/raid1/www/Hosts/bankrupt/TCREUR_Public/230926.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
Tuesday, September 26, 2023, Vol. 24, No. 193
Headlines
B E L G I U M
CASPR SARL CASPR-1: Fitch Affirms 'BB+sf' Rating on D Notes
I R E L A N D
ARES EUROPEAN XIII: Fitch Affirms Bsf Rating on Class F Debt
CAIRN CLO XVII: S&P Assigns B- (sf) Rating to Class F Notes
MAC INTERIORS: Errigal to Invest EUR3.75MM to Secure Future
MALLINCKRODT PLC: Oct. 2 Hearing in Irish Examinership Petition
OAK HILL III: Moody's Affirms B3 Rating on EUR12MM Class F-R Notes
I T A L Y
BANCA UBAE: Fitch Affirms 'B+' LongTerm IDR, Outlook Stable
L U X E M B O U R G
ARVOS BIDCO: EUR293MM Bank Debt Trades at 54% Discount
CURIUM BIDCO: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
N E T H E R L A N D S
CREDIT EUROPE: Fitch Hikes LongTerm IDR to 'BB-', Outlook Positive
R U S S I A
UZBEKNEFTEGAZ JSC: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
U N I T E D K I N G D O M
AVOCA STATIC I: Fitch Gives Final 'BB-sf' Rating on Class E Notes
CMS: Enters Administration Following Financial Difficulties
INTERNATIONAL PERSONAL: Fitch Affirms 'BB-' IDR, Outlook Stable
KNP LOGISTICS: Ransomware Attack Prompts Administration
LORCA HOLDCO: Fitch Affirms 'B+' LongTerm IDR, Outlook Stable
MVISION PRIVATE: Goes Into Administration
PATTY & BUN: Creditors Back Company Voluntary Arrangement
WESTRIDGE CONSTRUCTION: Enters Administration, Albion Work Halts
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B E L G I U M
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CASPR SARL CASPR-1: Fitch Affirms 'BB+sf' Rating on D Notes
-----------------------------------------------------------
Fitch Ratings has affirmed CASPR S.a.r.l. Compartment CASPR-1's
notes.
Entity/Debt Rating Prior
----------- ------ -----
CASPR S.a r.l.
Compartment CASPR-1
A XS2265971742 LT AAsf Affirmed AAsf
B XS2265972559 LT A+sf Affirmed A+sf
C XS2265972807 LT BBB+sf Affirmed BBB+sf
D XS2265973011 LT BB+sf Affirmed BB+sf
TRANSACTION SUMMARY
The transaction is a synthetic securitisation of a residential
loans portfolio originated by AXA Bank Belgium (ABB). The issuer
used the proceeds to fund a credit default swap (CDS) that protects
the originator from losses of the reference portfolio. The
reference portfolio consists of mortgage loans secured by
residential properties in Belgium. The transaction is designed for
risk-transfer and capital-relief purposes.
KEY RATING DRIVERS
Weak Asset Performances: The transaction's asset default trend is
above its expectations, with gross cumulative defaults reaching
4.8% as of July 2023. Fitch considered the higher than expected
defaults in its modelling by applying a performance adjustment
factor (PAF) of 200% to the weighted average foreclosure frequency
(WAFF). As a result of the PAF, the expected case WAFF is currently
6.7%, compared with 3.9% at closing.
Credit enhancement (CE) has increased since closing (7.5% vs 6.0%
at closing for the class A notes, 4.4% vs 3.5% at closing for the
class B notes, 1.6% vs 1.3% at closing for the class C notes, and
1.2% vs 1.0% at closing for the class D notes), but the ratings
remain vulnerable to observed recoveries being lower than modelled
recoveries. However, the transaction currently exhibits a high cure
rate, i.e. 57% of the defaulted loans are re-performing. As of July
2023, no loss has been recorded to the notes, due to the protection
offered by the synthetic excess spread ledger.
Excessive Counterparty Exposure: The proceeds used to fund the CDS
are deposited in the deposit account held by Bank of New York
Mellon S.A./N.V., Luxembourg Branch (BoNY, AA/Stable/F1+). These
funds will be used for the payments under the CDS and to amortise
the notes. If the funds are totally or partially lost due to
deposit account bank default the notes could not be reimbursed. As
a result, the notes' ratings are limited to BoNY's rating.
Resilience of Investment-Grade Notes: In its analysis Fitch
considered the resilience of the transaction to unforeseen events
that could increase the number of defaulted reference obligations
without leading to a final loss. These events could translate to an
important "temporary write-off" of the notes, leading to a
reduction in the interest paid to noteholders. Investment-grade
notes have sufficient CE to not be written off if 25% of the
portfolio is in default and the expected losses are calculated
using ABB's current IFRS provisioning percentage. This test
currently limits the class D notes' rating to non-investment
grade.
Exposure to ABB: Under the CDS, the issuer bears the risk of losses
from the reference portfolio. Following the default of a loan, the
issuer will pay the expected loss to ABB. At the end of the
recovery process, the final loss will be known giving rise to an
adjustment payment. If the expected loss is higher than the final
loss, ABB will pay the difference to the issuer. If ABB defaults on
the adjustment payment, it may result in a loss for the notes.
Fitch has limited the notes' ratings to a stress scenario where the
available CE offsets the exposure to ABB.
Higher-Risk Portfolio: The reference portfolio has been selected
from the riskier loans in ABB's book and has a riskier credit
profile than typical Belgian non-synthetic RMBS transactions. The
pool consists of loans originated with original loan-to-value
ratios of close to 90% and a debt-to-income ratio distribution
skewed toward highest buckets. The selection of this higher-risk
portfolio translates into weaker asset performances than average
Belgian RMBS portfolios.
Governance Impact: The transaction has an ESG Relevance Score of
'5' for Transaction Parties & Operational Risk due to the exposure
to BoNY as deposit account provider, whose default would result in
redemption funds to be lost. As a result, Fitch capped and linked
the rating of the class A notes to that of BoNY.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Reducing recoveries by 10% would result in the class A notes being
downgraded by two notches to 'A+sf', class B notes by two notches
to 'A-sf', class C notes by three notches to 'BB+sf', and class D
notes by one notch to 'BBsf'.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Decreasing defaults by 15% and increasing recoveries by 15% would
result in the class B and C notes being upgraded to 'AAsf'. The
class A notes' rating would be unchanged as it is capped by the
rating of the account bank. The class D notes' rating would be
unchanged as it is limited to non-investment grade due to a lack of
resilience to unforeseen events.
DATA ADEQUACY
CASPR S.a r.l. Compartment CASPR-1
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
Prior to the transaction closing, Fitch reviewed the results of a
third party assessment conducted on the asset portfolio information
and concluded that there were no findings that affected the rating
analysis.
Overall, and together with any assumptions 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.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Due to the excessive counterparty exposure to BoNY as deposit
account provider, the notes' ratings are capped at BoNY's rating.
ESG CONSIDERATIONS
CASPR S.a r.l. Compartment CASPR-1 has an ESG Relevance Score of
'5' for Transaction Parties & Operational Risk due to the exposure
to BoNY as deposit account provider, whose default would result in
redemption funds to be lost. As a result, Fitch capped and linked
the rating of the class A notes to that of BoNY.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
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I R E L A N D
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ARES EUROPEAN XIII: Fitch Affirms Bsf Rating on Class F Debt
------------------------------------------------------------
Fitch Ratings has revised the Outlook on Ares European CLO XIII
DAC's class B to F notes to Positive from Stable and affirmed all
notes' ratings.
Entity/Debt Rating Prior
----------- ------ -----
Ares European
CLO XIII DAC
A XS2084071807 LT AAAsf Affirmed AAAsf
B-1 XS2084072367 LT AAsf Affirmed AAsf
B-2 XS2084073092 LT AAsf Affirmed AAsf
C-1 XS2084073688 LT Asf Affirmed Asf
C-2 XS2084074140 LT Asf Affirmed Asf
D XS2084074900 LT BBBsf Affirmed BBBsf
E XS2084075626 LT BBsf Affirmed BBsf
F XS2084076194 LT Bsf Affirmed Bsf
TRANSACTION SUMMARY
Ares European CLO XIII DAC is a securitisation of mainly senior
secured obligations (at least 90%) with a component of senior
unsecured, mezzanine,second-lien loans and high-yield bonds. The
portfolio is actively managed by Ares European Loan Management LLP.
The transaction will exit its reinvestment period in July 2024.
KEY RATING DRIVERS
Weighted Average Life Reducing: The rating actions reflect the
solid performance of the underlying assets combined with the
reducing weighted average life of the portfolio, resulting in
larger break-even default-rate cushions than at the last review in
October 2022. This should allow the notes to withstand unexpected
losses, and provides an additional buffer against refinancing risk
from near-term loan maturities in the transaction.
Stressed Portfolio Analysis: Given the manager's ability to
reinvest, Fitch's analysis is based on a stressed portfolio using
the agency's collateral quality matrix specified in the transaction
documentation. Fitch used the interpolated matrix at 5% fixed-rate
assets between the two matrices with the 15% limit on the 10
largest obligors and 0% and 10% limit on fixed-rate obligations.
The top 10 obligors and fixed-rate asset current portfolio exposure
is 11.7% and 3.6%, respectively. Fitch applied a haircut of 1.5% to
the weighted average recovery rate (WARR) as the calculation of the
WARR in the transaction documentation is not in line with the
agency's current CLO Criteria.
Asset Performance Within Expectations: The transaction has
performed in line with Fitch's expectations. The transaction is
currently 0.4% above par and is passing all coverage and
portfolio-profile tests. The latest trustee report shows one
default in the current portfolio and limited exposure to 'CCC'
assets due in 2024-2025.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the obligors at 'B'/'B-'. The Fitch-calculated weighted average
rating factor of the current portfolio is 26.5. The same metric for
the portfolio with entities on Negative Outlook that have their
rating notched down once is 27.8.
High Recovery Expectations: Senior secured obligations comprise
99.7% of the portfolio as calculated by the trustee. Fitch views
the recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch-calculated
WARR of the current portfolio is 62.4%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration is 11.7%, and no obligor represents more than 1.5% of
the portfolio balance, as reported by the trustee.
Deviation from MIRs: The class C to F notes are one notch below
their model-implied ratings (MIR) and the class B notes two
notches. The class A notes are in line with their MIR. The
deviations reflect uncertain macroeconomic conditions and the
potentially deteriorating portfolio credit profile.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
An increase of the default rate (RDR) by 25% of the mean RDR and a
decrease of the recovery rate (RRR) by 25% at all rating levels in
the current portfolio would have no impact on the class A and B
notes, and would imply downgrades of one notch for the class C to F
notes.
