/raid1/www/Hosts/bankrupt/TCREUR_Public/231102.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Thursday, November 2, 2023, Vol. 24, No. 220
Headlines
F R A N C E
CASINO GUICHARD-PERRACHON: Moody's Withdraws Ca Corp Family Rating
COOPER CONSUMER: Moody's Affirms 'B3' CFR on Viatris Transaction
I R E L A N D
CIFC EUROPEAN I: Moody's Affirms B2 Rating on EUR12MM Cl. F Notes
MAN GLG III: Moody's Affirms Ba2 Rating on EUR19.8MM Cl. E Notes
NEUBERGER BERMAN 5: S&P Assigns Prelim B- (sf) Rating on F-R Notes
K A Z A K H S T A N
MYCAR FINANCE: S&P Assigned 'B-/B' ICRs, Outlook Stable
TRANSTELECOM CO: S&P Affirms 'B' LT ICR & Alters Outlook to Stable
L U X E M B O U R G
FLINT TOPCO: S&P Assigns 'CCC+' LongTerm Issuer Credit Rating
R U S S I A
UZBEKNEFTEGAZ: S&P Lowers LT ICR to 'B+', Outlook Stable
S P A I N
ALMIRALL SA: S&P Ups ICR to 'BB' on Improved Financial Flexibility
U N I T E D K I N G D O M
ASPIRE SPORTS: New Interim Operator to Run Gloucester Facilities
CONSTELLATION AUTOMOTIVE: Moody's Alters Ratings Outlook to Stable
INEOS GROUP: S&P Affirms 'BB' ICR & Alters Outlook to Negative
INEOS QUATTRO: Moody's Rates New EUR850MM Secured Term Loan 'Ba3'
LANEBROOK MORTGAGE 2023-1: Moody's Assigns (P)B3 Rating to F Notes
LANEBROOK MORTGAGE 2023-1: S&P Gives Prelim. 'B-' Rating on F Notes
NEWDAY GROUP: S&P Affirms 'B+' LongTerm ICR on Solid Performance
PAPERCHASE: Tesco Announces Re-Launch of Brand After Collapse
SQUIBB GROUP: Owes GBP23.3 Million to More Than 300 Creditors
WIGGLE CRC: About 100 Workers Laid Off Following Administration
[*] DBRS Puts 45 Tranches on 14 European Deals Under Review
[*] UK: Number of Retail Sector CVAs Up by 150% in 2022/2023
- - - - -
===========
F R A N C E
===========
CASINO GUICHARD-PERRACHON: Moody's Withdraws Ca Corp Family Rating
------------------------------------------------------------------
Moody's Investors Service has withdrawn the Ca corporate family
rating and the C-PD/LD probability of default rating of Casino
Guichard-Perrachon SA's ("Casino" or "the company"). Moody's has
also withdrawn the C senior unsecured rating, the C backed senior
unsecured rating, the C subordinate rating and the Ca backed senior
secured bank credit facility rating of Casino. Concurrently,
Moody's has withdrawn the Caa3 backed senior secured rating of
Quatrim SAS. The outlook for both entities prior to withdrawal was
negative.
RATINGS RATIONALE
Moody's has decided to withdraw the ratings for its own business
reasons.
COMPANY PROFILE
Casino is a French food retailer with some operations in Latin
America. The company reported EUR34 billion revenues in 2022.
COOPER CONSUMER: Moody's Affirms 'B3' CFR on Viatris Transaction
----------------------------------------------------------------
Moody's Investors Service has affirmed the B3 long term corporate
family rating and B3-PD probability of default rating of Cooper
Consumer Health S.A.S. (formerly Care BidCo S.A.S., "Cooper" or
"the company"), one of the leading European over-the-counter (OTC)
pharma manufacturers and distributors. Moody's has also affirmed
the B2 instrument ratings on the company's EUR970 million senior
secured first-lien term loan B (TLB) maturing in 2028 and the
EUR160 million senior secured revolving credit facility (RCF)
maturing in 2028 and the Caa2 rating on the EUR235 million senior
secured second-lien term loan maturing in 2029. Concurrently,
Moody's has assigned B2 instrument ratings to the EUR1,105 million
add-on to the senior secured first-lien term loan B2 (TLB2) and to
the EUR135 million add-on to the senior secured first-lien
revolving credit facility (RCF) maturing in 2028, and assigned a
Caa2 rating to the EUR112 million add-on to the senior secured
second-lien term loan maturing in 2029. The outlook remains
stable.
The rating action follows the announcement on October 2 [1] of the
agreement to acquire the OTC portfolio from Viatris Inc. (Viatris,
Baa3 stable) for a total consideration of $1,636 million. The
acquisition and associated costs will be funded through a
combination of EUR473 million of equity and an additional EUR1,217
million of debt, including the non-fungible add-ons to the existing
senior secured first lien Term Loan B (EUR1,105 million) and to the
existing senior secured second-lien term loan (EUR112 million). In
addition, the company will also increase its RCF by EUR135 million
to EUR295 million.
"The acquisition will improve Cooper's business profile as it will
double its size, broaden its product portfolio with
well-established complementary brands, and enhance its geographical
diversification. However, the transaction is subject to execution
and integration risks, given the size of the acquired asset
relative to Cooper and will also result in a temporary increase in
gross leverage," says Michel Bove, a Moody's AVP-Analyst and lead
analyst for Cooper.
"Moody's expect Cooper's operating performance and credit metrics
to improve once the integration process is completed, supported by
the company's track record of successful integration of bolt-on
acquisitions; profitable growth, free cash flow generation, and
demonstrated capacity for deleveraging," adds Mr Bove.
RATINGS RATIONALE
The acquisition will enhance Cooper's business profile, enabling it
to double in size, broaden its product portfolio with
well-established complementary brands, and enhance its geographical
diversification. The acquisition, with combined revenues of close
to EUR1.1 billion, will bolster Cooper's market share in the
fragmented OTC sector, securing it the #7 position in Europe and
reinforcing its standing as a leading independent European OTC
company. The acquired brands, which align well with Cooper's
existing portfolio, offer minimal overlap and leading market
positions in their therapeutic areas. This acquisition will also
solidify Cooper's substantial presence across its core European
markets.
Moody's expects Cooper's revenue to grow by mid-single digit rates
over 2024-2026, due a combination of volume and pricing, spurred by
market growth, a value creation plan, and the untapped potential of
the acquired portfolio which was not core for Viatris. The company
aims to enhance sales through its e-commerce platform and efficient
advertising, expanding points of sale and customer base. Overall,
Moody's forecasts that revenue will increase towards EUR1,210
million in 2024 from EUR1,166 million in 2023, both on a pro forma
basis, and reach EUR1,266 million in 2025.
In Moody's view, the transaction is also subject to execution and
integration risks given the size of the acquired assets relative to
Cooper, as well as the asset's entanglement with Viatris'
activities such as IT, back-office operations, distribution, and to
a lesser degree, manufacturing. Cooper will initially rely on
Viatris' distribution and support, mainly through Transition
Service Agreements (TSAs), while it expands own operations to
support the acquisition. Cooper estimates the one-off separation
and integration costs would be EUR89 million (EUR68 million in 2024
and EUR21 million in 2025), including costs related to TSA
overlaps, staff severance, recruitment, IT setup and, to a lesser
extent, strategic investments on procurement and manufacturing.
More positively, Moody's acknowledges Cooper's successful track
record of integrating previous bolt-on acquisitions.
Cooper's gross leverage will be high following transaction closing,
with Moody's-adjusted gross leverage of more than 9.0x, which would
be above Moody's tolerance for the B3 rating category. However, the
ratings affirmation reflects the rating agency's expectation that
Cooper will reduce its gross leverage, on a Moody's-adjusted basis,
to around 7.2x in 2025, supported by gradual improvements in EBITDA
as one-off costs are phased out. As a result, the agency forecasts
that Cooper's Moody's-adjusted EBITDA will reach EUR264 million in
2024, on a pro forma basis, and EUR338 million in 2025, with
margins gradually returning to approximately 30% in 2026.
The high leverage is partly mitigated by the company's solid free
cash flow (FCF) generation capacity, which will remain positive
even in 2024-2026 despite the one-off integration costs. Moody's
forecasts Cooper's FCF generation of approximately EUR13 million in
2024, on a pro forma basis, and EUR76 million in 2025. Once the
integration costs are phased out, FCF will improve to close to
EUR100 million in 2026, supported by the company's asset light
business with limited capital expenditures.
The B3 rating reflects the company's (1) strong market position in
the fragmented self-care market; (2) improved scale, product
portfolio and geographic diversification stemming from the
acquisition of Viatris' OTC portfolio; (3) track record of
profitable growth, both organically and through bolt-on
acquisitions; (4) sound market fundamentals for OTC products; and
(5) good liquidity and free cash flow generation capacity,
supported by an asset-light business model.
However, the rating is constrained by (1) Cooper's high initial
leverage at closing, with a Moody's adjusted gross debt to EBITDA
ratio of 9.3x in 2024 (pro-forma), which will only decline towards
7.2x by 2025; (2) the execution risk associated with the
integration of the Viatris' OTC portfolio; and (3) the company's
financial policy with a tolerance for high leverage and an appetite
for acquisitions.
LIQUIDITY
Pro-forma for the acquisition, Moody's expects the company to
maintain good liquidity driven by (1) a cash balance of EUR150
million at closing; (2) expectations of free cash flow generation;
(3) a EUR295 million senior secured revolving credit facility,
which Moody's forecasts will remain undrawn; and (4) a long debt
maturity profile with no significant maturities until 2028.
The RCF has a maximum senior secured net leverage springing
covenant of 9.75x to be tested if it is drawn by more than 40%.
Moody's does not expect the covenant to be tested over the next
12-18 months.
STRUCTURAL CONSIDERATIONS
Cooper's B3-PD probability of default rating is in line with the
CFR and reflects the use of a 50% family recovery rate, consistent
with an all-loan debt structure with a springing covenant. Cooper's
B2 instrument ratings on the TLB and RCF are one notch above the
company's CFR, reflecting the senior position of these instruments
compared with the junior instruments in the capital structure, and
the second-lien term loan, which is rated Caa2.
The debt facilities benefit from pledges over shares, important
bank accounts and intercompany receivables, and guarantees by
certain subsidiaries representing at least 80% of the group's
EBITDA.
Moody's does not include in its adjusted debt calculations the
EUR500 million shareholder loan maturing in 2030, borrowed by
Cooper and indirectly lent by its majority shareholders because
this instrument is eligible to receive equity credit under Moody's
criteria.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook on the rating reflects Moody's expectation that
Cooper will maintain its trajectory of continued revenue and EBITDA
growth post transaction, with leverage decreasing towards 7.2x
already in 2025. The outlook does not factor in any large
debt-financed acquisition or further shareholder distributions.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward rating pressure could arise if (1) Cooper successfully
integrates the recently acquired assets; (2) its Moody's-adjusted
debt/EBITDA falls towards 6.5x; and (3) the company maintains
sustained profit growth and positive FCF, with continued strong
liquidity.
Negative rating pressure would be exerted on the rating if (1)
Cooper's Moody's-adjusted gross debt/EBITDA remains sustainably
well above 7.5x beyond 2025; (2) free cash flow turns negative on a
sustained basis; (3) liquidity deteriorates including potential
reduction in headroom under financial covenants; or (4) the company
were to embark upon a larger debt funded acquisition prior to the
recovery of credit metrics.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Consumer
Packaged Goods published in June 2022.
COMPANY PROFILE
Cooper Consumer Health S.A.S. is a leading European self-care
company that provides a range of self-care products, food
supplements, medical devices and active pharmaceutical ingredients
directly to around 50,000 pharmacies across Europe, mainly in
France and in key markets, including the Netherlands, Italy, Iberia
and Belgium, as well as export markets.
Cooper was originally founded in 1907 to manage the supply of
active ingredients used in pharmaceutical preparations. In August
2016, Cooper acquired Vemedia, a Dutch-based independent
over-the-counter (OTC) pharma company. Since then, the company has
continued to expand its product portfolio and geographical reach
through several acquisitions. In March 2021, CVC Capital Partners
Fund VII (CVC) agreed to acquire most of Cooper's capital, with
Charterhouse, the founders of Vemedia and management remaining as
minority shareholders.
In 2022, Cooper generated revenue of EUR540 million and company
reported EBITDA of EUR159 million.
=============
I R E L A N D
=============
CIFC EUROPEAN I: Moody's Affirms B2 Rating on EUR12MM Cl. F Notes
-----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by CIFC European Funding CLO I Designated Activity
Company:
EUR28,500,000 Class B-1-R Senior Secured Floating Rate Notes due
2032, Upgraded to Aa1 (sf); previously on Aug 16, 2021 Definitive
Rating Assigned Aa2 (sf)
EUR11,500,000 Class B-2-R Senior Secured Fixed Rate Notes due
2032, Upgraded to Aa1 (sf); previously on Aug 16, 2021 Definitive
Rating Assigned Aa2 (sf)
EUR28,000,000 Class C-R Senior Secured Deferrable Floating Rate
Notes due 2032, Upgraded to A1 (sf); previously on Aug 16, 2021
Definitive Rating Assigned A2 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR248,000,000 Class A-R Senior Secured Floating Rate Notes due
2032, Affirmed Aaa (sf); previously on Aug 16, 2021 Definitive
Rating Assigned Aaa (sf)
EUR24,000,000 Class D-R Senior Secured Deferrable Floating Rate
Notes due 2032, Affirmed Baa3 (sf); previously on Aug 16, 2021
Definitive Rating Assigned Baa3 (sf)
EUR20,000,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2032, Affirmed Ba2 (sf); previously on Aug 16, 2021
Affirmed Ba2 (sf)
EUR12,000,000 Class F Senior Secured Deferrable Floating Rate
Notes due 2032, Affirmed B2 (sf); previously on Aug 16, 2021
Affirmed B2 (sf)
CIFC European Funding CLO I Designated Activity Company issued in
August 2019 and refinanced in August 2021 is a collateralised loan
obligation (CLO) backed by a portfolio of mostly high-yield senior
secured European loans. The portfolio is managed by CIFC CLO
Management II LLC. The transaction's reinvestment period will end
in January 2024.
