/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/231205.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, December 5, 2023, Vol. 24, No. 243 Headlines F R A N C E CASINO GUICHARD: EUR1.43BB Bank Debt Trades at 51% Discount CIRCET EUROPE: Fitch Affirms 'B+' LongTerm IDR, Outlook Positive G E R M A N Y CIDRON ATRIUM: EUR125MM Bank Debt Trades at 37% Discount HAPAG-LLOYD AG: Moody's Affirms Ba2 CFR, Outlook Remains Positive KALLE GMBH: $88.8MM Bank Debt Trades at 30% Discount SYNLAB AG: S&P Assigns 'B' Long-Term ICR on Takeover Transaction THYSSENKRUPP AG: Egan-Jones Retains BB- Senior Unsecured Ratings H U N G A R Y NITROGENMUVEK: S&P Lowers ICR to 'CCC+' on High Carbon Tax Burden I R E L A N D BARINGS EURO 2018-3: Fitch Affirms Bsf F Notes Rating, Outlook Neg BLUEMOUNTAIN EUR 2016-1: Moody's Affirms B1 Rating on F-R Notes CAIRN CLO XIII: Fitch Alters Outlook on 'B-sf' F Note Rating to Pos CUMULUS STATIC 2023-1: Fitch Assigns BB-sf Final Rating to E Notes DRYDEN 51 2017: Moody's Affirms B2 Rating on EUR12.5MM Cl. F Notes EURO-GALAXY VI: Moody's Affirms B2 Rating on EUR12MM Class F Notes GOLDENTREE LOAN 2: Fitch Affirms 'B-sf' Rating on Class F Notes MV CREDIT III: S&P Assigns B- (sf) Rating on EUR10MM Class F Notes PENTA CLO 6: Fitch Hikes Rating on Class E-R Notes to 'BB+sf' TIKEHAU CLO DAC: Moody's Ups Rating on EUR17.5MM E-R Notes to Ba2 I T A L Y EOLO SPA: Fitch Affirms 'B-' LongTerm IDR, Outlook Stable POPOLARE BARI 2016: Moody's Lowers Rating on EUR14MM B Notes to Ca L U X E M B O U R G ENDO LUXEMBOURG: $2BB Bank Debt Trades at 35% Discount EP BCO: S&P Affirms 'BB-' LT ICR, Alters Outlook to Stable TRAVELPORT FINANCE: $2.80BB Bank Debt Trades at 56% Discount N E T H E R L A N D S BRIGHT BIDCO: $300MM Bank Debt Trades at 62% Discount LEALAND FINANCE: $500MM Bank Debt Trades at 53% Discount R U S S I A ALMALYK MINING: S&P Affirms 'B+' ICR on Progressing Expansion UZBEKISTAN: S&P Affirms 'BB-/B' Sovereign Credit Ratings T U R K E Y ISTANBUL METROPOLITAN: Fitch Assigns 'B' Rating on Sr. Unsec Notes TURK TELEKOMUNIKASYON: $189MM Bank Debt Trades at 22% Discount U N I T E D K I N G D O M AMPHORA FINANCE: GBP301MM Bank Debt Trades at 57% Discount DIGNITY FINANCE: Fitch Lowers Rating on Class A Notes to 'BB+' EMPIRE CINEMA: Rescued from Administration by Omniplex FOLGATE INSURANCE: A.M. Best Affirms B(Fair) FS Rating JF RENSHAW: Bought Out of Administration by British Bakels LONTRA LTD: Enters Administration, Buyer Being Sought for Assets MICHAEL J LONSDALE: Owed GBP64.9 Million to Trade Creditors PINEWOOD GROUP: S&P Alters Outlook to Negative, Affirms 'BB-' ICR RENEW ENERGY: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable STEVE PORTER: Bought Out of Administration by Acclaim Logistics VUE ENTERTAINMENT: EUR648MM Bank Debt Trades at 64% Discount [*] Fitch Keeps 21 Tranches of 10 UK RMBS Deals on Rating Watch Neg - - - - - =========== F R A N C E =========== CASINO GUICHARD: EUR1.43BB Bank Debt Trades at 51% Discount ----------------------------------------------------------- Participations in a syndicated loan under which Casino Guichard Perrachon SA is a borrower were trading in the secondary market around 48.9 cents-on-the-dollar during the week ended Friday, December 1, 2023, according to Bloomberg's Evaluated Pricing service data. The EUR1.43 billion facility is a Term loan that is scheduled to mature on August 31, 2025. The amount is fully drawn and outstanding. Casino Guichard-Perrachon SA operates a wide range of hypermarkets, supermarkets, and convenience stores. The Company operates stores in Europe and South America. The Company's country of domicile is France. CIRCET EUROPE: Fitch Affirms 'B+' LongTerm IDR, Outlook Positive ---------------------------------------------------------------- Fitch Ratings has affirmed French telecoms provider, Circet Europe SAS's (Circet), Long-Term Issuer Default Rating (IDR) at 'B+'. The Outlook on the IDR is Positive. Fitch has also affirmed the EUR2 billion senior secured term loan B (TLB) at 'BB-' with a Recovery Rating of 'RR3'. The Positive Outlook continues to reflect Circet's absolute EBITDA growth and deleveraging capacity in the next 12-18 months as recently acquired companies become fully EBITDA-accretive. However, Fitch now views deleveraging as delayed by a year following debt-funded acquisitions and dependent on Circet's appetite for further debt-funded acquisitions and