/raid1/www/Hosts/bankrupt/TCREUR_Public/231114.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Tuesday, November 14, 2023, Vol. 24, No. 228
Headlines
A U S T R I A
SIGNA DEVELOPMENT: S&P Lowers ICR to 'CCC' on Financial Challenges
I R E L A N D
BARINGS EURO 2018-1: S&P Affirms 'B-(sf)' Rating on Class F Notes
HAYFIN EMERALD V: Moody's Affirms Ba3 Rating on EUR24.2MM E Notes
HEALTHBEACON: Drew Down EUR300,000 in Emergency Loans
INDIGO CREDIT I: S&P Assigns B-(sf) Rating on Class F Notes
MALLINCKRODT PLC: Irish Court Confirms Scheme of Arrangement
PURPLE FINANCE 1: S&P Affirms 'B-(sf)' Rating on Class F Notes
WILTON PARK: S&P Assigns B-(sf) Rating on Class F Notes
I T A L Y
MONTE DEI PASCHI: Fitch Hikes LongTerm IDR to 'BB', Outlook Stable
TELECOM ITALIA SPA: Fitch Puts 'BB-' LongTerm IDR on Watch Positive
TELECOM ITALIA: S&P Puts 'B+' LongTerm ICR on Watch Positive
K A Z A K H S T A N
FREEDOM HOLDING: Terminates Maxim Group Purchase Agreement
L U X E M B O U R G
ARDAGH GROUP: S&P Lowers ICRs to 'B', Outlook Stable
P O L A N D
SYNTHOS SA: Moody's Affirms 'Ba2' CFR & Alters Outlook to Negative
T U R K E Y
QNB FINANSBANK: Fitch Assigns Final 'CCC+' Rating on Tier 2 Notes
U N I T E D K I N G D O M
GFG ALLIANCE: InfraBuild to Raise US$350M Bond to Repay Creditors
INEOS QUATTRO 2: Fitch Rates EUR525MM & US400MM in Bonds BB+(EXP)
LONDON RESORT: Paramount Global Files Suit in High Court Amid CVA
MANSARD MORTGAGES 2007-1: S&P Lowers B2a Notes Rating to 'B-(sf)'
PLAYTECH PLC: S&P Places 'BB' LongTerm ICR on Watch Negative
QUANTUM 4: Shuts Down Business Following Administration
RAINBOW UK 2: Moody's Affirms 'B2' CFR & Alters Outlook to Stable
TOTS BOTS: Enters Liquidation, 47 Jobs Affected
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A U S T R I A
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SIGNA DEVELOPMENT: S&P Lowers ICR to 'CCC' on Financial Challenges
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S&P Global Ratings lowered its long-term issuer and issue credit
ratings on real estate development company Signa Development
Selection AG (SDS) to 'CCC' from 'B-'. The recovery rating on the
senior unsecured debt remains unchanged at '4'.
The negative outlook reflects S&P's view that the company could
face a potential default over the next 12 months because of a
liquidity shortfall, absent any additional liquidity sources. This
would happen if SDS failed to meet its financial obligations,
including forbearance agreements with creditors, or if there was a
covenant breach followed by a debt acceleration or any other
scenario that could be considered a default under our criteria.
S&P said, "The downgrade of SDS reflects the company´s recently
announced business operation challenges, including liquidity
constraints, and our view that they will result in an unsustainable
capital structure. We understand that SDS is in the process of
appointing advisors and legal experts that can advise the company
and Signa Group's other entities on the current financial and
liquidity challenges. We note that SDS has put some construction
projects on hold because it could not pay its suppliers. Over the
past 12 months, SDS's project sales and project deliveries were
affected significantly by the sharp increase in interest rates, a
softer transaction market, and uncertainties about future property
valuations. We believe delayed project constructions and
development projects' lower upfront sales could lead to a
persistent cash flow deficit and constrain the company's financial
and liquidity position. We also note that the company's
shareholders have not received dividends for 2021 yet.
"The unavailability of bank funding and debt trading at distressed
levels increase the likelihood of a subpar repurchase and led to
liquidity constraints. Since the release of its first-half 2023
results on Nov. 1, 2023, SDS's debt has traded down significantly
to about 30 cents on the euro, which elevates the risk of a
distressed exchange or a subpar repurchase by SDS or its owners and
related parties. We believe this results in the lenders receiving
less than the original promised amount, which we view as akin to a
default. We also believe SDS will not be able to access capital
markets in the near term. We note the significant increase in
financial receivables to EUR659 million as of June 30, 2023, from
EUR454 million in December 2022, constrained liquidity additionally
as the company absorbed the significant cash amount, which we
expected would be available to fund construction projects and for
other liquidity needs."
According to public sources, Signa Group's other entities face
similar problems. Signa Group's other entities, such as Signa Prime
Selection AG and Signa Group's retail business, face similar
problems, including tighter liquidity, challenges to refinance
upcoming debt maturities, and increasing uncertainty about the
valuation of real estate assets. Additionally, some of Signa
Group's shareholders have exercised their put options, which
increases liquidity concerns. Since SDS is part of Signa Group, S&P
believes the deteriorating brand recognition will impair SDS's
construction and sales processes, underpinned by a certain
dependence on stakeholders and other key individuals.
S&P said, "Recovery prospects for SDS's senior unsecured debt
remain unchanged. After considering the company's first-half 2023
results, we maintain our recovery rating on the EUR300 million
senior unsecured bond, due in July 2026, at '4', indicating our
expectation of a 30%-50% recovery (rounded estimate: 40%) in the
event of a payment default. Our issue credit rating is 'CCC', in
line with the issuer credit rating.
"The negative outlook reflects our view that SDS could face
potential default scenarios over the next 12 months because of a
liquidity shortfall, absent any additional liquidity sources. This
would happen if SDS failed to meet its financial obligations,
including forbearance agreements with creditors, or if there was a
covenant breach followed by a debt acceleration or any other
scenario that could be considered a default under our criteria. The
negative outlook also reflects our view that SDS's debt trading
levels could incentivize the company to pursue a subpar debt
exchange."
S&P could consider a downgrade if it expected the company to
default over the next 12 months. This could happen if:
-- S&P expects the company will pursue a distressed debt exchange,
subpar repurchase, or other form of restructuring that could be
considered as a default under its criteria;
-- SDS is unable to secure the refinancing of any upcoming debt
maturity or announces a bankruptcy filing; or
-- SDS misses debt related payments or experiences a debt
acceleration after a covenant breach.
S&P said, "We could take a positive rating action if default
scenarios were no longer a potential risk over the next 12 months.
This would happen if the company successfully refinanced its
upcoming debt maturities via a transaction that we do not view as
distressed and improved its liquidity position such that near-term
liquidity risk is alleviated. A positive rating action would also
require the company's debt trading values to increase such that the
risk of a subpar repurchases is reduced and the liquidity concerns
of Signa Group's other entities are resolved."
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I R E L A N D
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BARINGS EURO 2018-1: S&P Affirms 'B-(sf)' Rating on Class F Notes
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S&P Global Ratings raised its credit ratings on Barings Euro CLO
2018-1 DAC's class B-1 and B-2 notes to 'AAA (sf)' from 'AA (sf)',
class C notes to 'AA (sf)' from 'A (sf)', class D notes to 'A+
(sf)' from 'BBB (sf)', and class E notes to 'BB+ (sf)' from 'BB
(sf)'. At the same time, S&P affirmed its 'AAA (sf)' rating on the
class A notes and its 'B- (sf)' rating on the class F notes.
The rating actions follow the application of its global corporate
CLO criteria and its credit and cash flow analysis of the
transaction based on the September 2023 trustee report.
S&P's ratings on the class A, B-1, and B-2 notes address the
payment of timely interest and ultimate principal, and the payment
of ultimate interest and principal on the class C to F notes.
Since S&P's previous review in March 2018:
-- The weighted-average rating of the portfolio remains unchanged
at 'B'.
-- The portfolio has become more diversified (number of performing
obligors has increased to 110 from 102).
-- The portfolio's weighted-average life decreased to 3.13 years
from 6.22 years.
-- The percentage of 'CCC' rated assets increased to 8.26% from
2.56%.
-- The scenario default rate decreased for all rating scenarios,
primarily due to decreased weighted-average life of the deal.
Portfolio benchmarks
CURRENT PREVIOUS RATING ACTION
(MARCH 19, 2018)
SPWARF 2,877.02 2659.41
Default rate dispersion 802.27 691.31
Weighted-average life (years) 3.13 6.22
Obligor diversity measure 71.22 85.86
Industry diversity measure 22.96 20.93
Regional diversity measure 1.29 1.46
SPWARF--S&P Global Ratings weighted-average rating factor.
On the cash flow side:
-- The reinvestment period for the transaction ended in April
2022. The class A notes have since deleveraged by EUR163.25 million
according to the October 2023 trustee report.
-- Credit enhancement has increased due to deleveraging. No class
of notes is currently deferring interest.
-- All coverage tests are passing as of the September 2023 trustee
report.
-- The weighted-average recovery rate has deteriorated at all
rating levels.
Transaction key metrics
CURRENT PREVIOUS RATING ACTION
(MARCH 19, 2018)
Total collateral amount
(mil. EUR)* 378.00 500
Defaulted assets (mil. EUR) 6.59 0.00
Number of performing obligors 110 102
Portfolio weighted-average rating B B
'CCC' assets (%) 8.26 2.56
'AAA' SDR (%) 56.56 69.10
'AAA' WARR (%) 38.81 41.93
*Performing assets plus cash and expected recoveries on defaulted
assets.
SDR--scenario default rate.
WARR--Weighted-average recovery rate.
S&P said, "In our view, the portfolio is diversified across
obligors, industries, and asset characteristics. There are 110
obligors and aggregate exposure to the top 10 obligors is now
25.48%. At the same time, almost 35.39% of the assets pay
semiannually. The CLO has a smoothing account that helps to
mitigate any frequency timing mismatch risks. Hence, we have
performed additional scenario analysis by applying a spread and
recovery compression analysis.
"Considering the continued deleveraging of the senior notes, which
has increased available credit enhancement, we raised our ratings
on the class B-1, B-2, C, D, and E notes. Their available credit
enhancement is now commensurate with higher levels of stresses. At
the same time, we affirmed our ratings on the class A and F
notes."
The cash flow analysis indicated higher ratings than those
currently assigned for the class C, D, and E notes. However, the
rating actions address concentration risk and the effect this may
have on the weighted-average spread and recovery generated on the
portfolio. S&P said, "For these classes, we considered that the
manager may still reinvest unscheduled redemption proceeds and sale
proceeds from credit-impaired and credit-improved assets. Such
reinvestments, as opposed to repayment of the liabilities, may
therefore prolong the note repayment profile for the most senior
class. We also considered the portion of senior notes outstanding,
the current macroeconomic environment, and these classes'
seniority. Considering all of these factors, we raised our ratings
on the class C note by three notches, class D note by four notches,
and class E note by one notch."
S&P said, "Following this analysis, we consider that the class F
notes' available credit enhancement is commensurate with a 'B-
(sf)' rating. We therefore affirmed our rating on the class F
notes.
"Counterparty, operational, and legal risks are adequately
mitigated in line with our criteria.
"Following the application of our structured finance sovereign risk
criteria, we consider the transaction's exposure to country risk to
be limited at the assigned ratings, as the exposure to individual
sovereigns does not exceed the diversification thresholds outlined
in our criteria."
HAYFIN EMERALD V: Moody's Affirms Ba3 Rating on EUR24.2MM E Notes
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Moody's Investors Service has upgraded the ratings on the following
notes issued by Hayfin Emerald CLO V DAC:
EUR24,500,000 Class B-1 Senior Secured Floating Rate Notes due
2032, Upgraded to Aa1 (sf); previously on Nov 18, 2020 Definitive
Rating Assigned Aa2 (sf)
EUR7,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2032,
Upgraded to Aa1 (sf); previously on Nov 18, 2020 Definitive Rating
Assigned Aa2 (sf)
EUR21,000,000 Class C Senior Secured Deferrable Floating Rate
Notes due 2032, Upgraded to A1 (sf); previously on Nov 18, 2020
Definitive Rating Assigned A2 (sf)
EUR25,600,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2032, Upgraded to Baa2 (sf); previously on Nov 18, 2020
Definitive Rating Assigned Baa3 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR208,300,000 Class A Senior Secured Floating Rate Notes due
2032, Affirmed Aaa (sf); previously on Nov 18, 2020 Definitive
Rating Assigned Aaa (sf)
EUR24,200,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2032, Affirmed Ba3 (sf); previously on Nov 18, 2020
Definitive Rating Assigned Ba3 (sf)
Hayfin Emerald CLO V DAC, issued in November 2020, is a
collateralised loan obligation (CLO) backed by a portfolio of
mostly high-yield senior secured European and US loans. The
portfolio is managed by Hayfin Emerald Management LLP. The
transaction's reinvestment period ends on November 17, 2023.
RATINGS RATIONALE
The rating upgrades on the Class B-1, B-2, C and D notes are
primarily a result of the benefit of the short period of time
remaining before the end of the reinvestment period on November 17,
2023.