RATINGS RATIONALE
The rating upgrades on the Class B-1-R, B-2-R and C-R Notes are
primarily a result of the benefit of the shorter period of time
remaining before the end of the reinvestment period in January
2024.
In light of reinvestment restrictions during the amortisation
period, and therefore the limited ability to effect significant
changes to the current collateral pool, Moody's analysed the deal
assuming a higher likelihood that the collateral pool
characteristics would maintain an adequate buffer relative to
certain covenant requirements.
The key model inputs Moody's uses in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers.
In its base case, Moody's used the following assumptions:
Performing par and principal proceeds balance: EUR396.9m
Defaulted Securities: none
Diversity Score: 61
Weighted Average Rating Factor (WARF): 2923
Weighted Average Life (WAL): 4.30 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 4.08%
Weighted Average Coupon (WAC): 4.63%
Weighted Average Recovery Rate (WARR): 43.53%
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties, such as account bank, using the
methodology "Moody's Approach to Assessing Counterparty Risks in
Structured Finance" published in October 2023. Moody's concluded
the ratings of the notes are not constrained by these risks.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.
Additional uncertainty about performance is due to the following:
-- Portfolio amortisation: Once reaching the end of the
reinvestment period in January 2024, the main source of uncertainty
in this transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales by the collateral manager or
be delayed by an increase in loan amend-and-extend restructurings.
Fast amortisation would usually benefit the ratings of the notes
beginning with the notes having the highest prepayment priority.
-- Weighted average life: The notes' ratings are sensitive to the
weighted average life assumption of the portfolio, which could
lengthen as a result of the manager's decision to reinvest in new
issue loans or other loans with longer maturities, or participate
in amend-to-extend offerings.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available to
rating committees, including macroeconomic forecasts, input from
other Moody's analytical groups, market factors, and judgments
regarding the nature and severity of credit stress on the
transactions, can influence the final rating decision.
MAN GLG III: Moody's Affirms Ba2 Rating on EUR19.8MM Cl. E Notes
----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by Man GLG Euro CLO III Designated Activity Company:
EUR32,000,000 Class C Deferrable Mezzanine Floating Rate Notes due
2030, Upgraded to Aa2 (sf); previously on Apr 24, 2023 Affirmed A1
(sf)
EUR18,000,000 Class D Deferrable Mezzanine Floating Rate Notes due
2030, Upgraded to Baa1 (sf); previously on Apr 24, 2023 Affirmed
Baa2 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR212,000,000 (Current oustanding balance EUR 108.2m) Class A-R
Senior Secured Floating Rate Notes due 2030, Affirmed Aaa (sf);
previously on Apr 24, 2023 Affirmed Aaa (sf)
EUR23,300,000 Class B-1 Senior Secured Floating Rate Notes due
2030, Affirmed Aaa (sf); previously on Apr 24, 2023 Affirmed Aaa
(sf)
EUR10,000,000 Class B-2-R Senior Secured Fixed Rate Notes due
2030, Affirmed Aaa (sf); previously on Apr 24, 2023 Affirmed Aaa
(sf)
EUR19,800,000 Class E Deferrable Junior Floating Rate Notes due
2030, Affirmed Ba2 (sf); previously on Apr 24, 2023 Affirmed Ba2
(sf)
EUR10,400,000 Class F Deferrable Junior Floating Rate Notes due
2030, Affirmed Caa2 (sf); previously on Apr 24, 2023 Downgraded to
Caa2 (sf)
Man GLG Euro CLO III Designated Activity Company, issued in July
2017 and partially refinanced in March 2021, is a collateralised
loan obligation (CLO) backed by a portfolio of mostly high-yield
senior secured European loans. The portfolio is managed by GLG
Partners LP. The transaction's reinvestment period ended in October
2021.
RATINGS RATIONALE
The rating upgrades on the Class C and Class D Notes are primarily
a result of the deleveraging of the Class A-R Note following
amortisation of the underlying portfolio since the last rating
action in April 2023.
The affirmations on the ratings on the Class A-R, B-1, B-2-R, E and
F Notes are primarily a result of the expected losses on the notes
remaining consistent with their current ratings after taking into
account the CLO's latest portfolio, its relevant structural
features and its actual over-collateralization (OC) levels.
In light of the failure of the classes E and F OC tests, the Class
A-R Note has paid down by approximately EUR71.1 million (33.5%)
since the last rating action in April 2023 and EUR103.7 million
(48.9%) since closing. As a result of the deleveraging,
over-collateralisation (OC) has increased across the capital
structure. According to the trustee report dated March 2023 [1] the
Class A/B, Class C, Class D, Class E and Class F OC ratios are
reported at 143.38%, 124.63%, 116.08%, 107.95% and 104.11% compared
to October 2023 [2] levels of 148.72%, 125.78%, 115.74%, 106.40%
and 102.07%, respectively. Moody's notes that the October 2023
principal payments are not reflected in the reported OC ratios.
The key model inputs Moody's uses in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers.
In its base case, Moody's used the following assumptions:
Performing par and principal proceeds balance: EUR258.7m
Defaulted Securities: EUR10m
Diversity Score: 56
Weighted Average Rating Factor (WARF): 2870
Weighted Average Life (WAL): 3.45 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.63%
Weighted Average Coupon (WAC): 4.84%
Weighted Average Recovery Rate (WARR): 43.87%
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties, such as account bank, using the
methodology "Moody's Approach to Assessing Counterparty Risks in
Structured Finance" published in October 2023. Moody's concluded
the ratings of the notes are not constrained by these risks.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.
Additional uncertainty about performance is due to the following:
-- Portfolio amortisation: The main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales by the collateral manager or
be delayed by an increase in loan amend-and-extend restructurings.
Fast amortisation would usually benefit the ratings of the notes
beginning with the notes having the highest prepayment priority.
-- Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Moody's analysed
defaulted recoveries assuming the lower of the market price or the
recovery rate to account for potential volatility in market prices.
Recoveries higher than Moody's expectations would have a positive
impact on the notes' ratings.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available to
rating committees, including macroeconomic forecasts, input from
other Moody's analytical groups, market factors, and judgments
regarding the nature and severity of credit stress on the
transactions, can influence the final rating decision.
NEUBERGER BERMAN 5: S&P Assigns Prelim B- (sf) Rating on F-R Notes
------------------------------------------------------------------
S&P Global Ratings assigned its preliminary credit ratings to
Neuberger Berman Loan Advisers Euro CLO 5 DAC's class A-R, B-1-R,
B-2-R, C-R, D-R, E-R, and F-R notes. The issuer will also issue
unrated subordinated notes.
At closing, the issuance proceeds of the refinancing notes will be
used to redeem the refinanced notes and pay fees and expenses
incurred in connection with the reset.
This is a European cash flow CLO transaction, securitizing a pool
of primarily syndicated senior secured loans or bonds. The
portfolio's reinvestment period ends approximately 4.62 years after
closing, and the portfolio's maximum average maturity date is seven
years after closing.
Under the transaction documents, the rated notes pay quarterly
interest unless there is a frequency switch event. Following this,
the notes will switch to semiannual payment.
S&P said, "We consider that the portfolio is 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 collateralized debt obligations."
Portfolio benchmarks
CURRENT
S&P Global Ratings weighted-average rating factor 2,709.13
Default rate dispersion 553.51
Weighted-average life (years) 4.19
Obligor diversity measure 125.61
Industry diversity measure 22.15
Regional diversity measure 1.31
Transaction key metrics
CURRENT
Total par amount (mil. EUR) 300
Defaulted assets (mil. EUR) 0
Number of performing obligors 157
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.93
Covenanted 'AAA' weighted-average recovery (%) 35.91
Weighted-average spread net of floors (%) 3.99
S&P said, "In our cash flow analysis, we modeled the EUR300 million
target par amount, the covenanted weighted-average spread of 3.90%,
the covenanted weighted-average coupon of 4.25%, and the covenanted
weighted-average recovery rates for all rated notes. 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.
"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.
"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 to be bankruptcy
remote, in line with our legal criteria.
"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 A-R, B-1-R, B-2-R, C-R, D-R, E-R, and F-R notes. Our
credit and cash flow analysis indicates that the available credit
enhancement for the class B-1-R to E-R notes is commensurate with
higher ratings than those assigned. However, as the CLO will have a
reinvestment period, during which the transaction's credit risk
profile could deteriorate, we have capped our assigned ratings on
these notes.
"The class F-R notes' current break-even default rate (BDR) cushion
is negative at the 'B-' rating level. Based on the portfolio's
actual characteristics and additional overlaying factors, including
our long-term corporate default rates and recent economic outlook,
we believe this class is able to sustain a steady-state scenario,
in accordance with our criteria." S&P's analysis reflects several
factors, including:
-- The class F-R notes' available credit enhancement is in the
same range as that of other CLOs S&P rates that have recently been
issued in Europe.
-- S&P's BDR at the 'B-' rating level is 24.66%, % versus a
portfolio default rate of 14.32% if it was to consider a long-term
sustainable default rate of 3.1% for a portfolio with a
weighted-average life of 4.62 years.
-- Whether the tranche is vulnerable to non-payment soon.
-- If there is a one-in-two chance of this tranche defaulting.
-- If S&P envisions this tranche defaulting in the next 12-18
months.
-- Following this analysis, S&P considers that the available
credit enhancement for the class F-R notes is commensurate with a
preliminary 'B- (sf)' rating.
S&P said, "In addition to our standard analysis, to indicate 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-R to E-R notes in 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-R notes."
Preliminary ratings
PRELIM.
CLASS PRELIM. AMOUNT SUB (%) INTEREST RATE*
RATING (MIL. EUR)
A-R AAA (sf) 183.00 39.00 Three/six-month EURIBOR
plus 1.70%
B-1-R AA (sf) 24.50 27.50 Three/six-month EURIBOR
plus 2.75%
B-2-R AA (sf) 10.00 27.50 6.75%
C-R A (sf) 17.30 21.73 Three/six-month EURIBOR
plus 3.60%
D-R BBB- (sf) 20.20 15.00 Three/six-month EURIBOR
plus 5.60%
E-R BB- (sf) 12.00 11.00 Three/six-month EURIBOR
plus 7.87%
F-R B- (sf) 10.50 7.50 Three/six-month EURIBOR
plus 10.29%
Sub NR 25.00 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.
NR--Not rated.
N/A--Not applicable.
===================
K A Z A K H S T A N
===================
MYCAR FINANCE: S&P Assigned 'B-/B' ICRs, Outlook Stable
-------------------------------------------------------
S&P Global Ratings assigned its 'B-/B' long- and short-term issuer
credit ratings to Kazakhstan-based MyCar Finance Microfinance
Organization LLP (MCF). The outlook is stable.
S&P also assigned MCF its 'kzBB-' national scale rating.
The stable outlook reflects S&P's expectation that MCF's business
and financial profiles will remain broadly unchanged over the next
12 months, benefiting from favorable growth trends in Kazakhstan's
car loan market.
MCF is a leading car finance player among Kazakhstani banks and
finance companies.
S&P said, "The starting point for our long-term rating on MCF is
the 'b' anchor for finance companies in Kazakhstan. It is two
notches below the 'bb-' anchor for banks, based on economic and
industry risk scores of '8' for Kazakhstan under our Banking
Industry Country Risk Assessment. We believe finance companies in
Kazakhstan face incrementally higher industry risk than banks
because they are more dependent on market-sensitive funding, owing
to their lack of access to central bank funding. These finance
companies also operate under weaker regulatory oversight, with
higher competitive risk and typically less stable revenue through
economic cycles, compared with banks.
"We expect that MCF will maintain its leading position in
Kazakhstan's car loan market. MCF provides loans to individuals to
buy new and used cars of various brands from Astana Motors' online
platform mycar.kz, as well as from over 50 other dealerships and
private sellers. After four and a half years of operations, MCF
reached a market share of about 10% by total volume of car loans
(Kazakhstani tenge [KZT] 156 billion; or $354 million) and about
12% by the number of car loans (about 17,500 current borrowers)
among all car loan providers as of mid-2023. We consider the
company's conservative growth strategy for the next three years to
be well suited to its current development stage. However, its
future growth is constrained by available funding. MCF is
developing a digital strategy and is already faster than the market
average in digital loan approval and disbursement.
"We expect to see an increase in capitalization, due to limited
planned growth, supported by retained earnings. MCF's risk-adjusted
capital (RAC) ratio was 8.9% at end-2022, and we forecast an
increase to 10.5%-11.0% in 2023-2024. The company remained in
compliance with its regulatory capital requirements, including a
Tier 1 capital ratio of 13% (regulatory minimum 10%) and leverage
of 6.5x (regulatory maximum 10.0x) at mid-2023." S&P's forecast for
2023-2024 is based on the following assumptions:
-- Annual loan growth of about 10%;
-- A slight decrease in net interest margin, reflecting
competition and an expected decrease in a key policy rate in 2024;
-- Cost of risk of about 3%;
-- No capital injections and no dividends; and
-- A return on assets of 3%-4%.
S&P said, "Despite a still-seasoning loan book, MCF's asset quality
will likely remain better than the average for Kazakhstani banks
over the next 12 months. MCF's stage 3 loans were 4.4% of total
loans, compared with our estimate in Kazakhstan of 8.0%-10.0%, and
its stage 2 loans were 1.8% at mid-2023. We expect some
deterioration in credit quality as loans season, with stage 3 loans
reaching up to 6% over the next 24 months. Provisions covered stage
3 loans 37%, stage 2 loans 22%, and stage 1 loans 2% at end-2022.
Concentration in car loans is mitigated by low individual
concentrations from retail lending, low planned loan growth,
collateralized lending, and a required down payment. The company
issues all loans in local currency and at fixed rates. Therefore, a
possible devaluation of the tenge or increase in interest rates
should not materially affect its clients' repayment ability. We
believe that the risk management function is well developed for the
company's business, with an in-house scoring model and a high
refusal rate of 46%.