Based on the current portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration. Due to the
better metrics and shorter life of the current portfolio than the
Fitch-stressed portfolio, the class B notes display a rating
cushion of two notches, the class C to E notes one notch and the
class F notes four notches.
Should the cushion between the current portfolio and the
Fitch-stressed portfolio be eroded either due to manager trading or
negative portfolio credit migration, a 25% increase of the mean RDR
and a 25% decrease of the RRR across all ratings of the stressed
portfolio would lead to downgrades of up to one notch for the class
C to E notes and to below 'B-sf' for the class F notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A reduction of the RDR by 25% of the mean RDR and an increase in
the RRR by 25% at all rating levels in the stressed portfolio would
result in upgrades of two notches for the class B notes, one notch
for the class C notes and four notches for the class D to F notes.
The class A notes are rated at the highest level on Fitch's scale
and cannot be upgraded.
Further upgrades may occur if the portfolio's quality remains
stable and the notes continue to amortise, leading to higher credit
enhancement across the structure.
DATA ADEQUACY
Ares European CLO XIII DAC
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Overall, and together with any assumptions 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.
CAIRN CLO XVII: S&P Assigns B- (sf) Rating to Class F Notes
-----------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Cairn CLO XVII
DAC's class A, B-1, B-2, C, D, E, and F notes. At closing, the
issuer also issued subordinated notes.
The ratings reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which is bankruptcy remote.
-- The transaction's counterparty risks, which are in line with
S&P's counterparty rating framework.
Portfolio benchmarks
CURRENT
S&P weighted-average rating factor 2,757.31
Default rate dispersion 547.76
Weighted-average life (years) 4.58
Obligor diversity measure 137.68
Industry diversity measure 18.67
Regional diversity measure 1.27
Transaction key metrics
CURRENT
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.25
Covenanted 'AAA' weighted-average recovery (%) 36.73
Covenanted weighted-average spread (%) 4.05
Covenanted weighted-average coupon (%) 3.75
Asset priming obligations and uptier priming debt
Under the transaction documents, the issuer can purchase asset
priming obligations and/or uptier priming debt to address the risk,
where a distressed obligor could either move collateral outside the
existing creditors' covenant group or incur new money debt senior
to the existing creditors.
Rating rationale
Under the transaction documents, the rated notes will pay quarterly
interest unless a frequency switch event occurs. Following this,
the notes will switch to semiannual payments. The portfolio's
reinvestment period will end approximately 4.58 years after
closing.
The portfolio is well-diversified, primarily comprising broadly
syndicated speculative-grade senior-secured term loans and
senior-secured bonds. Therefore, S&P has conducted its credit and
cash flow analysis by applying its criteria for corporate cash flow
CDOs.
S&P said, "In our cash flow analysis, we used the EUR400 million
target par amount, and the portfolio's covenanted weighted-average
spread (4.05%), covenanted weighted-average coupon (3.75%), and
covenanted weighted-average recovery rates at each rating level. We
applied various cash flow stress scenarios, using four different
default patterns, in conjunction with different interest rate
stress scenarios for each liability rating category.
"Under our structured finance sovereign risk criteria, we consider
that the transaction's exposure to country risk is sufficiently
mitigated at the assigned ratings.
"Until the end of the reinvestment period on April 18, 2028, the
collateral manager may substitute assets in the portfolio for so
long as our CDO Monitor test is maintained or improved in relation
to the initial ratings on the notes. This test looks at the total
amount of losses that the transaction can sustain as established by
the initial cash flows for each rating, and it compares that with
the current portfolio's default potential plus par losses to date.
As a result, until the end of the reinvestment period, the
collateral manager may through trading deteriorate the
transaction's current risk profile, as long as the initial ratings
are maintained.
"The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under our current counterparty criteria.
"Transaction's legal structure and framework is bankruptcy remote,
in line with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our ratings are
commensurate with the available credit enhancement for the class A
to F notes. Our credit and cash flow analysis indicates that the
available credit enhancement for the class B-1, B-2, C, D, and E
notes could withstand stresses commensurate with higher ratings
than those we have assigned. However, as the CLO will be in its
reinvestment phase starting from closing, during which the
transaction's credit risk profile could deteriorate, we have capped
our ratings assigned to those classes of notes.
"Taking the above factors into account and following our analysis
of the credit, cash flow, counterparty, operational, and legal
risks, we believe that our ratings are commensurate with the
available credit enhancement for all the rated classes of notes.
"In addition to our standard analysis, to provide an indication of
how rising pressures among speculative-grade corporates could
affect our ratings on European CLO transactions, we have also
included the sensitivity of the ratings on the class A to E notes
based on four hypothetical scenarios.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
The transaction securitizes a portfolio of primarily senior-secured
leveraged loans and bonds, and it is managed by Cairn Loan
Investments II LLP.
Environmental, social, and governance (ESG) factors
S&P regards the exposure to ESG credit factors in the transaction
as being broadly in line with its benchmark for the sector.
Primarily due to the diversity of the assets within CLOs, the
exposure to environmental credit factors is viewed as below
average, social credit factors are below average, and governance
credit factors are average. For this transaction, the documents
prohibit assets from being related to certain activities,
including, but not limited to the following:
-- Any obligor that is involved in the use, manufacture, or
marketing of anti-personnel mines, cluster weapons, depleted
uranium, nuclear weapons, white phosphorus, biological and chemical
weapons, or weapons of mass destruction.
-- Any obligor that derives more than 10% of its revenue from the
sale or production of civilian firearms.
-- Any obligor that is involved in tobacco production--such as
cigars, cigarettes, e-cigarettes, smokeless tobacco, dissolvable
and chewing tobacco--or where more than 5% of revenue is derived
from products that contain tobacco, and any obligor that operates
within the tobacco industry.
-- Any obligor that has expansion plans for coal extraction, is
engaged in mining activities and extracts more than 20 million tons
of coal per year, or plans to expand its coal power generation
capacity by more than 300 MW.
-- Any obligor that is involved in the production of, or trade in,
pornography or prostitution.
-- Any obligor that is involved in payday lending.
-- Any obligor that derives 1% or more of its revenue from the
sale or extraction of thermal coal, oil sands, or the
unconventional oil and gas extraction; derives 5% or more of its
electricity generation from thermal coal; derives 20% or more of
its revenue from the pipelines industry associated with the
unconventional extraction of oil and gas or oil sands; derives 30%
or more of its production from shale and tight reservoirs; derives
10% or more of its production from fields located in the Arctic as
defined by the Arctic monitoring and assessment program; or
produces more than 5% of the total Arctic production, excluding
operation in Norway.
-- Any obligor that derives more than 5% of its revenue from
gambling operations and ownership or control in respect of
land-based casinos, online gambling, as well as production of
equipment and software, and online gambling marketing.
-- Any obligor that derives revenue from the controversial
practices in land use and biodiversity.
-- Any obligor that engages in the production of soy, cattle, or
timber.
-- Any obligor that is principally involved in the trade in
endangered or protected wildlife, any species described as
endangered or critically endangered in the most recent publication
of the International Union for Conservation of Nature Red List, or
any species subject to protection under the Convention on
International Trade in Endangered Species of Wild Fauna and Flora
(1973).
-- Any obligor whose primary business or primary source of revenue
is directly derived from the sale or dispensing of, trade in,
cultivation of, or promotion and marketing of marijuana.
-- Any obligor involved in the trade of illegal drugs or
narcotics.
-- Any obligor that derives revenues from the upstream production
of palm oil and palm fruit products.
-- Any obligor that derives revenues from speculative transactions
of soft commodities (wheat, rice, meat, soy, sugar, diary, fish,
and corn).
-- Any obligor that violates one or more of the United Nations
Global Compact (UN GC) principles, the International Labour
Organisation (ILO) conventions, and the UN Guiding Principles on
Business and Human Right.
-- Accordingly, since the exclusion of assets from these
industries does not result in material differences between the
transaction and our ESG benchmark for the sector, S&P has not made
any specific adjustments in its rating analysis to account for any
ESG-related risks or opportunities.
Ratings list
CLASS RATING* AMOUNT INTEREST RATE§ CREDIT
(MIL. EUR) ENHANCEMENT (%)
A AAA (sf) 248.00 3mE + 1.80% 38.00
B-1 AA (sf) 24.60 3mE + 2.75% 28.10
B-2 AA (sf) 15.00 6.87% 28.10
C A (sf) 23.10 3mE + 3.60% 22.33
D BBB- (sf) 26.50 3mE + 5.30% 15.70
E BB- (sf) 17.20 3mE + 7.46% 11.40
F B- (sf) 14.60 3mE + 9.64% 7.75
Sub notes NR 35.10 N/A N/A
*The ratings assigned to the class A, B-1, and B-2 notes address
timely interest and ultimate principal payments. The ratings
assigned to the class C, D, E, and F notes address ultimate
interest and principal payments.
§The payment frequency switches to semiannual and the index
switches to 6mE when a frequency switch event occurs.
NR--Not rated.
N/A--Not applicable.
3mE--Three-month Euro Interbank Offered Rate.
6mE--Six-month Euro Interbank Offered Rate.
MAC INTERIORS: Errigal to Invest EUR3.75MM to Secure Future
-----------------------------------------------------------
Francesca Comyn at The Currency reports that Derry-based
construction group Errigal will invest at least EUR3.75 million to
secure the future of troubled fit-out firm Mac Interiors, should it
exit examinership successfully, the High Court has been told.
According to The Currency, Justice Michael Quinn is being asked to
approve a scheme of arrangement to save the UK registered
specialist building firm which runs its main operation from Dublin.
The Revenue Commissioners, which is facing an almost complete
wipeout of EUR13 million in warehoused tax debt, is opposing the
rescue plan, The Currency relates.
MALLINCKRODT PLC: Oct. 2 Hearing in Irish Examinership Petition
---------------------------------------------------------------
The directors of Mallinckrodt plc initiated on Sept. 20
examinership proceedings with respect to Mallinckrodt by presenting
a petition to the High Court of Ireland pursuant to Section
510(1)(b) of the Companies Act 2014 of Ireland seeking the
appointment of an examiner to the Company, Mallinckrodt disclosed
in a Form 8-K filing with the Securities and Exchange Commission.
Also on Sept. 20, following an ex parte application made by the
directors of Mallinckrodt, the High Court of Ireland made an order
appointing the Examiner on an interim basis pending the hearing of
the Examinership Petition. The hearing of the Examinership Petition
is scheduled to take place before the High Court in Dublin, Ireland
at 2:00 p.m. (Irish time) on October 2, 2023.
