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/raid1/www/Hosts/bankrupt/TCREUR_Public/231013.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Friday, October 13, 2023, Vol. 24, No. 206 Headlines F R A N C E DELACHAUX GROUP: Moody's Affirms B2 CFR & Rates EUR770MM Loan B2 G E R M A N Y MINIMAX VIKING: Moody's Affirms Ba3 CFR & Rates New Term Loan Ba3 REVOCAR 2022 UG: Moody's Hikes Rating on EUR6.5MM D Notes from Ba2 I R E L A N D MADISON PARK XIII: Moody's Affirms B3 Rating on EUR12.5MM F Notes RTE: Faces Insolvency by Next Spring, Seeks More Funding L U X E M B O U R G ACCORINVEST GROUP: Puts Series of Assets Up for Sale to Cut Debt N E T H E R L A N D S MAXEDA DIY: Fitch Lowers LongTerm IDR to 'B-', Outlook Stable U N I T E D K I N G D O M CALDER METAL: Bought Out of Administration by Management Team PARKERS BAKERY: Enters Administration, Ceases Trading S4 CAPITAL: Moody's Lowers CFR to B1 & Alters Outlook to Stable THG PLC: Fitch Affirms LongTerm IDR at 'B+', Outlook Negative URBAN SPLASH: Joint Venture Collapse Hits Financial Results X X X X X X X X [*] BOOK REVIEW: PANIC ON WALL STREET - - - - - =========== F R A N C E =========== DELACHAUX GROUP: Moody's Affirms B2 CFR & Rates EUR770MM Loan B2 ---------------------------------------------------------------- Moody's Investors Service has affirmed the B2 long term corporate family rating and the B2-PD probability of default rating of Delachaux Group SAS. Concurrently, Moody's has assigned a new B2 instrument rating to Delachaux's amended and extended EUR770 million backed senior secured term loan B (TLB) due 2029 and the EUR75 million backed senior secured revolving credit facility (RCF) due 2028. The outlook remains stable. The new amended and extended EUR770 million backed senior secured term loan B alongside modest cash from balance sheet will be used to refinance the outstanding EUR639 million backed senior secured EUR TLB1 and the outstanding $140 million backed senior secured USD TLB2 and to pay transaction fees and expenses. The proposed transaction extends maturities of its backed senior secured RCF and backed senior secured TLB by three years. The transaction is leverage neutral with Moody's adjusted leverage at around 6.5x as of August 2023. The B2 ratings on the company's existing backed senior secured term loans B and backed senior secured RCF are unaffected and will be withdrawn once the refinancing transaction is completed. RATINGS RATIONALE The rating action reflects Moody's expectation that Delachaux's leverage on a Moody's adjusted basis, will decline well below 6.5x over the next 12-18 months, Moody's adjusted EBITA/Interest expense will remain above 2.0x and the company will continue to generate positive FCF while maintaining a good liquidity. Moody's expects Delachaux to grow organically in the low single digits percentage range over the next 12-18 months mainly driven by its rail infrastructure segment, offsetting the expected slowdown in Energy & Data Management Systems (EDMS) which is more exposed to economic cycles. Delachaux' earnings are expected to benefit from the planned reduction of operating costs within its signalling business segment, some modest improvements from operational efficiencies and expected sale increase of high-end products within its Chromium Metal business. The solid profitability combined with relatively low capex and working capital needs should support continued positive FCF over the next 12-18 months. The higher interest costs following the transaction is in part offset by its hedging agreement on its backed senior secured EUR TLB which is in place until October 2024. The rating affirmation continues to reflect the company's dominant positions within niches of the global rail infrastructure and rail signaling markets, complemented by strong positions in EDMS and Chromium businesses; good geographical and segmental diversification; solid margins and low capex requirements, which have supported consistent positive FCF even through cyclical downturns; and relatively balanced financial policy reflected by the company's regular voluntary debt repayments. At the same time, the rating continues to be constrained by the company's high Moody's-adjusted leverage, albeit gradually declining, its exposure to cyclical end markets, and its exposure to raw material price volatility with some risk of pricing pressure from customers as the cost inflation eases. LIQUIDITY The liquidity profile is good with EUR99 million of cash on balance sheet as of end August 2023 and a fully undrawn backed senior secured RCF of EUR75 million. The latter has one springing net leverage covenant tested when the RCF is drawn by more than 40% with ample headroom. The company also has access to non-recourse factoring lines. For 2023 Moody's expects FCF of EUR30 million - EUR40 million and to remain positive at around EUR25 million in 2024. Pro forma for the transaction there are no near-term debt maturities with the backed senior secured RCF and the backed senior secured TLB expiring in 2028 and 2029, respectively. STRUCTURAL CONSIDERATIONS Pro forma for the transaction, Delachaux's capital structure will consist of EUR770 million backed senior secured term loan B and EUR75 million backed senior secured RCF, both ranking pari passu in terms of priority of claims, share the same security and guaranteed by entities accounting for at least 80% of consolidated EBITDA. The senior secured facilities are rated in line with the long term corporate family rating at B2, as Moody's does not differentiate priority of claims in this capital structure. The B2-PD is at the same level as the CFR, reflecting the use of a standard recovery rate of 50%, which reflects a capital structure with first lien bank loans and the covenant lite nature of the loan documentation. RATING OUTLOOK The stable outlook reflects Moody's expectation that Moody's adjusted leverage will remain below 6.5x over the next 12-18 months with an EBITA/interest expense ratio of above 2.0x. The outlook also assumes that the company will continue to maintain a balanced financial policy with no major debt-funded acquisitions while maintaining a good liquidity profile, supported by continued positive FCF. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Upward rating pressure could materialise if Moody's-adjusted gross debt/EBITDA declines to below 5.5x on a sustainable basis; Moody's adjusted FCF/debt increases to the mid-single digit range while maintaining a good liquidity; and Moody's adjusted EBITA margin moves to above 12% on a sustained basis. An upgrade would also require a continued commitment to a balanced financial policy. Negative rating pressure could occur if Moody's-adjusted gross debt/EBITDA is sustained at above 6.5x; negative FCF would result in a material weakening of its liquidity profile; or Moody's adjusted EBITA/interest costs were to decline to well below 2.0x on a sustained basis. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Manufacturing published in September 2021. COMPANY PROFILE Headquartered in Colombes, France, Delachaux is a manufacturer of critical equipment and systems for the rail infrastructure industry. Its core activity is complemented by its EDMS, chromium metal and rail signalling businesses. In 2022, Delachaux generated EUR1.1 billion of revenue and EUR143 million of management-adjusted EBITDA. The company is majority owned by Ande Investissements, which belongs to the Delachaux family, and Caisse de depot et placement du Quebec (CDPQ). ============= G E R M A N Y ============= MINIMAX VIKING: Moody's Affirms Ba3 CFR & Rates New Term Loan Ba3 ----------------------------------------------------------------- Moody's Investors Service affirmed Minimax Viking GmbH's Ba3 long term corporate family rating and Ba3-PD probability of default rating. Moody's also assigned Ba3 ratings the proposed backed senior secured EUR term loan due 2028 and the proposed backed senior secured EUR revolving credit facility (RCF) due 2027, both to be issued by Minimax Viking GmbH, and the proposed backed senior secured USD term loan due 2028 to be issued by MX Holdings US, Inc. In this proposed amend-and-extend transaction Minimax will extend maturities on its backed senior secured term loan and the backed senior secured RCF to 2028 and 2027 respectively. The outlook on