/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/231031.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Tuesday, October 31, 2023, Vol. 24, No. 218 Headlines F R A N C E PARTS HOLDING: Moody's Affirms B2 CFR & Alters Outlook to Positive G E R M A N Y CIDRON ATRIUM: EUR500MM Bank Debt Trades at 16% Discount I R E L A N D ARES EUROPEAN XVII: S&P Assigns Prelim. B- Rating on F Notes BARRYROE OFFSHORE: Larry Goodman Set to Take Over Business HEALTHBEACON: High Court Appoints Interim Examiner MADISON PARK XIII: Fitch Hikes Rating on Class F Notes to 'Bsf' I T A L Y SESTANTE FINANCE 2004: Moody's Affirms Caa2 Rating on Cl. C1 Notes L U X E M B O U R G ARVOS BIDCO: EUR293MM Bank Debt Trades at 53% Discount TRINSEO MATERIALS: $750MM Bank Debt Trades at 16% Discount N E T H E R L A N D S ABERTIS FINANCE: Fitch Affirms 'BB+' Rating on Hybrid Instruments N O R W A Y B2 IMPACT: S&P Affirms 'B+' ICR & Alters Outlook to Positive P O R T U G A L [*] Moody's Ups Ratings on 9 Notes From 5 Portuguese RMBS Deals S P A I N [*] Moody's Ups Ratings on 76 Notes From 40 Spanish RMBS Deals U N I T E D K I N G D O M CANARY WHARF: Moody's Confirms 'Ba3' CFR, Outlook Negative EM MIDCO 2: Moody's Lowers CFR to B3 & Alters Outlook to Stable FARRINGDON MORTGAGE 2: Fitch Affirms 'BBsf' Rating on Cl. B2a Notes FORMENTERA ISSUER: Fitch Affirms 'Bsf' Rating on Class F Notes M IGOE: Set to Go Into Administration RAILSR: Strikes Deal with Investors to Raise GBP19.8 Million SAFESTYLE: Enters Administration, 680 Workers Affected SQUIBB GROUP: Creditors to Vote on CVA Deal on Nov. 9 VICTORIA PLC: Moody's Lowers CFR to B2 & Alters Outlook to Stable - - - - - =========== F R A N C E =========== PARTS HOLDING: Moody's Affirms B2 CFR & Alters Outlook to Positive ------------------------------------------------------------------ Moody's Investors Service has affirmed the corporate family rating of B2 and probability of default rating of B2-PD of car parts distributor Parts Holding Europe S.A.S (PHE or the company). Concurrently, Moody's has also affirmed the ratings on the existing backed senior secured notes issued by Parts Europe S.A. at B2. The outlook has been changed to positive from stable. RATINGS RATIONALE The rating affirmation and change in outlook to positive reflects the company's continued strong operating performance since the pandemic, driven by strong demand for PHE's products, inflation pass through and cost controls that have also resulted in improvement in margins. Leverage (Moody's adjusted debt/EBITDA) has reduced to 5.0x for last twelve months (LTM) June 2023 from 6.6x as of the end of 2021, while EBITA margin has improved to 9.5% from 7.9% over the same period. Free cash flow (FCF) to debt has been weak at 0.5% due to working capital movements resulting from higher inventory and voluntarily lower utilization of factoring lines to optimize cost of financing as the company has maintained a good level of liquidity. Moody's expects the improvements in operating performance and earnings to continue albeit at a slower pace as inflation cools down. Moody's expects favourable market conditions such as ageing car parc, increasing maintenance costs driven by complexity of the vehicles and price increases of spare parts by OEMs to be the drivers of PHE's strong performance. Moody's expects PHE will continue growing its top line in low-single-digit percentage in the next two years. As a result, Moody's expects adjusted EBITDA of around EUR307-322 million resulting in leverage of around 5.0x-4.7x over the next 12-18 months. Moody's expects that the company's FCF/debt will still be weak in 2023 and 2024 and will improve to around 3% by 2025 while the company will continue maintaining good liquidity, which is important given volatile working capital movements that have occurred in the past. Moody's recognizes that PHE's owner, D'Ieteren Group is a supportive shareholder who is committed to maintaining a conservative financial policy and deleveraging the company, with no concrete plans of dividend distributions or major debt funded acquisitions foreseen in the short term. RATING OUTLOOK The positive outlook reflects Moody's expectation that the strong operating performance will continue, translating into the adjusted leverage reducing to below 5.0x in the next 12-18 months and improvement in FCF/debt. Moody's assumes that the company will not execute any major debt-funded acquisitions or shareholder distributions in the short term as per the company and the shareholder's stated financial policy. LIQUIDITY PROFILE Moody's considers PHE's liquidity to be good and supported by a cash balance of EUR75 million and an undrawn super senior RCF of EUR200 million as of June 2023. The company also has a EUR200 million factoring line of which around EUR70 million has been drawn as of June 2023. In 2024 Moody's expects the company to generate at least a breakeven level of FCF, with further improvements thereafter. As part of the documentation, the super senior RCF contains a maintenance springing covenant of super senior secured net leverage to EBITDA of less than 0.7x when the RCF is drawn more than 35%. Moody's expects PHE to maintain ample headroom under this covenant. STRUCTURAL CONSIDERATIONS The B2 ratings on the backed senior secured notes is at the same level as the CFR reflecting the relatively small quantum of super senior debt ranking ahead, namely the RCF. While the RCF and the backed senior secured notes benefit from the same security package as the notes (i.e. shares, bank accounts and intercompany receivables), they will rank ahead of the backed senior secured notes in an enforcement scenario under the provisions of the intercreditor agreement. Also, the obligations of the notes' subsidiary guarantor are capped at EUR330 million. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Moody's will consider upgrading the ratings if continued improvement in operating performance, including sustained EBITDA margins, leads to Moody's-adjusted debt/EBITDA reducing to below 5.0x, Moody's-adjusted EBITA/interest increasing above 2.5x, and the company maintains a solid liquidity profile including positive Moody's-adjusted FCF/debt of around 5%, all on a sustainable basis. Negative rating action could materialise if the company fails to improve its operating performance and cash flow generation, or liquidity materially weakens. This would be evidenced by Moody's-adjusted debt/EBITDA remaining sustainably above 6.0x, weak Moody's-adjusted EBITA/ interest cover of below 1.5x, deterioration in EBITDA margins or sustained negative free cash flow. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Distribution and Supply Chain Services published in February 2023. COMPANY PROFILE Headquartered in France, Parts Holding Europe S.A.S is a leading aftermarket light vehicle (LV) spare parts distributor and truck spare parts distributor and repairer in France, Benelux, Italy, and Spain. It also owns Oscaro, the leading online car parts retailer in France, since November 2018. The company generated revenue of around EUR2.5 billion and Moody's adjusted EBITDA of EUR302 million for LTM June 2023. ============= G E R M A N Y ============= CIDRON ATRIUM: EUR500MM Bank Debt Trades at 16% Discount -------------------------------------------------------- Participations in a syndicated loan under which Cidron Atrium SE is a borrower were trading in the secondary market around 84 cents-on-the-dollar during the week ended Friday, October 27, 2023, according to Bloomberg's Evaluated Pricing service data. The EUR500 million facility is a Term loan that is scheduled to mature on February 26, 2025. The amount is fully drawn and outstanding. Cidron Atrium SE operates as a special purpose entity. The Company was formed for the purpose of issuing debt securities to repay existing credit facilities, refinance indebtedness, and for acquisition purposes. The Company's country of domicile is Germany. ============= I R E L A N D ============= ARES EUROPEAN XVII: S&P Assigns Prelim. B- Rating on F Notes ------------------------------------------------------------ S&P Global Ratings assigned preliminary credit ratings to Ares European CLO XVII DAC's class A to F European cash flow CLO notes. At closing, the issuer will issue unrated subordinated notes. Under the transaction documents, the rated notes will pay quarterly interest unless a frequency switch event occurs. Following this, the notes will switch to semiannual payments. The portfolio's reinvestment period will end approximately five years after closing. The preliminary ratings reflect S&P's assessment of: -- The diversified collateral pool, which primarily comprises broadly syndicated speculative-grade senior-secured term loans and bonds that are governed by collateral quality tests. -- The credit enhancement provided through the subordination of cash flows, excess spread, and overcollateralization. -- The transaction's legal structure, which S&P expects to be bankruptcy remote. -- The transaction's counterparty risks, which S&P expects to be in line with its counterparty rating framework. Portfolio benchmarks CURRENT S&P Global Ratings' weighted-average rating factor 2,990.31 Default rate dispersion 396.44 Weighted-average life (years) extended to cover the length of the reinvestment period 5.11 Obligor diversity measure 133.98 Industry diversity measure 23.43 Regional diversity measure 1.22 Transaction key metrics CURRENT Portfolio weighted-average rating derived from S&P's CDO evaluator B 'CCC' category rated assets (%) 0.50 'AAA' weighted-average recovery (%) 37.69 Weighted-average spread (%) 4.48 Weighted-average coupon (%) 8.11 Rating rationale S&P said, "We understand that at closing the portfolio will be well-diversified, primarily comprising broadly syndicated speculative-grade senior-secured term loans and senior-secured bonds. Therefore, we have conducted our credit and cash flow analysis by applying our criteria for corporate cash flow CDOs. "In our cash flow analysis, we used the EUR400 million target par amount, the actual weighted-average spread (4.48%), the covenanted weighted-average coupon (6.67%), and the actual weighted-average recovery rates calculated in line with our CLO criteria for all rating levels. We applied various cash flow stress scenarios, using four different default patterns, in conjunction with different interest rate stress scenarios for each liability rating category. "Under our structured finance sovereign risk criteria, we consider that the transaction's exposure to country risk is sufficiently mitigated at the assigned preliminary ratings. "At closing, we expect that the transaction's documented counterparty replacement and remedy mechanisms will adequately mitigate its exposure to counterparty risk under our current counterparty criteria. "We expect the transaction's legal structure and framework to be bankruptcy remote, in line with our legal criteria. "Until the end of the reinvestment period