In addition, the High Court of Ireland directed that any interested
party wishing to oppose the appointment of the Examiner must notify
Arthur Cox, as Irish solicitors to Mallinckrodt, and file any
opposing affidavits, by 5:00 p.m. (Irish time) on September 28,
2023. Furthermore, as required by Section 511 of the Companies Act
2014 of Ireland, the Examinership Petition filed with the High
Court of Ireland was accompanied by an Independent Expert's Report
with respect to Mallinckrodt.
It is a condition precedent to the consummation of the Debtors' a
prepackaged chapter 11 plan that the High Court of Ireland shall
make an order pursuant to Section 541 of the Companies Act 2014 of
Ireland confirming a scheme of arrangement with respect to
Mallinckrodt that is based on and consistent in all respects with
the Plan, and that such Scheme of Arrangement shall become
effective in accordance with its terms (or shall become effective
concurrently with the effectiveness of the Plan).
Subject to certain conditions, the Examiner will seek to convene
meetings of the shareholders of Mallinckrodt and all classes of
creditors of Mallinckrodt that would be impaired by the Examiner's
proposals for a Scheme of Arrangement for the purposes of
considering and voting in relation to the proposed Scheme of
Arrangement.
During the continuance of the Irish Examinership Proceedings,
Mallinckrodt will be under the protection of the High Court of
Ireland. During the period of court protection, no proceedings can
be commenced in Ireland to wind up Mallinckrodt, and no action can
be taken by creditors to enforce security or take possession of any
assets of Mallinckrodt, without the consent of the Examiner. The
period of court protection will subsist for an initial 70 days,
which can, in certain circumstances, be extended by order of the
High Court of Ireland for a further 30 days.
A copy of the Independent Expert's Report is available at no extra
charge at https://tinyurl.com/y3dzaznm
$250-Mil. DIP Loans
On Aug. 30, 2023, the U.S. Bankruptcy Court entered orders
approving the Company's "first day" motions, including an order
granting the Debtors authority to enter into a Senior Secured
Debtor-In-Possession Credit Agreement by and among the Company,
Mallinckrodt International Finance S.A. and Mallinckrodt CB LLC, as
debtors and debtors-in-possession, the lenders from time to time
party thereto, Acquiom Agency Services LLC and Seaport Loan
Products LLC, as co-administrative agents, and Acquiom Agency
Services LLC, as collateral agent.
On Sept. 8, 2023, the Company, the DIP Borrowers and the other
parties thereto entered into the DIP Credit Agreement, which
provides these terms:
* The DIP Lenders will provide a priming, senior secured,
super-priority debtor-in-possession term loan facility in the
aggregate principal amount (exclusive of capitalized fees) of $250
million, of which (i) an initial draw amount of up to $150 million
became available (and was drawn) in a single drawing upon entry of
the Interim DIP Order, effectiveness of the DIP Credit Agreement
and satisfaction of the other applicable conditions set forth in
the DIP Credit Agreement, and (ii) an additional amount of up to
$100 million that will be made available in a single drawing upon
entry of a final order granting the relief requested in the DIP
Motion and satisfaction of the other applicable conditions set
forth in the DIP Credit Agreement.
* Borrowings under the DIP Facility are;
(a) senior secured obligations of the DIP Borrowers,
(b) guaranteed by the Company and each of the other Debtors
and
(c) secured by (i) priming, automatically perfected first
priority liens and security interests on all property and assets of
the Debtors securing the Company's pre-petition secured term loans
and notes and (ii) automatically perfected first priority liens and
security interests on all of the Debtors' other now-owned and
hereafter-acquired real and personal property and assets, in each
case subject to certain carve outs and conditions.
* The DIP Loans will accrue interest at a rate equal to the
secured overnight financing rate as administered by the SOFR
Administrator plus 8.00%, subject to a floor of 1.00% SOFR. Upon
the effectiveness of the DIP Credit Agreement, the DIP Borrowers
caused a fee equal to 12.00% of the $250 million in backstop
commitments held by certain DIP Lenders providing such commitments
to be paid. Such fee was paid in kind by increasing the principal
amounts of the DIP Loans.
* On the effective date of the Plan, the principal amount of
outstanding DIP Loans shall be either (i) repaid in cash or (ii)
exchanged for an equivalent principal amount of the new first
priority takeback term loans as described in the restructuring
support agreement dated as of Aug, 23. 2023, by and among the
Company, certain of its subsidiaries, certain creditors and the
Opioid Master Disbursement Trust II (or a combination thereof), in
each case as set forth in the Plan. Any accrued and unpaid interest
on the Plan Effective Date shall be paid in full in cash.
* Unless converted to new first priority takeback term loans
or repaid in cash on the Plan Effective Date, in each case as set
forth in the Plan, all obligations under the DIP Credit Agreement
and other security documents, guarantees and other legal
documentation will be due and payable in full in cash on the
earliest of:
(a) the date that is 12 months after the Petition Date;
(b) 50 calendar days after the Petition Date if the Final
DIP Order has not been entered by such date;
(c) the date of acceleration of such obligations in
accordance with the DIP Credit Agreement and the other DIP Loan
Documents;
(d) the effective date of any plan of reorganization or
liquidation in the Chapter 11 Cases;
(e) the date on which the sale of all or substantially all
of the Debtors' assets is consummated;
(f) the date on which termination of the RSA occurs;
(g) the date the Bankruptcy Court converts any of the
Chapter 11 Cases to a case under chapter 7 of the Bankruptcy Code;
(h) the date the Bankruptcy Court dismisses any of the
Chapter 11 Cases; (i) the date an order is entered in any Chapter
11 Case appointing a chapter 11 trustee or examiner with enlarged
powers, and;
(j) other customary circumstances as set forth in the DIP
Credit Agreement.
* The DIP Credit Agreement includes various customary
affirmative, negative and financial covenants and events of
default, including (a) a requirement that the Debtors and their
consolidated subsidiaries to maintain at least $100 million minimum
Liquidity as of the date that is one month after the closing date
of the DIP Credit Agreement and each subsequent monthly anniversary
of such date, and (b) customary case milestones.
On Sept. 6, NYSE Regulation filed a Form 25 with the SEC to delist
the ordinary shares of Mallinckrodt plc from NYSE American LLC. The
delisting was to be effective 10 days thereafter. The
deregistration of the ordinary shares under section 12(b) of the
Securities Exchange Act of 1934 will be effective 90 days, or such
shorter period as the SEC may determine, after the filing date of
the Form 25, at which point the ordinary shares will be deemed
registered under Section 12(g) of the Exchange Act. The ordinary
shares began trading in the market for unlisted securities on
August 29, 2023 under the symbol "MNKTQ."
About Mallinckrodt plc
Mallinckrodt -- http://www.mallinckrodt.com/-- is a global
business consisting of multiple wholly-owned subsidiaries that
develop, manufacture, market and distribute specialty
pharmaceutical products and therapies. The company's Specialty
Brands reportable segment's areas of focus include autoimmune and
rare diseases in specialty areas like neurology, rheumatology,
nephrology, pulmonology and ophthalmology; immunotherapy and
neonatal respiratory critical care therapies; analgesics; and
gastrointestinal products. Its Specialty Generics reportable
segment includes specialty generic drugs and active pharmaceutical
ingredients.
Mallinckrodt plc and certain of its affiliates first sought Chapter
11 protection in Delaware (Bankr. D. Del. Lead Case No. 20-12522)
on Oct. 12, 2020, to seek approval of a restructuring that would
reduce total debt by $1.3 billion and resolve opioid-related claims
against them. Mallinckrodt in mid-June 2022 successfully completed
its reorganization process, emerged from Chapter 11 and completed
the Irish Examinership proceedings.
Mallinckrodt Plc said in a regulatory filing in early June 2023
that it was considering a second bankruptcy filing and other
options after its lenders raised concerns over an upcoming $200
million payment related to opioid-related litigation. Mallinckrodt
plc and certain of its affiliates again sought Chapter 11
protection (Bankr. D. Del. Lead Case No. 23-11258) on Aug. 28,
2023. Mallinckrodt plc disclosed $5,106,900,000 in assets and
$3,512,000,000 in liabilities as of June 30, 2023.
Judge John T. Dorsey oversees the 2023 cases.
In the 2020 Chapter 11 cases, the Debtors tapped Latham & Watkins,
LLP and Richards, Layton & Finger, P.A. as their bankruptcy
counsel; Arthur Cox and Wachtell, Lipton, Rosen & Katz as corporate
and finance counsel; Ropes & Gray, LLP as litigation counsel;
Torys, LLP as CCAA counsel; Guggenheim Securities, LLC as
investment banker; and AlixPartners, LLP, as restructuring
advisor.
In the 2023 Chapter 11 cases, the Debtors tapped Latham & Watkins,
LLP and Richards, Layton & Finger, P.A., as their bankruptcy
counsel; Arthur Cox and Wachtell, Lipton, Rosen & Katz as corporate
and finance counsel; Guggenheim Securities, LLC as investment
banker; and AlixPartners, LLP, as restructuring advisor. Kroll is
the claims agent.
Acquiom Agency Services LLC and Seaport Loan Products LLC, are
co-administrative agents, and Acquiom Agency Services LLC, is the
collateral agent under the DIP Credit facility. ArentFox Schiff
LLP, serves as counsel to the Agents. McCann Fitzgerald LLP,
serves as special Irish counsel for certain of the Lenders.
Gibson, Dunn & Crutcher LLP, serves as counsel to the Ad Hoc First
Lien Term Loan Group. Evercore Group L.L.C., is the financial
advisor to the Ad Hoc First Lien Term Loan Group.
Paul, Weiss, Rifkind, Wharton & Garrison LLP, acts as counsel to
the Ad Hoc Crossover Group. Perella Weinberg Partners LP, is the
financial advisor to the Ad Hoc Crossover Group.
Davis Polk & Wardwell LLP, is the counsel to the Ad Hoc 2025
Noteholder Group.
