/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/231010.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Tuesday, October 10, 2023, Vol. 24, No. 203 Headlines G E R M A N Y TELE COLUMBUS: EUR525.2MM Bank Debt Trades at 42% Discount TTD HOLDING III: Fitch Assigns Final 'B+' LongTerm IDR, Outlook Neg I R E L A N D BILBAO CLO I: Fitch Affirms B+sf Rating on Class E Notes MAC INTERIORS: High Court Rejects Scheme of Arrangement PENTA CLO 9: Fitch Affirms 'B-sf' Rating on F Notes, Outlook Stable VOYA EURO II: Fitch Affirms B-sf Rating on Class F-R Loans L U X E M B O U R G ARVOS BIDCO SARL: EUR293MM Bank Debt Trades at 59% Discount SK NEPTUNE HUSKY: $610MM Bank Debt Trades at 29% Discount VENATOR FINANCE: $375MM Bank Debt Trades at 79% Discount T U R K E Y ARAP TURK: Fitch Alters Outlook on 'B-' LongTerm IDRs to Stable PETKIM PETROKIMYA: Fitch Lowers LongTerm IDR to B-, Outlook Stable U N I T E D K I N G D O M BUCKINGHAM GROUP: Contractors, Suppliers Owed GBP108 Million METRO BANK: Obtains GBP325MM in New Funding to Secure Future PENDLE ENGINEERING: Enters Administration, Sale Among Options S&N HOME: Owed GBP207,505 by Wilko, Documents Show TOGETHER FINANCIAL: Fitch Hikes LongTerm IDR to BB, Outlook Stable WILKO LTD: Administrators Appoint John Pye & Sons to Handle Sale - - - - - ============= G E R M A N Y ============= TELE COLUMBUS: EUR525.2MM Bank Debt Trades at 42% Discount ---------------------------------------------------------- Participations in a syndicated loan under which Tele Columbus AG is a borrower were trading in the secondary market around 58.1 cents-on-the-dollar during the week ended Friday, October 6, 2023, according to Bloomberg's Evaluated Pricing service data. The EUR525.2 million facility is a Term loan that is scheduled to mature on October 15, 2024. About EUR462.5 million of the loan is withdrawn and outstanding. Tele Columbus AG provides cable services. The Company offers cable television programming, telephone, and internet connection services to homeowners and the housing industry. Tele Columbus operates throughout Germany. TTD HOLDING III: Fitch Assigns Final 'B+' LongTerm IDR, Outlook Neg ------------------------------------------------------------------- Fitch Ratings has assigned TTD Holding III GmbH (also known as Toi Toi and Dixi; TTD) a final Long-Term Issuer Default Rating at 'B+'. The Outlook is Negative. Fitch has also affirmed TTD Holding IV's EUR660 million senior secured term loan (TLB2) at 'BB-'/'RR3' and assigned a final 'BB-'/'RR3' to its EUR410 million senior secured term loan (TLB3). The Negative Outlook reflects weaker-than-expected volume and profitability in 1H23, as well as higher interest costs, which Fitch expects to delay deleveraging and keep debt service and cash flow metrics outside levels that are commensurate with the 'B+' rating, potentially leading to a negative rating action over the next 12 to 18 months. However, stronger than expected volume recovery and margin improvements could lead to a revision of the Outlook to Stable. Fitch has also withdrawn the IDR and instrument rating of Freshworld Holding III and IV following the reorganisation of intermediate holding companies, with TTD Holding IV now the borrower of the EUR660 million TLB2, and the EUR410 million TLB3. KEY RATING DRIVERS Lower Volumes Reduce Profitability: TDD's net sales in Germany fell 6.1% yoy in 2Q23, taking overall net sales growth to 0.6% for 1H23. TTD managed to mitigate weaker end-market demand by pricing measures and continued premiumisation of cabins and active selling to push volumes. However, long-term cabin rental volumes fell 7% on a like-for-like (LFL) basis in Germany for 1H23. Combined with cost inflation on wages and utilities, this resulted in a Fitch-defined EBITDA margin of 27.5% in 1H23. Consequently, Fitch has reduced its margin forecast towards 27-28% in 2023-2024 from 28-29% previously. Higher Interest Cost, Reduced FCF: TTD has hedged around 70% of its term debt, which matures in February 2025. Higher interest rates have affected the floating-rate portion of its debt to the extent Fitch now expects free cash flow (FCF) margin to remain in low single digits, and EBITDA interest cover to remain below 3.0x. Although Fitch expects the group to deleverage towards 5.0x EBITDA by 2025, cash flow and interest cover metrics are likely to remain weak for the rating, informing the Negative Outlook. Exhausted Rating Headroom: The debt-funded minority buyout in December 2022 increased TTD's pro-forma leverage by about 1x, and exhausted leverage headroom under the assigned 'B+' rating. Deleveraging is therefore critical to rebuild rating headroom. Sales Upside and Cost Efficiencies: Fitch believes the construction and events business should continue to benefit from an increased emphasis on premiumisation (water sinks, shorter service intervals). FCF-funded bolt-on acquisitions remain a cornerstone of the group's growth, building on the group's scale and route efficiencies. It made 19 bolt-on acquisitions in 1H23, and Fitch estimates around EUR30 million of FCF-funded bolt-on M&A per year in 2023 and 2024, supporting revenues and EBITDA. In addition, there are some one-off sport events in 2024 that could support volumes. TTD has been quick to adjusts its cost structure in 1H23, reducing full-time-employees and maintaining tight control of costs. Fitch believes that once volumes start to pick up again, continued structural savings (including the transformation programme) in administrative, procurement and fleet costs should support profitability improvements over the next four years. Modest Construction Sector Growth: Fitch Solutions expects the German construction sector to see real growth of 1.2% and 1.7% in 2023 and 2024, respectively, (0.3% and 1.5% in the residential and non-residential sector (around 66% of TTD's construction business). High construction cost, wage inflation and challenging credit markets with higher interest rates will weigh on the market in 2023 and into 2024, with the biggest impact on residential building activity (estimated to represent around 20%-25% of TTD's net sales). Fitch expects opportunities in green infrastructure projects to increase. Fitch also expects geopolitical factors such as increased demand and training of military services to help mitigate softer residential and new-build demand so that LFL aggregate net sales remain neutral to positive across its forecasts. Defensive Route-Based Model: TTD's business model is concentrated on network density, scale and logistics, which protect its entrenched market position. In Germany, its national market share is 15x higher than its closest competitor. With more stops per servicing route, TTD can drive down the cost per stop, leading to a margin advantage. This effectively creates a barrier to entry, as it becomes difficult for a competitor without a comparable presence to operate alongside TTD in a given area. Financial Policy Record: At the current 'B+' rating and given high leverage, additional debt-funded corporate activities, M&A or dividends, without corresponding EBITDA growth or improved FCF are likely to lead to negative rating action. Fitch does not include any additional dividends or major acquisitions in its forecasts, but would treat them as event risk. Longstanding Brand and Value Proposition: The Toi Toi & Dixi brands have decades of recognition, which reinforce TTD's leadership in Germany and most other European markets. TTD's strength across the value chain also makes it the top choice for customers, as the waste management aspect is necessary, but not highly contested. Aside from premium toilet cabins, TTD also offers customisable sanitary containers and ancillary equipment for larger or longer-term projects, which cannot be provided by regional companies that compete mainly for smaller projects. DERIVATION SUMMARY Fitch compares TDD with other services peers with strong competitive positions and high visibility over recurring revenue including Irel Bidco S.a.r.l. (IFCO; B+/Stable) and Polygon Group AB (B/Negative), but also ERP-software peer TeamSystem Holding S.p.A (B/Stable). IFCO is larger and more diversified than TDD, allowing it a looser EBITDA leverage upgrade sensitivity at 4.5x. Polygon and TDD have similar geographical diversification, but TTD's construction end-market is more volatile than the insurance-based property damage restoration market. Polygon's forecast EBITDA leverage above 7x in 2023 constrains the rating. TeamSystem's revenue visibility is stronger than TTD's, but TTD is more geographically diversified with lower leverage, hence the one-notch rating differential. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer: - Reported revenue growth of about 14% in 2023, reflecting full inclusion of the Ylda acquisition in July 2022 and other bolt-on acquisitions; negligible LFL revenue growth in 2023 and low to mid-single-digit growth in the following four years - Fitch-defined EBITDA margin of 27%-28% in 2023-2024, and gradually improving in the next two years, due to volume growth, lower inflationary pressures and continued roll-out and expansion of the transformation programme - Modest working capital outflow at about 1% of sales - Capex at 8%-10% of sales - Bolt-on M&A of around EUR30 million in 2023 and 2024, funded by FCF - No dividend payments KEY RECOVERY ASSUMPTIONS The recovery analysis assumes that TTD would be considered a going concern in bankruptcy and that it would be reorganised rather than liquidated. Fitch has assumed a 10% administrative claim. Post-restructuring going-concern EBITDA of EUR135 million (increased by recent add-ons), reflects a more-severe-than-expected economic downturn and reduced pricing power with significant margin pressure. A distressed enterprise value multiple of 6.0x is used to calculate a post-reorganisation valuation, reflecting TTD's dominant and entrenched position in most large European markets, arising from its scale and density. Fitch deducts administrative claims, local prior-ranking credit lines, and EUR1,225 million of senior secured claims (EUR1,070 million in term loans and an equally ranking EUR155 million revolving credit facility (RCF)). Fitch assumes that local lines and the RCF are fully drawn at default. Based on current metrics and assumptions, the waterfall analysis generates a ranked recovery at 57% and hence in the Recovery Rating 'RR3' band, indicating a 'BB-' instrument rating for the senior secured TLBs. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to an Upgrade: - Successful continued roll-out of the transformation programme and bolt-on acquisitions leading to increased scale with a sustained competitive position and density across Europe - EBITDA gross leverage sustained below 4.0x, combined with a clear financial policy and leverage targets - EBITDA interest coverage above 4.0x Factors that Could, Individually or Collectively, Lead to the Outlook Being Revised to Stable: - EBITDA gross leverage trending towards 5.0x - Improved cash flow metrics with FCF margin in mid-single digits - EBITDA interest coverage sustained above 3.0x Factors that Could, Individually or Collectively, Lead to a Downgrade: - A worse-than-expected slowdown or downturn in TTD's end-markets or failure to sustain EBITDA margin in line with its expectations - EBITDA gross leverage sustained above 5.0x due to debt-funded shareholder remuneration or acquisitions - EBITDA interest coverage below 3.0x - Sustained thin or neutral FCF margin LIQUIDITY AND DEBT STRUCTURE Satisfactory Liquidity: Fitch views TTD's liquidity as satisfactory. It had a cash position of EUR42 million as at end-June 2023. Fitch forecasts positive FCF in 2023 and 2024, while the group has access to an undrawn committed EUR155 million RCF. Manageable Refinancing Risk: TTD has a single-source funding, with its TLBs maturing in October 2026. Fitch views refinancing risk as manageable with positive FCF and deleveraging towards 5.0x EBITDA gross leverage in 2025. ISSUER PROFILE TOI TOI & DIXI Group offers sanitary/toilet cabins, containers and ancillary products and services to the construction and events industries. 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 ----------- ------ -------- ----- TTD Holding IV GmbH senior secured LT BB- New Rating RR3 BB-(EXP) senior secured LT BB- Affirmed RR3 BB- TTD Holding III GmbH LT IDR B+ New Rating B+(EXP) Freshworld Holding III GmbH LT IDR WD Withdrawn B+ Freshworld Holding IV GmbH senior secured LT WD Withdrawn BB- ============= I R E L A N D ============= BILBAO CLO I: Fitch Affirms B+sf Rating on Class E Notes -------------------------------------------------------- Fitch Ratings has revised the Outlook on Bilbao CLO I DAC's class E notes to Negative from Stable. All notes have been affirmed. Entity/Debt Rating Prior ----------- ------ ----- Bilbao CLO I DAC A-1A XS1804146733 LT AAAsf Affirmed AAAsf A-1B XS1804147038 LT AAAsf Affirmed AAAsf A1-C XS1804148358 LT AAAsf Affirmed AAAsf A-2A XS1804147384 LT AA+sf Affirmed AA+sf A-2B XS1804147624 LT AA+sf Affirmed AA+sf B XS1804148192 LT A+sf Affirmed A+sf C XS1804148432 LT BBB+sf Affirmed BBB+sf D XS1804148788 LT BB+sf Affirmed BB+sf E XS1804148861 LT B+sf Affirmed B+sf TRANSACTION SUMMARY Bilbao CLO I DAC is a cash flow CLO comprising mostly senior secured obligations. The transaction is actively managed by Guggenheim Partners Europe Limited and exited its reinvestment period in September 2022. KEY RATING DRIVERS Par Erosion; Heightened Refinancing Risk: The portfolio is below target par of approximately 0.5%. There are currently no defaulted assets in the portfolio. However, the transaction is marginally failing some of its tests, including the weighted average life test, the weighted average spread test and the maximum allowance of fixed-rate assets. The Negative Outlook on the class E 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 12.8% of the portfolio maturing by December 2025. In Fitch's opinion, this may lead to further deterioration of the portfolio with an increase in defaults. The Negative Outlook indicates potential for a downgrade but Fitch expects the rating 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 class notes 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 to D notes. Transaction Outside Reinvestment Period: Although the transaction exited its reinvestment period in September 2022, the manager can reinvest unscheduled principal proceeds and sale proceeds from credit-risk obligations 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 matrix specified in the transaction documentation. Fitch also applied a haircut of 1.5% to the weighted average recovery rate (WARR) as the calculation of the WARR in the transaction documentation is not in line with the agency's current CLO criteria. Deviations from MIR: The 'AA+sf' ratings on the class A-2A and A-2B notes are a deviation from their model-implied ratings (MIR) of 'AAAsf', and the 'BBB+sf' rating on the class C notes is a deviation from its MIR of 'A-sf'. The deviations reflect Fitch's view that the default-rate cushion is not commensurate with an upgrade to the MIR, given heightened macroeconomic risk and limited deleveraging prospects in the near- and medium-term. '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 25.7. For the portfolio including entities with Negative Outlook that are notched down one level as per its criteria, the WARF was 27.0 as of 23 September 2023. High Recovery Expectations: Senior secured obligations comprise 97.1% 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 WARR of the current portfolio as reported by the trustee was 63.5%, based on outdated criteria. Under the current criteria, the Fitch-calculated WARR is 60.6%. Diversified Portfolio: The transaction has a top 10 obligor concentration limit of 20%. Concentration as calculated by Fitch is 16.9%, which is below the limit, and the largest issuer represents less than 1.9% of the portfolio balance. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade An increase of the default rate (RDR) by 25% of the mean RDR of the current portfolio and a decrease of the recovery rate (RRR) by 25% at all rating levels in the current portfolio would have no impact on the class A-1A to C notes. It would lead to downgrades of two notches for the class D and E 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 class A-2 and D notes display a rating cushion of one notch, and the class C and E notes three notches. The class A-1A, A-1B, A-1C and B notes have no rating cushion. 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 no more than one notch for the class A-2 and C notes, two notches for the class B notes, three notches for the class 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 in the stressed portfolio would result in upgrades of up to three notches for all notes, except for the class A-1 notes, which are already at the highest level on Fitch's scale and cannot be upgraded. Further upgrades may occur if the portfolio's quality remains stable and the notes start to amortise, leading to higher credit enhancement across the structure. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. 