the group is not able to demonstrate
material growth in operating performance, which S&P believes would
indicate an unsustainable capital structure, in turn likely leaving
the group vulnerable to external shocks. This could result, for
example, from operational underperformance, or an inability to
demonstrate a clear path to deleveraging and higher-than-expected
cash burn in 2023 with no clear visibility to achieve positive FOCF
after leases in the near term.
-- S&P would most likely remove the ratings from CreditWatch and
affirm the ratings if Stats Perform was able to significantly
improve its operating performance around during the coming
quarters, thereby reducing its S&P Global Ratings-adjusted leverage
to about 7.5x-8.0x while maintaining an adequate liquidity position
at all times.
Governance factors are a moderately negative consideration in S&P's
analysis of Peak Jersey Holdco, as is the case for most rated
entities owned by private equity sponsors. S&P believes the
company's highly leveraged financial risk profile points to
corporate decision-making that prioritizes the interests of the
controlling owners. This also reflects generally finite holding
periods and a focus on maximizing shareholder returns.
TELEC NETWORKS: Enters Administration, Ceases Trading
-----------------------------------------------------
Business Sale reports that Telecoms infrastructure company Telec
Networks Ltd has fallen into administration and ceased trading.
According to Business Sale, all of the company's staff transferred
to a new employer prior to the firm entering administration and
representatives from Quantuma will now seek to maximise asset
realisations for Telec's creditors.
Quantuma managing directors Andrew Watling and Duncan Beat were
appointed as joint administrators to Telec Networks Ltd on August
17, 2023, after a range of challenging circumstances forced the
company to enter administration, Business Sale relates.
Despite recording turnover of more than GBP24 million during the
year to March 29 2022, the firm suffered after a major contract was
postponed, while its cash flow position was further impacted by a
change in customer payment terms, resulting in the appointment of
administrators, Business Sale discloses.
In Telec's accounts for the year to March 29 2022, its fixed assets
were valued at GBP1.8 million and current assets at slightly over
GBP11 million, while net assets amounted to nearly GBP5 million,
Business Sale states.
TOGETHER 2023-1ST2: S&P Assigns Prelim 'BB' Rating to F-Dfrd Notes
------------------------------------------------------------------
S&P Global Ratings assigned preliminary credit ratings to Together
Asset Backed Securitisation 2023-1ST2's (Together 2023-1ST2) class
A debt, B notes, and interest deferrable class C-Dfrd to X-Dfrd
notes. At closing the issuer will also issue unrated class Z notes
and residual certificates.
Together 2023-1ST2 is a static RMBS transaction, securitizing a
provisional portfolio of up to GBP453.4 million first-lien mortgage
loans, both owner-occupied and buy-to-let, secured on properties in
the U.K. and originated by Together Personal Finance Ltd. and
Together Commercial Finance Ltd.
Together Personal Finance Ltd. and Together Commercial Finance Ltd.
are wholly owned subsidiaries of Together Financial Services Ltd.
Together Personal Finance Ltd. and Together Commercial Finance Ltd.
originated the loans in the pool between 2017 and 2023.
S&P considers the collateral to be nonconforming based on the
prevalence of loans to borrowers with adverse credit history, such
as prior county court judgments, bankruptcy, and mortgage arrears.
Credit enhancement for the rated notes consists of subordination,
excess spread, and overcollateralization following the step-up
date, which will result from the release of the excess spread
amounts from the revenue priority of payments to the principal
priority of payments.
Liquidity support for the class A debt and B notes is in the form
of an amortizing liquidity reserve fund. Principal can also be used
to pay interest on the most senior class outstanding (for the class
A debt to F-Dfrd notes only).
There are no rating constraints on the transaction under S&P's
counterparty, operational risk, or structured finance sovereign
risk criteria. S&P considers the issuer to be bankruptcy remote.
Preliminary ratings
CLASS PRELIM. RATING* CLASS SIZE (%)
A AAA (sf) 90.00
B AA (sf) 5.25
C-Dfrd A+ (sf) 1.50
D-Dfrd A- (sf) 1.25
E-Dfrd BBB- (sf) 0.90
F-Dfrd BB (sf) 0.75
X-Dfrd BBB (sf) 1.38
Z NR 0.35
Residual certs NR N/A
NR--Not rated.
N/A--Not applicable.
WILKO LTD: To Cut Jobs After M2 Capital Rescue Bid Collapses
------------------------------------------------------------
Chris Price at The Telegraph reports that hopes of saving all the
shops and jobs at collapsed Wilko have disappeared after the only
bid for the whole business fell apart.
According to The Telegraph, administrators confirmed on Aug. 31
that almost 270 staff would be laid off next week after an offer
for the whole of the homeware chain from Anglo-Canadian private
equity business M2 Capital collapsed.
Thousands more jobs at Wilko are still in limbo as administrators
PwC assess remaining approaches for parts of the business, The
Telegraph states.
GMB said it remains "hopeful" of a bid "from a viable buyer on the
table" but warned staff that it must "continue to prepare for the
worst", The Telegraph relates.
M2 Capital submitted an eleventh-hour bid for Wilko last week just
before the deadline for final offers, The Telegraph recounts.
However, PwC confirmed on Aug. 28 that the approach had ended, The
Telegraph notes.
Following a meeting with PwC, the GMB union told its members that
bidders had "failed to provide the necessary evidence to show that
they had the finances necessary to purchase the company despite
being given numerous opportunities to do so", The Telegraph
discloses.
