/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/231103.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Friday, November 3, 2023, Vol. 24, No. 221 Headlines F R A N C E CARE BIDCO: Fitch Affirms 'B' LongTerm IDR, Outlook Stable G E R M A N Y ATHENA BIDCO: Moody's Affirms 'B3' CFR, Outlook Remains Stable SAFARI BETEILIGUNGS: Moody's Withdraws 'Caa3' Corp. Family Rating G R E E C E DANAOS CORP: Moody's Hikes CFR to Ba2 & Alters Outlook to Stable I R E L A N D BLACKROCK EUROPEAN IV: Moody's Affirms B2 Rating on Class F Notes PALMER SQUARE 2023-3: Moody's Assigns (P)Ba3 Rating to Cl. E Notes K A Z A K H S T A N [*] Moody's Takes Actions on 7 Kazakh Non-Bank Finance Companies N E T H E R L A N D S DTEK RENEWABLES: Fitch Hikes Rating on Sr. Unsec. Notes to CC S W E D E N [*] SWEDEN: Company Bankruptcies Hit Highest Level Since 1999 U K R A I N E DTEK ENERGY: Moody's Affirms 'Ca' CFR, Outlook Remains Negative U N I T E D K I N G D O M BRENIG CONSTRUCTION: Enters Voluntary Liquidation FRONERI INT'L: Moody's Upgrades CFR & Senior Secured Debt to Ba3 GILWOOD CO: Bought Out of Administration by DC Norris INEOS QUATTRO: Fitch Alters Outlook to 'BB-' LongTerm IDR to Neg. LA PERLA: Judge Issues Winding-Up Order Over Unpaid Tax Debts SILVA TIMBER: Enters Administration Following Cash Difficulties [*] UK: Scottish Cos. Going Into Administration Up in Q3 2023 X X X X X X X X [*] BOOK REVIEW: The Turnaround Manager's Handbook - - - - - =========== F R A N C E =========== CARE BIDCO: Fitch Affirms 'B' LongTerm IDR, Outlook Stable ---------------------------------------------------------- Fitch Ratings has assigned Care Bidco's (Cooper) new first-lien term loan B (TLB) and second-lien debt tranche expected senior secured ratings of 'B+(EXP)' and 'CCC+(EXP)', respectively. Their Recovery Ratings are 'RR3 and 'RR6', respectively. Cooper's Long-Term Issuer Default Rating (IDR) has been affirmed at 'B' with a Stable Outlook. The new debt will fund the transformational acquisition of Viatris's European over-the-counter (OTC) assets valued at EUR1.64 billion, which in its view will materially improve Cooper's business risk profile, doubling its scale and broadening its market position, product diversification and geographic reach. The assignment of final ratings is contingent on completing the transaction in line with the terms already presented. The 'B' IDR balances Cooper's high leverage and aggressive financial policy with a solid business risk profile, high profitability and strong cash generation. The Stable Outlook reflects its view of its robust enlarged operations with sustained strong operating and free cash flow (FCF) margins, supporting a gradual deleveraging towards 6.0x by end-2025 from 7.0x in 2023. KEY RATING DRIVERS Acquisition Improves Business Profile: Fitch expects the planned EUR1.64 billion acquisition of Viatris's European OTC assets to materially improve Cooper's business risk profile, doubling its scale and improving its market position, product and geographic diversification within Europe. It will also reduce its reliance on the French market and improve its position in countries where it has a smaller presence than peers'. Fitch views the acquired brands as a good fit to the group's portfolio, as they are consumer-oriented OTC products mostly sold through retail pharmacies. High Leverage Constrains Rating: The rating is constrained by Cooper's high financial leverage, which viewed in isolation would be incompatible with the 'B' IDR. Fitch expects total gross debt/EBITDA, post the acquisition of Viatris's OTC products, to improve to slightly below 7x on a pro-forma basis by end-2024, aided by sizeable equity co-funding of EUR473 million. This compares with an estimated 7.0x in 2023 and 7.8x in 2022. The rating is, however, predicated on a steady deleveraging path, bringing EBITDA gross leverage to below 6.5x by 2025, which would be in line with the rating. This incorporates its assumption of financial discipline and conservative capital allocation with no additional sizeable debt-funded acquisitions to 2026. Execution Risk and Inflation: Fitch sees moderate execution risks in the integration of such a large acquisition, which could lead to lower margins or higher one-off costs than expected, particularly in the first two years from closing. However, Fitch notes Cooper´s successful record of acquisitive growth and integration. The group was able to increase prices successfully in 2023 in the face of inflationary cost pressures, but the pricing sensitivity of customers remains to be tested in the face of weaker discretionary spending. Robust Trading Performance: Cooper's performance has proved resilient in the past, with stable demand during the Covid-19 period and the ability to pass on cost inflation through price increases in 2023. Fitch projects revenue growth to remain above 7% in 2023 and at mid-single digits in the following three years, helped by volume growth, price increases and new product launches. Stable Margins Expected: Fitch projects Cooper's EBITDA margin will remain at around 29% for 2023, similar to that in previous years. Fitch believes that the group will continue to adequately manage cost inflation on its cost of goods sold and energy via price increases. Its cost-saving initiatives should mitigate the impact from staff additions for business growth and support function enhancement. Fitch expects the EBITDA margin to gradually improve toward 29.5% in 2026 as inflation eases, which should support solid cash generation with FCF margins in high single digits. Defensive Business; Secular Growth: Cooper has established strong market positions in selected regional OTC consumer health markets, and its specialist brand portfolio enjoys access to protected and regulated retail channels as a supplier to pharmacies. These strengths balance its limited scale and geographic diversification. Market growth should continue to be supported by positive secular industry trends driving increasing demand for OTC consumer-health products, such as growing healthcare consumerism, an ageing population, and a focus on disease prevention and healthy lifestyle. Fitch believes that Cooper´s organic growth will also be driven by the optimisation its portfolio and commercialisation capabilities, as well as brand development. Protected and Regulated Market: Fitch views the continental European pharmacy sector, which is the main retail channel for Cooper, as highly fragmented with small specialist local operators. Its core markets (France, the Netherlands, Italy and, increasingly, Iberia) are highly regulated and protected, offering barriers to entry and protecting Cooper's business model. This, however, also constrains organic growth potential. Regulatory Risk to Specialist Retail: Cooper's business model as a main OTC consumer health supplier to pharmacies is subject to regulatory risk affecting the sector and to risks from developing retail channels for its products, including online. However, Fitch views such risks as limited and projects a stable regulatory environment for Cooper's core markets to 2026. DERIVATION SUMMARY Fitch rates Cooper using its Ratings Navigator framework for consumer companies, while applying some aspects specific to healthcare. Under this framework, Fitch recognises that its operations are driven by marketing investments and a well-established relationship with a diversified pharmacy-based distribution network. Compared with its closest peers, Cooper is rated in line with Sunshine Luxembourg VII SARL (Galderma; B/Positive) as its smaller scale and less diversified business profile are offset by its superior profitability and stronger cash flow generation. Cooper's forecast EBITDA gross leverage by 2023 at around 7.0x is slightly higher than Galderma's around 6.5x. Cooper is rated one notch higher than Oriflame Investment Holding Plc (B-/Negative). Fitch downgraded Oriflame in May due to higher-than-expected leverage, with EBITDA net leverage projected at around 8.0x in 2023, stemming from structural business issues with high execution risks. Oriflame is geographically more diversified with exposure to Asia and Russia. Fitch also compares Cooper with European asset-light pharmaceutical companies focused on off-patent branded and generic drugs, including Pharmanovia Bidco Limited (Atnahs; B+/Stable), Cheplapharm Arzneimittel GmbH (Cheplapharm, B+/Stable) and ADVANZ PHARMA Limited (Advanz, B/Stable). Fitch also compares it with the larger generic drug manufacturer Nidda BondCo GmbH (Stada, B/Stable). Cheplapharm and Pharmanovia have one-notch higher ratings due to their lower leverage, higher profitability and stronger FCF margins, despite their structurally lower organic growth. Advanz has a better organic growth potential than these two peers due to its internal pipeline, but it has lower margins and higher leverage. Stada benefits from more sizeable and cash-generative operations, but has a more aggressive financial risk profile than Cooper's. KEY ASSUMPTIONS Key Assumptions Within Its Rating Case for the Issuer: - Acquisition of Viatris's European OTC products to close in 2Q24, financed with a EUR473 million equity injection, EUR1.1 billion first-lien TLB and a EUR112 million second-lien term loan - Annual bolt-on acquisitions of EUR50 million in 2024, followed by a total of EUR120 million to 2026 - Revenue growth of around 8.5% in 2023, followed by a 110% increase in 2024 (on a pro-forma basis) as a result of the acquisition of Viatris's European OTC products. Revenue growth to slow to around 6.5% in the following two years - EBITDA margin at 29.5% in 2023 and at 29% in 2024 before gradually improving towards 30% by 2026 - Capex at 2.5%-3.0% of sales over 2023-2026 - No dividends RECOVERY ANALYSIS The recovery analysis assumes that Cooper would remain a going concern (GC) in a restructuring and that it would be reorganised rather than liquidated. Fitch has assumed a 10% administrative claim in the recovery analysis. On completion of the Viatris transaction, Fitch assumes a post-restructuring pro-forma EBITDA of EUR270 million, on which Fitch bases the enterprise value. Fitch assumes a distressed EBITDA multiple of 6.0x, reflecting the group's premium market positions and protected business model, especially in the French market. Fitch assumes Cooper's multi-currency revolving credit facility (RCF), which it plans to upsize to EUR295 million, would be fully drawn in a restructuring, ranking equally with the rest of the senior secured first-lien loan. Its waterfall analysis generates a ranked recovery including the new EUR1.1 billion first-lien senior secured term loan ranking equally with the existing term loan of EUR970 million in the 'RR3' band, indicating a 'B+' instrument rating for the enlarged senior secured facilities, one notch above the IDR. The waterfall analysis output percentage on current metrics and assumptions would be 62% for the increased senior secured first-lien loans on completion of the Viatris transaction. The recovery estimates for the new second-lien debt tranche of EUR112 million would be in the 'RR6' band, indicating a 'CCC+' instrument rating, in line with the existing second-lien tranche of EUR235 million, two notches below the IDR, reflecting the junior security ranking behind first-lien creditors with a recovery percentage under its waterfall of 0%. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: - Profitable business organic growth, leading to robust EBITDA margins at around 30% - Solid profitability supporting continued strong cash conversion, with healthy FCF margins in high single digits - A more conservative financial policy leading to total debt/EBITDA at below 5.0x on a sustained basis. On completion of the Viatris transaction Fitch expects to relax the total debt/EBITDA sensitivity for an upgrade to 5.5x, reflecting the stronger risk profile of the combined group - EBITDA interest coverage above 3.0x on a sustained basis Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: - Deteriorating organic and/or unsuccessful inorganic growth leading to a gradual weakening of EBITDA margins and low single-digit FCF margins - Continuing aggressive financial policy resulting in failure to deleverage to total debt/EBITDA below 6.0x by 2026. On completion of the Viatris transaction Fitch expects to relax the total debt/EBITDA sensitivity for a downgrade to 6.5x, reflecting the stronger risk profile of the combined group - EBITDA interest coverage below 2.0x on a sustained basis LIQUIDITY AND DEBT STRUCTURE Strong Liquidity: Fitch views Cooper's liquidity as strong, supported by projected FCF margins at mid-to-high single digits for 2023-2026 and EUR295 million in committed undrawn RCFs. In its liquidity analysis Fitch has excluded EUR25 million of cash Fitch deems as restricted for daily operations and intra-year working-capital requirements, and therefore not available for debt service. Debt maturities will remain long-dated following the planned debt increase to finance the acquisition of Viatris's OTC products. Its existing EUR160 million RCF matures in July 2027, the new EUR135 million RCF in May 2028, its existing EUR970 million TLB in January 2028, the new EUR1,105 million TLB in November 2028, its current EUR235 million second-lien loan in January 2029 and the new EUR112 million second-lien loan in November 2029. ISSUER PROFILE Cooper is a leading European OTC consumer healthcare specialist managing a diversified portfolio of brands sold mainly in retail pharmacies. ESG CONSIDERATIONS The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- Care Bidco LT IDR B Affirmed B senior secured LT B+(EXP) Expected Rating RR3 Senior Secured 2nd Lien LT CCC+(EXP) Expected Rating RR6 ============= G E R M A N Y ============= ATHENA BIDCO: Moody's Affirms 'B3' CFR, Outlook Remains Stable -------------------------------------------------------------- Moody's Investors Service affirmed Athena Bidco GmbH's (P&I or the company) corporate family rating and probability of default rating at B3 and B3-PD, respectively. Concurrently, Moody's affirmed at B3 the instrument ratings on the senior secured first lien term loans due in 2027 and senior secured revolving credit facility (RCF) due in 2026. The outlook on all ratings remains stable. RATINGS RATIONALE The affirmation of the B3 ratings considers evidence of P&I's successful transition towards a software-as-a-service (SaaS) offering, which Moody's expects to continue and to support continued revenue and EBITDA growth as well as improving margins. The high renewal rates and switching costs characteristic of enterprise software and the company's entrenched market position in the German mid-market and public sector human resources (HR) enterprise software market also support its credit quality. Moody's expects revenue and EBITDA growth could facilitate a reduction in P&I's Moody's-adjusted debt to EBITDA of 6.3x (as of June 2023) to below 6.0x in the next 12 months. However, P&I repaid EUR300 million of its shareholder loan in December 2022, and EUR259 million remains outstanding, so financial policy and the potential for incremental increases in debt weigh on the rating. Despite the higher interest rates and increase in gross debt, Moody's expects the company to continue to generate positive free cash flow (FCF) of around 3-5% in the next 12 to 18 months. The company's rating also reflects the relatively small size of the business in terms of revenue, its concentration in HR software in German-speaking regions in Europe, and the risk of customers switching to larger providers with a more comprehensive enterprise resource planning (ERP) system offering or disruption from smaller and highly specialised vendors. RATING OUTLOOK The stable outlook reflects the rating agency's expectation that P&I's revenue and EBITDA growth will be sufficient to cover higher interest rate payments so that the company remains FCF generative, and that credit metrics will remain well in line with its B3 rating over the next 12-18 months. LIQUIDITY P&I's liquidity is good. As of June 2023, the company had EUR64 million cash on balance sheet. Moody's also expects the company to continue to generate solid Moody's-adjusted FCF (after interest payments) of at least EUR25 million per year. In addition, the company has access to the undrawn revolving credit facility (RCF) of EUR50 million due September 2026. There is one financial covenant in the debt documentation only tested when the RCF is drawn more than 40%, under which the rating agency expects the company to retain solid capacity. STRUCTURAL CONSIDERATIONS The B3 rating on the instruments, in line with the CFR, reflects the pari passu capital structure comprising the EUR475 million senior secured first-lien Term Loan B, the EUR300 million senior secured first-lien Term Loan B1 and the EUR30 million senior secured first-lien Term Loan all due March 2027 and the EUR50 million RCF due September 2026. The debt security includes significant operating assets of the company and guarantees from significant subsidiaries accounting for at least 80% of consolidated EBITDA. The company has shareholder loans of approximately EUR259 million as well as a payment-in-kind (PIK) facility of around EUR380 million outside the restricted group. Although Moody's views the shareholder loan as equity-like, the repayment of a portion of it with incremental debt in December 2022 illustrates the potential for P&I to increase leverage to return capital to shareholders. Moody's also sees potential for P&I to refinance the PIK facility within the restricted group. However, the company has not to date put its capacity to generate positive free cash flow and to service interest expense at risk for such shareholder returns. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Positive rating pressure could develop if the company continues to grow its revenue and EBITDA, such that Moody's-adjusted leverage improves below 6.0x; Moody's-adjusted FCF/debt improves above 5%; and Moody's-adjusted (EBITDA – capital expenditures) / interest expense remains above 2.0x, all on a sustained basis. Clarity regarding financial policy that could accommodate a higher rating is also an important consideration. Conversely, negative rating pressure could develop if P&I's revenue and EBITDA growth is weaker than expected such that Moody's-adjusted leverage weakens to above 7.5x; FCF turns negative, or Moody's-adjusted (EBITDA – capital expenditures)/ interest expenses is below 1.3x, all on a sustained basis; or if liquidity deteriorates. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Software published in June 2022. COMPANY PROFILE Athena Bidco GmbH, through holding companies, is the parent of P&I Personal & Informatik AG, a provider of HR-related software solutions to public and small and medium-sized private entities, predominantly in Germany, but also in Austria and Switzerland. The majority owner is Hg, while the former majority owner Permira and management hold minority stakes. The company generated EUR219 million of revenue and EUR126 million of reported EBITDA in the 12 months that ended June 2023. SAFARI BETEILIGUNGS: Moody's Withdraws 'Caa3' Corp. Family Rating ----------------------------------------------------------------- Moody's Investors Service has withdrawn the Caa3 corporate family rating and the Caa3-PD probability of default rating of Safari Beteiligungs GmbH (Lowen Play or the company). Concurrently, Moody's has withdrawn the Caa2 instrument rating on the EUR258 million backed senior secured notes due 2025 issued by the company. The outlook prior to the withdrawal was positive. RATINGS RATIONALE Moody's has decided to withdraw the ratings for its own business reasons. COMPANY PROFILE Lowen Play is the second largest gaming arcade operator in Germany. The company has also nine gaming arcades in the Netherlands, and an online gaming platform in Germany and in Spain. =========== G R E E C E =========== DANAOS CORP: Moody's Hikes CFR to Ba2 & Alters Outlook to Stable ---------------------------------------------------------------- Moody's Investors Service has upgraded the corporate family rating of Danaos Corporation to Ba2 from Ba3 and its probability of default rating to Ba2-PD from Ba3-PD. Concurrently, the senior unsecured global notes rating has changed to Ba3 from B1. The outlook has changed to stable from positive. "The rating action was anchored on Danaos' ability to recharter expiring contracts to charter rates significantly higher than pre pandemic levels, extending its contract coverage to over 70% of total available operating days in 2024 and 2025" says Daniel Harlid, a Moody's Vice President - Senior Analyst and lead analyst for Danaos. "Despite the very weak container shipping market, Danaos' credit profile continues to benefit from still solid business fundamentals for chartering companies in general and its significantly reduced debt load, which protects the company better to the cyclicality of charter rates", Mr. Harlid added. RATINGS RATIONALE As the container shipping industry currently faces falling freight rates and weak demand, chartering companies like Danaos has so far continued to enjoy high demand for its vessels and subsequently high chartering rates from a historical perspective (though substantially lower than at the peak of the cycle in 2022). Whereas the industry is set to take delivery of an unprecedented amount of tonnage in 2024 and 2025, almost 65% is in the form of larger vessels with a capacity above 12,500 twenty-foot-equivalent-units (TEU). These type of vessels are usually not owned by chartering companies operating on time charters. Consequently, Moody's expects that demand for smaller vessels will continue to remain solid as they play an integral role in hub and spoke networks currently employed in a large part of the liner services. With over 50% of its vessels being of smaller size (with a capacity below 6,000 TEUs), Danaos is well positioned to benefit from these characteristics, also evidenced by a continued high share of contracted revenue with rates still higher than before the pandemic broke out in February 2020. As an example, the day rate for a 5,600 TEU vessel was $30,000 in September this year, almost 60% higher than in January 2020. The continued strengthening of Danaos' credit profile is balanced by a somewhat opportunistic strategy that recently resulted in the company re-entering the dry bulk market. During 2023, the company bought shares in US-based dry bulk shipping company Eagle Bulk Shipping for $68 million and also acquired 7 second hand dry bulk vessels for a total of $140 million. Although Moody's understands that Danaos' management finds current fundamentals for the dry bulk market very attractive, the dry bulk market is more of a spot rate trade where longer time charter contracts is unusual, unlike in container shipping. Even though Moody's base case assumes a continued gradual reversal of charter rates toward historical levels, Danaos' strong balance sheet and high share of contracted revenue until at least 2025 results in a sustained low Moody's-adjusted debt / EBITDA ratio of 1.2x in 2024 and sustained net cash position. This also includes an increase in debt to finance the delivery of six new vessels in 2024. Furthermore, the rating actions rests on Danaos materially reducing its debt over the two years, which protects the company better against the underlying cyclicality of charter rates. RATING OUTLOOK Despite very strong credit metrics, the stable outlook balances this with the risks associated with the opportunistic nature of the company's operating model and the absence of a formal dividend policy. As chartering companies are late cyclical compared with operating container shipping companies, Moody's expects Danaos' operating performance and credit metrics to remain strong at least throughout 2024, which will solidly position Danaos' Ba2 rating over the cycle. Absent a higher share of debt financing of new vessels than what is included in Moody's base case, or increased shareholder remuneration levels, Moody's expects Danaos to maintain a debt / EBITDA ratio below 2.0x and continue to generate positive free cash flow. LIQUIDITY PROFILE Danaos has good liquidity, with $293 million of cash on balance sheet as of June 2023 and a $360 million revolving credit facility (which decreases in size quarterly by $11.2). In addition, over 40% of its fleet is unencumbered on a book value basis, which serves as an alternative source of liquidity. Moody's project that mandatory debt amortisations will amount to $28 - $38 million annually, which the company will be able to cover with its strong FCF generation. The FCF amount depends on the size of the company's dividend payments, which remain discretionary given the absence of a formal dividend policy. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Positive rating pressure would be supported by: (1) Improved business profile in the form of increased scale, diversification or revenue visibility (2) Moody's-adjusted debt / EBITDA below 2.0x on a sustained basis (3) FFO coverage sustainably above 7.0x (4) Retained Cash Flow / Net debt at least in the high-30s in percentage terms (5) Free cash flow remaining positive (6) Limited rechartering risk (7) Well managed debt maturity profile Negative ratings pressure could arise if operating and credit metrics weaken on a sustained basis, such as: (1) Moody's-adjusted debt / EBITDA increasing above 2.5x on a sustained basis (2) FFO coverage sustainably below 6.0x (3) Retained Cash Flow / Net debt falling towards 20% (4) Free cash flow generation weakening significantly (5) Deteriorating liquidity (6) Failure to recharter vessels at adequate rates when contracts expire PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Shipping published in June 2021. COMPANY PROFILE Incorporated in Marshall Islands and with operational headquarters in Piraeus, Greece, Danaos is one of the world's largest containership charter-owners, with a fleet of 68 containerships with an aggregate capacity of roughly 421 thousand twenty-foot equivalent units and 10 methanol-ready under construction containerships aggregating approximately 75 thousand twenty-foot equivalent units. Danaos has also recently invested in the dry bulk sector with the acquisition of seven capesize bulk carriers aggregating 1.2 million deadweight tons. Danaos is listed on the New York Stock Exchange and its largest shareholder is Coustas Family Trust with a share of approximately 46.8%. ============= I R E L A N D ============= BLACKROCK EUROPEAN IV: Moody's Affirms B2 Rating on Class F Notes ----------------------------------------------------------------- Moody's Investors Service has upgraded the ratings on the following notes issued by BlackRock European CLO IV Designated Activity Company: EUR38,500,000 Class B-1 Senior Secured Floating Rate Notes due 2030, Upgraded to Aaa (sf); previously on Feb 1, 2022 Upgraded to Aa1 (sf) EUR20,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2030, Upgraded to Aaa (sf); previously on Feb 1, 2022 Upgraded to Aa1 (sf) EUR27,000,000 Class C Senior Secured Deferrable Floating Rate Notes due 2030, Upgraded to Aa3 (sf); previously on Feb 1, 2022 Upgraded to A1 (sf) EUR22,500,000 Class D Senior Secured Deferrable Floating Rate Notes due 2030, Upgraded to Baa1 (sf); previously on Feb 1, 2022 Affirmed Baa2 (sf) Moody's has also affirmed the ratings on the following notes: EUR270,000,000 (Current outstanding amount EUR241,784,533) Class A Senior Secured Floating Rate Notes due 2030, Affirmed Aaa (sf); previously on Feb 1, 2022 Affirmed Aaa (sf) EUR25,400,000 Class E Senior Secured Deferrable Floating Rate Notes due 2030, Affirmed Ba2 (sf); previously on Feb 1, 2022 Affirmed Ba2 (sf) EUR13,900,000 Class F Senior Secured Deferrable Floating Rate Notes due 2030, Affirmed B2 (sf); previously on Feb 1, 2022 Affirmed B2 (sf) BlackRock European CLO IV Designated Activity Company, issued in November 2017, is a collateralised loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured European loans. The portfolio is managed by BlackRock Investment Management (UK) Limited. The transaction's reinvestment period ended in January 2022. RATINGS RATIONALE The rating upgrades on the Class B-1, B-2, C and D Notes are primarily a result of a shorter weighted average life of the portfolio which reduces the time the rated notes are exposed to the credit risk of the underlying portfolio, but also the deleveraging of the senior notes following amortisation of the underlying portfolio over the year. The affirmations on the ratings on the Class A, E and F Notes are primarily a result of the expected losses on the notes remaining consistent with their current rating levels, after taking into account the CLO's latest portfolio, its relevant structural features and its actual over-collateralisation ratios. In light of reinvestment restrictions during the amortisation period, and therefore the limited ability to effect significant changes to the current collateral pool, Moody's analysed the deal assuming a higher likelihood that the collateral pool characteristics would maintain an adequate buffer relative to certain covenant requirements. The senior Class A notes have paid down by approximately EUR27.8 million (around 10% of the initial balance at closing) over the last 12 months. As a result of the deleveraging, over-collateralisation (OC) has increased across the capital structure. According to the trustee report dated October 2023 [1] the Class A/B, Class C, Class D, Class E and Class F OC ratios are reported at 137.11%, 126.24%, 118.57%, 110.88% and 107.07% compared to October 2022 [2] levels of 137.42%, 126.97%, 119.41%, 111.88% and 108.15%, 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: EUR416.1m Defaulted Securities: EUR4.7m Diversity Score: 58 Weighted Average Rating Factor (WARF): 2809 Weighted Average Life (WAL): 3.4 years Weighted Average Spread (WAS) (before accounting for Euribor floors): 3.85% Weighted Average Coupon (WAC): 2.77% Weighted Average Recovery Rate (WARR): 43.34% Par haircut in OC tests and interest diversion test: none 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. PALMER SQUARE 2023-3: Moody's Assigns (P)Ba3 Rating to Cl. E Notes ------------------------------------------------------------------ Moody's Investors Service announced that it has assigned the following provisional ratings to notes to be issued by Palmer Square European Loan Funding 2023-3 Designated Activity Company (the "Issuer"): EUR272,000,000 Class A Senior Secured Floating Rate Notes due 2033, Assigned (P)Aaa (sf) EUR39,000,000 Class B Senior Secured Floating Rate Notes due 2033, Assigned (P)Aa2 (sf) EUR21,200,000 Class C Senior Secured Deferrable Floating Rate Notes due 2033, Assigned (P)A2 (sf) EUR18,600,000 Class D Senior Secured Deferrable Floating Rate Notes due 2033, Assigned (P)Baa3 (sf) EUR18,400,000 Class E Senior Secured Deferrable Floating Rate Notes due 2033, Assigned (P)Ba3 (sf) RATINGS RATIONALE The rationale for the rating is based on a consideration of the risks associated with the CLO's portfolio and structure as described in Moody's methodology. The Issuer is a static CLO. The issued notes will be collateralized primarily by broadly syndicated senior secured corporate loans. Moody's expect the portfolio to be 100% ramped as of the closing date. Palmer Square Europe Capital Management LLC may sell assets on behalf of the Issuer during the life of the transaction. Reinvestment is not permitted and all sales and principal proceeds received will be used to amortize the notes in sequential order. In addition to the five classes of notes rated by Moody's, the Issuer will issue EUR33,200,000 of Subordinated Notes which are not rated. The transaction incorporates interest and par coverage tests which, if triggered, divert interest and principal proceeds to pay down the notes in order of seniority. 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. 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. Moody's modeled the transaction using a cash flow model based on the Binomial Expansion Technique, as described in Section 2.3 of the "Moody's Global Approach to Rating Collateralized Loan Obligations" rating methodology published in December 2021. Moody's used the following base-case modeling assumptions: Par Amount: EUR400,000,000 Diversity Score: 59 Weighted Average Rating Factor (WARF): 2718 Weighted Average Spread (WAS): 3.99% (actual spread vector of the portfolio) Weighted Average Coupon (WAC): 3.79% (actual spread vector of the portfolio) Weighted Average Recovery Rate (WARR): 45.0% Weighted Average Life (WAL): 4.2 years (actual amortization vector of the portfolio) =================== K A Z A K H S T A N =================== [*] Moody's Takes Actions on 7 Kazakh Non-Bank Finance Companies ---------------------------------------------------------------- Moody's Investors Service, on Oct. 31, 2023, upgraded the long-term issuer ratings of Industrial Development Fund JSC (IDF) to Ba1 from Ba2, and of Agrarian Credit Corporation JSC (ACC) to Baa3 from Ba1; ACC's short-term issuer ratings were also upgraded to Prime-3 from Not-Prime. Moody's has withdrawn ACC's Ba1 corporate family rating as this rating is Moody's anchor rating for non-investment grade issuers (ratings below Baa3). The rating agency has also affirmed the long- and short-term issuer ratings of Baiterek National Management Holding, JSC (Baiterek) at Baa2/Prime-2, Development Bank of Kazakhstan (DBK) at Baa2, Damu Entrepreneurship Development Fund JSC (Damu) at Baa3/Prime-3 and Kazakhstan Housing Company JSC (KHC) at Baa3/Prime-3. The outlook on all the issuers is now positive. Concurrently, Moody's affirmed ComTransLeasing's (CTL) B1 long-term corporate family and issuer ratings, and maintained its stable issuer outlook. The outlook actions follow Moody's decision to affirm Kazakhstan government's Baa2 rating and change its outlook to positive from stable on October 27, 2023. The positive outlook on the sovereign rating reflects Moody's assessment that material and ongoing progress in economic diversification points to greater resiliency to economic or financial shocks as well as progress in enhancing institutional quality and addressing sociopolitical matters. RATINGS RATIONALE -- Baiterek National Management Holding, JSC Baiterek's Baa2 rating affirmations reflect its important role in promoting Kazakhstan's economic development, while also serving as a channel to disburse government funding under key government programmes. Baiterek is highly integrated with the government, through the government's 100% ownership of the holding company and its involvement in Baiterek's business activities, including control over its financial performance and approval of its key metrics. As a result, Moody's believes that the Kazakh government would provide financial support to the holding company when necessary, and therefore aligns Baiterek's ratings to those of the government. -- Agrarian Credit Corporation JSC The upgrade of ACC's long-term ratings to Baa3 from Ba1 reflects improvements of its financial performance, which also resulted in the upgrade of its standalone assessment to b1 from b2. The ratings continue to incorporate four notches of rating uplift from Moody's assumptions of very high level of affiliate support from its parent, Baiterek. Improvements in ACC's standalone assessment are mainly driven by 1) better asset quality metrics, with the share of problem loans and leases to total loans and leases declining to below 30% as of June 2023 compared to over 45% at end-2021; 2) improved loss absorption capacity which is reflected in a higher reserve coverage of problem loans (55% at end-H1 2023, up from 27% at end-2021) while the tangible common equity to tangible managed assets ratio is sustained at 29% as of June 2023, and 3) higher profitability metrics with