Minimax Viking GmbH and MX Holdings US, Inc. remains stable. RATINGS RATIONALE The rating action reflects: -- The favorable extension of maturity profile in a leverage neutral transaction, against a moderate increase in interest expense. -- Good operating performance and Moody's expectation of continuation of this trend, supported by solid order intake to date and high share of revenue from recurring activities. -- Moody's adjusted gross leverage of 3.5x in the last twelve months ended August 2023, down from 4.4x in 2021 and 6.1x in 2019. Leverage reduction was faster on a net basis, through accumulation of positive FCF on balance sheet, resulting in a sizable cash balance of EUR511 million as of August-end 2023. The Ba3 CFR continues to reflect Minimax's strong market positions in the highly regulated fire protection market, sizable aftermarket business, and its proven track record of strong operating and financial performance even during recessionary periods, including margin stability (Moody's adjusted EBITA margins of 10%-12% during 2020-2022) and consistently positive Free Cash Flow (FCF) generation (Moody's adjusted FCF/Debt in high single digits during 2020-2022). The event risk of shareholder distributions associated with it private equity ownership constrains its CFR. Given its private-equity ownership, there is a risk of discretionary owner distributions in the next few years. The terms of the proposed facilities prohibit any dividend distribution if the net leverage ratio (company-adjusted) is above 3.5x pro forma for the transaction (1.67x as of the 12 months that ended August 2023). LIQUIDITY Minimax's liquidity is very good. As of August 31, 2023, the group's available cash sources included a sizeable cash balance of EUR511 million and Moody's-projected positive FCF of around EUR70 million - EUR80 million per annum. Together with a EUR40 million commitment under the proposed backed senior secured revolving credit facility due in 2027 (fully undrawn), liquidity sources comfortably cover all expected liquidity requirements of the group for this year and next year. Cash needs mainly comprise interest expense of EUR80 million per annum, capital spending of around EUR60 - EUR70 million per annum, and working capital and debt amortisation of about EUR10 million per annum. STRUCTURAL CONSIDERATIONS The ratings on the proposed backed senior secured term loans and the backed senior secured revolving credit facility are in line with the group's CFR of Ba3. The proposed backed senior secured term loan and the RCF rank pari passu and benefit from upstream guarantees from material subsidiaries and pledges of a security package encompassing, inter alia, main tangible and intangible assets of material subsidiaries. COVENANTS Moody's has reviewed the marketing draft terms for the new credit facilities. Notable terms include the following: Guarantor coverage will be at least 80% of consolidated EBITDA (determined in accordance with the agreement) excluding China, South Korea, India and Russia, and will include all companies representing 5% or more of consolidated EBITDA or gross assets. Security will be granted over key shares, material bank accounts and key receivables, over fixed and movable assets (where available) in Germany, and over all assets security will be granted by companies incorporated in the USA. Incremental facilities are permitted up to the greater of EUR150 million and 4.50x consolidated EBITDA. Unlimited debt is permitted up to a leverage ratio of 3.50x. Any restricted payments are permitted if total leverage is 3.50x or lower, and any acquisitions are permitted if total leverage is 4.50x or lower. Asset sale proceeds are required to be applied in full (subject to exceptions) regardless of total leverage. The adjustments to consolidated EBITDA are limited and do not include an adjustment for anticipated cost savings and synergies. The proposed terms, and the final terms may be materially different. RATIONALE FOR THE STABLE OUTLOOK The stable outlook reflects Moody's expectation that Minimax will maintain solid credit metrics over the next 12-18 months, with its Moody's-adjusted gross debt/EBITDA declining further towards 3.0x, Moody's-adjusted FCF/ Debt at 7-9%. This forecast does not incorporate any debt-financed acquisitions or dividends. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS An upgrade of Minimax's ratings would require a commitment by the ownership of the company to a leverage target consistent with sustained credit metrics, including: (1) debt/EBITDA (Moody's-adjusted) below 3.5x, and (2) Retained Cash Flow/ Net debt (Moody's-adjusted) above 20%, and (3) FCF/debt (Moody's-adjusted) above 10%, and (4) good liquidity. Minimax's ratings could be downgraded if its operating performance deteriorates or the company embarks on significant debt-funded acquisitions or significant shareholder distribution, resulting in (1) debt/EBITDA (Moody's-adjusted) above 4.5x on a sustained basis, or (2) Retained Cash Flow/Net Debt (Moody's-adjusted) sustainably below 15%, or (3) FCF (Moody's-adjusted) persistently below 5%. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Manufacturing published in September 2021. COMPANY PROFILE Minimax Viking GmbH, headquartered in Bad Oldesloe, Germany, is a global operator in the active fire protection and detection markets. The group serves industrial and commercial clients through the development, manufacturing and installation of tailor-made fire protection solutions and offers follow-up and post system installation services. The group generated sales of EUR2.25 billion and company-adjusted EBITDA of about EUR325 million in 2022. The group is majority owned (around 90%) by UK-based Intermediate Capital Group PLC, while its remaining shareholders are Minimax management and the Groos family (founders of the former Viking group). REVOCAR 2022 UG: Moody's Hikes Rating on EUR6.5MM D Notes from Ba2 ------------------------------------------------------------------ Moody's Investors Service has upgraded the ratings of four notes in RevoCar 2019 UG (haftungsbeschraenkt) and RevoCar 2022 UG (haftungsbeschraenkt). The rating action reflects better than expected collateral performance and an increase in the levels of credit enhancement for the affected notes. Moody's affirmed the ratings of the notes that had sufficient credit enhancement to maintain their current ratings. Issuer: RevoCar 2019 UG (haftungsbeschraenkt) EUR366M Class A Notes, Affirmed Aaa (sf); previously on Feb 27, 2023 Affirmed Aaa (sf) EUR18.7M Class B Notes, Affirmed Aa1 (sf); previously on Feb 27, 2023 Affirmed Aa1 (sf) EUR4.1M Class C Notes, Affirmed Aa1 (sf); previously on Feb 27, 2023 Upgraded to Aa1 (sf) EUR7.1M Class D Notes, Upgraded to A2 (sf); previously on Feb 27, 2023 Upgraded to Baa2 (sf) Issuer: RevoCar 2022 UG (haftungsbeschraenkt) EUR452.4M Class A Notes, Affirmed Aaa (sf); previously on Sep 29, 2022 Assigned Aaa (sf) EUR21M Class B Notes, Upgraded to Aa2 (sf); previously on Sep 29, 2022 Assigned A1 (sf) EUR5M Class C Notes, Upgraded to A3 (sf); previously on Sep 29, 2022 Assigned Baa2 (sf) EUR6.5M Class D Notes, Upgraded to Baa3 (sf); previously on Sep 29, 2022 Assigned Ba2 (sf) RATINGS RATIONALE The rating action is prompted by decreased key collateral assumptions, namely the default probability (DP) assumptions due to better than expected collateral performance as well as an increase in credit enhancement for the affected tranches. Revision of Key Collateral Assumptions As part of the rating action, Moody's reassessed its default probability and recovery rate assumptions for the portfolio reflecting the collateral performance to date. The performance of the transactions has continued to improve since closing. Total delinquencies have increased in the past year, with 60 days plus arrears currently standing at 0.08% and 0.29% of current pool balance, for RevoCar 2019 UG (haftungsbeschraenkt) and RevoCar 2022 UG (haftungsbeschraenkt), respectively. For RevoCar 2019 UG (haftungsbeschraenkt), cumulative defaults currently stand at 0.95% of original pool balance up from 0.77% a year earlier. For RevoCar 2022 UG (haftungsbeschraenkt), cumulative defaults currently stand at 0.34% of original pool balance up from 0.00% at closing. For RevoCar 2019 UG, the current default probability is 2.50% of the