In light of reinvestment restrictions during the amortisation
period, and therefore the limited ability to effect significant
changes to the current collateral pool, Moody's analysed the deal
assuming a higher likelihood that the collateral pool
characteristics would maintain an adequate buffer relative to
certain covenant requirements. In particular, Moody's assumed that
the deal will benefit from a lower weighted average rating factor
(WARF), a shorter amortisation profile and higher spread on the
portfolio than it had assumed at the last rating action on the
closing date in November 2020.
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: EUR348,534,565
Defaulted Securities: EUR4,000,000
Diversity Score: 45
Weighted Average Rating Factor (WARF): 2869
Weighted Average Life (WAL): 4.63 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.98%
Weighted Average Coupon (WAC): 3.36%
Weighted Average Recovery Rate (WARR): 42.65%
Par haircut in OC tests and interest diversion test: 0.59%
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 the account bank, using the
methodology "Moody's Approach to Assessing Counterparty Risks in
Structured Finance methodology " published in October 2023. Moody's
concluded the ratings of the notes are not constrained by these
risks.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.
Additional uncertainty about performance is due to the following
-- Portfolio amortisation: Once reaching the end of the
reinvestment period on November 17, 2023, the main source of
uncertainty in this transaction is the pace of amortisation of the
underlying portfolio, which can vary significantly depending on
market conditions and have a significant impact on the notes'
ratings. Amortisation could accelerate as a consequence of high
loan prepayment levels or collateral sales by the collateral
manager or be delayed by an increase in loan amend-and-extend
restructurings. Fast amortisation would usually benefit the ratings
of the notes beginning with the notes having the highest prepayment
priority.
-- Weighted average life: The notes' ratings are sensitive to the
weighted average life assumption of the portfolio, which could
lengthen as a result of the manager's decision to reinvest in new
issue loans or other loans with longer maturities, or participate
in amend-to-extend offerings. The effect on the ratings of
extending the portfolio's weighted average life can be positive or
negative depending on the notes' seniority.
-- Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Moody's analysed
defaulted recoveries assuming the lower of the market price or the
recovery rate to account for potential volatility in market prices.
Recoveries higher than Moody's expectations would have a positive
impact on the notes' ratings.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available to
rating committees, including macroeconomic forecasts, input from
other Moody's analytical groups, market factors, and judgments
regarding the nature and severity of credit stress on the
transactions, can influence the final rating decision.
HEALTHBEACON: Drew Down EUR300,000 in Emergency Loans
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Peter O'Dwyer at Business Post reports that HealthBeacon, the
embattled medtech firm, drew down EUR300,000 in emergency loans
within days of an interim examiner being appointed to the company,
filings show.
Shane McCarthy of KPMG was appointed interim examiner at the end of
October after the High Court heard that the company anticipated an
after-tax loss of more than EUR13 million this year, Business Post
relates. The court also heard it only had around EUR500,000 left
in the bank, Business Post notes.
According to Business Post, the firm's losses were the result of
increased headcount, building infrastructure, delays launching into
a "speciality pharmacy market", and an unsuccessful attempt to
launch a new business line in the US market.
Hamilton Beach Brands (HBB), a US appliance company, agreed to fund
the operation of the company during the examinership to the tune of
EUR1.85 million, Business Post discloses.
Recent results filings from HBB reveal that as of November 1,
HealthBeacon had drawn upon a significant portion of those funds,
Business Post states.
"Upon the appointment of the interim Examiner, HBB entered into a
facility agreement with HealthBeacon, pursuant to which HBB will
make secured loans to HealthBeacon in increments of at least
EUR0.25 million, up to a total amount of EUR1.85 million, to fund
its operations during the examinership.
As of November 1, 2023, EUR0.3 million was outstanding under the
facility agreement, Business Post discloses. No amount was
outstanding as of September 30, 202," the company, as cited by
Business Post, said in a statement.
It added that under the terms of the agreement, HealthBeacon must
repay the loans "no later than 120 days" after the commencement of
the examinership, unless that period is extended by HBB.
Earlier last week, Stephen Brady, barrister for Mr. McCarthy of
KPMG, told the High Court that interest in the company had been
"exceptionally positive" to date, Business Post relays.
He said Mr. McCarthy was already in receipt of expressions of
interest from eight parties and this occurred before any
advertisement for investment had been carried out, Business Post
notes. The investment proposals were described as "credible" by Mr.
Brady.
According to Business Post, a report compiled by McCarthy, and
presented to the court, said that there was significant growth
potential and that the firm was a "highly attractive business" for
a number of reasons.
INDIGO CREDIT I: S&P Assigns B-(sf) Rating on Class F Notes
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S&P Global Ratings assigned credit ratings to Indigo Credit
Management I DAC's class B to F notes. At closing, the issuer also
issued unrated class A notes, class A loans, and subordinated
notes.
The portfolio's reinvestment period will end approximately 4.50
years after closing, while the non-call period will end 1.5 years
after closing.
The ratings reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which is bankruptcy remote.
-- The transaction's counterparty risks, which are in line with
S&P's counterparty rating framework.
Portfolio benchmarks
CURRENT
S&P weighted-average rating factor 2,655.87
Default rate dispersion 601.99
Weighted-average life including reinvestment (years) 4.50
Obligor diversity measure 96.45
Industry diversity measure 20.79
Regional diversity measure 1.46
Transaction key metrics
CURRENT
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 2.00
'AAA' weighted-average recovery (%) 38.27
Covenanted weighted-average coupon (%) 3.75
Covenanted weighted-average spread (net of floors; %) 4.15
Under the transaction documents, the rated notes pay quarterly
interest unless a frequency switch event occurs. Following this,
the notes will switch to semiannual payments.
Asset Priming Obligations And Uptier Priming Debt
Under the transaction documents, the issuer can purchase asset
priming (drop down) obligations and/or uptier priming debt to
address the risk where a distressed obligor could either move
collateral outside the existing creditors' covenant group or incur
new money debt senior to the existing creditors.
Rationale
S&P said, "The portfolio is well-diversified, primarily comprising
broadly syndicated speculative-grade senior secured term loans and
senior secured bonds. Therefore, we have conducted our credit and
cash flow analysis by applying our criteria for corporate cash flow
CDOs.
"In our cash flow analysis, we used the EUR350 million target par
amount, the covenanted weighted-average spread (4.15%), and the
covenanted weighted-average coupon (3.75%) as indicated by the
collateral manager. We have assumed the actual weighted-average
recovery rates at all rating levels. We applied various cash flow
stress scenarios, using four different default patterns, in
conjunction with different interest rate stress scenarios for each
liability rating category.
"Our credit and cash flow analysis indicates that the available
credit enhancement for class B to F notes could withstand stresses
commensurate with higher ratings than those we have assigned.
However, as the CLO is still in its reinvestment phase, during
which the transaction's credit risk profile could deteriorate, we
have capped the assigned ratings.
"Until the end of the reinvestment period on May 09, 2028, the
collateral manager may substitute assets in the portfolio for so
long as our CDO Monitor test is maintained or improved in relation
to the initial ratings on the notes. This test looks at the total
amount of losses that the transaction can sustain as established by
the initial cash flows for each rating, and compares that with the
current portfolio's default potential plus par losses to date. As a
result, until the end of the reinvestment period, the collateral
manager may through trading deteriorate the transaction's current
risk profile, if the initial ratings are maintained.
"Under our structured finance sovereign risk criteria, we consider
that the transaction's exposure to country risk is sufficiently
mitigated at the assigned ratings.
"The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under our current counterparty criteria.
"The transaction's legal structure and framework is bankruptcy
remote, in line with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our ratings are
commensurate with the available credit enhancement for the class B
to F notes.
"In addition to our standard analysis, to indicate how rising
pressures among speculative-grade corporates could affect our
ratings on European CLO transactions, we also included the
sensitivity of the ratings on the class B to E notes based on four
hypothetical scenarios.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category--and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met--we have not included the above scenario analysis results
for the class F notes."
Ratings
CLASS RATING* BALANCE SUB (%) INTEREST RATE§
(MIL. EUR)
A NR 147.00 38.00 Three/six-month EURIBOR
plus 1.78%
A Loan NR 70.00 38.00 Three/six-month EURIBOR
plus 1.78%
B AA (sf) 35.90 27.74 Three/six-month EURIBOR
plus 2.60%
C A (sf) 21.00 21.74 Three/six-month EURIBOR
plus 3.50%
D BBB- (sf) 23.60 15.00 Three/six-month EURIBOR
plus 5.40%
E BB- (sf) 15.80 10.49 Three/six-month EURIBOR
plus 7.38%
F B- (sf) 12.30 6.97 Three/six-month EURIBOR
plus 9.45%
Sub. Notes NR 31.50 N/A N/A
*The ratings assigned to the class B notes address timely interest
and ultimate principal payments. The ratings assigned to the class
C to F notes address ultimate interest and principal payments.
§The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
MALLINCKRODT PLC: Irish Court Confirms Scheme of Arrangement
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Mallinckrodt plc (OTCMKTS: MNKTQ) (in examination under Part 10 of
the Companies Act 2014 of Ireland, and hereinafter "Mallinckrodt"
or the "Company"), a global specialty pharmaceutical company, on
Nov. 10 disclosed that the High Court of Ireland (the "Irish High
Court") has made an Order confirming a scheme of arrangement
between the Company, its creditors and shareholders (the "Scheme")
as proposed by the Examiner of the Company.
As previously announced, Mallinckrodt's Plan of Reorganization (the
"Plan") was confirmed by the U.S. Bankruptcy Court for the District
of Delaware on October 10, 2023.
The Irish High Court also made an Order that the Scheme will become
effective on the same date that the Plan becomes effective. This
is when the Scheme will become binding on the Company, its
creditors and shareholders as a matter of the laws of Ireland, the
Examinership proceedings will conclude, and the Company will cease
to be under the protection of the Irish High Court.
The confirmation of the Scheme by the Irish High Court (and its
subsequent effectiveness) satisfies a key condition to the
consummation of the Plan. Confirmation of the Scheme also enables
the Company to implement certain important aspects of the Plan in
accordance with the laws of Ireland. Mallinckrodt intends to
emerge from Chapter 11 process, and cause the Plan to become
effective, in the coming days. Effectiveness of the Plan remains
subject to the satisfaction or waiver of certain other conditions.
Latham & Watkins LLP, Wachtell, Lipton, Rosen & Katz, Arthur Cox
LLP, Richards, Layton & Finger PA, and Hogan Lovells US LLP are
serving as Mallinckrodt's counsel. Guggenheim Securities, LLC is
serving as investment banker, and AlixPartners LLP is serving as
restructuring advisor.
About Mallinckrodt plc
Mallinckrodt plc is global business consisting of multiple wholly
owned subsidiaries that develop, manufacture, market and distribute
specialty pharmaceutical products and therapies. Areas of focus
include autoimmune and rare diseases in specialty areas like
neurology, rheumatology, nephrology, pulmonology and ophthalmology;
immunotherapy and neonatal respiratory critical care therapies;
analgesics and gastrointestinal products.
Mallinckrodt plc and certain of its affiliates sought Chapter 11
protection (Bankr. D. Del. Lead Case No. 23-11258) on August 28,
2023.
Mallinckrodt plc disclosed $5,106,900,000 in assets and
$3,512,000,000 in liabilities as of June 30, 2023. Bryan M.
Reasons, authorized signatory, signed the petition.
Judge John T. Dorsey oversees the cases.
The Debtors tapped Latham & Watkins, LLP and Richards, Layton &
Finger, P.A. as their bankruptcy counsel; Arthur Cox and Wachtell,
Lipton, Rosen & Katz as corporate and finance counsel; Guggenheim
Securities, LLC as investment banker; and AlixPartners, LLP, as
restructuring advisor.
PURPLE FINANCE 1: S&P Affirms 'B-(sf)' Rating on Class F Notes
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S&P Global Ratings raised its credit ratings on Purple Finance CLO
1 DAC's class B notes to 'AAA (sf)' from 'AA (sf)', class C to 'AA+
(sf)' from 'A (sf)', class D to 'A (sf)' from 'BBB (sf)', and class
E to 'BB+ (sf)' from 'BB (sf)'. S&P also affirmed its 'AAA (sf)'
rating on the class A notes and its 'B- (sf)' rating on the class F
notes.
Purple Finance CLO 1 is a cash flow CLO transaction securitizing a
portfolio of primarily senior secured euro-denominated leveraged
loans and bonds issued by European borrowers. The transaction is
managed by MV Credit Partners LLP. Its reinvestment period ended in
January 2022.
The rating actions follow the application of S&P's relevant
criteria and its credit and cash flow analysis of the transaction
based on the September 2023 trustee report.
Since the end of the reinvestment period, the class A notes have
amortized to 47% of their initial size. As a result, the credit
enhancement has increased for the class A, B, C, D, and E notes,
and has remained stable for the class F notes.
Despite some deterioration of the portfolio's weighted-average
rating since closing to 'B' from 'B+', S&P's scenario default rates
(SDRs) have benefited from a reduction of the portfolio's
weighted-average life to 3.37 years from 6.20 years and have
decreased at each rating level.