on Jan. 15, 2029, the collateral manager may substitute assets in the portfolio for so long as our CDO Monitor test is maintained or improved in relation to the initial ratings on the notes. This test looks at the total amount of losses that the transaction can sustain as established by the initial cash flows for each rating, and it compares that with the current portfolio's default potential plus par losses to date. As a result, until the end of the reinvestment period, the collateral manager may through trading deteriorate the transaction's current risk profile, as long as the initial ratings are maintained. "Our credit and cash flow analysis indicates that the available credit enhancement for the class B to E notes could withstand stresses commensurate with higher ratings than those assigned. However, as the CLO will enter its reinvestment phase from closing, during which the transaction's credit risk profile could deteriorate, we have capped our assigned preliminary ratings on these notes. "Following our analysis of the credit, cash flow, counterparty, operational, and legal risks, we believe that our assigned preliminary ratings are commensurate with the available credit enhancement for the class A to F notes. "In addition to our standard analysis, to provide an indication of how rising pressures among speculative-grade corporates could affect our ratings on European CLO transactions, we have also included the sensitivity of the ratings on the class A to E notes based on four hypothetical scenarios. "As our ratings analysis includes additional considerations before assigning ratings in the 'CCC' category, and we would assign a 'B-' rating if the criteria for assigning a 'CCC' category rating are not met, we have not included the above scenario analysis results for the class F notes." The transaction securitizes a portfolio of primarily senior-secured leveraged loans and bonds, and is managed by Ares Management Ltd. Environmental, social, and governance (ESG) credit factors S&P said, "We regard the exposure to ESG credit factors in the transaction as being broadly in line with our benchmark for the sector. Primarily due to the diversity of the assets within CLOs, the exposure to environmental credit factors is viewed as below average, social credit factors are below average, and governance credit factors are average. For this transaction, the documents prohibit assets from being related to certain activities, including, but not limited to the following: the production or trade of illegal drugs or narcotics; the development, production, maintenance of weapons of mass destruction, including biological and chemical weapons; manufacture or trade in pornographic materials; payday lending; and tobacco distribution or sale. Accordingly, since the exclusion of assets from these industries does not result in material differences between the transaction and our ESG benchmark for the sector, no specific adjustments have been made in our rating analysis to account for any ESG-related risks or opportunities." Ratings PRELIM. CLASS PRELIM. AMOUNT INTEREST RATE CREDIT RATING* (MIL. EUR) (%)§ ENHANCEMENT (%) A AAA (sf) 246.00 3mE + 1.70 38.50 B AA (sf) 40.00 3mE + 2.40 28.50 C A (sf) 27.00 3mE + 3.25 21.75 D BBB- (sf) 25.80 3mE + 5.20 15.30 E BB- (sf) 19.40 3mE + 7.91 10.45 F B- (sf) 13.40 3mE + 8.09 7.10 Sub NR 30.10 N/A N/A *The preliminary ratings assigned to the class A and B notes address timely interest and ultimate principal payments. The preliminary ratings assigned to the class C, D, E, and F notes address ultimate interest and principal payments. §The payment frequency switches to semiannual and the index switches to six-month EURIBOR when a frequency switch event occurs. 3mE--Three-month Euro Interbank Offered Rate. NR--Not rated. N/A--Not applicable. BARRYROE OFFSHORE: Larry Goodman Set to Take Over Business ---------------------------------------------------------- Head Topics reports that beef baron Larry Goodman is set to take full control of Barryroe Offshore Energy later this week when the High Court signs off on a multimillion-euro rescue plan for the business, which is insolvent and in examinership. According to Head Topics, on Oct. 27, Barryroe, which was formerly known as Providence Resources, announced that investors had voted in favour of a rescue plan that will see Lorsden Limited, a Jersey-based company controlled by Goodman, invest more than EUR6 million. HEALTHBEACON: High Court Appoints Interim Examiner -------------------------------------------------- Ellen O'Riordan and Joe Brennan at The Irish Times report that the High Court has appointed an interim examiner to Dublin-based medical technology firm HealthBeacon after hearing it had "run out of cash" and needed external funding to meet its payroll commitments on Oct. 27. The petition for examinership came in "most unusual" circumstances as "literally there is no more gas in the tank" for the company to financially support itself even during the 100-day period of court protection, said senior counsel Kelley Smith on behalf of HealthBeacon's directors, The Irish Times relates. The company has lined up US home appliances distributor Hamilton Beach Brands, which has an existing partnership with the business, to fund the examinership with a EUR1.85 million loan that needs to be repaid after 120 days, The Irish Times discloses. The credit line is on condition that Hamilton Beach would rank ahead of secured and unsecured creditors in the event of the company going into liquidation, The Irish Times notes. According to The Irish Times, Mr Justice Rory Mulcahy appointed insolvency practitioner Shane McCarthy, of KPMG, as interim examiner. The publicly quoted company had an initial market value of EUR98 million when it floated in Dublin in December 2021 with an ambition of accelerating the roll-out of its flagship product, a digital sharps disposal bin for needles and syringes that reminds patients to stick to injection schedules at home, The Irish Times states. However, its market capitalisation had collapsed to EUR1.18 million by Oct. 13, when its shares were suspended, as investors fretted about the company's ability to remain in business as it burned through cash, The Irish Times notes. HealthBeacon has 75 employees, of which 50 are based in Ireland. It is expected that about 20 staff members will be made redundant, Ms Smith said. It was hoped the firm was "turning a corner" and would produce better results in 2023, after it made losses of just under EUR10 million for the year up to September, she said, The Irish Times relays. Independent expert Nicholas O'Dwyer, of Grant Thornton, determined that the company has a "reasonable prospect of survival" as a going concern if a successful rescue plan is put together, The Irish Times discloses. Unsecured creditors would receive 19% of what they are owed if the company was to be liquidated, and it is anticipated they would do better under a restructuring, he said in a report, The Irish Times notes. The court heard HealthBeacon has a net asset position of EUR10 million, with liabilities of EUR6.3 million primarily due to trade creditors and general unsecured creditors, according to The Irish Times. Taoglas, a Co Wexford firm, is the largest creditor, the court heard, The Irish Times states. The Revenue Commissioner, which is usually treated as a preferential creditor in insolvency situations, is owed just under EUR62,000, according to The Irish Times. Mr Justice Mulcahy was satisfied the statutory requirements were met and that it was appropriate for him to exercise his discretion to make the appointment, The Irish Times discloses. He noted the application came before him while only the company was represented in court and notified, The Irish Times recounts. He adjourned the case until a date next month, The Irish Times notes. MADISON PARK XIII: Fitch Hikes Rating on Class F Notes to 'Bsf' ---------------------------------------------------------------- Fitch Ratings has upgraded Madison Park Euro Funding XIII DAC class B-1-R to F notes. Entity/Debt Rating Prior ----------- ------ ----- Madison Park Euro Funding XIII DAC A-R XS2328023085 LT AAAsf Affirmed AAAsf B-1-R XS2328023242 LT AA+sf Upgrade AAsf B-2-R XS2328023598 LT AA+sf Upgrade AAsf C-R XS2328023754 LT A+sf Upgrade Asf D-R XS2328023911 LT BBB+sf Upgrade BBB-sf E XS1943605763 LT BB+sf Upgrade BBsf F XS1943606498 LT Bsf Upgrade B-sf TRANSACTION SUMMARY Madison Park Euro Funding XIII DAC is a cash flow CLO comprised of mostly senior secured obligations. The transaction is actively managed by Credit Suisse Asset Management Limited and exited its reinvestment period in October 2023. KEY RATING DRIVERS Stable Performance; Low Refinancing Risk: Since Fitch's last rating action in November 2022, the portfolio's performance has been stable. As per the last trustee report dated 20 September 2023, the transaction is passing all of its collateral quality and portfolio profile tests The transaction has manageable exposure to near- and medium-term refinancing risk, with 0.5% of the assets in the portfolio maturing before 2024 and 7.9% in 2025, as calculated by Fitch, in view of the large default-rate cushions for each class of notes. The transaction's stable performance, combined with a shortened weighted average life (WAL) covenant, has resulted in larger break-even default-rate cushions versus the last review in November 2022. This led to the upgrades. Large Cushion Supports Stable Outlooks: All notes have large default-rate buffers to support their ratings and should be capable of absorbing further defaults in the portfolio. The ratings also reflect that the classes have sufficient levels of credit protection to withstand potential deterioration in the credit quality of the portfolio in stress scenarios commensurate with the ratings. 'B'/'B-' Portfolio: Fitch assesses the average credit quality of the underlying obligors at 'B'/'B-'. The Fitch-calculated weighted average rating factor (WARF) of the current portfolio is 33.56 as reported by the trustee based on the old criteria and 24.98 as calculated by Fitch under its latest criteria. High Recovery Expectations: Senior secured obligations comprise 98.08% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch-calculated weighted average recovery rate (WARR) of the current portfolio as reported by the trustee was 64.90%. Diversified Portfolio: The top 10 obligor concentration as calculated by the trustee is 12.65%, which is below the limit of 20% based on the current matrix covenants. No obligor represents more than 1.6% of the portfolio balance. Transaction Outside Reinvestment Period: Although the transaction exited its reinvestment period in October 2023, the manager can reinvest unscheduled principal proceeds and sale proceeds from credit-risk obligations after the reinvestment period, subject to compliance with the reinvestment criteria. Given the manager's ability to reinvest, Fitch's analysis is based on a stressed portfolio testing the Fitch-calculated WAL, Fitch-calculated WARF, Fitch-calculated WARR, weighted average spread (WAS) and fixed-rate asset share to their covenanted limits. The WARR in the Fitch test matrix is haircut by 1.5% to account for the average inflation of the reported Fitch WARR since the transaction documents use a recovery rate definition that is based on old criteria. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade An increase of the default rate (RDR) at all rating levels in the current portfolio by 25% of the mean RDR and a decrease of the recovery rate (RRR) by 25% at all rating levels would have no impact on the class A to C notes, and lead to downgrades of one notch for the class D and F notes and two notches for the class E notes. Downgrades may occur if the build-up of the notes' credit enhancement following amortisation does not compensate for a larger loss expectation than initially assumed due to unexpectedly high levels of defaults and portfolio deterioration. Due to the better metrics and shorter life of the current portfolio than the Fitch-stressed portfolio as well as the model-implied rating deviation, the class B, D and E notes display a rating cushion of one notch, and the class F notes four notches. There is no rating cushion for the class A or C notes. Should the cushion between the current portfolio and the Fitch-stressed portfolio be eroded, either due to manager trading or negative portfolio credit migration, a 25% increase of the mean RDR and a 25% decrease of the RRR across all ratings of the stressed portfolio would lead to downgrades of one notch for the class A notes, three notches for the class B-1-R to D notes, five notches for the class E notes and to below 'B-sf' for the class F notes. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A reduction of the RDR at all rating levels in the stressed portfolio by 25% of the mean RDR and an increase in the RRR by 25% at all rating levels would result in upgrades of up to four notches for all notes, except for the class A and C notes. Further upgrades may occur if the portfolio's quality remains stable and the notes start to amortise, leading to higher credit enhancement across the structure. DATA ADEQUACY Madison Park Euro Funding XIII DAC Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. The majority of the underlying assets or risk presenting entities have ratings or credit opinions from Fitch and/or other Nationally Recognized Statistical Rating Organizations and/or European Securities and Markets Authority registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ========= I T A L Y ========= SESTANTE FINANCE 2004: Moody's Affirms Caa2 Rating on Cl. C1 Notes ------------------------------------------------------------------ Moody's Investors Service announced that it has upgraded its ratings on three Notes ("RMBS Notes") issued by three Italian RMBS Issuers and backed by mortgages on properties located in Italy ("Italian RMBS"). Moody's affirmed the ratings of the Notes that had sufficient credit enhancement to maintain the current rating on the affected Notes. Issuer: BRERA SEC S.R.L. (2021 RMBS) EUR6940M Class A Notes, Upgraded to Aa3 (sf); previously on Dec 1, 2021 Assigned A1 (sf) Issuer: Fucino RMBS S.r.l. EUR118M Class A1 Notes, Affirmed Aa3 (sf); previously on Mar 2, 2023 Affirmed Aa3 (sf) EUR5.997M Class B Notes, Upgraded to A2 (sf); previously on Mar 2, 2023 Upgraded to A3 (sf) Issuer: Sestante Finance S.r.l. - Series 2004 EUR575.3M Class A Notes, Affirmed Aa3 (sf); previously on Oct 6, 2022 Affirmed Aa3 (sf) EUR34.4M Class B Notes, Upgraded to Baa2 (sf); previously on Oct 6, 2022 Upgraded to Baa3 (sf) EUR15.6M Class C1 Notes, Affirmed Caa2 (sf); previously on Oct 6, 2022 Affirmed Caa2 (sf) Maximum achievable rating is Aa3 (sf) for structured finance transactions in Italy, driven by the corresponding local currency country ceiling of the country. Moody's actions stem from the publication of "Residential Mortgage-Backed Securitizations methodology" together with "Italy: Residential Mortgage-Backed Securitizations methodology supplement", the credit rating methodology used in rating these securities and also incorporate deleveraging and performance considerations. Although the updated methodology results in a change in Moody's overall assessment of MILAN Stressed Loss and cash flow modelling, only certain deals' ratings are impacted. For instance, structural elements of the transactions, as well as collateral performance, may limit or mitigate the potential for the rating action resulting from the methodology change. The ratings actions also incorporate deleveraging and performance considerations, which may result in more significant rating actions than purely stemming from the methodology change. RATINGS RATIONALE The rating actions result from the update to Moody's methodology for rating Italian RMBS, the associated updates to the MILAN Stressed Loss assumption for these transactions, as well as updates to assumptions and the cash flow modelling. For the RMBS Notes upgraded, Moody's completed full analysis considering the analysis of the collateral portfolio, performance, as well as the full set of structural features of each RMBS transaction. MILAN Stressed Loss and Expected Loss as a percentage of current pool balance (EL%CB) assumptions for the deals included in the actions are the following: BRERA SEC S.R.L. (2021 RMBS) - MILAN Stressed Loss 6.50% and EL%CB 1.4%. Fucino RMBS S.r.l. - MILAN Stressed Loss 9.80% and EL%CB 3.00%. This revised expected loss assumption corresponds to 2.55% as a percentage of original pool balance down from 2.65%. Sestante Finance S.r.l. - Series 2004 - MILAN Stressed Loss 20.70% and EL%CB 8.02%. For the Class A Notes of BRERA SEC S.R.L. (2021 RMBS) upgraded in the action, the credit enhancement increased to 11.34% from 10.37% since closing. For the Class B Notes of Fucino RMBS S.r.l. upgraded in the action, the credit enhancement increased to 16.77% from 12.78% since the last rating action in March 2023. For the Class B Notes of Sestante Finance S.r.l. - Series 2004 upgraded in the action, the credit enhancement increased to 25.42% from 17.18% since the last rating action in October 2022. The rating actions also took into consideration the Notes' exposure to relevant counterparties, such as servicer, liquidity provider, account bank and swap counterparty. The principal methodology used in these ratings was "Residential Mortgage-Backed Securitizations methodology" published in October 2023. The analysis undertaken by Moody's at the initial assignment of ratings for RMBS securities may focus on aspects that become less relevant or typically remain unchanged during the surveillance stage. Factors that would lead to an upgrade or downgrade of the ratings: Factors 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, (3) improvements in the credit quality of the transaction counterparties, and (4) a decrease in sovereign risk. 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. =================== L U X E M B O U R G =================== ARVOS BIDCO: EUR293MM Bank Debt Trades at 53% Discount ------------------------------------------------------ Participations in a syndicated loan under which Arvos BidCo Sarl is a borrower were trading in the secondary market around 47.5 cents-on-the-dollar during the week ended Friday, October 27, 2023, according to Bloomberg's Evaluated Pricing service data. The EUR293 million facility is a Term loan that is scheduled to mature on August 29, 2024. The amount is fully drawn and outstanding. Arvos BidCo S.a.r.l. is the parent company of the Arvos Group, which is a global leader in providing heat exchanging and wind tower solutions. Arvos Group is a carve-out from Alstom and is fully owned by Triton funds and by its management. Arvos Midco S.a r.l. (formerly Alison Midco S.a.r.l.) is the parent company of Arvos BidCo. The Company's country of domicile is Luxembourg. TRINSEO MATERIALS: $750MM Bank Debt Trades at 16% Discount ---------------------------------------------------------- Participations in a syndicated loan under which Trinseo Materials Operating SCA is a borrower were trading in the secondary market around 84.5 cents-on-the-dollar during the week ended Friday, October 27, 2023, according to Bloomberg's Evaluated Pricing service data. The $750 million facility is a Term loan that is scheduled to mature on May 3, 2028. About $730.3 million of the loan is withdrawn and outstanding. Trinseo is a specialty material solutions provider. The Company's country of domicile is Luxembourg. ===================== N E T H E R L A N D S ===================== ABERTIS FINANCE: Fitch Affirms 'BB+' Rating on Hybrid Instruments ----------------------------------------------------------------- Fitch Ratings has affirmed Abertis Infraestructuras, S.A.'s (Abertis) Long-Term Issuer Default Rating (IDR) at 'BBB' and its unsecured notes and Abertis Infraestructuras Finance B.V.'s (Abertis Finance) hybrid instruments at 'BB+'. The Outlook is Stable. The affirmation follows the recently announced acquisitions and shareholder capital injection of EUR1.3 billion. RATING RATIONALE The rating affirmation reflects the improved quality and extended duration of the Abertis portfolio of assets, in a context of a leverage profile that is still commensurate with its current rating. The group's M&A strategy limits the visibility of future capital structure, although, in its view, the potential downsizing of distributions provides financial flexibility. KEY RATING DRIVERS On October 17, 2023, Abertis announced the successful bid for four motorways in Puerto Rico. Abertis will operate the assets for 40 years with a modest expansion capex. Puerto Rico Transportation Authority awarded the assets to Abertis for a total cash out of about USD2.85 billion. The four assets are 192km long; they are operating and are strategic to Puerto Rico, as they are used by local commuters and connecting San Juan metropolitan areas as well as the south and east of the island. Abertis will increase its presence in the region, adding the PR-52, PR-66, PR-20 and PR-53 motorways, to Metropistas (PR-22 and PR-5) and the Teodoro Moscoso Bridge, operated over the past 12 and 20 years, respectively. Financial closing is expected by end-2023. In addition, Abertis announced the signing of the acquisition of a 56.78% stake in SH288 ('BBB'/Stable), a 17km-long managed lane in Texas from ACS group, for an equity consideration of USD1.5 billion. The asset benefits from a dynamic tooling mechanism and has a 45-year concession granted by the Texas Department of Transportation. SH288 is strategically located in the fast-growing, traffic congested, residential area of Brazoria County and south Harris County, close to Houston employment centers, Texas. Being a brand-new asset, SH288 shows negligible capex requirements. The group will also consolidate about USD0.6 billion of SH288's existing debt. Financial close is expected by year end, after the completion of the customary regulatory approvals. The new assets will increase the group's portfolio quality and weighted average duration by about two years, enhancing Abertis's debt capacity, in addition to shareholder support. In this context, Fitch views Abertis's average leverage of 6.0x under the Fitch rating case (FRC) as still commensurate with the 'BBB' rating. Both transactions are consistent with Abertis's strategy aiming at extending its portfolio concession maturity, increasing its presence in mature countries and replacing the EBITDA of the expiring assets. The equity contribution is also consistent with the new corporate governance, which aims to support the company with the necessary resources to expand its portfolio perimeter, while maintaining an investment-grade rating. For an overview of Abertis's credit profile, including key rating drivers, see "Fitch Revises Outlook on Abertis to Stable; Affirms Ratings" published 11 April 2023. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Failure to reduce Fitch-adjusted Leverage below 6.2x by 2024 under the FRC. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - A positive rating action is currently unlikely given the projected leverage, level and group acquisitive stance. 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 ----------- ------ ----- Abertis Infraestructuras, S.A. LT IDR BBB Affirmed BBB ST IDR F3 Affirmed F3 Abertis Infraestructuras, S.A./Toll Revenues - Senior Unsecured Debt/1 LT LT BBB Affirmed BBB Abertis Infraestructuras Finance B.V. Abertis Infraestructuras Finance B.V./Toll Revenues - Senior Unsecured Debt/1 LT LT BBB Affirmed BBB Abertis Infraestructuras Finance B.V./Toll Revenues - Senior Unsecured Debt/2 LT LT BB+ Affirmed BB+ =========== N O R W A Y =========== B2 IMPACT: S&P Affirms 'B+' ICR & Alters Outlook to Positive ------------------------------------------------------------ S&P Global, on Oct. 26, 2023, revised its outlook on Norway-based debt purchaser B2 Impact ASA (B2; previously B2 Holding ASA) to positive from stable and affirmed the 'B+' long-term issuer credit rating. The positive outlook indicates that S&P could raise the rating if, over the next 12 to 18 months, S&P sees a successful refinancing coupled with continued earnings stability that is supportive of a sound financial profile. B2's financial performance in first-half 2023 demonstrated revenue will likely be stronger than expected. Cash revenue and EBITDA are forecast to expand about 9%-10% and 5%-6%, respectively, in 2023 due to an increase in portfolio investments, which S&P believes have been purchased with robust pricing discipline. As of first-half 2023, investments were tracking Norwegian krone (NOK) 2.2 billion (including purchase commitments), which is ahead of last year's comparable figure of NOK1.5 billion, but in line with the company's own stated targets of NOK2 billion-NOK3 billion per year. Also, unsecured collections have seen strong over-performance in the past two quarters, indicating the company's structured approach to investments is bearing fruit. Secured cash collections and real estate operating asset (REO) sales have remained stable, as have operating expenses, supporting S&P's forecast for earnings over the next 12-18 months. Both the PIMCO partnership and set-up of Veraltis Asset Management (Veraltis) have proceeded as planned, with the size of the senior financing from PIMCO increased to EUR180 million (initially EUR166 million), indicating support for the strategy. The company's revised strategy is anticipated to reduce the gap to peers. B2's scale and asset mix had at times weighed on its results and potentially could have contributed to past missteps involving negative revaluations in the secured asset book. However, the company has worked to improve its strategic mix to enable a more flexible approach to the current more-challenging environment faced by debt purchasers. This includes working with a co-investor to increase more capital-light revenue streams. While B2's servicing franchise via Veraltis still has room to expand, the co-investment structure with PIMCO is expected to provide better access to more sizeable, secured portfolios. Proactive liquidity management ahead of B2's maturities next year is vital over the coming months. Higher interest rates have put pressure on coverage metrics, however, revisions to the revolving credit facility (RCF) covenants have allowed some flexibility. More generally, we believe there will be an improvement in coverage in 2024 given EBITDA growth expectations. Also, B2 has a solid track record of smooth maturity management, with past refinancings and RCF extensions, which we believe will help address the necessary funding needed ahead of the EUR200 million May 2024 maturity of the B2H05 bond. For instance, in first-quarter 2023, B2 efficiently completed a tap issue of B2H06 (September 2026 maturity), which enabled the company to repurchase the outstanding balance of a May 2023 bond. Furthermore, S&P notes that B2 was able to refinance its RCF smoothly with a group of three Nordic banks, including unchanged interest terms. As of second-quarter 2023, EUR182 million of the RCF was undrawn. S&P said, "We expect debt to remain stable in 2023-2024.Given we expect relatively robust revenue and cash EBITDA growth, we believe leverage will gradually decline to about 2.50x-2.75x by year-end 2024. We recognize that B2 remains exposed to the risk of negative revaluation of the debt portfolios it holds as well as of the REOs. However, we believe improved conservatism in terms of valuation policies should help limit this risk. Moreover, the declining reliance on REOs will limit its exposure to real estate price risks in the medium term. "The positive outlook reflects our expectation that B2 will show largely resilient earnings performance over the next 12-18 months, despite the weak environment in many European markets, and proactively manage its liquidity needs for the upcoming debt maturities. "We could consider an upgrade over the next 12 months if we continue to see B2 deliver stable earnings, indicating that improved pricing discipline has minimized negative revaluation risks, and that strategic initiatives--including the PIMCO partnership and Veraltis structure--are supportive of revenue generation. At the same time, an upgrade is conditional on B2 refinancing its 2024 maturity while maintaining S&P Global Ratings-adjusted leverage below 3.0x and EBITDA interest coverage above 4.0x. "Although less likely, we could also consider an upgrade if the future focus on unsecured collections and servicing leads to a better leverage profile, with S&P Global Ratings-adjusted gross leverage improving sustainably to below 2.5x. "We could lower the rating on B2 if liquidity became constrained over the coming months, which could occur if the company fails to refinance its upcoming maturity via the wholesale funding markets or the bank RCF. "We could also lower the rating if we observe a marked deterioration in secured or unsecured collections, or negative revaluations, leading to diminishing coverage. This would indicate tighter headroom to covenants, which would hinder B2's financial flexibility." =============== P O R T U G A L =============== [*] Moody's Ups Ratings on 9 Notes From 5 Portuguese RMBS Deals --------------------------------------------------------------- Moody's Investors Service announced that it has upgraded its ratings on nine Notes ("RMBS Notes") issued by five Portuguese RMBS Issuers and backed by mortgages on properties located in Portugal. Moody's affirmed the ratings of the Notes that had sufficient credit enhancement to maintain the current rating on the affected Notes. The issuers are: - Embo Mortgages No. 1 - Hipototta No. 5 plc - Lusitano Mortgages No. 4 plc - Magellan Mortgages No. 3 plc - Pelican Mortgages No. 3 Maximum achievable rating is Aa2 (sf) for structured finance transactions in Portugal, driven by the corresponding local currency country ceiling of the country. Moody's actions stem from the publication of "Residential Mortgage-Backed Securitizations methodology" together with "Portugal: Residential Mortgage-Backed Securitizations methodology supplement", the credit rating methodology used in rating these securities and also incorporate deleveraging and performance considerations. Although the updated methodology results in a change in Moody's overall assessment of MILAN Stressed Loss and cash flow modelling, only certain deals' ratings are impacted. For instance, structural elements of the transactions as well as collateral performance may limit or mitigate the potential for the rating action resulting from the methodology change. The ratings actions also incorporate deleveraging and performance considerations, which may result in more significant rating actions than purely stemming from the methodology change. RATINGS RATIONALE A list of Affected Credit Ratings is available at https://urlcurt.com/u?l=RjX26u This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items: -- Expected Loss (%CB) -- MILAN Stressed Loss -- Rationale for rating action -- Constraining factors on the ratings The rating actions result from the update to Moody's methodology for rating Portuguese RMBS, the associated updates to the MILAN Stressed Loss assumption for these transactions, as well as updates to assumptions and the cash flow modelling. For the RMBS Notes upgraded, Moody's completed full analysis considering the analysis of the collateral portfolio, performance, as well as the full set of structural features of each RMBS transaction. The rating actions also took into consideration the Notes' exposure to relevant counterparties, such as servicer, liquidity provider, account bank and swap counterparty. Details of the MILAN Stressed Loss and Expected Loss as a percentage of current pool balance assumptions related to the actions can be found in the List of Affected Credit Ratings associated with this Press Release. The principal methodology used in these ratings was "Residential Mortgage-Backed Securitizations methodology" published in October 2023. The analysis undertaken by Moody's at the initial assignment of ratings for RMBS securities may focus on aspects that become less relevant or typically remain unchanged during the surveillance stage. Factors that would lead to an upgrade or downgrade of the ratings: Factors 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, (3) improvements in the credit quality of the transaction counterparties, and (4) a decrease in sovereign risk. 