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. MAC INTERIORS: High Court Rejects Scheme of Arrangement ------------------------------------------------------- John Mulligan at Irish Independent reports that the High Court has rejected a scheme of arrangement for Northern Ireland firm Mac Interiors where the Revenue Commissioners was owed EUR13 million in warehoused taxes. According to Irish Independent, as of the end of July, there were almost 56,000 businesses with a total of EUR1.2 billion of warehoused debt. The warehousing scheme introduced during the crisis allowed businesses to defer the payment of some tax liabilities until they were on a sounder financial footing, Irish Independent notes. Earlier this year the company, which specialises in office fit outs, secured court protection from its creditors, with Kieran Wallace of Interpath Advisory appointed as its examiner, Irish Independent recounts. The company had blamed the impact of the pandemic and losses on a Liverpool development, as well as global supply chain issues, for its financial difficulties, Irish Independent relates. It secured the examinership even though it is registered in Northern Ireland, which is now outside the European Union, Irish Independent states. Last month, lawyers for Mr. Wallace told the High Court that a scheme of arrangement to save Mac Interiors had been agreed by a majority of its creditors, Irish Independent relays. If the company exited examinership, Derry construction firm Errigal had pledged to invest at least EUR3.7 million in Mac Interiors, Irish Independent notes. But the Revenue Commissioners opposed an application from the examiner's lawyers to approve that scheme. Revenue objected on legal grounds, according to Irish Independent. It claimed that certain creditors were not properly classified under the proposed scheme, Irish Independent states. However, a lawyer for the examiner denied the proposed scheme was flawed, Irish Independent relates. Revenue would see the EUR13 million owed to it almost wiped out under the proposed scheme, Irish Independent discloses. On Oct. 5, Mr Justice Michael Quinn indicated that he agreed with Revenue's argument regarding the classification of creditors and he believes the court does not have the jurisdiction to approve the proposed survival scheme, according to Irish Independent. He said that two independent financial consultancy firms had confirmed that a successful examinership was in the "best interests" of all creditors, including the Revenue Commissioners, Irish Independent notes. PENTA CLO 9: Fitch Affirms 'B-sf' Rating on F Notes, Outlook Stable ------------------------------------------------------------------- Fitch Ratings has revised the Outlooks on five tranches of Penta CLO 9 DAC to Positive from Stable and affirmed all notes' ratings. Entity/Debt Rating Prior ----------- ------ ----- Penta CLO 9 DAC A XS2344756577 LT AAAsf Affirmed AAAsf B-1 XS2344756494 LT AAsf Affirmed AAsf B-2 XS2344756650 LT AAsf Affirmed AAsf C XS2344756734 LT Asf Affirmed Asf D XS2344756817 LT BBBsf Affirmed BBBsf E XS2344757898 LT BBsf Affirmed BBsf F XS2344757971 LT B-sf Affirmed B-sf TRANSACTION SUMMARY The transaction is a cash flow CLO mostly comprising senior secured obligations. It is actively managed by Partners Group (UK) Management Ltd and will exit its reinvestment period in July 2026. KEY RATING DRIVERS Decreasing Weighted Average Life: The good performance of the underlying assets combined with the portfolio's decreasing weighted average life result in larger break-even default-rate cushions than at the last review in November 2022. This should allow the notes to withstand unexpected losses, given the small amount of near-term loan maturities in the transaction. Given the manager's ability to reinvest, Fitch's analysis is based on a stressed portfolio using the agency's collateral quality matrix specified in the transaction documentation. Fitch used matrices with top 10 obligor limits of 23% and 15% and fixed-rate limits of 0% and 5%. The current portfolio has a top 10 obligor concentration of 10.90% and fixed-rate concentration of 3.97%. Stable Asset Performance: The transaction's metrics indicate stable asset performance. The transaction is currently 0.56% below par. It is passing all collateral quality tests, portfolio profile tests and coverage tests. Exposure to assets with a Fitch-derived rating of 'CCC+' is 3.56%, according to the latest trustee report, versus a limit of 7.5%. The portfolio has EUR2.1 million in defaulted assets. The Positive Outlooks on the class B to E notes reflect the decreasing weighted average life of the transaction as well as limited refinancing risk with approximately 0.75% of the portfolio maturing within 2024, and 6.67% in 2025. 'B'/'B-' Portfolio: Fitch assesses the average credit quality of the transaction's underlying obligors at 'B'/'B-'. The weighted average rating factor, as calculated by Fitch under its latest criteria, is 25.70. High Recovery Expectations: Senior secured obligations comprise 99.57% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The weighted average recovery rate, as calculated by Fitch, is 62.48%. Diversified Portfolio: The portfolio is well-diversified across obligors, countries and industries. No obligor represents more than 1.24% of the portfolio balance. The exposure to the three-largest Fitch-defined industries is 39.3% as calculated by Fitch. Deviation from MIRs: The class B to E notes are one notch below their model-implied ratings (MIR), while the class A and class F notes are in line with their MIR. The deviations reflect uncertain macroeconomic conditions and a potentially deteriorating portfolio credit profile of the transaction. The transaction has almost three years of its reinvestment period remaining. 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 by 25% of the mean RDR and a decrease of the recovery rate (RRR) by 25% at all rating levels of the current portfolio would result in one-notch downgrades for the class D and E notes. While not Fitch's base case, downgrades may occur if build-up of the notes' credit enhancement following amortisation does not compensate for a larger loss expectation than assumed due to unexpectedly high levels of defaults and portfolio deterioration. Based on the current portfolio, downgrades may occur if the loss expectation is larger than initially assumed, due to unexpectedly high levels of default and portfolio deterioration. Due to the better metrics and shorter life of the identified portfolio than the Fitch-stressed portfolio, the class C notes display a rating cushion of one notch, the class B, D and E notes of two notches and the class F notes five notches. Should the cushion between the current portfolio and the Fitch-stressed portfolio be eroded, either due to manager trading or negative portfolio credit migration, a 25% increase of the mean RDR and a 25% decrease of the RRR across all ratings of the stressed portfolio would lead to downgrades of up to three notches. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A 25% reduction of the mean RDR and a 25% increase in the RRR across all ratings of the Fitch-stressed portfolio would lead to upgrades of up to five notches, except for the 'AAAsf' rated notes, which are at the highest level on Fitch's scale and cannot be upgraded. During the reinvestment period, based on the Fitch-stressed portfolio, upgrades may occur on better-than-expected portfolio credit quality and a shorter remaining weighted average life test, allowing the notes to withstand larger-than-expected losses for the transaction's remaining life. After the end of the reinvestment period, upgrades may occur on stable portfolio credit quality and deleveraging, leading to higher credit enhancement and excess spread available to cover losses in the remaining portfolio. DATA ADEQUACY Penta CLO 9 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. VOYA EURO II: Fitch Affirms B-sf Rating on Class F-R Loans ---------------------------------------------------------- Fitch Ratings has revised the Outlook on six tranches of Voya Euro CLO II DAC to Positive from Stable and affirmed all notes. Entity/Debt Rating Prior ----------- ------ ----- Voya Euro CLO II DAC A-R XS2357476691 LT AAAsf Affirmed AAAsf B-1-R XS2357476931 LT AAsf Affirmed AAsf B-2-R XS2357477152 LT AAsf Affirmed AAsf C-R XS2357477079 LT Asf Affirmed Asf D-R XS2357477236 LT BBBsf Affirmed BBBsf E-R XS2357478556 LT BBsf Affirmed BBsf F-R XS2357478473 LT B-sf Affirmed B-sf TRANSACTION SUMMARY Voya Euro CLO II DAC is a securitisation of mainly senior secured loans (at least 90%) with a component of senior unsecured, mezzanine, and second-lien loans. The portfolio is actively managed by Voya Alternative Asset Management LLC. The transaction will exit