/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/231101.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 Wednesday, November 1, 2023, Vol. 24, No. 219 Headlines F R A N C E LA FINANCIERE ATALIAN: S&P Cuts LongTerm ICR to 'CCC', Outlook Neg STAN HOLDINGS: Fitch Affirms 'B' LongTerm IDR, Outlook Stable G E O R G I A GEORGIA CAPITAL: S&P Raises ICR to 'BB-' on New Capital Structure G E R M A N Y KALLE GMBH: $88.8MM Bank Debt Trades at 30% Discount I R E L A N D PROVIDUS CLO IX: S&P Assigns Prelim. B- Rating on Class F Notes L U X E M B O U R G BAYTREE GLOBAL: Moody's Rates New Loan Participation Notes 'Ba3' N E T H E R L A N D S IGNITION MIDCO: EUR325MM Bank Debt Trades at 56% Discount PHM NETHERLANDS: S&P Downgrades ICR to 'CCC+' on Weak Performance S P A I N BANCO SABADELL: Moody's Lowers Rating on Subordinated Debt to Ba2 U N I T E D K I N G D O M CIRCULARITY SCOTLAND: GBP8MM of Public Money Set to Be Lost FONTWELL II 2020: Fitch Affirms 'BB+sf' Rating on Tranche B Notes JAMES KILLELEA: Goes Into Administration [*] UK: Companies in Critical Financial Distress Up in 3Q 2023 [*] UK: Insolvencies Hit Highest Level in First Nine Months [*] UK: Kroll Comments on Latest Company Insolvency Figures - - - - - =========== F R A N C E =========== LA FINANCIERE ATALIAN: S&P Cuts LongTerm ICR to 'CCC', Outlook Neg ------------------------------------------------------------------ S&P Global Ratings lowered its long-term issuer credit rating on cleaning and facility management services provider La Financiere Atalian SAS (Atalian) and its issue rating on its senior unsecured debt to 'CCC' from 'CCC+'. The negative outlook reflects the likelihood of a downgrade if S&P expects a default or distressed debt restructuring to become inevitable in the near term. S&P said, "The downgrade reflects our view of heightened liquidity and refinancing risk given Atalian's large bond maturity in May 2024. Atalian has meaningful debt maturities in the near term, with the EUR625 million notes becoming due in May 2024. In addition, it has EUR350 million notes and £225 million notes due in May 2025. Despite the EUR685 million proceeds (net of deconsolidated cash) it received from the disposal of its U.K., Asia, and Aktrion businesses, we believe the company's available liquidity will not be sufficient to cover its upcoming debt maturities, because of its persistently negative free operating cash flow (FOCF). In our view, Atalian faces heightened refinancing risk considering its operational difficulties and uncertain path to recovery, its elevated financial leverage, and the challenging capital market conditions. "Management has initiated discussions with bondholders to help address the upcoming maturities. There is a likelihood that a transaction, if it eventuates, could be viewed as distressed and tantamount to a default under our criteria. "We revised our assessment of Atalian's management and governance to weak in light of its risky decision-making and the recent turnover in top management. We have observed that Atalian's controlling ownership and governance framework allow for risky decision-making that may disadvantage creditors, and we consider it an indication of governance weakness. This is evidenced by the recent turnover in senior management, which in our opinion has slowed the implementation of remedial actions in response to the sharp increase in cost inflation, and the refinancing process. Another example is the unexpected nonexecution of the put option for the acquisition by CD&R in late 2022, in the context of Atalian's weak operating performance and upcoming debt maturities." The negative outlook reflects the increasing probability of default, likely owing to a liquidity shortfall or distressed debt restructuring. S&P could lower its ratings on Atalian if it expects a default or distressed debt restructuring to become inevitable in the near term. S&P could raise the rating if Atalian successfully refinances its debt at par. S&P said, "Governance factors are now a very negative consideration in our credit rating analysis of Atalian, reflecting our view that the company is more exposed to governance risk factors than peers. We have observed that Atalian's controlling ownership and governance framework allow for risky decision-making that may disadvantage creditors, as evidenced by unexpected nonexecution of the put option for the acquisition by CD&R, in the context of Atalian's weak operating performance and upcoming debt maturities. Moreover, we believe that the recent turnover in management has slowed the implementation of remedial actions in response to the sharp increase in cost inflation, and the refinancing process. In our opinion, the company's founder and principal shareholder, Franck Julien, remains a key decision-maker and poses a key man risk. In addition, Atalian has a history of deficiencies in internal controls, litigation settlement, and additional tax provisions. At the same time, we acknowledge that management has taken steps to improve its internal controls." STAN HOLDINGS: Fitch Affirms 'B' LongTerm IDR, Outlook Stable ------------------------------------------------------------- Fitch Ratings has affirmed Stan Holding SAS's (Voodoo) Long-Term Issuer Default Rating (IDR) at 'B' with a Stable Outlook. Fitch has also affirmed the senior secured instrument ratings of Voodoo's outstanding EUR220 million term loan B (TLB) at 'B+'/'RR3'. The 'B' IDR reflects Voodoo's large business transformation moving away from hypercasual to hybrid and casual games, started in 2021. This move makes the group less reliant on ads and improves revenue visibility; however, these segments are very competitive with low barriers to entry, therefore execution risks remain meaningful until Voodoo demonstrates longer track record in successful implementation of the new strategy. The rating is supported by structural growth drivers in mobile game consumption and its growth opportunities from hybrid casual segment with longer lifetime games and lower exposure to advertising-driven revenues. Fitch-defined leverage metrics remain in line with the rating in its base case while high cash balances support the company's liquidity. KEY RATING DRIVERS New Business Model, Execution Risks: The company has diversified away from hypercasual to hybrid and casual games following the tightening of Apple's privacy policy and slowing growth in the hyper games segment. This move makes Voodoo less reliant on ads and improves visibility of revenue with higher share of revenue coming from in-app purchases. This expansion carries execution risks as the new business model differs from that of hypercasual games. Differences include timing and costs of game development, monetisation mechanics, games' lifecycle and target audience. However, such risks are party mitigated by the company's emerging track record with successful hits in the hybrid segment such as Mob Control, Collect Em All and Block Jam and 9M23 results showing revenue growth of 10% and company-defined profitability margins improving by 13pp compared with 9M22. Subdued but Improving Margins: Fitch expects a recovery in Fitch-defined EBITDA margin to 10% in 2023-2026 following its subdued level of 1% in 2022. The company's muted profitability in 2022 was mainly driven by increased development costs (which Fitch treats as operating expenses) and higher customer acquisition costs following the change in the business model with more focus on hybrid games. Fitch expects profitability to improve supported by increasing contribution of higher margin hybrid and casual games and better cost management partly offset by high development and customer acquisitions costs. As of 9M23, the company-defined EBITDA margin increased to 22% from 9% in 9M22. High Leverage, Deleveraging Potential: As of FYE2022, the company's EBITDA leverage spiked at 70x as a result of low Fitch-defined EBITDA and additional EUR30 million of debt. Fitch expects leverage to decline to below the negative threshold of 5.5x EBITDA leverage already in FY23 and to remain at 4.4x-4.8x in FY24-FY25 supported by increasing revenues and improving profit margins. The company's financial profile is supported by significant cash on