return on average assets of 3.3% in H1 2023 (up from 2.6% in 2022 and 1.3% in 2021) on the back of stronger margins, reduced cost of risk and better efficiency. At the same time, its standalone assessment captures high asset risks, as demonstrated by the still high level of problem loans and a substantial gap between loan loss reserves and Stage 3 loans; and its modest liquidity buffers. -- Withdrawal of the CFR Moody's has decided to withdraw the rating for its own business reasons. -- Industrial Development Fund JSC Moody's decision to upgrade IDF's corporate family rating and long-term issuer ratings to Ba1 from Ba2 reflects improvement in its financial performance, which also resulted in the upgrade of its standalone assessment to b1 from b2. The ratings continue to incorporate three notches of rating uplift from Moody's assumptions of very high support from its immediate parent, the Development Bank of Kazakhstan (DBK, Baa2 positive). The rating action is driven by improvements in its capital and loss absorption capacity following capital injections from Baiterek and DBK, with IDF's tangible common equity to tangible managed assets (TCE to TMA) ratio increased to 21% as of June 2023, from 15% at end-2022. IDF's larger capital base also improved its loss absorption capacity: problem loans to tangible common equity and loan loss reserves declined to around 10-12% as of June 2023 from 16% at end-2022, while IDF kept problem assets at below 7% and maintained a moderate earnings-generating capacity. At the same time, ratings are constrained by the company's susceptibility to politically and socially motivated decisions because of its public-policy role and high single-name concentration, which, combined with the long-term investment nature of lease deals, challenge asset quality. -- Development Bank of Kazakhstan DBK's Baa2 local- and foreign-currency long-term issuer ratings incorporate a four-notch uplift from the issuer's ba3 standalone assessment, reflecting Moody's view of affiliate-backed support from its parent, Baiterek. The rating affirmations reflect DBK's status as the most important subsidiary under the Baiterek umbrella with over 30% of its consolidated assets. DBK remains Baiterek's public face for third-party borrowings, as reflected in its high share of international funding compared to other companies in the group. DBK's ratings benefit from its public-policy role as a national development bank and regularly receives government funds – in the form of capital and funding – directed through its parent, and therefore also maintains good capital buffers. At the same time, DBK's credit profile is constrained by the company's susceptibility to politically and socially motivated decisions, high asset risks and credit concentrations, long-term foreign-currency exposures, and refinancing risk because of the high share of wholesale funding and moderate liquidity buffers. -- Damu Entrepreneurship Development Fund JSC Damu's Baa3 local- and foreign-currency long-term issuer ratings incorporate a four-notch uplift from the issuer's b1 standalone assessment, reflecting Moody's view of a very high level of affiliate support from its parent, Baiterek. Damu's rating affirmations reflect its public-policy role as a national development institution, while cheap government funding and government transfers to cover risks relating to credit guarantees extended to local banks also support Damu's profitability. The company's capitalisation metrics remain strong on the back of capital injections. At the same time, while problem loans remain at low levels, the company is exposed to losses stemming from its guarantee business in the relatively risky small and medium-sized enterprise segment. -- Kazakhstan Housing Company JSC KHC's Baa3 local- and foreign-currency long-term issuer ratings incorporate a three-notch uplift from the issuer's ba3 standalone assessment, reflecting Moody's view of a very high level of affiliate support from its parent, Baiterek. KHC's rating affirmations reflect its adequate capital buffers; lower risk asset profile, which is primarily exposed to bonds issued by regional administrations; and access to cheap funding and capital, which supports solvency and profitability. KHC's ratings also benefit from its public policy role as a national development company, and regularly receives government funds – in the form of capital and funding – directed through its parent. Despite the inherently risk-averse composition of KHC's assets, the company's policy mandate will continue to expose it to rapidly evolving strategic initiatives, which results in a constant need to adapt its risk management practices. As a result, KHC's profitability and asset quality remain exposed to volatility, especially taking into account large concentrations in the loan book and a growing portfolio of guarantees issued in favour of house buyers and in case construction companies fail to deliver the finished products. -- ComTransLeasing CTL's B1 long-term issuer ratings are derived from its b1 standalone assessment. The rating affirmations reflect the company's well-established niche in small-ticket auto and agriculture equipment leasing in Kazakhstan; its good quality underlying leasing assets; and strong loss absorption buffer, supported by good capitalisation and internal revenue generation. At the same time, the ratings are constrained by the company's relatively risky niche of operations – leasing to micro business and appetite for rapid asset growth; high reliance on limited sources of wholesale funding; and relatively low coverage of debt maturities by cash equivalents. In addition, the company's financial results depend to some extent on the profit allocation strategies of the wider group, a change of which can lead to increased earnings volatility. -- OUTLOOK ACTIONS The positive issuer outlooks on Baiterek and its subsidiaries – ACC, IDF, DBK, Damu and KHC – mirror the positive outlook on the Kazakh government rating and signals its potentially improving capacity to provide support in case of need. The positive outlook on IDF further demonstrates its growing importance in fulfilling the strategic policy objectives of DBK and the Government of Kazakhstan, as also reflected in regular capital injections and government funding, which would potentially result in a higher government support uplift. The stable outlook on CTL reflects Moody's view that the company will maintain its profitability, asset quality and capital adequacy at good levels, despite its still undiversified funding base. Moody's ratings do not impute any government support uplift for CTL because it is a small private-sector entity. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS Upward rating pressure on Baiterek and its subsidiaries would result from the authorities' improved capacity to provide support, as reflected by an upgrade of the ratings of the government, and of Baiterek. Upgrade of Baiterek's subsidiary companies is also contingent on maintaining a stable financial performance, especially with regards to their capitalization, asset quality and liquidity. CTL's ratings may be upgraded following the broadening of its funding base and improvement in its debt maturities coverage, together with sustaining good asset quality and capitalisation metrics. Given the positive issuer outlooks on Baiterek and its subsidiaries, rating downgrades are unlikely. The outlook can be reverted to stable if the outlook on the Kazakh government and Baiterek is changed back to stable. Downward pressure on Baiterek's subsidiaries could also be exerted as a result of a material deterioration in their financial performance, specifically their asset quality, profitability and liquidity. CTL's ratings maybe downgraded following a deterioration in the company's asset quality, profitability and liquidity; and/or increased risk appetite, illustrated by rapid asset growth, which would exert significant pressure on its capital; and/or a change in the liability structure towards a higher proportion of secured debt, which would negatively impact the ratings of unsecured obligations. LIST OF AFFECTED RATINGS Issuer: Baiterek National Management Holding, JSC Outlook Actions: Outlook, Changed To Positive From Stable Affirmations: ST Issuer Rating (Foreign Currency), Affirmed P-2 ST Issuer Rating (Local Currency), Affirmed P-2 LT Issuer Rating (Foreign Currency), Affirmed Baa2 LT Issuer Rating (Local Currency), Affirmed Baa2 NSR LT Issuer Rating (Local Currency), Affirmed Aaa.kz Issuer: Agrarian Credit Corporation JSC Outlook Actions: Outlook, Remains Positive Upgrades: ST Issuer Rating (Foreign Currency), Upgraded to P-3 from NP ST Issuer Rating (Local Currency), Upgraded to P-3 from NP LT Issuer Rating (Foreign Currency), Upgraded to Baa3 from Ba1 LT Issuer Rating (Local Currency), Upgraded to Baa3 from Ba1 NSR LT Issuer Rating (Local Currency), Upgraded to Aa3.kz from A1.kz Withdrawals: LT Corporate Family Rating, Withdrawn, previously rated Ba1 Issuer: Damu Entrepreneurship Development Fund JSC Outlook Actions: Outlook, Changed To Positive From Stable Affirmations: ST Issuer Rating (Foreign Currency), Affirmed P-3 ST Issuer Rating (Local Currency), Affirmed P-3 LT Issuer Rating (Foreign Currency), Affirmed Baa3 LT Issuer Rating (Local Currency), Affirmed Baa3 NSR LT Issuer Rating (Local Currency), Affirmed Aa2.kz Issuer: Development Bank of Kazakhstan Outlook Actions: Outlook, Changed To Positive From Stable Affirmations: LT Issuer Rating (Foreign Currency), Affirmed Baa2 LT Issuer Rating (Local Currency), Affirmed Baa2 Subordinate Medium-Term Note Program (Local Currency), Affirmed (P)Baa3 Senior Unsecured Medium-Term Note Program (Foreign Currency), Affirmed (P)Baa2 Senior Unsecured Medium-Term Note Program (Local Currency), Affirmed (P)Baa2 Senior Unsecured Regular Bond/Debenture (Local Currency), Affirmed Baa2 Senior Unsecured Regular Bond/Debenture (Foreign Currency), Affirmed Baa2 Issuer: Industrial Development Fund JSC Outlook Actions: Outlook, Remains Positive Upgrades: LT Issuer Rating (Foreign Currency), Upgraded to Ba1 from Ba2 LT Issuer Rating (Local Currency), Upgraded to Ba1 from Ba2 LT Corporate Family Rating (Foreign Currency), Upgraded to Ba1 from Ba2 LT Corporate Family Rating (Local Currency), Upgraded to Ba1 from Ba2 Affirmations: ST Issuer Rating (Foreign Currency), Affirmed NP ST Issuer Rating (Local Currency), Affirmed NP Issuer: Kazakhstan Housing Company JSC Outlook Actions: Outlook, Changed To Positive From Stable Affirmations: ST Issuer Rating (Foreign Currency), Affirmed P-3 ST Issuer Rating (Local Currency), Affirmed P-3 LT Issuer Rating (Foreign Currency), Affirmed Baa3 LT Issuer Rating (Local Currency), Affirmed Baa3 NSR LT Issuer Rating (Local Currency), Affirmed Aa2.kz Issuer: ComTransLeasing Outlook Actions: Outlook, Remains Stable Affirmations: LT Issuer Rating (Foreign Currency), Affirmed B1 LT Issuer Rating (Local Currency), Affirmed B1 NSR LT Issuer Rating (Local Currency), Affirmed Ba1.kz LT Corporate Family Rating, Affirmed B1 PRINCIPAL METHODOLOGY The principal methodology used in rating Baiterek National Management Holding, JSC was Government-Related Issuers Methodology published in February 2020. ===================== N E T H E R L A N D S ===================== DTEK RENEWABLES: Fitch Hikes Rating on Sr. Unsec. Notes to CC ------------------------------------------------------------- Fitch Ratings has upgraded DTEK Renewables Finance B.V.'s senior unsecured rating to 'CC' from 'C' based on better recovery prospects and an increase of the recovery rating to 'RR4' from 'RR5'. Fitch has also affirmed DTEK Renewables B.V.'s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'CC'. The affirmation of the IDRs reflects DTEK Renewables' weak financial profile with continuing high default risk. Despite increased generation volumes following completion of a wind farm project in May 2023, Fitch views default as very likely. DTEK Renewable is experiencing