working capital management. The rating reflects Circet's still high EBITDA leverage after its acquisition by Intermediate Capital Group (ICG) in 4Q21, coupled with pressured margins in an inflationary environment and geographical expansion into less profitable markets, albeit with a good growth platform, such as the US. A good record of project execution, increased scale, geographical diversification, and leading positions in key markets offset customer concentration and inherent risks within its acquisitive strategy. KEY RATING DRIVERS Delayed Deleveraging: Fitch forecasts EBITDA leverage at 5x in 2023 (up 0.6x compared with its previous rating case), lowering towards the positive rating sensitivity of 4.4x-4.1x in 2024-2025. The higher leverage is mainly driven by higher debt for acquisitions and working capital, including the recent loan add-ons of around EUR250 million and higher factoring not assumed previously. Fitch believes strong absolute EBITDA growth underpins the deleveraging trajectory, supported by organic and acquisition growth. Larger-than-expected cash deployment to finance new, sizable acquisitions, together with increased borrowing, could hinder deleveraging and lead us to revise the Outlook to Stable. Structural Margin Change: Circet's Fitch-adjusted EBITDA margin of 12.3% in 2022 and forecast 11.5%-12% in 2023-2024 are more than 1pp lower than previous years'. Profitability has been adversely affected by inflationary pressure (mostly labour costs) and acquisitions. Despite some of the newly acquired companies reporting higher margins than Circet, the dilutive effect from lower margin-companies is stronger. The new countries that Circet has diversified into also generate structurally lower margins than France. Nevertheless, with a margin of around 12%, Circet is still solidly positioned against other Fitch-rated business services companies and in line with expectations for investment-grade profitability medians under Fitch's Diversified Services Navigator. Strong Free Cash Flow Generation: Fitch forecasts free cash flow (FCF) margin slightly above 5% in the next three years. Fitch believes it is sufficient for Circet to continue with bolt-on acquisitions. This is supported by the lack of dividend distributions and limited acquisition-related costs. However, earnings generation will depend on Fitch-adjusted working-capital changes, which historically were negative (around 2%-5% of revenue). Fitch expects working capital outflow to normalise at around 1% in the next three years while allowing liquidity to remain comfortable. More Diversified Geographical Footprint: Fitch expects Circet's revenue to grow to over EUR4 billion in 2023 from EUR1.4 billion in 2019. This is driven by strong organic growth in existing markets and expansion into new regions through M&A, as demonstrated by its entry into Benelux (2020), Germany (2021) and the US (2021). Circet will likely remain small in the US market due to high market fragmentation, but it will benefit from the growth prospects from increased adoption of fibre in the states in which it operates and from small acquisitions. Improved Business Profile: Market-leading positions, strong contract execution and a reputation for expertise and quality continue to support Circet's business profile. Its scale and diversification are commensurate with a 'bb' midpoint under Fitch's Diversified Services Navigator. Its dependence on French telecom infrastructure and Orange has continued to decline. Service diversification is also satisfactory as Circet moves up the value chain and increases its added-value per contract. Customer, geographic and end-market concentration is declining but still high. It is, however, mitigated by a high contracted income structure and recurring revenue stream. Leading Market Position: Leading market positions in its core services in France, Ireland and the UK, Germany, and Benelux with its Circet and KN brands are a positive credit factor. Circet has effectively used its expertise in telecom infrastructure services to secure out-sourcing contracts with several major European telecom operators. Expansion into the US grants access to customers outside Europe and attracts cross-region business opportunities with existing clients and through acquisitions. Fitch believes that Circet is the only market operator able to work on all technologies while being involved in the