"We regard positively the company's plans to diversify its funding
by securitizing loans, issuing domestic bonds, and receiving loans
from international financial institutions. The company's main
funding source is a loan from a single bank. MCF funds itself
through a revolving bank loan. MCF's concentrated short-term
funding is reflected in modest funding and liquidity metrics,
including a stable funding ratio of 67% and a liquidity coverage
metric of 0.09x at end-2022, which was in line with the previous
three years' metrics.
"We consider MCF a highly strategic subsidiary of Astana Motors.
MCF is 99.9% owned by Astana Motors, which has operated for 30
years and is the largest car dealer in Kazakhstan. In our view, MCF
is vital for the parent's strategy, providing complementary
financing for its cars. However, we do not consider MCF a captive
finance subsidiary because it provides loans to buy any new and
used car, not just those distributed or assembled by Astana Motors.
MCF has a good profitability but remains a small part of Astana
Motors (about 10% of equity). A few dealers in the Astana Motors
group guarantee the bank loan to MCF with cross-default clauses.
Our rating on MCF does not include any notches of support from
Astana Motors.
"The outlook is stable. We expect that MCF will maintain stable
business and financial profiles over the next 12 months, benefiting
from favorable growth trends in Kazakhstan's car loan market.
Although not our base-case scenario, a negative rating action over
the next 12 months could follow if:
-- MCF needs to repay the bank loan ahead of schedule due to the
loan covenants being breached by MCF or the loan guarantors, and is
unable to find alternative funding sources;
-- MCF's asset quality materially deteriorates, pressuring its
capital; or
-- Astana Motors' creditworthiness deteriorates.
A positive rating action could occur if S&P's stand-alone credit
profile (SACP) on MCF improves through better funding
diversification and a sustained larger liquidity cushion against
short-term debt repayments, and S&P would consider MCF an insulated
subsidiary of Astana Motors without cross-default clauses with
group entities.
TRANSTELECOM CO: S&P Affirms 'B' LT ICR & Alters Outlook to Stable
------------------------------------------------------------------
S&P Global Ratings revised its outlook on Kazakhstan-based telecom
operator TransTeleCom Co. JSC to stable from negative, affirmed its
'B' long-term global scale issuer credit rating, and raised the
national scale rating on the company to 'kzBBB-' from 'kzBB+'.
The stable outlook on the global scale rating reflects S&P's
expectation of comfortable liquidity with no covenant breaches, and
S&P Global Ratings-adjusted debt to EBITDA remaining between 2.5x
and 5.0x, and positive free operating cash flow (FOCF).
S&P now assesses TransTeleCom's liquidity as adequate with
sufficient covenant headroom, available committed lines, and
manageable capex payments. In 2023, the Kazakhstani tenge
(KZT)/Russian ruble (RUB) exchange rate has been up more than 25%
compared with 2022. The stronger tenge versus the ruble reduces the
valuation of ruble-denominated liability on the company's balance
sheet for data centers acquired in 2020. The abnormally strong
ruble in 2022 caused TransTeleCom to report KZT18 billion of FX
losses for the year and breach several covenants on its debt
instruments. TransTeleCom settled the situation with its creditors
and received waivers from the banks for the breaches as of Dec. 31,
2022. As of June 30, 2023, TransTeleCom was in compliance with its
covenants, and S&P forecasts TransTeleCom will remain so at
year-end, given current KZT/RUB dynamics.
S&P said, "In 2022, TransTeleCom's operating performance was weaker
than we expected, but debt repayments and moderate EBITDA
generation support deleveraging in the coming years. The completion
of a pollution-monitoring project (about KZT10 billion revenue) was
postponed to 2023, and sales of data center capacity and cloud
servicing were lower than expected because of geopolitical
turbulence in 2022. Thus, with the weaker KZT against the RUB
boosting expected liabilities at year-end, S&P Global
Ratings-adjusted debt to EBITDA hiked to 5.8x. We forecast revenue
growth of 3%-5% in 2023-2024 (excluding non-recurring revenue for
the pollution-monitoring project), supported by increasing
occupation of data centers and sales of cloud servicing. We
forecast the EBITDA margin will stabilize at 25%-27% in 2023-2024
as inflation effects are mitigated by cost efficiency initiatives
and annual pricing revisions or indexations. We expect the company
to report healthy metrics, with adjusted debt to EBITDA declining
below 3.5x in 2023 and further in 2024, barring large debt-funded
investment projects. The sharp deleveraging results primarily from
debt repayments rather than EBITDA boost. In 2023 TransTeleCom has
repaid more than KZT25 billion of bank loans ahead of schedule from
its internal cash flows. TransTeleCom plans to continue repayments
of bank debt, keeping only bonds in the debt portfolio.
"We consider the liability accrued in 2020 for acquired data
centers debt-like and adjust metrics accordingly. We treat the
resulting long-term accounts payable as debt, in line with our
criteria, because the benefits of ownership are already accruing to
TransTeleCom. Therefore, we treat the liability's repayment as a
debt repayment, as opposed to the company's presentation of this
cash outflow as capex. Therefore, in our base-case scenario, we
forecast capex to be relatively low, between KZT3 billion and KZT5
billion, and only for annual maintenance (although adding data
centers' debt repayment to capex, we estimate an annual cash
outflow of KZT15 billion-KZT18 billion). We understand TransTeleCom
is negotiating to extend the payment schedule for data centers
beyond 2026, which could support FOCF generation.
"The stable outlook indicates that we expect TransTeleCom to post
sound organic revenue growth supported by ramp-up of data center
services, and EBITDA margins to stabilize at about 25%-27% in
2023-2024. We expect TransTeleCom's liquidity position to remain
comfortable, debt to EBITDA will decline to 3.4x in 2023 following
large debt repayments, and further to below 3.0x in 2024, coupled
with funds from operations (FFO) to debt approaching 20%, and
strongly positive FOCF.
"We may lower the rating if TransTeleCom's leverage exceeds 5x or
adjusted FOCF turns negative because of weaker operating
performance or higher-than-expected capex.
"We may also lower the rating if the company's liquidity position
deteriorates. Deterioration in governance or a shift in financial
policy because of a change in ownership might also lead to a
negative rating action."
Rating upside is limited in the near term. S&P could raise the
rating if S&P Global Ratings-adjusted debt to EBITDA declined and
remained sustainably below 2.5x, FFO to debt above 20%, and FOCF to
debt above 10%. This could be achieved by healthy EBITDA growth
(supported by less volatile and/or more predictable revenue and
EBITDA, a higher share of recurring revenue streams from customers
other than Kazakhstan Temir Zholy (KTZ), for example data centers
and cloud services, and a substantial increase in scale and better
diversification), coupled with the company's commitment to maintain
these ratios.
===================
L U X E M B O U R G
===================
FLINT TOPCO: S&P Assigns 'CCC+' LongTerm Issuer Credit Rating
-------------------------------------------------------------
S&P Global Ratings assigned a 'CCC+' long-term issuer credit rating
to Flint Group Topco Ltd. S&P also assigned a 'B' issue rating to
the EUR72 million super senior facility and a 'B-' rating to the
EUR600 million reinstated senior facility, both part of the
operating group consolidated at Flint Group Midco Ltd. S&P assigned
'CCC-' ratings to the HoldCo facilities issued by Flint Group Topco
Ltd. with no recourse to the operating group's companies.
S&P said, "At the same time, we withdrew our 'SD' long-term issuer
credit rating on Flint HoldCo and our 'D' ratings on its previous
debt facilities following the completion of the transaction.
"The stable outlook reflects that, although we view Flint's overall
capital structure as unsustainable in the long term due to the
sizable, deeply subordinated HoldCo payment-in-kind (PIK)
facilities, we believe liquidity will be sufficient to support
operations for the next 12-24 months, in line with our review
period."
On Sept. 20, 2023, Flint Group announced that it has completed a
comprehensive recapitalization that drastically reduced its senior
secured debt at the operating group, and significantly improved its
liquidity position.
As part of the transaction, Flint Group Midco Ltd. became the new
parent company of the operating group, and Flint Group Topco Ltd.
became the new ultimate parent company of Flint Group.
S&P said, "Flint Group completed a comprehensive recapitalization,
which, in our view, substantially improved its liquidity position.
The transaction was implemented with 100% support from lenders and
shareholders. We think it strengthens the company's liquidity by
extending maturities and reducing cash interest costs compared with
those in 2022. The operating group's balance sheet benefits from
debt reduction by approximately EUR760 million through a partial
reinstatement of the first-lien debt into EUR600 million-equivalent
senior facilities. The remainder of the first-lien and part of the
second-lien debt were reinstated as new EUR778 million deeply
subordinated HoldCo PIK facilities, which are consolidated above
the operating group and have no recourse to the operating group's
companies. The remaining second-lien debt that was not reinstated
was fully released.
"The 'CCC+' issuer credit rating reflects our view of an
unsustainable capital structure over the long term, given the
substantial amount of PIK facilities at the HoldCo, despite being
deeply subordinated. Although outside of the restricted group and
without upstream guarantees from or recourse to the operating
company, we include the HoldCo PIK debt as part our leverage
calculation, in line with our criteria. We expect the interest on
the HoldCo PIK facilities to be capitalized on a quarterly basis,
thus not causing additional cash flow leakage at the operating
group. The structural and contractual subordination of the HoldCo
PIK facilities ensure operating group lenders and creditors are
shielded from risks of default, cross-acceleration, and enforcement
at the HoldCo PIK level.
"In light of our debt treatment of the Holdco PIK facilities, we
expect Flint to report elevated S&P Global Ratings-adjusted debt to
EBITDA of 12.7x-13.0x in 2023 and about 11.9x-12.2x in 2024.
Excluding the HoldCo PIK debt, we expect the operating group's debt
to EBITDA would be 6.4x-6.7x in 2023 and 5.8x-6.1x in 2024.
Moreover, we expect the operating group debt cash interests to
consume a significant portion of the company's EBITDA leading to
positive, but limited, cash flow generation and funds from
operations (FFO) cash interest coverage below 2x.
"Flint's performance should remain relatively resilient in
2023-2024 while it focuses on margin management and productivity
improvement. Despite weakening volumes this year, driven by the
challenging macroeconomic environment, we expect the decline in
Flint's EBITDA (after deducing restructuring costs) to be contained
at a mid-to-low single digit compared to 2022, supported by stable
resilient margins. We anticipate the EBITDA in 2024 will exceed
that in 2022 due to raw material costs unwinding from their peak
and the potential volumes recovery in the second half of 2024. We
anticipate the company will continue to modestly restructure its
business to focus on standardization and digitalization, while
gaining market share over the medium term in the growing packaging
market. At the same time, we anticipate sales from CPW (previously
referred to as the print media division; representing 18% of the
company's sales in 2022) to continue declining over the next years,
reflecting the structural decline in some end markets including
newspapers and printing.
"We expect the company's new financial policy to support improved
credit metrics. Flint's new owners, comprising its previous
lenders, will likely push for a less aggressive financial policy
than under the previous ownership. We understand the company will
focus on deleveraging and that Flint does not expect to raise
additional debt to fund acquisitions or shareholder distributions,
which we consider supportive for improved credit metrics over the
next 24 months.
"As such, we expect Flint will prioritize improving its operating
performance and cash flow generation before considering significant
growth initiatives.
"The stable outlook reflects that, although we view Flint's capital
structure as unsustainable in the long term due to the sizable,
deeply subordinated HoldCo PIK facilities, we believe liquidity
will be sufficient to support operations for the next 12-24 months,
in line with our review period.
"We could lower our ratings if economic conditions were to
deteriorate significantly next year, resulting in weaker demand and
margins, and negative free operating cash flow (FOCF), especially
if the financial policy becomes more aggressive. In such a
scenario, the company's healthy cash balance could be depleted
leading to potential liquidity risks. We view such a scenario as
unlikely in the next 12 months.
"We are unlikely to take a positive rating action. However, we
could raise the rating if Flint's capital structure became more
sustainable over the long term, supported by lower gross debt
levels and stronger EBITDA."
===========
R U S S I A
===========
UZBEKNEFTEGAZ: S&P Lowers LT ICR to 'B+', Outlook Stable
--------------------------------------------------------
S&P Global Ratings lowered its long-term issuer credit rating on
Uzbekneftegaz (UNG) and its issue rating on its bond to 'B+' from
'BB-'.
The stable outlook balances S&P's expectation of limited prospects
for material deleveraging over the next 12-24 months and its view
of extremely high likelihood of government support.
Meaningful improvement in credit metrics is unlikely and uncertain
due to the longer ramp up of GTL, higher interest expenses, and
general concerns over the availability of gas in the country. S&P
said, "In our revised base case, we do not expect FFO to debt to be
comfortably above 12%, which was our previous expectation. We
expect GTL to continue ramping up in the next two to three years,
albeit more slowly than originally expected. This is because the
availability of feedstock for the plant, natural gas, may be
somewhat limited as Uzbekistan is securing additional supplies for
its expanding economy, which includes many gas-intensive projects.
In our base case, we see meaningful improvements in EBITDA
generation, with Uzbekistani som (UZS) 14 trillion-UZS16 trillion
in 2024 and UZS15 trillion-UZS17 trillion in 2025, compared with an
estimated UZS10.5 trillion-UZS11.5 trillion in 2023 and UZS9.1
trillion in 2022. However, the range of outcomes will vary quite
significantly depending on the availability of gas in the country,
especially in the winter period. We currently do not expect
material gas shortages at the GTL plant, similar to the ones
experienced during the winter of 2022/2023, but these are a
possibility. The company's deleveraging capacity will also be
constrained by the high maintenance capex and material interest
expenses, which we expect to roughly double in 2023 to about UZS5
trillion, as close to 73% of the company's debt has a floating
interest rate."