According to the September 2023 trustee report, all of the notes
are paying current interest and all the coverage tests are
passing.
Table 1
Assets key metrics
CURRENT* AS OF CLOSING
Portfolio weighted-average rating B B+
'CCC' assets (%) 4.7 0.0
Weighted-average life (years) 3.37 6.20
Obligor diversity measure 66.7 92.7
Industry diversity measure 19.3 20.6
Regional diversity measure 1.1 1.3
Total collateral amount (mil. EUR)§ 200.34 300.00
Defaulted assets (mil. EUR) 0.97 0.00
Number of performing obligors 80 110
'AAA' SDR (%) 58.06 66.68
'AAA' WARR (%) 37.32 37.39
*Based on the portfolio composition as reported by the trustee in
September 2023 and S&P Global Ratings' data as of October 2023.
§Performing assets plus cash and expected recoveries on defaulted
assets.
SDR--Scenario default rate.
WARR--Weighted-average recovery rate.
Table 2
Liabilities key metrics
CLASS CURRENT AMOUNT CURRENT CREDIT ENHANCEMENT (BASED ON THE
SEPTEMBER 2023 CREDIT ENHANCEMENT
CURRENT CREDIT
ENHANCEMENT
(BASED ON THE
CURRENT AMOUNT SEPTEMBER 2023 ENHANCEMENT
CLASS (MIL. EUR) TRUSTEE REPORT) (%) AT CLOSING (%)
A 81.60 59.3 42.1
B 45.70 36.5 26.9
C 20.40 26.3 20.1
D 15.00 18.8 15.1
E 13.80 11.9 10.5
F 9.50 7.2 7.3
Credit enhancement = [Performing balance + cash balance + recovery
on defaulted obligations (if any) – tranche balance (including
tranche balance of all senior tranches)] / [Performing balance +
cash balance + recovery on defaulted obligations (if any)].
S&P said, "Following the application of our relevant criteria, we
believe that the class B, C, D, and E notes can now withstand
higher rating scenarios. We have raised our ratings on the class B
and C notes, in line with the results of our credit and cash flow
analysis.
"Our standard cash flow analysis indicates that the available
credit enhancement levels for the class D and E notes are
commensurate with higher ratings those assigned. Although the
transaction has amortized considerably since the end of the
reinvestment period in 2022, we have also considered the level of
cushion between our break-even default rate (BDR) and SDR for these
notes at their passing rating levels, as well as the current
macroeconomic conditions and these classes of notes' relative
seniority. We have therefore limited our upgrades on these notes
below our standard analysis passing levels.
"Our credit and cash flow analysis indicates that the class A notes
are still commensurate with a 'AAA (sf)' rating, and the class F
notes with a 'B- (sf)' rating. We have therefore affirmed our
rating on the class A and class F notes.
"Counterparty, operational, and legal risks are adequately
mitigated in line with our criteria.
"Following the application of our structured finance sovereign risk
criteria, we consider the transaction's exposure to country risk to
be limited at the assigned ratings, as the exposure to individual
sovereigns does not exceed the diversification thresholds outlined
in our criteria."
WILTON PARK: S&P Assigns B-(sf) Rating on Class F Notes
-------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Wilton Park CLO
DAC's class A, B-1, B-2, C, D, E, and F notes. At closing, the
issuer also issued unrated subordinated notes.
The class F notes is a delayed draw tranche, which has a maximum
notional amount of EUR11.40 million, and a spread of
three/six-month Euro Interbank Offered Rate (EURIBOR) plus 9.51%.
They can only be issued once and only during the reinvestment
period with an issuance amount totaling EUR11.40 million. The
issuer will use the full proceeds received from the sale of the
class F notes to redeem the subordinated notes or to purchase
additional assets. Upon issuance, the class F notes' spread could
be subject to a variation and, if higher, is subject to rating
agency confirmation.
The reinvestment period is 4.54 years, while the non-call period
will be 1.50 years after closing.
Under the transaction documents, the rated loans and notes pay
quarterly interest unless there is a frequency switch event.
Following this, the notes will switch to semiannual payment.
The ratings assigned to the notes reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which is bankruptcy remote.
-- The transaction's counterparty risks, which are in line with
S&P's counterparty rating framework.
Portfolio benchmarks
CURRENT
S&P Global Ratings weighted-average rating factor 2,752.74
Default rate dispersion 548.06
Weighted-average life (years) 4.54
Obligor diversity measure 143.36
Industry diversity measure 20.01
Regional diversity measure 1.24
Transaction key metrics
CURRENT
Total par amount (mil. EUR) 400.00
Defaulted assets (mil. EUR) 0.00
Number of performing obligors 181
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.99
Actual 'AAA' weighted-average recovery (%) 6.21
Actual weighted-average spread (%) 3.97
Actual weighted-average coupon (%) 4.63
S&P said, "Our ratings reflect our assessment of the collateral
portfolio's credit quality, which has a weighted-average rating of
'B'. We consider that the portfolio will be well-diversified on the
effective date, primarily comprising broadly syndicated
speculative-grade senior secured term loans and senior secured
bonds. Therefore, we conducted our credit and cash flow analysis by
applying our criteria for corporate cash flow CDOs.
"The transaction includes an amortizing reinvestment target par
amount, which is a predetermined reduction in the value of the
transaction's target par amount unrelated to the principal payments
on the notes. This may allow for the principal proceeds to be
characterized as interest proceeds when the collateral par exceeds
this amount, subject to a limit, and affect the reinvestment
criteria, among others. This feature allows some excess par to be
released to equity during benign times, which may lead to a
reduction in the amount of losses that the transaction can sustain
during an economic downturn. Hence, in our cash flow analysis, we
assumed a starting collateral size of EUR389.00 million (i.e., the
EUR400 million target par minus the maximum reinvestment target par
adjustment amount of EUR11.00 million).
"In our cash flow analysis, we also modeled the covenanted
weighted-average spread of 3.97%, and the covenanted
weighted-average recovery rates as indicated by the collateral
manager. We applied various cash flow stress scenarios, using four
different default patterns, in conjunction with different interest
rate stress scenarios for each liability rating category.
"The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under our current counterparty criteria.
"Following the application of our structured finance sovereign risk
criteria, we consider the transaction's exposure to country risk to
be limited at the assigned ratings, as the exposure to individual
sovereigns does not exceed the diversification thresholds outlined
in our criteria.
"The transaction's legal structure and framework are bankruptcy
remote, in line with our legal criteria.
"Our credit and cash flow analysis indicates that the available
credit enhancement for the class B-1, B-2, and C notes could
withstand stresses commensurate with higher ratings than those we
have assigned. However, as the CLO will be in its reinvestment
phase starting from the effective date, during which the
transaction's credit risk profile could deteriorate, we have capped
our ratings assigned to the notes.
"The class A, D, and E notes can withstand stresses commensurate
with the assigned ratings. In our view, the portfolio is granular
in nature, and well-diversified across obligors, industries, and
asset characteristics when compared with other CLO transactions we
have rated recently. As such, we have not applied any additional
scenario and sensitivity analysis when assigning our ratings to any
classes of notes in this transaction.
"For the class F notes, our credit and cash flow analysis indicates
that the available credit enhancement could withstand stresses
commensurate with a lower rating. However, we have applied our
'CCC' rating criteria, resulting in a 'B- (sf)' rating on this
class of notes.
The ratings uplift (to 'B-') reflects several key factors,
including:
-- The available credit enhancement for this class of notes is in
the same range as that of other recently issued European CLOs that
S&P rates.
-- The portfolio's average credit quality is similar to other
recent CLOs'.
-- S&P's model generated break-even default rate at the 'B-'
rating level of 22.69% (for a portfolio with a weighted-average
life of 4.54 years), versus if it was to consider a long-term
sustainable default rate of 3.1% for 4.54 years, which would result
in a target default rate of 14.07%.
-- The actual portfolio is generating higher spreads versus the
covenanted thresholds modelled in S&P's cash flow analysis.
-- For S&P to assign a rating in the 'CCC' category, it also
assess (i) whether the tranche is vulnerable to nonpayments in the
near future, (ii) if there is a one in two chance of this tranche
defaulting, and (iii) if we envision this tranche defaulting in the
next 12-18 months.
-- Following this analysis, we consider that the available credit
enhancement for the class F notes is commensurate with the assigned
'B- (sf)' rating.
-- Following S&P's analysis of the credit, cash flow,
counterparty, operational, and legal risks, it believe that its
ratings are commensurate with the available credit enhancement for
the class A, B-1, B-2, C, D, E, and F notes.
S&P said, "In addition to our standard analysis, we have also
included the sensitivity of the ratings on the class A to E notes,
based on four hypothetical scenarios.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
Wilton Park CLO is a European cash flow CLO securitization of a
revolving pool, comprising euro-denominated senior secured loans
and bonds issued mainly by speculative-grade borrowers. Blackstone
Ireland Ltd. manages the transaction.
Ratings list
CLASS RATING* AMOUNT SUB (%) INTEREST RATE§
(MIL. EUR)
A AAA (sf) 248.00 38.00 Three/six-month EURIBOR
plus 1.70%
B-1 AA (sf) 33.00 27.25 Three/six-month EURIBOR
plus 2.40%
B-2 AA (sf) 10.00 27.25 6.10%
C A (sf) 23.10 21.48 Three/six-month EURIBOR
plus 3.00%
D BBB- (sf) 27.40 14.63 Three/six-month EURIBOR
plus 5.20%
E BB- (sf) 16.30 10.55 Three/six-month EURIBOR
plus 7.56%
F† B- (sf) 11.40 7.70 Three/six-month
EURIBOR
plus 9.51%
Sub NR 37.60 N/A N/A
*The ratings assigned to the class A, B-1, and B-2 notes address
timely interest and ultimate principal payments. The ratings
assigned to the class C, D, E, and F notes address ultimate
interest and principal payments.
=========
I T A L Y
=========
MONTE DEI PASCHI: Fitch Hikes LongTerm IDR to 'BB', Outlook Stable
------------------------------------------------------------------
Fitch Ratings has upgraded Banca Monte dei Paschi di Siena S.p.A.'s
(MPS) Long-Term Issuer Default Rating (IDR) to 'BB' from 'B+' and
its Viability Rating (VR) to 'bb' from 'b+'. The Outlook on the
Long-Term IDR is Stable.
The upgrade reflects the bank's successful restructuring, which has
allowed it to structurally restore sound capital buffers and
strengthen its operating profitability. The upgrade also reflects
evidence that MPS has regained customer confidence - which
underpins stability in its deposit base - and its ability to issue
on the wholesale markets after a long absence.
The Stable Outlook reflects Fitch's expectation that the bank's
ratings have sufficient headroom to absorb the impact of economic
slowdown and inflation on asset quality, while maintaining adequate
operating profitability despite the expectation of a decreasing net
interest margin.
KEY RATING DRIVERS
Turnaround in Progress: MPS's ratings reflect the bank's progress
in restoring its franchise in Italy and structurally improving its
operating profitability while maintaining sound regulatory capital
buffers after a completed capital increase in 4Q22. The ratings
also reflect MPS's reduced balance-sheet risks and its stabilised
customer deposits complemented by a return to the wholesale markets
after a long absence.
Stabilised Franchise, Simplified Business: The successful
completion of MPS's recapitalisation and staff lay-off plan in 2022
put the bank in good stead to defend its market position in Italy
and relaunch its business model. The latter has been simplified to
focus on traditional commercial banking for retail and SME
customers. However, the bank is yet to build a longer record of its
business model and franchise sustainability throughout the economic
and interest-rate cycles.
Reduced Risk Appetite: Fitch believes that MPS's risk appetite has
structurally changed. However, the bank's tightened underwriting
standards and improved risk controls are yet to be tested
throughout the economic and interest-rate cycles. MPS is moderately
exposed to interest-rate risk, but sensitivity is adequately
managed.
Encumbrance of Italian government bonds has been reduced materially
but it is still high by international standards. Losses from legacy
legal claims remain potentially large, but MPS is reducing this
risk and built some provisions.
Asset Quality Under Control: MPS's impaired loan ratio has improved
modestly over the past three years to the lowest level in a decade
but remains above domestic and international averages. Fitch sees
some headroom to absorb deterioration of impaired loans in 2024,
which Fitch expects to be manageable given reduced risk appetite
and limited business generation in recent years. Comfortable loan
loss provisioning and use of state-guaranteed, further mitigate the
risk of large inflows of new impaired loans.
Structural Profitability Restored: Operating profitability has been
improving since end-2021 on the back of higher interest rates, but
also leaner operating costs, lower recurring loan impairment
charges (LICs) than in the past and a gradual recovery in revenue
generation. All these will continue to structurally support MPS's
performance and an operating profit at close to 2% of risk-weighted
assets (RWAs) in 2024-2025. However, a full turnaround in MPS's
profitability is contingent on the bank maintaining strong
fundamentals throughout the economic cycle and a normalisation of
the interest-rate environment.