balance which results in significantly lower EBITDA net leverage ranging 2.2x-3.0x in FY23-FY25 in its base case. Positive FCF generation: Despite low profitability in FY22, the company generated positive free cash flow (FCF) of 1% of revenues due to positive change in working capital of EUR14 million and a tax refund of EUR6 million. Fitch expects the company to continue generating positive FCF in FY23-FY26 in its base case supported by increasing EBITDA and low capex partly offset by increasing interest payments and some working capital outflows. Refinancing Risk Manageable: Voodoo's existing EUR30 million revolving credit facility (RCF) and EUR220 million TLB mature in May 2025 and November 2025, respectively. Fitch expects refinancing to be manageable, based on the company's declining leverage, its expectation of some positive FCF generation and significant cash on balance sheet of EUR129 million as of end-9M23. Industry Tailwinds, Fierce Competition: The mobile gaming market is fragmented and competitive due to low barriers to entry and attractive growth. Mobile gaming reached around USD152 billion in 2022, the fastest growing segment in terms of consumer spend. Voodoo is number three based on downloads, but the company's overall share of the mobile gaming market is limited. Voodoo recently celebrated six billion downloads over its lifetime, compared with about 90 billion downloads worldwide in 2022. Dependence on Distribution Platforms: The tightening of Apple's privacy policy highlights the risks of Voodoo's high dependence on two major distribution platforms - Apple's App Store and Google Play. As an experienced publisher, Voodoo can proactively tackle newly-introduced changes and arguably adapt better than smaller market participants. However, Fitch believes that Apple's change in policy has a structural impact on the mobile game segment, and expect higher customer acquisition costs within the hypercasual, hybrid and casual segments. DERIVATION SUMMARY There are not many direct peers to Voodoo that are rated by Fitch. Voodoo's peers in the broader gaming sector, such as Electronic Arts Inc. (A-/Stable) and Activision Blizzard (acquired by Microsoft Corporation in October 2023), have significantly larger scale and robust portfolios of established gaming franchises. They benefit from diversification by game console, PC and mobile revenues, low leverage and strong FCF generation. Compared with similarly sized companies that are exposed to TV, video and visual effects production, like Banijay Group SAS (B+/Stable) and Subcalidora 1 S.a.r.l. (Mediapro; B/Stable), Voodoo exhibits higher revenue growth prospects. However, Banijay, one of the largest independent TV production firms globally, has more resilient revenues and is more diversified in terms of revenues and distribution platform. Mediapro, the Spanish-based vertically integrated sports and media group, has a stronger regional sector relevance, albeit offset by limited diversification (high contract renewal risk) and a FCF profile similar to Voodoo. Voodoo's rating is also comparable with that of the wider Fitch-rated technology group like IDEMIA Group S.A.S. (B/Positive), TeamSystem S.p.A. (B/Stable), Unit4 Group Holding B.V. (B/Stable). Voodoo has lower revenue visibility than TeamSystem and Unit4, while IDEMIA benefits from larger global scale and higher barriers to entry. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer: - Revenue growth of around 10.5% in 2023 and high single-digit growth in 2024-2026; - Fitch-defined EBITDA margin of around 10% in 2023-2026; - Cash capex (excluding development costs which are expensed by Fitch) of 1.5% of revenues in 2023-2026; - Working capital outflows of EUR16 million in 2023 and EUR5 million per annum thereafter. - M&A activity to be funded with FCF and equity. RECOVERY ANALYSIS The recovery analysis assumes that Voodoo would be considered a going concern at default and that the company would be re-organised rather than liquidated. Fitch has assumed a 10% administrative claim in the recovery analysis. Fitch estimates going-concern EBITDA at EUR32 million, reflecting cost adjustments and a rehabilitation period after restructuring. Fitch has applied a distressed enterprise value multiple of 5.0x, which reflects the evolving landscape around mobile ad-based revenues and profitability, small scale with fierce competition and limited revenue visibility, balances by a strong position in high growth key segments. The multiple is higher than Mediapro's at 4.5x, but lower than Banijay's at 5.5x and IDEMIA at 6.0x. Fitch assumes that Voodoo's EUR30 million RCF, ranking pari passu with the EUR220 million term loan B, is fully drawn at default. The allocation of value in the liability waterfall analysis results in a Recovery Rating corresponding to 'RR3' for the term loan B. This indicates a 'B+' instrument rating with a waterfall-generated recovery computation of 58%, based on current metrics and assumptions. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Successful diversification into the hybrid and casual gaming segment as evidenced by the growing contribution of the latter to revenue and EBITDA; - Sustainable improvement of Fitch-defined EBITDA margin towards 15%; - Sustainable cash flow generation with (cash from operations - capex) to total debt around 5%; - EBITDA leverage sustainably below 4.0x; - EBITDA interest cover above 3.0x. Factors that could, individually or collectively, lead to negative rating action/downgrade: - Weaker than expected performance resulting in continued pressure on revenue growth and margins; - EBITDA leverage sustainably above 5.5x; - EBITDA interest cover below 2.5x; - Inability to refinance in good time ahead of debt maturities; - Weaker liquidity with reduction in cash position with continued reliance on the RCF to fund cash outflows (including earn-outs). LIQUIDITY AND DEBT STRUCTURE Satisfactory Liquidity: The company had EUR134 million in cash as of end-1H23. Liquidity is further supported by its expectation of positive FCF in 2023-2026. In addition, the EUR30 million RCF (which matures in May 2025) was undrawn as per June 2023. Voodoo's EUR220 million TLB matures in November 2025. ISSUER PROFILE Voodoo is one of the leading hypercasual mobile games publisher globally, and diversifying into casual games after its strategic acquisition of Beach Bum. ESG CONSIDERATIONS Stan Holding SAS has an ESG Relevance Score of '4' for Management Strategy due to material underperformance compared to the initial business plan, due to a change in its business model, which has had 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. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- Stan Holding SAS LT IDR B Affirmed B senior secured LT B+ Affirmed RR3 B+ ============= G E O R G I A ============= GEORGIA CAPITAL: S&P Raises ICR to 'BB-' on New Capital Structure ----------------------------------------------------------------- S&P Global Ratings raised its long-term issuer credit rating on Georgia Capital JSC to 'BB-' from 'B+' and removed the rating from CreditWatch positive, where it was placed on July 12, 2023. S&P also assigned a 'BB-' issue rating to the $150 million senior unsecured notes, in line with the preliminary rating we assigned on July 12, 2023. The stable outlook reflects S&P's view that Georgia Capital's loan-to-value (LTV) ratio will remain materially below 25% over the next 12 months, and that its cash adequacy ratio will remain above 3.0x. The upgrade follows Georgia Capital's completed refinancing and the resulting extension of its debt maturity profile. Georgia Capital has completed the issuance of the $150 million sustainability-linked senior unsecured notes in the Georgian market. The notes are U.S. dollar-denominated with a five-year bullet maturity, due August 2028 (callable after two years at the company's discretion) and carry an 8.5% fixed coupon. The proceeds, together with liquid funds at the holding, were used to fully redeem and cancel the $300 million notes due March 2024. S&P said, "We see Georgia Capital's new capital structure as supportive for its credit standing because the company has now meaningfully extended its debt maturity