Stable gas availability in Uzbekistan will be critical for the
company to achieve its operational and financial targets, as
domestic production is declining and consumption is increasing,
potentially turning Uzbekistan from net exporter to net importer
over the next few years. The balance of domestic gas production and
consumption has been weakening over the last few years, and was
further exacerbated in the cold winter of 2022-2023, when many
industrial companies had to scale down operations to allow gas
supplies to the population. Domestic gas production has been in
steady decline in Uzbekistan over the past decade, from about 63
billion cubic meters (bcm) in 2012 to about 53.8 bcm in 2022. The
decline continued in 2023 with production of 23.6 bcm in the first
half (H1) of 2023, a 9.6% decline from the 26.1 bcm in H1 2022. UNG
itself, producer of 60% of natural gas in the country, has lowered
production to about 32 bcm currently from about 39 bcm in 2017,
although production was broadly stable over the past two to three
years. In contrast, the country's consumption has increased to
about 48 bcm in 2022 from an average of 43 bcm-46 bcm of recent
years. The government expects that Uzbekistan's consumption will
further increase to 65 bcm by 2030, which will make the country a
net importer of gas. Large projects--such as UzGTL, the expansion
of Shurtan Gas Chemical Complex, and Gas Chemical Complex MTO
(Methanol to Olefin, the project is not part of UNG)--could alone
add more than 5 bcm of gas consumption in the coming years. S&P
therefore expects the government of Uzbekistan to timely arrange
new gas supplies contracts and upgrade related infrastructure, to
avoid future gas shortages in the country. The recent contract with
Russia to supply up to 3.5 bcm per year will ease the pressures,
but more supplies might be needed in future. Failure to supply
sufficient gas volumes to the country could result in UNG's assets,
such a Shurtan and GTL, taking the biggest toll of reduced
supplies, as the population would most likely be prioritized in
case of shortages. This would have a major financial impact on
UNG's performance. That said, Uzbekistan is connected by pipelines
to gas rich countries such as Russia and neighboring Turkmenistan,
although the price of such gas will be materially above that
provided by UNG.
Liquidity will remain a constraint for the coming years as company
will have to rely on internal cash flow generation to meet
maturities and finance capex. UNG has sizable amortizing debt, with
maturities of about $550 million per year (UZS6.7 trillion at the
current rate). At the same time, the company's maintenance capex is
increasing as it has to spend more on maintaining its natural gas
production at around 32 bcm-33 bcm per year. S&P expects that over
the next few years, the company will need to spend UZS8.5
trillion-UZS12.5 trillion annually on capex, of which 65%-75% will
be for maintenance. This means the flexibility of capex to support
liquidity will be very limited, as the company would risk rapid
deterioration of production. At the same time, UNG does not
maintain sizable and committed credit lines and will have to rely
on its internal cash flow generation to meet its debt repayment and
investment needs. Therefore, S&P expects that liquidity will remain
under pressure for the next few years, unless the company changes
its approach to proactively securing financing and refinancing, or
when the GTL plant is fully operational and can materially boost
cash flows. That said, S&P believes that the government is highly
likely to step in to support liquidity at UNG should the company
struggle to raise financing for projects that are very important to
the government.
The group's financial policy will be important for the evolution of
the rating. S&P said, "We currently see UNG's financial policies as
evolving, with sudden changes to strategic decisions, such as the
one to convert the Shurtan Gas Chemical Complex expansion to
project finance. The conversion of the legal structure, as well as
the change of its location, will take a few additional years, which
will materially delay the cash flows to cover the already incurred
$500 million of project-related debt. Depending on the project
terms, we might proportionately consolidate UNG's future
off-balance sheet commitments, especially if the company structures
the majority of its new investments as project finance. We also
expect the company to become more predictable in its relationships
with related parties. As of now, UNG continues to support Uz-Kor
Gas Chemical, its 50%-owned joint venture, with loans. At the same
time, UNG guarantees the obligations of Uztransgaz, the state-owned
gas wholesaler, in the amount of UZS12.6 trillion as of year-end
2022, which we add to our debt calculations. The future evolution
of these guarantees is not certain, and there is a possibility of
similar future arrangements. The sale of UNG's assets to Air
Products Netherlands Gases B.V. for $1 billion, which we treat as
debt-like, is another example of evolving financial policies.
Although the transaction provides liquidity and access to expertise
of one of the world leaders in industrial gases, it also increases
the company's cost as the new owner needs to be compensated for the
investment. Finally, we expect dividends to be in line with an
expectation of 50% of net income, which is already a material
amount, given the company's investment and liquidity requirements.
However, formally, UNG's financial policy allows for a 100%
payment. Higher-than-expected dividend payment could additionally
constrain the company's already weak credit metrics."
S&P continues to view UNG as a government-related entity (GRE) with
extremely high likelihood of support. S&P continues to view UNG as
one of the most important GREs in Uzbekistan and view the
likelihood of government support as extremely high based on UNG's:
-- Critical role for Uzbekistan's economy as UNG supplies a large
share of gas and refined products to the domestic economy and
realizes gas at significantly lower prices than regional peers,
ensuring affordable consumption and cheap input for the industrial
sector. As GTL ramps up, the company's role in supplying liquid
fuels will increase.
-- Very strong link with the government of Uzbekistan thanks to a
track record of support, including a $1.7 billion recapitalization
in 2020, liberalization of oil product prices, and a guarantee
provision for about 60% of debt, which is among the highest
proportion of all the national oil companies that S&P rates. In its
base case, S&P doesn't forecast the government will meaningfully
reduce its stake in UNG from the current 99.94% in the near term,
and expect it will continue to fully control the company's strategy
through its board representation.
At the same time, S&P's assessment is limited by the government's
longer-term plans to further liberalize the gas market and
transform the state-owned company to a competitive and more
independent gas producer. If the government were to tolerate
continually high leverage, this could weaken our assessment of the
likelihood of support.
S&P said, "The stable outlook on UNG balances our view of limited
and uncertain prospects to reduce leverage over the next 12 to 18
months, with our expectation of extremely high likelihood of
government support. We assume that EBITDA will increase gradually
toward UZS16 trillion-UZS17 trillion over the next two years, as
GTL ramps up, but note significant uncertainty related to the
availability of gas, which could affect the results. Given our
expectation of high capex and limited free cash flow generation, we
forecast FFO to debt remaining below or close to 12%, on average.
At the same time, we expect that liquidity will remain less than
adequate under the next two years due to high maturities and
increasing maintenance capex, as the company needs to maintain
upstream production.
"Due to the extremely high likelihood of government support, we
would only lower the rating to 'B' if UNG's stand-alone credit
profile (SACP) were revised downward to 'ccc+', which we don't
currently expect. We could also lower the rating if the government
were to tolerate continually high leverage or further deterioration
in liquidity for a prolonged period."
S&P could raise the rating to 'BB-' under the following
conditions:
-- FFO to debt stays materially above 12%, supported by higher
output at the GTL plant, leading to improved EBITDA generation.
-- Sustainably positive free operating cash flow generation.
-- Improved liquidity with at least 1x ratio of sources to uses,
which would require more proactive liquidity management.
-- Disciplined and predictable financial policy, including capital
investments, dividend policy in line with S&P's expectation of 50%
of net income, no large debt-funded acquisitions.
S&P said, "Environmental factors are a negative consideration in
our credit rating analysis of UNG, in line with the industry.
Although the company focuses mostly on the domestic economy and
faces less pressure from environmental regulations than peers in
developed markets, the energy transition and risk of pollution are
still key environmental risks for the company. Social factors are a
moderately negative consideration of our analysis, since UNG is one
of the largest employers in Uzbekistan with a social mandate to
supply the domestic economy with gas at low, regulated prices,
which limits the company's financial performance. Governance
factors are also a negative consideration in our credit rating
analysis of the company. The company's operations are concentrated
in Uzbekistan, where we see governance risks as elevated.
Additionally, we note developing corporate practices and lower
transparency and disclosure than for peers in emerging markets."
=========
S P A I N
=========
ALMIRALL SA: S&P Ups ICR to 'BB' on Improved Financial Flexibility
------------------------------------------------------------------
S&P Global Ratings raised its long-term issuer credit rating on
Spanish pharma company Almirall S.A. to 'BB' from 'BB-' and its
issue credit rating on the unsecured senior notes to 'BB' from
'BB-'.
The stable outlook reflects S&P's expectations that Almirall's
operating performance will remain resilient over the forecast
period and that the company will maintain a prudent financial
policy.
The EUR200 million capital raise earlier this year significantly
derisked Almirall's capital structure and provided funding for
acquisitions over the forecast period.
On June 13, 2023, Almirall closed a EUR200 million non-pre-emptive
capital increase aimed to retain financial flexibility and to
support its inorganic expansion. Following the transaction, the
company reported a net cash position of EUR31 million as of
end-June 2023, with no debt maturities until 2026, indicating a
significant strengthening of the balance sheet. S&P said,
"Consequently, we removed our previous assumptions on debt-funded
acquisitions as we consider Almirall's cash position will
comfortably cover acquisition spending at least over 2023-2025.
Moreover, we understand that the company is currently focused on
filling its early-stage biologics pipeline by means of bolt-on
acquisitions, licensing opportunities, and partnerships, further
lowering the risk of sizeable debt-funded acquisitions." So far
this year, Almirall closed a pre-clinical agreement with
biopharmaceutical company EpimAb and two research and development
(R&D) partnerships with Centrient and ZeClinics.
Strong growth in the European dermatology division should continue
offsetting declining sales in the U.S. franchise over 2023-2024.
During 2022 and the first half of 2023, revenue increased by 5% and
4.4%, respectively, mostly because the European dermatology
division outstripped declining sales in the U.S. For the full year
2023, we forecast growth in the European dermatology division will
accelerate significantly to 20% in 2024, notably supported by the
ongoing rollout of Ilumetri and the launch of Lebrikizumab. The
performance of Ilumetri has been very strong since its launch in
2021. S&P said, "We expect it will continue to be a major growth
driver over 2023-2024, on the back of the increasing penetration of
biologics treatments for psoriasis across main European markets and
strong customer loyalty. Lebrikizumab--a biologic treatment for
moderate-to-severe atopic dermatitis that will likely become
Almirall's biggest asset ever--recently received a positive opinion
from the Committee for Medicinal Products for Human Use (CHMP). We
expect Almirall will launch Lebrikizumab in Europe before year-end
2023, shortly after receiving approval from the European
Commission. That said, we do not expect that Lebrikizumab will
contribute significantly to sales and EBITDA before 2025 as the
rollout needs to get up to speed first. We expect Almirall's U.S.
franchise will continue underperforming, with revenue continuing
declining over 2023-2024. Because of fierce competition from
generic products and pricing pressures, investments made in the
U.S. in the past years performed worse than we expected. This
stands in contrast to Almirall's European dermatology business,
which showed a solid performance. Consequently, we positively note
that Almirall is redirecting investments from the U.S. to its
European dermatology division. The latter gives the company its
competitive edge, in our view.
"Following a material profitability decline in 2022 and the first
half of 2023, we forecast relative stability over the forecast
period as easing inflationary pressures will offset higher
expansionary costs. Almirall's adjusted EBITDA margin took a hit in
2022 and the first half of 2023 because of inflationary
pressures-–notably on material costs and salaries--and higher
operating costs to support the launch of Ilumetri, Wynzora, and
Klisyri. Additionally, the product mix was impaired by the decline
in U.S. sales and lower unitary margins of top selling drug
Ilumetri since soaring sales tipped royalty payments toward the
upper percentage range. We see profitability under pressure over
the remainder of 2023 and in 2024. This is because we expect higher
selling, general, and administrative expenses to support the launch
of Lebrikizumab and the ongoing product rollouts to trump the
positive effect of easing inflation on material costs.
Consequently, we see adjusted EBITDA margin relatively stable at
18.0%-18.5% over 2023-2024, down from 20.4% in 2022. From 2025, we
forecast a gradual rebound in margins as sales contributions from
Lebrikizumab ramp up. We estimate Lebrikizumab will have
above-average unitary margins.
"Under our updated base case, we expect adjusted debt leverage of
about 2.5x over 2023-2024, compared with about 3.5x in our previous
base case, although higher investments should help constrain FOCF.
Despite lower-than-previously expected EBITDA generation,
Almirall's leverage metrics strengthened materially, compared with
our previous base case, as proceeds from the capital raise will
prevent debt-financed acquisitions over the forecast period. We now
forecast acquisition spending of EUR75 million in 2023 and EUR150
million in 2024 will be funded entirely by cash on balance sheet,
translating into materially lower debt than we previously expected.
Consequently, we expect adjusted leverage will trend at about 2.5x
over 2023-2024, compared with about 3.5x previously. That said, we
revise downward our FOCF estimate to EUR40 million-EUR50 million
annually because of higher upfront payments and milestones linked
to the expansion plan.
"The stable outlook reflects our expectation that Almirall's
operating performance will remain resilient over the forecast
period, with margins stabilizing and revenue expanding as ongoing
and prospective product rollouts in the European dermatology
segment will more than offset competitive pressures in the U.S.
franchise. This should enable the company to sustain adjusted debt
to EBITDA comfortably below 3x over 2023-2024.
"We could take a negative rating action if Almirall's operating
performance materially deviates from our base case such that
adjusted debt to EBITDA increases above 3.0x, without signs of a
rapid deleveraging. This could happen if the company fails to
stabilize margin erosion or faces critical operational or
regulatory setbacks in the rollout of its main drugs Ilumetri and
Lebrikizumab. We could also lower the rating if the company
undertakes a more-aggressive-than-expected financial policy,
leading to unexpected sizeable debt-financed acquisitions.
"We could take a positive rating action if Almirall's competitive
position within dermatology pharma materially strengthens on the
back of successful rollouts of Lebrikizumab and additional
products. We could also raise the rating if adjusted debt to EBITDA
reduces below 2.0x on a sustainable basis, mainly stemming from a
better-than-expected profitability, while maintaining a
conservative financial policy.
"ESG factors have a neutral impact in our credit rating analysis of
Almirall. Waste and pollution are a neutral consideration in our
credit rating analysis of Almirall. Social factors are also a
neutral consideration. The company mainly operates in Europe and
the U.S., with no significant direct operations in developing
countries. However, Almirall has participated in collective
initiatives, such as the capital markets development accelerator
fund, to raise EUR1 billion to invest in developing countries.
Governance factors are a neutral consideration in our credit rating
analysis of Almirall."