its reinvestment period in January 2026. KEY RATING DRIVERS Decreasing Weighted Average Life: The solid performance of the underlying assets combined with the decreasing weighted average life of the portfolio result in larger break-even default-rate cushions than at the last review in November 2022. This should allow the notes to withstand unexpected losses, given the small amount of near-term loan maturities in the transaction. Given the manager's ability to reinvest, Fitch's analysis is based on a stressed portfolio using the agency's collateral quality matrix specified in the transaction documentation. Fitch used the matrices with the 15% and 20% limit on the 10 largest obligors and 5% limit on fixed-rate obligations, which are slightly higher than the current portfolio's 11.7% and 2.7% respective shares. Fitch also applied a haircut of 1.5% to the weighted average recovery rate (WARR) as the calculation of the WARR in the transaction documentation is not in line with the agency's current CLO Criteria. Stable Asset Performance: The rating actions reflect a shorter WAL and therefore shorter risk horizon, as well as good asset performance. The transaction is currently 0.14% above par and is passing all collateral-quality, portfolio-profile and coverage tests. Exposure to assets with a Fitch-derived rating of 'CCC+' and below is 2.2%, according to the latest trustee report, and the portfolio only has EUR0.3 million in defaulted assets. In addition, the transaction has a small proportion of assets with near-term maturities, with approximately 1.3% of the portfolio maturing before end-2024, and 7.36% maturing in 2025, which means it is less vulnerable to near-term refinancing risk. '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 25.2. The WARF metric of the Fitch-stressed portfolio, for which the agency has notched down entities on Negative Outlook by one notch was 26.4. High Recovery Expectations: Senior secured obligations comprise 100% of the portfolio as calculated by the trustee. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch-calculated WARR of the current portfolio is 63.4%. Diversified Portfolio: The portfolio is well-diversified across obligors, countries and industries. No obligor represents more than 1.5% of the portfolio balance, as reported by the trustee. The exposure to the three-largest Fitch-defined industries is 30.6% as calculated by Fitch. Deviation from MIRs: The class B to E notes' ratings are one notch below their model-implied ratings (MIR) and the class F notes two notches. The deviations reflect uncertain macroeconomic conditions and the transaction's potentially deteriorating portfolio credit profile. The transaction has more than two years of reinvestment period remaining. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade A 25% increase of the mean default rate (RDR) and a 25% decrease of the recovery rate (RRR) across all ratings of the current portfolio would have no impact on any notes. Based on the current portfolio, downgrades may occur if the loss expectation is larger than initially assumed, due to unexpectedly high levels of default and portfolio deterioration. Due to the better metrics and shorter life of the current portfolio than the Fitch-stressed portfolio, the class C notes display a rating cushion of one notch, the class B and E notes two notches, the class D notes three notches and the class F notes five notches. The class A notes display no rating cushion. Should the cushion between the current portfolio and the Fitch-stressed portfolio be eroded, 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 Fitch-stressed portfolio would lead to downgrades of up to four notches. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A 25% reduction of the mean RDR and a 25% increase in the RRR across all ratings of the Fitch-stressed portfolio would lead to upgrades of up to four notches for the rated notes, except for the 'AAAsf' rated notes, which are at the highest level on Fitch's scale and cannot be upgraded. During the reinvestment period, based on the Fitch-stressed portfolio, upgrades may occur on better-than-expected portfolio credit quality and a shorter remaining WAL test, allowing the notes to withstand larger-than-expected losses for the transaction's remaining life. After the end of the reinvestment period, upgrades may occur on stable portfolio credit quality and deleveraging, leading to higher credit enhancement and excess spread available to cover losses in the remaining portfolio. DATA ADEQUACY Voya Euro CLO II 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. =================== L U X E M B O U R G =================== ARVOS BIDCO SARL: EUR293MM Bank Debt Trades at 59% Discount ----------------------------------------------------------- Participations in a syndicated loan under which Arvos BidCo Sarl is a borrower were trading in the secondary market around 40.9 cents-on-the-dollar during the week ended Friday, October 6, 2023, according to Bloomberg's Evaluated Pricing service data. The EUR293 million facility is a Term loan that is scheduled to mature on August 29, 2024. The amount is fully drawn and outstanding. Arvos BidCo S.a.r.l., is the parent company of the Arvos Group. Arvos is an auxiliary power equipment provider operating in new equipment and offering aftermarket services through two business divisions: Ljungstrom for Air Preheaters (APH), including air preheaters and gas-gas heaters for thermal power generation facilities; and Schmidt’sche Schack for Heat Transfer Solutions (HTS) for a wide range of industrial processes mainly in the petrochemical industry (Transfer Line Exchangers, Waste Heat Steam Generators and High-Temperature Products). Arvos Group is a carve-out from Alstom and is fully owned by Triton funds and by its management. Arvos Midco S.a r.l. (formerly Alison Midco S.a.r.l.) is the parent company of Arvos BidCo. The Company’s country of domicile is Luxembourg. SK NEPTUNE HUSKY: $610MM Bank Debt Trades at 29% Discount --------------------------------------------------------- Participations in a syndicated loan under which SK Neptune Husky Group Sarl is a borrower were trading in the secondary market around 71.5 cents-on-the-dollar during the week ended Friday, October 6, 2023, according to Bloomberg's Evaluated Pricing service data. The $610 million facility is a Term loan that is scheduled to mature on January 3, 2029. The amount is fully drawn and outstanding. SK Neptune Husky Group Sarl has its registered office in Luxembourg. VENATOR FINANCE: $375MM Bank Debt Trades at 79% Discount -------------------------------------------------------- Participations in a syndicated loan under which Venator Finance Sarl is a borrower were trading in the secondary market around 21.0 cents-on-the-dollar during the week ended Friday, October 6, 2023, according to Bloomberg's Evaluated Pricing service data. The $375 million facility is a Term loan that is scheduled to mature on August 8, 2024. About $351.3 million of the loan is withdrawn and outstanding. Venator Finance SARL is a provider of financial investment services. The Company was founded in June 2017 and is located in Luxembourg. =========== T U R K E Y =========== ARAP TURK: Fitch Alters Outlook on 'B-' LongTerm IDRs to Stable --------------------------------------------------------------- Fitch Ratings has revised the Outlook on Arap Turk Bankasi A.S.'s (ATB) Long-Term Foreign-Currency (LTFC) and Local-Currency (LTLC) Issuer Default Ratings (IDRs) to Stable from Negative and affirmed the IDRs at 'B-. Fitch has also affirmed the bank's Viability Rating (VR) at 'b-'. The rating action follows the revision of the Outlook on Turkiye's Long-Term IDR to Stable from Negative (see "Fitch Revises Turkiye's Outlook to Stable; Affirms at 'B'" dated September 8, 2023). Fitch has also affirmed ATB's National Ratings at 'A-(tur)'/Stable. KEY RATING DRIVERS Standalone Creditworthiness Drives Ratings: ATB's IDRs are driven by its standalone strength, as reflected by its VR. The ratings reflect the bank's concentration in the volatile Turkish operating environment, small niche franchise within the trade-finance universe and weakening profitability. It also reflects contained asset quality risks, only adequate capitalisation and stable but concentrated funding. Operating Environment Pressures Recede: ATB's business is concentrated in the challenging Turkish operating environment. The recent shift towards the normalisation of monetary policies have reduced near-term macro-financial stability risks and decreased external financing pressures, which has driven the revision of ATB's Outlooks. Like all Turkish