current portfolio balance and the assumption for the fixed recovery rate is 35.00%. The portfolio credit enhancement (PCE) is 10.00%. For RevoCar 2022 UG, the current default probability is 1.70% of the current portfolio balance and the assumption for the fixed recovery rate is 35.00%. The portfolio credit enhancement (PCE) is 8.00%. Increase in Available Credit Enhancement Sequential amortization led to the increase in the credit enhancement available in both transactions. For RevoCar 2019 UG (haftungsbeschraenkt), the credit enhancement for the most senior tranche affected by the rating action increased to 7.07% from 4.33% since the last rating action. For RevoCar 2022 UG (haftungsbeschraenkt), the credit enhancement for the most senior tranche affected by the rating action increased to 7.12% from 5.32% since since closing. The principal methodology used in these ratings was "Moody's Global Approach to Rating Auto Loan- and Lease-Backed ABS" published in November 2022. Factors that would lead to an upgrade or downgrade of the ratings: Factors or circumstances that could lead to an upgrade of the ratings include (1) performance of the underlying collateral that is better than Moody's expected, (2) an increase in available credit enhancement and (3) improvements in the credit quality of the transaction counterparties. Factors or circumstances that could lead to a downgrade of the ratings include (1) an increase in sovereign risk, (2) performance of the underlying collateral that is worse than Moody's expected, (3) deterioration in the notes' available credit enhancement and (4) deterioration in the credit quality of the transaction counterparties. ============= I R E L A N D ============= MADISON PARK XIII: Moody's Affirms B3 Rating on EUR12.5MM F Notes ----------------------------------------------------------------- Moody's Investors Service has upgraded the ratings on the following notes issued by Madison Park Euro Funding XIII Designated Activity Company: EUR45,000,000 Class B-1 Senior Secured Floating Rate Notes due 2032, Upgraded to Aa1 (sf); previously on Apr 15, 2021 Definitive Rating Assigned Aa2 (sf) EUR5,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2032, Upgraded to Aa1 (sf); previously on Apr 15, 2021 Definitive Rating Assigned Aa2 (sf) EUR32,500,000 Class C Senior Secured Deferrable Floating Rate Notes due 2032, Upgraded to A1 (sf); previously on Apr 15, 2021 Definitive Rating Assigned A2 (sf) Moody's has also affirmed the ratings on the following notes: EUR307,500,000 Class A Senior Secured Floating Rate Notes due 2032, Affirmed Aaa (sf); previously on Apr 15, 2021 Definitive Rating Assigned Aaa (sf) EUR32,500,000 Class D Senior Secured Deferrable Floating Rate Notes due 2032, Affirmed Baa3 (sf); previously on Apr 15, 2021 Definitive Rating Assigned Baa3 (sf) EUR27,500,000 Class E Senior Secured Deferrable Floating Rate Notes due 2032, Affirmed Ba3 (sf); previously on Apr 15, 2021 Affirmed Ba3 (sf) EUR12,500,000 Class F Senior Secured Deferrable Floating Rate Notes due 2032, Affirmed B3 (sf); previously on Apr 15, 2021 Affirmed B3 (sf) Madison Park Euro Funding XIII Designated Activity Company, issued in March 2019 and refinanced in April 2021, is a collateralised loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured European loans. The portfolio is managed by Credit Suisse Asset Management Limited. The transaction's reinvestment period will end in October 2023. RATINGS RATIONALE The rating upgrades on the Class B-1, B-2 and C 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: EUR498.1m Defaulted Securities: EUR5.3m Diversity Score: 65 Weighted Average Rating Factor (WARF): 2891 Weighted Average Life (WAL): 4.14 years Weighted Average Spread (WAS) (before accounting for Euribor floors): 3.98% Weighted Average Coupon (WAC): 4.90% Weighted Average Recovery Rate (WARR): 43.57% Par haircut in OC tests and interest diversion test: 0% The default probability derives from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The estimated average recovery rate on future defaults is based primarily on the seniority of the assets in the collateral pool. In each case, historical and market performance and a collateral manager's latitude to trade collateral are also relevant factors. Moody's incorporates these default and recovery characteristics of the collateral pool into its cash flow model analysis, subjecting them to stresses as a function of the target rating of each CLO liability it is analysing. Moody's notes that the September 2023 trustee report was published at the time it was completing its analysis of the August 2023 data. Key portfolio metrics such as WARF, diversity score, weighted average spread and life, and OC ratios exhibit little or no change between these dates. 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 and swap provider, 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: Once reaching the end of the reinvestment period in October 2023, 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. The effect on the ratings of extending the portfolio's weighted average life can be positive or negative depending on the notes' seniority. -- 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. RTE: Faces Insolvency by Next Spring, Seeks More Funding -------------------------------------------------------- BBC News reports that Irish broadcaster RTE will be insolvent by next spring if it does not receive proper funding, its director general has said. Kevin Bakhurst made the claim at a hearing of the Oireachtas (Irish parliament) Public Affairs Committee on Oct. 12, BBC relates. He and other RTE officials are answering questions over a payments scandal that has plagued the public broadcaster since June. Mr. Bakhurst, as cited by BBC, said the organisation was managing its cash "as carefully as we can" to prevent this. Earlier this year, undisclosed payments of EUR345,000 (GBP296,800) made to star presenter Ryan Tubridy were made public, BBC recounts. In September, the director general said that the broadcaster was in a challenging financial situation but was not facing bankruptcy, BBC notes. An immediate freeze on recruitment and the stopping of discretionary funding were announced as ways to restore public trust and confidence in RTE, BBC discloses. Mr. Bakhurst told the committee on Oct. 12 that these measures had saved several million euros, but RTE needed additional funding from the government to ensure its survival, BBC relays. "If we didn't get this cash, we would run out of cash, that's for sure," BBC quotes Mr. Bakhurst as saying. RTE is funded using advertising revenue as well as a TV licence fee. The broadcaster had previously asked the Irish government for EUR34.5 million (GBP29.7 million) in additional interim funding before the scandal broke, BBC notes. On Oct. 12, the committee heard at the end of August, RTE had EUR68 million (GBP58.7 million) to hand, BBC relates. It has also borrowed EUR65 million (GBP56 million) of its EUR100 million (GBP86 million) borrowing limit, BBC states. But since the payment scandal began, licence fee payments have been down EUR21 million (GBP18.1 million) in the year to date, according to BBC. The organisation is also looking at a loss of up to EUR12 million (GBP10.3 million) this year, BBC notes. Mr. Bakhurst also said the complete sale of the broadcaster's campus in Donnybrook is unlikely and the repurposing of the current site will not be "without challenges and significant costs", according to BBC. =================== L U X E M B O U R G =================== ACCORINVEST GROUP: Puts Series of Assets Up for Sale to Cut Debt ---------------------------------------------------------------- Irene Garcia Perez, Jack Sidders and Neil Callanan at Bloomberg News report that AccorInvest Group SA, one of the world's largest hotel owners, has put a series of assets up for sale in Europe and Latin America to reduce its debt, according to people familiar with the matter. According to Bloomberg, the group, which has more than 750 hotels operated by Accor SA, is looking to raise about EUR2 billion (US$2.1 billion) from sales including hotels under the Sofitel brand in Paris to repay creditors, the people said, asking not to be named discussing private information. It will also talk to lenders to amend the terms and extend the maturity of EUR4 billion