M2 Capital had questioned the fairness and transparency of the
bidding process run by PwC, The Telegraph relays.
According to The Telegraph, while PwC is still assessing other
offers, administrators said there was "no viable offer structure
put forward that includes the Wilko Group in its entirety."
Doug Putman, the Canadian owner of HMV, is offering to save as many
as 350 of the 400 Wilko stores, The Telegraph discloses.
B&M, The Range and Poundland are also said to be interested in
parts of the business, The Telegraph notes.
PwC said the first tranche of redundancies will be effective from
the end of the day on Monday, with further job losses across two
distribution centres due to take place from early next week, The
Telegraph relates.
The decision will impact Wilko's support centre in Worksop and
warehouses in Worksop and Newport, The Telegraph states.
All of Wilko's stores remain open and are currently trading as
usual, PwC said, as discussions with parties interested in buying
parts of the retailer continue.
Wilko collapsed earlier this month, putting 12,000 jobs at risk, as
it was squeezed by increasing competition from rival discounters
including B&M and the Range, The Telegraph recounts.
===============
X X X X X X X X
===============
[*] BOOK REVIEW: Bailout: An Insider's Account of Bank Failures
---------------------------------------------------------------
Bailout: An Insider's Account of Bank Failures and Rescues
Author: Irvine H. Sprague
Publisher: Beard Books
Soft cover: 321 pages
List Price: $34.95
Order your personal copy at
https://ecommerce.beardbooks.com/beardbooks/bailout.html
No one is more qualified to write a work on this subject of bank
bailouts. Holding the positions of chairman or director of the
Federal Deposit Insurance Corporation (FDIC) during the 1970s and
1980s, one of Sprague's most important tasks was to close down
banks that were failing before they could cause wider damage. The
decades of the 1970s and ‘80s were times of high interest
rates for both depositors and borrowers. Rates for depositors at
many banks approached 10%, with rates for loans higher than that.
The fierce competition in the banking industry to offer the highest
rates to attract and keep depositors caused severe financial stress
to an unusually high number of banks. Having to pay out so much in
interest to stay competitive without taking in much greater
deposits was straining the cash and other assets of many banks. The
unprecedented high interest rates also had the effect of reducing
the number of loans banks were giving out. There were not so many
borrowers willing to take on loans with the high interest rates.
With the disruptions in their interrelated deposits and loans, many
banks began to engage in unprecedented and unfamiliar financial
activities, including investing in risky business ventures. As
well as having harmful effects on local economies, the widely
reported troubles of a number of well-known and well-respected
banks were having a harmful effect on the public's confidence in
the entire banking industry.
Sprague along with other government and private-sector leaders in
the banking and financial field realized the problems with banks of
all sizes in all parts of the country had to be dealt with
decisively. Action had to be taken to restore public confidence,
as well as prevent widespread and long-lasting damage to the U. S.
economy. Sprague's task was one of damage control largely on the
blind. The banking industry, the financial community, and the
government and the public had never faced such a large number of
bank failures at one time. The Home Loan Bank Board for the
savings-and-loans associations had allowed these institutions to
treat goodwill as an asset in an effort to shore up their
deteriorating financial situations with disastrous results for
their depositors and U. S. taxpayers. Such a desperate stratagem
only made the problems with the savings-and-loans worse. The banks
covered by the FDIC headed by Sprague were different from these
institutions. But the problems with their basic business of
deposits and loans were more or less the same. And the cause of the
problem was precisely the same: the high interest rates.
Faced with so many bank failures, Sprague and the government
officials, Congresspersons, and leaders he worked with realized
they could not deal effectively with every bank failure. So one of
their first tasks was to devise criteria for which failures they
would deal with. Their criteria formed what came to be known as
the "essentiality doctrine." This was crucial for guidance in
dealing with the banking crisis, as well as for explanation and
justification to the public for the government agency's decisions
and actions. Sprague's tale is mainly a "chronicle [of] the
evolution of the essentiality doctrine, which derives from the
statutory authority for bank bailouts". The doctrine was first used
in the bailout of the small Unity Bank of Boston and refined in the
bailouts of the Bank of the Commonwealth and First Pennsylvania
Bank. It then came into use for the multi-billion dollar bailout
of the Continental Illinois National Bank and Trust Company in the
early 1980s. Continental's failure came about almost overnight by
the "lightening-fast removal of large deposits from around the
world by electronic transfer." This was another of the
unprecedented causes for the bank failures Sprague had to deal with
in the new, high-interest, world of banking in the '70s and '80s.
The main part of the book is how the essentiality doctrine was
applied in the case of each of these four banks, with the
especially high-stakes bailout of Continental having a section of
its own.
Although stability and reliability have returned to the banking
industry with the return of modest and low interest rates in
following decades, Sprague's recounting of the momentous activities
for damage control of bank failures for whatever reasons still
holds lessons for today. For bank failures inevitably occur in any
economic conditions; and in dealing with these promptly and
effectively in the ways pioneered by Sprague, the unfavorable
economic effects will be contained, and public confidence in the
banking system maintained.
As chairman or director of the FDIC for more than 11 years, Irvine
H. Sprague (1921-2004) handled 374 bank failures. He was a special
assistant to President Johnson, and has worked on economic issues
with other high government officials.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2023. All rights reserved. ISSN 1529-2754.
This material is copyrighted and any commercial use, resale or
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Information contained herein is obtained from sources believed to
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