/raid1/www/Hosts/bankrupt/TCREUR_Public/231012.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, October 12, 2023, Vol. 24, No. 205
Headlines
B U L G A R I A
TBI BANK: Moody's Assigns First Time 'Ba2' Deposit Ratings
F R A N C E
CHROME HOLDCO: Moody's Lowers CFR to B3 & Secured Term Loans to B2
DOMIDEP: Moody's Affirms 'B3' CFR, Outlook Remains Stable
ELIS SA: Moody's Affirms 'Ba1' CFR & Alters Outlook to Positive
EUTELSAT COMMUNICATIONS: S&P Cuts ICRs to 'B+/B' on OneWeb Merger
I R E L A N D
ARES EUROPEAN XIV: Moody's Affirms Ba3 Rating on EUR18.3MM E Notes
CVC CORDATUS XI: Moody's Affirms B2 Rating on EUR14.6MM F Notes
MAC INTERIORS: High Court Issues Winding-Up Order
MALLINCKRODT PLC: Bankruptcy Court Confirms Reorganization Plan
L U X E M B O U R G
ATENTO LUXCO 1: Fitch Lowers Foreign Currency IDR to 'RD'
MILLICOM INT'L: Moody's Puts 'Ba1' CFR on Review for Downgrade
T U R K E Y
EMLAK KONUT: Fitch Affirms LongTerm IDRs at 'B', Outlook Stable
U N I T E D K I N G D O M
CLINIGEN: Moody's Lowers CFR & Senior Secured Debt to B3
CROWN AGENTS: Fitch Affirms LongTerm IDR at 'BB', Outlook Stable
LION HASTINGS: Goes Into Liquidation, Owes Over GBP300,000
LUMLEY CASTLE: Bought Out of Administration in Pre-Pack Deal
READING FOOTBALL: Boss Addresses Administration Rumors
SAFE HANDS: SFO Launches Fraud Investigation Following Collapse
- - - - -
===============
B U L G A R I A
===============
TBI BANK: Moody's Assigns First Time 'Ba2' Deposit Ratings
----------------------------------------------------------
Moody's Investors Service has assigned first time Ba2/NP long- and
short-term deposit ratings to TBI Bank EAD. The outlook on the
bank's long-term deposit ratings is stable. At the same time, the
rating agency has assigned a ba3 Baseline Credit Assessment (BCA)
and Adjusted BCA to TBI Bank, as well as Baa3/P-3 long- and
short-term Counterparty Risk Ratings (CRR) and Baa3(cr)/P-3(cr)
long- and short-term Counterparty Risk (CR) Assessments.
TBI Bank is predominantly focused on unsecured consumer finance.
The bank is headquartered in Bulgaria and additionally
predominantly operates in Romania and Greece through branches, on
the basis of the single European passport. The bank's total assets
were BGN2.4 billion (EUR1.2 billion) as of June 2023. TBI Bank is
fully-owned by 4Finance Holding S.A. (4Finance; corporate family
rating B2 stable).
RATINGS RATIONALE
-- ASSIGNMENT OF BCA AND ADJUSTED BCA
TBI Bank's ba3 BCA primarily reflects its robust capital, high
profitability and healthy liquidity, but also the high asset risks
embedded in its unsecured consumer lending operations, the bank's
limited business diversification and the governance risks stemming
from 4Finance Group's relatively concentrated private ownership and
complex organisational structure.
According to Moody's, TBI Bank's tangible common
equity-to-risk-weighted assets ratio stood at 27.0% as of the end
of 2022, sufficient to absorb sizeable unexpected losses. The bank
also benefits from strong internal capital generation and earnings
retention that balances ambitious growth targets and the more
limited access to capital compared to publicly listed banks.
The bank's profitability – with a 2022 net income to tangible
assets ratio of 3.4% – is also robust driven by high margins on
its two main products, general purpose consumer loans and payment
plan loans for purchases through merchants, and despite the high
cost of risk.
TBI Bank faces high asset risk from its unsecured consumer lending
focus to near-prime and prime borrowers, as well as its rapid
credit growth (with a compound annual growth rate of 29% in the
last 3 years). Cost of risk (loan loss provisions to average gross
loans) averaged 5.4% between 2020 to 2022, while problem loans
(defined as IFRS 9 stage 3 loans) were also relatively high at 9.4%
of gross loans as of the end of 2022.
Somewhat mitigating these credit risks, Moody's notes the small
loan tickets driving low borrower concentration and their
relatively short-term maturity profile (average of 37 months as of
end-2022), which allows the bank to adjust underwriting more
quickly. There is also a degree of geographic diversification.
According to 4Finance disclosures, TBI Bank's loan portfolio as of
June 2023 is sourced mainly from Romania (58%) and Bulgaria (33%),
with the balance coming from Greece and purchased online portfolios
(from Lithuania). This makeup also drives the bank's overall
'Moderate –' Macro Profile.
The rating agency further notes the bank's limited earnings
diversification inherent in its business model as a credit
constraint, incorporated in a one notch negative monoline
adjustment. Although the bank provides some loans to small and
medium enterprises, its consumer lending business makes up more
than three quarters of earnings. Therefore, profits may face
heightened volatility because of segment-specific risks, including
regulatory changes. For example changes to consumer protection
regulation, such as interest rate caps, can suddenly challenge the
bank's profitability in a given market, which is a key social risk
for the bank.
4Finance Group's private ownership and complex legal structure is a
governance risk, which is reflected in a one notch negative
qualitative adjustment for opacity and complexity. 4Finance is
ultimately owned by an individual holding a 29.5% share and a few
other private shareholders each holding less than 10%. Board
policies may be influenced by the main shareholders and there can
be rapid changes in strategy and risk-taking. TBI Bank operates
however, within the EU bank regulatory framework and oversight,
which mitigates some of these ownership-related risks.
TBI Bank has healthy liquidity, with liquid banking assets at 28%
of total banking assets as of the end of 2022, and is predominantly
funded by granular retail deposits, the vast majority of which are
within the EU deposit guarantee limit. However, TBI Bank is not a
relationship bank and pays a premium to attract deposits and could
therefore be more vulnerable to shocks in confidence. Market
funding reliance is low at 3% of assets as of end-2022, which will
increase moderately because of the bank's ongoing compliance with
the minimum requirement for own funds and eligible liabilities
(MREL).
TBI Bank's ba3 Adjusted BCA does not benefit from parental support
uplift because 4Finance's standalone assessment of b2 is lower than
the bank's own BCA.
-- ASSIGNMENT OF DEPOSIT RATINGS
TBI Bank's Ba2 long-term deposit ratings reflect the bank's ba3
Adjusted BCA and one notch of rating uplift from the application of
Moody's Advanced Loss Given Failure (LGF) that considers the
severity of losses faced by the different liability classes in
resolution.
For depositors, the rating agency's Advanced LGF analysis indicates
a low loss severity in the event of the bank's failure, which
reflects the loss absorption provided by the volume of junior
deposits themselves, and outstanding and future volumes of debt to
satisfy the bank's final MREL targets. In its forward-looking
analysis Moody's has considered only the minimum amount of debt
that would be needed to meet requirements and maintain growth
targets.
Given its limited systemic importance and the application of the EU
Bank Recovery and Resolution Directive (BRRD) in Bulgaria, which
limits the authorities' flexibility to provide support, TBI Bank's
ratings do not benefit from government support uplift because
Moody's expects the probability of government support, in case of
need, to be low.
The assigned ratings also incorporate TBI Bank's environmental,
social and governance (ESG) considerations, as per Moody's General
Principles for Assessing Environmental, Social and Governance Risks
methodology. TBI Bank has high exposure to governance risk, as
mentioned above, reflected in a Governance Issuer Profile Score
(IPS) of G-4. TBI Bank also faces high social risks, reflected in a
Social IPS of S-4, stemming from heightened risk of regulatory
disruption, such as from potential caps on fees and interest rates
aimed at protecting the more vulnerable consumer segments. TBI
Bank's governance risks drive an ESG Credit Impact Score of CIS-4,
which indicates a material impact of ESG factors on the assigned
ratings.
RATING OUTLOOK
The stable outlook on the long-term deposit ratings reflects
Moody's expectation that the bank's performance and financial
profile will remain broadly stable.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
TBI Bank's ratings could also be upgraded in the event of a
significant improvement in the operating environments of Romania
and Bulgaria, if asset risk declines materially, and if it
diversifies its business profile and governance risks abate.
The bank's deposit ratings could also be upgraded in case the bank
issues and maintains substantial additional volumes of MREL debt or
its liability structure changes in a way that provides a
significantly larger loss-absorbing buffer for depositors.
TBI Bank's ratings could be downgraded if operating conditions
deteriorate, leading to asset quality deterioration, and a decline
in profitability, that also impacts capital generation and lowers
the coverage of credit costs from income; funding volatility and
resultant squeeze in liquidity would also place downward pressure
on the ratings.
TBI Bank's deposit ratings could also be downgraded following a
change in its liability structure that reduces the uplift provided
by Moody's Advanced LGF, such as from lower volumes of MREL debt.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks
Methodology published in July 2021.
===========
F R A N C E
===========
CHROME HOLDCO: Moody's Lowers CFR to B3 & Secured Term Loans to B2
------------------------------------------------------------------
Moody's Investors Service has downgraded Chrome HoldCo's ("Cerba")
Corporate Family Rating to B3 from B2 and the Probability of
Default Rating to B3-PD from B2-PD. Concurrently Moody's has
downgraded to B2 from B1 the instrument ratings on the senior
secured term loans, the senior secured notes and the senior secured
revolving credit facility (RCF) issued by Chrome BidCo. Moody's has
further downgraded the rating on the backed senior unsecured notes
to Caa2 from Caa1 issued by Chrome HoldCo. The outlook on all
ratings remains negative.