design, roll-out, activation and maintenance of its client's network. Manageable Risks: Moderate customer diversification and significant exposure to new-build contracts (around 40%) create meaningful but manageable risks, notably through contract renewal. Circet's operations remain concentrated in France with a 33% share (2022) in revenue compared with 100% in 2017. Fitch believes further reduction of concentration is likely to be slower. Its two largest customers account for around 18% of revenue, which is moderately high and represents a meaningful improvement from 80% in 2017. Generally Supportive Sector Fundamentals: Longer technology cycles and high fibre coverage in the long term could weigh on the availability of build contracts. The telecom industry's low cyclicality, growing maintenance and subscriber connection capabilities, continued technology development, good customer retention rates and the trend toward out-sourcing are mitigating factors. DERIVATION SUMMARY Circet's business profile solidly maps to the 'BB' rating category. Its ratings are supported by leading market positions, strong contract execution, adequate scale and diversification of services for the TMT sector, and exposure to high-profile customers. However, geographical and customer concentration, although materially improving, remain weaknesses of the business profile. Circet is stronger than smaller similarly rated peers that are more focused on one service offering and one country. It also compares well with peers that offer a wider range of services to broader end-markets, such as SPIE SA (BB+/Stable),or Telenet Group Holding N.V.(BB-/Stable). Like most Fitch-rated medium-sized business services companies, Circet benefits from a leading position in a specific end-market. Sales also tend to be concentrated on a limited number of customers in a small number of countries. However, this is a characteristic of the TMT sector composed of few operators, often a leader in their own country. Fitch believes that Circet's resilience through the cycle is likely to be greater than services peers' as the company is exposed to the telecom industry with low cyclicality. Circet's lean and flexible cost structure supports operating and cash profitability that is significantly higher than peers' and strong for the current rating. Its EBITDA gross leverage of 5.2x in 2022 and forecast 5.0x for 2023 is above the 'BB' median of 4.0x. However, Fitch expects Circet to deleverage towards 4.4x-4.1x over the medium term, which is more commensurate with a 'BB' rating. KEY ASSUMPTIONS - High single-digit revenue growth to 2025 on organic growth and acquisitions - EBITDA margin of 11.6% in 2023, and around 12% in 2024-2025 - Capex at 1.2% of revenue for 2023-2025 - Working-capital outflow of around 1% of sales p.a. to 2025 - No dividend payments - Acquisitions of EUR284 million in 2023, and EUR130 million p.a. in 2024-2025 RECOVERY ANALYSIS - A going-concern (GC) EBITDA of EUR335 million, reflecting recently completed acquisitions. Financial distress is likely to result from the loss of one or two customers that account for 10%-20% revenue, coupled with erosion in EBITDA margin toward the industry average (approximately 10%) from the current double digits. Its calculation shows that based on the assumed GC EBITDA Circet is still able to remain cash flow-neutral as a GC - An enterprise value (EV) multiple of 5.0x is used to calculate a post-reorganisation valuation, which reflects Circet's absolute small size (though sizable relative to peers') and a business model that is exposed to regulations, TMT development and concentration in customers - Circet's debt comprises a EUR345 million revolving credit facility (RCF), EUR2.1 billion TLB, and a small amount of local bank lines. Fitch also considers the factoring utilisation of EUR159 million in the recovery analysis as super senior debt - Its analysis results in a senior secured instrument rating of 'BB-' with a Recovery Rating of 'RR3'. Based on its assumptions used for recovery, its waterfall calculation implies a 53% recovery. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - EBITDA leverage below 4.5x on a sustained basis, supported by consistent financial discipline in capital allocation - FCF margin above 5% on a sustained basis - An increasing share of life-of-contract revenue and improving contract length Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - EBITDA leverage above 5.5x - FCF margin below 2.5% - Loss of contracts with key customers LIQUIDITY AND DEBT STRUCTURE Ample Liquidity: Fitch expects Circet to end 2023 with about EUR212 million cash, after its adjustment for restricted cash. Fitch views its internally generated cash as more than sufficient to sustain working- capital swings. Liquidity is also supported by the EUR287 million undrawn portion of the RCF after a recent increase of EUR45 million and partial repayment with the EUR175 million add-on to the existing TLB. Fitch forecasts an FCF margin at 5.6% in 2023 and around 5.2%-5.3% in 2024-2025, which will be sufficient for bolt-on acquisitions and deleveraging in the absence of dividend payments. Distant Balloon Debt Maturity: The TLB and RCF are both floating rate and due in October 2028 and April 2028, respectively, and comprise the majority of Circet's debt. It also has overdraft and bank borrowings. Financial hedging instruments are in place for part of its debt, which mitigates the risk from rising benchmark rates. Circet also has a factoring line of around EUR160 million. ISSUER PROFILE France-based Circet is the number one provider of telecom infrastructure services to telecom operators in France and now has leading positions in several other European countries. ESG CONSIDERATIONS The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- Circet Europe SAS LT IDR B+ Affirmed B+ senior secured LT BB- Affirmed RR3 BB- ============= G E R M A N Y ============= CIDRON ATRIUM: EUR125MM Bank Debt Trades at 37% Discount -------------------------------------------------------- Participations in a syndicated loan under which Cidron Atrium SE is a borrower were trading in the secondary market around 63.1 cents-on-the-dollar during the week ended Friday, December 1, 2023, according to Bloomberg's Evaluated Pricing service data. The EUR125 million facility is a Term loan that is scheduled to mature on February 26, 2026. The amount is fully drawn and outstanding. Cidron Atrium SE operates as a special purpose entity. The Company was formed for the purpose of issuing debt securities to repay existing credit facilities, refinance indebtedness, and for acquisition purposes. The Company's country of domicile is Germany. HAPAG-LLOYD AG: Moody's Affirms Ba2 CFR, Outlook Remains Positive ----------------------------------------------------------------- Moody's Investors Service has affirmed the Ba2 corporate family rating and the Ba2-PD probability of default rating of Hapag-Lloyd AG as well as the Ba3 senior unsecured global notes rating. The outlook remains positive. "The rating action incorporates still ample cushion for Hapag-Lloyd to navigate the current and expected very tough market environment for the container shipping industry over the next 12-18 months, balanced by Moody's view of a more shareholder oriented approach than in the past which rendered record high dividend payments over the last two and half years" says Daniel Harlid, lead analyst for Hapag-Lloyd. RATINGS RATIONALE Following an unprecedented profitability streak during the last three years with extreme freight rates and EBIT margins north of 50%, the second half of 2023 has brought a complete reversion of financial performance. Some carriers have already reported negative operating profits and Moody's expect business conditions will worsen further in 2024 because of a surge of new vessels creating substantial overcapacity. Furthermore, the container shipping industry and Hapag-Lloyd is facing an unprecedented investment need ahead of tougher environmental rules both globally and as well as regionally. Moody's continues to view Hapag-Lloyd's Ba2 rating well positioned to defend the aforementioned downside risks as the current capital structure provides cushion for a very weak market environment. Moreover, the currently very high cash balance of around $8.7 billion (as of Sept 30, 2023) gives the company high financial flexibility to manage its balance sheet regarding the trade-off between a conservatively leveraged fleet and continued high dividend payments. Furthermore, Moody's notes that over the last two and a half years, Hapag-Lloyd paid out a significantly higher proportion of its cash flow generation in dividends than peers such as A.P.