profile and reduced its outstanding absolute debt in a context of rising interest rates. As of the end of June 2023, pro forma the $150 million bond issuance and the full redemption of its $300 million notes due in 2024, we estimate that Georgia Capital's LTV ratio reached 8.8%--meaningfully improving from 13.3% as of the end of December 2022. Finally, the terms and conditions of the transaction are in line with the preliminary documentation. We therefore raised the issuer credit rating on Georgia Capital to 'BB-' from 'B+', and removed the rating from CreditWatch positive, where we placed it on July 12, 2023. At the same time, we assigned a 'BB-' issue rating to the new bond, in line with the preliminary issue rating assigned on July 12, 2023. The relatively supportive economy in Georgia, where all the company's assets are located, should continue to support Georgia Capital's assets' operating performance, dividend payments, and ultimately its leverage over 2023-2024. Georgia Capital saw an 11.8% increase in its net asset value (NAV) during the first half of 2023. The main contributor for NAV growth in the portfolio was the Bank of Georgia, with the share price up 12.3% during the first half of 2023. S&P also notes that the private portfolio companies' value increased by 4.8% during the same period. S&P said, "We also anticipate a relatively resilient Georgian economy. The government of Georgia's real GDP grew by 7.6% over the first half of 2023. This points to continued financial and migration inflows, particularly from Russia, alongside a strong recovery in the tourism sector. We expect growth to ease to a still solid 6.1% in 2023 from last year's 10.1%. As a result, Georgia Capital's assets should benefit from relatively supportive demand drivers as well as continue to generate a good level of dividends that could support organic deleveraging. "We expect dividends will grow in 2023-2024 and view the holding's liquidity post-refinancing as adequate. Cash interest and dividends for the full year will reach about GEL200 million ($77 million) in 2023, up from about GEL130 million ($50 million) in 2022. Considering that the pharmacy business paid an extraordinary dividend of about GEL27 million in 2023, we expect cash interest and dividends to moderate to about GEL180 million ($69 million) in 2024. In addition, the new capital structure reduced gross debt by about GEL390 million ($150 million), implying interest payments of about GEL32 million per year going forward, down from GEL70 million in 2022. As a result, we project Georgia Capital's cash adequacy ratio to be 3x-4x over 2023-2024, up from 1.2x in 2022. In addition, thanks to the company's meaningfully extended debt maturity profile, we anticipate that Georgia Capital's sources of cash over uses to be about 1.8x for the first 12 months after the refinancing is complete. "We expect Georgia Capital to maintain relatively low leverage for the rating, supported by its financial policy. At the same time, the NAV discount remains high and the company's debt remains exposed to U.S. dollar exchange rate fluctuations. In May 2022, Georgia Capital updated its capital management framework to prioritize deleveraging and reduce its debt and risk exposure. The holding is also implementing this deleveraging strategy across its private portfolio companies, with individual leverage targets established. The holding has a financial policy based on a net capital commitment (NCC) ratio. The NCC ratio stood at 17.4% on June 30, 2023, and the group aims to achieve a ratio of below 15% by end of 2025. The NCC ratio guides the group's share buybacks and investment policy, and we understand that an NCC ratio ranging between 15%-40% will result in tactical share buybacks or investments, while we expect an NCC ratio below 15% to generate more substantial share buybacks or investments. Given the holding's near-term deleveraging target, we expect the NCC ratio, as calculated by the company, will remain at roughly 15% and its minimum liquidity balance above $30 million. However, the discount on the NAV per share remains relatively high at about 58% and we do not exclude the possibility of material share repurchases when the refinancing has completed. Nevertheless, we anticipate the holding will balance its repurchases and investments. We also see Georgia Capital's exposure to exchange rate fluctuations between the GEL and the U.S. dollar as a risk. This is because its debt is in U.S. dollars and all its dividend income is GEL-denominated--if we exclude the renewable energy business that has cash flow in U.S. dollars and consequently pays dividends in hard currency." Georgia Capital's business risk remains constrained by its concentration in Georgia and relatively low share of listed assets. The companies in Georgia Capital's portfolio are all based in Georgia. The Bank of Georgia, where the group holds a 20% stake, is its only listed asset. The stake in the bank was valued at GEL883 million at the end of June 2023, representing about 26% of Georgia Capital's total portfolio by value. The company has also retained a 20% stake in Georgian Global Utilities JSC, on which it has a put option with a pre-agreed enterprise value/EBITDA multiple, which can be exercised within 2025-2026. The value of this stake stood at GEL159 million ($61 million) on June 30, 2023, and is about 5% of the portfolio. The remaining 70% of the company's portfolio is represented by unlisted assets. S&P said, "This, in our view, could limit its ability to quickly monetize its investments to repay debt, which could be important if liquidity unexpectedly becomes constrained. Additionally, we estimate that Georgia Capital's weighted average creditworthiness of investee companies is in the high 'B' rating category. Georgia Capital's three largest assets, the Bank of Georgia, retail pharmacy, and hospitals constitute about 61% of its portfolio. However, the company is well-diversified by industry, in our view, and has investments in banking, pharmaceuticals and health care, insurance, utilities, real estate and hospitality, private education, and renewable energy generation." S&P said, "The stable outlook reflects our view that Georgia Capital's S&P Global Ratings-adjusted LTV ratio will remain sustainably below 25% in the next 12 months. We also expect solid dividends from its assets, which should translate to a cash flow adequacy ratio of about 3x. "We could lower the rating if Georgia Capital's LTV ratio approaches 25%. LTV ratio deterioration would most likely be the result of a material weakening in equity values, large negative currency fluctuations, or material share buybacks signaling a more aggressive stance toward leverage." Ratings pressure could also result from a material deterioration of the credit quality of any of Georgia Capital's core investments, which would erode valuations and increase the likelihood of Georgia Capital having to inject fresh capital for support or shareholder loans. S&P said, "We view upside as relatively remote at this stage given the holdings concentration and exposure to the Georgian economy. We could however consider upgrading Georgia Capital if the holding establishes a positive track record of deleveraging, such that its LTV ratio remains materially below 10% even at the bottom of the cycle." In addition, an upgrade will hinge on the company establishing a track record of conservative financial policies aimed at strengthening its capital structure over time. These include, but are not limited to, keeping a long-dated debt maturity profile, and establishing a track record of active foreign exchange management. S&P said, "Governance factors are a moderately negative consideration in our credit rating analysis of Georgia Capital because we believe the holding's risk tolerances and liquidity management are relatively more relaxed when compared to the industry norms. For example, in the past the company was not able to protect its LTV ratio because of asset value deterioration notwithstanding a financial policy in place and we observed a more aggressive liquidity management for the refinancing of its $300 million notes. Environmental and social factors are overall neutral