RATINGS RATIONALE
The rating action reflects Moody's expectation that Cerba's credit
metrics will remain below the levels required for a B2 rating over
the next 12-18 months. Cerba's credit metrics in 2023 will
materially weaken given the steep decline in Covid-19 PCR testing
activities, higher operating costs owning to inflation with limited
ability to pass on price increases on to customers, higher tariff
cuts in France and weaker growth in its research segment than
Moody's forecasted. As a result Moody's expects Cerba's leverage on
a Moody's adjusted basis to increase to around 11.0x in 2023. On
top of the weaker earnings the higher interest rate environment
will limit free cash flow (FCF) generation which Moody's expects to
be negative in 2023 and Moody's adjusted EBITA/interest expense
ratio will likely decline to around 1.0x.
Moody's expects its credit metrics to gradually improve from 2024
however the pace of improvement will largely depend on the
company's ability to successfully drive synergy realization from
the integration of past acquisitions in addition to ongoing cost
cutting measures. The new triennial agreement with a cap of 0.4%
provides revenue visibility but will continue to constrain topline
growth and does not compensate for the higher cost inflation.
Around 80% of Cerba's debt is fixed or hedged until December 2024
which should support FCF to turn back positive in 2024. However as
these hedging agreements expire its FCF generation will likely
reduce.
At the same time, Moody's recognizes Cerba's established position
within its key markets; its vertical integrated business model
allowing for synergies across segments, the defensive nature of the
industry with positive underlying fundamentals and strong barriers
to entry. The rating also reflects the company's long track record
of growth with good historic margins; and a stable and highly
experienced management team. The company further benefits from
superior organic growth potential compared to peers from its
Contract Research Organisation (CRO) services, which should support
an organic growth of around 5% per annum over the medium term.
RATIONALE FOR NEGATIVE OUTLOOK
The negative outlook reflects the weak rating positioning given the
material deterioration of its credit metrics. While Moody's expects
some margin recovery from 2024, the pace of improvement is
uncertain and dependent on the company's ability to successfully
drive its operational efficiency measures.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive rating pressure could develop if Moody's adjusted leverage
falls towards 6.5x on a sustained basis; Moody's adjusted FCF/debt
moves towards 5%; Moody's adjusted EBITA/Interest expense moves to
above 1.5x and the company maintains a good liquidity profile.
Negative rating pressure could arise if its liquidity deteriorates
including continued negative FCF or if Moody's adjusted
EBITA/Interest declines to below 1.0x on a sustained basis.
Negative pressure could also increase if the company maintains an
aggressive financial policy including debt funded acquisitions and
does not prioritise deleveraging.
LIQUIDITY PROFILE
Cerba's liquidity is adequate supported by EUR87 million of cash on
balance sheet and EUR270 million of undrawn RCF as of June 2023 out
of EUR450 million. While Moody's adjusted FCF in 2023 will be
negative Moody's expects it to turn back positive in 2024. The RCF
is subject to a springing first lien net leverage ratio covenant,
tested when the facility is drawn by more than 40%. The company
does not have any sizeable debt maturities until 2027.
STRUCTURAL CONSIDERATIONS
The B2 ratings of the senior secured instruments are one notch
above the B3 CFR, reflecting the loss-absorption buffer from the
EUR525 million of senior unsecured notes rated Caa2.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
Cerba, headquartered in Paris, France, is a provider of clinical
laboratory testing services in France, Belgium, Luxembourg, Italy
and Africa. The company is majority owned by funds managed and
advised by EQT (63%), PSP (30%) and management (7%).
DOMIDEP: Moody's Affirms 'B3' CFR, Outlook Remains Stable
---------------------------------------------------------
Moody's Investors Service has affirmed the B3 corporate family
rating and B3-PD probability of default rating of Cube Healthcare
Europe Bidco (Domidep or the company), a leading private operator
of nursing homes headquartered in France. Concurrently, Moody's has
affirmed the B3 ratings on the senior secured bank credit
facilities including the senior secured revolving credit facility
due April 2026 and the senior secured term loan B due October 2026.
The outlook remains stable.
RATINGS RATIONALE
The affirmation of Domidep's B3 ratings with a stable outlook
reflects Moody's expectations that the company's earnings will
recover over the next 12-18 months driven by further increase in
accommodation and care rates, continued improvement in occupancy
and easing inflation. This will support a reduction in
Moody's-adjusted debt/EBITDA towards 7.0x from a high level of 7.7x
as of June 2023 including proforma bolt-on acquisitions completed
in Q2 2023. This level will better position Domidep in the B3
rating category. Higher earnings and good interest hedges will
support a strengthening of Moody's-adjusted EBITA/interest to above
2.0x from 1.7x as of June 2023, an already good level for the B3
rating category.
The rating action also reflects the company's good operating track
record as the fifth-largest private operator of nursing homes in
France, improving geographic diversification since the initial
rating assignment in 2019 following acquisitions in Germany and
Belgium, and higher profitability than that of its peers and track
record of positive free cash flow generation.
However, there are risks to Moody's forecasts because of the
difficult operating environment, notably sustained cost inflation
and structural staff shortages, which together could further strain
margins over the next 12-18 months. Moreover, there is a risk of
further small bolt-on debt-funded acquisitions, which could
constrain leverage reduction.
LIQUIDITY
Domidep's liquidity is adequate. The company had EUR14 million of
cash on balance sheet as of the end of June 2023 and EUR26 million
available under the EUR120 million revolving credit facility (RCF).
Moody's expects positive free cash flow to strengthen the liquidity
buffer over the next 12-18 months. The liquidity has weakened in H1
2023 due to RCF drawdowns to partly fund bolt-on acquisitions and
real estate capex. Moody's also expect the company to maintain
ample headroom under the springing net leverage covenant attached
to the RCF if used by more than 40%. The covenant is set at 10.0x,
compared with a net leverage of 6.3x as of June 2023 and as defined
under the debt indenture.
There is no debt maturity before 2026 when the RCF and Term Loan B
mature.
STRUCTURAL CONSIDERATIONS
The B3 rating on the EUR415 million senior secured Term Loan B and
the EUR120 million senior secured RCF is in line with the CFR and
reflects their pari passu ranking in the capital structure and the
upstream guarantees from material subsidiaries of the group
(representing at least 80% of the consolidated group's EBITDA).
The B3-PD probability of default rating incorporates Moody's
assumption of a 50% recovery rate, typical for bank debt structures
with a loose set of financial covenants.
RATIONALE FOR THE STABLE OUTLOOK
The stable rating outlook reflects Moody's expectations that
Domidep's Moody's-adjusted debt/EBITDA will reduce towards 7.0x
over the next 12-18 months and the company will continue to
generate positive FCF, which in turn will improve the liquidity
buffer.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The rating could be upgraded if the company's Moody's-adjusted
debt/EBITDA falls towards 6.5x (based on the company's lease
multiple of around 8.0x) on a sustained basis, while it maintains a
good operating performance and successfully executes its strategy;
its Moody's-adjusted EBITA/interest remains around 2.0x on a
sustained basis; and it continues generating positive FCF which in
turn will strengthen the liquidity buffer.
The rating could be downgraded if Moody's-adjusted debt/EBITDA
remains sustainably above 7.5x (based on the company's lease
multiple of around 8.0x), Moody's-adjusted EBITA/interest weakens
towards 1.0x or free cash flow or liquidity significantly weaken.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
Cube Healthcare Europe Bidco (Domidep), headquartered near Lyon,
France, is the fifth-largest private nursing home operator in
France in terms of number of beds. It also has a presence in
Germany and, to a lesser extent, Belgium. The company, which
generated revenue of 491 million in 2022, is owned by private
equity firm I Squared Capital since 2019.
ELIS SA: Moody's Affirms 'Ba1' CFR & Alters Outlook to Positive
---------------------------------------------------------------
Moody's Investors Service has affirmed Elis S.A.'s Ba1 corporate
family rating, Ba1-PD probability of default rating, (P)Ba1 rating
on the EUR4 billion backed senior unsecured Euro Medium Term Note
(EMTN) program and the Ba1 ratings on the company's backed senior
unsecured notes. The outlook has been changed to positive from
stable.
"The outlook change to positive reflects Moody's expectation that
Elis' operating performance will remain solid, leading to a
continued improvement in the company's credit metrics," says Sarah
Nicolini, a Moody's Vice President-Senior Analyst and lead analyst
for Elis.
"The positive outlook reflects Moody's view that the rating could
be upgraded over the next 12 to 18 months if Elis demonstrates that
it can continue to weather the current macroeconomic challenges,
while it keeps developing a track record of conservative financial
policies," adds Ms Nicolini.
RATING RATIONALE
The outlook change to positive reflects Moody's expectations that
Elis' credit metrics will continue to improve over the next 12-18
months, sustained by its good profitability owing to its strong
pricing power, which will lead to solid free cash flow (FCF)
generation, allowing the company to reduce gross debt.
The rating agency expects that Elis will be able to preserve its
strong pricing power and will continue to more than offset wage
increases, thus maintaining its good profitability. The rating
agency forecasts that Elis' Moody's adjusted EBITA margin will
remain broadly stable at around 14% over the same period.
Moody's forecasts that Elis' FCF/debt, on a Moody's adjusted basis,
will moderately increase to around 5% in the next 12-18 months,
compared to 4.6% in 2022, with capex broadly stable at around 21%
of revenue (including IFRS16 leases), a manageable increase in
interest expenses and dividends averaging around EUR110 million per
year.
Concurrently, Moody's expects that Elis' leverage (Moody's adjusted
debt/EBITDA) will progressively decrease over the next 12-18 months
to below 3x, the threshold for upward pressure on the rating,
supported by some debt repayments of around EUR150 million per
year.
Elis' Ba1 CFR continues to reflect its leading market shares in
core geographies and its network density, which lead to barriers to
entry and good profitability, and its diversified exposure to
different clients that provides resiliency to its business model,
as proven during the past economic cycles and through the pandemic,
with ability to flex costs and capital expenditures if needed. The
Ba1 CFR also takes into account the solid track record of the
company, the expectation that it will continue to pursue a
conservative financial policy, focused on debt reduction, and the
ability to contain dividends payments if required.