===========================
U N I T E D K I N G D O M
===========================
ASPIRE SPORTS: New Interim Operator to Run Gloucester Facilities
----------------------------------------------------------------
Sophie Parker at BBC News reports that a new interim operator has
been announced for a leisure centre that had to suddenly close.
According to BBC, Freedom Leisure, a charitable and not-for-profit
trust, will run Gloucester's facilities until a permanent operator
is found.
The former operator of the GL1 centre, Aspire Sports Trust, went
into liquidation, BBC relates.
Gloucester City Council has been working with the University of
Gloucestershire to reopen facilities, BBC discloses.
There has been a phased re-opening that has included the pitches at
Oxstalls, the Oxstalls Sports Arena and the swimming club is using
the pool again, BBC notes.
Freedom Leisure manages more than 100 facilities across England and
Wales, also working with Forest of Dean District Council and
Cotswold District Council in Gloucestershire.
It will be contacting local sports clubs to discuss what they need
and continue to re-open GL1, BBC states.
According to BBC, Gloucester City Council's cabinet member for
culture and leisure, Andy Lewis, told BBC Radio Gloucestershire
that this further re-opening will happen "within weeks" but cannot
be more specific.
CONSTELLATION AUTOMOTIVE: Moody's Alters Ratings Outlook to Stable
------------------------------------------------------------------
Moody's Investors Service has affirmed the B3 corporate family
rating and B3-PD probability of default rating of Constellation
Automotive Group Limited (CAGL), a leading operator of B2B and C2B
used light vehicle marketplaces in the UK and Continental Europe.
At the same time, Moody's affirmed the B2 backed senior secured
instrument ratings of the EUR400 million and GBP400 million
first-lien term loans and the GBP250 million first-lien revolving
credit facility (RCF) issued by Constellation Automotive Limited
and the B2 rating of the GBP695 million backed senior secured notes
issued by Constellation Automotive Financing PLC. Moody's also
affirmed the Caa2 rating of the GBP325 million backed senior
secured second-lien term loan issued by Constellation Automotive
Limited.
The outlook on all ratings was changed to stable from negative.
RATINGS RATIONALE
The change of outlook to stable from negative follows the return of
CAGL's earnings in recent quarters to levels more consistent with
pre-pandemic levels, driven by higher used car volumes and
restructuring of some operations. The rating action also positively
factors in Moody's expectations of (a) profit growth fuelled
deleveraging over the next 12-18 months and (b) the company
maintaining an adequate liquidity profile.
Nevertheless, CAGL remains weakly positioned in the B3 rating
category. In the rating agency's base case the company's
Moody's-adjusted free cash flow will be negative in its fiscal
2024, ended March, as well as fiscal 2025. Moreover, while the
rating agency expects CAGL's Moody's-adjusted leverage, measured as
Moody's-adjusted gross debt/EBITDA, to improve to around 9x by the
end of is fiscal 2025, from the level of 11.5x for the last
twelve-month period ended July 2023, this will remain a very high
level for the rating category. Further material deleveraging
thereafter will be necessary well ahead of term debt maturities -
which begin in 2027 - if the company's capital structure is to
become sustainable.
The rating agency highlights the risk for underperformance in light
of the still weak trading environment with higher borrowing costs
having the potential to dent the recovery in both new and used car
volumes. However, and more positively, the B3 rating also reflects
CAGL's solid business profile. The company benefits from clear
market leaderships and positive long-term industry fundamentals as
the operator of B2B and C2B used vehicle marketplaces in the UK and
Continental Europe.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
ESG considerations primarily reflect governance risks from the
company's concentrated ownership and aggressive financial policies
including its tolerance for high leverage.
OUTLOOK
The stable outlook reflects Moody's expectation that earnings will
continue to improve and that the company will maintain an adequate
liquidity position over the next 12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive rating pressure could develop if (1) the company's
leverage, as measured by Moody's-adjusted debt/EBITDA, is sustained
below 6x, with expectations of ongoing profit growth; and (2) its
cash generation is meaningful with a Moody's adjusted free cash
flow (FCF)/debt sustainably above 5%.
Conversely, downward rating pressure could develop if (1) profits
stagnate or again decline; or (2) the company's liquidity
deteriorates; or (3) Moody's considers it likely that the company's
capital structure will become unsustainable.
STRUCTURAL CONSIDERATIONS
The GBP400 million and EUR400 million term loans due July 2028, and
the GBP250 million RCF due January 2027 issued by Constellation
Automotive Limited and the senior secured notes due July 2027
issued by Constellation Automotive Financing PLC are all rated B2,
one notch above the B3 CFR, as they benefit from the subordination
cushion provided by the GBP325 million backed senior secured
second-lien term loan due July 2029, issued by Constellation
Automotive Limited, which is rated Caa2.
The term loans, RCF, and senior secured notes are secured on a pari
passu basis, ahead of the senior secured second-lien term loan, by
a security package which includes a pledge over shares, bank
accounts, and receivables. There are no charges over real estate
and the Partner Finance subsidiary is excluded from the security.
Operating companies generating no less than 80% of group EBITDA
guarantee the debt.
LIQUIDITY
The company's liquidity is adequate. As of July 2023, the company
had GBP307 million of available liquidity comprising GBP92 million
of unrestricted cash on balance sheet and GBP215 million of drawing
capacity under its GBP250 million RCF. Moody's expect cumulative
FCF to be negative by about GBP75 million over the seven quarters
to the end of fiscal 2025. This includes changes in the Partner
Finance loan book which will be mostly offset by drawings of around
GBP40 million under the Partner Finance facility.
The RCF has a springing senior secured net leverage covenant that
is triggered at 40% drawings (GBP100 million) at a quarter end
date, and set at 9.25x. As the rating agency does not expect RCF
drawings to exceed GBP100 million it does not anticipate the
covenant test being triggered.
Aside from its RCF, the company has no debt maturity until July
2027 when GBP695 million of senior secured notes fall due.
Alternate sources of liquidity include unencumbered assets, notably
real estate assets which can supplement liquidity if needed through
disposals or sale-and-leaseback transactions.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
PROFILE
CAGL is the largest operator of B2B digital used car remarketing
marketplaces in Europe, owning the BCA brand in the UK, and the
leading operator of C2B vehicle buying marketplace in the UK via
the WeBuyAnyCar brand. It also has a C2B vehicle buying marketplace
division in Continental Europe whose profits/losses are marginal.
In fiscal 2023 ended April 2, the company reported GBP7.0 billion
of revenue and GBP146 million of after-rent EBITDA (post-IFRS 16:
GBP202 million). The company is present throughout the post-factory
automotive value chain, offering a complete suite of services
including vehicle storage and movement.
The company has been owned since November 2019 by funds advised by
TDR Capital.
INEOS GROUP: S&P Affirms 'BB' ICR & Alters Outlook to Negative
--------------------------------------------------------------
S&P Global Ratings revised the outlooks to negative on three
petrochemical companies owned by Ineos Ltd. (the Ineos family).
This reflects S&P's expectation that weak industry conditions will
translate into high leverage for the related entities in 2023-2024.
Ineos Group Holdings and Ineos Quattro, the larger petrochemical
entities in the group, accounting for well over half of EBITDA,
have only limited headroom under our 'bb' stand-alone credit
profiles (SACPs). Ineos Enterprises is positioned slightly better.
S&P now expects that weak industry conditions will remain until at
least mid-year 2024. Despite somewhat different dynamics across the
companies, most markets are experiencing weak demand and still
healthy supply, leading to weaker margins. This is primarily due to
slowing global economies amid high inflation and interest rates,
and the effects such conditions have on end-customer demand. At the
same time, certain industries have seen material capacity additions
over the past year or so, contributing to market oversupply.
Although S&P expects that economies should start recovering by
year-end 2024, as inflation and interest rates ease, S&P believes
that the timing remains highly uncertain.
S&P said, "Despite our expectation that leverage will remain above
Ineos' 3x financial policy target over 2023-2024, any increase in
adjusted debt should be contained. This is because we still expect
overall positive free operating cash flow (FOCF), which is
supported by the company's actions to cut operating costs and
capital expenditure (capex), as well as some working capital
releases. We also do not expect any substantial dividends during
these bottom-of-cycle conditions, similar to actions in previous
downturns. However, we are cognizant of Ineos' strategy to expand
via acquisitions, and the weak market environment may present
compelling targets, potentially pressuring already high leverage.
We do not assume any such purchases in our base cases, beyond those
already announced."
S&P took the following rating actions:
Ineos Group Holdings S.A. -- S&P said, "We revised the outlook to
negative from stable and affirmed the 'BB' long-term issuer credit
rating. The SACP remains 'bb'. We also affirmed our issue ratings
on the group's instruments and our recovery ratings are
unchanged."
Ineos Quattro Holdings Ltd. – S&P said, "We revised the outlook
to negative from stable and affirmed the 'BB' long-term issuer
credit rating. The SACP remains 'bb'. We also assigned our 'BB'
issue rating to the proposed senior secured instruments, affirmed
our issue ratings on the group's other debt, and left our recovery
ratings unchanged."
Ineos Enterprises Holdings Ltd. – S&P said, "We revised the
outlook to negative from stable and affirmed the 'BB' long-term
issuer credit rating. The SACP remains 'bb'. We also affirmed our
issue ratings on Ineos Enterprises' instruments and our recovery
ratings are unchanged."
Ineos Group Holdings S.A. (IGH)
S&P said, "We forecast that oversupply conditions, sizeable
investments, and intercompany loans will further weaken IGH's
credit metrics. We expect that demand for cyclical commodity
chemicals will remain depressed in the remainder of 2023 and into
2024." This, coupled with new industry capacity that continues to
come online (mainly in Asia and, to a lesser extent, the Americas),
has resulted in oversupply conditions and led to an industry-wide
deterioration in operating rates, prices, and margins.
The cyclical downturn in the petrochemicals industry comes close on
the heels of the start of IGH's new investment cycle, which
includes EUR4.0 billion for the development of a new ethane cracker
in Antwerp (Project One) for which IGH recently lost its permit,
and large acquisitions in Asia that will increase IGH's leverage.
For Project One, we understand that IGH is working toward regaining
its permit to resume work on the site. At the same time, off-site
work continues. Therefore, S&P continues to include the capex plans
relating to this project in our base case.
S&P said, "Accordingly, we forecast IGH's S&P Global
Ratings-adjusted EBITDA will remain at its currently low level of
about EUR1.7 billion in 2023, leading to adjusted debt to EBITDA of
5.7x-5.8x. This contrasts with our previous forecast of adjusted
leverage of 5.0x-5.3x. The main driver of this change is the timing
and phasing of the repayment of the $900 million loan to Ineos
Energy for its acquisition of oil and gas assets in the Eagle Ford
shale, from Chesapeake Energy. We previously assumed that the
majority of the loan would be repaid in 2023, with the remainder
repaid in 2024. We now assume that the partial repayment will only
occur in 2024, with the balance repaid over 2025-2026.
"While adjusted leverage metrics are expected to remain elevated in
the rest of 2023 and 2024, above the 4.5x threshold we view as
commensurate with the 'bb' SACP, we also consider the impact from
Project One on IGH's credit metrics. Specifically, we think that
the company will continue to generate positive FOCF, even during
bottom-of-cycle conditions, when we exclude the debt-funded portion
of project financing from its capex. In addition, if the
ring-fenced project financing is excluded, we forecast an
improvement in adjusted leverage in 2024 to about 4.5x.
Furthermore, we include cash dividends from investments accounted
for using the equity method during periods when we expect them to
be received, rather than including them in pro forma metrics. This
results in a front-loaded cost of investment that will continue to
weigh on IGH's adjusted debt to EBITDA in 2023 and 2024. For
example, in December 2022, the company completed the acquisition of
a 50% stake in Shanghai SECCO Petrochemical Co. Ltd. for
approximately EUR1.5 billion, of which EUR0.6 billion was funded by
debt (later upsized to about EUR0.85 billion). We do not assume
that IGH will receive any dividends in 2023, since the ethane
cracker is under scheduled maintenance, and we assume very limited
dividends in 2024."
Outlook
The negative outlook indicates that credit metrics at the wider
Ineos group have weakened due to subdued demand affecting
profitability; and organic and inorganic investments resulting in
higher debt levels.
S&P said, "In our base case, we expect that the challenging
macroeconomic environment will continue to depress demand for
cyclical commodity chemicals, and that oversupply conditions will
persist in the remainder of 2023 and into 2024, due to new industry
capacity. Accordingly, we forecast IGH's S&P Global
Ratings-adjusted EBITDA will decline to about EUR1.7 billion in
2023 from EUR2.85 billion in 2022, leading to adjusted leverage of
5.7x-5.8x (including project financing for Project One)."
Downside scenario: S&P said, "We could lower our rating on IGH if
the creditworthiness of the wider Ineos group does not improve over
the next 12 months. This could occur if we did not see a recovery
in profits and credit metrics at the larger entities (including IGH
and Ineos Quattro) in 2024, or if we see material debt-funded
acquisitions outside the rated entities pressuring the overall
Ineos family.
"We could also revise down our 'bb' assessment of IGH's SACP if we
think that adjusted debt to EBITDA will be above 4.5x in 2024,
combined with FOCF reducing to below 5%."
Upside scenario: S&P said, "We could revise our outlook to stable
if our view of the credit quality of the wider Ineos group
improves. This would be the case if we saw a broad recovery across
the market segments of the wider Ineos family and improving credit
metrics across IGH, Ineos Quattro, and Ineos Enterprises to levels
we see as healthy for the 'bb' SACPs.
"For IGH in particular, we are keeping a close eye on the pace and
timing of the recovery in demand for olefins and polyolefins, since
this would allow the company to improve its operating rates and
margins and reduce its adjusted leverage to about 4.5x."