considerations in our analysis. The group's major sector exposure is represented by retail pharmacy (22% of the adjusted portfolio value) and hospitals (13%), which we assess as having low environmental and social risks." ============= G E R M A N Y ============= KALLE GMBH: $88.8MM Bank Debt Trades at 30% Discount ---------------------------------------------------- Participations in a syndicated loan under which Kalle GmbH is a borrower were trading in the secondary market around 70.4 cents-on-the-dollar during the week ended Friday, October 27, 2023, according to Bloomberg's Evaluated Pricing service data. The $88.8 million facility is a Term loan that is scheduled to mature on December 29, 2023. The amount is fully drawn and outstanding. Kalle GmbH provides food machinery equipment. The Company’s country of domicile is Germany. ============= I R E L A N D ============= PROVIDUS CLO IX: S&P Assigns Prelim. B- Rating on Class F Notes --------------------------------------------------------------- S&P Global Ratings assigned its preliminary credit ratings to Providus CLO IX DAC's class X, A, B, C, D, E, and F notes. At closing, the issuer will also issue unrated subordinated notes. The reinvestment period will be approximately 4.5 years, while the non-call period will be 1.5 years after closing. Under the transaction documents, the rated loans and notes will pay quarterly interest unless there is a frequency switch event. Following this, the notes will switch to semiannual payment. The preliminary ratings assigned to the notes 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 collateral manager's experienced team, which can affect the performance of the rated notes through collateral selection, ongoing portfolio management, and trading. -- 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 2873.37 Default rate dispersion 523.01 Weighted-average life (years) 4.46 Weighted-average life extended to cover the length of the 4.59 reinvestment period (years) Obligor diversity measure 111.75 Industry diversity measure 12.48 Regional diversity measure 1.50 Transaction key metrics CURRENT Total par amount (mil. EUR) 375.00 Defaulted assets (mil. EUR) 0.00 Number of performing obligors 141 Portfolio weighted-average rating derived from S&P's CDO evaluator B 'CCC' category rated assets (%) 0.71 Actual 'AAA' weighted-average recovery (%) 36.70 Actual weighted-average spread (%) 4.24 Actual weighted-average coupon (%) 5.78 S&P said, "Our preliminary ratings reflect our assessment of the preliminary collateral portfolio's credit quality, which has a weighted-average rating of 'B'. We consider that the portfolio will be well-diversified on the closing date, primarily comprising broadly syndicated speculative-grade senior secured term loans and senior secured bonds. Therefore, we conducted our credit and cash flow analysis by applying our criteria for corporate cash flow CDOs. "In our cash flow analysis, we also modeled the actual weighted-average spread of 4.24%, the covenanted weighted-average coupon of 5.76% and the actual target weighted-average recovery rates as indicated by the collateral manager. 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. "We expect the transaction's documented counterparty replacement and remedy mechanisms to adequately mitigate its exposure to counterparty risk under our current counterparty criteria. "Following the application of our structured finance sovereign risk criteria, we consider the transaction's exposure to country risk to be limited at the assigned preliminary ratings, as the exposure to individual sovereigns does not exceed the diversification thresholds outlined in our criteria. "We expect the transaction's legal structure and framework to be bankruptcy remote, in line with our legal criteria. "Our credit and cash flow analysis indicates that the available credit enhancement for the class B, C, D, and E notes could withstand stresses commensurate with higher ratings than those we have assigned. However, as the CLO will be in its reinvestment phase starting from the effective date, during which the transaction's credit risk profile could deteriorate, we have capped our preliminary ratings assigned to the notes. "The class X, A, and F notes can withstand stresses commensurate with the assigned preliminary ratings. In our view, the portfolio is granular in nature, and well-diversified across obligors, industries, and asset characteristics when compared with other CLO transactions we have rated recently. As such, we have not applied any additional scenario and sensitivity analysis when assigning our preliminary ratings to any classes of notes in this transaction. "Following our analysis of the credit, cash flow, counterparty, operational, and legal risks, we believe that our preliminary ratings are commensurate with the available credit enhancement for the class X, A, B, C, D, E, and F notes. "In addition to our standard analysis, 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 makes 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." Environmental, social, and governance (ESG) S&P regards the exposure to ESG credit factors in the transaction as being broadly in line with its 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 the following industries: biological and chemical weapons, anti-personnel land mines, cluster munitions, mass destruction weapons, depleted uranium, nuclear weapons, blinding laser weapons, weapons using non-detectable fragments, radiological weapons, white phosphorus weapons, biological weapons, more than 10% revenue from weapons or tailormade components, civilian firearms, more than 1% revenue from mining or electrification of thermal coal or coal based power generation, oil sands extraction, the extraction of fossil fuels from unconventional sources, oil and gas with less than 40% revenue from natural gas or renewables or less than 20% reserves deriving from natural gas, electrical utility where carbon intensity is greater than 100gCO2/kWh, or where carbon intensity is not disclosed, casinos, pornography or prostitution, payday lending, tobacco, more than 50% revenue from opioid drug manufacturing and distribution, ozone-depleting substances, palm oil and palm fruits products, non-certified palm oil production, fossil fuels, weapons, hazardous chemicals, endangered wildlife, more than 50% revenue from speculative trading in food commodity derivatives, any obligor in violation of the Ten Principles of the UNGC, or recreational marijuana or drugs in contravention of laws. 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. Providus CLO IX DAC is a European cash flow CLO securitization of a revolving pool, comprising euro-denominated senior secured loans and bonds issued mainly by speculative-grade borrowers. Permira European CLO Manager LLP will manage the transaction. Ratings list PRELIM CLASS PRELIM AMOUNT SUB (%) INTEREST RATE* RATING (MIL. EUR) X AAA (sf) 2.00 N/A Three/six-month EURIBOR plus 0.75% A AAA (sf) 228.80 38.99 Three/six-month EURIBOR plus 1.75% B AA (sf) 41.20 28.00 Three/six-month EURIBOR plus 2.45% C A (sf) 22.10 22.11 Three/six-month EURIBOR plus 3.30% D BBB- (sf) 25.90 15.20 Three/six-month EURIBOR plus 5.25% E BB- (sf) 17.10 10.64 Three/six-month EURIBOR plus 7.63% F B- (sf) 12.50 7.31 Three/six-month EURIBOR plus 9.66% Sub NR 27.40 N/A N/A *The payment frequency switches to semiannual and the index switches to six-month EURIBOR when a frequency switch event occurs. EURIBOR--Euro Interbank Offered Rate. =================== L U X E M B O U R G =================== BAYTREE GLOBAL: Moody's Rates New Loan Participation Notes 'Ba3' ---------------------------------------------------------------- Moody's Investors Service has assigned a Ba3 senior unsecured foreign-currency debt rating to the US dollar-denominated Loan Participation Notes ("LPNs") to be issued on a limited recourse basis by Baytree Global Investments S.ar.l., a special purpose vehicle incorporated under the laws of Luxembourg, for the sole purpose of financing a senior unsecured loan to Agrobank. The outlook on the rating is stable. The maturity, the size and the pricing of the notes are subject to prevailing market conditions during placement. RATINGS RATIONALE The Ba3 rating assigned to the notes is in line with Agrobank's Ba3 long-term foreign currency bank deposit rating. The rating assigned to the LPNs is based on the fundamental credit quality of Agrobank, the ultimate obligor under the transaction. The notes will rank pari passu with the claims of all other unsecured creditors of Agrobank and, according to the terms and conditions of the loan agreement, Agrobank must comply with a number of covenants such as negative pledge, limitations on mergers and disposals. The cross-default clause embedded in the bond documentation will cover, inter alia, a failure by Agrobank or any of its principal subsidiaries to pay any of their financial indebtedness in the amount exceeding USD15 million. RATINGS OUTLOOK Agrobank's Ba3 senior unsecured foreign currency debt rating carries a stable outlook, reflecting the stable outlook on Uzbekistan's Ba3 sovereign rating and Moody's expectation that the bank's credit profile will remain broadly stable in the next 12-18 months. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING Agrobank's deposit ratings are at the same level as Uzbekistan's Ba3 sovereign debt rating. Therefore, any upward rating pressure on the bank's ratings is limited at the moment. A significant strengthening of the bank's liquidity or asset quality, coupled with sustained robust profitability, could lead to an upgrade of the bank's Baseline Credit Assessment (BCA). The stable outlook signals that a rating downgrade is unlikely over the next 12-18 months. The outlook could however be changed to negative if there are signs of erosion of financial fundamentals, namely asset quality, capitalisation and liquidity. Agrobank's ratings could be also downgraded if the Government of Uzbekistan appeared less likely to continue its support to the bank. PRINCIPAL METHODOLOGY The principal methodology used in this rating was Banks Methodology published in July 2021. ===================== N E T H E R L A N D S ===================== IGNITION MIDCO: EUR325MM Bank Debt Trades at 56% Discount --------------------------------------------------------- Participations in a syndicated loan under which Ignition Midco BV is a borrower were trading in the secondary market around 44.1 cents-on-the-dollar during the week ended Friday, October 27, 2023, according to Bloomberg's Evaluated Pricing service data. The EUR325 million facility is a Term loan that is scheduled to mature on July 4, 2025. The amount is fully drawn and outstanding. Ignition Midco B.V. operates as a special purpose entity. The Company’s country of domicile is the Netherlands. PHM NETHERLANDS: S&P Downgrades ICR to 'CCC+' on Weak Performance ----------------------------------------------------------------- S&P Global Ratings lowered its issuer credit rating on PHM Netherlands Midco B.V.'s (d/b/a Loparex) to 'CCC+' from 'B-'. S&P also lowered its issue-level rating on its senior secured credit facilities to 'CCC+' from 'B-' and on the unsecured notes to 'CCC-' from 'CCC'. The recovery ratings remain '3' and '6', respectively. The negative outlook reflects S&P's expectations for prolonged weakness in operating performance and elevated interest rates, resulting in persistent free cash flow deficits and increased pressure on liquidity over the next 12 months. S&P said, "The downgrade reflects our view that Loparex's capital structure is unsustainable over the longer term because of weaker-than-expected demand and a heavy interest burden. We believe the company is dependent upon favorable business and financial conditions to restore free cash flow, leverage, and its capital structure. Lower demand for Loparex's products, as a result of prolonged customer destocking and rising interest rates in the U.S. and Europe, has reduced S&P Global Ratings-adjusted EBITDA 42% across the first half of 2023. We expect continued demand softness for the next 12 months. At the same time, interest burden has increased almost 3x year over year. As a result, FOCF for the same period is negative, which we expect will extend through 2023 and carry over into fiscal 2024. "We now forecast a funds from operations (FFO) deficit for 2023 and expect S&P Global Ratings-adjusted leverage to remain elevated near 10x, with EBITDA interest coverage of below 1x during the next 12 months. As a consequence, we believe Loparex highly depends on a decline in interest rates and a rebound in demand to generate positive FOCF, and reduce S&P Global Ratings-adjusted leverage from over 10x as of June 30, 2023. "We estimate Loparex's available liquidity fell almost $30 million in the last six months. We believe the company utilized about $30 million of its available liquidity in the second and third quarters for debt amortization, interest payments, and operations. Liquidity at the end the June quarter consisted of about $17 million cash and $28 million availability on the revolver. This compares to $19 million cash and $34 million availability on the revolver at the end of March. Assuming our forecast for continued quarterly free cash flow deficits through 2024, we believe Loparex will need to seek additional funding sources or sponsor support to maintain its operations over the short term. "Refinancing risk remains a concern over the next year. The $50 million revolver, which matures in August 2024, is current. But management has indicated it is engaged with lenders for an extension of the maturity date, and we believe it will be granted. Absent this extension soon, we will likely lower the rating. While addressing the 2024 maturity is the immediate hurdle, we believe the sizable 2026 first-lien maturities will be the most difficult to refinance. Including revolver borrowings, Loparex has about $551 million in first-lien debt that comes due in July 2026, followed by $140 million in second-lien debt that matures in 2027. "The negative outlook reflects our expectations for prolonged weakness in operating performance and elevated interest rates, resulting in persistent free cash flow deficits and increased pressure on liquidity over the next 12 months." S&P could lower the rating if: -- Loparex fails to address the maturity date of its revolving credit facility; -- The company engages in a restructuring transaction or pursues a subpar debt exchange; or -- Operating performance remains subdued and threatens to further constrain liquidity. While unlikely in the next 12 months, S&P could revise the outlook to stable or raise the rating if there is a meaningful rebound in operating trends that translates into sustainable free cash flow, improving liquidity and supporting a sustainable capital structure. This could occur if: -- Demand improves materially while restoring EBITDA margins to historical levels; and -- Profitability increases such that it covers fixed costs and capital expenditure requirements, in addition to reducing leverage. S&P said, "Governance is a moderately negative consideration in our credit rating analysis of PHM. Our assessment of the company's financial risk profile as highly leveraged reflects corporate decision-making that prioritizes the interests of controlling owners, in line with our view of most rated entities owned by private-equity sponsors. Our assessment also reflects private-equity owners' generally finite holding periods and focus on maximizing shareholder returns." ========= S P A I N ========= BANCO SABADELL: Moody's Lowers Rating on Subordinated Debt to Ba2 ----------------------------------------------------------------- Moody's Investors Service has upgraded Banco Sabadell, S.A.'s long-term deposit ratings to Baa1 from Baa2 and its senior unsecured debt ratings to Baa2 from Baa3, and changed the outlook on both ratings to stable from positive. The short-term deposit ratings were affirmed at Prime-2. The rating agency has also upgraded (1) the bank's Baseline Credit Assessment (BCA) and Adjusted BCA to ba1 from ba2; (2) the junior senior unsecured rating to Ba1 from Ba2; and (3) the subordinated debt rating to Ba2 from Ba3. Further, Banco Sabadell's Counterparty Risk Assessment (CR Assessment) and Counterparty Risk Ratings have been affirmed at Baa1(cr)/Prime-2(cr) and Baa1/Prime-2 respectively. A