OAK HILL III: Moody's Affirms B3 Rating on EUR12MM Class F-R Notes
------------------------------------------------------------------
Moody's Investors Service has upgraded the rating on the following
notes issued by Oak Hill European Credit Partners III Designated
Activity Company:
EUR22,500,000 Class C-R Senior Secured Deferrable Floating Rate
Notes due 2030, Upgraded to Aa1 (sf); previously on Dec 2, 2022
Upgraded to Aa2 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR222,200,000 (current outstanding amount EUR74,017,100) Class
A-1R Senior Secured Floating Rate Notes due 2030, Affirmed Aaa
(sf); previously on Dec 2, 2022 Affirmed Aaa (sf)
EUR15,800,000 (current outstanding amount EUR5,263,140) Class A-2R
Senior Secured Fixed/Floating Rate Notes due 2030, Affirmed Aaa
(sf); previously on Dec 2, 2022 Affirmed Aaa (sf)
EUR25,500,000 Class B-1R Senior Secured Floating Rate Notes due
2030, Affirmed Aaa (sf); previously on Dec 2, 2022 Affirmed Aaa
(sf)
EUR15,800,000 Class B-2R Senior Secured Fixed Rate Notes due 2030,
Affirmed Aaa (sf); previously on Dec 2, 2022 Affirmed Aaa (sf)
EUR8,700,000 Class B-3R Senior Secured Floating Rate Notes due
2030, Affirmed Aaa (sf); previously on Dec 2, 2022 Affirmed Aaa
(sf)
EUR20,000,000 Class D-R Senior Secured Deferrable Floating Rate
Notes due 2030, Affirmed A2 (sf); previously on Dec 2, 2022
Upgraded to A2 (sf)
EUR28,000,000 Class E-R Senior Secured Deferrable Floating Rate
Notes due 2030, Affirmed Ba2 (sf); previously on Dec 2, 2022
Affirmed Ba2 (sf)
EUR12,000,000 Class F-R Senior Secured Deferrable Floating Rate
Notes due 2030, Affirmed B3 (sf); previously on Dec 2, 2022
Affirmed B3 (sf)
Oak Hill European Credit Partners III Designated Activity Company,
issued in June 2015 and refinanced in July 2017, is a
collateralised loan obligation (CLO) backed by a portfolio of
mostly high-yield senior secured European loans. The portfolio is
managed by Oak Hill Advisors (Europe), LLP. The transaction's
reinvestment period ended in July 2021.
RATINGS RATIONALE
The rating upgrade on the Class C notes are primarily a result of
the deleveraging of the senior notes following amortisation of the
underlying portfolio since the last rating action in December
2022.
The Class A-1R and Class A-2R Notes have paid down by approximately
EUR44.8m (20.2%) and EUR3.2m (20.2%) since the last rating action
in December 2022 and EUR148.2m (66.7%) and EUR10.5 (66.7%)
respectively since closing. As a result of the deleveraging,
over-collateralisation (OC) has increased across the capital
structure. According to the trustee report dated August 2023 [1]
the Class A/B, Class C, Class D and Class E OC ratios are reported
at 176.53%, 153.36%, 132.85% and 114.23% compared to November 2022
[2] levels of 157.80%, 139,74%, 126,83% and 112.31% 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 be maintained.
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 and principal proceeds balance: EUR228.7m
Defaulted Securities: EUR4.9m
Diversity Score: 36
Weighted Average Rating Factor (WARF): 3146
Weighted Average Life (WAL): 3.14 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.60%
Weighted Average Coupon (WAC): 4.85%
Weighted Average Recovery Rate (WARR): 45.14%
Par haircut in OC tests and interest diversion test: 0%
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.
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.
=========
I T A L Y
=========
BANCA UBAE: Fitch Affirms 'B+' LongTerm IDR, Outlook Stable
-----------------------------------------------------------
Fitch Ratings has affirmed Banca UBAE S.p.A.'s (UBAE) Long-Term
Issuer Default Rating (IDR) at 'B+' with Stable Outlook. The
Viability Rating (VR) has been affirmed at 'b+'.
KEY RATING DRIVERS
Niche Franchise, Weak Profitability: UBAE's ratings reflect its
specialist trade-finance franchise based on flows between Italy and
the Middle East and North Africa region. They also reflect the
bank's weak profitability, despite some improvement, and above
industry-average non-performing assets (NPA). These factors are
partly balanced by the bank's broadly stable funding and liquidity
profile and moderate trade-finance franchise.
Global Growth Slowing: Fitch expects global growth to decelerate in
2023 to 2.5%, from 2.7% a year earlier. Stubborn inflation, high
interest rates, risks from credit tightening, trade restrictions
and regulatory challenges will affect both advanced and emerging
economies. Fitch expects these factors to result in subdued
investments, weak productivity and decreasing international trade,
leading to a reduction in merchandise trade.
Business Plan on Track: The bank's performance over the past two
years has benefited from cost-cutting measures and a more active
asset and liability management. Additionally, since 2022 the bank
has been reducing its lending exposure and increasing pure trade
finance activities, such as off-balance-sheet exposures and
factoring. The Libyan Foreign Bank (LFB) continues to provide
stable and longer-term funding, even though UBAE is gradually
diversifying its funding sources.
High-Risk Appetite, But Tightened: UBAE has a high risk appetite,
which is inherent with the nature of its business and exposure to
emerging markets and with a legacy portfolio of impaired loans in
the Italian construction sector. Over the past three years, the
bank has tightened its underwriting standards. In 2023 UBAE also
reshaped its securities portfolio towards Italian government
securities to strengthen its liquidity profile and reduce capital
absorption.
Weak Asset Quality: UBAE's asset quality remains weak and mainly
affected by legacy real estate and construction exposures and high
concentration risks. The NPA ratio was 8.5% at end-June 2023 and
Fitch expects it to marginally improve in 2H23 and 2024, given the
gradual repayment of the largest exposures offsetting new and
moderate NPA inflows. However, it will remain higher than other
Fitch-rated European trade finance banks.
Weak, but Improved Profitability: UBAE's profitability remains a
rating weakness despite having gradually improved since 2021. In
2022, profitability was largely sustained by gains from
inflation-linked Italian government bonds and from hedging FX risk.
For 2023 and 2024, Fitch expects UBAE's operating profit to
stabilise at about 1% of risk-weighted assets (RWAs), reflecting a
lower contribution from securities and higher loan impairment
charges in 2H23 due to of some asset quality deterioration.
Retained Earnings Support Capitalisation: The bank's capitalisation
is not commensurate with risk given its exposure to emerging
markets, NPAs and concentration risks. Fitch also views the bank's
capitalisation as highly vulnerable, given the small size of the
capital base. However, retained earnings since 2021 have gradually
strengthened UBAE's common equity Tier 1 (CET1) ratio to 20.4% at
end-June 2023. Fitch expects it to remain above 20% in the short
term, sustained by further earnings retention and low RWAs growth.
Parent Funding Key, Modest Diversification: UBAE's funding profile
remains significantly reliant on funds provided by the majority
shareholder, LFB, and its affiliates, which Fitch expects to
continue. The bank is marginally diversifying its funding sources
through attracting customer deposits via third-party internet
platforms and repo transactions with the Central Bank of Libya. The
bank's liquidity benefits from the self-liquidating and short-term
nature of trade finance transactions and a large pool of liquid
assets, consisting of cash and bank placements, Italian government
securities and central bank reserves.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Downward rating pressure could result from a significant weakening
of asset quality and earnings, leading to material capital erosion.
The bank's ratings could be downgraded if the CET1 ratio falls
below 15% and the NPA ratio deteriorates above 10% with no clear
visibility of reversing the trend in the short term.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
An upgrade would require a strengthened franchise together with a
material improvement of asset quality and profitability, while
maintaining adequate capital buffers and a stable funding profile.
This would result from a meaningful and sustained improvement of
operating profit above 1% of RWAs and the NPA ratio falling below
5% in the medium term.
No Support: UBAE's Government Support Rating (GSR) of 'ns' reflects
Fitch's view that although external extraordinary sovereign support
is possible, it cannot be relied on. Senior creditors can no longer
expect to receive full extraordinary support from the sovereign in
the event that the bank becomes non-viable.
This is because the EU's Bank Recovery and Resolution Directive and
the Single Resolution Mechanism for eurozone banks provide a
framework for resolving banks that requires senior creditors
participating in losses, if necessary, instead of or ahead of a
bank receiving sovereign support.
An upgrade of the GSR would be contingent on a positive change in
the sovereign's propensity to support the bank. In Fitch's view,
this is highly unlikely.
VR ADJUSTMENTS
The operating environment score of 'bb' has been assigned below the
'a' category implied score due to the following adjustment reason:
international operations (negative).
The capitalisation and leverage score of 'b+' has been assigned
below the 'bb' category implied score due to the following
adjustment reason: size of capital base (negative).
The funding and liquidity score of 'bb-' has been assigned above
the 'b & below' category implied score due to the following
adjustment reason: liquidity access and ordinary support
(positive).
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Prior
----------- ------ -----
Banca UBAE S.p.A. LT IDR B+ Affirmed B+
ST IDR B Affirmed B
Viability b+ Affirmed b+
Government Support ns Affirmed ns
===================
L U X E M B O U R G
===================
ARVOS BIDCO: EUR293MM Bank Debt Trades at 54% Discount
------------------------------------------------------
Participations in a syndicated loan under which Arvos BidCo Sarl is
a borrower were trading in the secondary market around 46.5
cents-on-the-dollar during the week ended Friday, September 22,
2023, according to Bloomberg's Evaluated Pricing service data.
The EUR293 million facility is a Term loan that is scheduled to
mature on August 29, 2024. The amount is fully drawn and
outstanding.
Arvos BidCo S.a.r.l. is the parent company of the Arvos Group,
which is a global leader in providing heat exchanging and wind
tower solutions. Arvos Group is a carve-out from Alstom and is
fully owned by Triton funds and by its management. Arvos Midco S.a
r.l. (formerly Alison Midco S.a.r.l.) is the parent company of
Arvos BidCo. The Company's country of domicile is Luxembourg.
CURIUM BIDCO: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
------------------------------------------------------------
Fitch Ratings has assigned Curium BidCo S.a r.l.'s (Curium) around
EUR1.3 billion of senior secured term loan B (TLB) a final rating
of 'B+' with a Recovery Rating of 'RR3'. This follows the
completion of its leverage-neutral refinancing of its capital
structure, with final terms in line with its prior expectations.
Concurrently, Fitch has affirmed Curium's Long-Term Issuer Default
Rating (IDR) at 'B' with a Stable Outlook.
The IDR is constrained by significant financial leverage, albeit
gradually declining, and the still-small size of Curium's business
versus wider healthcare peers'. Rating strengths are Curium's solid
positioning in the protected niche market of nuclear medicine,
which offers organic growth opportunities and demonstrates high
revenue defensibility and profitability.
The Stable Outlook reflects steady profitable growth in its rating
case to which Fitch attaches moderate execution risks as Curium
prioritises in-house product development in the near term.
Fitch has withdrawn existing senior secured TLB ratings of
'B+'/'RR3' following the repayment of the debt as part of the
refinancing.