severe distress, including operational disruptions, limited liquidity and very high refinancing risk. KEY RATING DRIVERS Weak Liquidity, High Refinancing Risk: DTEK Renewables has sufficient cash held abroad for the next bond coupon payments on the green bond of EUR11.9 million due in November 2023, May and November 2024. However, Fitch views some form of debt restructuring related to the green bonds as highly likely within the next 12 months, given that the green bonds matures in November 2024 (current outstanding amount of EUR280.6 million). The default risk would be more imminent if the level of settlements from the guaranteed buyer are further reduced or if there are further operational disruptions following military attacks. Debt Service Needs Cash Abroad: DTEK Renewables has so far not been granted an exception to the foreign-exchange (FX) transfer moratorium, without which it cannot transfer cash available in Ukraine abroad to pay its international bondholders. Since the Russia-Ukraine war started, DTEK Renewables has been servicing its foreign-currency debt using cash in dedicated debt service (for loans) or interest reserve accounts (for bonds) and other financial sources. In 2023 its cash abroad was supported by extra inflow following the return of the advance payments paid by DTEK Renewables before the war to the supplier of wind turbines for Tiligul I phase project. About EUR40 million (UAH1,590 million) was returned in 1H2023 and paid to DTEK Renewables accounts. Negotiations to Defer Loan Repayment: DTEK Renewables is negotiating with its banks to amend the repayment schedule of the project debt at its finance subsidiaries, which have failed to pay the scheduled principal repayments falling due from November 2022 until now. This project debt is not guaranteed by DTEK Renewables and the subsidiaries are not obligors for the green bond. The project finance subsidiaries continue to pay interest on the project debt with waivers or standstill agreements pending to be signed in respect to all wind assets located in non-controlled territory. Severe Operational Disruptions: DTEK Renewables' production has been significantly reduced by the war. Out of a total consolidated capacity of 1.06 GW, about 47% is currently not operating. The currently available capacity includes solar farms for 447 MW and the wind farm of Tiligul WPP, recently upgraded to 114MW. Fitch expects a total production of roughly 1.1TWh from 2024, from 0.9TWh in 2022, assuming the current production configuration persists. This would translate into an EBITDA of about EUR95 million in 2024-25, while net debt would remain broadly stable at around EUR350 million in the same period. Strained Cash Flows: Payments from the guaranteed buyer under the feed-in-tariff weakened in 1H2023, averaging 49% of the amounts due. This was down from 84% in December 2022 and 93% in November 2022, but much above the average of 17% in March to May 2022. The level of settlements in the coming months will be conditional on the overall energy market in Ukraine, including the financial and liquidity position of main energy market participants and liquidity support from international financial institutions. Increased Tiligul Wind Farm Capacity: In 2H2022 DTEK re-launched the construction of phase I of the Tiligul wind farm in the Mykolaiv region, which stopped when the war started (six turbines were erected before the war). The construction finished in mid-May 2023, with 13 additional turbines of 6MW each. This brought total capacity to 114 MW (from 8MW at end-2021), with the potential to generate up to 390MWh under the feed-in-tariff at EUR 88/MWh. Tiligul Wind Farm Left Feed-in-tariff: In July 2023 DTEK Renewables started exploiting the opportunity provided by the government to sell electricity on the market, instead of selling it to the guaranteed buyer. From September 2023, DTEK Tiligul WPP fully shifted away from the guaranteed buyer and started selling electricity on the Ukrainian electricity market. This will support DTEK Renewables' liquidity and financial results, as the company receives 100% of payments immediately for the energy sold on the market, compared to an average of 55% of immediate payments from the guaranteed buyer with the rest paid with one- to two-year lag. DERIVATION SUMMARY In Fitch's view the company's liquidity metrics are in line with the 'CC' category, which indicates very high credit risk. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer: - Operations and available assets maintained at current levels into 2024-2025, with a majority of solar plants operating and only the Tiligul wind farms operating, with increased 114MW of capacity from May 2023 - Electricity production to remain at the current level following the launch of the 114 MW Tiligul wind farm in May 2023 (50% lower than in pre-war times and averaging 1,000 GWh in 2024-2025) - Collection of receivables from the guaranteed buyer at 55% of the amounts due and 100% collection of receivables of Tiligul wind farm from the market - Capex limited to maintenance (EUR10 million annually from 2023) with all development projects postponed, including the second phase of the 386MW Tiligul project KEY RECOVERY RATING ASSUMPTIONS - The recovery analysis assumes that DTEK Renewables would be a going concern (GC) in bankruptcy and that the company would be reorganised rather than liquidated - A 10% administrative claim - The assumptions cover the guarantor group only - Its GC EBITDA estimate reflects Fitch's view of a sustainable, post-reorganisation EBITDA level upon which Fitch bases the valuation of the company - The GC EBITDA of subsidiaries Orlovsk WPP, Pokrovsk SPP and Trifanovka SPP and Tiligul WPP of about EUR45 million is factored into its GC EBITDA for DTEK Renewables - Enterprise value multiple at 3x - These assumptions result in a recovery rate for the senior unsecured debt at 'RR4' with a waterfall generated recovery computation of 34%, indicating a 'CC' instrument rating. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Cessation of military operations and resumption of normal business operations with stabilisation of cash flow and an improved liquidity position Factors that could, individually or collectively, lead to negative rating action/downgrade: - The rating would be downgraded based on signs that a renewed default-like process has begun (for example, a formal launch of another debt exchange proposal involving a material reduction in terms to avoid a traditional payment default) - Non-payment of coupon or debt obligations, or steps towards further debt restructuring - The IDR would be downgraded to 'D' if DTEK Renewables enters into bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedures, or ceases business ISSUER PROFILE DTEK Renewables is the owner of wind and solar power generation assets in Ukraine with 986MW capacity in pre-war time production. ESG CONSIDERATIONS The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- DTEK Renewables Finance B.V. senior unsecured LT CC Upgrade RR4 C DTEK Renewables B.V. LT IDR CC Affirmed CC LC LT IDR CC Affirmed CC =========== S W E D E N =========== [*] SWEDEN: Company Bankruptcies Hit Highest Level Since 1999 ------------------------------------------------------------- Charles Daly and Niclas Rolander at Bloomberg News report that Swedish bankruptcies increased to their highest level for the month of October since records began in 1999, according to data compiled by collection agency Creditsafe. According to Bloomberg, during the month, 795 limited companies went bankrupt, marking an increase of 18% from October last year and 77% compared to the same month in 2021. Many firms established during the Covid-19 pandemic are "now facing a storm of macroeconomic challenges," Bloomberg quotes Managing Director Henrik Jacobsson of Creditsafe i Sverige AB as saying. Swedish bankruptcies in the construction sector have increased by 35% so far this year, retail by 32% and hotels and restaurants by 31%, Bloomberg discloses. Sticky inflation and a year and a half of interest-rate hikes by the Riksbank are hitting the biggest Nordic economy, where consumers are paring back spending, with retail sales declining for 17 straight months on an annual basis, Bloomberg states. Following a drop in house prices through much of 2022, home construction has come to a near halt as builders struggle with higher costs, Bloomberg notes. Many of the country's commercial landlords have also come under pressure from higher borrowing costs, and the Swedish krona has in recent months fallen to record lows against the euro, Bloomberg relates. Recent data also indicate that the labor market is now weakening after providing support to the economy, and output is widely expected to shrink this year, according to Bloomberg. ============= U K R A I N E ============= DTEK ENERGY: Moody's Affirms 'Ca' CFR, Outlook Remains Negative --------------------------------------------------------------- Moody's Investors Service has affirmed the long-term Corporate Family Rating of DTEK Energy B.V. at Ca. Concurrently, Moody's has affirmed DTEK Energy's probability of default rating at Ca-PD. The outlook remains negative. RATINGS RATIONALE Affirmation of DTEK Energy's CFR at Ca takes into account the significant risk of payment defaults and low expected recovery rate for DTEK Energy creditors because of the significant impact of the military conflict in Ukraine on DTEK Energy's operations and the national economy. Since the start of the conflict, DTEK Energy has suffered from decreasing energy demand and production, low energy prices, reduced payment collection and increased costs resulting from damage to operating assets and associated infrastructure. Electricity demand in the Ukraine is still significantly below pre-war levels. After the Russian invasion, demand dropped by more than 40% and is only slowly recovering. The daily output from coal-fired power stations has fallen even more drastically by almost 60%, but is also recovering, subject to damage as a result of Russian attacks. Collection rates for Ukrainian electricity generators reached a low at ca. 35% at the beginning of the conflict, but improved subsequently to close to normal collection rates of around 100%. DTEK Energy's assets continue to be affected by the conflict. The group has lost control of the Lukhanskaya TPP, and output at the Zaporizhzhya TPP ceased because of disruption to coal supply driven by damages to railway infrastructure. Further attacks appear likely, aiming to destabilize Ukrainian energy supply. On February 24, 2022, the National Bank of Ukraine passed a resolution affecting the operation of Ukrainian banks following the imposition of martial law. This resolution prohibits the release of cash from Ukrainian bank accounts in foreign currencies and imposed a moratorium on cross-border foreign currency payments, with certain exceptions. Until now, DTEK Energy was able to pay its US dollar obligations in relation to its Eurobond, but it is unclear whether it will be able to make payments in future periods as US dollar cash reserves held abroad are declining and funding via alternative sources may be limited as long as the moratorium stays in place. DTEK Energy continues to face very high refinancing risk because substantially all of its outstanding debt is denominated in US dollars and is predominantly maturing in December 2027. This risk is exacerbated by uncertainty over the future exchange rate between Ukrainian hryvnia and US dollars, which has been officially fixed at the level of February 24, 2022 since the start of the conflict, with a further depreciated fixing on July 21, 2022. On October 3, 2023, a regime of managed flexibility was introduced, which allows exchange rate movements again. However, the National Bank of Ukraine is actively participating in the market to maintain the stability of the exchange rate. There is no certainty that DTEK Energy will be able to refinance the notes, given the long-term effects of the conflict on its business, and because pressure on coal-fired generation is likely to increase over time. RATIONALE FOR THE NEGATIVE OUTLOOK The negative outlook reflects the risk of potential US dollar liquidity shortages caused by payment obligations related to the Eurobond as well as the threat of Russian attacks on DTEK Energy's generation and coal-related facilities, potentially leading to major disruptions in DTEK Energy's operations. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS The outlook could be changed to stable if DTEK Energy's operational performance solidifies on the back of increasing electricity demand and that it appears likely that DTEK Energy will be able to source US dollars to meet its debt obligations as they fall due, or after a resolution of the military conflict. The CFR could be downgraded if there are further operational cash outflows, loss of assets, inability to source US dollars, devaluation of the hryvna, or other developments that further reduce the profitability of coal-fired generation in Ukraine which ultimately could contribute to lower recovery rates. The principal methodology used in these ratings was Unregulated Utilities and Unregulated Power Companies published in May 2017. COMPANY PROFILE DTEK Energy B.V. is Ukraine's largest private power generator. As of December 2022, the group operated seven thermal power generation plants with total installed capacity of 12,047 megawatts, several coal processing plants, 9 coal mines and two coal-related machinery manufacturers. DTEK Energy accounted for 17.2% of Ukraine's total generated electricity in 2022 and over 50% of Ukrainian coal production, almost all of which was consumed in the company's thermal power plants. DTEK Energy is indirectly owned by DTEK B.V., which also operates electricity distribution and supply, renewable energy, gas production and commodity trading businesses in Ukraine. DTEK B.V. is fully owned by the financial and industrial group System Capital Management, whose 100% shareholder is Rinat Akhmetov. =========================== U N I T E D K I N G D O M =========================== BRENIG CONSTRUCTION: Enters Voluntary Liquidation ------------------------------------------------- Owen Hughes at North Wales Live reports that a North Wales developer that had expanded rapidly in recent years has gone into liquidation. Brenig Construction, in Mochdre, was set up in 2012 by Mark Parry and Howard Vaughan. It grew quickly -- securing valuable contracts with housing associations as well as private developments, North Wales Live discloses. The company said in 2021 it had a bulging order book with GBP60 million of work and plans for 300 new homes over four years, North Wales Live notes. But like others in the sector they've been hit by spiralling costs after the pandemic -- further fuelled by the war in Ukraine, and Brexit, North Wales Live relates. Now North Wales Live has been told that the firm has entered voluntary liquidation. FRONERI INT'L: Moody's Upgrades CFR & Senior Secured Debt to Ba3 ---------------------------------------------------------------- Moody's Investors Service has upgraded Froneri International Limited's (Froneri or the company) corporate family rating to Ba3 from B1, its probability of default rating to Ba3-PD from B1-PD and the instrument rating on the company's backed senior secured revolving facility due 2026 to Ba3 from B1. Concurrently, Moody's has upgraded the instrument ratings for the backed senior secured first lien term loan B due 2027 borrowed by Froneri Lux FinCo SARL and the backed senior secured first lien term loan B due 2027 borrowed by Froneri US, Inc to Ba3 from B1. The outlook on all ratings is maintained at stable. RATINGS RATIONALE The upgrade of Froneri's CFR to Ba3 from B1 follows the company's strong operating performance during the first six months of 2023, driven by Froneri's premiumisation strategy, significant pricing actions and resilient volumes, as well as efficiency gains resulting from the company's investments over the last two years. Moody's estimates that leverage (measured as Moody's-adjusted Debt/EBITDA) has reduced to approximately 5.1x as of the end of June 2023 compared to 6.0x at year-end 2022. Although the challenging economic environment is expected to continue over the next 12 to 18 months and the impact of the pricing actions will be lower during the second half of 2023, Moody's forecasts Froneri's operating performance to continue to improve during the remainder of 2023 and in 2024 resulting in leverage sustainably below 5.0x. During the first six months of 2023, Froneri's revenue grew approximately 13% due to pricing actions taken in late 2022 and early 2023, as well as the company's strategy focusing on super-premium products and handheld ice cream. Despite the significant price increases, volumes have remained flat when compared to the same period in the previous year, which Moody's views favourably during the currently weak economic environment for ice cream. Although A-brands continue to be the main growth driver of Froneri's sales, with sales price per pallet and volumes respectively increasing by 11.7% and 0.8%, the company has also benefitted from its leading position in the private label market in the UK, France, Germany and Italy. Company-reported EBITDA during H1 2023 also increased 37% relative to H1 2022, as the annualisation of the pricing actions taken during the second half of 2022 more than offset the impact of high input cost inflation and despite higher marketing investment. As a result, Moody's-adjusted leverage decreased to 5.1x at the end of June 2023 from 6.0x in 2022 and 6.6x in 2021. Free cash flow generation also returned to positive levels during H1 2023, as the higher EBITDA levels, as well as the reduced working capital outflows due to lower stock build and the benefit of exiting the Nestle S.A. (Aa3 stable) US TSA arrangement, more than offset the impact of increased capex investment in the US and higher interest costs. Moody's forecasts that Froneri's improving operating performance will continue throughout the remainder of 2023, although at a lower speed than in the first half of the year as the impact of earlier pricing actions is diluted and because the company will incur higher exceptional costs and marketing expenses. Additionally, although Moody's-adjusted EBITA/Interest Expense is expected to deteriorate relative to 2022, Moody's forecasts that it will remain above 2.5x. The rating agency also expects EBITDA generation to continue to increase in 2024 as a result of improving macroeconomic conditions, cost savings from production efficiencies, procurement initiatives and lower exceptional costs, resulting in Moody's-adjusted leverage to reduce sustainably to below 5.0x while achieving positive material free cash flow generation. Froneri's Ba3 CFR also reflects the company's (i) track record of EBITDA growth and successful integration of acquisitions; (ii) scale and geographic diversification; (iii) leading position in both branded and private label products; and (iv) good liquidity. However, the CFR is constrained by (i) product concentration in the highly competitive ice cream market; (ii) exposure to demand volatility stemming from changes in disposable income, customer preferences, unpredictable summer weather and retailer promotional activity; and (iii) potential margin volatility due to exposure to ongoing changing input costs. ESG CONSIDERATIONS Froneri's CIS-3 score indicates that ESG considerations have a limited impact on the current credit rating with potential for greater negative impact over time. This reflects the company's exposure to environmental and social risks related to pollution from plastic packaging and increasing consumer focus on healthier diets. LIQUIDITY The company had EUR470 million of cash on balance sheet and a fully available EUR600 million revolving credit facility (RCF) as at end of June 2023. Working capital requirements are typically higher in the first half of each year because of the build-up of inventory for the crucial summer period in the northern hemisphere. Moody's forecasts that liquidity will also be supported by meaningfully positive free cash flow generation over the next 12 to 18 months. The company has no major debt maturity until January 2027. The RCF contains a leverage-based springing covenant tested if the facility is drawn more than by 40% and for which Moody's expect there will be comfortable headroom. STRUCTURAL CONSIDERATIONS Froneri International Limited, the CFR level entity, is the top company within the restricted group in relation to the senior secured financing. The company is a direct subsidiary of Froneri Limited which is 100% owned by Froneri Lux Topco S.a.r.l. the top entity of the Froneri JV. The capital structure is made up of a EUR4.4 billion-equivalent term loan B due January 2027 and a EUR600 million RCF due July 2026 which are both rated Ba3, in line with the CFR. As part of the Nestle USA transaction, Nestle provided a new shareholder loan of $600 million, which was pushed down into the restricted group as an intragroup loan. The intragroup loan meets Moody's criteria for equity credit since it does not pay cash interest, is deeply subordinated and matures more than six months after senior debt. In addition, outside of the restricted group, there remains around EUR1.4 billion in shareholder loan provided by PAI and Nestle in equal measure and maturing in 2030. The shareholder loan is unguaranteed, unsecured, and subordinated to all other liabilities. RATING OUTLOOK The stable outlook reflects Moody's expectations that Froneri's operating performance will continue to improve over the next 12-18 months despite the current challenging economic environment. The stable outlook also reflects Moody's expectation that Froneri's Moody's adjusted leverage will fall below 5.0x and that free cash flow generation remains positive. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS The ratings could be upgraded if Froneri continues to pursue a financial policy that balances the interests of its shareholders and those of its creditors and operating performance improves such that (i) Moody's-adjusted debt/EBITDA is sustainably below 4.0x, (ii) the company's EBITA margin approaches 20%, (iii) free cash flow generation remains positive, and (iv) the company maintains good liquidity. The ratings could be downgraded if (i) Moody's-adjusted Debt/EBITDA increases sustainably above 5.0x, (ii) EBITA / interest falls sustainably below 2.5x, (iii) free cash flow turns negative on a sustained basis, (iv) liquidity deteriorates, or (v) Nestle's stake in the JV decreases. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Consumer Packaged Goods published in June 2022. COMPANY PROFILE Headquartered in the UK, Froneri is a JV between the former R&R business (owned by PAI Partners) and Nestle's (Aa3 stable) ice cream and select frozen food business. Nestlé and R&R have a long-standing relationship, with R&R operating Nestle brands under licences in the UK since 2001. The JV sells in 24 countries with the US and Europe constituting the main geographies. Froneri is also present in Latin America (Brazil and Argentina), Asia-Pacific (Australia, New Zealand and the Philippines), and Middle East & Africa (South Africa, Egypt and Israel), generating combined revenue of EUR5.1 billion in 2022. Globally, the company is the second-largest ice cream manufacturer and the leading private label ice cream supplier. Branded ice cream sales (around 88% of the category's sales in 2022) include Froneri's own brands and licenses from Mondelez International, Inc. (Baa1 stable). About 12% of Froneri's ice cream sales relate to its private label business which supplies major retail chains across Western Europe. Nestlé and PAI Partners share equal ownership and board representation in the JV. GILWOOD CO: Bought Out of Administration by DC Norris ----------------------------------------------------- Business Sale reports that Gilwood (Fabricators) Company, a Lancashire-based manufacturing business, has been acquired out of administration by DC Norris and Company in a pre-pack deal. Gilwood, which is based in Heywood, is a family-owned metal fabrication firm that specialises in manufacturing static process plant equipment and pressure vessels. The company's products are used across a wide array of sectors, including food and drink, oil and gas, nuclear and petrochemicals. However, the company encountered financial difficulties as a result of global economic uncertainty, with administrators saying that rising material costs and interest rates had impacted new orders, Business Sale relates. Gareth Harris and Chris Ratten of RSM UK Restructuring Advisory LLP were appointed joint administrators of the company on Nov. 1, Business Sale discloses. The administrators subsequently completed a sale of the business and its assets to DC Norris and Company, with all of the company's 26 employees to be offered jobs at a newly formed entity, Gilwood Limited, that will be part of the DC Norris group, Business Sale notes. According to Business Sale, joint administrator and RSM UK Restructuring partner Chris Ratten commented: "Gilwood is an established fabrication company in the North-West, and it is unfortunate that it has suffered over the last few months as a result of a delay and postponement of orders. Much of this is down to the economic uncertainty faced in the global markets by its customers and the decline in capital investment in projects due to rising interest rates and costs of materials." Mr. Ratten continued: "Given the ongoing economic challenges, we are pleased to have helped save the future of the company and support the regeneration of its existing pipeline. Securing its sale to DC Norris will protect all its skilled workforce for many years to come and allow Gilwood to continue operating in the market." INEOS QUATTRO: Fitch Alters Outlook to 'BB-' LongTerm IDR to Neg. ----------------------------------------------------------------- Fitch Ratings has revised the Outlook on INEOS Quattro Holdings Limited's Long-Term Issuer Default Rating (IDR) to Negative from Stable and affirmed the IDR at 'BB'. Fitch has also assigned INEOS Quattro's proposed EUR2 billion equivalent five-year term loans B (TLB) to be issued by INEOS Quattro Holdings UK Limited and INEOS US Petrochem LLC, expected senior secured ratings of 'BB+(EXP)'. The Recovery Ratings are 'RR2'. The Negative Outlook reflects its view that adverse market conditions in 2023 and 2024 will drive EBITDA net leverage above 5x. Fitch expects that a recovery of the chemical markets by 2025, coupled with capex and dividend discipline, will reduce EBITDA net leverage below 3.7x in 2026. However, significant capacity additions in aromatics, acetyls and styrenics mean that INEOS Quattro's markets may remain oversupplied for longer than Fitch forecasts, depending on the pace of demand recovery and global capacity restructuring. INEOS Quattro's ratings reflect its position as a globally diversified producer of chemical commodities with leading market positions and large scale, but with exposure to cyclical end-markets and volatile prices. The proposed TLB, as well as EUR800 million (equivalent) other secured debt that INEOS Quattro plans to raise, will be used to partly refinance existing TLB debt due in January 2026, fund the Eastman Texas City site acquisition, tender senior secured and senior notes due 2026 and pay transaction fees and expenses. Fitch will assigns final ratings upon receipt of final documentation largely conforming to the draft documentation reviewed. KEY RATING DRIVERS Leverage Surge on Market Trough: INEOS Quattro's EBITDA fell sharply across its four segments in 2023 due to weak demand and ample supply in its markets. The global chemical sector peaked in 1H22, and troughed in 2023. Fitch now expects INEOS Quattro's EBITDA to fall to EUR0.9 billion in 2023 from EUR2.2 billion in 2022, which is well below the company's guidance of bottom-of-the-cycle EBITDA. Consequently, EBITDA net leverage will rise to 5.7x in 2023, well above the negative rating sensitivity of 3.7x, from a conservative level of 1.9x in 2022. Fitch believes EBITDA net leverage will remain elevated in 2024 as capacity continues to exceed demand, and that INEOS Quattro's leverage will trend towards the negative sensitivity by 2025 and return below the sensitivity only in 2026. This factors in dividend and capex discipline as management strives to restore net debt/EBITDA below 3x. Fitch also expects weak EBITDA interest coverage of below 3x until 2026 due to rising interest rates and margins on loans. Prolonged Oversupply, Fierce Competition: Large capacities commissioned in 2023-2024 will keep styrenics, aromatics and acetyls sectors well supplied until at least 2025. Fitch expects demand to recover from 2024, based on reduced inventories across chemical value chains and signs of demand improvements as prices stopped declining, but this will only mitigate the impact of new capacity. Inovyn More Insulated: Inovyn has the strongest barriers to entry across the four business segments but it has been affected by increasing PVC exports from cost-advantaged US competitors. Fitch forecasts a quicker earnings recovery in 2025, as reduced operating rates in Europe tighten the regional caustic soda market. Fitch expects Inovyn's EBITDA contribution to be the highest and least volatile in 2023-2027. Reduced Mid-Cycle View: Fitch has revised down its assessment of mid-cycle EBITDA (excluding results of associates) to EUR1.6 billion-EUR1.7 billion from EUR1.8 billion due to the overcapacity situation and higher energy prices in Europe. Fitch expects INEOS Quattro's performance to return to mid-cycle only in 2026. Assuming net debt is maintained at EUR5.5 billion, this will lead to EBITDA net leverage around 3.3x, which Fitch sees as commensurate with the current rating. INEOS Quattro's management is implementing cost savings that will help defend the group's through-the-cycle EBITDA. Texas City Acquisition: The announced acquisition of the Texas City acetyls plant will modestly contribute to increasing EBITDA, with possible debottlenecking upsides. This could generate incremental EBITDA and save the group from building its own capacity, which would have been costly. Diversified Global Leader: INEOS Quattro operates in four chemical value chains and is a top-three producer in North America and Europe for some products, while its position is more mid-tier in the more fragmented Asian market. Its subsidiaries Styrolution and Inovyn offer more value-added products, leading to more pricing power, while the aromatics and acetyls businesses produce pure commodity chemicals and have more volatile earnings. The four businesses operate largely independently, but INEOS Quattro continues to pursue operational synergies. Rated on Standalone Basis: INEOS Quattro is part of a wider INEOS Limited group. Fitch rates the company on a standalone basis. It operates as a restricted group with no cross-guarantees or cross-default provisions with INEOS Limited or other entities within the wider group. Debt Ratings: Over 90% of the group's debt is senior secured with the remainder unsecured. The senior secured rating reflects the security package and is one notch above INEOS Quattro's IDR. The senior unsecured rating is one notch below the IDR, reflecting subordination. DERIVATION SUMMARY Olin Corporation (BBB-/Stable) is a vertically-integrated global manufacturer and distributor of vinyls, chlor alkali, epoxy and ammunition products. Olin's scale (2022 EBITDA: USD2.4 billion) is comparable with INEOS Quattro, while its end-market diversification is weaker. Olin's cost position is stronger, supported by its access to competitively priced natural gas liquids-based ethylene feedstocks. Fitch expects Olin to maintain lower EBITDA gross leverage than INEOS Quattro, trending at 1.5x-2.0x through the forecast horizon. INEOS Quattro's business profile is broadly similar to INEOS Group Holdings S.A.'s (IGH; BB+/Negative) considering scale, global reach and business diversification. However, IGH benefits from a cost advantage at its US sites, and also from feedstock flexibility in Europe. Although Fitch expects IGH's EBITDA net leverage to surge in 2023-2024, Fitch forecasts that on average it will be 0.7x lower than INEOS Quattro's over 2023-2026. Synthos Spolka Akcyjna (BB/Stable) is mainly engaged in the manufacture of synthetic rubber and insulation materials, with operations concentrated in Central Europe. Synthos is smaller (2022 EBITDA: USD400 million) and less diversified than INEOS Quattro, has similar EBITDA margins in mid-teens, but benefits from strong vertical integration and maintains lower EBITDA net leverage, which Fitch expects below 2.5x from 2025. INEOS Enterprises Holdings Limited (IE; BB-/Stable) is a diversified chemical producer specialised in pigments, composites, solvents and other chemical intermediates. Unlike IGH and INEOS Quattro, IE has smaller scale and is only a regional leader in niche chemical markets, but with modestly higher margins. Fitch expects IE's EBITDA net leverage to reduce below 3x by 2025. KEY ASSUMPTIONS - Consolidated sales to fall by 41% to EUR10.8 billion in 2023, by 2.7% to EUR10.5 billion in 2024; to grow by 9.6% to EUR11.5 billion in 2025, 6.6% to EUR12.2 billion in 2026 and 1.8% to EUR12.5 billion in 2027 - EBITDA margin to fall in 2023 to 7.8%, increase to 10.2% in 2024, 12.2% in 2025, 13.1% in 2026, 13.8% in 2027 - Effective interest rate on average at 6.7% in 2023-2027 - Total dividends of EUR1 billion in 2023, EUR0.2 billion in 2024, EUR0.2 billion in 2025, EUR0.4 billion in 2026 and EUR0.6 billion in 2027 - Capex of EUR525 million in 2023, EUR400 million in 2024, EUR450 million in 2025, EUR500 million in 2026 and EUR600 million in 2027 RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: The Outlook is Negative, therefore Fitch does not expect positive rating action. However, outperformance of the company leading to expectations of a quicker return of EBITDA net leverage below 3.7x could lead to a revision of the Outlook to Stable. - EBITDA net leverage below 2.7x on a sustained basis would be positive for the rating - EBITDA gross leverage below 3.2x on a sustained basis - Record of conservative financial-policy implementation - Improvement in cost structure and specialty product offerings leading to lower overall earnings volatility Factors that could, individually or collectively, lead to negative rating action/downgrade: - EBITDA net leverage above 3.7x a sustained basis - EBITDA gross leverage above 4.2x on a sustained basis - Significant deterioration in business profile such as scale, diversification or product leadership, or prolonged market pressure - High dividend payments or capex leading to sustained negative FCF LIQUIDITY AND DEBT STRUCTURE Comfortable Liquidity: As of 30 September 2023, INEOS Quattro had EUR2.1 billion of cash and cash equivalents. The company has no meaningful debt repayments until 1Q26 when about EUR3.6 billion comes due. Fitch expects INEOS Quattro to maintain comfortable liquidity in 2023-2027. The company also has EUR512 million of unutilised committed securitisation facilities that mature in June 2024. Large Floating Debt: About 72% of INEOS Quattro's EUR7.2 billion gross debt has floating rates. Consequently, interest burden has significantly increased in 2023. Assuming a proactive refinancing of 2026 maturities, Fitch expects gross interest expense to rise to about EUR500 million in 2024-2027. Over 90% of the company's debt is guaranteed by INEOS Quattro and other subsidiaries in the group on a senior secured basis. The EUR500 million unsecured senior notes are guaranteed by INEOS Quattro on a senior basis and by other subsidiaries in the group on a senior subordinated basis. ISSUER