List of Affected Credit Ratings is available at https://urlcurt.com/u?l=NzTSxy RATINGS RATIONALE -- RATIONALE FOR UPGRADING THE BCA The upgrade of Banco Sabadell's BCA to ba1 reflects the gradual strengthening of the bank's credit profile, principally in terms of asset quality and profitability, and Moody's view that the higher interest rates will support further improvements in profitability during the outlook period, while the build-up of new problem loans will remain contained. Banco Sabadell has managed to materially improve its recurrent earnings (net interest income (NII) plus fee and commission (F&C) income) from the weak 2020 levels, comparing positively even with pre-pandemic earnings. NII has grown on the back of higher customer margins, which stood at 2.89% at the end of Q2 2023 after growing by 16 bps in the quarter and 66 bps since the end of 2021. Moody's expects a further strengthening of the bank's NII and overall earnings during the outlook period as floating-rate loans, which typically reset annually, and new loan operations are priced at higher interest rates, and despite headwinds stemming from the decline in loan demand, a growing cost of deposits and the end of the targeted long-term refinancing operations (TLTRO) III carry trade benefits. Banco Sabadell profitability will also benefit from improved efficiency, following the two restructuring plans that the bank implemented in 2020 and 2021 and which led to a decline in the bank's recurrent costs of 6% between 2020 and 2022. The banks' cost to income ratio stood at 54% in June 2023, reducing substantially from levels close to 65% in precedent years. The BCA upgrade is also underpinned by the bank's substantial balance sheet de-risking achieved in precedent years, which has placed the bank's exposure to nonperforming assets (NPAs; nonperforming loans (NPLs) + foreclosed real estate assets) below the system average (NPA ratio of 4.2% for the bank in June 2023 compared to an estimated system average of around 5%). In addition, the bank's strong provisioning effort since early 2020 has improved the NPL coverage ratio (loan loss reserves as a proportion of NPLs), which stood at 56% at end-June 2023 from 49% at year-end 2019. While Moody's anticipates a moderate increase in problem loans due to rising debt affordability pressures, declining but still-high, inflation and economic growth deceleration, under Moody's base case scenario such deterioration is unlikely to materially weaken Banco Sabadell's asset risks, underpinning the BCA upgrade. Despite the mentioned improvements, Banco Sabadell's BCA remains constrained by the entity's modest capitalization, weighed down by a high exposure to deferred tax assets. Despite some recent strengthening because of internal capital generation, Moody's key capital and leverage ratios, tangible common equity (TCE)/risk-weighted assets and TCE/tangible assets, stood at 9.0% and 3.4% respectively at end-June 2023, among the lowest of its domestic peers. From a regulatory perspective, Banco Sabadell shows a more comfortable capital position, with a Common Equity Tier 1 (fully loaded) ratio of 12.9% as of end-June 2023. -- RATIONALE FOR UPGRADING THE SENIOR UNSECURED DEBT AND LONG-TERM DEPOSIT RATINGS The upgrade of Banco Sabadell's senior unsecured debt to Baa2 and of its long-term deposit ratings to Baa1 reflects: (1) the upgrade of the bank's BCA and Adjusted BCA to ba1; (2) the outcome of Moody's Advanced Loss Given Failure (LGF) analysis which results in an unchanged one-notch uplift for senior unsecured debt and two-notch uplift for deposits; and (3) Moody's assessment of a moderate probability of government support, which results in one notch of further uplift for both instruments. ESG CONSIDERATIONS As per Moody's General Principles for Assessing Environmental, Social and Governance Risks methodology, Banco Sabadell's governance issuer profile score (IPS) has been raised to G-2 from G-3, reflecting low governance risks following the bank's successful implementation of its strategic plan and fulfilment of financial targets, under the stewardship of a new management team appointed at the end of 2020. As a result, the bank's Environmental, Social and Governance (ESG) credit impact score has been revised to CIS-2 from CIS-3, indicating that ESG considerations do not have a material impact on the current ratings. -- RATIONALE FOR THE STABLE OUTLOOK The stable outlook on Banco Sabadell's long-term deposit and senior unsecured debt ratings reflects Moody's view that the bank's expected credit performance over the next 12-18 months, which assumes a moderate increase in problem loans and a strengthening of earnings, is already captured in the current ratings. The stable outlook also assumes that the bank's liability structure will remain broadly unchanged. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Banco Sabadell's BCA could be upgraded principally as a result of stronger capital and leverage ratios. A material change in the bank's funding profile towards lower reliance on market funding could also trigger a BCA upgrade. A one notch uplift in the BCA will not, however, translate into an upgrade of the bank's Baa1 deposit ratings. At this level, Banco Sabadell's deposit ratings would benefit from the current uplift of Moody's Advanced LGF analysis, but no uplift from the assumption of moderate government support as the deposit ratings, prior to incorporating government support, would be already at the level of Spain's sovereign rating. At the same time, the Baa2 senior unsecured debt rating could be upgraded if the bank's BCA is upgraded. The senior unsecured debt rating could also be upgraded if the bank changes its current liability structure, indicating a lower loss given failure for these instruments. Downward pressure on the bank's BCA could result from an increase in problem loans significantly above Moody's current expectations. A weakening in the bank's risk-absorption capacity as a result of lower capital ratios could also trigger a BCA downgrade. Because the bank's senior unsecured debt and deposit ratings are linked to its BCA, a downgrade in its BCA could lead to a rating downgrade. Banco Sabadell's ratings could also be downgraded by changes in the liability structure that indicate a higher loss given failure to be faced by deposits or debt instruments. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Banks Methodology published in July 2021. =========================== U N I T E D K I N G D O M =========================== CIRCULARITY SCOTLAND: GBP8MM of Public Money Set to Be Lost ----------------------------------------------------------- David Bol at Herald Scotland reports that the CEO of the Scottish National Investment Bank (SNIB) has admitted around GBP8 million of public money is set to be lost from the now-defunct Circularity Scotland following the collapse of the deposit return scheme. Circularity Scotland entered administration due to the troubled deposit return scheme being delayed after the UK Government refused to give an exemption under the Internal Market Act to glass being included in the proposals, Herald Scotland relates. That came after several delays from the Scottish Government, while businesses issued stark warnings over costs and administrative burdens, Herald Scotland notes. The deposit return scheme is now set to be launched in 2025 at the earliest, to align with a UK-wide policy, after Tory ministers changed their minds about including glass, Herald Scotland discloses. Circularity Scotland was handed a GBP9 million loan from SNIB in May 2022, helping to lever in another GBP9 million from the Bank of Scotland, Herald Scotland recounts. It is understood that the Bank of Scotland did not lose its funding because it waited for legislation to be finalised before parting company with the money, Herald Scotland states. In June, Circularity Scotland unable to carry on as industry bodies refused to keep funding it and went into administration with the loss of up to 60 jobs, Herald Scotland relays. According to Herald Scotland, The CEO of SNIB, Al Denholm, who joined the bank in March, has now told MSPs he is confident that GBP1 million of public money