Key metrics
Ineos Group Holdings S.A. -- Forecast summary
INDUSTRY SECTOR: CHEMICAL COS
--FISCAL YEAR ENDED DEC. 31--
(MIL. EUR) 2021A 2022A 2023E 2024F
Revenue 18,827 20,927 16,216 17,390
EBITDA (reported) 3,625 2,836 1,696 2,023
Plus/(less): Other (4) 14 5 55
EBITDA 3,621 2,850 1,701 2,078
Less: Cash interest paid (486) (312) (551) (583)
Less: Cash taxes paid (110) (148) (200) (116)
Funds from operations (FFO) 3,025 2,389 950 1,379
Cash flow
from operations (CFO) 2,512 2,464 1,266 1,290
Capex (reported) 840 1,165 1,450 2,000
Free operating
cash flow (FOCF) 1,681 1,312 (170) (697)
FOCF excluding debt-funded
Project One capex 430 353
Dividends 800 200 -- 200
Discretionary cash flow (DCF) 881 1,112 (170) (897)
Debt (reported) 7,739 8,754 10,095 11,004
Plus: Lease liabilities debt 978 1,089 1,035 1,035
Plus: Pension and other
postretirement debt 659 507 507 507
Less: Accessible cash and
liquid Investments (1,760) (2,279) (1,851) (1,611)
Plus/(less): Other 14 2 2 2
Debt 7,630 8,073 9,789 10,937
ADJUSTED RATIOS
Debt/EBITDA (x) 2.1 2.8 5.8 5.3
FFO/debt (%) 39.6 29.6 9.7 12.6
FOCF/debt (%) 22.0 16.3 (1.7) (6.4)
DCF/debt (%) 11.5 13.8 (1.7) (8.2)
EBITDA margin (%) 19.2 13.6 10.5 12.0
All figures are adjusted by S&P Global Ratings, unless stated as
reported.
a--Actual.
e--Estimate.
f--Forecast.
Ratings Score Snapshot
ISSUER CREDIT RATING BB/NEGATIVE/--
Business risk: Satisfactory
Country risk Very Low
Industry risk Moderately high
Competitive position Satisfactory
Financial risk: Aggressive
Cash flow/leverage Aggressive
Anchor bb
Modifiers:
Diversification/Portfolio effect Neutral (no impact)
Capital structure Neutral (no impact)
Financial policy Neutral (no impact)
Liquidity Strong (no impact)
Management and governance Fair (no impact)
Comparable rating analysis Neutral (no impact)
Stand-alone credit profile: bb
Group credit profile bb
Entity status within group Core
Ineos Quattro Holdings Ltd. (Ineos Quattro)
S&P said, "We now expect Ineos Quattro's EBITDA will remain weak
through 2023, with bottom-of-cycle conditions in the company's
markets lasting at least until mid-year 2024.Most business segments
have experienced weak profits to date this year, and we now
anticipate that Ineos Quattro will generate adjusted EBITDA of
close to EUR1 billion in 2023. This is well below our previous
expectation for the company of EUR1.5 billion-EUR1.6 billion during
weak market conditions. According to Ineos Quattro, it is likely
that the bottom was reached in third-quarter 2023 and performance
should gradually improve, but our assumption of weak macroeconomic
conditions in Europe and Asia into 2024 clouds the recovery path.
That said, the company's well-invested asset base has positioned it
in the first half of the cost curve, meaning that profits can pick
up quickly when markets recover. Moreover, the target to maintain
net debt to EBITDA below 3x through the cycle should ensure that
metrics improve to the level we see as commensurate with a 'bb'
SACP over time."
Outlook
S&P said, "The negative outlook indicates that credit metrics at
the wider Ineos group have weakened due to subdued demand affecting
profitability; and organic and inorganic investments resulting in
higher debt levels.
"We anticipate bottom-of-cycle industry conditions during 2023 and
2024, translating into adjusted EBITDA (including dividends from
joint ventures) of about EUR1.0 billion-EUR1.2 billion per year,
compared with an exceptionally strong EUR2.7 billion in 2022. We
expect that the company will take measures to protect cash flow and
benefit from working capital releases, at least in 2023. Therefore,
FOCF should remain positive. This also means that S&P Global
Ratings-adjusted debt should remain broadly stable, at about EUR6
billion in 2023-2024. We estimate adjusted debt to EBITDA will stay
above the 4.5x threshold for the 'bb' SACP, at about 5.5x in 2023
and 5.2x in 2024, with FOCF to debt hovering at about 5%--which we
still see as commensurate with the SACP."
Downside scenario: S&P said, "We could lower the rating if our view
of the credit quality of the wider Ineos group worsens. This could
occur if we did not see a recovery in the profits and credit
metrics of the larger entities (including IGH and Ineos Quattro) in
2024, or if we saw material debt-funded acquisitions outside the
rated entities pressuring the overall Ineos family.
"We could lower our assessment of Ineos Quattro's SACP if its
adjusted debt to EBITDA stays above 4.5x without near-term
prospects of a recovery, combined with FOCF to debt falling and
consistently staying below 5%. We anticipate this could be a result
of prolonged weak demand and prices for the company's products,
ultimately pressuring profit margins and FOCF."
Upside scenario: S&P said, "We may revise the outlook to stable if
our view of the credit quality of the wider Ineos group improves.
This would be the case if we saw a broad recovery across the market
segments of the wider Ineos family and improving credit metrics
across IGH, Ineos Quattro, and Ineos Enterprises to levels we see
as healthy for the 'bb' SACPs."
For Ineos Quattro in particular, this means adjusted debt to EBITDA
below 4.5x, combined with FOCF to debt above 5%.
Key metrics
Ineos Quattro Holdings Ltd.--Forecast summary
INDUSTRY SECTOR: CHEMICAL COS
--FISCAL YEAR ENDED DEC. 31--
(MIL. EUR) 2021A 2022A 2023E 2024F
EBITDA (reported) 2,393 2,331 917 1,092
Plus/(less): Other 189 401 156 55
EBITDA 2,581 2,733 1,073 1,146
Less: Cash interest paid (251) (279) (376) (343)
Less: Cash taxes paid (291) (322) (181) (82)
Funds from operations (FFO) 2,040 2,132 516 721
Cash flow from
operations (CFO) 1,771 2,011 732 737
Capital expenditure (capex) 754 937 525 400
Free operating
cash flow (FOCF) 1,017 1,073 207 337
Dividends 404 1,056 500 337
Discretionary
cash flow (DCF) (212) 17 (293) 0
Debt (reported) 6,570 6,341 7,140 7,118
Plus: Lease liabilities debt 299 289 289 289
Plus: Pension and
other postretirement debt 191 157 157 157
Less: Accessible cash
and liquid Investments (1,284) (1,523) (1,639) (1,579)
Debt 5,777 5,265 5,947 5,985
ADJUSTED RATIOS
Debt/EBITDA (x) 2.2 1.9 5.5 5.2
FFO/debt (%) 35.3 40.5 8.7 12.0
FOCF/debt (%) 17.6 20.4 3.5 5.6
DCF/debt (%) (3.7) 0.3 (4.9) 0.0
EBITDA margin (%) 17.3 15.0 7.7 7.7
All figures are adjusted by S&P Global Ratings, unless stated as
reported.
a--Actual.
e--Estimate.
f--Forecast.
Issue Ratings--Recovery Analysis
Key analytical factors
-- S&P assigned its 'BB' rating to the proposed EUR2.8 billion of
senior secured debt, reflecting the recovery rating of '3', with
recovery prospects of 50%-70% (rounded estimate: 65%). The new
instruments will refinance a portion of the company's existing
debt, and fund the acquisition of the Eastman Texas City site
(total consideration of about $500 million).
-- S&P affirmed the existing senior secured debt at 'BB', the same
level as the long-term issuer credit rating. The recovery rating is
'3', with recovery prospects of 50%-70% (rounded estimate: 65%).
-- The recovery rating is supported by limited prior-ranking
liabilities and a cushion from the subordinated senior unsecured
debt available to senior secured debtholders in the event of
default.
-- S&P affirmed the senior unsecured notes at 'B+', two notches
below the level of the long-term issuer credit rating. The recovery
rating is '6', with recovery prospects in the 0%-10% range (rounded
estimate: 0%).
-- S&P values Ineos Quattro as a going concern, given the group's
solid market position, large scale, and well-invested sites across
Europe, North America, and Asia, and diversified end markets.
-- The debt facilities are issued by subsidiaries of Ineos
Quattro, the rated parent and owner of the group composed of
INOVYN, Styrolution, and Aromatics and Acetyls.
Simulated default assumptions
-- Year of default: 2028
-- Jurisdiction ranking: Group A
Simplified waterfall
-- Emergence EBITDA: EUR1 billion.
-- Minimum capex at 2.0% of annual average revenue, based on the
group's future average yearly minimum capex requirement.
-- Standard cyclicality adjustment of 10% for the commodity
chemicals industry.
-- Multiple: 5.5x
-- Gross recovery value at default: EUR5.6 billion
-- Net recovery value for waterfall after administrative expenses
(5%): EUR5.3 billion
-- Estimated priority claims (outstanding securitization program):
EUR0.5 billion*
-- Remaining recovery value: EUR4.8 billion
-- Estimated senior secured debt claims: EUR7.2 billion*
-- Recovery rating on the senior secured debt: 3 (50%-70%; rounded
estimate: 65%)
-- Estimated senior unsecured debt claims: EUR0.4 billion*
-- Recovery rating on the senior unsecured debt: 6 (0%-10%;
rounded estimate: 0%)
*All debt amounts include six months of prepetition interest.
Ratings Score Snapshot
ISSUER CREDIT RATING BB/NEGATIVE/--
Business risk: Satisfactory
Country risk Intermediate
Industry risk Moderately high
Competitive position Satisfactory
Financial risk: Aggressive
Cash flow/leverage Aggressive
Anchor bb
Modifiers:
Diversification/Portfolio effect Neutral (no impact)
Capital structure Neutral (no impact)
Financial policy Neutral (no impact)
Liquidity Adequate (no impact)
Management and governance Fair (no impact)
Comparable rating analysis Neutral (no impact)
Stand-alone credit profile: bb
Group credit profile bb
Entity status within group Core
Ineos Enterprises Holdings Ltd. (Ineos Enterprises)
S&P said, "We forecast that Ineos Enterprises' rating headroom will
reduce following the recent acquisition. We expect the company to
sustain adjusted debt to EBITDA at about 4.0x in 2023, despite
lower market demand and following the $245 million (including
customary nonfinancial adjustments) acquisition of Eramet's
titanium dioxide slag and pig iron production plant in Tyssedal,
Norway. We see this leverage ratio threshold as commensurate with
the 'bb' SACP.
"The negative outlook reflects the increased leverage across the
wider Ineos group, and the risk that we could downgrade entities at
'bb' SACPs or above if we observe higher leverage than anticipated
across the group.
"We view Ineos Enterprises as a moderately strategic subsidiary of
the Ineos Ltd. parent group. This has no additional effect on our
rating on Ineos Enterprises, because the SACP is 'bb'."
Outlook
S&P said, "The negative outlook indicates that credit metrics at
the wider Ineos group have weakened due to subdued demand affecting
profitability, and organic and inorganic investments resulting in
higher debt levels.
"In our base-case scenario for Ineos Enterprises, we anticipate S&P
Global Ratings-adjusted debt to EBITDA of about 4.0x in 2023. This
reflects the reduced leverage cushion following the acquisition of
Eramet's titanium dioxide slag and pig iron production plant in
Norway. We expect adjusted debt to EBITDA to improve to about 3.5x
in 2024. The rating is constrained by FOCF to debt, which we expect
to decrease to about 7% in 2023 from about 13% in 2022, due to
lower underlying profitability."
Downside scenario: S&P said, "We could lower the rating if our view
of the credit quality of the wider Ineos group worsens. This could
occur if we did not see a recovery in the profits and credit
metrics of the larger entities (including IGH and Ineos Quattro) in
2024, or if we saw material debt-funded acquisitions outside the
rated entities, pressuring the overall Ineos family.
"We could also lower the rating if a less-than-supportive market
environment hampers demand and prices for the company's products,
or if pressure from energy and raw materials results in margin
dilution and lower-than-anticipated FOCF, leading to adjusted debt
to EBITDA of more than 4.0x and FOCF to debt of below 10% without
clear prospects of recovery. Furthermore, rating pressure could
arise if Ineos Enterprises pursues material debt-financed
acquisitions or aggressive distributions to shareholders."
Upside scenario: S&P said, "We may revise the outlook to stable if
our view of the credit quality of the wider Ineos group improves.
This would be the case if we saw a broad recovery across the market
segments of the wider Ineos family and improving credit metrics
across IGH, Ineos Quattro, and Ineos Enterprises to levels we see
as healthy for their 'bb' SACPs.
"For Ineos Enterprises, this translates to adjusted debt to EBITDA
of 3.0x-4.0x, which we view as commensurate with the 'bb' SACP, and
FOCF to debt improving to about 10%-15%."
Key metrics
Ineos Enterprises Holdings Ltd.--Forecast summary
INDUSTRY SECTOR: CHEMICAL COS
--FISCAL YEAR ENDED DEC. 31--
(MIL. EUR) 2021A 2022A 2023E 2024F
Revenue 2,635 3,106 2,981 3,140
EBITDA (reported) 412 450 394 445
Plus/(less): Other 1 (1) 1 1
EBITDA 413 448 395 446
Less: Cash interest paid (55) (31) (124) (134)
Less: Cash taxes paid (47) (76) (12) (23)
Funds from operations (FFO) 312 342 259 290
Cash flow from
operations (CFO) 272 286 226 233
Capital expenditure (capex) 104 107 119 126
Free operating
cash flow (FOCF) 168 178 107 107
Debt (reported) 1,617 1,812 1,866 1,866
Plus: Lease liabilities debt 72 82 85 88
Plus: Pension and
other postretirement debt 100 71 71 71
Less: Accessible cash
and liquid Investments (328) (316) (445) (456)
Plus/(less): Other (327) (296) -- --
Debt 1,133 1,352 1,577 1,569
Cash and short-term
investments (reported) 338 325 455 466
ADJUSTED RATIOS
Debt/EBITDA (x) 2.7 3.0 4.0 3.5
FFO/debt (%) 27.5 25.3 16.4 18.5
FOCF/debt (%) 14.8 13.2 6.8 6.8
EBITDA margin (%) 15.7 14.4 13.2 14.2
All figures are adjusted by S&P Global Ratings, unless stated as
reported.
a--Actual.
e--Estimate.
f--Forecast.