-Moller Maersk A/S (Baa2 Positive) and CMA CGM S.A. (Ba1 Stable) – in 2022 Hapag-Lloyd paid out EUR6.2 billion in dividends which was followed by another EUR11.1 billion payment in May this year. This means that a potential ratings upgrade hinges more on the market conditions of the container shipping industry going forward than what would have been the case if the company had been more conservative regarding shareholder remuneration. Given an expected demand that will not match the substantial inflow of new container ships over the next two years, Moody's does see strong arguments for a more stable industry than what has been the case historically. As such, the likelihood of a rating upgrade for Hapag over the next 12-18 months has reduced versus a few months ago. Industry conditions could however stabilise toward the end of 2024 if carriers start to scrap older vessels and additionally continue to slow down vessels speeds, thereby reducing available shipping capacity. RATIONALE FOR POSITIVE OUTLOOK Despite a deteriorating market environment, the positive outlook reflects Moody's current expectations of a trough in financial performance during 2024 with a gradual improvement from 2025 onwards. Over the next 12-18 months, Moody's expects EBIT will fall to negative territory causing retained cash flow to turn negative and debt / EBITDA to increase above 3.0x. Moody's stresses that the deterioration in credit metrics is deemed to be temporary and that a gradual recovery in industry conditions during the latter part of 2024 could potentially restore key credit metrics back to levels commensurate with a Ba1 rating potentially paving the way for a rating upgrade. STRUCTURAL CONSIDERATIONS Hapag-Lloyd's Ba3 bond rating is one notch below its CFR, reflecting the contractual subordination to the secured debt existing within the group (primarily vessel and container financing). LIQUIDITY PROFILE Moody's view Hapag-Lloyd's liquidity as good. As of Sept. 30 this year, the company had $8.7 billion of cash and access to $725 million in revolving credit facilities, all undrawn. Given the high volatility typical for container shipping, the company's covenants include minimum equity and minimum liquidity, but no leverage or coverage ratios. Hapag-Lloyd has a number of unencumbered vessels and containers that could be pledged to raise additional liquidity if needed. Although maintenance capex needs are limited, the company has outstanding orders of 11 new vessels with a total capacity of 239,000 TEUs which Moody's assumes will be financed with a combination of cash and debt. For the next 12 months (starting from Oct. 30 this year), the company has around $820 million in debt coming due. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS An upgrade requires sustained leverage and profitability improvements, reflected in (1) Moody's-adjusted debt/EBITDA remaining comfortably below 3.0x, (2) sustained EBIT-Margin in the high single digit in percentage terms and (3) sustaining RCF / net debt at least in the high twenties in percentage terms. In addition, a prerequisite for positive ratings pressure is that the company maintains the good liquidity profile at all times. Negative ratings pressure could arise if credit metrics weaken on a sustained basis: (1) if the company's debt/EBITDA exceeds 3.0x for a prolonged period, (2) EBIT-margin falls below 5% over the cycle and (3) retained cash flow (RCF)/net debt falling toward 15%. Additionally, negative free cash flow and a weakened liquidity profile would cause negative pressure on ratings. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Shipping published in June 2021. KALLE GMBH: $88.8MM Bank Debt Trades at 30% Discount ---------------------------------------------------- Participations in a syndicated loan under which Kalle GmbH is a borrower were trading in the secondary market around 69.7 cents-on-the-dollar during the week ended Friday, December 1, 2023, according to Bloomberg's Evaluated Pricing service data. The $88.8 million facility is a Term loan that is scheduled to mature on December 29, 2023. The amount is fully drawn and outstanding. Kalle GmbH provides food machinery equipment. The Company's country of domicile is Germany. SYNLAB AG: S&P Assigns 'B' Long-Term ICR on Takeover Transaction ---------------------------------------------------------------- S&P Global Ratings assigned its 'B' long-term issuer credit rating to the new group's parent company Synlab A.G. (Ephios Subco 3), its 'B+' issue rating and '2' (70%) recovery rating to the new proposed TLB and senior secured notes. The stable outlook reflects S&P's view that Synlab will continue to increase its profitability driven by organic growth, a successful portfolio optimization plan, and the cost-efficiency program. Cinven, through Ephios Subco 3, has secured close to 85% of Synlab AG's outstanding shares and plans to repay the existing term loan A (TLA) and term loan B4 (TLB4). S&P said, "Following the acquisition and with the new capital structure in place, we expect Synlab's S&P Global Ratings-adjusted debt to EBITDA will be 6.0x-6.5x, with an EBITDA interest coverage ratio of 2x-3x.Cinven, through new parent holding entity Ephios Subco 3, will raise EUR1.45 billion of TLB and senior secured notes maturing in 2030, together with EUR500 million of third-party PIK notes that we view as debt. The company will also raise a new EUR500 million RCF maturing in 6.5 years. The proceeds, along with about EUR80 million of cash on balance sheet, will be used to acquire Synlab and repay about EUR535 million of the existing TLA maturing in April 2026 and about EUR385 million of the existing TLB maturing in July 2027. We estimate total S&P Global Ratings-adjusted debt at year-end 2023 of about EUR2.7 billion-EUR2.8 billion, after the transaction is completed, an increase of about EUR500 million versus 2022. "This comes at a time where we anticipate Synlab will fully return to more normalized revenue and EBITDA levels. After three very profitable years where the laboratory group benefited from high demand for polymerase chain reaction (PCR) testing and other COVID-19-related contributions, we expect Synlab will experience a steep decline in sales of about 18% and profitability of about 40% versus last year. We also estimate COVID-19 testing will barely contribute to future sales, with EUR10 million of revenue per year. At the same time, we note investments to cater for high demand for PCR testing implied a loss of productivity in the core business, with estimated S&P Global Ratings-adjusted margins at about 17% in 2023, which is much lower than about 19%-20% pre-pandemic. Both the decrease in EBITDA and increase in debt would imply adjusted leverage of about 6.0x-6.5x for 2023, with EBITDA interest coverage of about 2x-3x over the same period. "From 2024, we expect the company to concentrate on portfolio optimization and lean execution of the cost-savings plan to decrease leverage toward 6.0x by 2025. Synlab will concentrate on reducing extra COVID-19 costs and is taking necessary efficiency measures. Part of the strategy is to improve profitability, but it will also focus on portfolio optimization by divesting lines of business with dilutive EBITDA margins. So far, the company has sold the Swiss business segment to Sonic Healthcare, which positively affected margins, and the accretive sale of the veterinary diagnostic businesses to Mars. All the proceeds of these sales were used to reduce total debt by EUR346 million, which we view as positive. We expect the company to continue these efforts and manage its portfolio to reach pre-COVID-19 EBITDA margins starting 2025. In this, we also view positively the company's efforts to reduce extra COVID-19 costs, reallocate workforce efforts, and standardize and digitalize the business. Notably, the SALIX program is projected to provide about EUR30 million of cost savings annually from 2024. "However, we believe the strategy will be challenged by ongoing volatility and macroeconomic uncertainty, and unfavorable reimbursement in certain areas; especially Western European countries and Southern regions (including Latin America) where we don't expect Synlab to fully cover the inflationary hit to its bottom line. We estimate Synlab will need lean execution of its efficiency program to mitigate inflationary pressures on other operating costs. As such, we expect 2024 to be a transitional year with revenue growth slightly negative-to-flat and S&P Global Ratings-adjusted EBITDA of about EUR450 million-EUR480 million (margins of 17%-19%). Revenue growth should then expand 3%-4% in 2025, with adjusted EBITDA of EUR510 million-EUR540 million and margins improving to pre-pandemic levels of about 19%-21%. This would imply adjusted leverage of about 6.0x-6.5x for 2024 and towards 6.0x in 2025. "We expect more moderate merger and acquisition (M&A) spending given current market