KEY RATING DRIVERS
Leverage-Neutral Refinancing: Curium´s refinancing, which
comprised euro and US dollar TLBs totalling around EUR1.3 billion,
was completed in August 2023 with debt maturities extended by three
years to July 2029. The pricing on the TLBs was in line with its
prior expectations and slightly tight versus g Curium's guidance
given strong investor demand.
Fitch expects average interest costs of around EUR105 million per
year over 2023-2026, up from around EUR95 million pre-refinancing.
Leverage metrics remain unchanged and Fitch sees the transaction as
overall credit-neutral, with slightly higher interest expense and
lower free cash flow (FCF) offset by the benefit of longer-dated
debt maturities.
Protected Niche Market Positions: The ratings reflect Curium's
strong market position in the nuclear medicine market, where it has
an industry-leading geographical footprint and product range. Its
vertical integration allows it to have control from the sourcing of
radioactive substances to the distribution of products to end
users, underpinning a robust business model. However, the ratings
are affected by low product diversification and scale relative to
broader healthcare peers'.
DERIVATION SUMMARY
Fitch applies its rating Navigator Framework for Producers of
Medical Products and Devices in assessing Curium's rating, also
against peers'. Larger medical devices-focused peers such as Boston
Scientific Corporation (BBB+/Stable) and Fresenius SE & Co. KGaA
(BBB-/Stable) do not necessarily relate to Curium's line of
business. Nevertheless, both issuers illustrate the benefits of
size on ratings (revenue of more than EUR10 billion) and of a
diversified product offering, which for Fresenius offsets about
3.8x EBITDAR net leverage for an investment-grade rating.
Fitch considers Curium's 'B' rating against other niche
pharmaceutical companies such as Financiere Top Mendel SAS (Ceva
Sante; B+/Stable). Ceva Sante's high profitability but niche focus
and small scale versus global pharma peers' is similar to Curium's,
but financial leverage of around 4.5x-5.5x is 1x lower than
Curium's, resulting in Ceva Sante's one-notch higher IDR.
Higher-rated pharmaceutical peers CHEPLAPHARM Arzneimittel GmbH
(B+/Stable) and Pharmanovia Bidco Limited (B+/Stable) differ from
Curium in their business models, with asset-light businesses that
focus on lifecycle management of the intellectual property rights
of niche pharmaceutical drugs. Their one-notch higher IDRs are
justified by their high operating profitability and double-digit
FCF margins, alongside lower financial leverage of around 4x-5x.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Mid-to-high single-digit revenue growth in 2023-2024, driven by
organic growth and bolt-on M&A. This is followed by high
single-digit growth in 2025-2026 as new products are launched
- EBITDA margins steady at around 28.5% to 2026
- Annual working-capital outflows of EUR5 million-EUR15 million for
2023-2026
- Capex at around 9%-10% of sales to 2026
- Bolt-on M&A of EUR10 million-EUR15 million per year for
2023-2026
- No dividend distributions
KEY RECOVERY ASSUMPTIONS
Fitch's recovery analysis assumes that Curium would be considered a
going-concern operation in bankruptcy rather than liquidated.
Curium's post-reorganisation, going-concern EBITDA reflects Fitch's
view of a sustainable EBITDA of EUR158 million. In such a scenario,
the stress on EBITDA would most likely result from severe
operational or/and regulatory challenges.
A distressed enterprise value (EV)/EBITDA multiple of 6.0x has been
applied to calculate a going-concern EV. This multiple reflects
Curium's strong infrastructure capabilities, leading market
positions and FCF generation. Based on the payment waterfall its
revolving credit facility (RCF) of EUR231 million ranks equally
with its EUR1.3 billion-equivalent new senior secured TLBs.
In its recovery analysis, Fitch assumes Curium's EUR50 million
drawn factoring facilities remain available in a reorganisation of
the entity.
After deducting 10% for administrative claims, its waterfall
analysis generates a ranked recovery for the senior secured loans
in the Recovery Rating 'RR3' band, indicating a 'B+' instrument
rating, and maintaining the one notch uplift from the IDR. The
waterfall analysis output percentage on current metrics and
assumptions is 55%.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- Maintenance of a financial policy driving total debt/EBITDA below
5.5x on a sustained basis
- Better product and geographical diversification arising from
operational integration and execution of acquisitions
- Enhanced profitability as underscored in improved scale and
pricing power with FCF margins well above 5%
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- Operational challenges or loss of contracts that would lead to a
sustained decline in revenues and eroding EBITDA margin towards
25%
- Total debt/EBITDA sustained above 7.5x
- Neutral-to-mildly positive FCF margin reflecting limited organic
deleveraging capabilities
- Loss of regulatory approval relating to the handling/processing
of nuclear substances and/or key products in core markets (the US
and the EU)
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: Following the refinancing, Curium has access to
its EUR231 million RCF, which may be used to support new projects
and external growth opportunities. Fitch projects internal cash
generation to be modest but sufficient to accommodate increased
capex on new and recently launched products.
The refinancing has extended Curium's debt profile with its TLBs
maturing in mid-2029.
ESG CONSIDERATIONS
Curium is exposed to the production and transportation of
radioactive materials, which are central to its operations, as
underlined by an ESG Relevance Score of '4' for waste and hazardous
materials management. Production of radioactive material leads to
contamination of its production sites, so Curium is obliged to
fully decommission and decontaminate sites when they are no longer
in use. In addition, Curium is dependent on nuclear energy
generation, as it uses by-products whose price and availability are
correlated with nuclear activity. This has a negative impact on its
credit profile and is relevant to its 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 Recovery Prior
----------- ------ -------- -----
Curium BidCo
S.a r.l. LT IDR B Affirmed B
senior secured LT WD Withdrawn B+
senior secured LT B+ New Rating RR3 B+(EXP)
=====================
N E T H E R L A N D S
=====================
CREDIT EUROPE: Fitch Hikes LongTerm IDR to 'BB-', Outlook Positive
------------------------------------------------------------------
Fitch Ratings has upgraded Credit Europe Bank N.V.'s (CEB)
Long-Term Issuer Default Rating (IDR) to 'BB-' from 'B+' and
Viability Rating (VR) to 'bb-' from 'b+'. The Outlook on the
Long-Term IDR is Positive.
The upgrades reflect Fitch's improved assessment of CEB's operating
environment due to reduced exposure to emerging markets, which
together with tightened underwriting standards has contributed to a
gradual de-risking of the bank's balance sheet. The rating actions
also consider the bank's improved operating performance and
capitalisation.
KEY RATING DRIVERS
Balance Sheet De-risking; Improved Profitability: CEB's niche
franchise in commodity trade finance remains a rating strength,
despite its business model's limited diversification. Since 2018,
CEB has been de-risking its balance sheet by reducing its volume of
impaired loans and exposure to some emerging countries, which
contributed to improving the bank's profitability. Fitch expects
this will feed through to increased internal capital generation,
ultimately supporting CEB's capitalisation.
Global Growth Slowing: Fitch expects global growth to decelerate in
2023 to 2.5%, from 2.7% a year earlier. Stubborn inflation, high
interest rates, risks from credit tightening, trade restrictions
and regulatory challenges will affect both advanced and emerging
economies. Fitch expects these factors to result in subdued
investments, weak productivity and decreasing international trade,
leading to a reduction in merchandise trade.
Niche Trade Finance Bank: CEB has a niche commodity-trade-finance
and corporate franchise with diversification into the retail
segment in Romania. Fitch expects the bank to continue benefiting
from the higher interest rate environment, while the revenue's
volatility decreases alongside its exposure to volatile countries,
notably Turkiye.
Reduced Risk Appetite: Over the past five years, the bank has
adopted a more conservative risk approach by reducing its exposure
to cyclical sectors, countries affected by high volatility (e.g.
Turkiye), or significant geopolitical developments (e.g. Russia and
Ukraine). These measures led to a significant decline in
non-performing assets (NPA, which include on and off-balance sheet
risks), which Fitch expects to continue in the coming years.
Lower NPA; Improved Coverage: CEB has recently demonstrated
satisfactory balance sheet management, although exposure to
emerging markets make asset quality potentially volatile. The NPA
ratio declined to 4% at end-2022 (from 7.2% at end-2020), helped by
tightened underwriting policies and increased lending in developed
markets. Fitch expects this ratio to drop further in the next two
years. Additionally, the bank materially improved its coverage of
NPA.
Improving Medium-term Profitability: CEB's core profitability has
been modest in recent years, but improved in 2022 thanks to the
increase in net interest income, taking advantage of rising
interest rates and lower loan impairment charges. Fitch expects the
bank to maintain an operating profit to risk-weighted assets (RWA)
of around 2% in 2023 due to persisting high interest rates, steady
business flows, good control over costs and NPA, despite the global
economic slowdown.
Capital Buffers Improving: Over the past four years, CEB's common
equity Tier 1 ratio has consistently exceeded 15% and capital
encumbrance materially has decreased, falling below 20%. Although
the bank's capital size remains modest in nominal terms, CEB's
capital buffers materially increased in July 2023, following the
bank's local regulator's decision to reduce its capital
requirements.
Moderately Stable Deposit Franchise: CEB is mainly funded through
granular retail deposits, which are collected online mostly in
Germany, and to a lesser extent the Netherlands and Romania. Almost
all household deposits benefit from deposit-guarantee schemes in
all three countries, contributing to funding stability. Corporate
and interbank deposits are originated from CEB's trade-finance and
corporate-banking operations. Wholesale borrowings are limited to
one subordinated bond placement.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The ratings would be downgraded if the macroeconomic environment
weakens more than Fitch expects, leading to a material
asset-quality deterioration (with an NPA ratio increasing over 6%)
and weaker operating profitability (operating profit falling below
1% of RWA on a sustained basis).
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
The ratings could be upgraded on broader business diversification,
leading to improved internal capital generation by means of a
longer record of operating profit at around 1.5% of RWA. In
addition, an upgrade would require stable asset quality and
capitalisation maintained at current levels.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
CEB's Tier 2 subordinated debt is rated two notches below the
bank's VR, reflecting poor recovery prospects for this type of
debt.
No Government Support: CEB's Government Support Rating (GSR) of
'ns' reflects Fitch's view that although external extraordinary
sovereign support is possible, it cannot be relied on. Senior
creditors can no longer expect to receive full extraordinary
support from the sovereign in the event that the bank becomes
non-viable. This is because the EU's Bank Recovery and Resolution
Directive and the Single Resolution Mechanism for eurozone banks
provide a framework for resolving banks that requires senior
creditors participating in losses, if necessary, instead of or
ahead of a bank receiving sovereign support
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
The subordinated debt rating is primarily sensitive to a downgrade
of the VR, from which it is notched. The rating is also sensitive
to an adverse change in the notes' notching, which could arise if
Fitch changes its assessment of their non-performance relative to
the risk captured in the VR.
