/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/230928.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 Thursday, September 28, 2023, Vol. 24, No. 195 Headlines G E R M A N Y TELE COLUMBUS: Fitch Lowers LongTerm Issuer Default Rating to 'CCC' I R E L A N D FINANCE IRELAND 6: S&P Assigns BB+(sf) Rating on Cl. E Notes PHOENIX PARK: Fitch Affirms B+ Rating on Class E-R Notes I T A L Y ASSICURAZIONI GENERALI: Egan-Jones Retains BB Sr. Unsec. Ratings PIAGGIO & C: S&P Affirms 'BB-' ICR & Alters Outlook to Positive M A L T A FIMBANK PLC: Fitch Affirms 'B' LongTerm IDR, Outlook Stable S P A I N SABADELL CONSUMER 1: Fitch Gives Final BB+(EXP) Rating on D Notes T U R K E Y ANADOLU SIGORTA: Fitch Alters Outlook on 'B+' IFS Rating to Stable KEW SODA: S&P Assigns Preliminary 'B+' ICR, Outlook Negative TURK P&I: Fitch Alters Outlook on 'B' IFS Rating to Stable U N I T E D K I N G D O M ADVANCED AGENTS: Enters Liquidation with Deficiency of GBP3MM ALLMA CONSTRUCTION: All Jobs Lost, Assets Put Up for Sale AMIGO LOANS: Expects to Go Into Liquidation Within Few Months CM3: Goes Into Liquidation ENDEAVOUR MINING: Fitch Affirms 'BB' LongTerm IDR, Outlook Stable ENTAIN PLC: Fitch Affirms LongTerm IDR at 'BB', Outlook Stable FINSBURY SQUARE 2021-2: Fitch Hikes Rating on Cl. X3 Notes to BBsf LGC SCIENCE: Fitch Affirms 'B+' LongTerm IDR, Outlook Stable LOGIE GLAZING: Enters Administration, 16 Jobs Affected NOBIAN HOLDING 2: Fitch Affirms 'B' LongTerm IDR, Outlook Stable NOMAD FOODS: Fitch Alters Outlook on 'BB' LongTerm IDR to Stable PH+: Enters Liquidation, Owes More Than GBP200,000 PINNACLE BIDCO: Fitch Gives 'B-(EXP)' Rating on New Secured Notes POLARIS PLC 2023-2: Moody's Assigns B1 Rating to 2 Tranches POLARIS PLC 2023-2: S&P Assigns BB+ Rating on Class F-Dfrd Notes TESCO PLC: Egan-Jones Retains BB+ Senior Unsecured Ratings WE SODA: Fitch Gives 'BB-(EXP)' LongTerm IDR, Outlook Stable - - - - - ============= G E R M A N Y ============= TELE COLUMBUS: Fitch Lowers LongTerm Issuer Default Rating to 'CCC' ------------------------------------------------------------------- Fitch Ratings has downgraded Tele Columbus AG's (TC) Long-Term Issuer Default Rating (IDR) to 'CCC' from 'B-'. Fitch has also downgraded TC's senior secured debt to 'CCC+' from 'B'. The senior secured debt's Recovery Rating remains unchanged at 'RR3'. The downgrade reflects building liquidity pressures on the back of continuing negative free cash flow (FCF) generation, insufficient liquidity beyond 2023 and slow progress in addressing refinancing risk, with the first large bullet maturity in October 2024. The company will have a very low margin of safety over the coming months as it continues discussions with creditors and shareholders about achieving a sustainable long-term capital structure. Meaningful further cash equity contributions from shareholders cannot be ruled out but the chances of avoiding a distressed debt exchange (DDE) are low. KEY RATING DRIVERS Liquidity Shortage: TC is facing a liquidity shortage, absent any action or additional shareholder support, likely as early as 1Q24, that may cause operating disruptions and trigger a cross-default on its entire outstanding debt. Fitch believes a default would become a real possibility with a low margin for safety at this stage, which is consistent with 'CCC' rating. TC estimated in its latest quarterly report that it would face a liquidity gap in 4Q23 that would increase in the following months, with this timeline likely to be extended by the committed shareholder funding till 1Q24. Insufficient Shareholder Support: Fitch believes shareholder support received so far is insufficient to allow the company to refinance its debt on market terms while simultaneously funding its long-term capex plan. Shareholders have already invested significant equity and provided shareholder loans to TC. Further support cannot be ruled out but there is no certainty that it will be forthcoming. TC announced at end-August that it secured a shareholder loan commitment, which under its estimates, should be sufficient to cover anticipated liquidity requirements until end-2023. The company earlier signed a EUR15 million revolving credit facility (RCF) with its shareholder in July 2023. Shareholders contributed EUR550 million of fresh equity to TC in 2021-2022. Debt Negotiations Ongoing: TC entered into negotiations with its debt holders which, in its view, may lead to deterioration in terms for its creditors. Debt restructuring negotiations would require the coordination of the sometimes divergent interests of various groups of debtholders such as bond- and loan-holders, and any indication of a threat would be viewed as likely to lead to a DDE. Both TC and a group of its debtholders were reported to have hired advisers to help with debt negotiations. The last tranche of shareholder support was provided with certain termination rights. In its view, a conditionality element in shareholder support may lead to pressure on debtholders to accept less favourable terms as a pre-requisite for any additional shareholder funding. Should this be the case, Fitch may view any resultant new terms as indicative of a DDE. Negative FCF: Fitch expects TC's FCF to remain heavily negative as the company continues to make investments into fibre infrastructure upgrades well above its current EBITDA generation. As of the latest update at end-August 2022, the management guided for 2023 capex to be broadly on par with 2022 investments (which it reported as EUR227 million) while its last-12-month-to-2Q23 normalised EBITDA (company definition) was EUR177 million. Even a successful debt refinancing is likely to only be achieved at a significantly higher interest rate, which would weigh on cash flows. Modest Overall Growth: Fitch expects TC to continue demonstrating strong growth in broadband revenue, likely as a high single-digit percentage annually, supported by growth in the number of internet connections and up-selling as customers increasingly opt for higher speed enabled by fibre and DOCSIS 3.1 upgrades. However, such growth may be insufficient to fully compensate for TV revenue pressure, at least in 2023-2025. Lacklustre Operating Performance: Fitch expects TC's operating performance to remain broadly stable over the next 12 months, with stable to slightly negative revenue and an only slowly increasing EBITDA margin as cost-efficiency initiatives may take time to bear fruit on a net basis. The company reported a 1.9% yoy revenue contraction in 2Q23, with strong 4.3% internet growth falling short of fully off-setting the 8.3% contraction in TV services revenue. Bulk TV Revenues Face Uncertainty: Amendments to the German telecommunication law (in effect from mid-2024) are likely to put pressure on bulk TV revenue for mass provision of basic TV programming. Revenue from analogue TV accounted for 37% of TC's 2022 total revenue. With a contribution margin of more than 80%, a reduction in this revenue stream would inevitably lead to a commensurate EBITDA contraction. The impact may be mitigated by up-selling efforts at the time of establishing direct contract relationships for its remaining customers. Under the new law, housing associations will no longer be able to pass on bulk TV fees to end-users by including them in monthly rental charges. TC will therefore have to establish direct customer relationships with all of its TV users who should explicitly consent to continue paying for linear TV programming. High Leverage: Fitch expects TC's leverage to remain high, at more than 7x net debt/EBITDA in 2023-2026 (Fitch estimates it at 8.4x at end-2022). Deleveraging is likely to be slow, primarily driven by a gradual EBITDA recovery. DERIVATION SUMMARY Unlike many of its larger cable peers, TC is only present in a few German regions, with access to around 9% of German households. As a result, it has a significantly smaller operational scale than most nationwide cable peers who benefit from larger footprints and sustained strong FCF. However, its market shares in those territories compare well with those of nationwide operators, while at end-2022 92% of its customers were tenants in apartments blocks with a typically superior efficiency profile. Unlike many of its cable peers (including those mentioned below), TC does not have any mobile operations and cannot offer bundled services. Cable companies VMED O2 UK Limited (BB-/Stable), UPC Holding BV (BB-/Negative) and Telenet Group Holding N.V (BB-/Stable) are rated 'BB-' due to lower leverage, solid financial profiles, and stronger market positions and FCF generation. VodafoneZiggo Group B.V. has a similar strong operating profile and slightly higher leverage, so is rated 'B+' with a Stable Outlook. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer - On average, double-digit declines of analogue TV revenue in 2024-2025 on the back of the new telecom law - High single-digit broadband revenue growth in 2023-2025 - EBITDA margin (after leases) gradually recovering to more than 34% in 2024-2025 from an estimated low of 30% in 2022 - Capex at more than 40% of revenue in 2023-2025 - Low cash tax payments at EUR3 million a year in 2023-2025 - Recurring one-off costs of EUR5 million, in turn reducing EBITDA - No acquisitions or divestments in 2023-2025 - No dividend payments to 2025 KEY RECOVERY RATING ASSUMPTIONS - The recovery analysis is performed for the existing debt structure. Its analysis assumes that TC would be considered a going concern (GC) in bankruptcy and that it would be reorganised rather than liquidated - A 10% administrative claim - Its GC EBITDA estimate of EUR120 million reflects Fitch's view of sustainable, post- reorganisation EBITDA upon which Fitch bases the valuation of the company. Fitch would expect a default to come from a liquidity shortage, heavier-than-currently envisaged revenue pressure on bulk TV customer migration, and/or capex overspend without a commensurate increase in broadband customers and revenue - An enterprise value (EV) multiple of 5.5x is used to calculate a post-reorganisation valuation and reflects a conservative mid-cycle multiple underlining the company's strategic challenges - Loans at operating subsidiaries of EUR3 million will have priority over senior secured instruments - Fitch estimates the total amount of secured debt for claims at EUR1,112 million, comprising EUR462 million of senior secured term loans and EUR650 million of secured notes - Fitch estimates expected recoveries for senior secured debt at 53% based on current metrics and assumptions. This results in the senior secured debt being rated at 'CCC+', one notch above the IDR, with a Recovery Rating of 'RR3'. RATING SENSITIVITIES Factors that could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Stronger liquidity and progress with addressing the short-term refinancing risk on terms that are not viewed as a DDE - Stabilisation of operating performance accompanied by stable subscriber metrics as well as EBITDA growth - EBITDA gross leverage sustainably below 8.0x Factors that could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: - Indication of debt restructuring on terms that would constitute a DDE - Ongoing pressure on liquidity and slow progress with debt refinancing LIQUIDITY AND DEBT STRUCTURE High Refinancing Risk: TC is facing high short-term bullet refinancing risk with nearly all its debt maturing by May 2025. Its EUR462 million term loan facility matures in October 2024, followed by EUR650 million in May 2025. ISSUER PROFILE TC is a cable operator in Germany with strong positions in the country's eastern regions. Overall, the company's network provides access to nearly 9% of German households. Its footprint is 3.2 million connected households with 2.0 million subscribers as of end-2Q23. 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 ----------- ------ -------- ----- Tele Columbus AG LT IDR CCC Downgrade B- senior secured LT CCC+ Downgrade RR3 B ============= I R E L A N D ============= FINANCE IRELAND 6: S&P Assigns BB+(sf) Rating on Cl. E Notes ------------------------------------------------------------ S&P Global Ratings assigned credit ratings to Finance Ireland RMBS No. 6 DAC's class A notes and class B-Dfrd to E-Dfrd notes. At closing, the issuer also issued unrated class X-Dfrd, Y, Z-Dfrd, R1, and R2 notes. Finance Ireland RMBS No. 6 is a static RMBS transaction that securitizes a portfolio of EUR240.85 million owner-occupied mortgage loans secured on properties in Ireland. This transaction is similar to its predecessor, Finance Ireland RMBS No. 5 DAC. The loans in the pool were originated between 2016 and 2023 by Finance Ireland Credit Solutions DAC (Finance Ireland) and Pepper Finance Corp. (Ireland) DAC (Pepper). Finance Ireland is a nonbank specialist lender, which purchased Pepper's residential mortgage business in 2018. The pool comprises warehoused loans newly originated by Finance Ireland (41.76%) and loans that were previously a part of the Finance Ireland RMBS No. 2 DAC transaction (58.24%). The collateral comprises prime borrowers, and there is a high exposure to first-time buyers. All of the loans were originated relatively recently and thus under the Central Bank of Ireland's mortgage lending rules limiting leverage and affordability. The transaction benefits from liquidity provided by a general reserve fund, and in the case of the class A notes, a class A liquidity reserve fund. Principal can be used to pay senior fees and interest on the notes subject to various conditions. Credit enhancement for the rated notes consists of subordination and the general reserve fund from the closing date. The class A liquidity reserve can also ultimately provide additional enhancement subject to certain conditions. The transaction incorporates a swap to hedge the mismatch between the notes, which pay a coupon based on the three-month Euro Interbank Offered Rate, and the loans, which pay fixed-rate interest before reversion. The notes were issued on the closing date, Sept. 22, 2023, with the assets to be purchased on Sept. 25, 2023. In the interim days, the proceeds of the notes are held in cash with the issuer account bank. If the asset sale does not occur, a mandatory redemption event will occur one week later. Furthermore, the redemption amount of the notes as mentioned above equals the issue price multiplied by the original note balance of each tranche. Please refer to our new issue report for more information. There are no rating constraints in the transaction under S&P's counterparty, operational risk, or structured finance sovereign risk criteria. S&P considers the issuer to be bankruptcy remote. Ratings CLASS RATING CLASS SIZE (EUR) A AAA (sf) 221,580,000 Y NR 5,000 B-Dfrd AA (sf) 7,820,000 C-Dfrd A (sf) 4,210,000 D-Dfrd BBB+ (sf) 3,010,000 E-Dfrd BB+ (sf) 2,400,000 Z-Dfrd NR 1,834,000 X-Dfrd NR 4,000,000 R1 NR 10,000 R2 NR 10,000 NR--Not rated. PHOENIX PARK: Fitch Affirms B+ Rating on Class E-R Notes -------------------------------------------------------- Fitch Ratings has revised the Outlook on Phoenix Park CLO DAC's class D-R and E-R notes to Negative from Stable. All notes have been affirmed. Entity/Debt Rating Prior ----------- ------ ----- Phoenix Park CLO DAC Class A-1A-R-R XS1890615013 LT AAAsf Affirmed AAAsf Class A-1B-R-R XS1892517340 LT AAAsf Affirmed AAAsf Class A-2A1-R-R XS1890615799 LT AA+sf Affirmed AA+sf Class A-2A2-R-R XS1892517936 LT AA+sf Affirmed AA+sf Class A-2B-R-R XS1890616334 LT AA+sf Affirmed AA+sf Class B-1-R-R XS1890616920 LT A+sf Affirmed A+sf Class B-2-R-R XS1892518587 LT A+sf Affirmed A+sf Class C-R XS1890618462 LT BBB+sf Affirmed BBB+sf Class D-R XS1890617811 LT BB+sf Affirmed BB+sf Class E-R XS1890618033 LT B+sf Affirmed B+sf TRANSACTION SUMMARY Phoenix Park CLO DAC is a cash flow CLO mostly comprising senior secured obligations. The transaction exited its reinvestment period in April 2023 and the portfolio is managed by Blackstone Ireland Limited. KEY RATING DRIVERS Par Erosion; Heightened Refinancing Risk: Since Fitch's last rating action in September 2022, the portfolio has seen erosion of approximately 1% of target par as calculated by Fitch (i.e. target par balance at closing minus note amortisation). As per the last trustee report on 10 August 2023, the transaction was below target par by 1.04% as calculated by Fitch, compared with 0.05% above par as of last review as calculated by Fitch. Reported defaults stand at EUR2.1 million, or 0.52% of the target par. The Negative Outlook on the class D-R and E-R notes reflects a moderate default rate cushion against credit quality deterioration in view of the heightened refinancing risk in the near and medium term, with approximately 3% of the portfolio maturing by 2024, and 11% in 2025. In Fitch's opinion, this may lead to further deterioration of the portfolio with an increase in defaults. The Negative Outlooks indicate potential downgrades but we expect the ratings to remain within the current category. Sufficient Cushion for Senior Notes: Although the par erosion has reduced the default rate cushion for all notes, the senior classes have retained sufficient buffer to support their current ratings and should be capable of withstanding further defaults in the portfolio. This supports the Stable Outlooks on the class A-1A-R-R to C-R notes. 'B'/'B-' Portfolio: Fitch assesses the average credit quality of the obligors at 'B'/'B-'. The Fitch-calculated weighted average rating factor (WARF) of the current portfolio is 24.81. For the portfolio including entities with Negative Outlook that are notched down one level as per our criteria, it was 26.52 as of 9 September 2023. High Recovery Expectations: Senior secured obligations comprise 98.03% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch-calculated weighted average recovery rate (WARR) of the current portfolio as reported by the trustee was 63.38%, based on outdated criteria. Under the current criteria, the Fitch-calculated WARR is 61.6%. Diversified Portfolio: The top 10 obligor concentration as calculated by the trustee is 15.35%, which is below the limit of 20%, and the largest issuer represents 2.03% of the portfolio balance. Deviation from MIR: The 'AA+sf' ratings on the class A-2A1-R-R, A-2A2-R-R and A-2B-R-R notes are a deviation from their model-implied ratings (MIR) of 'AAAsf'. The deviation reflects the agency's view that the default rate cushion is not commensurate with an upgrade to the MIRs, considering the heightened macroeconomic risk and limited deleveraging prospects due to the limited scheduled maturity by 2024. Transaction Outside Reinvestment Period: Although the transaction exited its reinvestment period in April 2023, the manager can reinvest unscheduled principal proceeds and sale proceeds from credit-risk obligations post the reinvestment period subject to compliance with the reinvestment criteria. 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 analysed the matrix with a 5% fixed rate limit, which is currently used by the manager. Fitch also applied a haircut of 1.5% to the WARR as the calculation of the WARR in the transaction documentation is not in line with the agency's current CLO Criteria. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade An increase of the default rate (RDR) at all rating levels in the current portfolio by 25% of the mean RDR and a decrease of the recovery rate (RRR) by 25% at all rating levels would have no impact on the class A-1A to B-2 notes, lead to a downgrade of two notches for the class C notes, three notches for the class D notes and to below 'B-sf' for the class F notes. Downgrades may occur if the build-up of the notes' credit enhancement following amortisation does not compensate for a larger loss expectation than initially assumed due to unexpectedly high levels of defaults and portfolio deterioration. Due to the better metrics and shorter life of the current portfolio than the Fitch-stressed portfolio as well as the MIR deviation, the 'AA+sf' notes display a rating cushion of one notch. There is no rating cushion for the other classes. 