Comfortable Capital Buffers: MPS is maintaining sound regulatory
capital buffers since its recapitalisation in 2022 due to tightened
risk appetite and recovering organic capital generation.
Capitalisation is sufficient to withstand expected asset-quality
deterioration but remains exposed to significant, although
declining, risks from pending legal claims and its domestic
sovereign bonds portfolio.
Fitch expects the bank to maintain its regulatory capital
comfortably above its stated medium-term objective of above 14%
despite plans to pay dividends in the near future. However, its
internal capital generation throughout the cycle is not fully
tested yet.
Stable Deposits, Improved Market Access: MPS's granular and broadly
stable customer deposit base, its improved liquidity buffers and
access to wholesale markets underpin the bank's strengthened
funding and liquidity profile. The bank has reduced ECB funding
over the past 12 months, but it is likely to remain significant by
national and international standards. Market access also remains
more price-sensitive and less reliable during periods of heightened
volatility than domestic peers'.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The ratings could be downgraded if the bank fails to achieve a full
turnaround with an operating profitability falling below 1% of RWAs
and its impaired loans ratio rising structurally above 6%, putting
pressure on its regulatory capital buffers without prospects of a
recovery in the short term.
Ratings pressure could also arise if the bank's funding and
liquidity deteriorates materially, for example, by means of reduced
buffers of liquidity, an unsustainable increase in the cost of
funding, failure to access wholesale markets or sustained
deterioration in its loans/deposits ratio. The ratings remain also
sensitive to large unexpected cost items, such as from pending
legal claims.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
An upgrade of MPS's ratings would require evidence of structural
improvements achieved to date to be maintained over the
medium-to-long term. This would include a resilient business model
generating an operating profit/RWAs ratio of at least
1.5%throughout the economic and interest-rate cycles and, an
impaired loans ratio structurally below 4%.
An upgrade would also require a common equity Tier 1 ratio being
maintained at least in line with MPS's medium-term target of above
14% and a stable the operating environment in Italy.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Long-term deposits are rated one notch above the Long-Term IDR
because of full depositor preference in Italy and its expectation
that MPS will comply with its minimum requirement for own funds and
eligible liabilities (MREL) over the medium term, and that deposits
will therefore benefit from the protection offered by junior bank
resolution debt and equity resulting in a lower probability of
default. The short-term deposit rating of 'B' is in line with the
bank's 'BB+' long-term deposit rating under Fitch's rating
correspondence table.
Senior preferred (SP) obligations are rated in line with the bank's
Long-Term IDR to reflect that the likelihood of default on any
given SP obligation is the same as that of the bank and their
average recovery prospects.
MPS's senior non-preferred (SNP) debt is rated one notch below the
bank's Long-Term IDR to reflect the risk of below-average recovery
prospects. Below-average recovery prospects arise from the use of
more senior debt to meet resolution buffer requirements and from
the combined buffer of Tier 2 and SNP debt being unlikely to exceed
10% of RWAs.
MPS's Tier 2 subordinated debt is rated two notches below the VR
for loss severity to reflect poor recovery prospects in a
resolution. No notching is applied for incremental non-performance
risk because write-down of the notes will only occur once the point
of non-viability is reached and there is no coupon flexibility
before non-viability.
Government Support Rating (GSR)
MPS's GSR of 'no support' (ns) reflects Fitch's view that although
external extraordinary sovereign support is possible it cannot be
relied on. Senior creditors can no longer expect to receive full
extraordinary support from the sovereign in the event that the bank
becomes non-viable.
The EU's Bank Recovery and Resolution Directive and the Single
Resolution Mechanism for eurozone banks provide a framework for
resolving banks that requires senior creditors participating in
losses, if necessary, instead of, or ahead of, a bank receiving
sovereign support.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The SP, SNP and long-term deposit ratings are primarily sensitive
to changes in the bank's Long-Term IDR, from which they are
notched.
The long-term deposit rating could be downgraded by one notch on a
reduction in the size of the senior and junior debt buffers,
although Fitch views this unlikely in light of MPS's current and
future MREL requirements.
The SP and SNP ratings could be upgraded if the bank is expected to
meet its resolution buffer requirements exclusively with SNP debt
and more junior instruments or if SNP and more junior resolution
debt buffers exceed 10% of RWAs on a sustained basis, both of which
Fitch views unlikely.
The subordinated debt rating is sensitive to changes in the bank's
VR, from which it is notched. It is also sensitive to a change in
the notes' notching, which could arise if Fitch changes its
assessment of their non-performance relative to the risk captured
in the VR.
An upgrade of the GSR would be contingent on a positive change in
the sovereign's propensity to support the bank. In Fitch's view,
this is highly unlikely, although not impossible.
VR ADJUSTMENTS
The business profile score of 'bb' is below the 'bbb' implied
category score due to the following adjustment reason: business
model (negative).
The earnings & profitability score of 'bb-' is above the 'b &
below' implied category score due to the following adjustment
reason: historical and future metrics (positive).
The capitalisation and leverage score of 'bb' is below the 'bbb'
implied category score due to the following adjustment reasons:
internal capital generation and growth (negative) and capital
flexibility and ordinary support (negative).
The funding and liquidity score of 'bb' is below the 'bbb' implied
category score due to the following adjustment reason: non-deposit
funding (negative).
ESG CONSIDERATIONS
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit neutral or have only a minimal credit impact on MPS, either
due to their nature or the way in which they are being managed by
the entity. Fitch's ESG Relevance Scores are not inputs in the
rating process; they are an observation of the materiality and
relevance of ESG factors in a rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Banca Monte
dei Paschi di
Siena S.p.A. LT IDR BB Upgrade B+
ST IDR B Affirmed B
Viability bb Upgrade b+
Government Support ns Affirmed ns
Subordinated LT B+ Upgrade B-
long-term
deposits LT BB+ Upgrade BB-
Senior
preferred LT BB Upgrade B+
Senior
non-preferred LT BB- Upgrade B
short-term
deposits ST B Affirmed B
TELECOM ITALIA SPA: Fitch Puts 'BB-' LongTerm IDR on Watch Positive
-------------------------------------------------------------------
Fitch Ratings has placed Telecom Italia S.p.A.'s (TIM) 'BB-'
Long-Term Issuer Default Rating (IDR) on Rating Watch Positive
(RWP).
The RWP follows TIM's announced disposal of the main part of its
fixed line network assets (NetCo) to a consortium led by funds
managed by Kohlberg Kravis Roberts & Co. L.P. (KKR). TIM intends to
use the disposal proceeds to reduce debt by about EUR14 billion.
The transaction is expected to close over 3Q24. The agreement also
includes the potential payment of earn-outs to TIM.
The RWP reflects Fitch's expectations of significantly lower
financial risk for TIM after the completion of the disposal and
debt reimbursement. Fitch expects the benefit of the material
deleveraging announced to offset the weakening of TIM's business
profile after the disposal of NetCo. The combination of these
factors is likely to lead to an upgrade up to 'BB+' upon resolution
of the RWP, which will be after the disposal is completed and the
debt prepayment delivered according to plan.
KEY RATING DRIVERS
Significant Leverage Reduction: Due to the announced disposal, TIM
expects to reduce financial debt for about EUR14 billion. This
curtails financial risk, particularly as TIM's debt maturities are
currently concentrated over the medium term, with about 50% of debt
due by 2026.
Its initial analysis suggests expected post-disposal net debt to
Fitch EBITDA leverage between 2.0x and 3.0x. In addition, the deal
will provide some relief to free cash flow (FCF), as material
investment outlays due to fibre deployment will no longer be
needed. In the context of fierce pricing competition, high
inflation and interest rates, Fitch expects the benefits of the
announced reduction in leverage to offset the weakening of the
business profile following the network disposal.
Service-Only Model: Fitch believes the sale of the network assets
could weaken TIM's business profile due to the reduction of
regulated revenues from one of its most stable, predictable and
profitable businesses. Fitch believes pure network operators have
higher debt capacity than integrated peers, followed by
service-only operators, as TIM will be post-disposal. If the deal
completes, Fitch expects to tighten TIM's leverage sensitivities to
reflect this new profile. The magnitude will depend on several
factors, including the retained economic interest in network
assets. It will also reflect TIM's cash-flow mix and post-deal
competitive landscape.
Encumbering Governance Risks: TIM's decision to approve KKR's offer
has been taken through a majority vote by the board of directors.
TIM maintains that it did not require the involvement of
shareholders. However, Fitch understands that dissenting minority
shareholders, including Vivendi, threatened adverse legal action
regarding this. While not its base case, Fitch believes that a
governance standoff around the board resolution could have adverse
consequences on the timing and economics of the deal.
Regulatory Oversight to Weaken: Post-disposal, Fitch expects TIM
will not be considered a vertically-integrated operator for
regulatory purposes. Consequently, its commercial offers will not
be subject to any ex-ante replicability tests by the regulator.
Additionally, lack of vertical integration will make horizontal
consolidation easier to deliver from an antitrust perspective.
Fitch expects some benefits to feed into margins via faster time to
market and higher control on pricing. These may be reflected,
post-closing, in net leverage benefits through the resulting cash
generation improvements.
Service Agreement: TIM's access to fixed-line networks will be on
an arm's-length basis after the network disposal, disciplined by
service agreements. The signing of a master service agreement with
the new owners of the assets under disposal is envisaged at
closing. Fitch expects TIM's purchasing power in wholesale contract
negotiations will be high, given its consistent market shares in
the fixed-line retail business.
Access to Alternative Infrastructures: TIM access opportunities to
wholesale fixed-line networks won't be exclusive and will go beyond
their legacy infrastructure. Wholesale providers would also include
OpenFiber's fibre to the home (FTTH) infrastructure. This will
provide for the scope to approach and maintain customers with
technology agnostic broadband offers. Target customers will include
existing TIM fibre to the cabinet or asymmetric digital subscriber
line customers set to switch to FTTH as OpenFiber's network
deployment advances.
Brazil's Relevance to Increase: After the deal closes, TIM will
combine leading domestic mobile and fixed-line operations, and a
strong mobile platform in Brazil. In Italy TIM leads in fixed,
while it contends the leading position in mobile with Vodafone.
Brazilian operations are envisaged to make up about 50% of TIM's
EBITDA after closing. TIM retains a strong market position in
Brazil as the third mobile operator, and runs profitable
operations. However, FX and business volatility risks are set to
weigh more on the new business combination.
DERIVATION SUMMARY
In Fitch's view, the sale of infrastructure assets by integrated
telecom operators weakens their business profiles due to the loss
of the stable and predictable network-related profits. The
separation of fixed retail and mobile operation from the local
access infrastructure of a vertically-integrated operator does not
provide for an increased total debt capacity. Post separation, the
debt capacity of the total parts should not exceed that of the
combined entities.
TIM's ratings are underpinned by its position as an integrated
incumbent operator in Italy, its relatively high leverage and
pressured FCF due to capex requirements and slow delivery of cost
efficiencies. TIM's leverage thresholds are looser than
similarly-rated cable peers, such as VMED O2 UK Limited and Telenet
Group Holding N.V (both BB-/Stable), and on a par with higher-rated
BT Group plc (BBB/Stable). Like TIM, Royal KPN N.V.'s (BBB/Stable)
revenue mix has a domestic focus, but it has ownership of a
majority of its entire local access network. BT and Royal KPN's
higher ratings reflect their lower leverage.
At completion of the announced disposal, TIM's business profile
will be grounded on the leading mobile and fixed-line operations in
Italy with a strong mobile platform in Brazil. Brazilian operations
will represent about half of the EBITDA, while mobile will be
larger than fixed retail. TIM will compare well with asset-light
fixed line operators such as Nuuday A/S (B/Stable), fixed and
mobile service providers as Iliad SA (BB/Stable) and mobile
pure-play operators such as Telefonica Deutschland Holding AG's
(BBB/Stable). Given the announced economics of the deal, Fitch
expects TIM's post deal leverage to be materially lower, and its
FCF to strengthen due to lower capex requirements.
KEY ASSUMPTIONS
Key Assumptions for TIM, excluding the impact of NetCo disposal and
linked debt prepayment:
- Domestic revenue to decline by 2% in 2023, before stabilising, a
group revenue broadly flat in 2023-2025
- Company-defined EBITDA margin (before special factors and leases)
of 38.5% in 2023 growing to 39.4% in 2024 and 40.1% in 2025.
- Recurring cash tax payments of EUR90 million-EUR120 million a
year in 2023-2025
- Broadly stable working capital requirements over the next two
years, before increasing to EUR75 million in 2025.
- Capex (including spectrum) at 24-27% of revenue in 2023 and 2024,
and 22% in 2025.
- No dividends in 2023-2025, including savings shares.
- Inflow from the National Recovery and Resilience Plan funds of
EUR600 million in 2024 and EUR500 million in 2025, supporting net
debt reduction
Fitch's initial assumptions for TIM after NetCo disposal:
- EUR14 billion debt prepayment, preserving a staggered debt
maturity schedule
- Revenue growth averaging around 1.3% in FY24-26 supported by TIM
Brazil and domestic enterprise segments offsetting losses in TIM
Consumer
- EBITDA margin of around 24% in FY24-FY26
- Capex averaging 15% of revenues for FY24-FY26
- No sale of TIM Sparkle has been factored in
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
TIM under the current (pre-NetCo) disposal perimeter:
- Fitch-defined EBITDA net leverage sustained below 4.5x. Fitch
will also be guided by TIM's EBITDA net leverage on a proportionate
basis for FiberCop.