LIQUIDITY
Elis' liquidity is good, supported by its unrestricted cash
balances of EUR342 million as of June 30, 2023 and the expectation
of sustained positive FCF generation. Additionally, in July 2023,
the company issued EUR183 million ($200 million) worth of 10-year
US private placement (USPP), at a fixed coupon of 5.21% on a euro
equivalent basis. The company also has access to an undrawn
sustainability-linked revolving credit facility (RCF) of EUR900
million due in November 2027. The RCF provides a backup for the
EUR600 million commercial paper programme, of which 243 million was
outstanding as of June 30, 2023. Elis has recently set up a new
securitization programme, of which EUR181 million was used as of
June 30, 2023.
Moody's expects Elis to repay the approaching EUR200 million
convertible bond maturing in October 2023 and the EUR500 million
bond maturing in April 2024 with existing cash, including the
proceeds from the recent USPP and availability under the
securitization programme. The next large debt maturity will be the
EUR500 million bond due in April 2025.
Moody's expects the company to maintain comfortable capacity under
the net leverage financial maintenance covenant, which applies to
the RCF and the USPP debt. The covenant, which is tested
semiannually, is set at 3.75x. Net reported leverage was 2.4x as of
June 30, 2023.
STRUCTURAL CONSIDERATIONS
The (P)Ba1 backed senior unsecured rating of the EMTN program and
the Ba1 backed senior unsecured instrument ratings are at the same
level as the Ba1 CFR. The senior notes rank pari passu with Elis'
other bank facilities. All these facilities are unsecured and have
a weak level of guarantee from operating companies.
RATIONALE FOR THE POSITIVE OUTLOOK
The positive outlook reflects Moody's expectations that Elis'
credit metrics will continue to improve over the next 12-18 months,
with Moody's adjusted debt/EBITDA progressively decreasing to below
3x and its Moody's adjusted FCF/debt ratio trending to around 5%.
Such levels will strongly position the company in the Ba1 rating
category.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Further upward pressure on the rating could develop if Elis
continues to demonstrate a strong operating performance and
maintains a prudent financial policy, balancing out shareholders'
and creditors' interests, such that its Moody's adjusted
debt/EBITDA ratio is sustainably maintained well below 3x, and its
Moody's adjusted FCF/debt ratio remains strong. It would also
require a continued ability to flex costs and capital expenditure
when needed, coupled with good liquidity.
Downward rating pressure could materialize if a deterioration in
earnings or a change in financial policy sustainably lead to (1) a
Moody's-adjusted debt/EBITDA ratio increasing above 3.5x, or (2) a
Moody's-adjusted FCF/debt ratio weakening towards 1% or below. The
ratings could also be downgraded if liquidity materially weakens.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
Headquartered in France, Elis S.A. is a multiservice provider of
flat linen, garment and washroom appliances, water fountains,
coffee machines, dust mats and pest control services. The company
reported EUR3.8 billion of revenue and EUR1.26 billion of EBITDA in
2022.
EUTELSAT COMMUNICATIONS: S&P Cuts ICRs to 'B+/B' on OneWeb Merger
-----------------------------------------------------------------
S&P Global Ratings lowered its long- and short-term issuer credit
ratings on France-based satellite operator Eutelsat Communications
S.A. to 'B+/B' from 'BBB-/A-3'. S&P also lowered its issue rating
on debt issued by Eutelsat S.A. to 'BB-', and debt issued by
Eutelsat Communications S.A. to 'B+'.
The stable outlook reflect S&P's view that Eutelsat's additional
broadband capacity and the ramp up of OneWeb's LEO constellation
will boost Eutelsat's revenue by more than 10% in 2024-2025. It
also factors in its forecast that debt to EBITDA will temporarily
peak at about 4.4x in the next two years due to OneWeb's
operational loss and large capex, and a decline thereafter.
S&P said, "OneWeb's LEO constellation still requires sizable
investment and will deteriorate the group's credit metrics. The
company has invested about $4.5 billion in its LEO constellation
and we expect it to ramp up its global high-speed satellite
communication services at the beginning of 2024. That said, OneWeb
intends to solidify its first mover advantage with its generation 2
(Gen-2) constellation. This in our view requires continued high
capex of about EUR700 million-EUR800 million for LEO satellites in
2024-2025, with the total cost estimated at about $4 billion. We
expect OneWeb to continue to post a sizable operational loss in
2024 before generating a moderate profit in 2025, because of the
still-nascent revenue contribution and significant operational
costs to ramp up its services. As a result, we forecast the
combined group's adjusted EBITDA will decrease toward EUR700
million in fiscal year 2024, with an adjusted EBITDA margin of
about 55%, compared with EUR834 million in 2023 (about 74% adjusted
EBITDA margin) despite the largely stable and highly profitable
Eutelsat operations, and lower than the company's guidance of
EUR725 million to EUR825 million on a reported basis.
"We also forecast a FOCF outflow of EUR300 million-EUR400 million
in 2024-2025, due mainly to the large capex, before a moderate
inflow in 2027 thanks to significant EBITDA growth likely achieved
by then. This will translate into the group's adjusted debt to
EBITDA increasing to about 4.4x in 2024-2025, from 3.4x in 2023 for
Eutelsat on a stand-alone basis, and declining thereafter to below
4x in 2026.
"Intensifying competition in the satellite communications market
could undermine the group's long-term growth ambitions. We think
the satellite communications market is highly competitive, with
large GEO satellite operators like Viasat increasing their network
capacity, SES expanding into MEO, Starlinks push into enterprise
segment with LEO constellation, and other upcoming entry of
deep-pocketed players like Amazon Kuiper. In parallel, the fast
expansion of fiber and mobile networks globally could also tighten
the total addressable market for satellite operators in certain
end-markets like broadband and video. We think the increasing
competition will likely squeeze prices. This could undermine the
group's ambition to increase its revenue by more than 10% in the
next three-to-five years, and limit its capacity to materially
increase the profitability toward the level of Eutelsat on a
stand-alone basis. Furthermore, Eutelsat generates more than 60% of
its revenue from video broadcasting, which is on a secular decline.
This could further pressure its top-line growth compared with the
company's base case.
"OneWeb is well positioned in the LEO market, but its success is
yet to be proven. OneWeb and Starlink are the only companies in the
world currently operating high-speed LEO satellite communications
services. Given Starlink's strong focus on retail customers and the
recent delays impeding the operations of Amazon Kuiper and Telesat
Canada, we think OneWeb will have a first-mover advantage in the
enterprise segment in the next two to three years. It should be
able to leverage its already successfully launched LEO
constellation and its existing and continually upgraded GEO
capability. Additionally, the company has about 6Ghz Ku band and Ka
band priority spectrum rights, which are critical to ensure the
higher services quality required by enterprises compared with
retail customers. Its European roots and partial government
ownership could also help strengthen the company in the face of
competition from U.S. providers. These factors combined enabled the
company to expand its order backlog to about $1 billion at the end
of August 2023, compared with EUR700 million in December 2022.
However, considering the LEO market is still in its infancy, with
OneWeb only generating about EUR50 million revenue with a
significant operating loss in fiscal 2023, we think the risks
remain high in terms of OneWeb's profitability and cash flow in the
long term. Our view also considers a large number of parameters
that are difficult to accurately predict, including the net balance
between fast increasing volumes, driven by increasing connectivity
needs, and steady unit price decline, a function of installed
capacities and evolving technologies.
"Prudent liquidity management and supportive financial policy
support the company's long-term investment plan. Eutelsat S.A. has
extended its EUR650 million revolving credit facilities (RCFs) to
September 2025 from 2024. Together with Eutelsat Communications
S.A.'s EUR200 million RCF that matures in 2027, we think the
company has sufficient liquidity until 2025, before its EUR800
million bond matures. The company is also in negotiation with
Export Credit Agencies (ECA) to finance its Gen-2 constellation. We
think liquidity is a key differentiating factor for satellite
operators with large capex requirements, demonstrated by our recent
rating actions on Telesat Canada. The company also has a firm
financial policy to keep the debt to EBITDA below 3x. We think the
company's prudent liquidity management, financial policy, and
partial government ownership will partly balance its investment and
associated execution risks, supporting its long-term success in the
market.
"The stable outlook reflects our view that Eutelsat's additional
broadband capacity and the ramp up of OneWeb's LEO constellation
will boost Eutelsat's revenue by more than 10% in 2024-2025. It
also reflects our forecast that leverage will temporarily peak at
about 4.4x in fiscal 2025, due to OneWeb's operational loss and
large capex, and a decline thereafter."
Downside scenario
S&P could lower the rating if the company experiences delays in
achieving planned synergies, or in translating the strong order
book of OneWeb into revenue, leading to:
-- Much slower revenue growth coupled with margin deterioration;
-- Adjusted debt to EBITDA above 5x;
-- Much higher FOCF outflow than in our base case; or
-- Liquidity or refinancing issues on the back of its large
capex.
Upside scenario
S&P could raise the rating if the company significantly outperforms
its base case, supported by the ramp up of its LEO services,
leading to:
-- S&P's view of strengthened business risk profile; and
-- A credible path toward FOCF to debt of 5%.
=============
I R E L A N D
=============
ARES EUROPEAN XIV: Moody's Affirms Ba3 Rating on EUR18.3MM E Notes
------------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by Ares European CLO XIV DAC:
EUR23,100,000 Class B Senior Secured Floating Rate Notes due 2033,
Upgraded to Aaa (sf); previously on Nov 13, 2020 Definitive Rating
Assigned Aa2 (sf)
EUR19,500,000 Class C Senior Secured Deferrable Floating Rate
Notes due 2033, Upgraded to Aa3 (sf); previously on Nov 13, 2020
Definitive Rating Assigned A2 (sf)
EUR21,300,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2033, Upgraded to Baa2 (sf); previously on Nov 13, 2020
Definitive Rating Assigned Baa3 (sf)
EUR6,900,000 Class F Senior Secured Deferrable Floating Rate Notes
due 2033, Upgraded to B2 (sf); previously on Nov 13, 2020
Definitive Rating Assigned B3 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR185,100,000 Class A Senior Secured Floating Rate Notes due
2033, Affirmed Aaa (sf); previously on Nov 13, 2020 Definitive
Rating Assigned Aaa (sf)
EUR18,300,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2033, Affirmed Ba3 (sf); previously on Nov 13, 2020
Definitive Rating Assigned Ba3 (sf)
Ares European CLO XIV DAC issued in November 2020 is a
collateralised loan obligation (CLO) backed by a portfolio of
mostly high-yield senior secured European loans. The portfolio is
managed by Ares European Loan Management LLP. The transaction's
reinvestment period will end in October 2023.