banks, ATB remains exposed to high inflation, lira depreciation, slower growth expectations, uncertainties from the earthquake impact, and multiple macroprudential regulations, despite recent simplification efforts. Niche Trade-Finance Bank: ATB is a small Turkish trade finance bank (end-1H23: 0.1% of total sector assets) specialising in facilitating trade between Turkiye and Libya, and to a lesser extent the Middle East and North Africa region. The bank benefits from close ties to its largest shareholder, Libyan Foreign Bank (62.4%), which provides it with low-cost foreign-currency (FC) funding. High FC Lending: ATB's lending is almost exclusively to Turkish corporates, primarily in FC (end-1H23: 76%) and short term. However, loans make up only a moderate share of the balance sheet, with off-balance exposures mostly comprising letters of guarantee. ATB's underwriting standards compare reasonably with Fitch-rated trade finance peers, although high on-balance sheet single-obligor concentration, exposure to challenging operating environments and its above-sector-average share of FC loans amid lira depreciation heighten asset quality risks. Asset Quality Risks Contained: ATB's asset quality benefits from the short-term nature of its loan book, as well as the counter guarantees against a significant proportion of its Libyan country risk by other Turkish banks in its trade finance operations. The bank's impaired loans ratio was a low 0.1% at end-1H23 while stage 2 were negligible. Nevertheless, high FC lending and the bank's concentration in the volatile Turkish operating environment heighten asset quality risks. Deteriorating Profitability: ATB's operating profit declined sharply by 78% yoy in 1H23. This was driven by higher operating expenses amid high inflation and lira depreciation. Interest income growth was also muted as macroprudential regulations drove a contraction in the bank's loan book while net interest margins contracted by 32bp from their 1H22 level due to higher funding costs. The latter remain below sector average but increased on the back of higher commission paid to the central bank for failing to reach FC deposit conversion requirements. Only Adequate Capitalisation: ATB's common equity Tier 1 (CET1) ratio declined to 16.7% (net of forbearance: 13.4%) at end-1H23 from 20.0% at end-2022 mainly due to growth in risk-weighted assets (RWAs) driven by the tightening of forbearance measures that came into effect in 1Q23. ATB's CET1 ratio compares well with the sector but is only adequate given the sensitivity of capital to lira depreciation as 85% of the balance sheet is in FC, and the small absolute size of the capital base. High Parent Funding: ATB is mainly wholesale funded (70% of total non-equity funding at end-1H23), similar to other trade finance banks. ATB relies heavily on FC funding from its parent, which accounted for around 45% of total non-equity funding at end-1H23. This supports the bank's cost of funding but also leads to high concentration, although these accounts have historically been stable. The bank's 'B' Short-Term IDRs are the only option mapping to Long-Term IDRs in the 'B' category. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade ATB's Long-Term IDRs are sensitive to Fitch's view of an increase in government intervention risk in the banking sector, which caps most Turkish banks' LTFC IDRs at 'B-'. ATB's ratings could be downgraded due to a substantial withdrawal in parent funding, prompting a significant reduction in the bank's FC liquidity, or if the bank's CET1 ratio falls sustainably to levels not commensurate with the bank's risk profile and small equity size, which could derive from an event risk or from structural profitability weakness debilitating internal capital generation capacities. ATB's IDRs are also potentially sensitive to a sovereign downgrade. The Short-Term IDRs are sensitive to changes in the bank's Long-Term IDRs. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade An upgrade of ATB's VR would require a marked improvement in the operating environment, coupled with a strengthening of the bank's operating profitability and capital buffers while maintaining adequate asset quality metrics. OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS The bank's National Long-Term Rating of 'A-(tur)'/Stable reflects its view of the bank's unchanged creditworthiness in local currency relative to other Fitch-rated Turkish issuers'. The bank's 'no support' Government Support Rating (GSR) reflects Fitch's view that support from the Turkish authorities cannot be relied upon, given the bank's small size and limited systemic importance. In addition, support from ATB's shareholders, while possible, cannot be relied upon given the political situation in Libya. OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES The National Rating is sensitive to a change in the bank's creditworthiness in LC relative to that of other Turkish issuers. VR ADJUSTMENTS The operating-environment score of 'b-' for Turkish banks is lower than the category implied score of 'bb', due to the following adjustment reasons: sovereign rating (negative) and macroeconomic stability (negative). ESG CONSIDERATIONS The ESG Relevance Management Strategy score of '4' reflects increased regulatory intervention in the Turkish banking sector, which hinders the operational execution of management strategy, constrains management ability to determine strategy and price risk and creates an additional operational burden for banks. This has a moderately negative credit impact on the bank's rating in combination with other factors. Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit neutral or have only a minimal credit impact on ATB, either due to their nature or to the way in which they are being managed by the bank. Entity/Debt Rating Prior ----------- ------ ----- Arap Turk Bankasi A.S. LT IDR B- Affirmed B- ST IDR B Affirmed B LC LT IDR B- Affirmed B- LC ST IDR B Affirmed B Natl LT A-(tur) Affirmed A-(tur) Viability b- Affirmed b- Gov't Support ns Affirmed ns PETKIM PETROKIMYA: Fitch Lowers LongTerm IDR to B-, Outlook Stable ------------------------------------------------------------------ Fitch Ratings has downgraded Petkim Petrokimya Holdings A.S.'s (Petkim) Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'B-' from 'B'. The Rating Outlook is Stable. In addition, Fitch has assigned a new 'B-'/'RR4' senior unsecured debt instrument rating. The downgrade of Petkim Petrokimya Holding A.S.'s Long-Term IDR reflects deterioration in credit metrics due to a decline in petrochemical margins, expectations of subdued recovery in earning and high EBITDA net leverage forecast consistently above 3.5x through to 2026. The downgrade also considers deterioration in FCF generation impacted by weaker profits and higher interest costs. The Stable Outlook mirrors its expectations of gradual normalization of the company's earnings to mid-cycle levels and increased support of the ultimate majority parent, State Oil Company of the Azerbaijan Republic (SOCAR; BB+/Positive) and its expectation that parental support for liquidity will continue to be provided. In addition, Petkim's rating reflect its small scale, single-site petrochemical complex and its exposure to cyclical commodity polymers, which results in inherent earnings volatility. Positively, Petkim's business profile benefits from a well-invested asset base, a strong position in the domestic petrochemical market and some resilience to foreign exchange volatility. KEY RATING DRIVERS Margins Decline Sharply: Challenging market conditions continued to pressure pricing of petrochemical products in Turkiye and Europe since end of Q4 22 through to 2023. Despite Petkim's efforts to optimize costs, its EBITDA margins dropped below 2% in H123 from around 9% in FY22. Fitch assumes muted recovery in the near term with EBITDA margins of around 3% in FY23 followed by moderate growth to around 6% in 2024. Fitch assumes return to mid-cycle EBITDA levels from 2025. Leverage Peaks: Fitch forecasts EBITDA net leverage to rise materially above its previous negative rating sensitivity of 3.5x over 2023-2026, with a peak of around 18x in 2023 followed by reduction to around 8x in 2024 and below 5x in 2025-2026. The increase is driven by lower earnings expectations and additional debt requirements for working capital needs when market balances and asset utilization improves. Gross debt quantum is forecast to reduce from USD1.5 billion at FYE22 to around USD1 billion in FYE23. However, debt repayments will have broadly neutral impact on net debt as Fitch assumes substantial utilization of cash and deposits. Negative FCF: Fitch expects negative FCF to persist in 2023 and 2024 due to sharp increases in interest expense, lower earnings and ongoing capex requirements. Fitch expects FCF to be around breakeven in 2025-2026. Fitch assumes that Petkim will continue to utilize USD/EUR borrowings, which limits its exposure to spikes in domestic interest rates. Tight Liquidity: Fitch regards Petkim's liquidity as tight despite an improvement compared to FYE22. As of end-June 2023, Petkim had around TRY10.5 billion of cash and cash equivalents versus TRY16.5 billion of short-term debt. The issuer successfully repaid USD500 million bond in January 2023 through use of cash and USD300 million three-year term loan. Notwithstanding, Petkim remains highly reliant on domestic banks, roll-over of short-term debt and potentially support from the parent. Fitch also expects Petkim to hold a cash balance of between USD100 million and USD 150 million in 2023-2026, which is lower compared to historic levels and may increase reliance on short-term funding in case of material working capital swings. Final Payment for STAR Cancelled: Petkim and its majority shareholder SOCAR Turkiye Enerji A.