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 two notches for the class A-2 and B notes, three notches for the class C and D notes, to below 'B-sf' for the class E notes and would have no impact on the class A-1 notes. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A reduction of the RDR at all rating levels in the stressed portfolio by 25% of the mean RDR and an increase in the RRR by 25% at all rating levels would result in upgrades of up to three notches for all notes, except for the 'AAAsf' notes and the class B-1-R-R and B-2-R-R notes. Further upgrades may occur if the portfolio's quality remains stable and the notes start to amortise, leading to higher credit enhancement across the structure. DATA ADEQUACY Phoenix Park CLO 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. ========= I T A L Y ========= ASSICURAZIONI GENERALI: Egan-Jones Retains BB Sr. Unsec. Ratings ---------------------------------------------------------------- Egan-Jones Ratings Company on September 21, 2023, maintained its 'BB' foreign currency and local currency senior unsecured ratings on debt issued by Assicurazioni Generali S.p.A. Headquartered in Trieste, Italy, Assicurazioni Generali S.p.A. offers life and non-life insurance and reinsurance throughout the world. PIAGGIO & C: S&P Affirms 'BB-' ICR & Alters Outlook to Positive --------------------------------------------------------------- S&P Global Ratings revised its outlook on Piaggio & C. SpA to positive from stable and affirmed its 'BB-' issuer credit and issue ratings on the company. In addition, S&P assigned its 'BB-' issue rating to Piaggio's proposed EUR250 million senior unsecured notes due 2030, whose proceeds are earmarked to repay the EUR250 million senior unsecured notes due April 2025. The positive outlook indicates the potential for an upgrade over the next 6-12 months if the company builds a track record of S&P Global Ratings-adjusted FFO to debt sustainably above 30%, FOCF to debt sustainably higher than 10%, and positive discretionary cash flow (DCF). The outlook revision reflects the expected improvement in Piaggio's operating performance and our belief that the company could retain credit metrics commensurate with a higher rating. S&P expects the resiliency of demand, as well as the increase in revenue per unit will continue to drive Piaggio's organic revenue growth of about 4%-5% per year. Furthermore, S&P believes the company will continue to exploit productivity measures and focus on high-margins products, mainly motorcycles, reaching S&P Global Ratings-adjusted EBITDA margins of 13.4% in 2023 and 13.7% in 2024 (compared with 12.3% in 2022 and 11.9% in 2021). The improvement in profitability, coupled with a working capital release in 2023 and moderate needs in 2024, and S&P Global Ratings-adjusted capital expenditure (capex) on average at 5% of revenues, should allow the company to start generating S&P Global Ratings-adjusted FOCF of about EUR75 million-EUR80 million in 2023-2024. This level of cash could be enough to remunerate shareholders while retaining credit metrics in line with a higher rating. The proposed issuance will extend Piaggio's debt maturity profile. On Sept. 25, Piaggio announced the launch of EUR250 million senior unsecured notes due 2030, whose proceeds will be used to fully redeem at par the outstanding EUR250 million senior unsecured notes due April 2025. S&P understand sthe company will use about EUR5 million of cash on hand to pay transaction-related fees and expenses. At the same time, the group is in the process of refinancing its existing EUR200 million revolving credit facility (RCF) due January 2025. All in all, the combination of the two transactions will materially improve Piaggio's debt maturity profile. Although Piaggio is committed to deleverage via EBITDA expansion and debt reduction, it does not have a stated net debt target and this compares unfavorably with peers in the 'BB' category. That said, in S&P's base-case scenario, it does not anticipate, for the time being, risks to leverage deriving from shareholder remuneration. S&P estimates the dividend will remain stable at EUR80 million per year, corresponding to a payout ratio of about 80%-90% in 2023-2024 (89% in 2022). Outlook The positive outlook reflects the likelihood that S&P could upgrade Piaggio by one notch within the next 6-12 months. Downside scenario S&P said, "We could revise the outlook to stable if Piaggio experiences prolonged weak demand or profitability deterioration such that FFO to debt fails to remain above 30% or FOCF to debt falls below 10%. Alternatively, we could revise the outlook to stable if Piaggio were to adopt a more aggressive shareholder remuneration policy than anticipated. In addition, failure of the refinancing would put immediate pressure on the rating." Upside scenario S&P said, "We could upgrade Piaggio if the company succeeds in keeping FFO to debt sustainably above 30% in 2023 and 2024 in a potentially weaker market environment. We would expect Piaggio to generate FOCF-to-debt metrics exceeding 10% while keeping DCF positive. An upgrade would also be conditioned on the company's commitment to sustain credit ratios commensurate with a 'BB' rating." Environmental, Social, And Governance S&P said, "Environmental credit factors are a moderately negative consideration in our rating analysis on Piaggio & C. SpA, as we believe the two-wheeler and light commercial vehicle manufacturer may face pressure to transition to zero emission vehicles, resulting in increased investment needs and uncertainty on profit margins. In 2021, Piaggio set up its eMobility department, dedicated to the development of electric vehicles and components for Electric Mobility. The company now sells both two-wheel and three-wheel electric vehicles, such as the Piaggio 1, the Vespa Elettrica, and the Ape e-City. We expect it will expand its range of zero-emission vehicles in the coming years." Following the recent death of Roberto Colaninno, chairman and CEO of the Piaggio Group, on Sept. 1, 2023, the company announced a new governance structure. Director Matteo Colaninno, former vice-chairman of the group, was appointed as executive chair, while director Michele Colaninno, who was already chief executive of global strategy, product, marketing and innovation, was nominated as CEO. The company will continue to be controlled by the Italian holding company of the Colaninno family, Immsi Spa (50.07%). S&P believes the changes made in governance will support business continuity. ========= M A L T A ========= FIMBANK PLC: Fitch Affirms 'B' LongTerm IDR, Outlook Stable ----------------------------------------------------------- Fitch Ratings has affirmed FIMBank p.l.c.'s (FIM) Long-Term Issuer Default Rating (IDR) at 'B' with a Stable Outlook and Viability Rating (VR) at 'b'. KEY RATING DRIVERS Weak but Improved Financial Performance: FIM's ratings reflect high pressures on its business model from weak asset quality and profitability, despite gradual progress with its de-risking strategy, and risks to capitalisation from weak internal capital generation. 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 Model Realignment: FIM's strategy aims to continue its balance-sheet de-risking while reducing the complexity of its organisational structure, which led to the closure of the its operation in Greece and Chile. Freed capital will be deployed to growth, notably in the Maltese corporate segment. Coupled with the execution of the de-risking plan, Fitch expects this to lead to improved performance in the coming years, also leveraging on FIM's expertise and geographically-diversified business scope. Risk Standards Tightened: Over the past three years, FIM has tightened its underwriting standards by reducing country and client limits, exiting weaker credits and some riskier geographies. FIM's new underwriting focuses on smaller-ticket lending across its franchise, including a more recent strategic focus on Maltese businesses, to stabilise returns while reducing borrower concentration. Progress on De-risking: Asset quality remains a rating weakness due to high concentration risks and legacy impaired loans, despite recent improvements. Over the past three years, the bank reduced its stock of impaired loans through recoveries and write-offs, while new business did not generate new inflows of impaired loan. Despite this progress, FIM's non-performing assets (NPA) ratio, which Fitch calculates including on-and off-balance sheet credit exposures, remains high relative to Fitch-rated European trade finance banks, at about 10% at end-2022. The risk of further deterioration in asset quality is moderate, given the expected global trade slowdown in 2023 and FIM's credit risk should remain manageable unless there are unexpected large defaults. Fitch's view takes also into account that the strengthened risk control framework will help the bank maintain an adequate control over new impaired exposures inflow. Return to Operating Profit: FIM reported an operating profit in 1H23, after three years of consecutive losses due to impairments of legacy exposures in the context of its de-risking plan. Fitch expects the bank's profitability to be marginally positive in 2023 and 2024, but for it to remain weak as the internal reorganisation will take time to translate into higher revenue generation and business volumes will grow gradually. FIM's ability to absorb unexpected credit losses remains weak, especially considering the high loan concentration by borrower. Capital Buffers to Shrink: Capitalisation is not commensurate with risks and highly vulnerable given FIM's exposure to emerging markets, high borrower concentrations relative to its small capital base and still sizeable stock of NPA. In 1H23, FIM's capital ratios improved by over 100bp compared with end-2022 due to a combination of organic capital generation and lower risk-weighted assets (RWA). However, the buffer on total capital requirement declined to about 270bp due to additional regulatory capital charges. Fitch expects capital buffers to further reduce in 2024 as additional charges will be introduced. Generally Stable Funding Profile: FIM is primarily funded by customer deposits, which accounted for an average two-thirds of total funding over the past five years, helping maintain adequate liquidity. A large part of FIM's deposits is sourced from other EU countries via third-party internet platforms, which make them price-sensitive and potentially less stable. However, they have remained broadly stable in recent years, including since the start of monetary tightening and rising interest rates. The short-term nature of FIM's balance sheet, reflecting the bank's trade-finance focus, underpins the bank's liquidity. 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 significant capital erosion. The ratings could be downgraded if capital buffers shrink resulting in a common equity Tier 1 ratio falling below 17% and the NPA ratio deteriorates significantly above 10% with no clear visibility to reversing the trend. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade An upgrade would require an improvement of our assessment of asset quality and earnings and profitability, while maintaining adequate capital buffers and a stable funding profile. This would result from a meaningful and sustained improvement of operating profitability (i.e. operating profit sustainably towards 1% of RWA) and the NPA ratio falling below 5% in the medium term on a sustained basis. No Support: FIM'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 of 'bb+' is below the 'bbb' category implied score due to the following adjustment reason: international operations (negative). The capitalisation and leverage score of 'b' is below the 'bb' category implied score due to the following adjustment reasons: size of capital base (negative) and internal capital generation and growth (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, either due to their nature or the way in which they are being managed by the entity. Entity/Debt Rating Prior ----------- ------ ----- FIMBank p.l.c. LT IDR B Affirmed B ST IDR B Affirmed B Viability b Affirmed b Government Support ns Affirmed ns ========= S P A I N ========= SABADELL CONSUMER 1: Fitch Gives Final BB+(EXP) Rating on D Notes ----------------------------------------------------------------- Fitch Ratings has assigned Sabadell Consumer Finance Autos 1, FT expected ratings. The assignment of final ratings is contingent on the receipt of final documents conforming to information already received. Entity/Debt Rating ----------- ------ Sabadell Consumer Finance Autos 1, FT Class A ES0305723001 LT AA(EXP)sf Expected Rating Class B ES0305723019 LT A(EXP)sf Expected Rating Class C ES0305723027 LT BBB+(EXP)sf Expected Rating Class D ES0305723035 LT BB+(EXP)sf Expected Rating Class E ES0305723043 LT NR(EXP)sf Expected Rating Class F ES0305723050 LT NR(EXP)sf Expected Rating TRANSACTION SUMMARY This is the first transaction originated by Sabadell Consumer Finance S.A.U. (SCF) backed by a static portfolio of fully amortising auto loans originated in Spain. KEY RATING DRIVERS Eligibility Criteria Limit Default Risk: Fitch has assumed a default base case of 4% for the pool. Only loans that have at least 13 months of seasoning and 10 instalments already paid are eligible. Although SCF focuses mostly on used vehicle financing, Fitch believes this is partially offset by the positive selection coming from the eligibility criteria. Fitch factored this into the assumptions, alongside our forward-looking view for the sector. Robust Recovery Performance: Fitch has assumed a recovery base case of 55% for new vehicles and 50% for used vehicles. Historical data show substantial and consistent recoveries for both types of vehicles, driven by the fact the loans are secured by the financed vehicles. Fitch applied a recovery haircut of 40% at 'AA'. Pro-Rata Amortisation: The class A to E notes will be repaid pro rata after the closing date until the occurrence of a sequential amortisation event. In its base case, Fitch believes the switch to sequential amortisation is unlikely during the first years after closing, given the portfolio performance expectations compared with defined triggers. This has been reflected in the default stress multiples. Interest Rate Risk Mitigated: The transaction benefits from an interest rate swap agreement that adequately hedges the interest rate mismatch arising from the assets paying a fixed interest rate and the class A to E notes paying floating rate. Payment Interruption Risk Mitigated (Criteria Variation): We view payment interruption risk (PIR) as mitigated by the cash reserve equal to 1.2% of the class A to E notes' outstanding balance, which would cover senior costs and interest on the notes for more than two months, which we view as sufficient to implement alternative arrangements upon Banco de Sabadell, S.A. (BBB-/Positive) losing its 'BBB-' rating of instead of the 'BBB' envisaged by Fitch's Structured Finance and Covered Bonds Counterparty Rating Criteria. This represents a criteria variation and has a positive impact on the class A notes of two notches. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Long-term asset performance deterioration such as increased delinquencies or reduced portfolio yield. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - Better asset performance than expected driven by lower delinquencies and higher recoveries. - Increasing credit enhancement ratios, as the transaction deleverages to fully compensate for the credit losses and cash flow stresses commensurate with higher rating scenarios, may lead to upgrades. CRITERIA VARIATION Sabadell Consumer Finance Autos 1, FT PIR risk analysis has been analysed separately given remedial actions that are not fully in line with Fitch's Structured Finance and Covered Bonds Counterparty Criteria. The transaction holds two months of liquidity to cover senior fees, net swap payments and interest payments on the notes, with remedial actions, including funding of additional liquidity, upon Banco de Sabadell losing either a 'BBB-' Long-Term IDR or 75% ownership of SCF. Fitch's criteria specifies at least one month of liquidity with remedial actions set at the loss of 'BBB' and'F2' ratings. Fitch considers the additional liquidity provided in the transaction (two months compared with one month in the criteria) sufficiently compensates the additional risk from remedial actions being established one notch lower than our criteria. This criteria variation has a positive impact on the class A notes of two notches. DATA ADEQUACY Sabadell Consumer Finance Autos 1, FT 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. Fitch conducted a review of a small targeted sample of the originator's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio. 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. 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. =========== T U R K E Y =========== ANADOLU SIGORTA: Fitch Alters Outlook on 'B+' IFS Rating to Stable ------------------------------------------------------------------ Fitch Ratings has revised the Outlook on Anadolu Anonim Turk Sigorta Sirketi's (Anadolu Sigorta) Insurer Financial Strength (IFS) Rating to Stable from Negative, and affirmed the rating at 'B+'. The revision of the Outlook follows the revision of the Outlook on Turkiye's sovereign rating to Stable from Negative on September 8, 2023. The sovereign rating and Outlook affect its assessment of the operating environment where the insurer operates and the credit quality of its investment portfolio. The affirmation reflects Anadolu Sigorta's 'Most Favourable' business profile in Turkiye relative to other insurers, high asset risk driven by its substantial exposure to Turkish assets, as well as adequate but pressured capitalisation and profitability. KEY RATING DRIVERS Leading Turkish Insurer: Fitch views Anadolu Sigorta's business profile as 'Most Favourable', as measured against other Turkish insurers, supported by the company's very strong position in the country's highly competitive insurance sector. Anadolu Sigorta was the second-largest non-life insurer in Turkiye at end-2022, with a market share of about 12%. Fitch expects the strong business profile to support the resilience of Anadolu Sigorta's credit profile against the challenges posed by the Turkish economy. Substantial Exposure to Turkish Assets: Anadolu Sigorta is highly exposed to domestic assets. Its investment portfolio largely comprised deposits in Turkish banks and Turkish government and local issuers bonds at end-1H23. The company's credit quality is therefore highly correlated with that of Turkish banks and the sovereign. Asset risk remains the main rating weakness. Capitalisation to Marginally Improve: The company's capitalisation, as measured by Fitch's Prism Factor-Based Capital Model, was 'Somewhat Weak' at end-2022, down from 'Adequate' at end-2021, due to increased net premiums and reserves as a reflection of the highly inflationary environment. Fitch expects Anadolu Sigorta's Prism FBM score to improve to the high end of the 'Somewhat Weak' or 'Adequate' category in 2023, given higher earnings and a better equity position due to higher retained earnings at end-2023. Anadolu Sigorta's regulatory solvency ratio was comfortably above 100% at end-2022 and at end-1H23. Weak Underwriting Profitability: Anadolu Sigorta's profitability is weak and under pressure from the very challenging operating environment. The reported combined ratio slightly improved to 121% in 1H23 (1H22: 128%) despite the poor motor third-party (MTPL) performance, as other lines improved their performance due to higher tariffs implemented in 2022. However, it remains unprofitable. Anadolu Sigorta's earnings have been resilient with reported net income of TRY2,910 million in 1H23 (1H22: TRY376 million). As in previous years, this was supported by the investment result as the underwriting performance remained loss-making. Fitch expects Anadolu Sigorta to report a positive net result in 2023 but for underwriting to continue making heavy losses. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - A downgrade of Turkiye's Long-Term Local-Currency Issuer Default Rating (IDR) or major Turkish banks' ratings, leading to a material deterioration in the company's investment quality. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - An upgrade of Turkiye's Long-Term Local-Currency IDR or major Turkish banks' ratings leading to a material improvement in the company's investment credit quality could lead to an upgrade. 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 Prior ----------- ------ ----- Anadolu Anonim Turk Sigorta Sirketi LT IFS B+ Affirmed B+ KEW SODA: S&P Assigns Preliminary 'B+' ICR, Outlook Negative ------------------------------------------------------------ S&P Global Ratings assigned its preliminary 'B+' issuer credit rating to WE Soda's intermediate parent company, Kew Soda Ltd., and its preliminary 'B+' issue rating to the senior secured notes due 2028 to be issued by WE Soda Investments Holding plc. The negative outlook on the preliminary long-term rating on Kew Soda mirrors that on the sovereign rating on Turkiye, which reflects risks to Turkiye's creditworthiness from untenable monetary, financial, and economic policy settings, as well as increasing contingent liabilities from state banks and public enterprises. Sodium carbonate (soda ash) and sodium bicarbonate producer West East Soda (WE Soda) plans to raise $750 million of senior secured notes to refinance its existing capital structure. Soda ash producer West East Soda (WE Soda) is planning to refinance its capital structure. As part of the transaction, WE Soda plans to issue $750 million of senior secured notes. The funds will be used to pay down WE Soda's senior term loan A (TLA), and repay the $426 million Kazan Soda project finance facility due 2027, and Eti Soda's $107 million working capital facility, to simplify its capital structure. WE Soda's advantageous cost position helps it generate very high profitability and resilient earnings.The company is at the low end of the cost curve, due to a combination of low production costs and its proximity to key markets. WE Soda produces soda ash using the so-called natural process, which results in a structural cost advantage versus synthetic plants that are more expensive to operate, since they require several raw materials and consume more energy. In addition, the company extracts trona--the key raw material to produce soda ash naturally--using solution extraction, which further enhances its cost competitiveness due to lower labor and energy costs compared to the conventional mining used by North American producers. These factors explain WE Soda's very high S&P Global Ratings-adjusted EBITDA margins of 58% in 2021 and 47% in 2022, and provide clear cost advantages to the company. While natural soda ash plants are less expensive to operate, the process tends to have higher delivery costs given they are located close to trona deposits (found in Turkiye, mainland China, and the U.S.), which are not necessarily close to consumer markets. The strategic location of WE Soda's assets in Turkiye ensures relative proximity to key markets such as Europe, the Middle East, and Africa (EMEA; accounting for 73% of 2022 sales), and South America, which reduces shipping costs and positions it in the first quartile of the global soda ash producer cost curve. WE Soda benefits from an exclusive license to extract and process trona in Turkiye until 2043 for Eti Soda and 2045 for Kazan Soda, effectively covering the full operating life of the reserves. From a credit standpoint, the low-cost operations and shape of the global cost curve underpin the quality of earnings. This is based on the long tail of higher-cost producers, with synthetic plants accounting for approximately 75% of total supply, according to S&P Commodity Insights, a division of S&P Global, as is S&P Global Ratings. In turn, swings in end-market demand are unlikely to affect WE Soda's sales volumes since they will price out marginal suppliers first, alleviating demand and earnings volatility. The company's strong market positions in its key regions, and the disciplined nature of the soda ash market, are positive for our rating. WE Soda is No. 2 in its key European markets and No. 1 in South America. The global soda ash market is concentrated and disciplined, with the top-five producers accounting for about 75% of the European and Americas markets, which helps the company generate resilient profitability and cash flows. As such, the relatively small number of large producers ensures disciplined capacity additions that closely match demand and lead to high utilization rates of about 90% historically. This was evidenced, in our view, by WE Soda's capacity expansions from 1 million tons per annum (mtpa) in 2016 to 5 mtpa in 2022, without disrupting the pricing of soda ash in Europe. S&P regards this position as sustainable given high barriers to entry for new capacity, which include access to trona deposits, environmental restrictions, and sizable capital requirements. Moreover, capacity additions are visible given the long lead times required for the development of greenfield facilities--including construction, planning, and permitting--adding a degree of earnings predictability. S&P said, "We regard WE Soda's narrow geographical and product diversity as the main constraints for its credit profile. The company's production is currently concentrated at its two sites adjacent to the trona reserves in Eti and Kazan in Turkiye. Even though WE Soda has multiple production lines in each facility, lowering the risk of a disruption, the high geographical concentration affects the company's credit profile because it exposes it to event risks, including potential disruptions to transportation routes. We consider this risk as more pronounced given the limited storage capacity for soda ash (both at sites or in ports), which means that a prolonged disruption can lead to the suspension or disruption of production. WE Soda currently exports its products through the Derince port, near Istanbul, although we understand that management is looking to establish a presence in a second port to lower logistics risks. "We forecast adjusted leverage of 2.0x-2.2x in 2023, increasing modestly to about 2.4x in 2024.In our base case, operating cash flows and cash balance are sufficient to fund organic growth investments, dividends, and debt servicing. We project gross reported debt, pro forma the proposed notes, at about $1.75 billion, including debt adjustments of about $100 million. We project WE Soda's debt to EBITDA will remain 2.0x-2.5x. This is based on our assumption that soda ash prices will moderate 5%-10% in 2023 and 2024 due to lower energy costs. Soda ash prices are typically negotiated in the final quarter of each calendar year and agreed on a one-year forward basis. We estimate that adjusted EBITDA will stay broadly flat in 2023 at $820 million-$830 million, from $834 million in 2022, before reducing to $740 million-$750 million in 2024. "We forecast the company will distribute free operating cash flow (FOCF) after growth opportunities without jeopardizing the rating. Specifically, we factor in distributions to shareholders of about $500 million in 2023 and $400 million in 2024 that, while high, will not deteriorate credit metrics because these are broadly in line with our estimates for FOCF. These include $460 million-$480 million in 2023 and $370 million-$400 million in 2024. At the same time, we note management's target of maintaining net leverage (as defined by management) at 1.5x-2.5x and understand that dividend distributions are flexible, which in conjunction with good visibility of earnings and soda ash prices allows the company to reduce payouts, if needed. "Our EBITDA calculation includes items such as restructuring costs. We do not deduct cash from debt in our calculation, and we adjust debt for items like lease liabilities, net pension obligations, asset retirement obligations, and the drawn portion of committed receivable financing facilities. "The company's ratios are solid for the 'bb' SACP. We estimate that, all else being equal, EBITDA would need to decline approximately $150 million-$170 million versus our base-case scenario in 2024 to push WE Soda's leverage above 3.0x. "WE Soda passes our sovereign stress test, but the 'B+' rating is constrained by its geographical asset concentration. Passing the test, which includes both economic stress and a potential currency devaluation, enables us to rate the company one notch above the unsolicited 'B' long-term sovereign foreign currency rating on Turkiye (see "General Criteria: Ratings Above The Sovereign--Corporate And Government Ratings: Methodology And Assumptions," published Nov. 19, 2013, on RatingsDirect). "WE Soda passes our stress test because of its export-oriented business (about 80% of total revenues in 2022), corresponding to virtually all of its earnings being in hard currency, and sizable cash holdings in offshore accounts. Our rating on WE Soda is capped at one notch above the foreign currency sovereign credit rating on Turkiye, since virtually all the group's physical assets are located in the country, and its operations can be significantly affected by decisions beyond its control, like government-imposed export restrictions." The negative outlook mirrors that on the sovereign rating on Turkiye. Although the group has passed our stress test for a foreign currency sovereign default, the preliminary long-term issuer credit rating is capped at one notch above the foreign currency sovereign credit rating on Turkiye (unsolicited B/Negative/B). This is because virtually all the group's physical assets are in the country, and its operations can be significantly affected by decisions beyond its control. S&P said, "We expect that, on a stand-alone basis, WE Soda will maintain credit ratios that are strong for the rating. In our base-case scenario, we anticipate S&P Global Ratings-adjusted debt to EBITDA of 2.0x-2.2x in 2023, which we view as healthy given the 2.0x-3.0x adjusted leverage range we consider commensurate with the 'bb' SACP. We expect adjusted debt to EBITDA to increase to about 2.4x in 2024 due to lower soda ash prices. We also consider FOCF to debt, which we expect to decrease to 27%-28% in 2023 and 22%-23% in 2024, from about 39% in 2022, due to increasing capital allocation toward growth initiatives. However, we anticipate it will remain within the 15%-25% we view as commensurate with the SACP. We expect management will support credit metrics at these levels, given its commitment to maintaining reported net debt to EBITDA (as calculated by management) between 1.5x-2.5x. "We would lower the rating on WE Soda if we take the same action on the foreign currency sovereign rating on Turkey and this translates into a weaker T&C assessment, or if WE Soda's export revenue and liquidity position in offshore accounts deteriorate, so that it no longer passes our T&C stress test. "We could also revise down the SACP on WE Soda if we observe a marked deterioration in its operating performance, such that adjusted debt to EBITDA exceeds 3.0x and FOCF to debt declines below 15% without clear prospects of recovery. This could occur if we observe a sharp and prolonged deterioration in soda ash prices due to a less-than-supportive market environment. "We could revise the outlook to stable following a similar action on Turkiye. "Environmental factors are an overall neutral consideration in our credit rating analysis of WE Soda. The company's business risk benefits from a smaller environmental footprint relative to other soda ash producers. This is because its solution extraction production method has lower energy and water intensity when compared to the synthetic method and the natural process utilizing conventional mining, resulting in lower carbon dioxide (CO2) emissions. For example, in 2022 the company's scope 1 and 2 CO2-equivalent emissions intensity was 0.343 per metric ton of product, which is less than half that of the top 10% of European synthetic producers. In S&P's view, this supports demand for its products, leading to stable volumes and more predictable earnings, along with the potential to improve margins over time. Notably, the increasing cost of carbon disproportionally affects synthetic producers that set the reference price for soda ash in the important European market. In 2022, WE Soda announced its plan to target carbon neutrality for scope 1 and 2 CO2 emissions by 2050 and committed to reduce its emissions 20% within five years and 40% within 10 years, relative to a 2022 baseline. To achieve this, WE Soda is installing 10 megawatts (MW) of solar photovoltaic (PV) capacity at its facilities in Kazan and Eti by year-end 2023, with a further up to 100 MW of PV solar and over 100 MW of wind power to be delivered by 2027. S&P estimates the funding needs for these projects at $200 million‐$250 million, which we view as manageable. As a comparison point, another large publicly rated soda ash producer, Solvay, has committed to net zero on scope 1 and 2 by 2050 for its soda ash and derivative business, which requires investment of approximately EUR1 billion, including the development of a new soda ash production process. Governance factors are a moderately negative consideration because of the entrepreneurial ownership. Mr. Turgay Ciner ultimately owns the group. Decision-making can therefore be centralized, with most of the board consisting of connected directors. TURK P&I: Fitch Alters Outlook on 'B' IFS Rating to Stable ---------------------------------------------------------- Fitch Ratings has revised the Outlook on Turk P ve I Sigorta A.S.'s (Turk P&I) Insurer Financial Strength (IFS) Rating to Stable from Negative and affirmed the rating at 'B'. Fitch has also affirmed Turk P&I's National IFS Rating at 'A+(tur)' with a Stable Outlook. The revision of the Outlook follows the revision of the Outlook on Turkiye's sovereign rating Stable from Negative on September 8, 2023. The sovereign rating and Outlook weigh on its assessment of industry profile and operating environment, company profile and investment risks. The affirmation of the IFS Rating reflects Turk P&I's 'Moderate' company profile compared with other Turkish insurers, investment risks skewed towards the Turkish banking sector, and exposure to the Turkish economy, in line with the rest of the market. The rating also reflects Turk P&I's strong earnings and weakened capitalisation. Given that the majority of Turk P&I's liabilities are in foreign currencies, its IFS Rating is constrained by Turkiye's 'B' Country Ceiling to account for transfer and convertibility risk. KEY RATING DRIVERS Country Ceiling Constrains Rating: Turk P&I's IFS Rating is capped at Turkiye's Country Ceiling of 'B' because the company predominantly settles its liabilities in foreign currency. This results in transfer and convertibility risk - the risk that the Turkish government may place restrictions on the ability of Turk P&I to obtain foreign currency. Turkish Marine Specialist: Fitch assesses Turk P&I based on the insurer's Standalone Credit Profile, but also considers its ownership structure, which is equally divided between public and private interests. Fitch believes the company's ownership and its strategic role in the Turkish economy are supportive of its credit profile. Turk P&I was Turkiye's first protection and indemnity (P&I) insurance provider and also underwrites hull and machinery insurance, which accounted for 67% of net premiums in 1H23. 'Moderate' Business Profile: Fitch ranks Turk P&I's business profile as 'Moderate' compared with Turkish peers, despite its small size, limited history and less established business lines. This is because its increasing international diversification, in addition to its ownership and strategic role in Turkiye, benefits the business profile. Turk P&I's business volumes should continue to grow strongly in 2023-2024, supported by new local laws, such as compulsory insurance for tourist boats, as well as strong development of the international business. Weakened Capitalisation: The company's capitalisation, as measured by Fitch's Prism Factor-Based Model (Prism FBM) score based on end-2022 data, deteriorated to 'Somewhat Weak' from 'Adequate' at end-2021. Turk P&I's regulatory solvency ratio also weakened to 72% at 1H23 from 90% at end-2022. This was driven by a strong increase in net premiums, while equity increased more slowly. Fitch expects the regulatory solvency ratio to be restored to over 100% by end-2023 through an increase in paid-in capital approved by the shareholders. High Exposure to Banking System: Turk P&I's balance sheet comprises deposits at Turkish banks, with some concentration on a single state-owned bank as well as bonds issued by the government and domestic banks. This indicates high exposure to the banking sector in Turkiye, in line with the rest of the Turkish insurance market. Strong Earnings: The company's earnings have been strong over the past five years and Fitch views financial performance and earnings as a rating strength. For 8M23, it reported net income of TRY96 million (8M22: TRY12 million), equivalent to net income return on equity of 51%. Turk P&I's profitability is highly influenced by foreign-exchange results. In 8M23, Turk P&I's underwriting performance slightly deteriorated but remained strong, as reflected in a gross combined ratio on a US dollar basis of 94% (2022: 82%) due to inflation impacting claims costs and a few larger claims due to international expansion. Turk P&I has been taking actions to mitigate these increases in claims costs and has seen an improvement in the combined ratio in the last few months. Turk P&I receives most of its premium income and pays most of its claims in foreign currency. Business Profile Constrains National Rating: The National IFS rating of 'A+(tur)'/Stable reflects Turk P&I's strong earnings but its weak business profile, mainly due to its size and scale compared with peers, constrains the rating. RATING SENSITIVITIES IFS Rating: Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: - A downgrade of Turkiye's Country Ceiling - Business-risk profile deterioration due to, for example, a sharp deterioration in the maritime trade environment Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: - An upgrade of Turkiye's Country Ceiling National IFS Rating Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: - Business profile deterioration - Regulatory solvency ratio below 100% for a sustained period Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: - Sustained