Ratings Score Snapshot
ISSUER CREDIT RATING BB/NEGATIVE/--
Business risk: Fair
Country risk Low
Industry risk Moderately High
Competitive position Fair
Financial risk: Significant
Cash flow/leverage Significant
Anchor bb
Modifiers:
Diversification/Portfolio effect Neutral (no impact)
Capital structure Neutral (no impact)
Financial policy Neutral (no impact)
Liquidity Adequate (no impact)
Management and governance Fair (no impact)
Comparable rating analysis Neutral (no impact)
Stand-alone credit profile: bb
Group credit profile bb
Entity status within group Moderately Strategic
Ratings List
OUTLOOK ACTION; RATINGS AFFIRMED;
TO FROM
INEOS ENTERPRISES HOLDINGS LTD.
INEOS HOLDINGS LTD.
INEOS GROUP HOLDINGS S.A.
INEOS QUATTRO HOLDINGS LTD.
Issuer Credit Rating BB/Negative/-- BB/Stable/--
RATINGS AFFIRMED
INEOS QUATTRO HOLDINGS UK LTD.
INEOS ENTERPRISES HOLDINGS II LTD.
INEOS FINANCE PLC
INEOS QUATTRO FINANCE 2 PLC
INEOS STYROLUTION GROUP GMBH
INEOS US FINANCE LLC
INEOS US PETROCHEM LLC
INEOS ENTERPRISES HOLDINGS US FINCO LLC
Senior Secured BB
Recovery Rating 3(65%)
INEOS QUATTRO FINANCE 1 PLC
Senior Unsecured B+
Recovery Rating 6(0%)
NEW RATING
INEOS QUATTRO HOLDINGS UK LTD.
INEOS US PETROCHEM LLC
Senior Secured BB
Recovery Rating 3(65%)
INEOS QUATTRO: Moody's Rates New EUR850MM Secured Term Loan 'Ba3'
-----------------------------------------------------------------
Moody's Investors Service assigned a Ba3 rating to the proposed
INEOS Quattro Holdings UK Ltd's EUR850 million backed senior
secured term loan B facility and a Ba3 rating to the proposed INEOS
US Petrochem LLC's $1.25 billion backed senior secured term loan B
facility, both due 2029, currently being marketed. The other
ratings of INEOS Quattro Holdings Ltd (INEOS Quattro) remain
unchanged, including its Ba3 corporate family rating, its Ba3-PD
probability of default rating, along with the Ba3 ratings of its
backed senior secured bank credit facilities issued by INEOS
Quattro Holdings UK Ltd and INEOS US Petrochem LLC, Ba3 backed
senior secured notes issued by INEOS Quattro Finance 2 Plc, Ba3
senior secured notes and the Ba3 senior secured bank credit
facility issued by INEOS Styrolution Group GmbH, and the Ba3 senior
secured bank credit facility issued by Ineos Styrolution US Holding
LLC. The B2 rating of the backed senior unsecured notes issued by
INEOS Quattro Finance 1 Plc is also unaffected. The negative rating
outlook for all entities remains unchanged.
RATINGS RATIONALE
The rating action reflects Moody's expectation that INEOS Quattro's
EBITDA generation will remain challenged through the balance of
2023 but will start recovering gradually in 2024. Moody's
anticipates earnings improvements to be driven by both the
strengthening of the currently lackluster demand and the reduction
in excess capacity in a number of its markets. The agency also
understands that INEOS Quattro is taking a number of cost cutting
measures to improve its operating results during the current market
weakness.
Moody's continues to expect INEOS Quattro's credit profile to
remain stretched outside the agency's rating guidance with the
company's Moody's adjusted total leverage likely to exceed 6.0x in
2023. Moody's anticipates; however, that INEOS Quattro's leverage
will reduce closer to the guidance level of 4.5x in 2024. As well,
the agency does not expect INEOS Quattro to make any dividend
distributions in the near term which will make the business cash
generative on a free cash flow basis in 2024. Positive cash
generation would support the company's credit profile following
negative free cash flow in 2023 as a result of a EUR500 million
dividend in the first quarter of the year.
INEOS Quattro indicated that its performance in the third quarter
of 2023 was unfavourably impacted by delayed recovery in China
which had a dampening effect on demand across a range of markets.
Also, overall challenging geopolitical environment and high
inflation and interest rates, combined with continuing destocking,
put additional pressure on demand globally. As well, energy costs,
although reduced from peak, remained above pre-pandemic levels,
crimping profits. Owing to these factors, INEOS Quattro reported
EUR166 million of EBITDA in the third quarter of 2023, below both
EUR313 million in the third quarter of 2022 and EUR212 million in
the second quarter of 2023.
The proposed issuance is a positive for INEOS Quattro as it will
allow the company to extend a portion of its maturing debt beyond
2026. The term loans will be senior secured and will benefit from
the same collateral and guarantees as INEOS Quattro's existing
senior secured term loans and senior secured notes.
The Ba3 CFR of INEOS Quattro Holdings Ltd is underpinned by the
company's large size and scope, with leading market positions
globally in a variety of chemical products; its diverse product
lines and end-markets; successful integration following the merger
with INOVYN and acquisition of BP aromatics and acetyls assets
exceeding initial synergy expectations.
These positives are counterbalanced by the cyclical nature of the
commodity chemical industry which is currently experiencing a
period of material market weakness owing to reducing demand across
many end markets; a history of significant risk appetite across the
broader INEOS Group; and the limited available disclosure regarding
the larger INEOS Group outside of the rated entities.
LIQUIDITY
INEOS Quattro's liquidity is good with over EUR2 billion of cash at
September 30, 2023 and availability under working capital
facilities of over EUR500 million. The company's nearest debt
maturity is in January 2026. INEOS has recently been successful in
refinancing its upcoming maturities in the capital markets.
STRUCTURAL CONSIDERATIONS
The senior secured debt of INEOS Quattro (issued through
subsidiaries) is rated Ba3, at the same level as its CFR of Ba3,
and the senior unsecured debt (also issued through subsidiaries) is
rated B2. Given the relative sizes of the two classes of debt, the
support provided by the unsecured debt is not sufficient to justify
any notching between the secured debt and the CFR.
The senior secured instruments rank pari passu and benefit from
guarantees from subsidiaries that constitute at least 85% of group
EBITDA. The collateral includes substantially all assets of the
company, including cash, bank accounts, inventories and property,
plant & equipment (PP&E), but excludes receivables that are pledged
to asset securitisation programmes.
RATING OUTLOOK
Negative rating outlook reflects Moody's expectation that INEOS
Quattro's earnings will continue to be pressured by reduced demand
globally through the end of 2023 and into 2024, thereby delaying
the company's return to a credit profile commensurate with the
current rating. The agency also expects no additional dividend
payments in the near term. Any further dividends paid before
market conditions have improved before the company's EBITDA
generation has recovered would further pressure the rating.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Although unlikely in the near term, positive rating pressure would
occur if Moody's-adjusted leverage measured as debt/EBITDA is
reduced to well below 4.0x on a sustained basis while generating
positive free cash flow (FCF) and maintaining good liquidity at all
times.
Conversely, negative rating pressure could occur if leverage is
sustained above 4.5x for over 12 months. Any significant
deterioration in liquidity or further dividend payments could also
cause negative rating pressure.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Chemicals
published in June 2022.
COMPANY PROFILE
INEOS Quattro Holdings Ltd is an indirect wholly owned subsidiary
of INEOS Limited and was renamed in December 2020. It was formerly
called INEOS Styrolution Holdings Limited and now combines the
businesses of INEOS Styrolution (36% of revenue and 21% of EBITDA
in the first nine months of 2023) and INOVYN (29% of revenue and
66% of EBITDA), together with the Aromatics (28% of revenue and 5%
of EBITDA) and Acetyls petrochemical assets (7% of revenue and 8%
of EBITDA) acquired from BP p.l.c. (A2 positive). INEOS Quattro is
a globally diversified chemical company with leading market
positions in a wide range of chemicals with broad market
applications such as polystyrene, vinyls and caustic soda,
paraxylene, purified terephthalic acid (PTA), acetic acid and
acetate derivatives. INEOS Quattro generated revenue of EUR9.6
billion and EBITDA of EUR760 million in the first nine months of
2023.
LANEBROOK MORTGAGE 2023-1: Moody's Assigns (P)B3 Rating to F Notes
------------------------------------------------------------------
Moody's Investors Service has assigned provisional ratings to Notes
to be issued by Lanebrook Mortgage Transaction 2023-1 PLC:
GBP [ ]M Class A1 Mortgage Backed Floating Rate Notes due August
2060, Assigned (P)Aaa (sf)
GBP [ ]M Class A2 Mortgage Backed Floating Rate Notes due August
2060, Assigned (P)Aaa (sf)
GBP [ ]M Class B Mortgage Backed Floating Rate Notes due August
2060, Assigned (P)Aa2 (sf)
GBP [ ]M Class C Mortgage Backed Floating Rate Notes due August
2060, Assigned (P)A1 (sf)
GBP [ ]M Class D Mortgage Backed Floating Rate Notes due August
2060, Assigned (P)B1 (sf)
GBP [ ]M Class E Mortgage Backed Floating Rate Notes due August
2060, Assigned (P)B2 (sf)
GBP [ ]M Class F Mortgage Backed Floating Rate Notes due August
2060, Assigned (P)B3 (sf)
Moody's has not assigned ratings to the subordinated GBP [ ]M Class
X1 Mortgage Backed Floating Rate Notes due August 2060 and the GBP
[ ]M Class X2 Mortgage Backed Floating Rate Notes due August 2060.
RATINGS RATIONALE
The Notes are backed by a static pool of United Kingdom buy-to-let
("BTL") mortgage loans originated by The Mortgage Lender Limited
("TML") a subsidiary of Shawbrook Bank Limited ("Shawbrook"). This
represents the 4th issuance out of the Lanebrook series.
The portfolio of assets backing the securitised pool amounts to
approximately GBP425.1 million as of September 30, 2023 pool cutoff
date. There are two Reserve Funds, a Liquidity Reserve Fund and a
General Reserve Fund. The amortising Liquidity Reserve Fund is
sized at 1.25% of the Class A & B Notes balance. Whilst the
amortising General Reserve Fund is sized at 1.25% of the Class A to
F Notes balance, less any amounts in the Liquidity Reserve Fund.
The total credit enhancement for the Class A Notes will be 13.75%.
The ratings are primarily based on the credit quality of the
portfolio, the structural features of the transaction and its legal
integrity.
According to Moody's, the transaction benefits from various credit
strengths such as a granular portfolio and an amortising liquidity
reserve sized at 1.25% of Class A and B Notes balance. However,
Moody's notes that the transaction features some credit weaknesses
such as an unrated servicer (TML) and originator (Shawbrook).
Various mitigants have been included in the transaction structure
such as Shawbrook (NR) acting as the replacement servicer to
mitigate the operational risk, and a back-up servicer facilitator
(Intertrust Management Limited (NR)) which is obliged to appoint a
back-up servicer if certain triggers are breached. To ensure
payment continuity over the transaction's lifetime, the transaction
documents incorporate estimation language whereby the cash manager
Citibank, N.A., London Branch (Aa3(cr)/P-1(cr)) can use the three
most recent servicer reports to determine the cash allocation in
case no servicer report is available. The transaction also benefits
from a clean pool containing no loans in arrears and no adverse
loan credit history at the pool cut-off date.
Moody's determined the portfolio lifetime expected loss of 1.4% and
Aaa MILAN Stressed Loss of 12.3% related to borrower receivables.
The expected loss captures Moody's expectations of performance
considering the current economic outlook, while the MILAN Stressed
Loss captures the loss Moody's expect the portfolio to suffer in
the event of a severe recession scenario. Expected defaults and
MILAN Stressed Loss are parameters used by Moody's to calibrate its
lognormal portfolio loss distribution curve and to associate a
probability with each potential future loss scenario in the ABSROM
cash flow model to rate RMBS.
Portfolio expected loss of 1.4%: This is in line with the United
Kingdom BTL RMBS sector and is based on Moody's assessment of the
lifetime loss expectation for the pool taking into account: (i) the
collateral performance of TML originated loans to date, as provided
by the originator and observed in previously securitised
portfolios; (ii) limited track record of TML; (iii) limited
seasoning of loans in the pool; (iv) the current macroeconomic
environment in the United Kingdom; and (v) benchmarking with
comparable transactions in the UK market.
MILAN Stressed Loss of 12.3%: This is in line with than the United
Kingdom buy-to-let RMBS sector average and follows Moody's
assessment of the loan-by-loan information taking into account the
following key drivers: (i) the collateral performance of TML
originated loans to date as described above; (ii) the weighted
average indexed current loan-to-value of 73.77% which is in line
with the sector average; (iii) no borrowers with adverse credit
history or prior CCJs in the pool at the cut-off date.
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 AN UPGRADE OR DOWNGRADE OF THE RATINGS:
Factors that would lead to an upgrade of the ratings include: (i)
significantly better than expected performance of the pool together
with an increase in credit enhancement of Notes; or (ii) a
deleveraging of the capital structure.
Factors that would lead to a downgrade of the ratings include: (i)
an increase in the level of arrears resulting in a higher level of
losses than forecast; and (ii) economic conditions being worse than
forecast resulting in higher arrears and losses.
LANEBROOK MORTGAGE 2023-1: S&P Gives Prelim. 'B-' Rating on F Notes
-------------------------------------------------------------------
S&P Global Ratings assigned its preliminary credit ratings to
Lanebrook Mortgage Transaction 2023-1 PLC's class A1, A2, and
B-Dfrd to F-Dfrd notes. At closing, Lanebrook Mortgage Transaction
2023-1 will also issue unrated class X1-Dfrd notes, X2-Dfrd notes,
and RC1 and RC2 certificates.