Ş. (STEAŞ) agreed on a reduction in Petkim's indirect shareholding in the STAR refinery from 18% to 12%. Petkim has already paid USD480 million for an equivalent of 12% in STAR, and the formal share transfer was settled in October 2023. Initial terms agreed in 2018 assumed a USD720 million payment for 18% of indirect shareholding. Fitch no longer includes the final USD240 million instalment in adjusted debt; therefore, the agreement has a positive effect on leverage. Concurrently, it reduces potential for a higher share dividend payment from STAR in the future. Benefits from STAR to Increase: Completion of the share transfer will entitle Petkim to receive dividend payment from STAR. The issuer also expects closer co-operation and better payment terms from STAR, following repayment of project finance loans by the refinery. Petkim currently sources around 80%-90% of naphtha feedstock from STAR and accounts for 10%-15% of refinery output. Exposure to a concentrated supply source is mitigated by its proximity to alternative supply sources from the Black Sea region and Russia. Small-Scale Commodity Producer: Petkim is a Turkish commodity chemical producer, making plastics and intermediates from naphtha. Petkim has a strong position in the domestic market; however, its small scale and single-site operations with limited integration are key factors in its business profile. Turkish Lira Impact Manageable: Almost 80% of total cash costs are denominated in US dollars as its major feedstock, naphtha, is purchased in that currency. Simultaneously, the majority of sales is denominated in US dollars and euros, or indirectly driven by lira price indexation to US dollar benchmarks. This supports Petkim's EBITDA during periods of lira devaluation, largely offsetting its inflated hard currency debt. FX volatility could also have indirect implications by weakening domestic demand, although Petkim can choose to re-route its products to export markets. Rating on Standalone Basis: Under Fitch's "Parent and Subsidiary Linkage Rating (PSL) Methodology," Petkim is rated on a standalone basis. Notwithstanding, Fitch notes increasing support from the ultimate majority parent SOCAR and may re-assess the rating approach if ties between Petkim and SOCAR strengthen further based on Fitch's PSL rating criteria. DERIVATION SUMMARY Petkim is a small commodity producer comparable to Turkiye-based Sasa Polyester Sanayi Anonim Sirketi (B/Negative). Fitch expects Petkim to have a higher spike in leverage and lower margins in 2023-2024. The company also has lower domestic market share and growth prospects. Sasa Polyester is a manufacturer of polyester stable fibres and yarns and, in contrast to Petkim, has an ambitious expansion programme, which entails execution risk. Other Fitch-rated, commodity-focused EMEA chemical companies include Roehm Holding GmbH (B-/Stable) and Nitrogenmuvek Zrt (B-/Stable). Roehm has a leading position in the methacrylates business in Europe with better geographical diversification, but is also exposed to raw-material volatility and has highly leveraged capital structure. Nitrogenmuvek is single site chemical company that is smaller in scale compared to Petkim. Nitrogenmuvek is a sole domestic producer of fertiliser with a dominant share in landlocked Hungary. However, its business model remains highly exposed to high natural gas costs. KEY ASSUMPTIONS - Naphtha price following the crude oil price of USD80/bbl in 2023, USD75/bbl in 2024, USD70/bbl in 2025 and USD65/bbl in 2026; - Year-end USD/TRY rates of 30 in 2023, 34 in 2024, 37.5 in 2025-2026; - EBITDA of around USD62 million in 2023, followed by USD159 million in 2024 and recovery to average around USD240 million p.a. in 2025-2026; - EBITDA margin of around 3% in 2023, followed by around 6.5% in 2024 and an average 9.5% in 2025-2026; - Working-capital outflow of around TRY0.2 billion in 2023, followed by net working-capital outflow of TRY3.7 billion in 2024-2026; - Capex at around 6.5% of sales in 2023, around 5% in 2024-2025 and 9% in 2026; - No dividends paid to Petkim's shareholders. Recovery Analysis Assumptions The recovery analysis assumes that Petkim would be considered a going concern in bankruptcy and that the company would be reorganised rather than liquidated. Going concern EBITDA is estimated at USD175 million, reflecting Petkim's moderate recovery from a downcycle with benefits from synergies with the STAR Refinery. The going concern EBITDA was revised downwards from USD220 million due to higher than previously forecasted exposure to the downturn and cost pressures. An enterprise value multiple of 4x was applied to the going concern EBITDA, reflecting Petkim's single-site business with exposure to emerging markets and a volatile commodity sector. After deducting 10% for administrative claims, Fitch's analysis generated a waterfall-generated recovery computation (WGRC) in the 'RR4' band, indicating a 'B-' senior unsecured. The WGRC output percentage on metrics and assumptions is 47%. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Strengthening of ties with the parent SOCAR under Fitch's PSL rating criteria may result in the reevaluation of its rating approach and incorporation of the uplift for parental support; - EBITDA net leverage sustainably below 3.5x and EBITDA gross leverage sustainably below 4.0x; - EBITDA interest cover sustainably above 2.5x; - Improvement in liquidity on a sustained basis; - Sustained improvement in EBITDA margins above 10%. Factors that could, individually or collectively, lead to negative rating action/downgrade: - Inability to roll-over short term maturities or deteriorating liquidity profile; - Aggressive financial policies and/or a prolonged downturn in petrochemical market leading to sustained erosion in margins and EBITDA net leverage sustainably above 5.0x and EBITDA gross leverage sustainably above 5.5x; - EBITDA interest cover sustainably below 1.5x. LIQUIDITY AND DEBT STRUCTURE Tight Liquidity: As of end-June 2023 Petkim had around TRY10.5 billion of cash and cash equivalents versus TRY16.5 billion of short -term debt. Short term debt includes TRY9.7 billion of liabilities resulting from letters of credit and a murabaha loan for naphtha procurement that Fitch treats as debt. The issuer successfully repaid USD500 million bond in January 2023 through use of cash and USD300 million three-year term loan; however, it remains highly reliant on domestic banks, roll-over of short-term debt and potentially support from the parent. Fitch also expects Petkim to hold a cash balance between USD100 million and USD 150 million in 2023-2026, which is lower compared to historic levels and may increase reliance on short-term funding in case of material working capital swings. While material level of short-term funding is common among Turkish corporates, it exposes the company to systemic liquidity risk. ISSUER PROFILE Petkim is a small Turkish petrochemical producer with 3.6 million tonnes annual gross production capacity including commodity chemicals. 