- Continued improvement in domestic operations and fixed and mobile
operations that stabilises EBITDA and improves organic deleveraging
capacity.
- EBITDA interest coverage sustainably over 4.0x.
- Improvement of liquidity profile with higher-than-expected
EBITDA, stronger FCF and successful debt refinancing.
TIM post-NetCo disposal and after resolution of the RWP:
- Completion of the disposal of NetCo and planned debt prepayment
funded by the deal proceeds according to plan
- Fitch-defined EBITDA net leverage sustained below 2.7x would lead
to an upgrade to 'BB+'
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
TIM under the current, pre-NetCo, disposal perimeter:
- Fitch-defined EBITDA net leverage remaining above 5.2x. Fitch
will also be guided by TIM's EBITDA net leverage on a proportionate
basis for FiberCop.
- Tangible worsening of operating conditions or the regulatory
environment, leading to expectations of materially weaker FCF
generation.
- Sustained competitive pressure in the mobile, fixed and wholesale
segments, driving significant losses in service revenue market
share.
- Decreasing liquidity and signs of reduced access to financial
markets for refinancing.
- EBITDA interest coverage decreasing below 3.0x.
- Evidence of the deterioration, hindering or discontinuation of
the NetCo disposal and related debt prepayment may lead to removal
of the RWP and affirmation of the 'BB-' rating.
LIQUIDITY AND DEBT STRUCTURE
Improving Liquidity, Increasing Debt Cost: TIM's liquidity as of
3Q23 is EUR4.9 billion. Undrawn committed facilities amount to EUR4
billion. This covers maturities up to 2025 with an extra buffer of
around EUR1 billion. The company has issued a total of around EUR4
billion in 2023, including notes, private placements and a
financing from the European Investment Bank, demonstrating good
access to the debt capital markets. Fixed coupon rates for TIM's
latest euro-denominated issuances were between 6.9% and 7.9%. Based
on its current assumptions, Fitch expects TIM's average cost of
debt to peak in 2025 at around 7%, and to decline afterwards.
ESG CONSIDERATIONS
TI has an ESG Relevance score of '4' for Governance Structure. This
reflects historical conflicts between TI's shareholders and
frequent changes to senior management. Its scoring also mirrors the
recent governance disagreements between shareholders in the context
of the announced disposal of NetCo. This has a negative impact on
the credit profile and is relevant to the ratings in conjunction
with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Telecom Italia Capital
senior
unsecured LT BB- Rating Watch On RR4 BB-
Telecom Italia
S.p.A. LT IDR BB- Rating Watch On BB-
senior
unsecured LT BB- Rating Watch On RR4 BB-
Telecom Italia
Finance SA
senior
unsecured LT BB- Rating Watch On RR4 BB-
TELECOM ITALIA: S&P Puts 'B+' LongTerm ICR on Watch Positive
------------------------------------------------------------
S&P Global Ratings placed all its ratings on Italy-based
telecommunications service provider Telecom Italia SpA (TIM),
including its 'B+' long-term issuer credit rating, on CreditWatch
with positive implications.
S&P said, "The positive CreditWatch placement reflects the
possibility that we may raise our long-term issuer credit rating on
TIM by up to two notches if the transaction closes in line with our
expectations, which management anticipates will occur in the summer
of 2024. The resolution of the CreditWatch placement depends on
TIM's use of the proceeds from NetCo's disposal, as well as TIM's
future operating performance."
The CreditWatch placement follows the recent announcement that
TIM's board of directors has approved KKR's offer for NetCo. This
disposal is one of the steps in TIM's ongoing delayering plan that
it started implementing in 2022. Within the new business perimeter,
TIM will continue to provide its fixed and mobile services to its
retail and corporate clients in Italy, while accessing the domestic
fixed network through a master service agreement with NetCo. The
transaction has no impact on TIM's Brazilian business. The transfer
of the fixed network infrastructure to KKR will reduce the
diversification of TIM's asset base and the vertical integration of
its operations. This will weaken our assessment of TIM's business
risk profile.
TIM's leverage could improve significantly. The offer values NetCo
at EUR18.8 billion, excluding any potential earnout payments. S&P
said, "We understand that TIM will use a significant portion of the
proceeds to repay debt at closing. The exact details of TIM's
planned capital structure are unavailable at this stage. However,
TIM has publicly stated that, at the closing of the transaction,
company-adjusted net debt to EBITDA will be less than 2.0x, a
significant improvement from around 5.0x in the first half of 2023.
This would likely translate into S&P Global Ratings-adjusted debt
to EBITDA of 3.5x-4.0x on a pro forma basis. Our debt adjustments
include lease liabilities, the capitalization of fixed commitments
under master service agreements, factoring facilities, and pension
liabilities. In addition, we will likely partially deconsolidate
minority interests at the Brazilian operations (33%), due to the
fact that Brazil will account for about 50% of TIM's consolidated
EBITDA pro forma the NetCo disposal."
The agreed transaction presents upside potential, but also some
execution risks. Earnout considerations could increase the offer
value to up to EUR22 billion. The potential earnout payments are
linked to several conditions, including the possible introduction
of regulatory changes in the fixed network business. However, S&P
considers that this potential upside would only materialize beyond
its one-year rating horizon. The transaction is also subject to
execution risks due to the recent legal action launched by TIM's
largest shareholder, Vivendi, which owns about 23% of TIM's shares.
Vivendi is requesting that TIM obtains shareholder approval for the
deal, which would present an avenue to block the transaction.
The positive CreditWatch placement reflects the possibility that
S&P may raise its long-term issuer credit rating on TIM by up to
two notches if the transaction closes in line with its
expectations, which management anticipates will occur in the summer
of 2024. The resolution of the CreditWatch placement is contingent
on TIM's use of the proceeds from NetCo's disposal, as well as
TIM's future operating performance.
TIM is the incumbent telecoms services operator in Italy and the
market leader in the provision of voice and data services on
fixed-line and mobile networks for retail and wholesale operators.
As of Dec. 31, 2021, the company had about 8.6 million fixed-line
retail customers and about 30.5 million wireless customers in
Italy. It also has operations in Brazil through its 66.7% stake in
TIM Participacoes S.A. In the first six months of 2023, Italy
contributed about 72% of TIM's revenue and Brazil 28%.
===================
K A Z A K H S T A N
===================
FREEDOM HOLDING: Terminates Maxim Group Purchase Agreement
----------------------------------------------------------
Freedom Holding Corp. has pulled out of a deal to acquire New
York-based Maxim Group LLC, Freedom Holding disclosed in a Form 8-K
Report filed with the Securities and Exchange Commission.
On Feb. 15, 2023, the Company entered into a Membership Interest
Purchase Agreement with Maxim Partners LLC and MJR Holdings, Inc.,
Wallace LLC and Michael Rabinowitz as the sellers' representative
for the purchase by the Company of 100% of the membership interests
of Maxim Group LLC, a full-service investment bank, securities, and
wealth management firm headquartered in New York, and its
registered investment advisory affiliate Maxim Financial Advisors
LLC.
The Company and the Sellers have determined that the conditions to
closing set out in the Purchase Agreement will not be fulfilled by
December 31, 2023. Accordingly, effective October 31, the Company
and the Sellers terminated the Purchase Agreement by their mutual
written consent in accordance with Section 9.01(a) thereof and
subject to the terms and provisions thereof and provided mutual
releases.
About Freedom Holding
Freedom Holding Corp., formerly known as BMB Munai, Inc., is a
financial services holding company conducting retail financial
brokerage, investment counseling, securities trading, investment
banking and underwriting services through its subsidiaries under
the name of Freedom Finance in the Commonwealth of Independent
States (CIS). The Company is a member of the Moscow Exchange
(MOEX), Saint-Petersburg Exchange and Kazakhstan Stock Exchange
(KASE). The Company is headquartered in Almaty, Kazakhstan, with
executive offices also in Moscow, Russia and the United States. The
Company employs more than 400 experienced professionals across 24
branch offices in Russia, 15 branches in Kazakhstan, and offices in
Kyrgyzstan, Ukraine and Cyprus.
As reported by the TCR on Nov. 6, 2023, S&P Global Ratings revised
the outlook on Freedom Holding Corp. and its core subsidiaries to
negative. S&P affirmed the following ratings:
-- The 'B-' long-term issuer credit rating on Freedom Holding
Corp.;
-- The 'B/B' long- and short-term issuer credit ratings on
Freedom Finance JSC, Freedom Finance Europe Ltd., Freedom Finance
Global PLC, and Bank Freedom Finance Kazakhstan; and
-- The 'kzBB+' Kazakh national scale ratings on Freedom
Finance JSC and Bank Freedom Finance Kazakhstan.
S&P removed all ratings on Freedom Holding Corp. and its core
subsidiaries from CreditWatch with negative implications, where it
placed them on Aug. 24, 2023.
S&P said, "The rating affirmation reflects our expectation of
balanced risks at the current rating level and considers the 'b'
group credit profile on Freedom Holding Corp. Our ratings on
Freedom Holding Corp. and its core subsidiaries balance the group's
strengths as a growing, increasingly diversified, and profitable
financial services entity with the high risks inherent to the
markets it serves and its organizational arrangements."
New information disclosed in the group's latest annual report and
third-party allegations had limited adverse effects on Freedom
Holding Corp.'s business franchise and balance sheet so far.
Although near-term reputational, regulatory, and legal risks to
Freedom Holding Corp.'s businesses appear to have receded, the
fallout from the short-seller allegations could materialize in the
long term. S&P understands that market participants, including
execution brokers, clearing houses, and stock exchanges, maintained
their business relationships with the group over the past three
months. In addition, Freedom Holding Corp.'s customer base,
comprising citizens of Kazakhstan, Ukraine, unsanctioned Russians
and their diaspora, and a rising number of EU citizens, continued
expanding to over 455,000 brokerage clients as of end-September
2023. Retail and corporate deposits at Bank Freedom Finance
Kazakhstan remained stable between August and October 2023.
Customer funding on bank deposits and brokerage accounts
represented 35% of Freedom Holding Corp.'s funding as of end-June
2023.
S&P said, "We expect that Freedom Holding Corp. will continue to
generate most of its revenues from its Kazakh operations over the
next 24 months. Operations in Kazakhstan: Bank Freedom Finance
Kazakhstan, two insurance companies, and brokerage companies
accounted for well over half of the group's total revenues over the
past 15 months, ended June 30, 2023. At the same time, the
contribution of Cyprus-based Freedom Finance Europe Ltd. reduced to
about 15% of total revenues in the quarter ended June 30, 2023. The
reasons for the significant contributions of the group's Kazakh
operations were the rapid growth of Bank Freedom Finance Kazakhstan
and insurance businesses in Kazakhstan, the onboarding of new
brokerage clients--predominantly in the case of Freedom Finance
Global PLC, which is based in Astana International Financial
Centre--and the transfer of many Belizean clients to Freedom
Finance Global PLC. Therefore, we now apply the anchor for Kazakh
securities firms to Freedom Holding Corp., which is two notches
below the anchor for banks operating in Kazakhstan. We previously
applied the industry risk of Cyprus, where most of the group's
revenues were booked.
"The importance of the Belizean entity reduced. We note positively
that, in line with the management's strategy, the Belizean entity's
share of fees and commissions in the total group's commissions
(including brokerage, banking, and investment banking)
progressively declined to 8% in the quarter ended June 30, 2023,
from over two-thirds in 2021. The Belizean entity is not owned by
Freedom Holding Corp. but by majority owner Timur Turlov. The
Belizean entity's customers execute brokerage transactions
indirectly through Freedom Finance Europe. We view it as a complex
arrangement with inherent, albeit materially reduced, tail risk.
The Belizean entity's commissions were historically booked in
Cyprus.
"Freedom Holding Corp.'s continued rapid growth highlights
pressures on its capital and risk positions. We have long
considered Freedom Holding Corp. as an organizationally relatively
complex group with multiple financial and non-financial
subsidiaries in various countries with a track record of rapid
growth, both organically and through acquisitions. At the same
time, we believe that rapid franchise expansion across business
lines and geographies happens against the backdrop of a still
evolving consolidated risk management framework. Although Freedom
Holding Corp.'s entities in Kazakhstan have been subject to
multiple regulatory penalties, sanctions, and fines in the past, we
are not aware of new material regulatory sanctions over the past
three months since the publication of the short-seller report. The
group's balance sheet expanded by 2.2x over the 15 months ended
June 30, 2023. The 3.3x growth of its proprietary securities
portfolio, which mainly comprises bonds issued by the Kazakh
government and government-related entities and is financed through
repurchase agreements and customer funds, boosted the balance sheet
expansion. Freedom Holding Corp.'s rapid growth poses risks to its
capitalization, as measured by the risk-adjusted capital (RAC)
ratio, which reduced to 8.9% as of June 30, 2023, from 9.4% as of
March 31, 2023."