RATINGS RATIONALE
The rating upgrades on the Class B, C, D and F notes are primarily
a result of the benefit of the shorter period of time remaining
before the end of the reinvestment period in October 2023.
In light of reinvestment restrictions during the amortisation
period, and therefore the limited ability to effect significant
changes to the current collateral pool, Moody's analysed the deal
assuming a higher likelihood that the collateral pool
characteristics would maintain an adequate buffer relative to
certain covenant requirements.
The key model inputs Moody's uses in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers.
In its base case, Moody's used the following assumptions:
Performing par and principal proceeds balance: EUR300.5m
Defaulted Securities: EUR2.4m
Diversity Score: 59
Weighted Average Rating Factor (WARF): 3040
Weighted Average Life (WAL): 4.16 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 4.11%
Weighted Average Coupon (WAC): 4.57%
Weighted Average Recovery Rate (WARR): 44.26%
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties, such as account bank, using the
methodology "Moody's Approach to Assessing Counterparty Risks in
Structured Finance" published in June 2022. Moody's concluded the
ratings of the notes are not constrained by these risks.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.
Additional uncertainty about performance is due to the following:
-- Portfolio amortisation: The main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales by the collateral manager or
be delayed by an increase in loan amend-and-extend restructurings.
Fast amortisation would usually benefit the ratings of the notes
beginning with the notes having the highest prepayment priority.
-- Weighted average life: The notes' ratings are sensitive to the
weighted average life assumption of the portfolio, which could
lengthen as a result of the manager's decision to reinvest in new
issue loans or other loans with longer maturities, or participate
in amend-to-extend offerings.
-- Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Moody's analysed
defaulted recoveries assuming the lower of the market price or the
recovery rate to account for potential volatility in market prices.
Recoveries higher than Moody's expectations would have a positive
impact on the notes' ratings.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available to
rating committees, including macroeconomic forecasts, input from
other Moody's analytical groups, market factors, and judgments
regarding the nature and severity of credit stress on the
transactions, can influence the final rating decision.
CVC CORDATUS XI: Moody's Affirms B2 Rating on EUR14.6MM F Notes
---------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by CVC Cordatus Loan Fund XI Designated Activity
Company:
EUR31,500,000 Class C-R Senior Secured Deferrable Floating Rate
Notes due 2031, Upgraded to Aa3 (sf); previously on Mar 13, 2023
Upgraded to A1 (sf)
EUR22,500,000 Class D-R Senior Secured Deferrable Floating Rate
Notes due 2031, Upgraded to Baa1 (sf); previously on Mar 13, 2023
Affirmed Baa2 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR271,125,000 (Current outstanding amount EUR271,033,000) Class
A-R Senior Secured Floating Rate Notes due 2031, Affirmed Aaa (sf);
previously on Mar 13, 2023 Affirmed Aaa (sf)
EUR22,500,000 Class B-1-R Senior Secured Floating Rate Notes due
2031, Affirmed Aaa (sf); previously on Mar 13, 2023 Upgraded to Aaa
(sf)
EUR24,750,000 Class B-2-R Senior Secured Fixed Rate Notes due
2031, Affirmed Aaa (sf); previously on Mar 13, 2023 Upgraded to Aaa
(sf)
EUR30,375,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2031, Affirmed Ba2 (sf); previously on Mar 13, 2023
Affirmed Ba2 (sf)
EUR14,625,000 Class F Senior Secured Deferrable Floating Rate
Notes due 2031, Affirmed B2 (sf); previously on Mar 13, 2023
Affirmed B2 (sf)
CVC Cordatus Loan Fund XI Designated Activity Company, originally
issued in September 2018 and refinanced in March 2021, is a
collateralised loan obligation (CLO) backed by a portfolio of
mostly high-yield senior secured European loans. The portfolio is
managed by CVC Credit Partners European CLO Mmgt LLP. The
transaction's reinvestment period ended in April 2023.
RATINGS RATIONALE
The rating upgrades on the Class C-R and D-R notes are primarily a
result of the benefit of the transaction having reached the end of
the reinvestment period in April 2023.
The affirmations on the ratings on the Class A-R, B-1-R , B-2-R , E
and F notes are primarily a result of the expected losses on the
notes remaining consistent with their current rating levels, after
taking into account the CLO's latest portfolio, its relevant
structural features and its actual over-collateralisation ratios.
In light of reinvestment restrictions during the amortisation
period, and therefore the limited ability to effect significant
changes to the current collateral pool, Moody's analysed the deal
assuming a higher likelihood that the collateral pool
characteristics would maintain an adequate buffer relative to
certain covenant requirements. In particular, Moody's assumed that
the deal will benefit from a shorter amortisation profile and
higher spread levels than it had assumed at the last rating action
in March 2023.
The key model inputs Moody's uses in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers.
In its base case, Moody's used the following assumptions:
Performing par and principal proceeds balance: EUR446.4m
Defaulted Securities: EUR3.28m
Diversity Score: 57
Weighted Average Rating Factor (WARF): 2934
Weighted Average Life (WAL): 4.05 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.94%
Weighted Average Coupon (WAC): 4.42%
Weighted Average Recovery Rate (WARR): 44.00%
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties, such as account bank, using the
methodology "Moody's Approach to Assessing Counterparty Risks in
Structured Finance" published in June 2022. Moody's concluded the
ratings of the notes are not constrained by these risks.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes's
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.
Additional uncertainty about performance is due to the following:
-- Portfolio amortisation: The main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales by the collateral manager or
be delayed by an increase in loan amend-and-extend restructurings.
Fast amortisation would usually benefit the ratings of the notes
beginning with the notes having the highest prepayment priority.
-- Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Moody's analysed
defaulted recoveries assuming the lower of the market price or the
recovery rate to account for potential volatility in market prices.
Recoveries higher than Moody's expectations would have a positive
impact on the notes' ratings.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available to
rating committees, including macroeconomic forecasts, input from
other Moody's analytical groups, market factors, and judgments
regarding the nature and severity of credit stress on the
transactions, can influence the final rating decision.
MAC INTERIORS: High Court Issues Winding-Up Order
-------------------------------------------------
BreakingNews.ie reports that the High Court has made an order
winding up troubled fit-out firm Mac Interiors.
Mr Justice Michael Quinn made the order after being informed by the
company's examiner Kieran Wallace that it was not possible to put
together a modified rescue plan with a new investor, which if
approved by the court and its creditors, would have saved the
company, BreakingNews.ie relates.
The firm has 31 full time employees, had employed many more as
subcontractors, and owes its creditors over EUR27 million,
BreakingNews.ie discloses.
The firm entered examinership earlier this year, BreakingNews.ie
recounts.
It had traded very successfully in Ireland, the UK and continental
Europe for many years, with clients including Microsoft, AIB,
Ryanair, Pinterest, Barclays Bank and Citibank, BreakingNews.ie
states.
However, it was badly affected by the pandemic restrictions curbing
construction and subsequent inflation on construction materials,
BreakingNews.ie notes.
Late last week, the judge ruled that the court lacked the
jurisdiction to approve a scheme of arrangement put together by M.
Wallace of Interpath Advisory that if approved, would have allowed
the firm to successfully exit examinership and continue to survive
as a going concern, BreakingNews.ie relays.
Revenue had opposed the application, according to BreakingNews.ie.
After the court's decision, a proposed investor who had committed
funds towards the company's survival scheme pulled out of the deal,
BreakingNews.ie states.
The examiner then held talks with a potential new investor
regarding the possibility of putting together "a modified" scheme
of arrangement, BreakingNews.ie notes.
On Oct. 11, James Doherty SC for the examiner told the court that
it had not been possible to put a set of revised proposals before
the court, and the only option was to make an order winding up the
company, BreakingNews.ie relates.
According to BreakingNews.ie, counsel said that Mr Wallace had at
all times acted in the best interests of the creditors and was
prepared to act as the company's liquidator.
Counsel for the company John Lavelle Bl, said his client agreed
that there was no option other than place the firm into
liquidation, BreakingNews.ie notes.
Given the amount of work already done by Mr. Wallace and his
familiarity with the company, counsel said that the examiner should
be appointed as liquidator, BreakingNews.ie relates.
This, he said, would result in savings in relation to costs and
time of the liquidation process, according to BreakingNews.ie.
Dermot Cahill SC, appearing with Sally O'Neill Bl, agreed that the
company should be wound up. Counsel asked the court to appoint its
nominee, Aidan Murphy as liquidator, BreakingNews.ie discloses.
Counsel said that Revenue was the firm's largest creditor and
accounted for approximately half of Mac Interiors debt,
BreakingNews.ie relays.
In his ruling Mr Justice Quinn, as cited by BreakingNews.ie, said
that it was accepted that no criticism had been made by either the
court or Revenue of Mr. Wallace, and noted the submissions that Mr.
Wallace's appointment as liquidator would save time and costs.
However, the court appointed Mr. Murphy as liquidator, on the
grounds that Revenue is the company's main creditor,
BreakingNews.ie discloses.
In his judgement last week, Mr Justice Quinn rejected the
examiner's original proposal for returning Mac Interiors, which
owes creditors some EUR27 million, to solvency following opposition
by Revenue, BreakingNews.ie recounts.
Revenue is owed EUR14.3 million, including EUR13.2 million in
warehoused debt that would have been almost entirely written down,
BreakingNews.ie states.
Mr Justice Quinn found the only impaired creditor class had been
"erroneously formed", BreakingNews.ie notes.