of debt coming due in 2025, three of the people said, Bloomberg notes. The firm is working with Societe Generale SA on the sale of the Paris hotels, two of the people said, Bloomberg relates. It has also hired other brokers and banks to advise on selling five Ibis hotels in the UK, as well as portfolios of assets in Germany and Latin America, a hotel in the Netherlands and a Sofitel in the central and eastern Europe region, according to Bloomberg. It's working with Rothschild & Co. ahead of the talks with creditors, although there is no firm mandate yet, the people said, Bloomberg relays. The investment bank advised the group in 2021 when it restructured EUR4.5 billion of debt, Bloomberg discloses. As part of the 2021 restructuring deal, AccorInvest obtained a state-guaranteed loan of EUR477 million from its lenders, while existing shareholders provided a capital increase for the same amount, according to Bloomberg. ===================== N E T H E R L A N D S ===================== MAXEDA DIY: Fitch Lowers LongTerm IDR to 'B-', Outlook Stable ------------------------------------------------------------- Fitch Ratings has downgraded Maxeda DIY Holding B.V.'s Long-Term Issuer Default Rating (IDR) to 'B-' from 'B'. The Outlook is Stable. The downgrade reflects its expectation that, after peaking in the year to end-January 2024 (FY24) beyond the level consistent with a 'B' IDR, Maxeda's deleveraging will be slow with leverage likely to remain high over the next three years. This is because of its high exposure to home building and decorating products, which Fitch believes are likely to continue experiencing lower consumer demand and, possibly deflation. Further savings initiatives to offset labour and rent increases may now also be more limited than in FY23, constraining the company's ability to support and improve profit margins. Fitch estimates that Maxeda will now have comfortable headroom under its 'B-' rating due to its positive free cash flow (FCF) generation and satisfactory liquidity position, despite expected pressures on EBITDA. This is reflected in a Stable Outlook on the rating. The rating is also supported by the company's strong market position and brand awareness in Belgium and the Netherlands. KEY RATING DRIVERS Trading Affected by Weather: Adverse weather conditions have put pressure on Maxeda's revenue and EBITDA in FY24. This is because gardening products, including garden furniture, plants, gardening tools and barbecues, is one of the largest of Maxeda's product categories, accounting for around 20%. Lower footfall in stores also negatively affected sales of non-weather-related products. In FY24, Fitch projects revenue to be 1.3% below FY23, while EBITDA will be lower by around EUR10 million. Cost Inflation: Maxeda's EBITDA reduced due to higher staff, energy and rent expenses in FY23. Cost inflation, in particular the higher minimum wage, has remained a challenge in FY24 but Maxeda implemented efficiency measures and was able to offset a large part of cost increases. At the same time, Fitch believes that further labour efficiencies may be more difficult to achieve so it may take time for the EBITDA margin to recover to the FY23 level. Risks to EBITDA Recovery: Fitch also sees risks to Maxeda's EBITDA recovery from FY25 due to its high exposure to building materials and decorating products, which are its largest product categories, together accounting for about half of its sales. Fitch believes that consumers may be less inclined to move houses or engage in refurbishments due to reduced real disposable incomes and high mortgage rates. In addition, Maxeda may need to pass on significant deflation in prices of some raw materials, such as timber, plastic tubes and stainless steel, to consumers, particularly in the more commoditised product categories. In this scenario, FY25 revenue and EBITDA could be hit by lower prices and volumes, although in FY23-FY24 the company has been able to offset volumes declines with price increases. Uncertainty Around Deleveraging: Fitch forecasts EBITDAR leverage to peak at 6.9x in FY24 (FY23: 6.5x) due to weather-driven EBITDA reduction. While more normalised weather patterns in FY25 should drive EBITDA recovery and deleveraging, there is strong uncertainty around demand and pricing evolution for building and home decoration products, and their recovery in the medium term. Fitch therefore believes that leverage may stay at or above 6.5x over the medium term, which is aligned with Maxeda's 'B-' rating. Positive FCF: Fitch projects that Maxeda will retain its ability to generate positive FCF, despite its assumption of EBITDA reduction and limited recovery thereafter. This is a strong differentiating factor compared with other 'B-' rated peers. Positive FCF results from Maxeda's favourable cost of debt as its bond has a fixed coupon, low capex needs of around EUR40 million a year and adequate profitability, which is comparable with larger peers, such as Kingfisher plc (BBB/ Stable). Fitch also assumes a neutral working capital as Maxeda enhanced its stock management. However, its rating case is sensitive to this assumption, as inventory-related cash absorption, may erode the FCF. Market Leader in Benelux: The rating considers Maxeda's leading position in the DIY market in Belgium and the Netherlands, with fairly stable market shares of 45% and 22%, respectively, at end-July 2023. The company has 338 stores, 126 of which are franchisee-operated, in prime retail locations, and has strong brand awareness, creating a barrier to entry for new competitors. The two markets have a record of rational competition. Limited Online Presence: Maxeda invested in omni-channel capabilities in recent years, notably through the creation of a dedicated e-distribution centre and the development of a marketplace. However, Fitch assumes that online sales growth will remain limited relative to the overall business. Fitch does not consider this as a competitive weakness as online penetration in the DIY market is low, due to its technical complexity, logistics and consumers' reliance on in-store advice. Satisfactory Format Diversification: The company focuses on two countries but benefits from some diversification due to its three store formats (city stores, medium box and big box) operated through three brands (Praxis in the Netherlands, and Brico and BricoPlanit in Belgium). These stores offer a wide product range, including private labels (about a quarter of sales). DERIVATION SUMMARY Kingfisher is Maxeda's closest peer as it also specialises in DIY retail. It is the largest DIY group in the UK and the second-largest in France behind Groupe Adeo. Kingfisher's business profile is stronger than Maxeda's as its sales are almost 10 times larger, leading to benefits from scale. It is also more diversified by geography and brand, which provides some competitive advantages, underpinning its 'BBB' rating. Maxeda's leverage is materially higher than Kingfisher's at about 2.0x, which also contributes to the wide rating differential. Maxeda compares well in terms of market concentration and position and exposure to home-improvement related spending, with Mobilux 2 SAS (BUT; B/Positive), a French furniture and decoration retailer. Both companies have leading positions in their markets of operations and comparable geographic diversification. While the two generate similar EBITDAR margins, Maxeda is smaller and has a lower FCF margin. Together with Maxeda's higher leverage, this explains its one-notch lower rating. Maxeda has the same rating as Douglas GmbH (B-/Stable), the largest European beauty retailer with leading shares in several markets, including Germany, France, Italy, Poland and the Netherlands. Maxeda has a weaker business profile than Douglas but also a lower projected leverage and less aggressive financial structure, which explains both companies being at the same rating level. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer: - Sales to decline 1.3% in FY24, stay flat in FY25 and grow by 1.5%-2% a year over FY26-FY28. - Stable store portfolio without changes between own-operated and franchise-operated stores. - Fitch-adjusted EBITDA margin compressed at 5.8% in FY24-FY25 and then slowly improving towards 6.4% by FY28. - Capex at around EUR40 million a year. - Neutral working-capital position over FY24-FY28. - No stock repurchases, dividends or M&A through to FY28. RECOVERY RATING ASSUMPTIONS Fitch assumes that Maxeda would be reorganised as a going concern (GC) in bankruptcy rather than liquidated. Fitch has assumed a 10% administrative claim in the recovery analysis. In its bespoke recovery analysis, Fitch estimates GC EBITDA available to creditors of around EUR70 million. The GC EBITDA is based on a stressed scenario reflecting, for example, a prolonged downturn post-pandemic combined with sustained competitive pressures and an inflationary environment. Fitch continues to apply a distressed enterprise value (EV)/EBITDA multiple of 5.0x, in line with comparable businesses such as BUT. Based on the debt waterfall analysis, Maxeda's EUR65 million revolving credit facility (RCF), which Fitch assumes to be fully drawn on default, ranks super senior to the company's EUR470 million senior secured notes. Therefore, after deducting 10% for administrative claims, the analysis generates a ranked recovery for the senior secured bonds in the 'RR3' band, indicating a 'B' instrument rating with a waterfall generated recovery computation of 53% based on current metrics and assumptions. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Positive Rating Action: - Visibility of sustained Fitch-adjusted EBITDA recovery to around EUR100 million (FY23: EUR96 million). - Positive FCF generation. - EBITDAR fixed-charge coverage above 1.5x on a sustained basis. - EBITDAR leverage below 6.5x on a sustained basis. Factors that Could, Individually or Collectively, Lead to Negative Rating Action: - Significant EBITDA decline, reflecting falling selling volumes and cost inflation, which cannot be offset by further cost-saving initiatives. - EBITDAR fixed-charge coverage trending towards 1.0x on a sustained basis. - EBITDAR leverage above 7.5x on a sustained basis. - Negative FCF leading to tightening liquidity, with the RCF being constantly drawn. LIQUIDITY AND DEBT STRUCTURE Satisfactory Liquidity: At end-July 2023, Maxeda had EUR70 million Fitch-adjusted cash and cash equivalents (after excluding EUR10 million due to intra-year working-capital swings) and full availability under its EUR65 million RCF after the company repaid the outstanding EUR38 million in 4QFY23. Fitch forecasts adequate financial flexibility over the next four years, on expected positive FCF. Maxeda has no near-term maturities as the super senior RCF and the senior secured notes only come due in 2026. ISSUER PROFILE Maxeda is the leading DIY retailed in Benelux. It operates 338 stores in prime retail locations (including 126 franchise-operated stores) with 187 stores in the Netherlands, 151 in Belgium and three in Luxembourg. 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 ----------- ------ -------- ----- Maxeda DIY Holding B.V. LT IDR B- Downgrade B senior secured LT B Downgrade RR3 B+ =========================== U N I T E D K I N G D O M =========================== CALDER METAL: Bought Out of Administration by Management Team ------------------------------------------------------------- Business Sale reports that a metalworks firm based in West Yorkshire has been acquired out of administration by a member of its existing management team. Calder Metal Spinning Company, which claims to be one of the UK's oldest metal spinning companies, filed a notice of intention to appoint administrators earlier this week, Business Sale relates. The company says it was forced into administration as a result of a bad debt, but its future has now been secured following the sale, which was overseen by administrators Leonard Curtis and Skipton Business Finance, Business Sale discloses. According to Business Sale, a company spokesperson said: "Business is as usual. All orders that have been received will be processed as required with no change across the board." "The reason for the administration was a bad debt to the company of GBP490,000. Only by the hard work and determination of the senior management team were they able to save the company and safeguard the jobs. Skipton Business Finance and Leonard Curtis have overseen and supported the transaction." Calder Metal Spinning Company has been trading since 1947 and is based at Calder Trading Estate in Brighouse. The company's operations cover spinning of all types of metal using traditional hand spinning methods, as well as automatic lathes. It serves a wide array of industries, including automotive, food processing, aerospace and scientific. In the company's most recent accounts, covering the year ending February 27, 2022, its fixed assets were valued at GBP268,126 and current assets were valued at GBP1.4 million, with net assets amounting to GBP526,183, Business Sale states. PARKERS BAKERY: Enters Administration, Ceases Trading ----------------------------------------------------- Michael Robinson at The Northern Echo reports that a family-run wholesale bakery has announced it has entered administration. Parkers Bakery, located on Parkview Industrial Estate in Hartlepool, has announced on social media the business has been placed into administration on Oct. 12, The Northern Echo relates. According to The Northern Echo, a spokesperson for the company also said it had ceased trading and administrators have been appointed. They said: "Parkers Bakery Limited was placed into Administration on October 12, 2023, and has, unfortunately, ceased to trade with effect from the same date. "Steve Kenny and Richard Cole are appointed to act as Joint Administrators of the Company. Please note that the administrators act as agents of the Company and without personal liability. "Any enquiries should be directed to KBL Advisory Limited, telephone number 0161 637 8100 or by email to Daniel.cookson@kbl-advisory.com." S4 CAPITAL: Moody's Lowers CFR to B1 & Alters Outlook to Stable --------------------------------------------------------------- Moody's Investors Service has downgraded the corporate family rating of S4 Capital PLC (S4, S4 Capital or the company) to B1 from Ba3 as well as the probability of default rating to B1-PD from Ba3-PD. At the same time, Moody's has downgraded to B1 from Ba3 the ratings for the EUR375 million backed senior secured term loan B issued by S4 Capital LUX Finance S.a r.l. and GBP100 million backed senior secured revolving credit facility (RCF) issued by S4 Capital 2 Ltd. The outlook of all entities has changed to stable from negative. Moody's decision to downgrade S4's CFR to B1 from Ba3 with a stable outlook follows two consecutive profit warnings in July and September 2023 and is driven by the company's materially weakened revenue growth prospects over 2023 with marked pressure on profit margins in the high inflationary environment. The company's partially equity-funded M&A strategy to bolster growth has also been on halt since H2 2022 due to the significant share price decline. "Moody's now expect S4 Capital's net revenue to decline year-on-year by 1%-2% whilst its reported EBITDA margin to fall to around 12%, in line with company's recent guidance. This is substantially weaker than the company's original guidance in March 2023 of 6%-10% growth in net revenue (based on 2022 net revenue unadjusted for the lost client account of Mondelez in early 2023) with an EBITDA margin of 15%-16%. Recovery in revenue growth is likely in 2024 but Moody's remain cautious in the backdrop of a weak macro-economic environment", says Gunjan Dixit, a Moody's Vice President – Senior Credit Officer and lead analyst of S4 Capital. RATINGS RATIONALE After growing by 26% in 2022, S4's net revenues increased by 5% on a like-for-like basis to GBP446 million in the first six months ending June 30, 2023, compared to the same period last year. However, growth slowed towards the end of H1 2023, reflecting the challenging macroeconomic conditions and clients growing cautious. This has been evident via longer sales cycles for certain larger transformation projects, particularly in Content, for one or two technology clients as well as with some regional and local opportunities. The Content practice, which is S4's largest division (59% of H1 2023 revenue), therefore saw a 2.5% like-for-like decline in net revenues in H1 2023. Moody's currently expects 2023 net revenue for S4 Capital to decline by 1%-2% based on the September 2023 company guidance. Some