S&P does not rate any debt issued by the rated entities.
The negative outlook on Freedom Holding Corp. and its core
subsidiaries Freedom Finance JSC, Freedom Finance Global PLC,
Freedom Finance Europe Ltd., and Bank Freedom Finance Kazakhstan
over the next 12 months reflects (i) possible longer-term franchise
implications of market events stemming from adverse short-seller
coverage and (ii) pressures on the group's capitalization and risk
profiles from its rapid growth.
S&P said, "We could downgrade the holding company and the operating
subsidiaries over the next 12 months if Freedom Holding Corp. did
not demonstrate an adequate track record of effectively managing
legal, compliance, and governance risks across its multiple
subsidiaries. We could also lower the ratings if Freedom Holding
Corp. did not maintain at least adequate capitalization, as
measured by the RAC ratio, and strong earnings capacity. This could
result from further acquisitions, continued growth of its
proprietary securities position, or a faster-than-expected
expansion of client operations on Freedom Holding Corp.'s balance
sheet and less robust earnings. In addition, we could downgrade an
operating subsidiary if it became materially less important to the
group strategy, or if we were less confident that it would receive
group support.
"We could revise upward the outlook on the holding company and the
operating subsidiaries to stable from negative over the next 12
months if we had sufficient confidence that steps to strengthen the
group's governance and risk management are enduring. At the same
time, our RAC ratio would have to stabilize at the current level,
supported by strong earnings generation and limited acquisitions."
===================
L U X E M B O U R G
===================
ARDAGH GROUP: S&P Lowers ICRs to 'B', Outlook Stable
----------------------------------------------------
S&P Global Ratings lowered its issuer credit ratings on
Luxembourg-based metal and glass packaging producer Ardagh Group
S.A. (Ardagh) to 'B' from 'B+'. At the same time, S&P lowered its
issue credit ratings on (i) Ardagh Group's senior secured debt to
'B+' from 'BB-', (ii) Ardagh's unsecured notes to 'CCC+' from 'B-',
(iii) the deeply subordinated $1.7 billion toggle notes issued by
ARD Finance S.A. to 'CCC+' from 'B-', (iv) the senior secured notes
issued by Ardagh Metal Packaging (AMP) to 'BB-' from 'BB', and (v)
AMP's senior unsecured notes to 'B' from 'B+'.
S&P said, "The stable outlook reflects our expectation that the
group will continue to generate negative or minimal adjusted FOCF
in the near term and that adjusted debt to EBITDA will exceed 10.0x
over the next 12-18 months.
"We now forecast adjusted EBITDA and FOCF will fall short of our
expectations. We anticipate S&P Global Ratings-adjusted EBITDA of
$1.16 billion and negative FOCF of about $525 million for 2023. The
group's revenue generation has been undermined by
lower-than-expected demand for its glass and metal packaging
products due to poorer economic conditions, industry-wide
destocking, and customer-specific challenges, for example in the
case of a large U.S. beer producer. This led to lower-than-expected
utilization rates and fixed cost absorption in the second half of
2023. Additionally, we anticipate some restructuring costs as
Ardagh realigns its manufacturing capacity to the weaker demand.
This, together with its high capital intensity, high operational
gearing, and material interest burden, leads to negative FOCF
generation. Although the group will reduce growth investments in
2024, we do not anticipate positive FOCF generation before 2025. We
view the group's FOCF generation as insufficient, compared with
total adjusted debt in excess of $12 billion.
"We do not expect a material decline in leverage in the near term.
We believe that market conditions could improve in 2024 as
industry-wide destocking comes to an end, but do not anticipate a
material recovery in demand. Interest rates will likely remain
high, and we expect they will continue to undermine consumer
confidence. We therefore believe Ardagh's adjusted leverage will
likely exceed 10.0x in December 2023 and December 2024.
"We lowered our liquidity assessment to adequate from strong to
reflect our view of the group's weaker standing in credit markets.
Ardagh's liquidity position continues to benefit from $456 million
in available cash and $857 million available under committed credit
lines. The group has no material debt maturities before 2025. We
believe the group's perception on credit markets is now more in
line with an adequate liquidity assessment, given its
lower-than-expected FOCF generation and very high leverage.
"The stable outlook reflects our expectation that Ardagh will
continue to generate negative or minimal adjusted FOCF in the near
term and that adjusted debt to EBITDA will exceed 10.0x over the
next 12-18 months."
S&P could lower its issuer credit rating on Ardagh if:
-- EBITDA margins or FOCF generation failed to improve
materially;
-- S&P believed that the group struggles to refinance its large
debt maturities at an affordable price; and
-- Ardagh's financial policy became more aggressive, for example
if it undertook a large debt-funded acquisition or distributed high
dividends.
S&P could raise its issuer credit rating if the group's operating
performance improved, leading to:
-- Material positive adjusted FOCF generation on a sustainable
basis;
-- A recovery in EBITDA margins closer to their historic levels;
and
-- Adjusted leverage well below 10.0x.
S&P said, "ESG factors are an overall neutral consideration in our
credit rating analysis of Ardagh. Its exposure to environmental and
social risks is comparable with that of its industry peers. The
group continually seeks to improve its environmental performance
through emissions reduction, maximizing the use of recycled
content, minimizing raw material, energy consumption, and material
waste, and optimizing logistics. Although neither glass nor metal
are biodegradable, both can be recycled infinitely without quality
loss (unlike paper and plastics). Ardagh will likely benefit from
the increased substitution of plastic with other packaging
substrates, given that metal beverage cans and glass packaging are
infinitely recyclable."
===========
P O L A N D
===========
SYNTHOS SA: Moody's Affirms 'Ba2' CFR & Alters Outlook to Negative
------------------------------------------------------------------
Moody's Investors Service affirmed the Ba2 long-term corporate
family rating, Ba2-PD probability of default rating of Synthos S.A.
and the Ba2 instrument rating on the EUR600 million guaranteed
senior secured notes (SSNs) due 2028 issued by the company.
Concurrently, Moody's changed the outlook on Synthos to negative
from stable.
RATINGS RATIONALE
"The negative outlook incorporates the significant decline in
Synthos' operating performance in 2023, due primarily to weak
demand in the company's key tire manufacturing and construction
end-markets, with uncertainty regarding the pace of recovery. As a
result, Moody's adjusted leverage in 2023 rose to well outside
Moody's expectations for its Ba2 CFR, with only gradual improvement
projected over the next two years. The EBITDA drop occurred
alongside elevated capex and a dividend payment of PLN300 million
(EUR68 million equivalent based on exchange rates as of June 30,
2023), leading to negative free cash flow (FCF) projected for
2023," says Sebastien Cieniewski, a Moody's Vice President –
Senior Credit Officer and lead analyst for Synthos.
However, positive fundamentals for Synthos' key end-markets,
including enhancing the environmental credentials of the tire
industry and reducing energy consumption from better building
insulation, mitigate the weaknesses. Additionally, Moody's expects
lower capex and the company's commitment to pay no dividends in
2024 will support FCF generation over the next 18 to 24 months, and
for the company to use excess cash to repay drawdowns under the
EUR500 million revolving credit facility (RCF). Moody's also
expects an increasing contribution to earnings from Synthos'
utilities segment as the company ramps up electricity generation
from its new combined cycle gas turbine (CCGT) to be commissioned
in Q4 2023.
The 36% year on year drop in EBITDA led to a surge in Synthos'
Moody's adjusted gross leverage to 2.9x for the last twelve months
(LTM) period to June 30, 2023 from 1.7x at the end of 2022, and the
rating agency expects leverage to rise to around 4.2x by the end of
2023. At the same time Moody's projects Synthos will generate a
negative FCF (after dividends) in 2023 of around PLN150 million
(EUR34 million) driven by the lower EBITDA, high capital
expenditures of around PLN700 million (EUR158 million) due to among
others the commissioning of the new CCGT facility, and dividend
payment.
Despite the limited visibility on the pace of recovery, Moody's
expects a positive impact on prices from a rationalization of
capacity in Europe, including from Synthos which stopped production
of emulsion styrene butadiene rubber (ESBR) in its Kralupy facility
in the Czech Republic in April 2023, and moderate improvement in
volumes, so that the company's earnings gradually recover, leading
to a de-leveraging towards 3.0x by the end of 2024 and below 3.0x
by 2025. Moody's also projects that Synthos will generate positive
FCF during this period supported by increasing EBITDA, lower
capital expenditures and the absence of dividend payments in 2024.
The company has committed to no incremental dividend payments prior
to achieving its target net leverage (as reported by the company)
of between 2.0x to 2.5x, compared to 3.7x projected for year end
2023 and 1.5x in 2022.
LIQUIDITY
Synthos' liquidity is adequate, supported by EUR396 million
availability under its EUR500 million revolving credit facility and
cash of PLN114 million (EUR25 million) as of H1 2023. The company
extended the maturity of its revolving credit facility to August
2027. Based on projected FCF for 2024 and the absence of dividend
payments, the company projects to repay part of the drawdowns under
the RCF over the next 12 months. The company has two incurrence
covenants embedded in the bond documentation which do not affect
its ability to draw down on its existing RCF.
STRUCTURAL CONSIDERATIONS
The Ba2 rating for the EUR600 million SSNs is aligned with the CFR.
The bond ranks pari passu with the EUR500 million revolving credit
facility. The SSNs are guaranteed by operating entities accounting
for the bulk of the group's consolidated assets, revenues and
accounting EBITDA and secured by share pledges and real estate of
Polish subsidiaries.
OUTLOOK
The negative outlook reflects uncertainty around the timing and
level of recovery in Synthos' earnings, such that Moody's expects
credit metrics to remain outside of the expectations for the Ba2
CFR until at least the end of 2024.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive ratings pressure is limited over the short-term, however,
over time the ratings could be upgraded with expectations for
Moody's-adjusted gross debt/EBITDA sustainably well below 2.0x
alongside maintenance of strong liquidity and FCF to debt
sustainably in the mid-teens. A higher rating would also require
continued commitment to conservative and predictable financial
policy, particularly in relation to shareholder returns.
The ratings could be downgraded if Synthos is not able to reduce
its adjusted debt/EBITDA to below 3.0x over the next 18 months or
fails to generate meaningful FCF on a sustainable basis, or if
Moody's sees a material deterioration in favorable longer term
fundamentals for Synthos. The rating also could be downgraded if
the company cannot achieve its own financial target of company
defined net leverage in the 2.0x to 2.5x range or adopts a more
aggressive financial policy.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Chemicals
published in October 2023.
COMPANY PROFILE
Headquartered in Oswiecim, Poland, Synthos is one of the leading
European synthetic rubber and styrenics producers, with its
production facilities located in Poland, the Czech Republic,
France, Germany and the Netherlands. Synthos is a privately held
company, beneficially owned by Mr. Michal Solowow via MS Galleon
Gmbh registered in Austria.
===========
T U R K E Y
===========
QNB FINANSBANK: Fitch Assigns Final 'CCC+' Rating on Tier 2 Notes
-----------------------------------------------------------------
USD300 million issue of Basel III-compliant Tier 2 capital notes
due 2033 a final rating of 'CCC+ '. The Recovery Rating is 'RR5'.
The final rating is the same as the expected rating assigned on 8
November 2023.
The notes qualify as Basel III-compliant Tier 2 instruments and
contain contractual loss absorption features, which can be
triggered at the point of non-viability. According to the terms,
the notes are subject to permanent partial or full write-down, on
the occurrence of a non-viability event (NVE). There are no equity
conversion provisions in the terms.
An NVE is determined as occurring once the bank has incurred losses
and has become, or is likely to become, non-viable as determined by
the local regulator, the Banking and Regulatory Supervision
Authority (BRSA). The bank will be deemed non-viable should it
reach the point at which the BRSA determines its operating license
is to be revoked and the bank liquidated, or the rights of QNBF's
shareholders (except to dividend), and the management and
supervision of the bank, are transferred to the Savings Deposit
Insurance Fund on the condition that losses are deducted from the
capital of existing shareholders.
The notes have a 10-year maturity and a call option after five
years.
KEY RATING DRIVERS
The notes are rated one notch below QNBF's Long-Term
Foreign-Currency (LTFC) Issuer Default Rating (IDR) of 'B-', in
accordance with Fitch's Bank Rating Criteria.
The one notch for loss severity reflects Fitch's view of
below-average recovery prospects for the notes in an NVE. The
one-notch loss severity, rather than its baseline two notches,
reflects its view that shareholder support from Qatar National Bank
(Q.P.S.C.) (A/Positive), could help mitigate losses, and
incorporates the cap on the bank's LTFC IDR at 'B-' due to its view
of government intervention risk.
The anchor rating of QNBF's LTFC IDR reflects its view that Qatar
National Bank (Q.P.S.C.), the parent of QNBF, would likely seek to
restore QNBF's solvency without imposing losses on subordinated
creditors. It also reflects the likelihood that a QNBF default
would be driven by some form of transfer and convertibility
restrictions, rather than a loss of solvency or liquidity.