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. ========= S P A I N ========= [*] Moody's Ups Ratings on 76 Notes From 40 Spanish RMBS Deals -------------------------------------------------------------- Moody's Investors Service announced that it has upgraded its ratings on seventy six Notes ("RMBS Notes") issued by forty Spanish RMBS Issuers and backed by mortgages on properties located in Spain. Moody's affirmed the ratings of the Notes that had sufficient credit enhancement to maintain the current rating on the affected Notes. The issuers are: BBVA RMBS 1, FTA BBVA RMBS 2, FTA BBVA RMBS 3, FTA BBVA RMBS 3, FTA IM CAJAMAR 5, FTA IM CAJAMAR 5, FTA RURAL HIPOTECARIO XII, FTA AyT Colaterales Global Hipotecario Caja Cantabria I TDA CAM 5, FTA TDA 26 MIXTO, FTA, BONOS GRUPO 1, FTA TDA CAM 7, FTA VALENCIA HIPOTECARIO 3, FTA TDA 29, FTA TDA TARRAGONA 1, FTA RURAL HIPOTECARIO XI, FTA CAIXABANK RMBS 2, Fondo de Titulizacion CAIXABANK RMBS 3, FONDO DE TITULIZACION AyT HIPOTECARIO MIXTO V, FTA HIPOCAT 9, FTA FTA SANTANDER HIPOTECARIO 2 MADRID RMBS I, FTA MADRID RMBS II, FTA FTA SANTANDER HIPOTECARIO 3 MADRID RMBS III, FTA AyT GÉNOVA HIPOTECARIO VI, FTH AyT GÉNOVA HIPOTECARIO VII, FTH AyT GÉNOVA HIPOTECARIO VIII , FTH AyT GÉNOVA HIPOTECARIO IX, FTH AyT GÉNOVA HIPOTECARIO X, FTH AyT GÉNOVA HIPOTECARIO XII, FTH TDA IBERCAJA 3, FTA TDA IBERCAJA 4, FTA TDA IBERCAJA 5, FTA TDA IBERCAJA 6, FTA IM AndBank RMBS 1, FT BANKINTER 10, FTA BANKINTER 11, FTH BANKINTER 13, FTA BANCAJA 9, FTA MBS BANCAJA 3, FTA MBS BANCAJA 4, FTA BANCAJA 11, FTA A list of Affected Credit Ratings is available at https://urlcurt.com/u?l=FDzuJM Maximum achievable rating is Aa1 (sf) for structured finance transactions in Spain, driven by the corresponding local currency country ceiling of the country. Moody's actions stem from the publication of "Residential Mortgage-Backed Securitizations methodology" together with "Spain: Residential Mortgage-Backed Securitizations methodology supplement", the credit rating methodology used in rating these securities and also incorporate deleveraging and performance considerations. Although the updated methodology results in a change in Moody's overall assessment of MILAN Stressed Loss and cash flow modelling, only certain deals' ratings are impacted. For instance, structural elements of the transactions as well as collateral performance may limit or mitigate the potential for the rating action resulting from the methodology change. The ratings actions also incorporate deleveraging and performance considerations, which may result in more significant rating actions than purely stemming from the methodology change. RATINGS RATIONALE A list of Affected Credit Ratings is available at https://urlcurt.com/u?l=all1lg -- Expected Loss (%CB) -- MILAN Stressed Loss -- Rationale for rating action -- Constraining factors on the ratings The rating actions result from the update to Moody's methodology for rating Spanish RMBS, the associated updates to the MILAN Stressed Loss assumption for these transactions, as well as updates to assumptions and the cash flow modelling. For the RMBS Notes upgraded, Moody's completed full analysis considering the analysis of the collateral portfolio, performance, as well as the full set of structural features of each RMBS transaction. The rating actions also took into consideration the Notes' exposure to relevant counterparties, such as servicer, liquidity provider, account bank and swap counterparty. Details of the MILAN Stressed Loss and Expected Loss as a percentage of current pool balance assumptions related to the actions can be found in the List of Affected Credit Ratings associated with this Press Release. The principal methodology used in these ratings was "Residential Mortgage-Backed Securitizations methodology" published in October 2023. The analysis undertaken by Moody's at the initial assignment of ratings for RMBS securities may focus on aspects that become less relevant or typically remain unchanged during the surveillance stage. Factors that would lead to an upgrade or downgrade of the ratings: Factors 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, (3) improvements in the credit quality of the transaction counterparties, and (4) a decrease in sovereign risk. 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. =========================== U N I T E D K I N G D O M =========================== CANARY WHARF: Moody's Confirms 'Ba3' CFR, Outlook Negative ---------------------------------------------------------- Moody's Investors Service has confirmed Canary Wharf Group Investment Holdings plc's (CWGIH or the company) Ba3 long term corporate family rating and downgraded the senior secured instrument ratings to B1 from Ba3, with a negative outlook. Previously, the ratings were on review for downgrade. This rating action concludes the review for downgrade that was first initiated on December 6, 2022. RATINGS RATIONALE The confirmation of the company's Ba3 CFR follows the decision by shareholders to inject GBP300 million of cash equity into CWGIH and make available a further GBP100 million shareholder-provided revolving credit facility (RCF) that is provided to an affiliate of CWGIH but with proceeds able to be pushed down into CWGIH if needed. The additional equity strengthens CWGIH's balance sheet, improves liquidity and places the company in a stronger position to address its upcoming debt maturities. Secured bank lending remains functional and accessible to the company, representing an economically attractive refinancing alternative to the bond market, which is currently dislocated. All the upcoming secured debt maturities in 2024 and 2025 totaling more than GBP1.3 billion are in ringfenced SPVs with no recourse to CWGIH. Nonetheless, Moody's expect the company to honour and rollover all its secured debt well ahead of its maturity date without pledging any of its currently unencumbered investment properties (excluding land) that stood at GBP1.125 billion as of June 30, 2023. However Moody's estimates that the company may need to use around GBP100 million of its cash resources to refinance or extend all its secured debt coming due in 2024 and 2025. The company's bond maturities total around GBP900 million equivalent and include GBP350 million due in April 2025, EUR300 million in April 2026, and GBP300 million in April 2028. Moody's expects continued strong shareholder support in case it is needed to bridge any gap not covered by raising secured debt against currently unencumbered investment properties to fully refinance the bonds. CWGIH is ultimately owned on a 50/50 basis between Qatar Investment Authority (QIA) and Brookfield Property Partners L.P. The two shareholders have more than GBP3 billion of net shareholder equity in CWGIH to protect in addition to directly owing other significant assets on the Canary Wharf estate. The rating agency understands that the company has no current intention to buy back bonds or propose any restructure of the bonds that would lead to a distressed exchange under Moody's criteria. In Moody's view, the company remains reliant on asset disposals in weak but slowly improving investment markets to bring leverage below its financial policy of maintaining loan to value (LTV) below 50% and improve its weak interest cover. CWGIH's Moody's adjusted fixed charge coverage remains weak and stood at 1.1x as of June 30, 2023 and is not expected to improve over the next 18 months. The capacity under the fixed charge coverage ratio of the bond incurrence covenant is tight and stood at 1.33x as of June 30, 2023 versus a minimum level of 1.25x until June 30, 2023, 1.30x until June 30, 2024, and 1.35x thereafter. However if the bond incurrence covenants are not met under the bond documentation (1) the company is still able to refinance existing debt as long as the amount, security and collateral remain broadly unchanged and (2) CWGIH is able to raise additional debt under various buckets totaling up to GBP450 million. RATIONALE FOR THE DOWNGRADE OF THE SENIOR SECURED INSTRUMENT RATINGS Moody's views the senior secured notes as unsecured because they do not benefit from a direct fixed charge security over any properties. In line with Moody's REITs and Other Commercial Real Estate Firms methodology, CWGIH's Ba3 CFR references a senior secured rating because secured funding forms most of the company's funding mix. Moody's downgraded CWGIH's senior secured notes, which it views as unsecured, one notch below the Ba3 CFR to reflect (1) the low level of unencumbered assets (after excluding land valued at GBP450 million) that provides weak asset coverage for unsecured and (2) Moody's assessment of differences in expected loss between secured and unsecured creditors. OUTLOOK The negative outlook reflects constrained unsecured debt market access for the company and higher funding costs that will put pressure on interest cover, in addition to persistently weaker demand for office space as working from home becomes entrenched. This negative outlook might have a short horizon as it reflects the rating agency's expectation for the company to make substantial progress in the next five months or so in addressing its maturities and taking steps (including asset disposals) to improve its credit metrics. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS An upgrade is unlikely given the negative outlook. The ratings could be downgraded if: -- The company does not make material progress during Q1 2024 in addressing upcoming maturities and progressing asset disposals -- If the rating agency's expectation for Moody's-adjusted fixed charge coverage ratio does not materially improve from its 1.1x as of June 30, 2023 or Moody's-adjusted gross debt / total assets remains elevated well above 50% -- Shareholders do not continue to provide sufficient and timely support in helping the company address its upcoming maturities and support liquidity if needed -- Excessive risk with the development pipeline or if development activities as measured by the ratio of total costs to complete committed developments over total assets rises materially above 10% -- If Moody's perceives a material gap in credit quality between the rated issuer and its parent (or if the LTV for the fully consolidated group is materially higher than that of the rated issuer), or if any liquidity issues develop across the group especially in relation to the shareholder "Eurobond" The senior secured notes, which Moody's views as unsecured, could be downgraded if there is a deterioration in the quality of the unencumbered pool or a further weakening of unencumbered asset coverage for unsecured creditors. ESG CONSIDERATIONS Governance considerations the rating agency considers include the company's tolerance for leverage, and its approach to managing its liquidity and upcoming debt maturities that is ultimately reflected in a CIS-4. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was REITs and Other Commercial Real Estate Firms published in September 2022. PROFILE The company develops, manages and currently owns interests in approximately 9 million square feet of mixed-use space including over 1,100 Build to Rent apartments. The investment properties, developments, and development land it owns were valued in aggregate at GBP8 billion as of December 31, 2022, with 35 income-producing properties generating GBP294 million of gross rental income. The company is the largest private sector led developer in Europe. The Estate consists of 128 acres of land and includes 30 office buildings, five shopping malls with over 300 shops, cafés, bars, restaurants, and amenities, and over 16.5 acres of open space. In addition to directly managing its properties, the company also maintains the roads, car parks, open spaces, gardens and waterfront promenade and other common areas on the Estate. The company is one of the largest sustainable developers in the UK and has purchased 100% electricity from renewable sources since 2012 and sent zero waste to landfill since 2009. EM MIDCO 2: Moody's Lowers CFR to B3 & Alters Outlook to Stable --------------------------------------------------------------- Moody's Investors Service downgraded the corporate family rating and probability of default rating to B3 and B3-PD from B2 and B2-PD, respectively, of EM Midco 2 Limited (Element Materials Technology, Element or the company), a UK headquartered materials and product qualification testing company. Concurrently, Moody's downgraded to B2 from B1 the rating of the backed senior secured bank credit facilities borrowed by Element Materials Technology Grp US Hld Inc and EM Bidco Limited. The outlook of all entities was changed to stable from negative. The rating action reflects: -- Weaker than expected performance impacted by the delayed integration and earnings normalisation of its US acquisition NTS and the impact that the weaker macroeconomic environment has had on consumer spending pressuring its Connected Technology segment and despite the strong growth in their Aerospace and Built Environment end-markets. -- The company's weak credit metrics and slower pace of recovery than expected, with Moody's-adjusted debt/EBITDA high at 11.2x, based on the last twelve months (LTM) to June 30, 2023 and interest cover as measured by EBITA/interest expense is low at 0.5x. -- The equity injection from its majority shareholder is credit positive, strengthening liquidity and reducing leverage but the quantum indicated by the company would not be sufficient to reduce the leverage to below 7.5x in 2024. RATINGS RATIONALE Element's B3 CFR continues to reflect (1) the group's established position in the Testing, Inspection and Certification (TIC) sector, which is supported by high barriers to entry given the technically demanding testing market and significant switching costs for customers; (2) the critical and non-discretionary nature of the group's testing services for its customers, largely in resilient industries with zero or low tolerance for failure and; (3) Element's strengthened business profile through various acquisitions with significantly improved diversification towards less cyclical, new technology markets, such as life sciences, with good growth prospects. Conversely, the CFR is constrained by (1) Element's high financial leverage and debt-funded growth strategy; (2) weak interest cover and limited free cash flow generation, expected to improve on the back of the cost actions taken by management and as one-off costs fade away; and (3) Element's exposure to cyclical end-markets, such as commercial aerospace and energy, which still accounted for around one quarter of 2022 revenues (pro forma for acquisitions). ENVIRONMENTAL, SOCIAL & GOVERNANCE CONSIDERATIONS Element's ESG Credit Impact Score is CIS-4 and is primarily driven by governance risk. This is due to its concentrated ownership structure with Temasek controlling over 80% of the company's shares. It also reflects the historically very aggressive financial policy with continued debt-funded acquisitions that have led to very high financial leverage. Furthermore, the presence of a PIK note as part of the capital structure increases structural complexity and highlights the group's tolerance for high leverage. LIQUIDITY Moody's considers Element's liquidity to be adequate. On June 30, 2023, the company had $140 million of cash on balance sheet. It has $133 million available under its committed $200 million backed senior secured first lien revolving credit facility (RCF) and $200 million backed senior secured acquisition / capex facility. Moody's expects the company to draw on its RCF to meet its cash flow requirements. The RCF is subject to a springing first lien net leverage covenant (9.1x senior secured leverage ratio), when drawings exceed 40% and currently has around 30% headroom. The company has no imminent liquidity concerns. The next maturity is in December 2028 for the RCF and acquisition / capex facility, followed by June 2029 for the first lien term loans. STRUCTURAL CONSIDERATIONS The backed senior secured first-lien term loans, RCF and acquisition / capex facility, all rank pari passu. These facilities benefit from first lien guarantees from all material subsidiaries covering at least 80% of the consolidated EBITDA. They are secured by a first-lien pledge over substantially all tangible and intangible assets of the borrowers and guarantors in the US and by shares, bank accounts, intra-group receivables and a floating charge in England & Wales. The B2 instrument rating of the first lien facilities is one notch above the B3 CFR and reflects the presence of the second lien term loan facility in the capital structure. However, any substantial increase in first-lien over second-lien debt could result in a notch down to the rating and therefore aligning the first-lien instrument ratings with the CFR. RATING OUTLOOK The stable outlook reflects Moody's expectation that the company will grow its EBITDA and de-lever, however it is expected that Moody's-adjusted debt/ EBITDA will remain in excess of 6.5x over the next 12-18 months. The outlook further assumes that liquidity will remain adequate and that any larger acquisitions will not lead to material re-leveraging. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Upward rating pressure could occur if Moody's-adjusted debt/EBITDA decreases towards 6.5x, Moody's-adjusted free cash flow/debt is positive, interest coverage as measured by Moody's adjusted EBITA/ interest expense increases towards 1.5x and liquidity remains adequate. Downward pressure on the rating could develop if Element is unable to grow its EBITDA, resulting in continued high leverage; free cash flow remains negative for a sustained period, interest coverage as measured by Moody's adjusted EBITA/ interest expense remains below 1.0x or liquidity weakens. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Business and Consumer Services published in November 2021. CORPORATE PROFILE Headquartered in the UK, Element is an independent provider of materials and product qualification testing, offering a full suite of laboratory-based services. The company specialises in the aerospace, space & defence, connected technology, life sciences, mobility, energy & transition and built environment sectors. It operates mainly in the US and Europe with a growing presence in Asia. Its services cover technically demanding testing for a broad range of advanced materials, components, products and systems. The testing is to ensure compliance with safety, performance and quality standards imposed by customers, accreditation bodies and regulatory authorities. In 2022 Temasek, a Singapore-based investment company became the majority owner of the group. FARRINGDON MORTGAGE 2: Fitch Affirms 'BBsf' Rating on Cl. B2a Notes ------------------------------------------------------------------- Fitch has upgraded the ratings of classes M2a and B1a and affirmed class B2a of Farringdon Mortgages No. 2 Plc. The Negative Outlook is maintained on class B2a notes. Entity/Debt Rating Prior ----------- ------ ----- Farringdon Mortgages No. 2 Plc Class B1a XS0228712260 LT A+sf Upgrade Asf Class B2a XS0228712930 LT BBsf Affirmed BBsf Class M2a XS0228711882 LT A+sf Upgrade Asf TRANSACTION SUMMARY The transaction contains a pool of owner-occupied residential mortgages originated by Rooftop Mortgages, a non-conforming mortgage lender no longer active in the market. KEY RATING DRIVERS Excessive Counterparty Exposure: The notes are currently amortising sequentially due to the reserve fund not being at its target level. However, the amortisation may switch back to pro rata if excess spread enables replenishing the reserve. The transaction does not feature hard sequential switch back triggers (e.g. when the portfolio balance is less than 10% of its initial balance) which may expose all notes to tail risks. This may result in a significant reliance on the reserve fund as the main source of credit enhancement at the tail of the transaction. Therefore, the ratings of all the notes are capped at the rating of the account bank Danske Bank A/S (A+/Stable/F1), due to excessive counterparty exposure. Account Bank Upgrade: Danske Bank A/S was upgraded on 15 September 2023 to A+ from A. This drives the upgrade of classes M2a and B1a. These two classes of notes benefit from sufficient credit protection to be upgraded at the account bank level. High Senior Fees and Liquidity Fees: The transaction has incurred high levels of senior fees and liquidity facility commitment fees, particularly since April 2020. The increase in fees has led to drawings on the reserve fund, which has sat below target since the July 2020 interest payment date (IPD). Fitch understands that higher fees in recent periods may have been linked to the Libor to SONIA transition of the notes' index that was completed in January 2022. To that extent, Fitch expects fees to decrease in the coming IPDs. Fitch conducted a sensitivity using a higher senior cost assumption and found the class B2a notes particularly vulnerable. This is driving the Negative Outlook on this note, maintained from previous reviews, as this tranche could be downgraded if Fitch continues to observe higher fees. Lower fees in future periods may allow the reserve fund to be replenished to its target level, which may allow the transaction to switch back to pro rata. Stable Performance, PAF Capped: Despite high arrears, the performance of the transaction has been stable since its last review, with limited new repossessions reported and stable arrears. This is contrary to most other owner-occupied non-conforming transactions rated by Fitch which have seen a material deterioration of performance. In line with its UK RMBS Rating Criteria, Fitch has capped its performance adjustment factor (PAF) at 108% to avoid volatility in asset levels, as Fitch expects the PAF to converge to this level as the transaction's remaining term shortens and on the back of stable performance and portfolio composition. High Recovery Prospects: The underlying pool benefits from a low weighted average (WA) sustainable loan to value, which leads to a high prospect of recovery. In Fitch's asset analysis, the portfolio's loss floor has been applied across all rating scenarios. ESG - Transaction & Collateral Structure. Excessive counterparty exposure has a negative impact on the credit profile and is highly relevant to the rating. This results in a cap of the notes at 'A+sf'. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Rating action on Danske Bank AS could affect the notes' ratings, as all the notes are capped at the rating of Danske Bank AS. The transaction features a significant proportion of interest only ( IO) loans, with a high concentration between 2029 and 2031 (63.0% by collateral balance). If borrowers were unable to refinance these loans at maturity, increased foreclosures may result, with higher-than-expected losses incurred by the transaction. The transaction's performance may be affected by changes in market conditions and economic environment. Weakening economic performance is strongly correlated to increasing levels of delinquencies and defaults that could reduce credit enhancement available to the notes. Unanticipated declines in recoveries could also result in lower net proceeds, which may make certain notes susceptible to negative rating action depending on the extent of the decline in recoveries. Fitch conducts sensitivity analyses by stressing both a transaction's base-case FF and recovery rate (RR) assumptions, and examining the rating implications on all classes of issued notes. Under this scenario, Fitch assumed a 15% increase in the weighted average (WA) FF and a 15% decrease in the WARR. The results indicate a multi-notch downgrade for the class B2a notes (down to 'B-sf' or even below) and no impact for classes M2a and B1a. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Rating action on Danske Bank AS could have an impact on the notes' ratings, as all the notes are capped at the rating of Danske Bank AS. Stable to improved asset performance driven by stable delinquencies and defaults would lead to increasing CE levels and potential upgrades. Fitch tested an additional rating sensitivity scenario by applying a decrease in the FF of 15% and an increase in the RR of 15%. The results indicate a multi-notch upgrade for the class B2a notes (up to 'AA+sf') and no impact for classes M2a and B1a. CRITERIA VARIATION Ratings Higher than Model-Implied Rating (MIR) - Criteria Variation: The variation from criteria relates to the ratings of class B2a notes. The model-implied ratings for the notes was lower than 'B-sf' and therefore class B2a should be downgraded to 'B-sf' or below, according to the Rating Determination section of the UK RMBS Rating Criteria. Given the failures at their current rating were due to very limited shortfalls that have generally reduced since last review, a convergence of the MIR to the notes rating can be expected. This variation has been maintained from the previous review. DATA ADEQUACY Farringdon Mortgages No. 2 Plc Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pools and the transaction. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. Fitch did not undertake a review of the information provided about the underlying asset pools ahead of Farringdon Mortgages No. 2 Plc's initial closing. The subsequent performance of the transaction over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ESG CONSIDERATIONS Farringdon Mortgages No. 2 Plc has an ESG Relevance Score of '5' for Transaction & Collateral Structure due to excessive counterparty exposure, which has a negative impact on the credit profile.This is highly relevant to the rating and results in a cap of the notes at 'A+sf'. 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. FORMENTERA ISSUER: Fitch Affirms 'Bsf' Rating on Class F Notes -------------------------------------------------------------- Fitch Ratings has upgraded Formentera Issuer PLC's class B and D notes and affirmed the others, as detailed below. Entity/Debt Rating Prior ----------- ------ ----- Formentera Issuer PLC Class A XS2434843756 LT AAAsf Affirmed AAAsf Class B XS2434846692 LT AA+sf Upgrade AAsf Class C XS2434846858 LT A+sf Affirmed A+sf Class D XS2434846932 LT Asf Upgrade A-sf Class E XS2434847153 LT BBB-sf Affirmed BBB-sf Class F XS2434847237 LT Bsf Affirmed Bsf TRANSACTION SUMMARY The transaction refinanced two Fitch-rated transactions that contained a mix of first-lien residential non-conforming and buy-to-let (BTL) assets - Residential Mortgage Securities 23 plc and Uropa Securities 2008 plc - that were originated pre-global financial crisis in the UK and securitised in 2008 and 2009, respectively. KEY RATING DRIVERS Increasing Arrears: Early and late-stage arrears have increased since the last review in November 2022. High prepayments in late 2022 exacerbate the effect this has on the transaction. Reported total arrears (one month plus) have increased to 19.3% from 12.2% since the last review. Loans in 3m+ arrears have increased by about 5pp. The increase in arrears primarily drives the increase in the weighted average foreclosure frequency (WAFF) levels. At the 'Bsf' level, the FF levels have risen by 17% since its last review. Higher Interest Rates: The portfolio only contains floating-rate loans (linked to synthetic LIBOR, Bank of England base rate or standard variable rate loans). As a result of increasing rates, the weighted average debt-to-income of owner-occupied (OO) borrowers has increased to 29.4% in 2023 from 27.8% at its last review. The weighted average interest coverage ratio of BTL borrowers has decreased by 11pp (97.6% in 2022 to 86.0% in 2023). This contributed to the increase in the WAFF levels. Ratings Lower than MIR: The class D, E and F notes' ratings are below their model-implied ratings (MIR) due to their sensitivity to arrears increase and increasing rates. This may lead to lower MIR in future model updates. Sequential Amortisation, Increasing CE: The notes amortise sequentially, which has led to a build-up of credit enhancement (CE) since closing. This has driven the upgrades of the class B and D notes. Seasoned Non-Prime Loans: The asset pool contains seasoned loans that were typical of UK pre-credit crisis non-conforming origination. The pool contains a high proportion of borrowers that had adverse credit histories and early-stage arrears. In addition, the OO sub-pool contains a high proportion of interest-only loans and borrowers that self-certified their income. Both sub-pools contain loans in arrears but the BTL sub-pool has a materially lower proportion. Fitch considered the historical arrears performance and the average annualised constant default rate of both sub-pools in setting the lender adjustments at closing. Fitch analysed the OO portion of the pool under its non-conforming criteria assumptions with a lender adjustment of 1.0x. It analysed the BTL portion of the pool under its BTL criteria assumptions with a lender adjustment of 1.2x. Due to the short seasoning of the transaction, limited repossessions have been reported to date and Fitch did not apply a performance adjustment factor in its analysis in line with its UK RMBS Rating Criteria, but maintained the lender adjustments applied at closing. Base Rate-linked Loans: The pool contains 45.9% loans linked to the Bank of England base rate. No swap agreement is available to hedge basis risk arising from the mismatch between SONIA-linked notes and base rate-linked loans. Fitch applied a basis risk adjustment in accordance with its UK RMBS Rating Criteria, reducing the margins of the loans to account for this risk. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade The transaction's performance may be affected by adverse changes in market conditions and the economic environment. Weakening economic performance is strongly correlated to increasing levels of delinquencies and defaults and could reduce CE available to the notes. Fitch found that a 15% increase in WAFF and a 15% decrease in the WA recovery rate (RR) could lead to downgrades for the E notes of three notches, two notches for the class B and D notes, and no impact on the class A, C and F notes. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Stable to improved asset performance driven by stable delinquencies and defaults would lead to increasing CE and potentially upgrades. Fitch found that decreasing the WAFF by 15% and increasing the WARR by 15% would result in upgrades for the class F notes of nine notches, five notches for the class E notes, one notch for the class B and D notes, and no impact on the class A and C notes. DATA ADEQUACY Formentera Issuer PLC Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. Prior to the transaction closing, Fitch sought to receive a third party assessment conducted on the asset portfolio information, but none was available for this transaction. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ESG CONSIDERATIONS Formentera Issuer PLC has an ESG Relevance Score of '4' for Customer Welfare - Fair Messaging, Privacy & Data Security due to accessibility to affordable housing, which has a negative impact on the credit profile, and is relevant to the rating[s] in conjunction with other factors. Formentera Issuer PLC has an ESG Relevance Score of '4' for Human Rights, Community Relations, Access & Affordability due to accessibility to affordable housing, which has a negative impact on the credit profile, and is relevant to the rating[s] in conjunction with other factors. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. M IGOE: Set to Go Into Administration ------------------------------------- Grant Prior at Construction Enquirer reports that Cheshire based civils and building contractor M Igoe Ltd has filed a notice of intention to appoint an administrator. The Northwich based business lodged court papers last week, Construction Enquirer relates. According to Construction Enquirer, latest accounts for M Igoe show for the year to May 31, 2022, it had a turnover of GBP19.1 million generating a pre-tax profit of GBP162,383. During the year M Igoe employed 34 staff and the firm has been in business since 1985, Construction Enquirer discloses. RAILSR: Strikes Deal with Investors to Raise GBP19.8 Million ------------------------------------------------------------ Mark Kleinman at Sky News reports that a British fintech company that was forced into insolvency just over six months ago has secured a multimillion-pound funding boost as it sets its sights on a more measured growth path. Sky News understands that Railsr, the trading name of Embedded Finance, will announce in the coming days that it has struck a deal with investors to raise US$24 million (GBP19.8 million). The funding is predominantly from existing investors, including D Squared Capital and Moneta Venture Capital, which people close to Railsr said reflected their confidence in the company's growth potential and strategy, Sky News relates. The announcement of a new capital injection, which is understood to be partly in the form of convertible loans, will come just seven months after the company underwent a pre-pack administration to facilitate its survival, Sky News states. Railsr specialises