Lanebrook Mortgage Transaction 2023-1 is an RMBS transaction
securitizing a £425 million preliminary portfolio, including 5% of
risk retention (the final pool size may differ), of buy-to-let
(BTL) mortgage loans secured on properties in the U.K.
The loans in the pool were originated between 2022 and 2023 by The
Mortgage Lender Ltd., a specialist mortgage lender, under a forward
flow agreement with Shawbrook Bank PLC.
The collateral comprises loans granted to experienced portfolio
landlords, none of whom have an adverse credit history.
The transaction benefits from a liquidity reserve fund, a general
reserve fund, and principal that can be used to pay senior fees and
interest on the most senior notes.
Credit enhancement for the rated notes will consist of
subordination from the closing date.
The transaction incorporates a swap to hedge the mismatch between
the notes, which pay a coupon based on compounded daily Sterling
Overnight Index Average (SONIA), and the loans, which pay a fixed
rate of interest until they revert to a floating rate.
At closing, Lanebrook Mortgage Transaction 2023-1 will use the
proceeds of the notes to purchase and accept the assignment of the
seller's rights against the borrowers in the underlying portfolio
and to fund the reserves. The noteholders will benefit from the
security granted in favor of the security trustee, Citicorp Trustee
Co. Ltd.
There are no rating constraints in the transaction under S&P's
counterparty, operational risk, or structured finance sovereign
risk criteria. S&P considers the issuer to be bankruptcy remote.
Preliminary ratings
CLASS PRELIM. RATING CLASS SIZE (%)
A1 AAA (sf) 49.53
A2 AAA (sf) 37.97
B-Dfrd AA (sf) 5.00
C-Dfrd A (sf) 2.50
D-Dfrd BBB (sf) 2.00
E-Dfrd BB- (sf) 1.50
F-Dfrd B- (sf) 1.50
X1-Dfrd NR 0.50
X2-Dfrd NR 0.50
RC1 Certs NR N/A
RC2 Certs NR N/A
NR--Not rated.
N/A--Not applicable.
NEWDAY GROUP: S&P Affirms 'B+' LongTerm ICR on Solid Performance
----------------------------------------------------------------
S&P Global Ratings affirmed its 'B+' long-term issuer credit rating
on NewDay Group (Jersey) Ltd. The outlook is stable. At the same
time, S&P affirmed its 'B+' rating on NewDay's senior secured
debt.
S&P said, "We continue to think that the 'B+' rating on NewDay
balances the firm's solid footprint in the U.K. credit card market,
against its low tangible equity position. We also take into account
the accessibility and cost of funding for NewDay given the firm's
reliance on potentially confidence-sensitive wholesale markets.
Though we acknowledge the diversity and headroom currently across
the firm's wholesale funding sources, the firm's secured funding
profile remains subject to rollover risk, and the group will
continue to face a regular cycle of refinancing needs over the next
12-24 months. Rating pressure could materialize if market access
becomes, and stays, disrupted--whether due to specific pressure on
NewDay or volatile market conditions across the U.K. This, although
not our base case, remains a key medium-term risk.
"Despite NewDay's track record of solid risk management, we expect
the economic uncertainty in the U.K. will challenge NewDay's asset
quality. The firm posted an S&P Global Ratings-adjusted impairment
rate of 8.8% at mid-2023, which is still below the pre-pandemic
level. NewDay has yet to see a material deterioration in its
lending book over the past 12 months, even when nonperforming loans
ticked up to 9.2% in June 2023 from an average of 8.8% prior to the
pandemic. We expect the tepid economic environment to further
depress U.K. household incomes and constrain NewDay's asset quality
over the next 12 months, particularly given the firm's focus on the
near-prime sector of the U.K. credit card market. That said, the
firm's onboarding of the John Lewis portfolio should help improve
its asset quality profile within its merchant offering segment, and
NewDay has been proactive in tightening underwriting criteria and
moderating growth in uncertain economic conditions. Overall, we
expect a material increase in impairment charges in 2024 to 10-12%,
but we think NewDay will be able to navigate these hurdles at its
current rating level.
"Weak capitalization remains the key rating constraint. At
end-2022, NewDay's risk-adjusted capital (RAC) ratio, as measured
by S&P Global Ratings, was 0% (versus -2.2% at end-2021), with
intangibles and goodwill continuing to dampen common equity. We
expect continued improvement in the next two years, with a RAC of
2.0%-2.5% in 2024, reflecting the ongoing retention of strong
underlying earnings. However, we forecast that the RAC ratio will
remain low and without upside potential in our capital assessment
in the next 12 months.
"The stable outlook reflects our expectation that NewDay will
remain resilient to rising earnings and asset quality pressure over
the next 12 months, while maintaining a prudent and diversified
funding profile. We expect the firm to continue to improve its RAC
ratio on the back of stable earnings generation and to effectively
navigate the challenging economic backdrop. We also anticipate that
the firm will continue to proactively manage its funding and
liquidity, maintaining material headroom to absorb the impact of
potential market dislocation.
"We could revise the outlook to negative or lower the rating in the
next 12 months if a more challenging operating environment leads to
weaker prospects for NewDay's asset quality and, subsequently,
earnings. Rating pressure could also stem from a marked
deterioration of the firm's funding and liquidity profile, likely
because of a long period of unstable or difficult market access.
"We consider an upgrade to be unlikely in the next 12 months, owing
to uncertainties regarding the current U.K. economy in the context
of NewDay's concentrated business model. That said, we could
consider a positive outlook if NewDay were to demonstrate
materially stronger earnings growth than we assume while
maintaining asset quality and risk appetite, enabling the firm to
improve its RAC ratio significantly quicker than our forecast."
PAPERCHASE: Tesco Announces Re-Launch of Brand After Collapse
-------------------------------------------------------------
Neil Shaw at LincolnshireLive reports that Tesco has announced the
re-launch of much-loved stationery brand Paperchase in selected
stores and online at Tesco.com.
Paperchase went into administration on January 30, 2023, and Tesco
purchased the brand and intellectual property, but not the stores,
LincolnshireLive recounts.
According to LincolnshireLive, Ally Rose, Director for Homeware at
Tesco said: "We know that Paperchase lovers will be pleased to see
their favourite stationery brand again, and we're excited to be
making these premium, design-led products available to Tesco
customers, to spread a little more joy.
"With a variety of trends available in the range we're making it
easy for shoppers to express themselves and find something to suit
their individual personality whilst doing their weekly shop --
whether that's someone who loves working with bright neon colours,
a detailed organiser who prefers neutrals or something in-between.
It's brilliant to see all the beautiful colours and designs coming
to life both in our stores and online."
SQUIBB GROUP: Owes GBP23.3 Million to More Than 300 Creditors
-------------------------------------------------------------
Grant Prior at Construction Enquirer reports that the scale of
demolition specialist Squibb Group's debts can be revealed as the
firm tries to strike a deal with its creditors.
Documents seen by the Enquirer detail how much is owed by Squibb as
it seeks agreement for a Company Voluntary Arrangement (CVA) with
creditors.
According to the Enquirer, the CVA proposals by Begbies Traynor
show GBP23.3 million owed to more than 300 creditors by the group
which had a turnover of GBP30.9 million for the year to January 31,
2022.
Unsecured creditors in the supply chain are owed GBP13.8 million,
the Enquirer discloses.
Suppliers and subcontractors owed money are being asked to agree
the CVA which could see payments of 65p in the pound on debts
compared to receiving just 1p in the pound if Squibb goes into
liquidation, the Enquirer states.
The five-year CVA deal would see Squibb make monthly payments of
between GBP100,000 to GBP160,000 as it continued trading, the
Enquirer notes.
The company struck a deal with HMRC last year for extra time to pay
tax arrears of GBP4.4 million but a request for a further extension
was rejected and the tax authorities have issued a winding-up
petition which is due to be heard later this month, the Enquirer
recounts.
Squibb has sold and leased back its headquarters raising GBP8
million and the Squibb family has loaned the business GBP4.2
million, the Enquirer relays.
Three quarters or more in value of creditors need to agree for the
CVA to pass, according to the Enquirer.
WIGGLE CRC: About 100 Workers Laid Off Following Administration
---------------------------------------------------------------
Sophie Lewis at The News reports that a number of staff
Portsmouth-based cycle retailer Wiggle CRC have been made redundant
after the company went into administration.
WiggleCRC, which has its headquarters in Lakeside, North Harbour,
has appointed FRP Advisory as administrators and the online giant
has been put up for sale, The News relates.
And as of Oct. 31, the company has reportedly laid off about 100 of
its 1,000 staff across its bases in Portsmouth and Belfast and its
320,000sq ft warehouse in Wolverhampton, The News discloses.
In its most recently filed financial statement in August, WiggleCRC
reported a pre-tax loss of GBP97 million for the year to September
30, 2022, The News notes.
According to The News, a statement from the administrators said:
"We'd like to reassure customers that all operations are running as
normal, including the websites and online sales of Wiggle.com,
ChainReactionCycles.com and Hotlines-UK.com. Customer service
support is live and can be contacted with any queries through the
respective websites."
Wiggle is currently maintaining that "all orders made with Wiggle
will continue to be delivered as usual, and our standard terms and
conditions still apply for item returns and warranty claims."
Last month, SSU delisted itself from the New York stock exchange
and announced a major programme of restructuring, which would
include "the termination or winding down of non-performing assets,"
and identified the bike sector as one that "continued to lag
management expectations", The News recounts.
Several days later SSU's parent company Signa Holding announced
that it would be withholding GBP130 million of previously promised
funding, The News states.
WiggleCRC called in the administrators on Oct. 25, The News
relates.
However, joint administrator Alistair Massey has posted on
Linkedin: "We are actively marketing the business for sale and are
already in discussion with a number of interested parties so would
encourage any potential buyers to get in touch without delay."
[*] DBRS Puts 45 Tranches on 14 European Deals Under Review
-----------------------------------------------------------
DBRS Ratings GmbH placed its credit ratings on 45 tranches in 14
European structured finance transactions Under Review with Positive
Implications (UR-Pos).
The Issuers are:
- Golden Bar (Securitization) S.r.l. - Series 2023-2
- Private Driver Espana 2020-1
- ERNA S.r.l.
- Taurus 2018-1 IT S.R.L.
- Clara Sec. S.r.l.
- Sunrise SPV 40 S.r.l. - Sunrise 2023-1
- Sunrise SPV 50 S.r.l. - Sunrise 2023-2
- Cassia 2022-1 S.R.L.
- Giada Sec. S.r.l.
- Giada Sec. S.r.l. (2022)
- ARTS Consumer S.r.l.
- Deco 2019 - Vivaldi S.r.l.
- Pietra Nera Uno S.R.L.
- Sunrise SPV 20 S.r.l. - Sunrise 2022-2
The Affected Ratings are available at https://bit.ly/3tYt3f6
KEY RATING DRIVERS AND CONSIDERATIONS
On October 6, 2023, DBRS Morningstar finalized its "Global
Methodology for Rating Sovereign Governments". This methodology
presents the criteria for which sovereign government credit ratings
are assigned and/or monitored, and it supersedes the prior version
published on August 29, 2022.
The updated version of the methodology incorporates some changes to
Appendix C, which describes the impact of sovereign credit ratings
on other DBRS Morningstar credit ratings, including structured
finance.
With respect to structured finance, DBRS Morningstar removed the
application of a stress scenario regime for sovereigns rated in the
"A" category or below. DBRS Morningstar has determined that
macroeconomic risk for securitized assets in lower rated countries
is in most cases reflected in historical data that is used in the
structured finance rating analysis.
As a result of this change to the "Global Methodology for Rating
Sovereign Governments", DBRS Morningstar finalized several European
structured finance methodologies where the change resulted in a
change of the methodology text and/or methodology application.
Overall, the impact of the changes is positive. In European
structured finance, DBRS Morningstar has identified 45 tranches in
14 transactions that could be upgraded by one or two notches,
ceteris paribus, and placed them UR-Pos. The affected transactions
are listed at the end of this press release and securitize Spanish
and Italian assets, predominantly asset-backed securities (ABS) and
commercial mortgage-backed securities (CMBS).
DBRS Morningstar's credit ratings on the notes address the credit
risk associated with the identified financial obligations in
accordance with the relevant transaction documents.
DBRS Morningstar's credit ratings do not address nonpayment risk
associated with contractual payment obligations contemplated in the
applicable transaction documents that are not financial
obligations.
DBRS Morningstar's long-term credit ratings provide opinions on
risk of default. DBRS Morningstar considers risk of default to be
the risk that an issuer will fail to satisfy the financial
obligations in accordance with the terms under which a long-term
obligation has been issued.
Notes: All figures are in euros unless otherwise noted.
[*] UK: Number of Retail Sector CVAs Up by 150% in 2022/2023
------------------------------------------------------------
Fiona Briggs at Retail Times reports that the number of retailers
that have entered a Company Voluntary Arrangement (CVA) has jumped
by 150% in the last year to 10 in 2022/23, up from four in 2021/22,
says international law firm RPC.
A CVA allows a business to restructure or cut its debts, if it can
reach an agreement with a majority of its creditors.
According to Retail Times, Finella Fogarty, partner and head of
restructuring & insolvency at RPC, says that CVAs allow a retailer
to cut its debt burden, including rents, without having to go into
administration which may lead to more dramatic losses for
creditors.
Within the retail sector, CVAs have been used to reduce the rent
that retailers pay landlords or to vacate some of the space leased,
Retail Times states. The fall in rental values of many retail
properties means that many retailers are paying rents that are far
more than the market value, Retail Times notes.
"CVAs are seen as good way to fix a business that is struggling
under too much debt. By allowing a business to survive, it helps
avoid a Wilko style collapse where landlords were left with 300
vacant stores," Retail Times quotes Mr. Fogarty as saying.
"Retailers argue that the traditional lease terms in the UK
commercial property market make it very hard for them to reduce
their property costs in any other way."
Mr. Fogarty explains that one reason why CVAs have been on the rise
is that they are seen as a less expensive and simpler way of
rescheduling a business's debts, Retail Times relates. This is
compared to Restructuring Plans which were introduced as a
COVID-related method for businesses to restructure debt, according
to Retail Times.
*********
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 * * *