QNBF's LTFC IDR is driven by shareholder support from Qatar
National Bank (Q.P.S.C.), and underpinned by its Viability Rating
(b-). Fitch uses the LTFC IDR as the anchor rating for the
certificates as Fitch believes that potential extraordinary
shareholder support is likely to flow through to the bank's
subordinated debt holders. Its view of support is based on QNBF's
strategic importance to its parent, ownership, integration and role
within the wider group.
Fitch has applied zero notches for incremental non-performance
risk, as the agency believes that write-down of the notes will only
occur once the point of non-viability is reached, there is no
coupon flexibility prior to non-viability, and as the notes do not
incorporate going-concern loss-absorption features.
The notes' 'RR5' Recovery Rating reflects below-average recovery
prospects in default.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
As the notes are notched down from QNBF's shareholder
support-driven LTFC IDR, their rating is sensitive to a downgrade
of the IDR. The notes' rating is also sensitive to an unfavourable
revision in Fitch's assessment of loss severity and incremental
non-performance risk.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
The notes' rating is sensitive to an upgrade of QNBF's LTFC IDR.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
QNBF's ratings are underpinned by shareholder support from QNB.
ESG CONSIDERATIONS
The ESG Relevance Score for Management Strategy of '4' reflects an
increased regulatory burden on all Turkish banks. Management
ability across the sector to determine their own strategy and price
risk is constrained by increased regulatory interventions and also
by the operational challenges of implementing regulations at the
bank level. This has a moderately negative impact on the credit
profile and is relevant to the rating in combination with other
factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
QNB Finansbank
Anonim Sirketi
Subordinated LT CCC+ New Rating RR5 CCC+(EXP)
===========================
U N I T E D K I N G D O M
===========================
GFG ALLIANCE: InfraBuild to Raise US$350M Bond to Repay Creditors
-----------------------------------------------------------------
Robert Smith and Eric Platt at The Financial Times report that
Sanjeev Gupta's Australian steel business InfraBuild is offering to
pay high interest rates to regain access to the bond market, in a
deal that could help unlock funds to repay some of the metal
magnate's creditors.
Businesses within Gupta's GFG Alliance have struggled to borrow
money since the 2021 collapse of its main lender Greensill Capital,
which had about US$5 billion of debt exposure to the group, the FT
states. Authorities in the UK and France opened criminal
investigations into GFG in the same year, the FT recounts.
According to the FT, InfraBuild is now looking to raise a new
US$350 million bond, with bankers at Jefferies indicating the new
debt could offer yields as high as 15%, according to several people
involved in the deal.
InfraBuild sounded out investors about a new bond this year, but
demand was weak partly because of concerns about its proposed
US$600 million acquisition of Gupta's Liberty Steel USA, the FT
relays. That acquisition has now been scrapped and InfraBuild's
new bond deal is solely to refinance an existing US$325 million
bond ahead of its maturity next year, the FT notes.
Several investors told the FT that while they would not invest
because of the ongoing investigations into GFG, the latest bond
sale had a better chance of success due to existing bondholders'
willingness to take part in the refinancing.
While InfraBuild was able to raise a US$350 million asset-backed
loan this year from US funds BlackRock and Silver Point, the
company recently told investors that the proceeds would be held in
an escrow account until conditions set by the lenders were met, the
FT discloses.
If the new bond deal is successful, InfraBuild has said the funds
could be released to pay a dividend to "Sanjeev Gupta or another
entity within the GFG Alliance", according to the FT.
This dividend could be used to fund a repayment to some of Gupta's
Greensill-related creditors, which include clients of collapsed
bank Credit Suisse, the FT relays, citing people familiar with the
plans.
While InfraBuild is one of GFG's best performing assets, its
auditor KPMG last month stated that there was "material
uncertainty" and "significant doubt" over its ability to remain a
"going concern", the FT recounts. Part of this uncertainty stems
from the fact that GFG offered shares in InfraBuild as security to
Greensill in the weeks before the finance firm collapsed, the FT
states.
The bond prospectus also revealed that InfraBuild's US$350 million
asset-backed loan carries an annual cost in excess of 14% at
present interest rates, the FT notes.
BlackRock and Silver Point can also demand repayment of the loan if
certain related companies or directors are caught up in the
criminal investigations into GFG, according to the prospectus, the
FT discloses.
INEOS QUATTRO 2: Fitch Rates EUR525MM & US400MM in Bonds BB+(EXP)
------------------------------------------------------------------
Fitch Ratings has assigned INEOS Quattro Finance 2 Plc's proposed
EUR525 million and USD400 million five-year senior secured bonds
expected senior secured ratings of 'BB+(EXP)'. The Recovery Ratings
are 'RR2'. Fitch will assign final ratings upon receipt of final
documentation largely conforming to the draft documentation
reviewed.
The proposed notes will be guaranteed on a senior secured basis
jointly and severally by INEOS Quattro Holdings Limited (INEOS
Quattro; BB/Negative) and the guarantors of the existing senior
secured indebtedness. The notes will rank pari passu, and share the
same collateral on a first-priority basis, with the existing and
future senior secured indebtedness of INEOS Quattro Finance 2 Plc,
INEOS Quattro Holdings UK Limited, INEOS Styrolution US Holding
LLC, INEOS Styrolution Group GmbH and INEOS US Petrochem LLC.
INEOS Quattro intends to use the proceeds of the offering to repay
existing debt, finance a portion of the purchase price of the Texas
City site acquisition and pay related fees and expenses.
The Negative Outlook on INEOS Quattro's Long-Term Issuer Default
Rating (IDR) of 'BB' 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.
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 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 senior unsecured
notes are guaranteed by INEOS Quattro on a senior basis and by
other subsidiaries in the group on a senior subordinated basis.
ISSUER PROFILE
INEOS 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
----------- ------ --------
INEOS Quattro
Finance 2 Plc
senior secured LT BB+(EXP)Expected Rating RR2
LONDON RESORT: Paramount Global Files Suit in High Court Amid CVA
-----------------------------------------------------------------
Blooloop, citing Bloomberg News, reports that that US media and
entertainment giant Paramount Global is suing The London Resort in
the High Court.
The GBP2.5 billion London Resort is a hugely ambitious theme park
destination planned for a site on the Swanscombe Peninsula in Kent,
to the east of London. Despite having significant government
backing and being granted the status of a Nationally Significant
Infrastructure Project (NSIP), the project has faced several
challenges over the last decade and little progress has been made.
According to Blooloop, the court case revolves around a
restructuring implemented in April this year by London Resort
Company Holdings. This gave creditors equity in exchange for money
owed, Blooloop states.
Paramount is arguing that this is unfair due to "irregularities",
Blooloop relates.
The entertainment firm, "is alleging debts that affected the vote
were inflated and assigned to a third party in a ‘sham'
transaction and is demanding to see the documents that underpin
those dealings", Blooloop notes.
A key part of The London Resort project was the involvement of
major intellectual property (IP) owners, Blooloop discloses.
Paramount was an early partner. Home to a host of high-profile
brands and franchises, from Mission:Impossible to The Godfather,
the plan was for the creation of state-of-the-art rides and
attractions based on these brands. Other partners included key
British broadcasters The BBC and ITV, and film and animation studio
Aardman, though these companies are no longer involved.
Owned by Kuwait's Al-Humaidi family through various holding
companies, the future of The London Resort is, at best, uncertain.
The company entered into a form of insolvency proceeding in April,
known as a company voluntary arrangement (CVA), Blooloop recounts.
In addition to the Paramount case and the CVA, the project has
faced a serious challenge from environmental groups, Blooloop
relays. These include the Royal Society for the Protection of
Birds (RSPB) and Buglife, according to Blooloop.
MANSARD MORTGAGES 2007-1: S&P Lowers B2a Notes Rating to 'B-(sf)'
-----------------------------------------------------------------
S&P Global Ratings lowered to 'B- (sf)' from 'B+ (sf)' its credit
ratings on Mansard Mortgages 2007-1 PLC's class B2a notes. At the
same time, S&P affirmed its 'A+ (sf)' ratings on the class A2a,
M1a, and M2a notes and its 'BBB (sf)' rating on the class B1a
notes.
The rating actions reflect the transaction's performance, with
higher arrear balances compared with S&P's previous analysis,
although there has been a modest increase in available credit
enhancement for all classes of notes (due to pro rata
amortization).
The transaction is backed by a pool of buy-to-let and nonconforming
mortgage loans on properties in the U.K.
S&P said, "Based on our calculation methodology, total arrears
increased to 24.4% from 16.10% between the October 2020 and July
2023 cutoff dates and is currently above our U.K. nonconforming
index for pre-2014 originations. This has resulted in an increase
in our weighted-average foreclosure frequency (WAFF) at all rating
levels. Our weighted-average loss severity (WALS) assumptions have
decreased at all rating levels, mainly due to a lower
weighted-average current loan-to-value (LTV) ratio.
"The pool has showed stable performance and pool-level
characteristics. Compared with our previous analysis, the
performance of the portfolio has deteriorated, mainly due to the
increase in arrears.
"Available credit enhancement in this transaction has increased
modestly since our previous review, due to the pro rata priority of
payments and the nonamortizing reserve fund.
"The overall effect from our credit analysis results is a increase
in the required credit coverage for the 'AAA', 'AA', 'A', and 'BBB'
rating levels due to increases in the WAFF (due to increases in
arrears), and a marginal decrease at other rating levels due to
decreases in the WALS (due to increases in house prices)."
Mansard 2007-2 PLC
RATING LEVEL WAFF (%) WALS (%)
AAA 44.08 32.70
AA 38.54 23.41
A 34.88 9.80
BBB 30.30 3.82
BB 25.33 2.00
B 24.21 2.00
WAFF--Weighted-average foreclosure frequency.
WALS--Weighted-average loss severity.
The liquidity facility is nonamortizing. It was drawn to cash upon
the liquidity facility provider's (Danske Bank A/S) loss of the
required rating in 2009. Both the liquidity facility and the
reserve fund are at their required levels.
S&P said, "Danske Bank is the guaranteed investment contract (GIC)
account provider for Mansard Mortgages 2007-1. Under our
counterparty criteria, our ratings on these notes are capped at our
'A+' long-term issuer credit rating (ICR) on Danske Bank following
its loss of an 'A-1' short-term rating and failure to take remedy
action."
Macroeconomic forecasts and forward-looking analysis
S&P said, "We expect U.K. inflation to remain high for the rest of
2023 and forecast the year-on-year change in house prices in
fourth-quarter 2023 to be 6.6% and 4.9% in first-quarter 2024.
Although high inflation is overall credit negative for all
borrowers, inevitably some borrowers will be more negatively
affected than others, and to the extent inflationary pressures
materialize more quickly or more severely than currently expected,
risks may emerge.
"We consider the borrowers to be nonconforming and as such are
generally less resilient to inflationary pressure than prime
borrowers.
"Given our current macroeconomic forecasts and forward-looking view
of the U.K. residential mortgage market, we performed additional
sensitivities related to higher levels of defaults due to increased
arrears and house price declines. We have also performed additional
sensitivities with extended recovery timing due to observed delays
to repossession owning to court backlogs in the U.K. and the recent
repossession grace period announced by the U.K. government under
the Mortgage Charter.
"Our credit and cash flow results for the class A2a, M1a, and M2a
notes indicate that these notes could withstand our stresses at
higher ratings than those assigned. However, the ratings are capped
at our 'A+' long-term ICR on the GIC account provider. We therefore
affirmed our 'A+ (sf)' ratings on the class A2a, M1a, and M2a
notes.
"We also affirmed our rating on the class B1a notes. These notes
could withstand our stresses at a higher rating than that assigned.
However, the rating is constrained by additional factors that we
considered. First, we factored the sensitivity of this class to
tail-end risk due to any potential increase in defaults from the
high level of exposure to interest-only loans and high arrears. In
addition, we considered this class of notes' relative position in
the capital structure and the significantly lower credit
enhancement for the subordinated classes compared with that of the
senior notes. We therefore affirmed our 'BBB (sf)' rating on the
class B1a notes.
"In our standard cash flow analysis, the class B2a notes face
shortfalls at all rating levels. In the steady state scenario,
where the current level of stress shows little to no increase and
collateral performance remains steady, the class B2a notes no
longer face shortfalls at a 'B' rating. Therefore, in our view,
payment of interest and principal on the class B2a notes does not
depend on favorable business, financial, and economic conditions.
We therefore lowered to 'B- (sf)' from 'B+ (sf)' our rating on the
class B2a notes.
"Counterparty, operational, and legal risks are adequately
mitigated in line with our criteria."
PLAYTECH PLC: S&P Places 'BB' LongTerm ICR on Watch Negative
------------------------------------------------------------
S&P Global Ratings placed its 'BB' long-term issuer and issue
credit ratings on gambling company Playtech PLC and its debt on
CreditWatch with negative implications.
The negative CreditWatch placement reflects the increased risk of a
downgrade if the dispute is not resolved in the short term or if
Caliplay's invoiced cash receipts continue to be restricted from
directly reaching the group. In our view, the wide range of
potential outcomes depends on the development of the situation.