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
The subordinated debt rating is primarily sensitive to an upgrade
of the VR.
An upgrade of the GSR would be contingent on a positive change in
the sovereign's propensity to support the bank. In Fitch's view,
this is highly unlikely.
VR ADJUSTMENTS
The operating environment score of 'bbb' is below the
category-implied score of 'aa' due to the following adjustment
reason: international operations (negative).
The capitalisation & leverage score of 'bb' is below the
category-implied score of 'bbb' due to the following adjustment
reason: size of the capital base (negative).
The funding & liquidity score of 'bb' is below the category-implied
score of 'bbb' due to the following adjustment reason: non-deposit
funding (negative).
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit neutral or have only a minimal credit impact on the entity,
neither due to their nature or the way in which they are being
managed by the entity.
Entity/Debt Rating Prior
----------- ------ -----
Credit Europe
Bank N.V. LT IDR BB- Upgrade B+
ST IDR B Affirmed B
Viability bb- Upgrade b+
Government Support ns Affirmed ns
Subordinated LT B Upgrade B-
===========
R U S S I A
===========
UZBEKNEFTEGAZ JSC: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
-------------------------------------------------------------------
Fitch Ratings has affirmed JSC Uzbekneftegaz's (UNG) Long-Term
Issuer Default Rating (IDR) at 'BB-' with a Stable Outlook.
UNG's rating is equalised with that of its parent Uzbekistan
(BB-/Stable). UNG is a fully state-owned integrated natural gas and
liquid hydrocarbons producer with strong links with the
government.
UNG's 'b+' Standalone Credit Profile (SCP) remains under pressure
from high leverage. Fitch expects its leverage to improve as its
gas-to-liquids (GTL) plant is now operational and will start to
significantly contribute to UNG's earnings from 2023. The 'b+' SCP
also reflects UNG's medium-scale production, integration into
downstream activities, low-cost position and limitations of the
general operating environment in Uzbekistan.
KEY RATING DRIVERS
'Very Strong' Support: UNG's rating is equalised with Uzbekistan's
due to strong ties under its Government-Related Entities (GRE)
Rating Criteria. Fitch views the status, ownership and control
factor as 'Strong' as the as the state is UNG's sole ordinary
shareholder, although it has been considering selling a minority
stake in UNG to outside investors.
Fitch views the support record as 'Very Strong' because around 65%
of its consolidated debt was guaranteed by the state at end-2022.
However, Fitch expects the share of guaranteed debt to gradually
decline. Other forms of support include liberalised oil product
prices charged by UNG, selected tax incentives and reduced
dividends.
'Very Strong' Socio-Political Impact: Fitch views the
socio-political impact of UNG's default as 'Very Strong' because
the company is focused on providing gas and liquid hydrocarbons to
domestic utilities, industry and the private sector, and does not
export gas. Uzbekistan is reliant on gas for power generation,
heating and as automobile fuel. UNG is one of the largest companies
and employers in the country. Fitch assesses financial implications
of its default as 'Strong' as UNG is a large borrower, hence deemed
a proxy issuer for the government, but UNG's debt is substantially
smaller than that of the government.
SCP Remains Under Pressure: UNG's 'b+' SCP reflects the company's
medium scale, regulated gas prices, very low upstream costs and
integration into chemicals and refining, which are offset by high
leverage, tight liquidity and a weak domestic operating
environment. The SCP is under pressure, primarily from high
leverage, mostly in view of the company's delayed start-up of its
GTL plant. Fitch understands from management that the GTL plant has
largely ramped up now, and should start to significantly contribute
to UNG's earnings starting from 2023.
Liberalisation Supports Revenue: UNG has benefited from the 2020
abolition of regulated prices for condensate, oil and oil products
through higher revenue. Uzbekistan is planning to liberalise prices
for natural gas, first increasing prices for industrial customers
(in 2023) and later for households (potentially in 2024). This
could boost UNG's profitability if the collectability of
receivables does not deteriorate. Fitch conservatively assumes only
a moderate increase in UNG's natural gas prices.
Gradually Falling Leverage: Its forecasts show the company's EBITDA
net leverage declining from 5x in 2022 to around 3.7-3.8x in
2023-2024, and around 3.2x in 2025-2026. Deleveraging will mostly
be driven by completing the ramp-up in production of its GTL
project as well as a USD800 million injection from the Air Products
deal.
Legacy Guarantees: UNG had UZS13 trillion of guarantees at
end-2022, mainly issued to its former subsidiary JSC Uztransgaz for
its gas purchases. Fitch views these liabilities as part of the
legacy from the previous group structure. UNG transferred its stake
in Uztransgaz to the state in 2019. According to the company, any
upcoming liabilities from Uztransgaz will be covered with state
support without recourse to UNG. Fitch does not add this guaranteed
debt to UNG's total debt.
Medium Scale: UNG's consolidated hydrocarbon output was 539
thousand barrels of oil equivalent per day in 2022. However, its
per-barrel profitability is fairly weak in view of regulated
domestic gas prices. Raw natural gas accounted for almost all of
UNG's production. Its PRMS 1P reserve life was 12.5 years at
end-2022, which Fitch views as adequate. UNG's low regulated
realised natural gas prices were counterbalanced by its downstream
integration and low upstream costs, resulting in funds from
operations of around USD550 million in 2022.
DERIVATION SUMMARY
The strength of UNG's ties with the government under Fitch's GRE
Rating Criteria is comparable with QatarEnergy's (AA-/Positive),
and slightly greater than OQ S.A.O.C.'s (OQ; BB/Positive) and JSC
National Company KazMunayGas's (KMG; BBB/Stable). UNG's 'b+' SCP is
on a par with State Oil Company of the Azerbaijan Republic's
(SOCAR; BB+/Positive).
Fitch assesses all five companies under its GRE Rating Criteria.
UNG's, NC KMG's and SOCAR's ratings are equalised with their
respective sovereigns. QatarEnergy's and OQ's ratings are
constrained by their sovereigns.
KEY ASSUMPTIONS
- Upstream volumes broadly stable in 2023-2026
- A moderate increase in domestic realised gas prices
- Brent oil price of USD80/bbl in 2023, USD75/bbl in 2024,
USD70/bbl in 2025 and USD65/bbl in 2026
- Annual capex averaging UZS8.5 trillion in 2023-2026
- Annual dividend averaging UZS725 billion in 2023-2026
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- A sovereign upgrade
- Net debt/EBITDA sustained below 3.0x, if accompanied by
improved liquidity, could be positive for the SCP but
not necessarily the IDR
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- A sovereign downgrade
- Net debt/EBITDA sustained above 4.0x (e.g. as a result
of further delays to UNG's downstream projects) or
deteriorating liquidity could be negative for the SCP
but not necessarily the IDR
- Material unremedied deterioration in liquidity could
lead to re-assessment of the strength of sovereign linkage
Sensitivities for Uzbekistan (see Fitch Affirms Uzbekistan at
'BB-'; Outlook Stable dated 25 August 2023)
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
External Finances: A substantial worsening of external finances,
for example, via a large drop in remittances, or a widening in the
trade deficit, leading to a significant decline in FX reserves
Public Finances: A marked rise in the government debt-to-GDP ratio
or an erosion of sovereign fiscal buffers, for example, due to an
extended period of low growth or crystallisation of contingent
liabilities
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Macro: Consistent implementation of structural reforms that boost
GDP growth prospects and macroeconomic stability
Public Finances: Fiscal consolidation that enhances medium-term
public debt sustainability
Structural: A marked and sustained improvement in governance
standards and an easing in geopolitical risk
LIQUIDITY AND DEBT STRUCTURE
Tight Standalone Liquidity: UNG's projected liquidity is tight with
a liquidity score of 1.2x in 2023 and below 1x in 2024 due to
Fitch-projected negative free cash flow. In 2023, liquidity has
been supported by a cash inflow of UZS8.8 trillion from the sale of
some of industrial gas facilities at GTL.
The company's tight liquidity is counterbalanced by its strong
relationships with local, international and Chinese banks, as well
as potential state support, which was provided in the past.
Air Products Deal: UNG raised USD1 billion through selling certain
industrial gas facilities belonging to its GTL plant to Air
Products, and concluding a tolling service agreement with Air
Products. The tolling service agreement will enable UNG to use
those facilities in the next 15 years. In its projections, Fitch
treats tolling fees as an operating cost.
ISSUER PROFILE
UNG is Uzbekistan's national oil and gas company. It produces
natural gas, condensate, oil, oil products and petrochemicals. UNG
sells all of its gas domestically.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
UNG's IDR is aligned with Uzbekistan's rating.
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
----------- ------ -------- -----
JSC Uzbekneftegaz LT IDR BB- Affirmed BB-
senior
unsecured LT BB- Affirmed RR4 BB-
===========================
U N I T E D K I N G D O M
===========================
AVOCA STATIC I: Fitch Gives Final 'BB-sf' Rating on Class E Notes
-----------------------------------------------------------------
Fitch Ratings has assigned Avoca Static CLO I Designated Activity
Company notes final ratings, as detailed below.
Entity/Debt Rating Prior
----------- ------ -----
Avoca Static
CLO I Designated
Activity Company
A XS2677667037 LT AAAsf New Rating AAA(EXP)sf
B XS2677667201 LT AAsf New Rating AA(EXP)sf
C XS2677667466 LT Asf New Rating A(EXP)sf
D XS2677667623 LT BBBsf New Rating BBB(EXP)sf
E XS2677667979 LT BB-sf New Rating BB-(EXP)sf
TRANSACTION SUMMARY
Avoca Static CLO I DAC is a cash flow-collateralised loan
obligation (CLO) that is serviced by KKR Credit Advisors (Ireland)
Unlimited Company. Net proceeds from the issuance of the notes have
been used to purchase a static pool of primarily secured senior
loans and bonds, with a target par of EUR329million.
KEY RATING DRIVERS
'B' Portfolio Credit Quality (Neutral): Fitch places the average
credit quality of obligors at 'B' /'B-'. The Fitch weighted average
rating factor (WARF) of the identified portfolio is 25.4.
High Recovery Expectations (Positive): The portfolio consists
solely of senior secured obligations and first-lien loans. Fitch
views the recovery prospects for these assets as more favorable
than for second-lien, unsecured and mezzanine assets. The Fitch
weighted average recovery rate (WARR) of the identified portfolio
is 62.3%.