profitable growth with a regulatory solvency ratio comfortably above 100% 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 Prior ----------- ------ ----- Turk P ve I Sigorta A.S. LT IFS B Affirmed B Natl LT IFS A+(tur) Affirmed A+(tur) =========================== U N I T E D K I N G D O M =========================== ADVANCED AGENTS: Enters Liquidation with Deficiency of GBP3MM ------------------------------------------------------------- Property Eye Industry reports that a company that promoted itself as offering "Hassle-free property sales" has gone into liquidation with an overall deficiency of just over GBP3 million, GBP2.9 million being in its Share Premium Account. Advanced Agents Ltd, which traded as Movewise, appointed a voluntary liquidator on Sept. 15, Property Eye Industry relates. There were two active directors: Tom George Hanning Scarborough and Nicholas Xavier Gwinnet Sharp. The liquidators are Asher Miller of Pearl Assurance House, 319 Ballards Lane, Finchley, London N12, Property Eye Industry discloses. ALLMA CONSTRUCTION: All Jobs Lost, Assets Put Up for Sale --------------------------------------------------------- Norman Silvester at Barrhead News reports that administrators for two failed Barrhead construction companies have confirmed that no jobs at either firm will be saved. Allma Construction and Centre Plant, based in the town's Muriel Street, went under last month, with blame being placed on cashflow problems and a downturn in the housebuilding industry, Barrhead News relates. Around 188 workers have now lost their jobs and will have to apply to the UK Government for redundancy payments, Barrhead News discloses. According to Barrhead News, a spokesman for administrators FRP Advisory said the next step involves putting the Barrhead offices up for sale. He added: "The joint administrators continue with the wind-down of both businesses. "The plant, machinery and moveable assets are currently being marketed for sale via specialist agents, whilst agents will shortly be appointed to market the property for sale. "Interested parties are being encouraged to register their interest with the Glasgow office of FRP Advisory as soon as possible." "With the exception of one member of staff, who is assisting the joint administrators, all employees have now left the business and have been offered full support with any claims they wish to make to the Redundancy Payments Office." Allma Construction had become an established supplier of specialist groundwork services to leading housebuilders since it was founded in 1991. Sister firm Centre Plant Ltd leased plant and machinery and provided haulage services. The companies had a combined turnover of GBP25 million, with most of the staff working for Allma, Barrhead News notes. AMIGO LOANS: Expects to Go Into Liquidation Within Few Months ------------------------------------------------------------- August Graham at Independent reports that guarantor lender Amigo said that it expects to go into liquidation within "the next few months," as the failed business continues to wind down its operations. According to Independent, the company said that it was progressing with the plans to ensure that it can pay back as much of the money it can. Bosses said they are still open to finding a buyer for the business, but if no-one comes forward "very soon," shareholders will be left with nothing, Independent relates. It would mark the end of a long-running saga of a lender which offered loans at very high interest rates, but was found to have mis-sold to many of its customers, Independent notes. When they demanded compensation, Amigo could not pay up, Independent recounts. After many attempts to find a way out that could keep its business going, Amigo finally in March said that it would liquidate the business, although always keeping the door open to potential investors, Independent relays. CM3: Goes Into Liquidation -------------------------- Andrew Arthur at BristolLive reports that a popular discount shop in Bristol that has been open for decades has announced its closure and been described as a "massive loss" for the community. South West chain CM3, which supplies partyware, gifts, cards and DIY products, has a number of stores in and around Bristol. The retailer had stores on Church Road in Redfield, Regent Street in Kingswood and High Street in Keynsham. As well as two Wiltshire stores in Calne and Melksham. According to BristolLive, in a post on its Facebook page on Sept. 20, the business announced "with regret" that it had gone into liquidation. ENDEAVOUR MINING: Fitch Affirms 'BB' LongTerm IDR, Outlook Stable ----------------------------------------------------------------- Fitch Ratings has affirmed Endeavour Mining plc's Long-Term Issuer Default Rating (IDR) at 'BB' with Stable Outlook. The IDR balances Endeavour's strong financial and business profiles with a weaker operating environment, the latter reflecting the group's focus on west African countries with diversification across Senegal, Burkina Faso and Cote d'Ivoire. The applicable Country Ceiling is Cote d'Ivoire's (BB). Endeavour's business and financial profiles otherwise compare favourably with higher-rated peers', given meaningful scale of production at 1.1 million ounces expected in 2023, a favourable position within the second quartile of the global cost curve, and a reserve life of over 12 years. It also has a conservative financial policy maintaining net debt/EBITDA at below 0.5x through the cycle. KEY RATING DRIVERS Divestments Strengthen Business Profile: Earlier this year Endeavour completed the sale of its higher- cost Boungou and Wahgnion mines, which were exposed to security risks in Burkina Faso. Its portfolio is now more geographically diversified, with the majority of production coming from Senegal and Cote d'Ivoire (BB-/Stable), where operations have lower all-in sustaining costs (AISC) in more stable operating environments. Fitch expects the loss in production to be partly offset from 2024 (and fully by 2025) by incremental volumes from Sabodala-Massawa expansion and Lafigue projects coming online. Cost Leader: Endeavour's guidance for AISC in 2023 fell USD45/oz to USD895-USD950/oz, following the divestments of Boungou and Wahgnion, both of which were in the third quartile of the global cost curve. Its average cost position has now shifted to a more favourable position in the second quartile of the global cost curve according to CRU, reinforcing its status as a cost leader among Fitch-rated gold peers. Fitch expects the expansion at Sabodala-Massawa to further reduce cost in 2024, as economies of scale lift this mine into the first quartile. Favourable Gold Market: Fitch now forecasts Endeavour's Fitch-adjusted EBITDA to be slightly above USD1 billion in 2023 and 2024 on stronger pricing environment, but expect free cash flow (FCF) to turn negative amid significant cash outlays for growth and shareholder returns. Conservative Financial Profile: Fitch expects Endeavour to switch to a net debt position of around USD200 million at end-2023, amid higher capex (USD800 million) as growth projects progress, and rising shareholder returns (USD225 million of dividends and USD100 million in buybacks) assumed this year. Its rating case projects EBITDA gross leverage to not exceed 1.1x (0.5x on a net basis) to 2026. Endeavour's financial policy aims for net debt/EBITDA below 0.5x (as per company's definition), even in a lower gold price environment and during construction of new assets. Growth Projects Underway: Endeavour remains on track to delivering its key growth projects. Construction of its Sabodala-Massawa expansion began last year. The processing plant will add 90,000 oz output per year from 2Q24 at a capex of USD290 million (75% already committed). Construction at the greenfield Lafigue project commenced in 4Q22 and first gold is expected for 3Q24, with around 60% of the USD448 million capex already committed. Lafigue is expected to contribute up to 200,000 oz of additional volumes per year at an AISC of USD871/oz once at full run rate. Cote d'Ivoire Country Ceiling Applies: While a large proportion of earnings are still generated in Senegal and Burkina Faso (post-divestments), we apply Cote d'Ivoire's Country Ceiling in our analysis as Endeavour's EBITDA generated in Cote d'Ivoire covers hard-currency gross interest expense (on a forward-looking basis) at more than the required 1x or above under Fitch's Corporates Exceeding the Country Ceiling Rating Criteria. DERIVATION SUMMARY Endeavour is smaller at 1.06 million-1.14 million oz production guidance for 2023 than Kinross Gold Corporation (BBB/Stable) at 2.1 million gold-equivalent oz (combined gold and silver production) and AngloGold Ashanti Limited (AGA; BBB-/Negative) at 2.5 million oz. It also has a better cost position with AISC guidance for 2023 of USD895-USD950 per ounce versus Kinross's USD1,320 per ounce and AGA's USD1,450 per ounce and longer reserve life of over 12 years compared with nine years for Kinross and AGA. Endeavour has a more conservative capital structure, but faces higher country risk. The weak operating environment in west Africa, where all its assets are located, constrains the rating. In comparison, Kinross derives around 30% of production from Mauritania in west Africa, 30% from Brazil, 10% from Chile and 30% from the US, while AGA has over 50% of production based in Africa, 24% in South America and 22% in Australia. KEY ASSUMPTIONS - Gold prices in line with Fitch's price deck at USD1,900/oz in 2023, USD1,800/oz in 2024, USD1,600/oz in 2025 and USD1,500/oz in 2026 - Gold production of 1.1 million oz in 2023, increasing to 1.3 million oz over the medium term - AISC for 2023 in line with management guidance of USD895-USD950/oz and at or below USD950/oz over the medium term - Capex of USD800 million for 2023 and USD600 million in 2024 as growth projects are finalised, and USD350 million for 2025 and 2026 - Dividends of USD225 million in 2023, with further step-ups in the coming years linked to financial flexibility. The current dividend policy is based on gold prices at or above USD1,500/oz. Endeavour aims to maintain net debt/EBITDA as reported at or below 0.5x even during times of construction RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: - Additional diversification of geopolitical risks across countries in west Africa together with the majority of FCF coming from countries with a stronger operating environment - Ability to maintain reserve life above 10 years and AISC in the second quartile of the global cost curve - EBITDA gross leverage below 1.3x on a sustained basis - EBITDA interest coverage above 11.0x on a sustained basis - EBITDA margin above 40% and positive FCF on a sustained basis Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: - Negative rating action on Cote d'Ivoire's sovereign - EBITDA margin below 30% on a sustained basis - EBITDA gross leverage above 2.3x (or net leverage above 2.0x) on a sustained basis - EBITDA interest coverage below 9.0x on a sustained basis - Political risks, labour disputes or other operational disruptions hitting cash flow generation for an extended period - Sustained negative FCF due to dividends or share buybacks - Failure to address major refinancing needs at least nine months in advance LIQUIDITY AND DEBT STRUCTURE Adequate Liquidity: As of end-June 2023 Endeavour held USD845 million of cash and USD130 million of (undrawn) revolving credit facility commitments available until October 2025. In July it contracted a USD167 million term loan with local banks in west Africa to support the development of the Lafigue project in Cote d'Ivoire (amortisation from October 2024, with final maturity in July 2028). Mine Sales Boost Cash: The sale of the Boungou and Wahgnion mines provided USD133.1 million proceeds in July 2023, with additional deferred payments of USD10 million in 4Q23 and USD15 million in 1Q24 (additional contingent payments linked to FCF generation of the disposed assets may follow in 2024). Following settlement of its USD330 million convertible and a USD50 million deferred purchase payment (linked to the Massawa acquisition) in 1Q23, Endeavour has no short-term maturities. The business is funded until end-2025 based on Fitch's gold price assumptions. We expect Endeavour to refinance its RCF in 2024. ISSUER PROFILE Endeavour is a major international gold producer and the largest in west Africa, where all its operations and projects are located. SUMMARY OF FINANCIAL ADJUSTMENTS For December 2022 - Leases of USD47.1 million are excluded from the debt amount. Right-of-use asset depreciation of USD9.1 million and interest for leasing contracts of USD1.0 million are treated as operating expenditure, reducing EBITDA - Deferred financing fees of USD6.9 million are not deducted from gross debt - The USD500 million senior unsecured bond is reflected at face value, disregarding the issue premium. Under Fitch's criteria the debt should reflect the amount payable on maturity - The USD330 million convertible notes are included within gross debt at a value of USD334.3 million, including the option value and disregarding the issue premium. Endeavour settled the USD330 million nominal amount in cash and applicable option premium in equity on 15 February 2023 - The USD49.4 million contingent, deferred purchase consideration payable to Barrick Gold Corporation in March 2023 linked to the acquisition of Massawa (Jersey) Limited by Teranga, is added to the debt quantum 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 ----------- ------ -------- ----- Endeavour Mining plc LT IDR BB Affirmed BB senior unsecured LT BB Affirmed RR4 BB ENTAIN PLC: Fitch Affirms LongTerm IDR at 'BB', Outlook Stable -------------------------------------------------------------- Fitch Ratings has affirmed Entain plc's Long-Term Issuer Default Rating (IDR) at 'BB'. The Outlook on the IDR is Stable. Fitch has also affirmed the ratings for the senior secured debt issued by Entain and its subsidiaries - Entain Holdings (Gibraltar) Limited and GVC Finance LLC, at 'BB+' with a Recovery Rating of 'RR2'. Entain's IDR reflects a strong business profile with improving geographical diversification, consisting mainly of podium positions in the markets of presence, solid brand portfolio in sports betting and gaming in both retail and online channels. However, improvements in the business profile have been offset by pressure on the financial profile. In its forecasts, sound profitability is no longer expected to translate into strong free cash flow (FCF) margins due to higher interest rate pressure, forecast outflows for settlement payments and dividends. The Stable Outlook reflects its view that Entain has a moderate headroom for its rating. It also is based on its assumption that Entain will not engage in large, primarily debt-funded, M&A until 2026. A shareholder-friendly policy amid weaker performance, or higher-than-forecast regulatory pressure on the business, would be negative for the rating. KEY RATING DRIVERS HMRC Settlement to Slow Deleveraging: Fitch forecasts that GBP585 million provision created by Entain in relation to HM Revenue & Customs (HMRC) investigation, with settlement still subject to Court approval, will lead to an incremental cash outflow of about GBP150 million per year in 2024-2027. This will slightly slow down the deleveraging pace towards Entain's target leverage of 2.0x, taking into account its assumption of growth of recurring dividend payments to over GBP100 million a year from 2023 onwards. Fitch forecasts that Entain will still be adequately positioned below Fitch's negative EBITDAR net leverage sensitivity of 4.5x, with the ratio peaking at about 4.0x in 2023-2024 (2022: 3.4x). Acquisitive Financial Policy: Entain actively uses M&A to increase its geographic diversification or secure leading and podium positions in existing markets and enhance its product proposition. In a highly regulated industry such as gambling, acquisitions sometimes provide benefits relative to organic growth due to regulatory barriers for entry. Such barriers can be both direct (through licensing, concessions or outright granted monopoly) and indirect (through advertising restrictions for instance). While the company has also raised equity in 2023 to fund these, Fitch expects its debt position to grow to about GBP3.4 billion at end-2023 from GBP2.1 billion in 2020. Less Headroom for Debt-Funded M&A: Fitch estimates M&A-related cash outflows at slightly below GBP1.2 billion in 2023. Over 50% of this spending will have been funded by a GBP600 million equity placement completed in 1H23. The forecast incremental cash flow related to HMRC settlement and dividends, will leave neutral FCF under its rating case, so even the margin-accretive acquisitions of comparable scale in the next two-three years are likely to put pressure on the ratings if they are fully or mostly debt-funded. UK Gaming Act Review: Entain continued to optimise its online revenue structure in the UK through increased focus on recreational players, which were 95% as of 1H23. This is evidenced by a 2% decrease in net gaming revenues (NGR) against a 22% growth in active players. In its view, these actions can help reduce the potential impact of the new regulation and improve revenue visibility, but Fitch still incorporates a low-single digit annual decline for NGR in sports betting and medium single digit annual decline for gaming in the UK online market in 2024 and 2025. Fitch also conservatively assumes some adverse impact on profitability, albeit partially offset by the contribution of other markets, with EBITDAR margin forecast at a trough of 20.5% in 2024 (2022: 21.9%), followed by a recovery to 22.3% in 2026. Strong Business Profile: Entain is one of the world's leading gaming operators, albeit smaller than Flutter Entertainment plc (Flutter; BBB-/Stable). Entain benefits from its strong, geographically diversified portfolio of brands that provide betting and gaming services across over 30 regulated markets in Europe, the US, Latin America and Australia. Its retail presence in Europe, in particular in the UK, provides a competitive advantage against online-only operators by granting higher visibility to its online operations, which drive the growth of the business. Diversification Positive for Business: Increasing diversification into growing and regulating markets should help reduce reliance on and regulatory impact from Entain's main online markets - the UK, Australia and Italy, which contributed 53% of online revenue (excluding the US) in 1H23, down from 60% in 1H22. Fitch expects US operations to not require additional investments from Entain aside from USD75 million committed for 2023. Starting from 2025, Fitch forecasts that US operations could be in a position to provide dividend inflow to Entain, potentially boosting profitability margins by 50bp-100bp. Entain has an ESG Relevance Score of '4' for Customer Welfare - Fair Messaging, Privacy & Data Security due to increasing regulatory scrutiny on the sector, amid greater awareness around the social implications of gaming addiction and increasing focus on responsible gaming. This factor has a negative impact on the credit profile and is relevant to the rating in conjunction with other factors. DERIVATION SUMMARY Entain's business profile is strong for its rating, supported by its sound profitability and large scale. Its close peer Flutter is larger and better diversified than Entain, with a leading position in the US, lower exposure to the UK and wider business & customer segment diversification via higher exposure to peer-to-peer platforms, including poker and betting exchange, as well as the lottery. Its peer 888 Holdings PLC (888; BB-/Negative) similarly has strong brands and a retail presence in the UK (via acquired William Hill operations), but it has a smaller scale and slightly weaker diversification than Entain. Entain's expected EBITDAR margin at about 21% over the next two years is solid against 'BBB' midpoint - it is above 888's, but slightly below Flutter's, when deconsolidating its US operations for comparability purposes. Entain has weaker profitability than Allwyn International a.s. (BB-/Stable), and is more exposed to increasingly stringent regulation of sports betting and online betting, but has better diversification. Fitch expects Entain's leverage to remain higher, at about 4.0x EBITDAR net leverage, than that of Flutter, towards its conservative net debt/EBITDA target of 1.0x-2.0x. Entain's leverage is lower than for 888, with leverage high (slightly above 6.0x in 2023) post debt-funded acquisition of William Hill International, where Fitch expects deleveraging to 4.4x by 2026. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer: - Mid-single digit online revenue decline in the UK in 2024-2025, driven by the impact of UK Gaming Act review, offset by mid single digit growth in other markets - EBITDAR margin of 21% in 2022, a 90bp decline from 2022, gradually improving to about 22% by 2026 - US operations becoming profitable from 2024, dividends of GBP25 million up-streamed in 2025 and GBP50 million in 2026 - Neutral working capital to 2026 - Capex at about 5% from revenue to 2026 - Dividends of GBP107 million in 2023 increasing by 5% per year in 2024-2026 - Acquisition spend of GBP50 million per year The assumptions also include raising GBP350 million of extra debt in 2024-2025 (and no repayment of currently drawn GBP150 million RCF), as FCF will be insufficient to cover the, albeit smaller than historic, acquisition budget Fitch has assumed. At the same time, Entain has contingent payments on past acquisitions. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Continued strong profitability with diversification helping to offset tighter gaming regulation, and realisation of planned synergies resulting in an EBITDAR margin above 22% - EBITDAR net leverage trending towards 3.5x on a sustained basis - EBITDAR fixed-charge coverage above 3.5x Factors that could, individually or collectively, lead to negative rating action/downgrade: - Weaker-than-forecast profitability due to increased competition or more material impact from regulation leading to an EBITDAR margin at or below 18% - EBITDAR net leverage above 4.5x - Maintaining shareholder-friendly financial policies that limit deleveraging prospects - EBITDAR fixed-charge coverage below 3.0x along with a deteriorating liquidity buffer LIQUIDITY AND DEBT STRUCTURE Liquidity Adequate Despite HMRC Settlement: Entain had sound liquidity in 1H23 with about GBP740 million Fitch-calculated available cash as of end-June 2023. Due to M&A-related disbursements in 2023, RCF has been partially drawn with GBP150 million outstanding balance and GBP440 million remaining available as of end-June 2023. Fitch forecasts neutral FCF in 2024-2026, which leads to no additional support to liquidity, but the need for some drawings under RCF to support M&A deferred payments, as well as external funding requirements in the event of any sizeable M&A. After the successful refinancing of 2023-2024 debt, the maturity profile is comfortable with large principal repayments starting from 2027. ISSUER PROFILE Entain is one of the world's largest online gaming operators with licenses in over 20 countries, but its largest market is the UK (24% of online revenue in 1H23) and it is mainly present in Europe. It has exposure to Australia (11% of online revenue) and a joint venture in the USA (19% of online revenue, if 50% of BetMGM revenues are considered) with casino operator MGM Resorts International. Entain is acquisitive and continues to enter new markets through acquisitions - Croatia, Poland and New Zealand in 2022-2023. ESG CONSIDERATIONS Entain plc has an ESG Relevance Score of '4' for Customer Welfare - Fair Messaging, Privacy & Data Security due to increasing regulatory scrutiny on the sector, amid greater awareness around the social implications of gaming addiction and increasing focus on responsible gaming. This factor has a negative impact on the credit profile and is relevant to the rating in conjunction with other factors. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- Entain plc LT IDR BB Affirmed BB senior secured LT BB+ Affirmed RR2 BB+ Entain Holdings (Gibraltar) Limited senior secured LT BB+ Affirmed RR2 BB+ GVC Finance LLC senior secured LT BB+ Affirmed RR2 BB+ FINSBURY SQUARE 2021-2: Fitch Hikes Rating on Cl. X3 Notes to BBsf ------------------------------------------------------------------ Fitch Ratings has upgraded one tranche of Finsbury Square 2021-1 Green plc, five tranches of Finsbury Square 2021-2 plc and affirmed the rest of the notes. Entity/Debt Rating Prior ----------- ------ ----- Finsbury Square 2021-1 Green plc Class A XS2352500636 LT AAAsf Affirmed AAAsf Class B XS2352501360 LT AA+sf Upgrade AAsf Class C XS2352501527 LT A+sf Affirmed A+sf Class D XS2352502509 LT CCCsf Affirmed CCCsf Class X1 XS2352503903 LT BB+sf Affirmed BB+sf Class X2 XS2352505197 LT BB+sf Affirmed BB+sf Finsbury Square 2021-2 A XS2400370255 LT AAAsf Affirmed AAAsf B XS2400370412 LT AA-sf Affirmed AA-sf C XS2400372624 LT Asf Upgrade A-sf D XS2400373192 LT BBBsf Upgrade BBB-sf E XS2405114872 LT BB+sf Upgrade BBsf F XS2405115259 LT BB-sf Affirmed BB-sf G XS2405115507 LT CCCsf Affirmed CCCsf X1 XS2400373945 LT BB+sf Affirmed BB+sf X2 XS2400374166 LT BB+sf Upgrade BBsf X3 XS2405116224 LT BBsf Upgrade CCsf TRANSACTION SUMMARY The transactions are securitisations of owner-occupied and buy-to-let mortgages originated by Kensington Mortgage Company Limited and backed by properties in the UK. KEY RATING DRIVERS Increasing Credit Enhancement: Credit enhancement (CE) has increased since the last rating action on the transactions in October 2022 due to amortisation of the senior notes and the available non-amortising reserve fund. The increased CE contributed to the upgrade and supports the affirmations. Performance May Worsen: Since the last rating action, asset performance has been reasonably stable. The number of loans in arrears has moderately increased. However, this has also been driven by the significant prepayment in the transaction between 2022 and 2023, reaching a maximum of 86% for Finsbury Square 2021-1 Green plc and 56% for Finsbury Square 2021-2 plc. As a result, any outstanding arrears have increased as a proportion of the total (smaller) pool. Fitch expects asset performance to weaken as a result of rising interest rates and the cost of living crisis. This is particularly relevant for specialist lending transactions where arrears have historically been higher than UK prime average. An increase in arrears could result in lower model-implied ratings (MIR) in future model updates. The ratings on the class B notes in Finsbury Square 2021-1 Green plc and the class B, C, D, F and X3 notes in Finsbury Square 2021-2 plc are one notch below the MIR to account for this risk. Liquidity Access Constrains Ratings: Finsbury Square 2021-1 Green plc has a dedicated liquidity reserve available to cover payment interruption risk for the senior notes in the event of a servicer disruption. However, the liquidity reserve only covers interest shortfalls for the class A and B notes. The absence of a dedicated liquidity for the class C notes prevents any upgrade above the 'Asf' rating category. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade The transactions' performance may be affected by changes in market conditions and economic environment. Weakening asset performance is strongly correlated to increasing levels of delinquencies and defaults that could reduce CE available to the notes. Additionally, unanticipated declines in recoveries could also result in lower net proceeds, which may make certain note ratings susceptible to potential negative rating actions depending on the extent of the decline in recoveries. Fitch conducted sensitivity analysis by applying a 15% increase in the weighted average (WA) foreclosure frequency (FF)and a 15% decrease in the WA recovery rate (RR). The results indicate a one-notch downgrade of Finsbury 2021-1 Green plc's class B notes and no impact on the other classes. The results also indicate a one-notch downgrade Finsbury 2021-2 plc's class B notes, two notches for the class C, D, E and F notes and no impact on the other classes. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Stable to improved asset performance driven by stable delinquencies and defaults would lead to increasing CE levels and potential upgrades. Fitch tested an additional rating sensitivity scenario by applying a decrease in the FF of 15% and an increase in the RR of 15%. The results indicate a one-notch upgrade of Finsbury 2021-1 Green plc's class B notes and no impact on the other classes. The results also indicate a one-notch upgrade of Finsbury 2021-2 plc's class C and X3 notes, two notches for the class B notes up to one rating category for the class D, E and F notes, and no impact on the other classes. DATA ADEQUACY Finsbury Square 2021-1 Green plc 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. Prior to the transaction closing, Fitch conducted a review of a small targeted sample of the originator's origination files and found the information contained in the reviewed files to be adequately consistent with the originator's policies and practices and the other information provided to the agency about the asset portfolio. 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. Finsbury Square 2021-2 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. 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. LGC SCIENCE: Fitch Affirms 'B+' LongTerm IDR, Outlook Stable ------------------------------------------------------------ Fitch Ratings has affirmed UK-based global life science tools and services provider LGC Science Group Holdings Limited's ("LGC"; formerly 'Loire UK Midco 3 Limited') Long-Term Issuer Default Rating (IDR) at 'B+' with a Stable Outlook. The 'B+' IDR balances LGC's modest scale and higher leverage for the rating category with a robust and resilient business model, which has experienced a post-pandemic rebasing as Covid-19 testing fell away. The rating also reflects LGC's proven innovation capabilities supporting business organic growth and strengthening scientific barriers to entry. The Stable Outlook reflects structural organic growth prospects for the life-science and healthcare testing industries, and protected market position in well-stablished niche markets to continue delivering strong profitability and free cash flow (FCF) generation. The rating assumes that LGC will pivot towards a more organic investment and growth strategy, de-emphasising acquisitive growth and focusing on gradual deleveraging ahead of refinancing needs from 2026. KEY RATING DRIVERS Resilient Underlying Business Post-Pandemic: The rating reflects strong underlying revenue growth of around 5% to revenue of GBP789 million in the financial year ending March 2023 (FY23), as strong organic growth in LGC's core business mitigated adverse effects from the steep decline of Covid-19 related business, which contributed practically negligible amounts in 4QFY23. However adjusted EBITDA of GBP272 million in the same period was around 3% lower yoy, reflecting softer margins from a changing product mix, higher inflation, and fewer economies of scale due to the decline in the Covid-19 business. This was partly mitigated by positive translational currency effects in light of pound sterling depreciation against the US dollar and euro. However, overall revenue and EBITDA were still 5% and 10% below its previous forecast, as Fitch had anticipated larger contributions in inorganic growth and a less steep decline in pandemic-related revenues in 2023. Core Business Matures. As recent acquisitions mature, Fitch expects LGC's underlying business to continue to deliver defensive organic growth, with its quality assurance and genomics business lines experiencing double-digit organic growth on a constant currency basis, driven by structural growth in end-market demand in the US and EMEA. The rating reflects the fact that LGC's strategy has become less acquisitive in 2023 in favour of investing into production capacity; a pivot in its investment strategy that Fitch expects to continue over the next two to three years to address growing demand in specialist testing niches such as pharma and biotech as well as clinical diagnostics. Its rating case therefore assumes revenue to grow at an annual compounded rate (CAGR) of 7.3% over FY23-FY25. Profitability to Soften, but Remain Strong. Despite its expectations of revenue growth, Fitch expects the Fitch-defined EBITDA margin to decline to around 32%-33% by FY24 from 35.5% in FY21, at the peak of the pandemic, due to a flip in product mix, fading higher-margin Covid-19 testing activity compared to some activity in 1H23, and some inflation pressure. This will be mitigated by cost savings in FY24 from the outsourcing of central functions and other related cost-efficiency measures that aim to protect margins. Defensive Underlying Business Risks: The rating reflects LGC's strong position in the structurally growing routine and specialist life-science and healthcare-testing markets, which are characterised by longstanding customer relationships. Fitch views these strong and diverse customer relationships, the critical contribution of LGC products to its clients' workflow, and the group's focus on and reputation for quality as significant barriers to entry that underpin its robust business model. Leverage and Size a Constraint: Its business risk assessment recognises LGC's modest scale relative to Fitch-rated sector peers, counterbalanced by its strong niche market position in the diagnostics and testing market as evidenced by a strong and profitable growth trajectory, which Fitch expects to continue in its rating case to 2026. This in turn will aid deleveraging to under 5.5x (below its negative rating sensitivity) by 2025, which anchors the Stable Outlook and mitigates refinancing risk. Healthy FCF Supports Deleveraging Capacity: LGC's 'B+' IDR reflects its underlying deleveraging capacity supported by its strong profitability and healthy FCF margins of 5%-11% over the next three years. This is despite its assumptions of higher interest costs and high capex at around 7%-11% of sales for further innovations and increasing production capacity to support growth. Deleveraging has been slower than Fitch anticipated, but Fitch expects a gradual increase in the rating headroom at this rating level with EBITDA gross leverage declining to less than 5.0x (net leverage around 4x) by March 2026, reducing refinancing risk ahead of maturities in 2027. High Revenue Visibility. LGC's rating reflects its long-term sticky customer base, demonstrated by the fact that around 95% of its revenue is recurring, supported by its reputation for premium quality and strong scientific credentials. High barriers to entry in core niche markets, due to regulatory approvals and the critical non-discretionary nature of its products, contribute to visibility over customer retention and revenue. Moderate Execution Risks: Fitch believes that LGC will continue its acquisitive strategy - as this is central to value creation, particularly from its sponsors' perspective - albeit in a more disciplined manner. Its rating case assumes cash-funded acquisitions of around GBP60 million over the next three years, which translates in less than one-third of its previous forecasts. Its view of moderate execution risks reflects the implementation of the company's 'Build & Buy' strategy, a broad scope of potential acquisitions and subsequent integration, and a record as a consolidator in the fragmented industry. Positive Sector Fundamentals: Fitch views LGC as well positioned to capture favourable growth in life sciences, healthcare and measurement sciences, driven by rising volumes and innovation, and supported by stricter regulatory requirements on testing in a growing number of applications. In the short term, additional revenue is likely to move away from supporting government and industry projects on global coronavirus testing and diagnosis. DERIVATION SUMMARY Fitch rates LGC using its Medical Devices Navigator Framework. LGC's rating is constrained by its modest size and significant financial leverage, particularly relative to that of larger US peers in the life science and diagnostics sectors. Close peers are generally rated within the 'BBB' rating category, including Bio-Rad Laboratories Inc. (BBB/Stable), Thermo Fisher Scientific Inc. (A-/Stable), Revvity, Inc. (BBB/Stable), Eurofins Scientific S.E. (BBB-/Stable) and Agilent Technologies, Inc. (BBB+/Stable). In its peer analysis, LGC demonstrates a similar EBITDAR margin (in the high 30% range) to some of the larger peers with similar FCF generation, reflecting its strong business model rooted in niche positions that are underpinned by scientific excellence. In addition, LGC shows good organic growth, supplemented by consolidation opportunities in the fragmented global life-science tools market. LGC's defensive business risk attributes are offset by its smaller scale and higher leverage compared to the peers, which places the group's rating in the highly speculative 'B' category. Its financial risk profile is more comparable with that of European healthcare leveraged finance issuers such as Curium Bidco S.a.r.l. (B/Stable) and Inovie Group (B/Negative). All three issuers have defensive business risk profiles and deploy financial leverage to accelerate growth in a consolidating European market. A materially larger size and more conservative financial profile post-IPO merit a higher rating for European peer Synlab AG (BB/Stable), which has shown significant deleveraging and broadened its access to capital markets. KEY ASSUMPTIONS Fitch's Rating Case Assumptions: - Revenue CAGR of 7.3% over FY23-FY25, driven mostly by organic growth. Covid-19-related business negligible from FY24 - Gross margin at 63% at FYE24, gradually declining to historical levels of 62% by FY25 driven by product mix - Fitch-defined EBITDA margin at 32%-33% over the rating horizon, still materially above pre-pandemic levels - Working capital to increase to 3%-4% of sales a year from FY24 to support business growth - Average annual capex at 7% of sales from 2025, including stable maintenance capex at 1%-2% of sales, in line with the historical trend. Growth capex to remain high at 9%-10% in FY24, in line with FY23, to continue expanding its innovation capability and other strategic projects to support growth - Acquisitive capex over the next three years to finance bolt-on acquisitions of GBP60 million aggregated for the three years to 2026. Fitch's Key Recovery Assumptions: - The recovery analysis assumes that LGC would remain a going concern (GC) in the event of restructuring and that it would be reorganised rather than liquidated. Fitch has assumed a 10% administrative claim in the recovery analysis. - Fitch assumes a post-restructuring GC EBITDA of GBP128 million on which Fitch bases the enterprise value (EV). - Fitch assumes a distressed multiple of 6.5x, reflecting the group's premium market positions, geographical diversification and sound reputation. - Its waterfall analysis generates a ranked recovery for senior creditors in the 'RR4' band, indicating a 'B+' instrument rating for the group's senior secured facilities, in line with the IDR. The waterfall analysis output percentage on current metrics and assumptions is 39% for the senior secured loans. - Fitch assumes LGC's multi-currency revolving credit facility (RCF) would be fully drawn in a restructuring, ranking pari passu with the rest of the senior secured debt. Fitch also views the US dollar-denominated payment in kind (PIK) as an equity instrument, sitting outside the restricted group. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Rating upside is limited unless the group increases its global scale and sees higher diversification without adversely affecting brand reputation, in combination with - EBITDA leverage below 4.0x on sustained basis - EBITDA interest coverage above 3.5x on sustained basis - Superior profitability with EBITDA margin remaining above 35% and successful integration of accretive M&A Factors that could, individually or collectively, lead to negative rating action/downgrade: - EBITDA leverage above 5.5x on sustained basis - EBITDA interest coverage sustainably below 2.5x - Lower organic growth due to market deterioration or reputational issues resulting in market share loss or EBITDA margins below 30% - FCF margins sustainably below mid-single digits or aggressive M&A activity hampering profitability and deleveraging prospects LIQUIDITY AND DEBT STRUCTURE Strong Liquidity: LGC has adequate liquidity under its rating case based on cash on balance sheet of GBP131 million, building up above GBP200 million by end FY26, after cash-funded acquisitions of GBP60 million aggregate assumed by Fitch over the next three years. It has a fully available RCF of GBP265million for general corporate purposes, which Fitch assumes would remain mostly undrawn under its rating case. Its liquidity buffer remains healthy for business operations, including intra-year working-capital swings of around GBP20 million. The group does not face any meaningful debt repayment needs before FY2FY27. ISSUER PROFILE LGC is a UK-based leading global life science tools company, providing mission-critical components and solutions into high-growth application areas across the human healthcare and applied market segments. 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 ----------- ------ -------- ----- Loire US Holdco 1, Inc. senior secured LT B+ Affirmed RR4 B+ LGC Science Group Holdings Limited LT IDR B+ Affirmed B+ senior secured LT B+ Affirmed RR4 B+ Loire Finco Luxembourg S.a r.l. senior secured LT B+ Affirmed RR4 B+ Loire US Holdco 2, Inc. senior secured LT B+ Affirmed RR4 B+ LOGIE GLAZING: Enters Administration, 16 Jobs Affected ------------------------------------------------------ Business Sale reports that Logie Glazing and Building Services, a Dundee-based construction firm founded over 50 years ago, has fallen into administration. According to Business Sale, all 16 jobs have been lost at the firm, with administrators seeking buyers for the company's business and assets. Logie Glazing was based on Tannadice Street and worked on projects across Tayside and Fife for both private and public sector clients. In the company's accounts to the year ending March 31 2022, its fixed assets were valued at GBP139,795 and current assets at GBP1.4 million, Business Sale states. At the time, its net liabilities amounted to GBP165,066, Business Sale notes. Like many construction companies, it began to struggle as a result of rising costs, with cost inflation leading to pressure on its profit margins and cash reserves, Business Sale relates. After being unable to secure the funding required to continue trading, the company appointed Blair Nimmo and Geoff Jacobs of Interpath Advisory as joint administrators, subsequently ceasing trading with the loss of all jobs, Business Sale recounts. NOBIAN HOLDING 2: Fitch Affirms 'B' LongTerm IDR, Outlook Stable ---------------------------------------------------------------- Fitch Ratings has affirmed Nobian Holding 2 B.V.'s (Nobian) Long-Term Issuer Default Rating (IDR) at 'B' with a Stable Outlook. Fitch has also affirmed Nobian Finance B.V.'s senior secured rating at 'B+'. The Recovery Rating is 'RR3'. The IDR reflects Nobian's high EBITDA gross leverage and exposure to the volatility of caustic soda prices and chemical demand. It also captures its strong position in the European high-purity salt, chlor-alkali and chloromethanes markets with significant barriers to entry. Nobian benefits from a robust cost position, demonstrates strong pass-through capabilities and maintains high margins. Despite falling chemical demand in Europe in 2023, Fitch expects Nobian to maintain comfortable rating headroom, with EBITDA gross leverage averaging 4.5x in 2023-2026. Such headroom should allow the company to absorb spikes in leverage that may stem from weaker-than-forecast performance due to low caustic soda prices or weak demand, sizeable investments in minority interests, or possible shareholder distributions. KEY RATING DRIVERS Resilient Business Model: Nobian demonstrated its ability to pass on significant energy costs fluctuations and to maintain above-average operating rates, which resulted in Fitch-adjusted EBITDA of EUR401 million in 2022, significantly above its forecast. Strong performance continued in 1H23 on exceptionally high caustic soda prices, and implemented price increases in salt and chloromethanes. Fitch believes this performance reflects a defensible business model due to energy-efficient assets supplying customers within key chemical clusters in Europe. Fitch expects profitability to moderate from 2H23 as caustic soda prices fell from their 1Q23 peak, but this will be mitigated by a recovery of volumes and contribution from expansion projects. European Chemical Production Challenged: Operating rates of most chemical assets in Europe have fallen dramatically since 2H22 due to high regional energy prices. Although Nobian operates in strong clusters, Fitch believes that the energy cost disadvantage in Europe relative to other regions will constrain operating rates of the industry and prevent a full volume recovery in the near term, given weak economic prospects and the lack of competitive exports from Europe. Fitch views Nobian as firmly positioned to adapt to this challenging environment but Fitch also reflects in its forecasts a slow recovery of demand. Leverage Headroom, Projects Considered: Fitch expects Fitch-adjusted EBITDA to fall to EUR360 million in 2023 and average about EUR330 million in 2024-2026 and debt to remain stable, leading to EBITDA gross leverage averaging 4.5x in 2023-2026. About two thirds of Nobian's EUR1.5 billion debt either have fixed rates or have been hedged until end-2024, which mitigates the impact of rising interest rates. This provides significant headroom for the rating to cushion weaker-than-expected performance, possible shareholder distributions or contributions to minority interests in projects. While no investment decision has been taken, Nobian signed a term sheet with Vulcan Energy Resources Ltd in 2023, which could see the company contributing capital to the development and operating of a central lithium plant in Germany. Strong Cash Generation: Nobian's cash flow from operations consistently covers maintenance capex, despite an increasing interest burden, with double-digit funds from operations (FFO) margins and contained working-capital fluctuations. Its forecast of slightly negative free cash flow (FCF) in 2023-2026 is due to significant growth capex as well as a dividend payment in 2023. Current liquidity and future cash flows will enable Nobian to fund capex without raising additional debt. However, additional debt may be raised should Nobian invest in non-core projects. Capex Will Support EBITDA: Nobian is expanding salt capacity in Mariager, and will benefit from increased chlorine demand from downstream capacity growth in Rotterdam. Incremental EBITDA from this project will mitigate the impact of lower caustic soda prices. Nobian's prudent investment policy requires contracted demand before engaging in capacity expansion. However, it is facing delays in obtaining some permits for salt extraction in Haaksbergen, which are required to maintain optimal production beyond 2025. Fitch does not factor in a shortage of salt supply in its forecasts but will monitor developments should this delay exceed its expectations. European Chlor-Alkali Leader: Nobian's significant share of the European merchant salt market for chemical transformation provides pricing power, especially since a switch to membrane technology in Europe in 2017, which requires higher-purity salt. Nobian is also the largest and second-largest merchant producer, respectively, for chlorine and caustic soda in Europe and the largest chloromethane producer. Capacity increases in the coming three years will reinforce its regional leadership in markets that are already highly concentrated. DERIVATION SUMMARY Nobian competes in the chlor-alkali value chain with INEOS Quattro Holdings Limited (BB/Stable) and Lune Holdings S.a.r.l. (Kem One, B/Stable). INEOS Quattro is significantly larger, more diversified in activity and geography, and less leveraged than Nobian. Kem One's regional focus is similar to Nobian's and its operations are also vertically integrated. However, Kem One is smaller, has a weaker cost position given that one of its two chlor-alkali plants is not yet using the membrane technology and has yet to establish a record of continuous high utilisation rates. Moreover, Nobian's leading position in the European high purity salt merchant market has higher barriers to entry than Kem One's PVC activities. Nobian's regional focus and vertical integration are comparable with Synthos Spolka Akcyjna's (BB/Stable) but its EBITDA gross leverage on average is expected to be much higher. Root Bidco Sarl (B/Stable) has similar margin stability but is smaller and has similar EBITDA gross leverage. Compared with Nouryon Holding B.V. (B+/Stable), from which it was separated, Nobian is smaller, with exposure to more commoditised chemicals and lacks Nouryon's global presence. Nouryon has higher EBITDA gross leverage than Nobian. Nobian is more backward-integrated than its peers. KEY ASSUMPTIONS - Chlor-alkali and salt volumes declining in 2023, and to grow from 2024 on demand recovery and capacity expansion - Fitch-adjusted EBITDA margin of 22% in 2023, before growing to 28% by 2026 - Total cumulative capex of about EUR740 million from 2023 until 2026, peaking in 2024 - No dividends after 2023 - No equity contributions towards partnerships or projects Key Recovery Analysis Assumptions The recovery analysis assumes that Nobian would be reorganised as a going-concern (GC) in bankruptcy rather than liquidated. Its GC EBITDA estimate reflects Fitch's view of a sustainable, post-reorganisation EBITDA level on which Fitch bases the enterprise valuation (EV). The GC EBITDA of EUR230 million reflects a combination of low caustic soda prices and demand, or production-related pressure on sales volumes, as seen in 2020-2021, but also considers corrective measures taken to offset adverse conditions. Fitch uses a multiple of 5x to estimate a GC EV for Nobian because of its leadership position, solid sector growth trends, as well as higher barriers to entry and profit margins than peers', but also the volatile cash flow of its commodity-like products as well as its concentrated exposure to Europe. Fitch assumes its revolving credit facility (RCF) to be fully drawn and to rank equally with its term loan B (TLB) and its senior secured notes. After deducting 10% for administrative claims, Fitch's analysis resulted in a waterfall-generated recovery computation (WGRC) for the senior secured instruments in the 'RR3' band, indicating a 'B+' instrument rating. The WGRC output percentage on current metrics and assumptions was 61%. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: - EBITDA gross leverage below 4.5x on a sustained basis - EBITDA margin sustained above 20%, and positive free cash flow (FCF) - EBITDA interest coverage above 3x Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: - EBITDA gross leverage above 6.5x on a sustained basis - EBITDA interest cover below 1.5x on a sustained basis - EBITDA margin below 15% and negative FCF LIQUIDITY AND DEBT STRUCTURE Comfortable Liquidity: As of 30 June 2023, Nobian had EUR463 million of liquidity, consisting of EUR263 million of cash and cash equivalents and full availability under its EUR200 million RCF. No meaningful mandatory debt repayment is expected until 2026 when the term loan, RCF and bonds are due. ISSUER PROFILE Nobian is a fully vertically integrated European leader in the production of salt, chlor-alkali (chlorine and its co-product caustic soda) and chloromethanes. SUMMARY OF FINANCIAL ADJUSTMENTS For 2022: - Lease liabilities of EUR105 million are excluded from financial debt; depreciation of right-of-use assets (EUR24 million) and lease-related interest expense (EUR4 million) are deducted from EBITDA and cash flow from operations - Added back EUR54 million to EBITDA to remove non-recurring or non-cash costs - Amortised transaction costs of EUR30 million are added back to financial debt 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 ----------- ------ -------- ----- Nobian Holding 2 B.V. LT IDR B Affirmed B Nobian Finance B.V. senior secured LT B+ Affirmed RR3 B+ NOMAD FOODS: Fitch Alters Outlook on 'BB' LongTerm IDR to Stable ---------------------------------------------------------------- Fitch Ratings has revised Nomad Foods Limited's (Nomad) Outlook to Stable from Negative. Fitch has also affirmed its Long-Term Issuer Default Rating (IDR) at 'BB' and senior secured rating at 'BB+' with a Recovery Rating of 'RR2'. The Stable Outlook reflects recent recovery in Nomad's organic sales in 1H23, demonstrating its ability to pass on high cost inflation to consumers. Fitch estimates this will translate into sustained EBITDA growth in 2023-2025, sufficient to return gross leverage comfortably to levels that are consistent with the rating from 2024. The Stable Outlook is also supported by Nomad's stated focus on profitability improvement through cost savings and its reiterated financial policy of keeping EBITDA net leverage at below 3.5x with no material M&As anticipated in the near term. The 'BB' rating remains supported by Nomad's position as the largest frozen food producer in western Europe, its strong free cash flow (FCF) generation, and adequate interest cover translating into solid financial flexibility for the rating. KEY RATING DRIVERS Price-Driven Organic Sales: Fitch expects Nomad's organic sales growth to recover to mid-single digits in 2023 (1H23: 8.3%), mainly driven by selling price increases in 2022-1H23, while sales volumes are likely to remain under pressure from high price elasticity and stiff competition from private label products. Fitch conservatively assumes revenue to grow at low-to-mid single digits in 2024-2026, due to moderately positive price/mix and normalising sales volumes, with the latter supported by planned increases in advertising and promotional activity from 2H23. Profitability Under Pressure: Fitch expects Fitch-adjusted EBITDA margin to remain at around 15% in 2023-2024, below historical levels of 16%-17%, as the positive impact from Nomad's recent active pricing policy and moderating raw materials costs is likely to be absorbed by planned higher promotional activity and increased advertising costs. Fitch assumes EBITDA margin to gradually recover to 16%, on anticipated cost efficiencies and sales growth from recent brand acquisitions. Slow Deleveraging: Nomad's EBITDA leverage stood at 4.6x at end-2022, slightly above its negative rating sensitivity of 4.5x. Given its expectations of only moderate growth in EBITDA in 2023-2024, due mainly to revenue growth, Fitch expects only modest deleveraging to below 4.5x by end-2024, before it gains more rating headroom in 2025-2026. Adherence to Financial Policy: The Stable Outlook is supported by Nomad's public commitment to adhere to its net debt/EBITDA target of 2.5x-3.5x, which Fitch estimates should translate into Fitch-calculated EBITDA gross leverage of below 4.5x. The Outlook is further underpinned by no plans of material debt-funded M&As in the near future and anticipated smaller share buybacks in 2023-2024. Completed refinancing of its term loan that was due in 2024 with cash also supports the rating. Strong FCF: Despite squeezed operating margins, Nomad continues to generate healthy FCF (2022: 5% margin), which Fitch expects to remain at around EUR150 million-EUR250 million annually over 2023-2025 (5%-7% margin). This is supported by normalisation of working-capital needs after a EUR94 million cash outflow in 2022 due to a build-up in inventory and implemented EU unfair trading practice directive resulting in fewer payables days. Projected strong FCF generation is a credit strength and favourably differentiates Nomad from its peers. It also will allow cash accumulation for bolt-on acquisitions, reducing Nomad's need for external funding and refinancing risk. No M&A in Short Term: Acquisitions remain part of Nomad's long-term growth strategy, but for 2023-2024 Fitch expects it to remain focused on its core business and on extracting synergies from its acquisitions in 2020-2021. Once the operating environment normalises, Fitch assumes that Nomad will use its accumulated cash to acquire new assets or return cash to shareholders through share buybacks. Fitch therefore uses gross instead of net leverage for rating sensitivities. Leading European Frozen Food Producer: Nomad is the largest branded frozen food producer in western Europe, with leading positions across markets and categories. Its market share of 18% is more than twice its next competitor's. It also ranks third in branded frozen food globally, after Nestle SA (A+/Stable) and Conagra Brands, Inc. (BBB-/Stable). Nomad's market position and annual EBITDA close to USD500 million put it firmly in the 'BB' rating category. Moderate Diversification: Nomad's geographic diversification across Europe and frozen food products differentiates it from 'B' category peers'. The acquisition of Fortenova's frozen food business in 2021 expanded geographical diversification to the Balkans and added ice cream to Nomad's portfolio. However, the focus on one packaged food category (frozen food) and mostly mature markets in one geographic region means business diversification remains weaker than investment-grade packaged food producers'. DERIVATION SUMMARY Nomad compares well with Conagra Brands, Inc. (BBB-/Stable), which is the second-largest branded frozen food producer globally with operations mostly in the US. Similar to Nomad's, Conagra's growth strategy is based on bolt-on M&As. The two-notch rating differential stems from Conagra's larger scale and product diversification as it also sells snacks, which account for around 20% of revenue. In addition, Conagra's organic growth profile is stronger than Nomad's, which allows it to better cope with cost inflation, supporting greater business resilience. Despite its more limited geographical diversification and smaller business scale, Nomad is rated higher than the world's largest margarine producer, Sigma Holdco BV (B/Positive). The rating differential is explained by Nomad's lower leverage, proven ability to generate positive FCF, and less challenging demand fundamentals for frozen food than for spreads. Nomad is rated below global packaged food and consumer goods companies, such as Nestle (A+/Stable), Unilever PLC (A/Stable) and The Kraft Heinz Company (BBB/Stable), due to its limited diversification, smaller business scale and weaker financial profile. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer: - Organic revenue growth at about 6% in 2023, followed by around 2%-4% in 2024-2026, with price increases partly offset by volumes declines due to price sensitivity and competition from private-label products - EBITDA margin flat at around 15% in 2023-2024 before recovering towards 16% by 2025 - Capex at around 3% of revenue in 2023-2026 - No dividends - Share buybacks of up to a cumulative USD450 million over 2023-2026 - Accumulated cash to be used for bolt-on M&As RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: - Strengthened business profile via increased business scale or greater geographical and product diversification - Continuation of organic growth in sales and EBITDA - EBITDA leverage below 3.5x on a sustained basis, supported by a consistent financial policy - Maintenance of strong FCF margins Factors That Could, Individually or Collectively, Lead Negative Rating Action/Downgrade: - Weakening organic sales growth, resulting in market-share erosion across key markets - EBITDA leverage above 4.5x on a sustained basis as a result of operating underperformance or large-scale M&As - A reduction in the EBITDA margin or higher-than-expected exceptional charges leading to FCF margins below 2% on a sustained basis LIQUIDITY AND DEBT STRUCTURE Adequate Liquidity: At end-June 2023, Nomad had sufficient liquidity with reported cash of EUR355 million and EUR165 million available under a revolving credit facility of EUR175 million (out of which EUR10 million is carved out as a guarantee facility). This, together with expected strong FCF in 2023-2024, more than covers small amortisation payments due in the next 12 months on its US dollar term loan. Nomad has reduced its refinancing risk, following the recent loan refinancing, with the next material debt maturity in 2028. Uplift to Senior Secured Rating: The one-notch uplift to the rating of the senior secured loans and notes to 'BB+' reflects its view of above-average recovery prospects. These are supported by moderate leverage that is partly offset by the lack of material subordinated, or first-loss, debt tranche in the capital structure. The senior credit facilities and notes share the same collateral and therefore rank equally between themselves. 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 ----------- ------ -------- ----- Nomad Foods Lux S.a.r.l. senior secured LT BB+ Affirmed RR2 BB+ Nomad Foods Limited LT IDR BB Affirmed BB Nomad Foods Europe Midco Limited senior secured LT BB+ Affirmed RR2 BB+ Nomad Foods US LLC senior secured LT BB+ Affirmed RR2 BB+ Nomad Foods BondCo Plc senior secured LT BB+ Affirmed RR2 BB+ PH+: Enters Liquidation, Owes More Than GBP200,000 -------------------------------------------------- Richard Waite at AJ reports that award-winning architecture studio and former AJ 40 under 40 practice pH+ has gone into liquidation with debts of more than GBP200,000. The practice, registered at Companies House as Puncher Hamilton Plus, was set up in 2005 by Andy Puncher and Drew Hamilton and gained a reputation for its mixed-use and residential schemes around London. Speaking to the AJ, Mr. Puncher said the East London company, which is now in voluntary liquidation, had suffered as projects were "paused and then cancelled". He also claimed that its fees had been "continually undercut" and invoices left unpaid. According to the statement of affairs filed at Companies House, the UK-based company still owes GBP202,581 once its estimated assets have been realised, including GBP107,599 owed to its employees (GBP99,557 unsecured and GBP8,041 preferential), AJ notes. "While architecture firms operate in a cyclical environment, with pH+ a combination of bad debts and the uncertainty over future work meant that the future prospects of the company were limited," AJ quotes Peter Charalambous of Kallis Insolvency Practitioners, the appointed liquidator, as saying. When the company posted its last account in July 2022, it had 19 staff members and the ARB register still lists 10 qualified architects as employees of the practice, AJ discloses. Mr. Charalambous added: "The employees are preferential creditors in respect of arrears of wages and holiday pay and HMRC are secondary preferential creditors. Employees can claim against the Redundancy Payments Service (RPS) for their statutory arrears (capped to GBP643 per week) and the RPS effectively steps into the shoes of the employees. "On the basis of current information, I do not anticipate a dividend will be payable to unsecured creditors." PINNACLE BIDCO: Fitch Gives 'B-(EXP)' Rating on New Secured Notes ----------------------------------------------------------------- Fitch Ratings has assigned Pinnacle Bidco plc's (Pure Gym) GBP805 million-equivalent bond issue an expected senior secured rating of 'B-(EXP)' with a Recovery Rating of 'RR4'. Fitch has also assigned its super senior revolving credit facility (RCF) an expected rating of 'BB-(EXP)'. The senior secured instrument rating is predicated on full repayment of its existing GBP855 million senior secured notes from the proceeds of the new notes and cash. The new notes will rank behind its revolving credit facility, which Fitch understands from management will be extended and increased to GBP176 million as part of the refinancing. The assignment of final ratings is contingent on completing the transaction in line with the terms already presented. The 'B-' IDR reflects the group's high leverage, weak fixed charge cover ratios, and negative post-capex free cash flow (FCF), which are balanced by its leading market positions in the UK and Denmark in the value gym segment and projected EBITDA growth. Fitch sees limited rating headroom in the near term. The refinancing of the senior secured notes with a slightly lower notes amount is marginally positive for the credit profile, but it also reduces its cash buffers to fund future growth capex. The Stable Outlook reflects its expectations of continued profit expansion that should enable deleveraging and satisfactory liquidity, assuming capex flexibility. Materially reduced liquidity headroom would put pressure on the rating. KEY RATING DRIVERS Refinancing Risk Being Addressed: The new notes issue addresses Pure Gym's high refinancing risk, which otherwise would have weighed on the rating as maturities in early 2025 approach. Refinancing the existing notes at GBP50 million less is marginally credit-positive, while an enlarged super senior RCF by around GBP30 million supports liquidity, leaving similar recoveries within the 'RR4' band. Fitch anticipates weak coverage metrics, albeit still in line with the rating, due to higher interest rates than the current 6% effective interest rate, and a weaker funds from operations (FFO) margin. EBITDA Growth: Fitch forecasts EBITDA to improve by GBP24 million to GBP95 million in 2023, following a strong 1H23 performance with just above 10% annual growth in members. Fitch-calculated EBITDA is after rents and does not factor in certain items that the company adjusts for. Fitch expects EBITDA to grow to nearly GBP150 million by 2026, aided by the addition of around new 215 sites. High Leverage: Fitch expects a gradual reduction in leverage from EBITDA growth. Fitch forecasts EBITDAR gross leverage marginally below 8.5x in 2023, which will exceed its negative sensitivity, before it falls to within its rating guidelines in 2024. Fitch believes the underlying business is cash-generative and has the potential to deleverage below 7.5x by 2026 as profits grow due to ramp-up of existing sites and new sites start contributing to profits. Tight Underlying FCF Profile: Pure Gym's strategy entails continuous expansion, leading to high sustained capital intensity and negative FCF. While it can adjust the expansion capex to reduce the cash outflows Fitch estimates that Pure Gym's underlying FCF would be broadly neutral if the business was run solely for cash generation instead of reinvesting cash in growth. The underlying credit quality of the new capital structure places Pure Gym adequately at the 'B-' rating and hinges on the presence of an appropriate liquidity reserve with a sizeable RCF. Membership Growth: Fitch models growth in memberships to follow a normal cycle with key net additions in January and September, rather than expecting post-pandemic recovery for a like-for-like (LFL) portfolio by a certain date. Fitch expects average members per gym in the UK to slightly increase in 2024, before it declines on new gym additions and changes in the site mix, and do not expect it to reach pre-pandemic levels. Pure Gym's reported LFL membership count for UK sites (opened before 2018) remained 13% below pre-pandemic levels in 1Q23, with revenue now having recovered on higher average revenue per member (ARPM). This is slightly ahead that of its closest peer, The Gym Group. Execution Risk in Expansion: Its rating case sees some execution risk associated with around new 190 gym openings assumed for 2023-2026 in the UK. Fitch sees a risk of over-expansion in the sector, especially if other gym operators follow suit, even if demand trends appear favourable for expansion. This is partly mitigated by weakened competition post-pandemic and Pure Gym's record of opening and ramping up new sites. Fitch incorporates increased average capex per site of around GBP1.2 million. Low-Cost Business Model: The low-cost business model with caps and collars on rents and forward contract on energy partially protect the group from cost inflation eroding profitability. Fitch anticipates the EBITDAR margin to recover to 40% by 2025. Fitch expects Pure Gym's value business model to perform better in a recessionary environment than traditional peers. This is because its monthly fees are materially lower than traditional private operators' and Pure Gym has no membership contracts with notice periods. Fitch believes this provides Pure Gym with a competitive advantage as consumers seek lower-cost propositions. The business model is strengthened by Pure Gym's variable pricing model, which allows flexibility for margin preservation while competing with local peers. Growing Value-Gym Market: The IDR reflects Pure Gym's leading position in the value-gym market, which Fitch expects to continue to grow. Fitch believes the group is well-positioned to benefit from a renewed focus on health and wellbeing trends post-pandemic. DERIVATION SUMMARY Pure Gym generally operates on higher EBITDAR margins than the median for Fitch-rated gym operators, including those within its food, non-food retail and leisure credit-opinion portfolio, due to its scale and a value/low-cost business model. However, due to its accelerated expansion programme and slower member growth, Fitch does not expect Pure Gym's profitability to exceed the industry average over its forecast period. Pure Gym has been taking market share mainly from its mid-market peers, due to the competitive nature of its pricing structure. Fitch views Pure Gym's forecast total adjusted debt/operating EBITDAR at 7.8x by end-2024 as high, but in line with that of similar leisure credits in the low 'B' rating category. Negative FCF amid an expansion strategy restricts the IDR. However, Pure Gym's cash flow conversion and deleveraging capability is structurally better than high-street retailers', and is now further enhanced by equity-funded capex. Pure Gym is rated one notch below its closest Fitch-rated peer, Deuce Midco Limited (David Lloyd Leisure, DLL; B/Stable), the premium lifestyle club operator. Pure Gym has a more aggressive expansion strategy, which carries higher execution risk than for DLL, resulting in expected weaker FCF generation and higher leverage. Following the accelerated expansion to be funded by equity injection, Fitch expects Pure Gym's leverage to trend below 7.5x by 2026, three years later than DLL. Pure Gym has mildly higher profitability than DLL with EBITDAR margin trending towards 41% due to its low-cost business model, versus around 37% at DLL. KEY ASSUMPTIONS Fitch's Key Assumptions within its Rating Case for the Issuer: - Average memberships for 2023 at around 1.8 million (11% higher than average 2022 levels) and gradually increasing to 2.3 million by 2026, benefitting from new gym openings and the ramp-up of new gyms - Around 40 corporate-owned new gym openings in 2023, followed by around 175 new gyms in 2024-2026 (50 in 2024, 55 in 2025, and 70 in 2026) and 27 gym closures between 2023 and 2026 in Denmark - Average members per gym post-2023 gradually declining to reflect the ramp-up of new gym openings and smaller format boxes with lower capacities - ARPM gradually increasing to GBP24.6 by 2026 from GBP23.7 in 2022 - Sales CAGR of 9% in 2023-2026, supported by increasing ARPM, new site openings and the ramp-up of new sites - EBITDAR margin recovering to around 38.6% by 2023, and gradually nearing 41% by 2026, supported by increase in scale, maturation of newly-opened gyms, margin improvement efforts in Denmark and contribution from franchise sites - Fitch-derived EBITDA includes a GBP9 million negative impact from Fitch's lease treatment against cash lease cost (lease costs calculated as the sum of right-of-use asset depreciation and P&L interest cost; the difference for 2023-2026 is expected to narrow) - Average capex at around GBP115 million per year between 2023 and 2026 to fund new site openings and refurbishment projects - No dividends and no acquisitions to 2026 Fitch's Key Recovery Rating Assumptions: The recovery analysis assumes that Pure Gym would be reorganised as a going-concern (GC) in bankruptcy rather than liquidated. Fitch have assumed a 10% administrative claim. The GC EBITDA estimate reflects Fitch's view of a sustainable, post-reorganisation EBITDA level on which Fitch bases the valuation of the group. Pure Gym's GC EBITDA of GBP110 million is based on Fitch-projected EBITDA in 2024, reflecting the ramp-up of existing sites as well as contribution from new site openings by 2024. This reflects competitive dynamics, which are partly offset by a broadly resilient format given its lower price point but lack of contracts. The current Fitch-distressed enterprise value (EV)/EBITDA multiples for other gym operators in the 'B' rating category have been around 5x-6x. Fitch recognises that Pure Gym has a leading share in the growing value-gym market, which justifies a 5.5x multiple, although Pure Gym currently does not have any unique characteristics that would allow for a higher multiple, such as a significant unique brand, material franchise revenue or undervalued real-estate assets. The expected increased GBP176 million RCF, which ranks super-senior to the senior secured notes, is assumed to be fully drawn in default. After deducting 10% for administrative claims, its principal waterfall analysis generates a ranked recovery for the expected senior secured debt, in the 'RR4' category, leading to a 'B-' rating for the bonds. The waterfall analysis output percentage based on expected metrics and assumptions is 46% for the expected new GBP805-million equivalent notes. This is marginally lower than for existing around GBP855 million equivalent notes at 47% (in Aug 2023). RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: - Growth in membership numbers and revenue from mature sites and maturing new sites, while continuing cost control leading to: - (Fitch-defined EBITDA minus interest and operational cash expenses)/revenue trending to 10% - EBITDAR fixed charge coverage above 1.5x on a sustained basis - EBITDAR leverage below 7.5x - Sustained improvement in liquidity headroom, including from positive cash flow from operations after working capital and maintenance capex Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: - Lack of progress on refinancing 12-15 months before material debt maturities or refinancing at materially higher interest rates, leading to EBITDAR fixed charge coverage below 1.2x - Diminishing liquidity headroom with a substantially drawn revolving credit facility - Loss of revenue and decline in profitability due to economic weakness, increased competition and pressure on pricing leading to (Fitch-defined EBITDA minus interest and operational cash expenses)/ revenue consistently below 10% - Total EBITDAR leverage remaining above 8.0x on a sustained basis LIQUIDITY AND DEBT STRUCTURE Adequate Liquidity: Fitch expects end-2023 available cash to be around GBP56 million, on top of the fully available RCF (upsized to GBP176 million). Fitch views that the liquidity at Pure Gym is to remain adequate following the refinancing exercise, in spite of lower headroom due to the use of cash to pay down debt and fees (GBP83 million). Fitch expects Pure Gym to draw on the RCF to fund its accelerated expansion strategy in 2024-2026 and this may put pressure on liquidity then. Its forecast excludes GBP31 million of cash that sits above restricted group but is reported as part of net debt by Pure Gym and could provide additional flexibility if down-streamed. Negative FCF: Fitch projects FCF to stay negative, driven by high capex for new gym openings and gym refurbishments and despite EBITDA expansion on new gym openings and the maturation of newly-opened gyms. However, the new slightly upsized RCF of GBP176 million provides adequate liquidity back-up, which differentiates Pure Gym from lower-rated credits. With the current refinancing, the group will extend the maturity of senior secured notes and RCF to 2028. ISSUER PROFILE Pure Gym is a leading low-cost gym operator in Europe with around 565 sites across the UK, Denmark and Switzerland (as of June 2023). 