MALLINCKRODT PLC: Bankruptcy Court Confirms Reorganization Plan
---------------------------------------------------------------
Mallinckrodt plc (in examinership) ("Mallinckrodt" or the
"Company"), a global specialty pharmaceutical company, on Oct. 10
disclosed that its Plan of Reorganization (the "Plan") has been
confirmed by the U.S. Bankruptcy Court for the District of
Delaware, positioning the Company to emerge from Chapter 11 by the
end of the year.
Siggi Olafsson, President and Chief Executive Officer of
Mallinckrodt, said, "We are pleased to achieve this important
milestone and look forward to moving ahead as a stronger company.
With substantially less debt and additional financial flexibility,
we will be better positioned for the future as we continue
delivering therapies that improve outcomes for patients with severe
and critical conditions and executing on our strategic priorities.
We appreciate the significant support of our financial
stakeholders, which has enabled us to reach this point quickly and
without interruption to our patients, customers, employees or
business partners."
Mallinckrodt's Plan of Reorganization is supported by a substantial
majority of its financial stakeholders, including holders of
approximately 90% of its first and second lien debt and the Opioid
Master Disbursement Trust II (the "Trust"), as part of a previously
announced Restructuring Support Agreement. Upon emergence,
Mallinckrodt will eliminate approximately $1.9 billion of total
funded debt and ownership of the business will transition to the
Company's creditors. In addition, the Company's obligations to the
Trust will be satisfied on terms agreed with the Trust, including
through a $250 million payment made to the Trust prior to the
Chapter 11 filing, among other consideration.
As previously announced, Mallinckrodt's directors initiated
examinership proceedings in Ireland on September 20, 2023. These
proceedings, which are required to implement certain Irish law
aspects of the Company's financial restructuring and allow for
emergence, are expected to take between two and three months to
complete.
Mallinckrodt expects to formally emerge from Chapter 11 in the
fourth quarter of 2023, following the completion of the Irish
examinership proceedings and once all conditions of the Plan are
satisfied or waived. Until that time, the Company remains under the
U.S. Bankruptcy Court's jurisdiction.
Additional Information
Additional information is available on Mallinckrodt's restructuring
website at www.MNKrestructuring.com.
Court filings and other important information, which may be
material, related to the proceedings are available on a separate
website administrated by the Company's claims agent, Kroll, at
https://restructuring.ra.kroll.com/mallinckrodt2023; by calling
Kroll representatives toll-free at +1-844-245-7926, or
+1-646-440-4855 for calls originating outside of the U.S. or
Canada; or by emailing Kroll at mallinckrodt2023info@ra.kroll.com.
Vendors, suppliers and trade partners should direct any inquiries
to the Company at +1-908-238-5650 or Supplier.Inquiry@mnk.com.
Latham & Watkins LLP, Wachtell, Lipton, Rosen & Katz, Arthur Cox
LLP, Richards, Layton & Finger PA, and Hogan Lovells US LLP are
serving as Mallinckrodt's counsel. Guggenheim Securities, LLC is
serving as investment banker, and AlixPartners LLP is serving as
restructuring advisor.
About Mallinckrodt PLC
Mallinckrodt (OTCMKTS: MNKTQ) -- http://www.mallinckrodt.com/-- is
a global business consisting of multiple wholly-owned subsidiaries
that develop, manufacture, market and distribute specialty
pharmaceutical products and therapies. The company's Specialty
Brands reportable segment's areas of focus include autoimmune and
rare diseases in specialty areas like neurology, rheumatology,
nephrology, pulmonology and ophthalmology; immunotherapy and
neonatal respiratory critical care therapies; analgesics; and
gastrointestinal products. Its Specialty Generics reportable
segment includes specialty generic drugs and active pharmaceutical
ingredients.
On Oct. 12, 2020, Mallinckrodt plc and certain of its affiliates
sought Chapter 11 protection in Delaware (Bankr. D. Del. Lead Case
No. 20-12522) to seek approval of a restructuring that would reduce
total debt by $1.3 billion and resolve opioid-related claims
against them. Mallinckrodt in mid-June 2022 successfully completed
its reorganization process, emerged from Chapter 11 and completed
the Irish Examinership proceedings.
Mallinckrodt Plc said in a regulatory filing in early June 2023
that it was considering a second bankruptcy filing and other
options after its lenders raised concerns over an upcoming $200
million payment related to opioid-related litigation.
Mallinckrodt plc and certain of its affiliates again sought Chapter
11 protection (Bankr. D. Del. Lead Case No. 23-11258) on Aug. 28,
2023.
Mallinckrodt plc disclosed $5,106,900,000 in assets and
$3,512,000,000 in liabilities as of June 30, 2023.
Judge John T. Dorsey oversees the new cases.
In the prior Chapter 11 cases, the Debtors tapped Latham & Watkins,
LLP and Richards, Layton & Finger, P.A. as their bankruptcy
counsel; Arthur Cox and Wachtell, Lipton, Rosen & Katz as corporate
and finance counsel; Ropes & Gray, LLP as litigation counsel;
Torys, LLP as CCAA counsel; Guggenheim Securities, LLC as
investment banker; and AlixPartners, LLP, as restructuring
advisor.
In the new Chapter 11 cases, The Debtors tapped Latham & Watkins,
LLP and Richards, Layton & Finger, P.A., as their bankruptcy
counsel; Arthur Cox and Wachtell, Lipton, Rosen & Katz as corporate
and finance counsel; Guggenheim Securities, LLC as investment
banker; and AlixPartners, LLP, as restructuring advisor. Kroll is
the claims agent.
===================
L U X E M B O U R G
===================
ATENTO LUXCO 1: Fitch Lowers Foreign Currency IDR to 'RD'
---------------------------------------------------------
Fitch Ratings has downgraded Atento Luxco 1 S.A.'s (Atento)
Long-Term Foreign Currency Issuer Default Rating (IDR) to 'RD' from
'CC'. Fitch has also downgraded Atento's USD500 million senior
secured notes due 2026 to 'C'/'RR6' from 'CC'/'RR4' and Atento
Brasil S.A.'s long-term National Scale Rating to 'RD(bra)' from
'CC(bra)'.
The rating actions follow the company's missed interest payment due
on Aug. 10, 2023 on its senior secured notes as part of the
company's proposed restructuring plan.
KEY RATING DRIVERS
Missed Interest Payment: Atento skipped an interest payment due on
Aug. 10, 2023 on its USD500 million senior secured notes. Fitch
views the failure to pay the interest payment as part of the
restructuring plan as a restricted default as per its ratings
definitions.
Proposed Restructuring: The company has outlined a proposed
restructuring plan, which anticipates issuing approximately USD37
million in new money notes due 2025 as part of its exit financing
arrangements, the provision of up to USD79 million of preferred
equity new money investment at emergence from the proposed
restructuring, and 100% equitization of the super-senior revolving
credit facility and the senior secured notes due 2026. The company
expects to complete the restructuring by the end of November 2023.
The company expects net leverage to fall below 1.0x after exiting
the restructuring.
Industry Overcapacity: Work from home policies are expected to
continue to result in intense competition in Atento's customer
relationship management (CRM) and business process outsourcing
(BPO) industry. More employees working from home has resulted in
cost savings for operators but also in workstation overcapacity,
which has led to increased price competition as companies fight to
fill available capacity. Spare capacity is estimated at 20%-25%,
and Brazilian and Spanish markets in particular are seeing fierce
competition.
DERIVATION SUMMARY
Atento is the largest CRM/BPO provider in Latin America, with
around 15% market share. Its ratings are tempered by its
disproportionate leverage, pressured cash flow and weak liquidity
as well as by competitive industry dynamics.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Revenues grow low-single digits;
- Fitch-defined EBITDA margins of 7%;
- Capex in the range of around USD40 million to USD50 million;
- Interest rates above 13% in 2023 and progressively decline
in 2024;
- Brazilian real exchange rate at BRL5.25/USD1.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- Fitch will reassess the IDRs upon the completion of a debt
restructuring process; the updated IDRs would reflect the
new capital structure and credit profile of the issuer.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- Filing for bankruptcy protection, liquidation, or any other
formal winding-up procedure would lead to a downgrade of the
corporate ratings to 'D'.
LIQUIDITY AND DEBT STRUCTURE
Limited Financial Flexibility: Atento's post-restructuring process
is likely to present an improvement in terms of liquidity and debt
levels, but financial flexibility will remain constrained
considering challenging industry dynamics and Fitch's expectation
that Atento will face negative FCF through 2024. Fitch expects
Atento will need to seek additional capital contributions or debt
financing to refinance the 2025 notes.
ISSUER PROFILE
Atento Luxco 1 (Atento Luxco) is fully controlled by Atento S.A.
(Atento), which is the largest provider of customer relationship
management (CRM) and business process outsourcing (BPO) services in
Latin America.
SUMMARY OF FINANCIAL ADJUSTMENTS
- Standard treatment of leases;
- Debt factoring;
- Foreign exchange hedges.
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
----------- ------ -------- -----
Atento Brasil S.A. Natl LT RD(bra) Downgrade CC(bra)
Atento Luxco 1 S.A. LT IDR RD Downgrade CC
senior secured LT C Downgrade RR6 CC
MILLICOM INT'L: Moody's Puts 'Ba1' CFR on Review for Downgrade
--------------------------------------------------------------
Moody's Investors Service placed Millicom International Cellular
S.A. ("Millicom"), CT Trust ("Tigo Guatemala"), Telecomunicaciones
Digitales, S.A. ("Tigo Panama") and Telefonica Celular del Paraguay
S.A.E. ("Telecel") Ba1 long-term Corporate Family Ratings and
Senior Unsecured Long-Term Debt Ratings on review for downgrade.
Previously, the outlooks were stable.
RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR
DOWNGRADE OF THE RATINGS
The review for downgrade reflects the increased execution risk
arising from the need to boost performance and liquidity in its
Colombian subsidiary, UNE EPM (Tigo UNE), a significant contributor
to the group's service revenues (23%) and EBITDA (16%). Moreover,
the review takes into consideration the heightened governance risks
resulting from the complexity introduced to the organizational
structure by shared ownership and joint ventures. This structure
exposes the group to political interference and shareholder
disputes, both of which can considerably affect its operations,
liability, and liquidity management, as recently demonstrated in
Colombia. The action also acknowledges Moody's expectation that the
Millicom group will remain under persistent competitive pressures
in its primary markets, potentially impeding improvement in credit
metrics.
Moody's also projects that the group's leverage will continue to be
high relative to peers rated at the same level. Free cash flow
generation is likely to continue being pressured due to the
substantial capex still necessary to expand and enhance the group's
network and solidify market share across all markets, making it
difficult for the group to significantly reduce leverage.
Additionally, the recent rise in ownership concentration at Atlas
Investissement fund, which now holds 27% of the group's shares,
introduces the risk of a change in financial strategy, especially
concerning the company's financial policies and tolerance towards
leverage. As of June 2023, the group had $755 million in cash and
a fully available committed revolving credit facility totaling $600
million, due in October 2025. The current cash position covers the
group's short-term debt and maturities through 2025. However, from
2026 to 2032, the group will face substantial maturities annually,
requiring rigorous liability management efforts. As of June 2023,
Moody's adjusted gross debt/EBITDA was 3.6x, reflecting the group's
total consolidated debt of $7.76 billion. Total gross debt
excluding leases amounts to $6.75 billion, of which $2.76 billion
matures between 2026 and 2028. Tigo UNE is not a restricted
subsidiary under Millicom's debt indentures.
Moody's review for downgrade will concentrate on the group's
liability management plans as well as its strategy to lower
consolidated leverage. The review will also consider the plans to
boost liquidity and profitability in Colombia, along with measures
to control the governance risks discussed above.
An upgrade is unlikely at this point given the ongoing review for
downgrade. However, Moody's could stabilize the rating outlook if
there is compelling evidence that the group will be able to
deleverage the business and maintain leverage below 3.0x total
Moody's adjusted debt/EBITDA, as well as generate positive cash
flow on a sustained basis. Stabilizing the rating would also
require sustainable improvement in liquidity in Colombia, along
with evidence of maintaining a conservative financial policy.
The ratings could be downgraded if Moody's adjusted debt/EBITDA is
expected to remain above 3.5x without a clear path to deleveraging.
Ratings could also be downgraded if the group's liquidity position
deteriorates, or if the company fails to demonstrate ability to
secure financing to meet upcoming maturities. Additionally, an
increase in governance risk or persistently high execution risks in
Colombia could negatively impact the ratings.
The principal methodology used in these ratings was
Telecommunications Service Providers published in September 2022.
Millicom International Cellular S.A. (Millicom) is a global
telecommunications investor focused on Latin America, with cellular
operations and licenses in nine countries in the region. The
company has around 45 million mobile customers and serves over 4.1
million cable and broadband households. The group's two largest
markets are Guatemala and Colombia, which together contributed to
about 49% of total revenue as of June 2023. Millicom's reported
consolidated revenue and EBITDA for the last twelve months ended
June 2023 reached $5.5 billion and $2.1 billion, respectively. The
company is incorporated in Luxembourg and publicly listed on the
Nasdaq Stock Market in New York and Nasdaq Stockholm.
LIST OF AFFECTED RATINGS
On Review for Downgrade:
Issuer: Millicom International Cellular S.A.
Corporate Family Rating, Placed on Review for Downgrade,
currently Ba1
Senior Unsecured Regular Bond/Debenture, Placed on Review for
Downgrade, currently Ba2
Outlook Actions:
Issuer: Millicom International Cellular S.A.
Outlook, Changed To Rating Under Review From Stable
Issuer: CT Trust
Corporate Family Rating, Placed on Review for Downgrade,
currently Ba1
Backed Senior Unsecured Regular Bond/Debenture, Placed on
Review for Downgrade, currently Ba1
Outlook Actions:
Issuer: CT Trust
Outlook, Changed To Rating Under Review From Stable
Issuer: Telecomunicaciones Digitales, S.A.
Corporate Family Rating, Placed on Review for Downgrade,
currently Ba1
Senior Unsecured Regular Bond/Debenture, Placed on Review
for Downgrade, currently Ba1
Outlook Actions:
Issuer: Telecomunicaciones Digitales, S.A.
Outlook, Changed To Rating Under Review From Stable
Issuer: Telefonica Celular del Paraguay S.A.E.
Corporate Family Rating, Placed on Review for Downgrade,
currently Ba1
Senior Unsecured Regular Bond/Debenture, Placed on Review
for Downgrade, currently Ba1
Outlook Actions:
Issuer: Telefonica Celular del Paraguay S.A.E.
Outlook, Changed To Rating Under Review From Stable
===========
T U R K E Y
===========
EMLAK KONUT: Fitch Affirms LongTerm IDRs at 'B', Outlook Stable
---------------------------------------------------------------
Fitch Ratings has affirmed Turkish residential developer Emlak
Konut Gayrimenkul Yatirim Ortakligi AS's (Emlak Konut) Long-Term
Foreign-Currency (LT FC) and Local-Currency (LC) Issuer Default
Ratings (IDRs) at 'B' and National Rating at 'AA (tur)'. The
Outlooks are Stable.
The ratings reflect the inherent strength of Emlak Konut's revenue
sharing model (RSM) and its continuing beneficial priority
agreement with Turkiye's Housing Development Association (TOKI) for
land purchases. The RSM, while transferring almost all of
development risk to contractors, provides defined minimum profit
margins and a share in upside gains. The priority agreement with
TOKI allows the company to voluntarily purchase land at
independently appraised values without a tendering process.
The issuer's high exposure to Turkish economy means that the
ratings continue to be constrained by Turkiye's 'B' Country
Ceiling, reflecting a record of political interference, high
inflation, weak external buffers relative to high external
financing needs and financial dollarisation. These weaknesses are
balanced against the sovereign's low general government debt
relative to peers, a record of external market access and
manageable debt repayment profile. Emlak Konut's LT LC IDR is
influenced by the group's high exposure to the Turkish economy and
close linkage to TOKI.
KEY RATING DRIVERS
Operating Environment Challenging but Stable: Fitch revised Emlak
Konut's Outlook to Stable from Negative in September 2023 in line
with the Country Ceiling constraint. Fitch revised the Outlook on
Turkiye's sovereign rating to Stable from Negative following the
country's significant shift returning to a more conventional and
consistent policy mix that reduces near-term macro-financial
stability risks and eases balance of payments pressures.
Nevertheless, the operating environment remains challenging, with
Turkiye's 'B' rating reflecting a record of political interference,
high inflation, weak external buffers relative to high external
financing needs and financial dollarisation.
Beneficial TOKI Relationship: Emlak Konut has an exclusive priority
agreement with TOKI, under which it can buy land from TOKI at
independently appraised values with no tendering process. TOKI is
the largest shareholder in Emlak Konut (49.4% shareholding) and is
mandated to provide social housing across the country.
TOKI does not receive government funding and as such benefits from
land sale proceeds and dividends from Emlak Konut. The relationship
is therefore mutually beneficial and has minimal risk of
termination. If it ended, Emlak Konut's business model would be
substantially weakened, although it could continue to operate under
the turnkey model.
RSM Enables Strong Profitability: Emlak Konut's time-tested RSM
guarantees minimum profit margins and further upside gains, while
passing on almost all development risk to contractors. At end-2022,
RSM contributed about 60% of EBITDA (2021: 85%; 2022 EBITDA
distorted by profit from land sales).
The company measures RSM project profitability using a land
multiplier (Emlak Konut's revenue from the project/land value at
time of tender), since the only cost to Emlak Konut is the value of
land it contributes to the project. The multiplier was 5.39 at
end-2022 (2021: 2.91) as tender values and residential prices
multiplied in line with Turkiye's peak inflation during that year.
At 1H23, the multiplier had fallen to 4.06 with lower inflation.
Emlak Konut also executes some turnkey projects like traditional
homebuilders but these have substantially lower margins and
contribute around 5% of EBITDA.
Land Bank Provides Revenue Visibility: The priority agreement with
TOKI allows Emlak Konut to access and grow its land bank at
competitive terms and in favourable locations that most other home
builders would not have access to. Access to this land is critical
for Emlak Konut's RSM as the company can attract bids from top
contractors for its tenders. As at 1H23, Emlak Konut held 3.4
million sqm of untendered land valued at around TRY22.7 billion.
Emlak Konut also sells land plots that the company judges as too
small for its type of large-scale developments to other developers
for substantial profit margins. Land sales contributed to about 35%
of EBITDA in 2022 (2021: less than 2%) and resulted in higher
EBITDA margin of about 41% for 2022 (2021: 25.8%).
RSM Contracts Concentration Risk: The top 10 contractors account
for more than 75% of Emlak Konut's revenue, with about 14% from the
largest, exposing the company to risk of contractor failure. To
mitigate this risk, Emlak Konut's requires the preferred bidder for
RSM projects to deposit 10% of minimum revenue as down payment
along with guarantees worth 6% of total estimated project revenue.
In addition, Emlak Konut oversees the projects and collects and
distributes all project cash flow, including contractor revenue.
Emlak Konut has its own turnkey residential development business,
which enables it to step in and take over in case of contractor
failure mid-project.
Stable Financial Profile: Due to its unique RSM, Emlak Konut has
consistently generated positive free cash flow. Emlak Konut's net
debt/EBITDA leverage is low, at or below 1.0x, commensurate with a
higher rating. Despite drawing down on debt to finance land
purchases in 2022, net debt/EBITDA leverage was 0.3x (2021: 1.0x).
Fitch expects leverage to remain below 1.0x in 2023-2026 in the
absence of changes in its business model and TOKI relationship.
DERIVATION SUMMARY
Emlak Konut has no direct peers. Its beneficial TOKI relationship
and RSM are unique among Fitch-rated home builders. The TOKI
priority agreement provides access to competitively priced,
well-located land parcels which no EMEA peers have. Under the RSM,
the company only contributes land to the project with guaranteed
minimum revenue covering the cost of land and upside gains while
transferring development risk to contractors.