of the key advertising industry peers have also recently downgraded 2023 organic revenue growth guidance – Dentsu Group Inc. 0% to -2%, Stagwell Global LLC (B1 positive) 0%-2%, WPP Plc (Baa2 stable) 1.5%-3.0% and The Interpublic Group of Companies, Inc. (Baa2 stable) 1%-2%. Given the uncertain macro-economic outlook, Moody's currently expect only a modest recovery in S4 Capital's net revenues in 2024 by low-to-mid-single digit percentage. Moody's believe that digital advertising will continue to grow faster than the broader advertising industry over the next three to five years. However, this growth could see some softening as digital advertising approaches to account for 70% of the total advertising market. That said, S4 Capital's ability to increase its revenue above the digital advertising market will depend on its ability to attract new clients and increase the spend of existing clients. The group's largest eight clients accounted for 45% of total revenues in H1 2023, compared to the largest five clients that had generated 34% of S4 Capital's revenue in H1 2022. S4's reported EBITDA is likely to be materially weaker in 2023 than previously expected by the rating agency, largely driven by the pressure on revenue and further inflationary headwinds. In H1, the company's reported EBITDA was GBP37 million, representing a 30% decline on a like-for-like basis compared to last year and an EBITDA margin of only 12%, down from 15% in 2022. In order to preserve margins, S4 Capital has cut around 500 jobs in the last twelve months, reducing the number of staff to 8,550 towards the end of H1 2023 and remains focused on taking further cost actions. Such measures could help alleviate pressure on margins from H2 2023. For 2023, Moody's cautiously expects S4 Capital's EBITDA margin to be around the lower end of its guidance of 12%, weaker than many of the advertising industry rated peers. Moody's expects S4 Capital's reported EBITDA margin to see some improvement in 2024, provided it is able to improve its top-line performance and manage its cost base effectively. Over the longer term, the company expects its EBITDA margin to return to historical level of above 20%, although the agency remains cautious of the company's ability to execute on its margin improvement expectations. S4 Capital has a policy of funding acquisitions 50% in cash and 50% in shares, meaning that a strong recovery in share price is needed to pursue material acquisitions in future. After executing around 30 such transactions since 2018, the company had to put a halt on M&A since H2 2022 in the light of the significant share price drop (about 90% from the high in September 2021) affected by the internal control issues identified in H1 2022 and the three profit warnings (in July 2022, July and September 2023). It therefore remains critical for the company to demonstrate strong execution on organic revenue growth and margin improvement over the coming 12-18 months in order to restore market confidence. Despite the slowdown in performance, Moody's currently expect Moody's-adjusted gross leverage (EBITDA adjusted to include 50% of acquisition-related contingent consideration expense that is funded via equity) to be around 4.0x in 2023 (compared to 8.8x in 2022). This is largely driven by the significant reduction in employment-linked acquisition-related contingent consideration expense (50% of which is deducted in calculating Moody's adjusted EBITDA) to around GBP30 million (GBP143 million in 2022). Some de-leveraging is likely to occur in 2024 as Moody's adjusted EBITDA will no longer carry the negative impact of the acquisition-related contingent consideration expense due to the M&A halt. Over the medium term, S4 aims to keep its reported net leverage below 1.5x (compared to around 2.0x peak expected by Moody's at the end of 2023). Due to lower profitability and acquisition-related employment-linked cash contingent consideration payments, Moody's currently expect S4 to generate negative free cash flow (FCF) in 2023. Therefore, the company will need to rely on its cash on balance sheet to fund the cash contingent consideration, which the company expects to be GBP95 million in 2023. Over 2024, Moody's expect cash generation to improve (yet remain weaker than Moody's previous expectations) in the absence of acquisition-related contingent consideration cash payments as well as material dividend payments. LIQUIDITY S4 Capital's liquidity is adequate, supported by GBP213 million cash on balance sheet on June 30, 2023 and access to a GBP100 million committed, undrawn RCF due August 2026. Its RCF benefits from a springing financial covenant under which the company will maintain adequate capacity. The company's debt maturity profile is long dated with no significant maturity, excluding the company's undrawn RCF maturing in 2026, before 2028. OUTLOOK The stable rating outlook on S4 reflects Moody's expectation that the company will grow its revenues and EBITDA margins in line with its plan over the next 12-18 months. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Upward rating pressure will be likely if the company (1) builds a track record of solid execution towards its growth plan while demonstrating stronger internal controls and improved risk management; (2) achieves strong and sustained revenue and EBITDA growth that helps expand its scale and quality of operations; (3) and maintains a conservative financial policy such that Moody's-adjusted gross debt/EBITDA is maintained visibly below 3.5x together with positive free cash flow (FCF) generation. Downward rating pressure is likely if the company fails to see a return to healthy organic revenue growth beyond 2023/24 and is not able to preserve and improve its EBITDA margin; and/or it materially loosens its financial policy such that Moody's-adjusted gross debt/EBITDA rises well above 4.5x and/or its liquidity weakens significantly. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Business and Consumer Services published in November 2021. COMPANY PROFILE S4 Capital PLC, a new age digital and marketing services company, was formed in May 2018 by Sir Martin Sorrell. For the last six months ended June 30, 2022, the company's net sales (gross profit) was GBP446 million and its operational EBITDA reached GBP37 million. THG PLC: Fitch Affirms LongTerm IDR at 'B+', Outlook Negative ------------------------------------------------------------- Fitch Ratings has affirmed THG PLC's Long-Term Issuer Default Rating (IDR) at 'B+' and maintained the Negative Outlook. Fitch has also affirmed THG Operations Holdings Limited's EUR600 million term loan B at 'BB-' with a Recovery Rating of 'RR3'. The Negative Outlook reflects meaningful execution risks for THG as it seeks to improve profit margins and free cash flow (FCF) amid a tough consumer environment in most markets, high competition, and the post-pandemic trend for consumers to resume shopping in stores. Weakened pricing power and higher personnel costs could still put pressure on margin recovery in 2023-2024, despite normalising whey pricing. The ability to deleverage will depend on improving operating profitability, which is likely to remain challenging in the short term. The rating affirmation reflects THG's well-entrenched and stable market positions with robust sales performance and demonstrated ability to recruit new customers and retain existing ones. The rating is also supported by THG's solid liquidity profile and its expectation of deleveraging in 2024. KEY RATING DRIVERS Mixed Near-Term Trading Performance: Fitch expects the resilient trading in Nutrition to continue in 2H23 with an annual revenue growth of around 3%. Fitch believes industry de-stocking, which negatively affected revenue in Beauty for 1H23, would be short-lived. Robust trading in the skincare portfolio should support revenue recovery in Beauty in 2H23, resulting in a 3% annual decline of revenue for FY23. Fitch expects the revenue decrease in Ingenuity to slow from 2H23, as growth in new and existing clients offsets the churn of smaller and less profitable clients. Overall, Fitch expects an around 3% year-on-year drop in the top line for THG in FY23. Fitch anticipates high-single-digit revenue growth in FY24 as trading conditions normalise, before slowing to around 4% for FY25-FY26. Management Focus