could be returned -- but has acknowledged that at least GBP8 million will be lost. Appearing at Holyrood's Net Zero Committee, Mr. Denholm was asked by Conservative MSP Douglas Lumsden about how much of the GBP9 million investment SNIB expects to retrieve, Herald Scotland relates. According to Herald Scotland, he said: "We invested a few years ago into Circularity Scotland a GBP9 million debt facility. "In our latest annual report, we show that we expected a write-off at that point of GBP4.5 million. "We've also said, in the annual report, that we expect to recover around GBP1 million but that will be very much dependent on the administrator process." The CEO confirmed he expected GBP8 million of the GBP9 million loan to be lost, Herald Scotland notes. FONTWELL II 2020: Fitch Affirms 'BB+sf' Rating on Tranche B Notes ----------------------------------------------------------------- Fitch Ratings has upgraded Fontwell II Securities 2020 DAC's retained tranche D notes and affirmed the other notes, detailed below. Entity/Debt Rating Prior ----------- ------ ----- Fontwell II Securities 2020 DAC Class A CLN XS2226194244 LT BBB+sf Affirmed BBB+sf Class B CLN XS2226194673 LT BB+sf Affirmed BB+sf Retained Tranche B LT A+sf Affirmed A+sf Retained Tranche C LT A+sf Affirmed A+sf Retained Tranche D LT A-sf Upgrade BBB+sf Tranche A LT BBB+sf Affirmed BBB+sf Tranche B LT BB+sf Affirmed BB+sf TRANSACTION SUMMARY The transaction is a partially funded synthetic securitisation referencing a static portfolio of secured loans granted to UK small and medium-sized enterprises in the farming and agriculture sector. The loans were originated by Lloyds Bank plc (A+/Stable/F1) via its wholly-owned subsidiary, Agricultural Mortgage Corporation plc (AMC). Proceeds from the class A, B and Z credit-linked notes (CLNs) were used to fund a cash deposit account at Lloyds. The ratings of the tranches address probability of claims under a financial guarantee maturing in December 2028 while the ratings of the class A and B CLNs address interest and principal repayment in accordance with the terms and conditions of the documents. KEY RATING DRIVERS Stable Performance; Shorter Life: The stable portfolio performance, shorter remaining life and small increase in the credit enhancement (CE) since November 2022 support the upgrade of retained tranche D and the affirmation of retained tranches B and C, as well as the class A and B CLNs. The upgrade is based on the actual portfolio assuming a stress on the loan-to-value (LTV) ratio to reflect the collateral dilution risk. The gradual deleveraging due to a higher interest-only (IO) proportion that matures after the financial guarantee termination in December 2028 as well as the stable performance support the Stable Outlook of all the notes. The portfolio has amortised by about 5.3% since November 2022. The provisional losses of GBP3.7 million to the most junior tranche Z as a result of credit events (0.6% of original reference notional) have resulted in a slightly increase in credit enhancement across the structure. As per the transaction documents, a provisional initial loss of 35% is applied upon the verification of the credit event. The tranche balance can write up or down depending on ultimate verified loss. Historically, the originator has not registered any losses in its farming loan book. Low Default Risk: The transaction has performed better than Fitch's expectations, with low credit events at 0.6% of the original reference notional, significantly below the expected annual average probability of default (PD) of the portfolio at 2%. Fitch continues to assign a one-year average PD (based on 90 days past due) of 2% to all borrowers in the portfolio, reflecting the through-the-cycle performance of the originator's portfolio. Limited Collateral Dilution Risk: The eligibility criteria and the originator's policies set the maximum LTV at 60%, calculated on a borrower basis. However, available mortgage collateral secures all AMC exposure including debt outside of the transaction. Any recoveries will be shared pro rata across a borrower's different AMC debts. The current LTV in the portfolio is around 31.5%, as calculated by Fitch and has improved from 38.9% since closing, but any additional lending could reduce the collateral share for the securitised exposures. For this, Fitch has stressed the LTV to 50% for loans with LTVs under 50%. The majority of available collateral is over agricultural land. In the recovery analysis, Fitch has applied its commercial property haircuts, which at the 'AA' level, are 75% and would reverse most of the increase experienced over the last 17 years. Static Portfolio; High IO Share (Positive): IO loans make up 57% of the portfolio, with lower payments during the life of the mortgage than capital repayment mortgages, but refinancing risk at maturity. However, only 13% of the outstanding IO balance have maturity dates prior to the transaction's scheduled maturity. This mitigates the refinancing risk. The high IO share also results in limited amortisation and scheduled deleveraging during the remaining seven-year financial guarantee period. Limited Obligor Concentration: The portfolio is diverse with a total of 5,947 loans. The largest obligor and top 10 obligors contribute about 0.3% and 3% of the total portfolio balance, respectively. Single Industry Exposure: All the borrowers in the reference portfolio are exposed to the UK farming and agriculture sector. Accordingly, Fitch continues to apply a bespoke correlation of 10%. Rating Cap: The tranches' ratings are capped at the UK's Issuer Default Rating (IDR) at 'AA-'/Negative due to the still high reliance on state subsidies. The ratings of the CLNs will be capped at Lloyd's IDR due to the excessive exposure of the principal funds in the account bank with Lloyds. Currently, no ratings are being restrained by the cap. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Based on the portfolio with the actual LTV, downgrades may occur if 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. While not the base case, a 25% increase of the mean default rate (RDR) across all ratings and a 25% decrease in the recovery rate (RRR) across all ratings in the actual portfolio would result in downgrades of up to three notches across the structure. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Based on the portfolio with the LTV floored at 50%, upgrades may occur in the event of better-than-expected portfolio credit quality and deal performance, leading to higher credit enhancement and excess spread available to cover losses in the remaining portfolio. A 25% decrease of the mean RDR across all ratings and a 25% increase of the RRR across all ratings in the portfolio with a stress LTV would result in upgrades of up to three notches across the structure. DATA ADEQUACY Fontwell II Securities 2020 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. Prior to the transaction closing, Fitch reviewed the results of a third party assessment conducted on the asset portfolio information and concluded that there were no findings that affected the rating analysis. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. ESG CONSIDERATIONS 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. JAMES KILLELEA: Goes Into Administration ---------------------------------------- Aaron Morby at Construction Enquirer reports that two specialist contractors operating in the north west have collapsed into administration after struggling to regain profitability following the Covid 19 pandemic. According to Construction Enquirer, administrators from insolvency specialist Leonard Curtis have taken over at Lancashire-based steeelwork specialist James Killelea & Co. The firm has struggled to return to normal trading levels since the pandemic with revenue plunging to GBP11 million last year from a peak of GBP27 million in 2019 when Killelea returned a profit of GBP1.8 million, Construction Enquirer states. Since that peak the firm has struggled suffering losses for three years, Construction Enquirer notes. Killelea has been in business since 1970 providing structural engineering services including 3D building design, structural steel fabrication and erection, Construction Enquirer discloses. [*] UK: Companies in Critical Financial Distress Up in 3Q 2023 -------------------------------------------------------------- Scott Reid at The Scotsman reports that the number of firms facing "critical" financial distress has leapt by a quarter with almost 40,000 UK businesses now at risk of insolvency amid the cost-of-living squeeze and higher borrowing costs. There has also been a jump in cases of "significant" financial distress, The Scotsman relays, citing the findings of the latest Red Flag Alert from business rescue and recovery specialist Begbies Traynor. Of the 22 sectors covered by the report, 18 saw a double-digit increase in companies in critical financial distress compared to the previous quarter, The Scotsman discloses. Serious concerns have been raised regarding the outlook for the construction and real estate & property services sectors after critical financial distress levels jumped 46% and 38% respectively in the past three months, The Scotsman states. Cases of critical financial distress also rose considerably in the retail sector, with food & drug retailers up 33 per cent and general retailers up 14%, compared to the previous quarter, The Scotsman notes. The latest Red Flag Alert, which has provided a snapshot of British corporate health for the past 15 years, paints a worrying picture across the UK. Experts said that with many UK companies accustomed to years of near zero interest rates and access to government-backed Covid support loans, the "new world" of elevated borrowing costs would continue to push many businesses to the edge of collapse, The Scotsman relates. According to the report, 37,722 companies were in critical financial distress in the third quarter of this year, up by nearly 25% since the second quarter, The Scotsman discloses. Almost 480,000 businesses across the UK were found to be in significant financial distress, 8.7% higher than Q2 and 4.7% up on the third quarter of 2022, The Scotsman states. It said the pressures of higher interest rates, sticky inflation and weaker consumer confidence were taking their toll, The Scotsman relays. These pressures are now clearly being seen beyond consumer facing sectors and are becoming widespread, particularly within the construction and property sectors, Begbies Traynor noted, according to The Scotsman. "Tens of thousands of British companies are now in financial dire straits now that the era of cheap money is firmly behind us. Businesses that had loaded up on debt at rock-bottom rates, and were only able to cling on during the pandemic thanks to government support, must now deal with a financial reality check as higher interest rates hit working capital for the foreseeable future. Taken together with stubbornly high inflation and weak consumer confidence, many of these businesses will inevitably head towards failure," The Scotsman quotes Partner Julie Palmer as saying. "The construction industry, which has long been a bellwether for the health of the economy, looks particularly vulnerable with over 70,000 firms now in significant financial distress and circa 6,000 in much more serious critical financial distress -- often a precursor to formal insolvency. These businesses must now struggle through a period of inflation-eroded margins, weak demand and a looming recession. It is likely to be an insurmountable task for many. She added: "This latest data highlights how the debt storm, which has been brewing for years, but had been held off by several measures to provide breathing space for companies, may very well break. Something that will send shockwaves through the whole economy." The Red Flag Alert shows that London had the greatest number of both significant and critical distress cases in the latest quarter, followed by the south-east of England and then the Midlands, The Scotsman states. Scotland ranked in eighth place in both listings, The Scotsman notes. Construction and property companies now account for almost 30% of all firms in critical financial distress as the slowdown in the residential housing market continues to bite, The Scotsman discloses. Rises in the retail sector also contributed to the overall uplift in critical financial distress, The Scotsman states. According to The Scotsman, Ric Traynor, executive chairman of Begbies Traynor, said: "The current combination of macro-economic risks is piling on the pressure and really starting to take its toll on UK businesses. I am hopeful that stabilising inflation and interest rates will start to slow the rising levels of distress in the economy in due course, but history dictates that this will take some time and insolvencies often peak long after a recovery has started. Unfortunately for many businesses, time is not on their side. "The ongoing geo-political uncertainty, which is particularly affecting commodity and energy prices, coupled with high interest rates, weak consumer demand, sticky levels of inflation and an anticipated recession over the coming year, may simply prove too much for many of these distressed businesses." [*] UK: Insolvencies Hit Highest Level in First Nine Months ----------------------------------------------------------- Tim Wallace at The Telegraph reports that insolvencies have hit the highest level since the financial crisis as rising interest rates batter the property sector and the cost-of-living crisis hits consumer spending. In the nine months to September, 18,367 businesses entered insolvency, according to official Insolvency Service figures -- the highest number for this period of any year since 2009, The Telegraph discloses. Insolvencies are more than 13% higher than the first nine months of 2022, The Telegraph states. The sharp increase in financial difficulty comes after a rapid increase in borrowing costs over the last two years and the end of pandemic-era support programmes, including grants and a moratorium on winding up petitions, The Telegraph notes. According to The Telegraph, Christina Fitzgerald at insolvency and restructuring trade group R3 said: "After years of battling through the pandemic, supply chain issues, increasing costs, rising inflation and requests for higher wages, many directors have simply had enough and are calling it a day while that choice is still theirs." [*] UK: Kroll Comments on Latest Company Insolvency Figures ----------------------------------------------------------- On October 31, 2023, the Insolvency Service published the latest quarterly insolvency statistics showing the highest numbers of Creditor Voluntary Liquidations (CVLs) since records began in 1960. Commenting on the figures, Benjamin Wiles, Managing Director at Kroll, said: "We have seen a huge surge in company insolvencies over the past year. Our data shows that company administrations, which generally represent larger businesses and give a better representation of the economy, are around 30% higher on the same period last year. The cost of borrowing and a lack of access to working capital alongside weak consumer confidence and high inflation means that we will likely continue to see an upward trend over the next 12 months. Many sectors are vulnerable and will be hoping for a good Christmas. Whether that happens could be make or break. "More broadly, we are seeing more businesses fail in the construction, manufacturing and retail sectors, where there quite often is little headroom. We've also seen a recent spike in sectors such as transport and logistics, who are managing higher fuel and wage costs as well as recruitment businesses, who are dealing with a more uncertain jobs market and are beginning to feel the pinch themselves. The Commercial Real Estate market, especially office space, is something we should watch closely both now and into 2024." About Kroll As the leading independent provider of risk and financial advisory solutions, Kroll leverages our unique insights, data and technology to help clients stay ahead of complex demands. Kroll's team of more than 6,500 professionals worldwide continues the firm's nearly 100-year history of trusted expertise spanning risk, governance, transactions and valuation. ********* 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 * * *