Therefore, S&P could lower the ratings by one or more notches,
depending on the magnitude and timing of the ongoing dispute.
Playtech and Caliente have raised disputes via legal proceedings in
U.K. and Mexican courts. In January 2023, Playtech initiated legal
proceedings in a U.K. court to determine the validity of a call
option held by Caliente. The option gave Caliente the ability to
redeem an additional services fee under the structured agreement
between the two parties, which, if exercised, would have cancelled
the Playtech-held M&A and equity call options in Caliente.
Playtech's position is that the option has expired, while Caliente
believes the option is still valid and exercisable. On Oct. 6,
2023, Playtech announced that it had learnt of legal proceedings
Caliente launched in Mexico. S&P understands that Caliente's claim
seeks the annulment of the legal relationship between Caliplay,
Playtech, and related parties contained in various contractual
agreements, although specifics remain unknown. This follows
Playtech's announcement on Nov. 1, 2023, that all fees due to the
group under its arrangements with Caliente are being paid into a
Mexican court-mandated trust account rather than directly to the
group. Meanwhile, the group has obtained interim anti-suit
injunctions from the U.K. court against Caliente.
The legal proceedings present material event risk, although the
time frame and eventual outcomes remain unknown. Invoiced cash
receipts owed by Caliente are currently being paid into a
court-mandated trust account and therefore do not reach Playtech.
In its announcement on Nov. 1, 2023, Playtech stated that the fees
due to the group for August (in part) and September have been paid
into the court-mandated trust account. In 2022, the additional
services fee was EUR66 million (EUR57.3 million as of first-half
2023), and total revenues from the Mexican division were EUR127
million (EUR89.3 million as of first-half 2023). S&P said,
"Therefore, we estimate the additional services fee will likely
exceed EUR110 million on an annualized basis in 2023, in addition
to revenues from the provision of products and services of at least
EUR60 million. We previously estimated that the additional services
fee has a high EBITDA and operating cash flow pass-through, with
some limited potentially central or head office costs attributable
to revenues. Accordingly, we estimate total EBITDA from Caliente
could likely exceed EUR120 million, and free cash flow could exceed
EUR100 million, based on our calculations. In our base-case
forecast for 2023, we forecast S&P Global Ratings-adjusted EBITDA
of about EUR340 million and adjusted free operating cash flow
(FOCF) of about EUR128 million." Therefore, the annualized effect
from the ongoing development, if it were to continue, could result
in about 30% of EBITDA and neutral FOCF, absent any other levers
the company would likely pull should the dispute be prolonged.
S&P said, "Playtech's liquidity remains adequate, but full-year
accounting audits could be a risk, in our view. The group's current
liquidity position offsets the increase in counterparty and cash
flow risk that results from Playtech's inability to receive cash
invoices from Caliplay. We estimate Playtech currently has about
EUR300 million or more of available cash and EUR277 million undrawn
under the revolving credit facility, assuming the latter remains
fully available under springing financial covenants. For now, we
assume Playtech considers the invoiced payments flowing to the
court-mandated trust account as earnings in its accounts. However,
we are not certain how auditors may view the payments if they are
still unpaid at the end of the quarter or year. Finally, we
understand that the current events do not trigger any default
events or material adverse change clauses under the debt financing
documents.
"The value of Playtech's Caliplay call option remains material in
the group's reported balance sheet. The group valued its call
option to acquire 49% of Caliplay at close to EUR534 million in its
first-half 2023 accounts. We think any valuation, in and of itself,
is inherently uncertain under the circumstances, given any
realization of the call option's inherit value may occur in the
context of legal proceedings or a third-party valuation. Crucially,
however, any outcome that could result in a reduction in EBITDA or
a full redemption of EBITDA from the Mexican division should likely
lead to material capital realization for Playtech as compensation.
As with the dispute, however, the timing, magnitude, and nature of
the capital realization remain highly uncertain for now.
"The CreditWatch negative placement reflects our view that the
current legal dispute between Playtech and Caliente could have a
material impact on Playtech's credit profile. Playtech's inability
to receive cash invoices from Caliplay beyond the immediate short
term could raise several credit risk profile concerns. In our view,
the ongoing lack of earnings from Caliplay would likely result in
the current rating level being incompatible with the group's
current credit profile. The exact magnitude of any final rating
action remains uncertain, because the range of outcomes is wide,
and timings are uncertain. Depending on the development of the
situation, the dispute and non-payment have the potential to
materially alter our existing base-case analysis and forecasts.
"We intend to resolve the CreditWatch placement once further
information is available and we have more clarity on the possible
range of outcomes from the dispute, including timing and magnitude.
Yet, we could consider lowering the current rating within the next
90 days by one or more notches if we cannot see a demonstrable
material advancement in the favorable resolution of the dispute or
if Playtech does not receive invoiced cash receipts directly from
Caliplay, thereby jeopardizing our base case. We could also lower
the rating if we consider a prolonged or material deterioration in
liquidity or free cash flow generation likely. We intend to monitor
the situation on an ongoing basis over the next few months."
QUANTUM 4: Shuts Down Business Following Administration
-------------------------------------------------------
Business Sale reports that Quantum 4, a Leicestershire firm that
designs, manufactures and installs retail display equipment, has
closed after falling into administration earlier this year.
The company, which was founded in 2002 and is based in the town of
Market Harborough, appointed Opus as administrators in August,
Business Sale recounts.
According to Business Sale, Opus said that the company's collapse
was attributable to the twin impacts of the COVID-19 pandemic and
the cost-of-living crisis on the UK's retail sector. The company
suffered a severe setback in October 2022 when its primary customer
halted a store development programme and withdrew their orders,
Business Sale discloses.
Subsequently, additional customers also either cancelled or
postponed orders, as retail sector firms sought to cut costs amid
the cost-of-living crisis, Business Sale notes.
In an effort to navigate these challenges, Quantum 4 undertook
cost-cutting and restructuring measures, Business Sale states.
However, its cash flow problems continued to worsen and it entered
administration after efforts to find a buyer for the company
failed, Business Sale recounts. At the time of its closing,
Quantum 4 had debts of around GBP2.5 million, according to Business
Sale.
RAINBOW UK 2: Moody's Affirms 'B2' CFR & Alters Outlook to Stable
-----------------------------------------------------------------
Moody's Investors Service has affirmed the B2 long-term corporate
family rating and B2-PD probability of default rating of Rainbow UK
MidCo 2 Ltd (Wella Company), a global manufacturer of hair and nail
products sold to salons and consumers.
At the same time, Moody's affirmed the B2 guaranteed senior secured
bank credit facility ratings of the $1,945 million equivalent term
loan B issued by Rainbow Finco S.a r.l. and $348 million revolving
credit facility borrowed by Wella US Operations LLC and co-borrowed
by Rainbow UK Bidco Limited and Wella Treasury Limited.
The outlook on the three entities was changed to stable from
positive.
RATINGS RATIONALE
The change of outlook to stable from positive reflects Moody's
expectation that the company will continue to incur substantial
one-off transformation costs over the next two years, which will
constrain deleveraging, from a current Moody's-adjusted gross
leverage of 6.1x, and limit cash generation. Although Wella Company
has been operating standalone since early 2022 with the exception
of the Brazil operations which are due to separate in February
2024, it still needs to substantially invest, mostly in IT, to
operate fully independently. The rating agency nonetheless expects
key credit metrics to meaningfully improve and be more consistent
with the company's rating category from fiscal year 2025, ended
June. Underlying financial performance was robust in fiscal 2023
amid a challenging environment with revenue and cost pressure as
consumers pulled back and procurement costs rose: at constant
exchange rate, company-adjusted after-rent underlying EBITDA was up
14.3%. The company also started to generate cash in the year, with
free cash flow (FCF) being positive by $82 million, or 4% of funded
debt.
The rating agency forecasts Moody's-adjusted EBITDA to be broadly
flat in fiscal 2024 at around $350 million, including about $100
million of one-off expenses, before improving towards $400 million
in fiscal 2025, from lower one-off expenses and continued growth in
underlying earnings. As a result, Moody's-adjusted leverage will
reduce to around 5.2x by end fiscal 2025, a more appropriate level
for the rating category. In the meanwhile, Moody's-adjusted
EBITA/interest will decline below 2x for the next two years, from
2.1x in fiscal 2023, as interest expense increases from last year's
level due to underlying moves in base rates although three quarters
of Wella Company's funded debt is hedged. FCF will be limited to
about $30 million in fiscal 2024, before reaching around $100
million in fiscal 2025, or 5% of funded debt. This is however
assuming that Wella Company does not pay cash interest on its PIK
instrument, which could lead to $40 million of additional cash
outflows annually. The company made $11 million of these payments
in fiscal 2023, underscoring an aggressive financial policy.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
Environmental and social considerations primarily reflect high
environmental and social risk exposures related to the sale of
beauty products. Governance considerations include an aggressive
financial strategy as reflected by the company's relatively high
leverage (albeit expected to reduce), a limited operating track
record as a standalone company following the separation from Coty
Inc. (Ba3 positive), and a majority private equity ownership.
OUTLOOK
The stable outlook reflects Moody's expectation that Wella
Company's leverage will not substantially exceed 6x for a
protracted period and that its free cash flow will remain positive
on a 12-month rolling basis. It also assumes that the company does
not proceed to debt-funded distributions to shareholders.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if (1) Wella Company builds a
successful track record as a standalone business, supported by a
longer history of consolidated audited accounts; (2) its
Moody's-adjusted leverage sustainably reduces to below 5x including
one-off expenses, with a consistent financial policy; (3) its
Moody's-adjusted EBITA/interest is above 2x, including one-off
expenses; (4) its Moody's-adjusted free cash flow to debt ratio is
in the mid-single-digit percentages; and (5) the company
sustainably grows its earnings in at least the low single-digit
percentages.
Conversely, the ratings could be downgraded if (1) Moody's-adjusted
leverage exceeds 6.5x including one-off expenses; (2)
Moody's-adjusted free cash flow is broadly neutral; (3) the company
proceeds to debt-funded distributions to shareholders; or (4)
liquidity concerns arise.
STRUCTURAL CONSIDERATIONS
The B2 ratings on the $1,945 million equivalent guaranteed senior
secured term loan B due February 2029 and the $348 million
guaranteed senior secured revolving credit facility (RCF) due
August 2028 are in line with the CFR, reflecting the fact that they
are the only term debt instruments in the capital structure. That
said, the use of PIK debt outside the restricted group and the need
to repay the instrument upon maturity in February 2030 creates a
degree of structural complexity and uncertainty regards the
ultimate source of repayment.
LIQUIDITY
Wella Company's liquidity profile is good. As at end June 2023, the
company had $175 million of unrestricted cash on its balance sheet
and a fully available $348 million guaranteed senior secured RCF
due August 2028. The facility has a net senior leverage springing
covenant tested when 40% net drawn; Moody's does not expect the RCF
to be materially drawn on a quarterly basis. The rating agency
anticipates that the company will generate $84 million of
cumulative free cash flow over the 18-month period ended December
2024, assuming no cash interest payments relating to the PIK
instrument.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Consumer
Packaged Goods published in June 2022.
COMPANY PROFILE
Wella Company manufactures and sells hair and nail products, along
with hair appliances, for professional and consumer use through an
extensive network of salons, distributors/wholesalers and retailers
complemented by e-commerce. The company generated net revenue of
$2.5 billion and a company-adjusted after-rent EBITDA before
one-off transformation expenses of $410 million in fiscal 2023
ended June 30. Products are manufactured through three company
plants in Mexico, Germany and Thailand, along with dozens of
third-party providers.
The company was acquired as a carve-out from Coty Inc. by funds
advised by Kohlberg Kravis Roberts & Co. (KKR) in December 2020.
TOTS BOTS: Enters Liquidation, 47 Jobs Affected
-----------------------------------------------
Adam Robertson at The National reports that a Scottish manufacturer
and online retailer of reusable nappies, swimwear nappies and
related accessories has collapsed into liquidation, with all 47
staff made redundant.
Blair Nimmo and Alistair McAlinden of Interpath Advisory were
appointed as joint provisional liquidators to Tots Bots Limited on
Nov. 9, The National relates.
Mr. McAlinden said it was "incredibly disappointing" the company
was unable to continue trading, The National notes.
According to The National, explaining the background to the fall of
Tots Bots into liquidation, Interpath Advisory said: "In common
with many other online retailers, the company had recently
experienced challenging trading conditions, including rising costs
and fragile consumer confidence.
"This led to the company experiencing pressure on cashflow. After
working tirelessly to explore funding solutions and reviewing the
available strategic options, the directors took the difficult
decision to seek the appointment of the provisional liquidators."
Mr. McAlinden added: "The business ceased to trade immediately
following the appointment of the provisional liquidators and, as
such, all of the company's 47 employees were made redundant."
He added: "We have commenced initial steps to realise the company's
assets which include, amongst other things, stock, manufacturing
equipment and intellectual property, including the brand and domain
names. We would therefore ask any interested parties to contact us
as soon as possible."
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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-
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