on Profitability: Fitch expects the strategic focus on more profitable products and markets to support margin recovery in the short to medium term. Management's decision to prioritise higher-margin sales in Beauty led to slightly shrinking revenue in 1H23 but will, in its view, help the divisional margin return toward historical levels of 5%-6%. The strategic re-positioning in Ingenuity to focus on higher-value enterprise clients should sustain recurring revenue and contribute to improving margins in the medium term. Easing Costs Challenges: Fitch estimates gross margin for FY23 to recover notably from FY22 as pricing for whey continues to normalise, which has already contributed to the margin improvement in 1H23. Fitch projects ongoing decrease in distribution costs as recent investments in automation and network localization are completed in FY23. Fitch assumes pressure on profitability from rising personnel costs in 2023, which could be mitigated by cost-cutting measures, while marketing expenses are likely to be high to support revenue growth. Fitch estimates Fitch-defined EBITDA margin will increase towards 4%-5% from FY24 from temporarily low levels of around 2.5% in 2023. Delayed Deleveraging: Fitch calculates EBITDA leverage to remain well above 5.5x for FY23, but return within sensitivities from 2024, when Fitch assumes a more normalised consumer environment which, together with growing operating leverage, should result in materially improved profitability. Fitch considers there is no rating headroom for additional acquisitions throughout its rating horizon due to the stretched leverage metrics. This is in line with the company's near-term strategy to focus on integrating recent acquisitions and driving organic revenue growth in its core segments. Higher Execution Risks: Fitch expects THG's FCF generation to remain negative in FY23 as EBITDA margins remain suppressed in a tough consumer environment and as the company reorganizes to focus on more profitable operations. Fitch estimates FCF margin could become breakeven from FY24 as profitability improves with economic circumstances, while capex subsides on project completion and cost savings come through. There are downside risks to its 2024 forecasts, but Fitch expects THG to be able to manage the balance sheet over the coming year without material utilisation of available credit facilities. Developing Business Position: THG's established position in the beauty (Lookfantastic.com) and wellbeing (Myprotein) consumer markets demonstrates a robust business model, underpinned by moderate geographic diversification and increasing penetration of markets outside the UK and Europe. THG's in-house "Ingenuity" platform and owned infrastructure are relatively high barriers to new entrants. This end-to-end supply chain reaches a global online audience, which is available to third parties, including global FMCG groups providing tailored direct-to-consumer (D2C) solutions. Business Reconfiguration: THG has the option following completion of the divisional separation to pursue strategic transactions with its business units to maximise long-term shareholder value. The group may now proceed with a planned separation of Nutrition or Beauty, which may lead to an eventual sale, demerger or partnership arrangement. The sale of a material division would trigger a partial or full repayment of the term loan B, but any transformative deals cast doubt on how proceeds would be applied (new M&A, shareholder distributions), and what cash flows will be available to service THG's debts. DERIVATION SUMMARY Fitch rates THG according to the framework laid out in its Consumer Products: Ratings Navigator Companion. Fitch recognizes THG's retailing and business service offerings, but the group's business model is underpinned by an end-to-end supply chain that aligns its business model most closely with Fitch's consumer framework. THG's IDR (B+/Negative) is two notches above that of beauty seller Oriflame Investment Holding Plc (B-/Negative). Oriflame was downgrade in May 2023 due to the expectation that its leverage in 2023-2024 will remain considerably higher than previously estimated after a material increase in 2022. THG has greater diversification of revenue streams, a strong online D2C channel presence and less exposure to FX risks related to the emerging markets. THG's business model is well placed to capture the continuing transition of consumers to online channels providing a stronger ability to deleverage relative to Oriflame. Natura &Co Holding S.A.'s and Avon Products, Inc.'s (Natura; part of the same group and rated 'BB'/Positive) rating differential with THG reflects the significantly larger scale of Natura's operations, synergies from Avon's acquisition and the revitalisation of its product portfolio and its digitalisation plan. Natura also has low leverage due to recent equity issuance, which is reflected in the Positive Outlook, and higher operating profitability. The one-notch difference between THG and Sunshine Luxembourg VII SARL (B/Positive) - the vehicle used by private equity firm EQT to acquire Nestle's Skin Health Division, Galderma - captures Galderma's high leverage, only partly balanced by its significantly larger product offering, stronger operating cash generation and scale relative to THG. Non-food retailer The Very Group Limited (TVG; B-/Rating Watch Negative), a pure online retailer in the UK, is rated two notches below THG due to its weaker business profile, including geographical concentration in one country, and heavily leveraged balance sheet. The Rating Watch on TVG reflects uncertainty around the resolution of the wider group's financial difficulties and its implications for TVG's credit profile. THG's IDR is at the same level as Ocado Group Plc's (B+/Negative) despite THG's stronger financial metrics. This is due to Ocado's strong positions as an international technology and business services provider with a significant proportion of long-term contracted earnings. In its view, there is a greater exposure to pure online retail, including greater inventory risk, at THG. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer - Organic growth from the company's existing product portfolio of around -3% annually for FY23 before rebounding to around 8% in FY24, then slow to around 4% for FY25-FY26 - Fitch-adjusted EBITDA margin around 2.5% for FY23 and improving towards 4.0% by FY24 and 5.0% in FY25 (FY22:0.3%; FY21: 3.3%) - Working-capital inflows of GBP60 milllion for FY23 and GBP30 million for FY24, reflecting improved inventory management and global logistics network, then turning into neutral and slightly positive from FY25 - Capex declining from GBP130 million in FY23 to GBP100 million in FY24 and beyond - No M&A from 2023 - No dividend payments over the rating horizon KEY RECOVERY RATING ASSUMPTIONS - The recovery analysis assumes that THG would be restructured as a going concern (GC) rather than liquidated in a default. - THG's post-restructuring GC EBITDA reflects Fitch's view of a sustainable EBITDA of around GBP95 million, which represents a 7% discount to Fitch's 2024 EBITDA forecast of GBP102 million, which Fitch estimates would be in line with the sustainable profitability to be generated by the company. Fitch considers that THG's ability to generate revenue and profits has not fundamentally changed and the GC EBITDA is kept unchanged from its previous review in October 2022. Its GC EBITDA includes a conservative estimate of EBITDA contribution from the acquisitions of Cult Beauty, among others, in 2021. The stress on EBITDA would most likely result from operational issues, most likely worsened by lower growth and weaker margins than envisaged in the beauty and wellbeing divisions. - Fitch applies a distressed enterprise value/EBITDA multiple of 5.5x to calculate a GC enterprise value, reflecting THG's growing position in both beauty and wellbeing D2C channels, underpinned by internally developed intellectual property. - Based on the payment waterfall, the multi-currency revolving credit facility of GBP170 million equivalent and the three-year term loan of GBP156 million (assumed to be fully drawn in default) ranks pari passu with the senior secured term loan totalling EUR600 million. After deducting 10% for administrative claims, Fitch's waterfall analysis