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 ----------- ------ -------- ----- Petkim Petrokimya Holdings A.S. LT IDR B- Downgrade B senior unsecured LT B- New Rating RR4 =========================== U N I T E D K I N G D O M =========================== BUCKINGHAM GROUP: Contractors, Suppliers Owed GBP108 Million ------------------------------------------------------------ Aaron Morby at Construction Enquirer reports that trade contractors and suppliers have been hit for at least GBP108 million by the sudden collapse of Buckingham Group Contracting. According to a report from administrator Grant Thornton, it is unlikely that the 1,200 unsecured creditors will see any kind of return, Construction Enquirer states. Although the administrator said the final dispersal would depend on the outcome of certain large claims and debtor realisations, Construction Enquirer notes. The full extent of the fallout from the firm's collapse soars to an estimated GBP198 million once GBP4.5 million in staff wage claims and GBP86 million of potential bond claims from around 52 uncompleted contracts are totted up, Construction Enquirer discloses. Among the firms taking big hits are steelwork specialist Severfield, owed around GBP4.2 million; Tarmac Cement and Lime, in for GBP2.8 million; labour supplier Fortel Services owed GBP1.9 million; and crane hirer Ainscough left out of pocket to the tune of GBP1.4 million, Construction Enquirer states. Even Buckingham Plant Hire, which operated as a separate standalone company and continues to trade today, is owed around GBP1.8 million, Construction Enquirer relays, citing the newly-published creditors' report. Buckingham Group had around GBP5 million left in the bank when it entered administration, Construction Enquirer discloses. Grant Thornton warned the supply chain debt estimate had been compiled without the benefit of directors' report, which has still to be completed, Construction Enquirer relates. According to Construction Enquirer, the administrator's report said that Buckingham's problems stemmed from significant and increasing losses incurred on key sports and leisure division contracts, losses sustained on a key civils/build project, delays on contracts and recovering significant work in progress. "These losses placed pressure on the cash flow of the business, with receipts typically being received at the end of the month, but large supplier and subcontractor payment runs being required at mid-month," Construction Enquirer quotes the report as saying. This led directors to engage Grant Thornton as early as last May to explore raising additional funding to enable Buckingham Group to continue trading viably, Construction Enquirer recounts. Despite contacting more than 20 parties, none was willing to provide debt finance or buy share capital, Construction Enquirer notes. METRO BANK: Obtains GBP325MM in New Funding to Secure Future ------------------------------------------------------------ BBC News reports that Metro Bank has struck a deal to raise extra funds from investors that it said will secure its future. The deal was announced late on Oct. 8 after days of intense speculation about the bank's financial position, BBC notes. According to BBC, the Bank of England reportedly asked larger lenders if they were interested in buying Metro, while banks were said to be eyeing up some of its assets. But on Oct. 8, Metro Bank said it had raised GBP325 million in new funding, as well as refinancing GBP600 million of debt, BBC relates. Metro's chief executive, Daniel Frumkin, said the deal marked "a new chapter" for the troubled bank. Metro Bank's shares had slumped last week after reports suggested it needed to raise cash to shore up its finances, BBC recounts. However, Simon Samuels, a former managing director at Barclays and Citi, told the BBC's Today programme that while the financing bought Metro Bank some time, it did not address the "fundamental challenges" of the bank's strategy of focusing on High Street branches which was "very expensive", BBC notes. The bank has insisted all along that its finances remain strong and it continues to meet all regulatory requirements, BBC relates. But under the deal announced on Oct. 8, Colombian billionaire Jaime Gilinski Bacal will become Metro Bank's biggest shareholder with a 53% stake, BBC notes. His firm, Spaldy Investments, will sink GBP102 million into the bank, BBC discloses. In the Oct. 8 announcement Metro Bank, as cited by BBC, said that it had raised GBP325 million in capital from existing shareholders and new backers. The Bank of England, which had been monitoring the situation closely, welcomed the deal. Metro Bank also said it was still in discussions about raising cash by selling up to GBP3 billion of its residential mortgages, BBC relays. Homeowners with mortgages from Metro Bank do not face any immediate change, but if a deal goes through some customers might end up having their loans managed by another bank in the future, according to BBC. PENDLE ENGINEERING: Enters Administration, Sale Among Options ------------------------------------------------------------- Business Sale reports that Pendle Engineering Limited, a family-run engineering firm based in Lancaster, has fallen into administration. FRP Advisory's David Willis and Martyn Pullen were appointed as joint administrators to the business on Oct. 6, Business Sale relates. The company provides a wide range of engineering services covering conception and design through to manufacturing and implementation. Its services include fabrication, laser cutting, CNC machining, structural steel and tube bending and it serves sectors including the rail and defence industries. Last month, the company, which employs 55 staff and is based at the Pendle Industrial Estate in Nelson, filed a Notice of Intention to appoint administrators, having been hit by growing financial difficulties as a result of supply chain inflation and rising input costs, Business Sale recounts. According to Business Sale, following the appointment of the joint administrators, the company will continue to trade with all staff remaining employed while its options are explored, which could include a potential sale. In the company's most recent accounts at Companies House, for the year ending September 30, 2022, its fixed assets were valued at slightly over GBP3 million and current assets at GBP993,117, Business Sale discloses. At the time, the firm's net assets were valued at GBP907,544, Business Sale states. S&N HOME: Owed GBP207,505 by Wilko, Documents Show -------------------------------------------------- Matt Simpson at Daily Echo reports that S&N Home Products, a Dorset business which has gone into liquidation is owed more than GBP200,000 by Wilko. S&N Home Products, based in Butts Pond Industrial Estate, Sturminster Newton, is owed GBP207,505 by the former high street giant, Daily Echo relays, citing Wilko's statement of affairs. The home fragrance business founded in 1997 went into voluntary liquidation late last month, meaning the company is being wound up after approval by shareholders, Daily Echo notes. The company's statement of affairs shows it is GBP102,897 into its HSBC overdraft and had unsecured non-preferential claims of GBP510,157 from trade and expense creditors, Daily Echo discloses. Overall, S&N has an estimated trading loss of GBP1,438,074, according to the documents posted on Companies House, Daily Echo states. It also owes GBP1.7 million to creditors, including GBP100,257 to HM Revenue and Customs for PAYE, GBP217,962 to HSBC Invoice Finance and GBP1,746 to Blandford-based MT Box and Pallet, according to Daily Echo. Documents recently released by Wilko's administrators reveal the budget retail chain owes GBP157,261,588 to its creditors, Daily Echo states. Hundreds of businesses are owed money by the company which collapsed last month after 93 years on the high street, Daily Echo recounts. Administrators at PwC were forced to sell off Wilko's assets after failing to secure a rescue deal, Daily Echo notes. Wilko employed 12,500 staff and ran 400 shops before administrators were called in early August after it came under pressure from weak consumer spending and debts to suppliers, Daily Echo recounts. PwC also struck a deal for fellow discount chain B&M to buy 51 other Wilko stores, while The Range agreed a deal to buy Wilko's brand for around GBP5 million, Daily Echo relates. TOGETHER FINANCIAL: Fitch Hikes LongTerm IDR to BB, Outlook Stable ------------------------------------------------------------------ Fitch Ratings has upgraded Together Financial Services Limited's (Together) Long-Term Issuer Default Rating (IDR) to 'BB' from 'BB-'. The Outlook is Stable. Fitch has also upgraded the senior secured notes issued by subsidiary Jerrold FinCo Plc (FinCo) and guaranteed by Together to 'BB' from 'BB-', and the GBP380 million senior PIK toggle notes, maturing in 2027 and issued by Together's indirect holding company Bracken Midco1 PLC (Midco1), to 'B+' from 'B', with a Recovery Rating of 'RR6'. The upgrades principally reflect Together's sound financial performance in the