Diversified Portfolio Composition (Positive): The three-largest
industries comprise 38.7% of the portfolio balance, the top 10
obligors represent 12.7% of the portfolio balance and the largest
obligor represents 1.4% of the portfolio.
Static Portfolio (Positive): The transaction does not have a
reinvestment period and discretionary sales are not permitted.
Fitch's analysis is based on the identified portfolio. Fitch has
notched down by one level the ratings of all obligors with a
Negative Outlook (floored at CCC-). These represent 7.3% of the
identified portfolio. Post the adjustment on Negative Outlook, the
WARF of the portfolio is 26.3.
Deviation from Model Implied Rating (MIR): The class B, C, and D
notes are one notch and the class E notes two notches below their
respective model-implied ratings (MIR), reflecting a limited
break-even default-rate cushion at their MIRs. This takes into
consideration Fitch's expectation of deterioration in asset
performance, which unlike reinvesting CLOs, would immediately
affect the ratings of static CLOs.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings of
the identified portfolio would lead to downgrades of up to three
notches for the rated notes.
Downgrades, which are based on the identified portfolio, may occur
if the loss expectation is larger than initially assumed, due to
unexpectedly high levels of default and portfolio deterioration.
Due to the better WARF of the identified portfolio than the
Fitch-stressed portfolio and the deviation from the MIRs, the class
B, C, D and E notes display a rating cushion of one notch.
Should the cushion between the identified portfolio and the
Fitch-stressed portfolio erode due to manager trading or negative
portfolio credit migration, a 25% increase of the mean RDR across
all ratings and a 25% decrease of the RRR all ratings of the
stressed portfolio would lead to downgrades of up to four notches
for the rated notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings of the Fitch-stressed
portfolio would lead to upgrades of up to four notches for the
rated notes, except for the 'AAAsf' rated.
Upgrades, except for the 'AAAsf' notes, may occur on stable
portfolio credit quality and deleveraging, leading to higher credit
enhancement and excess spread available to cover losses in the
remaining portfolio.
DATA ADEQUACY
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions 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.
CMS: Enters Administration Following Financial Difficulties
-----------------------------------------------------------
Jack Rawlins at The Shuttle reports that a Kidderminster car
dealership has fallen into administration with potential buyers
being encouraged to come forward.
According to The Shuttle, CMS operates a franchised Vauxhall
dealership in Churchfields and has faced financial difficulties in
recent months.
Tony Wright and Rajnesh Mittal of specialist business advisory firm
FRP were appointed as joint administrators to the business, The
Shuttle relates.
All 46 staff remain employed and CMS continues to trade as the
joint administrators explore options for the future of the
business, including the possibility of a sale, The Shuttle
discloses.
INTERNATIONAL PERSONAL: Fitch Affirms 'BB-' IDR, Outlook Stable
---------------------------------------------------------------
Fitch Ratings has affirmed International Personal Finance plc's
(IPF) Long-Term Issuer Default Rating (IDR) and senior unsecured
debt rating at 'BB-'. The Outlook on the Long-Term IDR is Stable.
KEY RATING DRIVERS
Low Leverage, High Impairment: IPF's rating reflects its low
balance-sheet leverage and structurally profitable business model
despite high loan impairment charges, supported by a
cash-generative short-term loan book. The ratings remain
constrained by IPF's focus on higher-risk customers, product
evolution and the sector's susceptibility to changes in regulator
sentiment, although historically this has been handled well by
management.
Heightened Asset Quality Risk: Fitch expects IPF's loan impairment
charges to increase moderately in 2023 and 2024 as the company
rebuilds its scale post-pandemic, particularly in Mexico, which
generally carries a higher credit cost than Europe. IPF's
Fitch-calculated loan impairment charges/average gross loan ratio
increased to 12.9% in 1H23 (annualised) from 8.5% in 2022.
Furthermore, the rising cost of living, increasing interest rates
and low global economic growth may pressurise borrowers' repayment
capacity in the near term, increasing asset quality pressure.
However, asset quality remains within IPF's own risk appetite, and
above pre-pandemic levels, as since 2020 the company has increased
its focus on the stronger end of its credit spectrum.
Sound Profitability: IPF's profitability remained sound in 1H23,
with pre-tax income/average assets of 6.4%. although it declined
from 7.1% in 2022 due to the normalisation of loan impairment
charges in the post-pandemic period. Fitch expects IPF's overall
profitability to moderate further in 2023 due to the full impact of
regulatory cap and affordability regulation in the Polish
businesses on IPF's overall interest yield, higher funding costs,
increasing loan impairment charges and inflationary impact on
operating costs.
Low Leverage: IPF's gross debt/tangible equity ratio declined to
1.9x at end-1H23 from 2.2x at end-2022 due to a combined effect of
reduced interest-bearing liabilities and an improved equity base
via earnings retention. IPF's leverage is a credit strength and
moderate for a lending business focused on non-prime customers and
bearing significant impairment risk. Fitch expects a gradual
increase in IPF's leverage in the medium term with the expansion of
its loan book.
Extended Maturity Profile: IPF extended its debt maturity profile
via a GBP50 million issuance in November 2022, reducing near-term
refinancing risk, albeit at a higher funding cost. IPF's next
12-month refinancing requirement as of end-June 2023 is GBP59.5
million, which is equivalent to 11.4% of total borrowings. IPF's
cash-generative and short-term loan portfolio (with average
maturity of 12.7 months at end-1H23) and funding headroom (undrawn
facilities and non-operational cash balances) of GBP84 million
should support the liquidity profile.
Nevertheless, IPF's funding profile is still susceptible to
medium-term refinancing risk, given the higher maturity spike in
2025 of GBP 292.8 million, which is equivalent to around 25% of
total assets at end-1H23.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Difficulty in accessing funding markets, leading to material
shortening in IPF's maturity profile or reduction in liquidity
headroom
- A marked deterioration in asset quality amid macroeconomic
pressures, reflected in weaker collections, higher loan impairments
pressurising profitability or an increase in unreserved problem
receivables
- An increase in regulatory interventions (e.g. related to rate
caps or early settlement rebates) with a material negative impact
on IPF's capacity to conduct profitable business
- Significant weakening of solvency, with gross debt/tangible
equity exceeding 5.5x, or material depletion of headroom against
IPF's gearing (gross debt/total equity) covenant of 3.75x
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Strengthening of IPF's funding profile via diversification by
source, lengthening of average tenor and removal of maturity
spikes;
- Continued rebuilding of scale, while maintaining a pre-tax
income/average assets ratio above 4.0%
DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS
IPF's senior unsecured notes' rating is in line with its Long-Term
IDR, reflecting Fitch's expectation for average recovery prospects,
given that all of IPF's funding is unsecured and ranks pari-passu
with other senior unsecured creditors.
DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES
IPF's senior unsecured debt rating will move in tandem with its
Long-Term IDR, in the absence of introduction of a material secured
or subordinated debt tranche.
ADJUSTMENTS
The Standalone Credit Profile has been assigned in line with the
implied Standalone Credit Profile
The business profile score has been assigned below the implied
score due to the following adjustment reason: business model
(negative).
The asset quality score has been assigned above the implied score
due to the following adjustment reason: collateral and reserves
(positive).
The earnings & profitability score has been assigned below the
implied score due to the following adjustment reason: earnings
stability (negative).
The capitalisation & leverage score has been assigned below the
implied score due to the following adjustment reason: risk profile
and business model (negative).
The funding, liquidity & coverage score has been assigned below the
implied score due to the following adjustment reason: funding
flexibility (negative).
ESG CONSIDERATIONS
IPF has an ESG Relevance Score of '4' for Exposure to Social
Impacts stemming from its business model focused on high-cost
consumer lending, and therefore exposure to shifts of consumer or
social preferences, and to increasing regulatory scrutiny,
including potential tightening of interest-rate caps. This has a
negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
IPF has an ESG Relevance Score of '4' for Customer Welfare - Fair
Messaging, Privacy & Data Security, driven by risk of losses from
litigations including early settlement rebates customer claims.
This has a negative impact on the credit profile, and is 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.
Entity/Debt Rating Prior
----------- ------ -----
International
Personal
Finance plc LT IDR BB- Affirmed BB-
ST IDR B Affirmed B
senior
unsecured LT BB- Affirmed BB-
KNP LOGISTICS: Ransomware Attack Prompts Administration
-------------------------------------------------------
Carol Millett at MotorTransport reports that a major ransomeware
attack on KNP Logistics was a key contributor to the group's
demise, administrators revealed on Sept. 25.
According to MotorTransport, administrators FRP Advisory said KNP
Logistics Group, which includes subsidiaries Knights of Old, Nelson
Distribution, Steve Porter Transport and Merlin Supply Chain
Solutions, suffered a major ransomware attack in June this year.
LORCA HOLDCO: Fitch Affirms 'B+' LongTerm IDR, Outlook Stable
-------------------------------------------------------------
Fitch Ratings has affirmed Lorca Holdco Limited's Long-Term Issuer
Default Rating (IDR) rating at 'B+'. The Outlook is Stable.
Lorca is the owner of network operator MasMovil (MM). Its IDR is
supported by its well-established position in the Spanish telecoms
market, as well as a hybrid approach to network deployment, which
includes long-term partnership agreements.
The ratings also reflect Lorca's high leverage following the
acquisition of Euskaltel SA in August 2021. The Stable Outlook
reflects that despite the pace of deleveraging since the
acquisition being below its original expectations, primarily due to
lower than expected EBITDA, the company retains a clear
deleveraging path, with Fitch-defined EBITDA net leverage declining
to 5.3x in 2025.
The merger between MM and Orange Spain (JV) announced in July 2022
could have positive rating implications for Lorca as it would lead
to a stronger operating profile and improved capital structure.
Fitch has so far taken a cautious stance given the lack of
visibility regarding potential remedies and initial risk of
competition clearance. Fitch believes that chances of regulatory
approval in 2H23 have since improved.
KEY RATING DRIVERS
Established Market Position: MM has grown over the last seven years
to become an established, fourth-largest network operator in Spain.
This has been achieved by building scale through a series of
acquisitions and organic growth. MM had a 10.4% market share by
retail revenue in 2022 (4.7% in 2017), according to Spanish
regulator CNMC. However, its subscriber market share was
significantly higher, at 20.1% in mobile and 18.4% in broadband in
2022. For the first time in 2022, the company outperformed its
nearest competitor Vodafone Spain by number of broadband
connections.
Efficient Approach to Network Deployment: MM has constructed the
country's second-largest fibre to the home (FTTH) network in a
country with one of Europe's most advanced levels of fibre build.