PROFILE Quattro is a diversified producer of chemical commodities and intermediates. Its main products are styrenics, vinyls, aromatics and acetyls. SUMMARY OF FINANCIAL ADJUSTMENTS Fitch has reclassified EUR299 million of lease liabilities as other financial liabilities and excluded them from financial debt. It has also reclassified EUR11.6 million of lease interest expense as selling, general and administrative expenses from interest expenses. Depreciation and amortisation have been reduced by right-of-use asset depreciation of EUR88.7 million. Fitch has added back EUR41.1 million of exceptional administrative expenses to EBITDA. ESG CONSIDERATIONS The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- INEOS Quattro Finance 2 Plc senior secured LT BB+ Affirmed RR2 BB+ INEOS Styrolution US Holding LLC senior secured LT BB+ Affirmed RR2 BB+ INEOS Quattro Finance 1 Plc senior unsecured LT BB- Affirmed RR5 BB- INEOS Quattro Holdings Limited LT IDR BB Affirmed BB INEOS US Petrochem LLC senior secured LT BB+(EXP)Expected Rating RR2 senior secured LT BB+ Affirmed RR2 BB+ INEOS Quattro Holdings UK Limited senior secured LT BB+(EXP)Expected Rating RR2 senior secured LT BB+ Affirmed RR2 BB+ INEOS Styrolution Group GmbH senior secured LT BB+ Affirmed RR2 BB+ LA PERLA: Judge Issues Winding-Up Order Over Unpaid Tax Debts ------------------------------------------------------------- Lucca de Paoli at Bloomberg News reports that a London judge ordered the shuttering of the UK unit of La Perla, a maker of luxury lingerie, over unpaid tax debts, underlining the pressure facing parent company Tennor Holding BV and its ultimate majority owner, Lars Windhorst. La Perla Global Management (UK) Limited was wound-up by a High Court judge in London on Nov. 1, as the group faced GBP2.8 million (US$3.4 million) of unpaid tax and a petition from His Majesty's Revenue & Customs, Bloomberg relates. A creditor applies for a court to wind up a company when it wants the business shuttered and its assets sold to repay its debts. HMRC was supported by two other creditors. The upmarket lingerie firm sells bras that can cost well over GBP300, as well as other items including nightwear, pyjamas and knickers, according to its website. The winding up of the business is evidence of the pressure on Windhorst and Tennor from creditors, Bloomberg notes. According to Bloomberg, a subsidiary of the La Perla unit that was shuttered on Nov. 1 is also facing a separate winding up petition from two Jersey entities called Carlton Tower. HMRC filed a petition against a company called Lars Windhorst Private Office Ltd. earlier this month, Bloomberg relays, citing court filings. The petition at the center of the Nov. 1 ruling was entered "as long ago as June" Judge Sally Barber said while explaining her decision to grant a winding-up order against the company, Bloomberg recounts. "A number of very generous adjournments have been granted to allow the company time to pay," she said. A lawyer that appeared for La Perla Global Management in court on Nov. 1 said that the payment was delayed due to an infusion of cash from the company's shareholder being blocked, without elaborating as to why, Bloomberg discloses. The lawyers, as cited by Bloomberg, said that Tennor Group was going to send the company GBP12 million in the next 14 days, but the judge refused to grant an adjournment to allow more time for the company's debts to be repaid. SILVA TIMBER: Enters Administration Following Cash Difficulties --------------------------------------------------------------- Business Sale reports that Silva Timber Products, a Cheshire timber merchant, has fallen into administration. The company, which is based in Widnes, supplied a wide range of specialist timber, timber fencing, composite decking, cladding and roof shingles. According to Business Sale, the company had experienced difficult trading conditions, largely as a result of a fall in demand. This led to the business encountering cash flow difficulties that negatively affected its ability to trade, ultimately resulting in the firm entering administration, Business Sale discloses. Anthony Collier and Richard Goodall of FRP Advisory were appointed as joint administrators to the company on Oct. 31, with the firm ceasing trading and the majority of its staff made redundant, barring a small number temporarily retained to assist the administrators, Business Sale relates. Commenting on the company's collapse, Mr. Goodall, as cited by Business Sale, said: "Silva Timber Products Limited has been one of the UK's leading importers of speciality timber products, sourced from the world's most reputable sawmills for more than 23 years. Unfortunately, mounting external pressures, most notably reduced sales and rising costs, resulted in the business being unable to meet its financial obligations." Following their appointment, the joint administrators have said that they will seek to find buyers for the business and assets of the company, Business Sale notes. In Silva Timber's accounts for the year to December 31 2022, its fixed assets were valued at slightly over GBP1 million and current assets at around GBP3.3 million, Business Sale states. At the time, its total equity amounted to GBP1.2 million, according to Business Sale. [*] UK: Scottish Cos. Going Into Administration Up in Q3 2023 ------------------------------------------------------------- Xander Elliards at The National reports that the number of Scottish businesses going into insolvency has jumped by a fifth year-on-year, according to analysis. The figures reflect a sluggish economy, the cost-of-living crisis, high interest rates and ongoing geopolitical uncertainty, The National relays, citing finance consultants Interpath Advisory. The firm analysed notices in The Gazette, the UK's official public record, and found that the Scottish data also reflects a UK-wide trend. According to The National, Interpath Advisory said they had found that a total of 11 companies based in Scotland fell into administration in the third quarter of 2023 -- a 22.2% increase on the nine companies in the third quarter of 2022. Across the UK as a whole, 330 companies fell into administration in the third quarter of 2023. This was a rise of 19.6% on the 276 firms to do so in the same period of 2022, The National discloses. The firm, as cited by The National, said it was "further evidence that insolvency activity is now back to pre-pandemic levels following the record lows seen during 2020 and 2021". "The number of insolvencies continues to creep up, but nevertheless, remains around pre-pandemic levels," The National quotes Alistair McAlinden, the managing director and head of Interpath Advisory in Scotland, as saying. "Indeed, if we look at the pattern of activity since the start of 2023, we've seen a steady and incremental uplift over the course of this year, rather than the sudden deluge many expected. "That said, in recent months there has been a noticeable shift in approach from creditors, including HMRC, lenders and landlords. "Whilst many previously preferred forbearance and restructuring to enforcement, we are starting to see more and more action taken in the form of winding up petitions. If this continues, this has the potential to precipitate a larger volume of insolvencies as we move through the final quarter of the year." Interpath Advisory said that the rising number of insolvencies can be seen across a wide range of sectors, with companies operating in the retail, building and construction, professional services, and real estate industries affected. McAlinden went on: "With the Chancellor ruling out the possibility of tax cuts this autumn, wider geopolitical events, and a 2024 General Election on the cards, the outlook for Scottish businesses remains uncertain. "As cost of living pressures and sluggish economic growth are likely to continue, a combination of short-term cash visibility, and long-term planning will be critical for businesses and management teams across Scotland to ensure they remain resilient." =============== X X X X X X X X =============== [*] BOOK REVIEW: The Turnaround Manager's Handbook -------------------------------------------------- Author: Richard S. Sloma Publisher: Beard Books Soft cover: 226 pages List Price: $34.95 Review by Gail Owens Hoelscher In the introduction to this book, the author suggests that an accurate subtitle could be "How to Become a Successful Company Doctor." Using everyday medical analogies throughout, he targets "corporate general practitioners" charged with the fiscal health of their companies. As with many human diseases, early detection of turnaround situations is critical. The author describes turnaround situations as a continuum differentiated by length of time to disaster: "Cash Crunch," "Cash Shortfall," "Quantity of Profit," and "Quality of Profit." The book centers on 13 steps to a successful turnaround. The steps are presented in a flowchart form that relates one to another. Extensive data collection and analysis are required, including the quantification of 28 symptoms, the use of 48 diagnostic and analytical tools, and up to 31 remedial actions. (In case the reader balks at the effort called for, the author points out that companies that collect and analyze such data on a regular basis generally don't find themselves in a turnaround situation to begin with!) The first step is to determine which of 28 symptoms are plaguing the company. The symptoms generally pertain to manufacturing firms, but can be applied to service or retail companies as well. Most of the symptoms should be familiar to the reader, but the author lays them out systematically, and relates them to the analytical tools and remedial actions found in subsequent chapters. The first seven involve the inability to make various payments, from debt service to purchase commitments. Others include excessive debt/equity ratio; eroding gross margin; increasing unit overhead expenses; decreasing product line profitability; decreasing unit sales; and decreasing customer profitability. Step 2 employs 48 diagnostic and analytical tools to derive inferences from the symptom data and to judge the effectiveness of any proposed remedy. The author begins by saying ". . . if the only tool you have is a hammer, you will view every problem only as a nail!" He then proceeds to lay out all 48 tools in his medical bag, which he sorts into two kinds, macro- and micro- tools. Macro-tools require data from several symptoms or assess and evaluate more than a single symptom, whereas micro-tools more general-purpose in function. The 12 macro-tools run from "The Art of Approximation" to "Forward-Aged Margin Dollar Content in Order Backlog." The 36 micro-tools include "Product Line Gross Margin Percent Profitability," Finance/Administration People-Related Expenses As Percent Of Sales," and "Cumulative Gross $ by Region." Next, managers are directed to 31 possible remedial actions, categorized by the four stage turnaround continuum described above. The first six actions are to be considered at the Cash Crunch stage, and range from a fire-sale of inventory to factoring accounts receivable. The next six deal with reducing people-related expenses, followed by 13 actions aimed at reducing product- and plant-related expenses. The subsequent five actions include eliminating unprofitable products, customers, channels, regions, and reps. Finally, managers are advised on increasing sales and improving gross margin by cost reduction in various ways. The remaining steps involve devising the actual turnaround plan, ensuring management and employee ownership of the plan, and implementing and monitoring the plan. The advice is comprehensive, sensible and encouraging, but doesn't stoop to clich, or empty motivational babble. The author has clearly operated on patients before and his therapeutics have no doubt restored many a firm's financial health. ********* 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 * * *