financial year to end-June 2023 (FY23). Amid a rising interest rate environment, it indicates resilience in its business profile commensurate with a 'BB' rating. KEY RATING DRIVERS TOGETHER - IDRS AND SENIOR DEBT Niche Segments; Low LTVs: Together's IDR is underpinned by its long-established franchise in UK specialised secured lending, its low loan-to-value (LTV) underwriting and its increasingly diversified, albeit largely secured, funding profile. The rating also takes into account the inherent risks involved in lending to non-standard UK borrowers, recently increasing leverage and associated funding needs, against the backdrop of a higher interest rate environment. Longstanding Profitable Franchise: Together is a privately-owned UK non-bank finance provider with a 50-year record of consistent profitability. Products offered include first- and second-charge mortgages, buy-to-let mortgages, bridging loans, commercial term loans and development finance, and the company derives a significant proportion of its business directly, in addition to that sourced from brokers. Personal Underwriting: Loans are secured on UK properties with fairly conservative LTV ratios with a stable weighted average origination LTV of 61% for FY23, which mitigates the higher-risk lending profile than mainstream UK mortgage lenders. Underwriting is more bespoke than mainstream mortgage providers, but Together has been increasing the level of automation to optimise the process. Significant Collateralisation: Together's non-performing loan ratio (defined as IFRS 9 stage 3 loans/gross loans) slightly improved to 7.4% at end-FY23 (end-FY22: 7.7%) amid loan book growth in FY23. Newer loans are inevitably less seasoned, but Together's weighted average LTV ratio of 55.3% at FY23 indicates material headroom to absorb any collateral valuation declines and should help limit credit losses amid sustained pressure on borrowers' repayment capacity or further economic downturn. Some Margin Pressure: Profitability, defined by pre-tax income/average assets, declined materially in 2023 (FY23: 2.5%; FY22: 3.1%), but remains robust, reflecting Together's higher risk profile. Earnings have been affected by the net interest margin contracting during the last couple of years due to increasing funding costs and the lag in passing on these rises to borrowers, as well as by high loan impairment charges. Together's profitability remains sensitive to inherent fluctuations in expected credit loss model assumptions and in a worsening macroeconomic environment, impairment charges can weigh on profitability. Leverage Includes Midco1 Debt: Leverage increased in FY23, with gross debt/tangible equity of 5.7x at end-FY23 (end-FY22: 4.9x) as loan origination outpaced capital generation. When calculating Together's leverage, Fitch adds Midco1's debt to that on Together's own balance sheet, regarding it as effectively a contingent obligation of Together. Midco1 has no separate financial resources of its own with which to service its debt, and failure to do so would have considerable negative implications for Together's own creditworthiness. Profits are largely re-invested in the business and this somewhat mitigates the dependence on debt funding. Wholesale Funding Reliance: Together's funding profile is wholesale, via public and private securitisations, senior secured bonds issued by the financing subsidiary Jerrold FinCo Plc, PIK notes issued by Bracken Midco 1 PLC as well as a GBP138 million revolving credit facility (RCF). Together's total accessible liquidity, which includes liquidity that can be accessed from the private securitisations in exchange for eligible assets as well as potential RCF drawings, was around GBP248 million at end-FY23 (end-FY22: GBP407 million). Regular Recent Funding Access: Over recent years Together has demonstrated repeated capacity to access funding lines and diversified its funding profile by provider and maturity date, but the wholesale nature could still leave it exposed to pricing pressure and ultimately refinancing and liquidity risks in volatile markets. Notably the private securitisations contain a number of performance covenants and the senior secured bonds and RCF have maximum gearing ratios attached to them. In a worsening credit environment, these restrictions could limit funding availability. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Evidence of material asset quality weakness via a significant decline in customer repayments or reduction in the value of collateral relative to loan exposures could result in a downgrade. Weakened profitability with a pre-tax profit/average total assets ratio approaching 1% would also put pressure on ratings, as would an increase in consolidated leverage to above 6x on a sustained basis. A significant depletion of Together's immediately accessible liquidity buffer, for example, via reduced funding access or a need for Together to inject cash or eligible assets into its securitisation vehicles to avoid covenant breaches driven by asset quality would put pressure on ratings. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A further upgrade is unlikely in the near term. However, continued franchise growth and diversification could lead to positive rating action in the medium term, if achieved without deterioration in leverage or a weaker risk profile. DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS JERROLD FINCO PLC - SENIOR SECURED NOTES Jerrold FinCo is a group finance subsidiary, for which Together acts as a guarantor. Fitch regards the probability of default on the senior secured notes as consistent with the probability of default of Together, and so rate the notes in line with Together's Long-Term IDR as Fitch expects average recoveries. MIDCO1 - SENIOR PIK TOGGLE NOTES Midco1's debt rating is notched down from Together's Long-Term IDR as Fitch takes Midco1's debt into account when assessing Together's leverage, and Midco1 is totally reliant on Together to service its obligations. The two-notch differential between Together's Long-Term IDR and the rating of the senior PIK toggle notes reflects Fitch's expectation of poor recoveries in the event of Midco1 defaulting. While sensitive to a number of assumptions, this scenario would likely only occur when Together was also in a much weakened financial condition, as otherwise its upstreaming of dividends for Midco1 debt service would have been maintained. DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES JERROLD FINCO PLC - SENIOR SECURED NOTES The senior secured notes' rating is principally sensitive to a change in Together's Long-Term IDR, with which it is aligned. Material increase in higher (or lower) ranking debt could also lead to upward (or downward) notching of the senior secured notes' rating, if it affected Fitch's assessment of likely recoveries in a default scenario. MIDCO1 - SENIOR PIK TOGGLE NOTES The senior PIK toggle notes' rating is sensitive to changes in Together's Long-Term IDR and to Fitch's assumptions regarding recoveries in a default. Lower asset encumbrance by senior secured creditors could lead to higher recovery assumptions and therefore narrower notching from Together's IDR. 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 ----------- ------ -------- ----- Jerrold Finco Plc senior secured LT BB Upgrade BB- Together Financial Services Limited LT IDR BB Upgrade BB- ST IDR B Affirmed B Bracken Midco1 Plc subordinated LT B+ Upgrade RR6 B WILKO LTD: Administrators Appoint John Pye & Sons to Handle Sale ---------------------------------------------------------------- Business Sale reports that administrators for collapsed bargain retailer Wilko Ltd have appointed national auction house John Pye & Sons to handle the sale of the brand's plant and machinery. Jane Steer, Zelf Hussain and Edward Williams were appointed as joint administrators of the company in August, with its disappearance from UK high streets confirmed in September following the collapse of a rescue deal, Business Sale relates. According to Business Sale, the joint administrators have now appointed John Pye & Sons to manage the sale of plant and machinery from the company's two UK distribution centres in Worksop, Nottinghamshire and Newport, Wales, which cover 1.2 million sq ft and 880,000 sq ft, respectively. Assets for sale in the auction comprise pallet racking, recycling and handling equipment, Business Sale discloses. The items will all be sold via an online auction from Newport, as well as from various John Pye & Sons sites, Business Sale notes. ********* 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. 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