It has done this by combining traditional build capex/acquisitions
with a series of partnership agreements encompassing shared
ownership (network sharing), hybrid indefeasible rights of use
(long-term fibre leases)/bitstream access and creating joint
ventures with infrastructure funds. It has taken a similar approach
in mobile, combining owned capex with a series of national roaming
agreements.
High Leverage, Deleveraging Path: Fitch forecasts Fitch-defined
EBITDA net leverage to increase to 6.2x in 2023 from 6.0x at
end-2022, before declining to 5.7x in 2024 and then to 5.3x in 2025
(downgrade sensitivity is 5.6x). The rise in leverage in 2023 will
be driven by lower absolute EBITDA and continued negative free cash
flow (FCF).
Fitch expects EBITDA to decline in 2023 due to inflationary
pressures (Fitch forecasts EUR35 million) and lower income from the
sale of building units FTTH network (which Fitch treats as
operating). This income has been lumpy (EUR112 million in 2022,
EUR25 million in 2021). Its rating case assumes this income stream
at EUR50 million a year in 2023-2024 and EUR30 million in
2025-2026. Its forecast envisages EBITDA growth after 2023, with
the EBITDA margin gradually improving to 37% in 2027 from 35.2% in
2023.
JV Credit Positive: The merger of MM and Orange Spain (the
second-largest operator in Spain) should establish a market number
one operator by accesses (in fixed broadband and mobile) and a
strong number two by revenues. Fitch expects the JV to have a
stronger operating profile than MM on standalone a basis, driven by
the JV's transformed market position, access leadership, revenue
position, and strong technology and spectrum positions. This will
potentially allow slightly higher leverage capacity per rating
band.
Good Performance, but Below Expectations: MM demonstrated
relatively good results with pro-forma for the Euskaltel
acquisition revenue growing by 2% in 2022 and a Fitch-defined
EBITDA margin of 36.8%. This compares well with 0.8% total retail
revenue growth reported by CNMC and the performance of MM's larger
peers, whose cumulative reported revenue in Spain declined by 1.2%
in 2022. However, MM's revenue growth in 2022 was below Fitch's
expectations of 9% when the Euskaltel deal was completed, affected
by increased competition. This also had an impact on the EBITDA
margin, which was 1pp lower than its original expectations.
Competitive Spanish Market: The Spanish telecoms market is
competitive and relatively crowded, dominated by four large
operators (Telefonica, Orange, Vodafone and MM). There are also
numerous mobile virtual network operators and smaller alternative
fixed network operators, which cumulatively accounted for 20.3% of
total retail telecom revenues in Spain in 2022 (18.1% in 2021 and
16.3% in 2020 including 2.8% attributed to Euskaltel), according to
CNMC. In 2022, DIGI alone added 363,000 fixed broadband access out
of 441,000 new lines added to the market.
High SACs, New Law: MM's substantial subscriber acquisition costs
(SACs) reflect its relatively high churn rate, although this has
improved during the last year. The total cash outflow related to
SACs (growth and replacement) amounted to 18% of revenues in 2022.
This includes EUR272 million reflected in cash flow from operating
activities and EUR262 million of commercial capex.
The new General Telecommunications Law published at end-June 2022
prohibits any cold calls from July 2023, which may have positive
implications for market churn and MM's SACs. Its forecasts do not
incorporate any material impact from this law, as it is too early
to assess it at this stage.
Negative FCF to Turn Positive: Despite strong profitability, MM's
free cash flow (FCF) remained negative in 2022, affected by high
gross capex (23% of revenue) and SACs, the rising cost of financing
and one-off items (restructuring & integration costs, penalty
payments to Orange). Fitch expects FCF to remain slightly negative
in 2023 and turn positive from 2024. The positive trajectory will
be supported by declining capex, lower non-recurring cash outflows
and growth in EBITDA and the realisation of remaining synergies
from Euskaltel acquisition.
DERIVATION SUMMARY
MM's peer group includes most Fitch-rated European cable operators,
which are largely grouped around the 'BB-'/'B+' level. MM has a
similar revenue scale to most entities in the peer group, but
slightly lower EBITDA margins and weaker cash flow generation,
reflecting relatively higher SACs and non-recurring cash outflows
related to acquisitions and restructurings. However, it has higher
growth prospects than most companies in the peer group with
established operator share.
Following the Euskaltel acquisition, MM's leverage thresholds were
loosened and are currently set in line with Virgin Media Ireland
Limited and 0.2x tighter than VodafoneZiggo Group B.V., both of
which are rated 'B+'/Stable. The relaxation reflects the
transformation of the business (including Euskaltel) in terms of
infrastructure scale, breadth of coverage and cash flow evolution
since these thresholds were initially set.
KEY ASSUMPTIONS
- Revenue to grow by low single digits in 2023-2026
- Fitch-defined EBITDA margin (after lease expenses) at 35.2% in
2023, gradually improving to 37% in 2026
- Non-recurring cash flow of EUR80 million in 2023 decreasing to
EUR30 million in 2025-2026
- Negative working capital of EUR120 million per year in 2023,
declining to EUR110 million in 2024 and EUR100 million per year in
2025-2026
- Cash capex /sales ratio of 16% in 2023, declining to 14% in
2024-2026
- Net cash outflow related to acquisitions & equity contributions
and proceeds from sale of property, plant & equipment at EUR70
million in 2023
- No dividends
Key Recovery Rating Assumptions
- The recovery analysis assumes that Lorca would be considered a
going-concern in distress in the event of a bankruptcy and that the
company would be reorganised rather than liquidated;
- A 10% administrative claim
- Post-restructuring EBITDA estimated at EUR950 million (in line
with the previous assessment), 11% lower than 2022 EBITDA
- A distressed enterprise value multiple of 5.5x is applied to
calculate a post-restructuring valuation
- In its debt claim waterfall, Fitch assumes a fully drawn
revolving credit facility (RCF) of EUR750 million, ranking pari
passu to senior secured debt
- Recovery prospects for the group's senior secured debt are at 75%
and senior unsecured debt receives 0% recovery prospects
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- EBITDA net leverage below 4.8x (corresponding to funds from
operations (FFO) net leverage below 5.0x) on a consistent basis
- Cash from operations (CFO) less capex as a percentage of gross
debt consistently at or above 5%
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- EBITDA net leverage above 5.6x (corresponding to FFO net leverage
above 5.8x) on a consistent basis
- CFO less capex as a percentage of gross debt consistently at or
below 2%
- Further intensification of competitive pressures leading to
deterioration in operational performance
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: Lorca had an adequate liquidity position at
end-June 2023, supported by a cash balance of EUR22 million and
EUR630 million of undrawn RCF (out of total EUR750 million)
available for draw down until 2027 and positive FCF generation
expected from 2024. Most of Lorca's debt matures on or after 2027.
SUMMARY OF FINANCIAL ADJUSTMENTS
Cash outflow related SACs which are not reported within capex are
capitalised as 'Costs of obtaining contracts with customers' and
released to the consolidated statement of profit or loss during a
period that ranges between 24 to 72-month in Lorca's consolidated
financial statements as defined by the company's accounting policy.
Lorca has written off EUR278 million of 'Costs of obtaining
contracts with customers' during the purchase price allocation
exercise performed in 2020 when MM was taken private and in 2021
when Euskaltel was acquired and its value was implicitly embedded
in the measurement of the value of the customer relationships.
To get a normalised / recurring EBITDA level Fitch has adjusted the
company's reported EBITDA by decreasing it by the amount of
'amortisation' / release to the consolidated statement of profit or
loss as if MM and Euskaltel have always been consolidated by Lorca.
The adjustments amounts were EUR102 million in 2021 and EUR75
million in 2022.
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
----------- ------ -------- -----
Lorca Finco PLC
senior secured LT BB Affirmed RR2 BB
Lorca Holdco
Limited LT IDR B+ Affirmed B+
Lorca Telecom
Bondco S.A.U.
senior secured LT BB Affirmed RR2 BB
Kaixo Bondco
Telecom S.A.U.
senior
unsecured LT B- Affirmed RR6 B-
MVISION PRIVATE: Goes Into Administration
-----------------------------------------
Alex Lynn and Adam Le at Private Equity International report that
MVision Private Equity Advisers, historically one of the most
prominent placement agents in private markets capital raising, has
gone into insolvency proceedings.
The London-headquartered firm appointed Kroll Advisory as
administrator on Sept. 18, Private Equity International relays,
citing a Sept. 25 UK regulatory filing.
Filings with the UK's Companies House show that MVision posted a
GBP328,166 (US$401,075; EUR377,307) post tax-loss for the year
ending September 30, 2022, Private Equity International discloses.
This compared with a GBP183,195 profit for the previous 17 months
ended September 30, 2021, Private Equity International notes.
The placement firm has raised capital for private equity, real
estate, real assets, credit and direct transactions from offices in
London, New York, San Francisco, Hong Kong and Sydney, according to
its website.
PATTY & BUN: Creditors Back Company Voluntary Arrangement
---------------------------------------------------------
Finn Scott-Delany at Restaurant reports that Patty & Bun has had
proposals approved for a Company Voluntary Arrangement (CVA).
The London-based burger chain appointed Valentine & Co to supervise
the process, with the CVA approved on Sept. 11, Restaurant relays,
citing documents filed at Companies House.
A majority of 84.3% creditors voted in favor, with 15.6% against,
after some modifications were made, Restaurant discloses.
According to Restaurant, Patty & Bun Ltd owes creditors GBP1.7
million, with HMRC owed GBP1.4 million, and Shaftsbury GBP28,000.
The arrangement involves the repayment of 71p in the pound to all
unsecured, non-preferential creditors, Restaurant states.
WESTRIDGE CONSTRUCTION: Enters Administration, Albion Work Halts
----------------------------------------------------------------
Sam Morton at Sussex World reports that Westridge Construction has
now gone into administration, which has meant that work on the site
in Albion Street has stopped.
The company has been building 49 new council homes in Southwick
since 2021.
Adur District Council said it will "take action to make sure" its
development is completed "at no extra cost", Sussex World relates.
According to Sussex World, Council leader Neil Parkin said: "The
collapse of Westridge Construction is extremely sad news for the
company and all of the staff involved and we hope a solution can be
found that allows them to continue working in some form.
"We have insurance to protect the council in such circumstances so
the issue will not increase the cost of the project but it will
inevitably delay its completion.
"We hope to learn more about the situation from the administrators
over the coming days so the final few weeks of construction work on
the development can be completed and we can provide new council
homes for residents in need of somewhere to live."
The council is "now considering a number of options" to allow the
final steps of the project to be completed "so that local families
can move into the much-needed properties".
*********
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,
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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.
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