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 ----------- ------ -------- Pinnacle Bidco plc super senior LT BB-(EXP) Expected Rating RR1 senior secured LT B-(EXP) Expected Rating RR4 POLARIS PLC 2023-2: Moody's Assigns B1 Rating to 2 Tranches ----------------------------------------------------------- Moody's Investors Service has assigned definitive long-term credit ratings to Notes issued by Polaris 2023-2 plc: GBP395.9M Class A Mortgage Backed Floating Rate Notes due September 2059, Definitive Rating Assigned Aaa (sf) GBP24M Class B Mortgage Backed Floating Rate Notes due September 2059, Definitive Rating Assigned Aa2 (sf) GBP16M Class C Mortgage Backed Floating Rate Notes due September 2059, Definitive Rating Assigned A1 (sf) GBP6.9M Class D Mortgage Backed Floating Rate Notes due September 2059, Definitive Rating Assigned Baa1 (sf) GBP5.7M Class E Mortgage Backed Floating Rate Notes due September 2059, Definitive Rating Assigned Ba1 (sf) GBP4.6M Class F Mortgage Backed Floating Rate Notes due September 2059, Definitive Rating Assigned B1 (sf) GBP3.9M Class X Floating Rate Notes due September 2059, Definitive Rating Assigned B1 (sf) Moody's has not assigned Ratings to GBP4.6M Class Z Notes due September 2059. RATINGS RATIONALE The Notes are backed by a static portfolio of UK non-conforming first lien residential mortgage loans originated by UK Mortgage Lending Ltd (not rated) and Pepper (UK) Limited (not rated) , a wholly owned subsidiaries of Pepper Money Limited. This is the seventh securitization from Pepper Money Limited in the UK. The portfolio of assets amount to approximately GBP457.6 million, including GBP1.3 million of accrued Interest, as of August 31, 2023 pool cut-off date. It also includes around GBP185.8 million loans originated by Pepper (UK) Limited (not rated) which might be bought out of the Polaris 2020-1 plc transaction between closing and Final Additional Sale Date (October 25, 2023). The analysis is based on the assumption that this repurchase will take place as expected. If the repurchase does not take place the amounts standing to the credit of the principal reserve account will be used to pro rate redeem Class A-Z notes which may lead to a reduction in the weighted average life and yield on the notes. In addition this could result in a higher swap rate paid by the Issuer under the fixed-floating swap leading to a reduction in the portfolio yield. At closing, the liquidity reserve fund will be equal to 1.1% of the Class A Notes and total credit enhancement for the Class A Notes will be 14.45%. The ratings are primarily based on the credit quality of the portfolio, the structural features of the transaction and its legal integrity. According to Moody's, the transaction benefits from various credit strengths such as a granular portfolio and a liquidity reserve fund. The liquidity reserve fund will be replenished after payment of interest on Class A Notes and can be used to cover Class A Notes interest and senior fees. Prior to the step-up date its target amount will be equal to the higher of the 1.1% of the outstanding principal amount of Class A Notes and 1.0% of the Class A Notes balance at closing, with excess amounts amortising down the revenue waterfall. After the step-up date, the liquidity reserve fund will be equal to 1.1% of the outstanding balance of the Class A Notes and will amortise in line with these notes; the excess amount is released through the principal waterfall, ultimately providing credit enhancement to all rated notes. However, Moody's notes that the transaction features some credit weaknesses, such as servicing disruption risk given the transaction's lack of back-up servicer. Various mitigants have been included in the transaction to address this. While Pepper (UK) Limited (NR) is the servicer in the transaction, to help ensure continuity of payments in stressed situations, the deal structure provides for: (1) a back-up servicer facilitator (CSC Capital Markets UK Limited (NR)); (2) an independent cash manager (HSBC Bank plc (Aa3(cr),P-1(cr))); and (3) estimation language whereby the cash flows will be estimated from the three most recent servicer reports should the servicer report not be available. The liquidity does not cover any class of notes except for the Class A Notes in the event of financial disruption of the servicer, capping the achievable ratings of the Class B Notes. The transaction is subject to negative excess spread under Moody's stressed assumptions at closing, given the portfolio's yield relative to its liabilities. However, portfolio yield increases as the fixed rate loans eventually reset to higher margins. There is a principal to pay interest mechanism as a source of liquidity and principal can be used to pay interest on Class A without any conditions. For classes B-F, it can be used provided that either it is the most senior class outstanding or that PDL outstanding on that class is less than 10%. Moody's expect that this mechanism will be used in the first periods given the negative excess spread on day 1 under Moody's stressed assumptions. Additionally, there is an interest rate risk mismatch between the 93% of loans in the pool that are fixed rate and revert to the Lender Managed Rate, and the Notes which are floating rate securities with reference to compounded daily SONIA. To mitigate this mismatch there will be a scheduled notional fixed-floating interest rate swap provided by Credit Agricole Corporate and Investment Bank (CACIB, Aa3/P-1; Aa2(cr)/P-1(cr)). Moody's determined the portfolio lifetime expected loss of 2.5% and MILAN Stressed Loss of 8.5% related to borrower receivables. The expected loss captures Moody's expectations of performance considering the current economic outlook, while the MILAN Stressed Loss captures the loss Moody's expect the portfolio to suffer in the event of a severe recession scenario. Expected defaults and MILAN Stressed Loss are parameters used by Moody's to calibrate its lognormal portfolio loss distribution curve and to associate a probability with each potential future loss scenario in the ABSROM cash flow model to rate RMBS. Portfolio expected loss of 2.5%: This is in line with the UK Non-conforming sector average and is based on Moody's assessment of the lifetime loss expectation for the pool taking into account: (i) the portfolio characteristics, including WA LTV of 67.3% and the above average percentage of loans with an adverse credit history (ii) the performance of outstanding Polaris transactions; (iii) the current macroeconomic environment in the UK and the impact of future interest rate rises on the performance of the mortgage loans; and (iv) benchmarking with similar UK Non-conforming RMBS. MILAN Stressed Loss of 8.5%: This is in line with the UK Non-conforming sector average and follows Moody's assessment of the loan-by-loan information taking into account the following key drivers: (i) the WA LTV of 67.3%; (ii) the originator and servicer assessment; (iii) the 10.9% of the pool made up of Shared Ownership loans and 5.2% Help to Buy loans; (iv) the limited historical performance data does not cover a full economic cycle; and (v) benchmarking with similar UK Non-conforming RMBS. The principal methodology used in these ratings was "Residential Mortgage-Backed Securitizations methodology" published in July 2023. The analysis undertaken by Moody's at the initial assignment of ratings for RMBS securities may focus on aspects that become less relevant or typically remain unchanged during the surveillance stage. Factors that would lead to an upgrade or downgrade of the ratings: Factors that may cause an upgrade of the ratings of the notes include significantly better than expected performance of the pool together with an increase in credit enhancement of Notes. Factors that would lead to a downgrade of the ratings include: (i) an increase in the level of arrears resulting in a higher level of losses than forecast; (ii) increased counterparty risk leading to potential operational risk of servicing or cash management interruptions; or (iii) economic conditions being worse than forecast resulting in higher arrears and losses. POLARIS PLC 2023-2: S&P Assigns BB+ Rating on Class F-Dfrd Notes ---------------------------------------------------------------- S&P Global Ratings assigned its credit ratings to Polaris 2023-2 PLC's class A to X-Dfrd notes. At closing, the issuer also issued unrated class Z notes, and RC1 and RC2 residual certificates. Polaris 2023-2 PLC is an RMBS transaction that securitized a portfolio of owner-occupied and buy-to-let (BTL) mortgage loans secured over U.K. properties. This is the seventh first-lien RMBS transaction originated by Pepper group in the U.K. that we have rated. The first was Polaris 2019-1 PLC. The loans in the pool were originated between 2017 and 2022 by UK Mortgage Lending Ltd. (UKMLL), Pepper (UK) Ltd., and Pepper Money Ltd., both trading as Pepper Money. The loans originated by Pepper (UK) Ltd. and Pepper Money Ltd. are currently securitized in Polaris 2020-1 PLC. As part of the prefunding mechanism established for Polaris 2023-2, the issuer will purchase these assets during the prefunding period. The collateral comprises complex-income borrowers, borrowers with immature credit profiles, and borrowers with credit impairments, and there is a high exposure to owner-occupied mortgages advanced to self-employed borrowers (24.6%) and owner-occupied mortgages advanced to first-time buyers (16.3%). Approximately 23.8% of the pool comprises BTL loans and the remaining 76.2% are owner-occupier loans. The transaction benefits from a fully funded liquidity reserve fund, which will be used to provide liquidity support to the class A notes and to pay senior fees and expenses and senior swap payments. Principal can be used to pay senior fees and interest on some classes of the rated notes, subject to conditions. The transaction incorporates a swap to hedge the mismatch between the notes, which pay a coupon based on the compounded daily Sterling Overnight Index Average, and loans, which pay fixed-rate interest before reversion. At closing, the issuer used the issuance proceeds to purchase the full beneficial interest in the mortgage loans originated by UKMLL from the seller. After closing, the issuer intends to purchase the loans currently securitized in Polaris 2020-1 PLC from the seller. The issuer granted security over all its assets in favor of the security trustee. There are no rating constraints in the transaction under S&P's counterparty, operational risk, or structured finance sovereign risk criteria. S&P considers the issuer to be bankruptcy remote. Pepper (UK) Ltd. is the servicer in this transaction. In S&P's analysis, it considers its current macroeconomic forecasts and forward-looking view of the U.K. residential mortgage market through additional cash flow sensitivities. Ratings CLASS RATING AMOUNT (MIL. GBP) A AAA (sf) 395.861 B-Dfrd AA (sf) 24.026 C-Dfrd A (sf) 16.017 D-Dfrd A- (sf) 6.865 E-Dfrd BBB (sf) 5.721 F-Dfrd BB+ (sf) 4.576 X-Dfrd BBB+ (sf) 3.890 Z NR 4.576 RC1 residual certs NR N/A RC2 residual certs NR N/A R--Not rated. N/A--Not applicable. TESCO PLC: Egan-Jones Retains BB+ Senior Unsecured Ratings ---------------------------------------------------------- Egan-Jones Ratings Company on September 21, 2023, maintained its 'BB+' foreign currency and local currency senior unsecured ratings on debt issued by Tesco PLC. Headquartered in Welwyn Garden City, United Kingdom, Tesco PLC, through its subsidiaries, operates as a food retailer. WE SODA: Fitch Gives 'BB-(EXP)' LongTerm IDR, Outlook Stable ------------------------------------------------------------ Fitch Ratings has assigned WE Soda Ltd. an expected Long-Term Issuer Default Rating (IDR) of 'BB-(EXP)'. The Outlook is Stable. Fitch has also assigned an expected 'BB-(EXP)' senior secured rating to WE Soda Investments Holding PLC's proposed USD750 million notes to be guaranteed by WE Soda Ltd. The Recovery Rating is 'RR4' in line with Country-Specific Treatment of Recovery Ratings Criteria. The expected IDR reflects the company's planned capital structure and liquidity profile after refinancing. The rating reflects WE Soda's industry-leading production costs resulting in strong through-the-cycle margins, reduced leverage and its strong market position as one of top three global soda ash producers. The rating also reflects its assessment of a two-notch uplift above the Turkish Country Ceiling of 'B' due to offshore structural enhancements. Rating constraints are its single commodity exposure, limitations of corporate governance and a challenging macroeconomic environment in Turkiye (B/Stable) where WE Soda's assets are located. Fitch will assigns final ratings on receipt of final documentation conforming to information already received. KEY RATING DRIVERS IDR Exceeds Country Ceiling: Based on the planned capital structure WE Soda's debt service coverage ratio supports a two-notch uplift in its IDR from Turkiye's 'B' Country Ceiling, in line with Fitch's Corporates Exceeding the Country Ceiling Rating Criteria. WE Soda plans to maintain at least USD120 million of cash offshore and has around USD327 million of available undrawn committed credit facilities. Fitch assumes that the planned refinancing, expected commitment to maintaining consistent offshore cash and offshore available RCF, Ciner Wyoming dividends and proactive debt management would support a debt service coverage ratio above 1.5x on a consistent basis. Debt Burden Reduced: WE Soda is a 100% subsidiary of KEW Soda Ltd. Fitch assesses the financial profile based on consolidated financials of KEW Soda Ltd., which constitute mostly those of WE Soda. Based on the full year consolidated accounts, EBITDA net leverage improved to 1.7x at end-2022, from 4.0x at end-2021 and 5.0x at end-2020. This decline was driven by strong contract-based soda ash prices and stronger production at Kazan Soda and Eti Soda in 2022, while WE Soda also used proceeds from the sale of its controlling stake in Ciner Wyoming to reduce gross debt. Fitch expects WE Soda's leverage to rise moderately as prices normalise, but to remain below or at its 2.5x EBITDA net leverage target. Cost Leader in Soda Ash: WE Soda's Turkish assets generate the highest EBITDA margins (eg 56% in 2022) among peers, based on its estimates. Its main cost advantage stems from the entirety of its production coming from solution mining, which has lower costs than underground ore mining or synthetic soda ash production widely used by competitors. A significant part of WE Soda's operating cost is energy, but it is able to pass it onto its customers. Low Maintenance Capex: WE Soda's assets have low maintenance capex requirements (around 5%-10% of annual EBITDA), which allows the company to generate substantial free cash flow (FCF) to repay debt if growth projects are postponed. Strong Market Position: WE Soda is amongst the top three global producers of soda ash. It operates two soda ash assets - Eti Soda (2.05 million tonnes (mt)) and Kazan Soda (3.25mt) in Turkiye after the sale of a 23% stake in Ciner Wyoming (2.5mt) in the US in December 2021. It retains a 20% interest in Ciner Wyoming and is involved in two growth projects in the US: Pacific Soda (3.0-5.4mtpa) and West Soda (2.5-3.0mtpa) with first production planned in 2026 and by 2030, respectively. In 2022, WE Soda's global soda ash market share was roughly 8%. Strong Pricing Boost Earnings: WE Soda enjoyed a sharp price increase in 2022 driven by a surge in energy prices and solid fundamentals across the soda ash market, leading to 2022 Fitch-adjusted consolidated EBITDA of USD0.8 billion, up over 60% from 2021's. Fitch expects prices to remain above historical averages but to begin normalising in 2023 and 2024 as global demand slows. Fitch forecasts EBITDA to average around USD0.7 billion for 2023-2026. WE Soda receives 80%-85% of its revenues from exports and its domestic contracts are all linked to the US dollar or euro. Contracts Provide Price Visibility: WE Soda's prices are largely fixed in the last quarter of a year for the next year, while a minority of contracts are formula- and spot-based. Contract clauses allow it to pass on recently surging energy and shipping costs to soda ash customers. Its one-year sales-volume visibility is also strong as minimum volumes are agreed alongside prices. During severe downturns, WE Soda may agree to deliver lower offtake volumes to preserve good customer relationship. ESG-Friendly Product and Process Development: WE Soda is a natural soda ash producer. The solution mining method deployed to extract trona ore and convert it into soda ash and derivatives has significantly lower energy use as well as water intensity, waste generation and carbon emissions than other methods. The company also benefits from resilient demand growth of soda ash as it is critical to energy transition. Large Capex Underway: WE Soda's growth projects in Wyoming, US, West Soda (100% ownership) and Pacifica Soda (40% JV with Sisecam group) have an estimated cost of USD2.5 billion and USD3.0 billion-USD5.0 billion (WE Soda share: USD1.2 billion-USD2.0 billion), respectively. Both projects are expected to be mostly funded with non-recourse project finance. Fitch forecasts capex of USD0.7 billion across 2023-2026, including expansion, maintenance capex and equity funding for both greenfield projects. DERIVATION SUMMARY WE Soda has higher EBITDA margins than its peers. Its business profile is the closest to Tata Chemicals Limited (TCL; BB+/Positive). TCL has a mix of natural and synthetic production leading to lower average profitability than WE Soda's. WE Soda's financial profile is weaker than TCL's with higher net leverage over the forecast period. WE Soda's rating also incorporates a weaker operating environment and corporate governance limitations compared with TCL. WE Soda has larger scale than Nobian Holding 2 B.V. (produces caustic soda; B/Stable) and Cydsa, S.A.B. de .C.V. (produces table salts, chlorine-caustic soda; BB+/Stable) but weaker operating environment than both. The leverage profile of WE Soda is lower than Nobian's historically as well as over the forecast horizon but weaker than Cydsa's over the forecast period. Fitch also compares WE Soda with other chemical producers based in Turkiye, Petkim Petrokimya Holdings A.S. (B/Negative) and Sasa Polyester Sanayi Anonim Sirketi (B/Negative). While all three companies have their manufacturing/operations solely in Turkiye, WE Soda is much stronger in business and financial profiles and has a lower exposure to the economic environment due to higher export orientation. Petkim, a petrochemical producer and Sasa, a polyester manufacturer, have domestic revenue share of 50% and 76% respectively, while WE Soda has an 80% share of exports. WE Soda also has significant hard-currency credit facilities and offshore cash. KEY ASSUMPTIONS Key Assumptions Within Its Rating Case for the Issuer: - Kazan Soda capacity increasing by 0.6 million tonnes in 2025 - Soda ash realised prices normalising through to 2026 - Capex totaling USD715 million, inclusive of equity injections into Pacific and Soda West projects for 2023-2026 - Dividends in line with company guidance - Refinancing as planned RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: - Record of a conservative financial policy with EBITDA net leverage sustained below 1.5x - Record in improvement of corporate governance - Upward revision in Turkiye's Country Ceiling - Commitment to proactive debt management and maintenance of offshore cash and offshore undrawn RCF, supporting debt service coverage above 1.5x during the forecast period Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: - EBITDA net leverage sustained above 2.5x - Material negative FCF due to larger-than-expected investments or dividends - A lowering of Turkiye's Country Ceiling and/or deterioration of hard-currency debt service ratio below 1.5x on a sustained basis LIQUIDITY AND DEBT STRUCTURE Refinancing Strengthens Liquidity: Fitch expects WE Soda to have robust liquidity following its planned bond issue, which will allow it to repay part of its outstanding debt. The existing lenders have agreed for part prepayment and to extend the maturity of the remaining debt until 2026. The company's first material maturity post-refinancing, will be a USD467 million repayment on the term loan due in 2026. WE Soda has USD327 million of available revolving credit facilities (after USD133 million was drawn) with a maturity in August 2026. Fitch Soda aims to maintain a minimum of USD100 million-USD120 million of cash (offshore) at all times. ISSUER PROFILE WE Soda is a leading global producer of soda ash (or sodium carbonate) and sodium bicarbonate with total capacity of 5mt, sales of USD1.8 billion and EBITDA of USD0.8 billion 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 ----------- ------ -------- WE Soda Ltd. LT IDR BB-(EXP) Expected Rating We Soda Investments Holding PLC senior secured LT BB-(EXP) Expected Rating RR4 ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2023. All rights reserved. ISSN 1529-2754. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Europe subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter Chapman at 215-945-7000. * * * End of Transmission * * *