in the provision of so-called embedded finance solutions such as banking services, credit cards and digital wallets. However, it became a victim of aggressive over-expansion, running into serious regulatory issues just as funding markets for technology companies had dried up, Sky News notes. The company, which also ran into regulatory difficulties in Lithuania, has now established an entity in France, where it intends to apply for an Electronic Money Institution licence, Sky News discloses. It would then use that to passport across Europe, either directly or through a network of partners, Sky News relays, citing people close to its plans. The valuation at which the new funding had been raised was unclear on Thursday, Oct. 26, Sky News says. SAFESTYLE: Enters Administration, 680 Workers Affected ------------------------------------------------------ Rahmah Ghazali at The Scotsman reports that administrators for Safestyle have said the business has made around 680 of its workers redundant after it fell into administration. According to The Scotsman, Interpath Advisory said around 70 of the door and window maker's 750 employees would be kept on in the short term to help wind down the business. It comes after Safestyle said on Oct. 27 it intended to appoint administrators after failing to find a buyer, The Scotsman notes. The Bradford-headquartered business has a manufacturing site in Wombwell, near Barnsley and 42 branches and depots across the country. The company failed after facing a series of pressures, including runaway inflation and poor consumer confidence, administrators said, The Scotsman relates. The unseasonably warm weather in September also dented demand for its products, The Scotsman discloses. "These are really challenging times for companies across the home improvement market. After seeing strong sales during the Covid lockdown periods, many companies are seeing trading being impacted by the cost-of-living crisis and soaring costs," The Scotsman quotes Rick Harrison, managing director at Interpath Advisory, as saying. SQUIBB GROUP: Creditors to Vote on CVA Deal on Nov. 9 ----------------------------------------------------- Grant Prior at Construction Enquirer reports that demolition specialist Squibb Group is trying to strike a deal with its creditors under a Company Voluntary Arrangement. Construction Enquirer understands letters were sent out to suppliers owed money by Squibb last week as the directors called in Begbies Traynor in a bid to survive a cash-flow crisis. According to Construction Enquirer, a creditors meeting will be held on Nov. 9 to vote on terms being offered and decide the fate of the demolition contractor. The firm is understood to have hit problems with a big Co-op demolition job in Hull where the project is running late for the GBP96 million Albion Square scheme to be delivered by Vinci, Construction Enquirer relates. Latest filed results for Squibb Group for the year to January 31, 2022, show a turnover of GBP32.9 million generating a pre-tax profit of GBP274,000 while employing 204 staff, Construction Enquirer discloses. VICTORIA PLC: Moody's Lowers CFR to B2 & Alters Outlook to Stable ----------------------------------------------------------------- Moody's Investors Service has downgraded the ratings of Victoria plc, including its corporate family rating to B2 from B1; its probability of default rating to B2-PD from B1-PD; and the rating of its EUR250 million and EUR500 million backed senior secured notes to B2 from B1. The outlook has changed to stable from negative. RATINGS RATIONALE The downgrade of Victoria's CFR to B2 from B1 reflects the company's weak operating performance in the fiscal year ending in March 2023 (fiscal 2023) against Moody's previous forecasts. Additionally, the rating agency considers that there is meaningful risk that refurbishing activity remains subdued over the next 12-18 months as the property market is negatively impacted by higher interest rates. A continued weak macroeconomic environment could impact Victoria and result in a prolonged period of subdued operational performance and Moody's-adjusted leverage above 5.0x. Governance considerations were a key driver of the rating actions. The mixed track record of the company's execution of its strategy of pursuing several M&A transaction over the last few years, which has resulted in an extended period of elevated leverage and significant restructuring costs, has been considered in the rating action. Victoria's operating performance in fiscal 2023 was heavily impacted by the weaker macroeconomic environment during the second half of the fiscal year. The company's profitability and EBITDA generation were negatively affected by (i) softer demand for its products within the soft flooring division, (ii) small earnings contribution from the recent Balta acquisition due to the relocation of production facilities and integration challenges, and (iii) high input cost inflation. These effects were partially mitigated by a positive performance within the ceramics segment, despite higher energy costs. Although the company-reported EBITDA increased by 20.4% relative to fiscal 2022, this was below Moody's previous expectations. Together with GBP44.4 million of reorganization costs, the weaker than expected operating performance resulted in Moody's-adjusted Debt/EBITDA reaching 6.9x at the end of fiscal 2023 against Moody's forecast of approximately 5.0x. For fiscal 2024, Moody's expects the macroeconomic environment to remain challenging, impacting not only the soft flooring segment but the ceramics operations as well due to its higher price point and reduced new build and refurbishing activity. However, Moody's expects that Balta will start to materially contribute to the company's earnings, although at a lower level than previously expected by the rating agency. Combined with a lower degree of restructuring charges and the annualisation of earnings contributions from International Wholesale Tile LLC (IWT) and Ragolle Rugs NV (Ragolle), Moody's forecasts that Victoria's Moody's-adjusted leverage will improve to around 5.5x by the end of fiscal 2024, which is commensurate for the B2 rating. Despite Moody's expectations of continued challenging macroeconomic conditions, Victoria's Moody's-adjusted leverage should reduce closer to 5.0x in fiscal 2025 mainly driven by further synergies from Balta as the reorganisation concludes. Victoria's B2 CFR reflects (1) leading positions within the fragmented European soft flooring and ceramic tiles markets; (2) focus on independent retail channels with greater customer diversity and pricing power; (3) low exposure to the new construction segment; and (4) flexible cost structure. The rating also reflects the company's (1) degree of integration risk following a significant number of acquisitions, mitigated by positive track record on the past acquisitions; (2) activities in mature markets with limited growth and competitive pressures; (3) sale of consumer discretionary items with exposure to the economic cycle; and (4) raw material price and currency exposures, partly mitigated by hedging. ESG CONSIDERATIONS Victoria's CIS-3 score indicates that ESG considerations have a limited impact on the current credit rating with potential for greater negative impact over time. This mostly reflects a degree of concentrated ownership of the business, in which two individuals jointly own close to 40% shares, as well as the company's appetite for M&A and the recent qualified audit opinion in the company's 2023 results due to issues at a subsidiary level which result in an E-3 IPS (Issuer Profile Score). Victoria's business is also energy intensive and relies on natural resources. These factors are mitigated by the fact that the company is AIM listed and subject to the QCA Corporate Governance Code. Moody's also notes that the company has recently strengthened its financial policy with a net leverage target of 2.25x ahead of refinancing of the outstanding bonds, with the earliest maturity being August 2026. LIQUIDITY The company's liquidity is good with GBP93 million of cash on the balance sheet as of end March 2023, as well as approximately GBP137 million available under the GBP150 million revolving credit facility (RCF) due February 2026 and access to above GBP50 million in undrawn unsecured local credit facilities. Moody's expects the company to generate marginally positive free cash over the next 12-18 months. The RCF is subject to a net leverage springing covenant that is tested when the RCF is over 40% drawn. STRUCTURAL CONSIDERATIONS The company's backed senior secured notes are rated B2, in line with the B2 CFR. The GBP150 million super senior RCF ranks ahead of the backed senior secured notes. There is also other debt within the company's financial structure, largely relating to unsecured local facilities and leases. Security largely comprises share pledges and a debenture over assets in the UK and Australia, and guarantees are provided from material companies representing at least 80% of turnover, EBITDA and gross assets. RATING OUTLOOK The stable outlook reflects the challenging operating environment which drives Moody's-adjusted leverage to remain above 5.0x in fiscal 2024. The outlook also assumes that Balta and the recent set of acquisitions will be integrated successfully and deliver meaningful and increasing synergies in fiscal 2024 and fiscal 2025, as well as the company's focus on adhering to its financial policy of reducing net reported leverage to around 2.25x ahead of the refinancing of the outstanding bonds. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS The ratings could be upgraded if Victoria's operating performance and profitability improves such that (i) Moody's-adjusted leverage is sustainably below 5x, (ii) Moody's-adjusted EBIT / interest is at least 2.25x, and (iii) the company maintains good liquidity. The ratings could be downgraded if (i) Moody's-adjusted leverage is sustained above 6x, (ii) Moody's-adjusted EBIT/Interest is sustainably below 1.5x, (iii) free cash flow / debt reduces towards zero for a prolonged period, or (iv) liquidity concerns arise. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Consumer Durables published in September 2021. COMPANY PROFILE Victoria plc was founded in 1895 in the United Kingdom, and is an international designer, manufacturer and distributor of flooring products across carpets, ceramic tiles, underlay, luxury vinyl tile, artificial grass and flooring accessories. Victoria is listed on AIM in London with a market capitalisation in excess of GBP435 million as of time of this publication. The company benefits from good geographic diversification, with more than 70% of its EBITDA generated from outside the UK. For the financial year ending in March 2023, the company generated GBP1,480 million of sales and GBP196 million of reported underlying EBITDA. ********* 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 * * *