In contrast to other EMEA home builders, the TOKI relationship
exposes Emlak Konut to potential political or regulatory risks.
Turkiye's economy continues to be affected by high inflation but
demand for housing is persisting driven by a significant housing
deficit and growing population. Emlak Konut's unique business model
alongside differing operating environments across EMEA makes direct
comparisons difficult.
Emlak Konut's net debt/EBITDA leverage of below 1.0x is better than
UK based Miller Homes Group (FinCo) PLC (B+/ Stable) and compares
well with Spanish home builders Via Celere Desarrollos
Inmobiliarios, S.A.U. (BB-/Stable) and AEDAS Homes, S.A
(BB-/Stable).
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Sustainable EBITDA margin at around 20%.
- EBITDA net leverage continuing below 1.0x levels with build-up
of cash in the balance sheet.
- Stable dividend policy averaging 30% of net income
- Relationship with Toki unchanged
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- An upgrade of the Country Ceiling.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- Deterioration of the operating environment and a downgrade
of the Country Ceiling.
The following Factors Could Lead to a Negative Rating Action (on a
Standalone Basis):
- Material changes in the relationship with TOKI, causing
deterioration of Emlak Konut's financial profile and
financial flexibility.
- Net debt/EBITDA leverage above 6.0x.
- Deterioration in the liquidity profile over a sustained
period.
LIQUIDITY AND DEBT STRUCTURE
Strong Liquidity: As of June 2023, Emlak Konut had about TRY10.5
billion of unrestricted cash, which covers all of its outstanding
debt. Weighted average debt maturity, at less than three years is
short compared with other real estate peers and is a result of
non-availability of long-term funding in the Turkish market. Emlak
Konut is expected to use the readily available cash primarily to
grow its land bank.
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
----------- ------ -----
Emlak Konut Gayrimenkul
Yatirim Ortakligi A.S. LT IDR B Affirmed B
LC LT IDR B Affirmed B
Natl LT AA(tur) Affirmed AA(tur)
===========================
U N I T E D K I N G D O M
===========================
CLINIGEN: Moody's Lowers CFR & Senior Secured Debt to B3
--------------------------------------------------------
Moody's Investors Service has downgraded the corporate family
rating of pharmaceutical services and mature drugs provider Triley
Midco 2 Limited (Clinigen or the company) to B3 from B2.
Concurrently Moody's has downgraded the company's probability of
default rating to B3-PD from B2-PD, and downgraded the ratings of
company's backed senior secured bank credit facilities to B3 from
B2. The outlook remains stable.
The rating action reflects:
-- Weak trading results for fiscal 2023 (ended June 2023) driven
by volatile clinical trials activity, rising overhead costs
and estimated declines in the company's owned drugs portfolio,
excluding drugs disposed in the year
-- High Moody's-adjusted leverage of 7.2x, pro forma for
disposals, which is expected to remain above 6.5x over the
next 12-18 months, alongside expectations for free cash
outflows
-- The company's solid positions in the growing pharmaceutical
services segment
RATINGS RATIONALE
The B3 CFR reflects the company's: (1) attractive growth
opportunities in the pharmaceutical services market, with low
correlation to economic cycles; (2) embedded position in the
pharmaceutical value chain thanks to relationships with both
pharmaceutical companies and healthcare professionals and a global
footprint; (3) high barriers to entry in some segments through
regulatory know-how; (4) track record of growth and free cash flow
generation prior to the LBO; and (5) significant cash balances
expected to be supplemented by milestone receipts from the recent
disposal of Proleukin.
The ratings also reflect the company's: (1) high Moody's adjusted
leverage of 7.2x as at June 2023, pro forma for disposals and
expected debt prepayment from proceeds; (2) sizeable profit
contributions from mature, owned drugs, for which revenues are
expected to decline; (3) high competition with moderate risk of new
entrants and potential price pressure in the fragmented market for
pharmaceutical services; (4) risk of debt-funded acquisitions
slowing the company's gross deleveraging trajectory; and (5) risk
of digital disruption that could pressure the margins.
Clinigen's trading performance in fiscal 2023 has been adversely
affected by several factors – high volatility in shipments of
comparator drugs for clinical trials; resourcing issues and the
need to rebuild orders for clinical packaging/labelling; unusually
high drug shortages driving on-demand revenues in the prior year;
declines in the owned drugs portfolio excluding Proleukin; and
increased overheads driven by wage inflation and business
investment. As a result Moody's estimates that Clinigen's EBITDA
for the continuing business is around 16% below the prior year and
22% below Moody's original forecasts at the time of the LBO last
year.
By contrast the company has been highly successful in executing
disposals from its owned drug portfolio, raising GBP167 million of
upfront proceeds from the sale of Proleukin, alongside smaller
transactions. The proceeds have largely been used to prepay debt,
including EUR50 million prepayment expected in October, and also
provide relatively high cash balances, with prospects for further
substantial receipts should regulatory approval be received for
Iovance's Lifileucel where Proleukin is used as an adjunctive.
Despite the deleveraging effect of these actions adverse trading
results have led to increasing leverage. The company's
Moody's-adjusted debt / EBITDA increasing to 7.2x, pro forma for
disposals and expected prepayments, compared to 6.8x at closing of
the LBO and 6.1x for fiscal 2023 under Moody's original forecasts.
There is significant opportunity to recover trading, as short term
shipment issues reverse, order books are rebuilt, from new product
launches and cost control, alongside expected strong mid to high
single digit growth in the pharma services market. However
significant declines in the existing owned drugs portfolio will
continue to remain a drag on trading performance.
LIQUIDITY
Clinigen has solid liquidity. As at June 2023 the company held cash
of GBP99 million and had access to an undrawn senior secured first
lien revolving credit facility (RCF) of GBP75 million. Cash
balances are likely to be supported by milestone payments and
royalties to be received in relation to its disposal of Proleukin,
although free cash flow after interest, tax, capex and before
milestone payments is expected to remain at negative to breakeven
levels.
Clinigen's debt documentation is covenant-lite with only one
springing financial covenant, based on net first lien secured
leverage. It would be tested if the RCF is drawn by 40% or more,
and Moody's expects significant headroom to be maintained.
STRUCTURAL CONSIDERATIONS
The B3 ratings on the GBP632 million equivalent senior secured
first lien term loan B due 2029 and pari passu ranking GBP75
million RCF due 2028 are in line with the CFR reflecting the all
first lien senior debt structure following the prepayment of the
company's second lien term loan in May 2023.
ENVIRONMENTAL, SOCIAL & GOVERNANCE CONSIDERATIONS
Clinigen as limited exposure to environmental risks. Social risks
relate mainly to human capital and responsible production, although
its exposure to responsible production is lower than that of the
healthcare services and pharmaceutical sectors because of its
limited manufacturing footprint and the well-established safety
record of the medicines it owns. Clinigen's governance exposure
reflects its tolerance for high leverage as a leveraged buyout. The
company has successfully executed disposals generating substantial
proceeds and prepaying debt. A new management team has recently
been appointed who will be tasked with addressing recent
operational challenges and controlling costs to improve trading
performance.
OUTLOOK
The stable outlook reflects Moody's expectation that the company
will maintain Moody's-adjusted leverage in excess of 6.5x over the
next 12-18 months, with growth in pharmaceutical services partially
offset by reducing revenues from owned drugs. The outlook assumes
that the company will utilise proceeds from the disposal of its
Oncology Support Medicines in debt repayment, and maintain adequate
liquidity.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if (i) risks of revenue and profit
decline in Clinigen's own product portfolio abate, and (ii)
Clinigen's Moody's adjusted gross debt to EBITDA reduces to below
6.0x on a sustainable basis, and (iii) Clinigen generates free cash
flow (FCF, after interest and exceptional items) leading to
FCF/adjusted debt increasing towards 5% on a sustainable basis, and
(iv) the company does not make any material debt-funded
acquisitions or shareholder distributions.
The ratings could be downgraded in case (i) EBITDA continue to
decline on an a sustained basis, resulting in continued high
leverage, or (ii) free cash generation remains materially negative
or liquidity weakens, (iii) Clinigen embarks upon material
debt-funded acquisitions or shareholder distributions.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
Clinigen, headquartered in Burton-upon-Trent, UK, is a global but
specialised provider of pharmaceutical products and services
focused on access to medicines. Its offering includes (i) a
portfolio of owned and licensed secondary care and hospital drugs,
(ii) the supply of third-party unapproved and difficult-to-source
medicines, (iii) clinical trial services, (iv) the management of
early access to medicines programmes, and (v) pharmacovigilence and
adjacent services. The company was taken private in April 2022
through an LBO by Triton Partners and had gross revenues of GBP561
million and company-adjusted EBITDA of around GBP119 million in
fiscal 2023.
CROWN AGENTS: Fitch Affirms LongTerm IDR at 'BB', Outlook Stable
----------------------------------------------------------------
Fitch Ratings has affirmed Crown Agents Bank Limited's (CABK)
Long-Term Issuer Default Rating (IDR) at 'BB' with a Stable
Outlook, and its Viability Rating (VR) at 'bb'.
KEY RATING DRIVERS
Niche Business: CABK's ratings primarily reflects the bank's niche,
growing franchise in foreign-exchange (FX) and payments. It also
reflects the bank's small size, business concentrations and high
exposure to non-financial risks given its focus on payment services
between developed and emerging or frontier markets. CABK's VR is
one notch below its 'bb+' implied VR because its business profile
has a strong impact on the VR.
Strong Revenue Growth: CABK's business model has transformed in the
past seven years to focus on FX and payments. Revenue growth has
been strong since 2020, reflecting increased volumes, high client
retention and supportive macroeconomic trends. Fitch has revised
CABK's business profile score higher to 'bb' from 'bb-' to reflect
these trends and given the bank's growing, specialised franchise.