generates a ranked recovery for the senior secured loans in the 'RR3' band, indicating a 'BB-' instrument rating, one notch above the IDR. The waterfall-generated recovery computation analysis on current metrics and assumptions is up to 59% from 56%, reflecting the imminent repayment of GBP25million scheduled under the three-year term loan. RATING SENSITIVITIES Factors that could, individually or collectively, lead to negative rating action/downgrade: - More aggressive financial policy or operating underperformance leading to a lack of deleveraging with EBITDA leverage staying above 5.5x beyond 2023 - Operating EBITDA interest coverage below 3.0x for two consecutive years - Increased competition, weak pricing power and/or delay to or failure in delivering expected cost savings leading to weak profitability - FCF margin (after interest and taxes) consistently negative eroding liquidity buffer by 2024 Factors that could, individually or collectively, lead to affirmation with Stable Outlook: - Evidence of improvement in EBITDA margins and narrowing FCF burn (after interest and taxes) starting in 2023, with EBITDA margins trending towards 5% and FCF turning neutral in 2024 - EBITDA leverage trending below 5.5x - EBITDA interest coverage above 3.0x Factors that could, individually or collectively, lead to positive rating action/upgrade: - Dynamic sales progression showing increased scale, solid pricing power, along with stable cost base driving sequential EBITDA margin improvements, excluding add-backs - EBITDA leverage trending permanently below 4.0x (or net debt to EBITDA below 3.5x) - EBITDA interest coverage above 4.0x - Maintenance of solid liquidity and visibility that FCF margin (after interest and taxes) would turn positive LIQUIDITY AND DEBT STRUCTURE Comfortable Liquidity: Fitch expects THG to continue operating with cash on balance sheet of over GBP240 million at all times from 2023 through to 2025, which is more than enough to repay the new term loan by 2025. Together with availability of a GBP170 million fully undrawn revolving credit facility, this provides comfortable liquidity given the lack of meaningful debt repayments in the next two years. THG has foreign exchange and interest rate swaps in place to mitigate its exposure to EURIBOR on the seven-year term loan facility. In its liquidity calculations, Fitch treats GBP40 million of cash as restricted, reflecting limited intra-year working-capital swings and the rapidly increasing business scale. 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 ----------- ------ -------- ----- THG PLC LT IDR B+ Affirmed B+ THG Operations Holdings Limited senior secured LT BB- Affirmed RR3 BB- URBAN SPLASH: Joint Venture Collapse Hits Financial Results ----------------------------------------------------------- Jon Robinson at BusinessLive reports that the collapse of a modular housing joint venture contributed to Urban Splash cutting jobs and entering the red during its latest financial year. The Manchester-headquartered company reduced its headcount from 128 to 89 in 2022, newly-filed documents have revealed, while it slipped to a pre-tax loss of GBP2.9 million, BusinessLive discloses. The business had previously posted a profit of GBP3.9 million in its prior financial year, BusinessLive states. Its turnover in the period from October 1, 2021, to December 31, 2022, also fell from GBP66.5 million to GBP40.1 million, BusinessLive notes. The results were impacted by the group's modular housing joint venture entering administration in May 2022, according to BusinessLive. The move saw the loss of 160 jobs, BusinessLive relays. The joint venture between Urban Splash, Sekisui House UK and Homes England owned a number of development sites and a modular building factory in Alfreton, Derbyshire. BusinessLive later reported that the the joint venture owed creditors more than GBP8.3 million and had an estimated total deficiency of GBP4.4 million, BusinessLive discloses. According to BusinessLive, in a statement signed off by the board, Urban Splash said: "The year has been a period of consolidation following the administration of the previously de-merged modular housing business in May 2022 which negatively impacted the group's results. "The loss of construction-related trading with the modular housing group resulted in a review of the group's approach to construction. "The directors took the decision to reduce in-house construction activity and move towards third party main contractor procurement as the preferred route for construction projects for both 100% owned developments and those held in joint venture partnerships. "The resulting change in the group's strategic direction required a prolonged business planning process to ensure the group has a robust platform to support planned future growth. As a consequence, the year-end was extended to December to accommodate this planning process and to better align future financial reporting periods to the business planning cycle." During the year, Urban Splash announced a GBP43.5 million refinancing deal with the global asset management business of Aviva plc, BusinessLive recounts. The Urban Splash Residential Fund also secured a deal with Barclays that could be worth up to GBP40 million, BusinessLive notes. Urban Splash also secured a GBP10 million loan in February 2023 with Grosvenor Developments to provide funding for early stage projects and land acquisitions, BusinessLive states. =============== X X X X X X X X =============== [*] BOOK REVIEW: PANIC ON WALL STREET ------------------------------------- A History of America's Financial Disasters Author: Robert Sobel Publisher: Beard Books Softcover: 469 Pages List Price: $34.95 Review by: Gail Owens Hoelscher http://www.beardbooks.com/beardbooks/panic_on_wall_street.html "Mere anarchy is loosed upon the world, the blood-dimmed tide is loosed, and everywhere the ceremony of innocence is drowned; the best lack all conviction, while the worst are full of passionate intensity." What a terrific quote to find at the beginning of a book on a financial catastrophe! First published in 1968. Panic on Wall Street covers 12 of the most painful episodes in American financial history between 1768 and 1962. Author Robert Sobel chose these particular cases, among a dozen or so others, to demonstrate the complexity and array of settings that have led to financial panics, and to show that we can only make; the vaguest generalizations" about financial panic as a phenomenon. In his view, these 12 all had a great impact on Americans of the time, "they were dramatic, and drama is present in most important events in history." They had been neglected by other financial historians. They are: William Duer Panic, 1792 Crisis of Jacksonian Fiannces, 1837 Western Blizzard, 1857 Post-Civil War Panic, 1865-69 Crisis of the Gilded Age, 1873 Grant's Last Panic, 1884 Grover Cleveland and the Ordeal of 183-95 Northern Pacific Corner, 1901 The Knickerbocker Trust Panic, 1907 Europe Goes to War, 1914 Great Crash, 1929 Kennedy Slide, 1962 Sobel tells us there is no universally accepted definition if financial panic. He quotes William Graham Sumner, who died long before the Great Crash of 1929, describing a panic as "a wave of emotion, apprehension, alarm. It is more or less irrational. It is superinduced upon a crisis, which is real and inevitable, but it exaggerates, conjures up possibilities, take away courage and energy." Sobel could find no "law of panics" which might allow us to predict them, but notes their common characteristics. Most occur during periods of optimism ("irrational exuberance?"). Most arise as "moments of truth," after periods of self-deception, when players not only suddenly recognize the magnitude of their problems, but are also stunned at their inability to solve them. He also notes that strong financial leaders may prove a mitigating factor, citing Vanderbilt and J.P. Morgan. Sobel concludes by saying that although financial panics have proven as devastating in some ways as war, and while much research has been carried out on war and its causes, little research has been done on financial panics. Panics on Wall Street stands as a solid foundation for later research on the topic. ********* 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. 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