UK Based; International Focus: Fitch's assessment of CABK's
operating environment considers the bank's focus on international
operations, including exposures to customers in higher-risk
emerging and frontier markets. CABK's operating environment score
has improved due to the bank's increased client exposure in the UK,
the high proportion of total assets held in cash at the Bank of
England (BoE), and the strong regulatory environment in the UK. Its
assessment also considers the quality of clients in the respective
jurisdictions.
Operational Risk Exposure: CABK's business model gives rise to
settlement and compliance risks. These risks are mitigated by its
focus on high-quality clients, largely based in OECD countries.
CABK has been investing in risk management to accommodate its
evolving business model and growth, and processes and controls are
increasingly automated. Controls have largely been effective to
date, but the business volumes have been growing rapidly with a
short track record.
Highly Liquid Balance Sheet: CABK had no impaired exposures at
end-2022. Credit exposures consist largely of cash held at the BoE
(41% of total assets at end-2022), highly rated securities, and a
materially reduced share of trade-finance exposures. Concentration
by counterparties is high, although these typically have high
ratings.
Improved Profitability: CABK's operating profit/risk weighted
assets (18.6% in 2022; 6% in 2021) has significantly improved
following client and revenue growth. As a result, Fitch has revised
its earnings and profitability score to 'bb' from 'bb-', as Fitch
believes structural profitability has strengthened due to a more
focused business model.
However, earnings remain small in absolute terms (2022 operating
profit: GBP50 million) and long-term prospects depend on the
execution of its growth strategy and the maintenance of strong risk
controls. Revenues are also concentrated by business lines and
clients.
High CET1 Ratio, Modest Capital: CABK's common equity Tier 1 (CET1)
ratio has improved organically in to 33.4% at end-2022 from 20.7%
at end-2019, primarily reflecting lower risk-weighted assets and
improving profitability. However, CABK's small CET1 base (end-2022:
GBP90 million) provides only a modest buffer against potential
losses, particularly given the bank's balance sheet and revenue
concentrations.
Strong Liquidity; Concentrated Deposits: CABK's funding is
underpinned by a highly concentrated deposit base, mitigated by
longstanding relationships with customers. The highly liquid
balance sheet mitigates the risk of unexpected large withdrawals.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- CABK's ratings would be downgraded on signs of inadequate or weak
controls of compliance and non-financial risks, which would
increase the risk of large operational losses, punitive regulatory
actions or fines. A material weakening of the bank's franchise in
FX and payments, due for example to reputational damage, would also
be negative for the ratings.
- A material weakening in the bank's earnings and profitability
prospects, eg. through materially weaker business volume growth,
would also put pressure on the ratings.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- An upgrade would require a significant strengthening of the
bank's business profile and competitive advantages, including a
sustainable record of growth in risk-adjusted returns, while also
reducing revenue concentrations.
- An upgrade would also require maintaining strong risk controls
that are commensurate with higher business volumes and a materially
larger capital base.
The Government Support Rating (GSR) of CABK reflects Fitch's view
that senior creditors cannot rely on extraordinary support from the
UK authorities if the bank becomes non-viable. In its opinion, the
UK has implemented legislation and regulations that provide a
framework requiring senior creditors to participate in losses for
resolving even medium-sized and large banking groups.
Fitch believes that while CABK may receive support from its
shareholders, this cannot be relied on.
Fitch does not expect changes to the GSR given the low systemic
importance of the bank and because of the current legislation in
place that is likely to require senior creditors to participate in
losses.
VR ADJUSTMENTS
The VR of 'bb' is below the 'bb+' implied VR due to the following
adjustment reason: business profile (negative).
The 'bbb+' operating environment score is below the 'aa' category
implied score due to the following adjustment reason: international
operations (negative)
The 'bbb' asset quality score is below the a' category implied
score due to the following adjustment reasons: concentrations
(negative) and non-loan exposure (negative)
The 'bb' earnings and profitability score is below the 'bbb'
category implied score due to the following adjustment reasons:
risk-weight calculation (negative) and revenue diversification
(negative)
The 'bb-' capitalisation & leverage score is below the 'a' category
implied score due to the following adjustment reasons: size of
capital base (negative) and risk profile and business model
(negative)
The 'bbb-' funding & liquidity score is below the 'a' category
implied score due to the following adjustment reason: deposit
structure (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. Fitch's ESG Relevance Scores are not inputs
in the rating process; they are an observation of the materiality
and relevance of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Crown Agents
Bank Limited LT IDR BB Affirmed BB
ST IDR B Affirmed B
Viability bb Affirmed bb
Government Support ns Affirmed ns
LION HASTINGS: Goes Into Liquidation, Owes Over GBP300,000
----------------------------------------------------------
Patrick Barlow at The Argus reports that the company behind
Hastings Pier has gone into liquidation with fears that the site
could now be forced to close down.
Lion Hastings Ltd, the company behind the pier, was wound up
voluntarily in August and officially filed for liquidation in
September, The Argus relates.
According to The Argus, filings from the company, owned by Sheikh
Abid Gulzar, show that the company had just GBP5,000 available to
creditors while owing over GBP300,000.
Estimated total deficiencies for the company totalled GBP308,282,
The Argus discloses.
The largest sum of money owed, nearly GBP100,000, is owed to Sheikh
Gulzar himself. Other creditors include Hastings Borough Council
who are owed over GBP30,000, The Argus states.
LUMLEY CASTLE: Bought Out of Administration in Pre-Pack Deal
------------------------------------------------------------
Business Sale reports that Lumley Castle Hotel, a 14th century
hotel near Chester-le-Street, County Durham, has been saved from
closure after being acquired out of administration by its owner in
a pre-pack deal.
The hotel entered administration after encountering financial
difficulties, with its previous structure being described as "not
sustainable", Business Sale relates.
PKF GM's Oliver Collinge and James Sleight were appointed as joint
administrators of the business, brokering the subsequent rescue
deal, which saw the hotel acquired by current owners Lord
Scarbrough and his trustees, in partnership with Bespoke Hotels,
Business Sale discloses. Following the pre-pack acquisition,
Bespoke Hotels will manage Lumley Castle on behalf of the owners,
Business Sale notes.
According to Business Sale, the pre-pack deal secures 120 jobs at
the hotel and safeguards the business' future. Lumley Castle was
built in 1388 and has been under the ownership of the Earl of
Scarbrough for centuries.
Following more than 100 years being used by the University of
Durham, the property became a 73-bedroom hotel during the 1970s,
when it was tenanted by No Ordinary Hotels. The hotel has hosted
thousands of weddings and other events and also features an escape
room.
READING FOOTBALL: Boss Addresses Administration Rumors
------------------------------------------------------
James Earnshaw at Reading Chronicle reports that Reading Football
Club boss Ruben Selles has cooled fears of administration after
rumours had broken in midweek.
According to Reading Chronicle, still with overdue tax bills and a
monthly fear of being unable to pay wages, owner Dai Yongge is
listening to offers to sell the club.
However, reports had broken on Oct. 9, from former Reading
Chronicle sports editor Anthony Smith, that the club could have
been placed into administration but the end of the week.
This would drop the club onto minus points and see mass
redundancies across the board as the authorities would take over
the day-to-day running of the club until a suitable successor was
found, Reading Chronicle discloses.
"I haven't had any communication from the club so as far as I know
there is no intention," Reading Chronicle quotes Mr. Selles as
saying. "But it can be that tomorrow is different. As far as I
know, there is nothing in the administration right now."
Administration cannot be fully ruled out, however, it is thought
that the club see this as a last resort and is not something of
immediate concern to those behind the scenes, Reading Chronicle
notes.
About Reading Football Club
The Reading Football Club is a professional football club based in
Reading, Berkshire, England, that will compete in the EFL League
One in the 2023-24 season, following relegation from the 2022-23
EFL Championship. Reading are nicknamed The Royals, due
to Reading's location in the Royal County of Berkshire, though they
were previously known as The Biscuitmen, due to the town's
association with Huntley and Palmers. The club was established in
1871 but only joined The Football League in 1920.
SAFE HANDS: SFO Launches Fraud Investigation Following Collapse
---------------------------------------------------------------
Matt Oliver at The Telegraph reports that fraud investigators have
launched an inquiry into a funeral plan provider that collapsed and
left the arrangements of 50,000 customers in doubt.
The Serious Fraud Office (SFO) on Oct. 11 announced it had opened a
criminal investigation into suspected fraud at Safe Hands Plans,
which was put into administration in March 2022, The Telegraph
relates.
The company sold pre-paid funeral plans, where customers paid up to
around GBP4,000 for funeral arrangements to be taken care of after
their death.
This money was then invested by the company into equities, bonds,
cash, real estate and loans.
It also claimed that customer money was held in a separately
managed, independent trust so there was "nothing to worry about" if
the company went under, The Telegraph notes.
But after Safe Hands Plans collapsed, administrators warned
customers they had found "a shortfall between the level of plan
holder investments and the forecast level of funeral plan costs to
be paid", The Telegraph discloses.
It meant the value of the investments was not enough to cover the
costs of providing the funeral plans already paid for, The
Telegraph notes.
About 46,000 customers had paid for such plans, the SFO, as cited
by The Telegraph, said.
The criminal inquiry was revealed on Oct. 11 as Mr. Ephgrave wrote
to stock brokers and financial institutions to request information
using the SFO's legal powers, The Telegraph relates.
Similar requests were made by the agency to banks and other
potential witnesses last month, The Telegraph notes.
When Safe Hands Plans went into administration last year,
administrators initially said the company faced a "combination of
factors, some of which are understood to be linked to the Covid-19
pandemic", The Telegraph recounts.
According to The Telegraph, FRP Advisory, which is running the
administration, had also said it was investigating why the scheme
failed as well as the conduct of directors.
Creditors of the company have claimed around GBP70.6 million, The
Telegraph notes. Administrators are now selling the company's
investments so they can return some money to customers, The
Telegraph states.
The SFO urged members of the public affected by the collapse of
Safe Hands Plans to liaise with the administrators, The Telegraph
relates.
*********
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 * * *