conditions and the conservative financial policy. So far in 2023, the company had planned M&A spending of about EUR100 million. We believe this lower spending versus prior years is also the result of current market conditions, with higher interest rates and current macroeconomic volatility. That said, we also view Synlab as slowing its M&A strategy, with a lower-than-expected spend and a focus on bolt-on versus larger acquisitions. The company made seven bolt-on acquisitions in the first nine months of the year with a cumulative enterprise value (EV) of EUR75 million. It expects to reduce M&A spending at least for the next two to three years, alongside a more conservative financial policy. Although we view this as positive, we also note the fragmented nature of the laboratory services market with limited organic growth being supplemented by M&A. "We understand Cinven's ambition will be to acquire 100% of the share interest in Synlab (currently Cinven has an 85%-ownership). However, the timing and plans to acquire the remaining shares are still unknown. "However, we expect weaker interest coverage ratios and limited free operating cash flow (FOCF; after leases) to limit the rating to 'B'. Synlab is taking actions to protect its cash flow generation. These are expected to decrease capital expenditure (capex) to pre-COVID-19 levels of about EUR75 million-EUR80 million in 2023 and 2024 and about EUR100 million beyond, which will represent about 3% of sales from 4%-5% in the two prior years. The company has renewed equipment in the past two years, so we don't expect major capex ahead. "We also expect a cut in leases in 2023 from previous levels and moderate growth thereafter of 0.5%-1% per year because the company expanded its lab network and equipment during the COVID-19 years and needs to reduce unused capacity afterward. We don't expect any new leases to be required as the company delivers its business plan. Furthermore, working capital will remain moderate at about a EUR5 million-EUR10 million outflow, with a minimal impact on FOCF. "However, cash flow will be pressured given the lower EBITDA versus previous years and high interest burden compared to pre-COVID-19 times, which will affect cash generation metrics and interest coverage ratios. As such, S&P Global ratings-adjusted FOCF (after leases) will be about EUR100 million-EUR150 million in the next three years, which we view as the limit for a 'B' rating, with weak interest coverage ratios of about 2x-3x over the same forecast horizon. "The stable outlook reflects our expectation that Synlab can maintain solid topline growth supported by positive underlying volume dynamics, as well as a gradual recovery in margins to pre-pandemic levels as the lab group concentrates on cost-saving and productivity measures, together with a conservative financial policy and M&A spend. "As such, we expect the company to maintain S&P Global Ratings-adjusted EBITDA margins of about 16%-18% in 2023, and averaging 19%-21% in 2024-2025, and adjusted-leverage of about 6x-7x over the same period. "We could take a negative rating action on Synlab in the next 12 months if the group fails to successfully implement its cost-savings plan and portfolio-optimization program. This could result in lower profitability than expected such that S&P Global Ratings-adjusted debt to EBITDA rises above 7.0x and it generates a limited FOCF. "We could also lower the rating if we believe the company is not adhering to a conservative financial policy or in case of higher debt-funded M&A spending than originally expected under our base case. "We could take a positive rating action if we see Synlab successfully optimizing the portfolio and achieving productivity and efficiency gains such that margins recover to pre-pandemic levels, together with a firm ability and willingness to reduce and maintain leverage toward 5x. "Governance factors are a moderately negative consideration in our credit rating analysis of Synlab, because of the controlling ownership. Cinven will end up holding a majority stake in the company after the buyout. We view financial-sponsor-owned companies with aggressive or highly leveraged financial risk profiles as demonstrating corporate decision-making that prioritizes the interests of the controlling owners. This also reflects the generally finite holding periods and a focus on maximizing shareholder returns. "Environmental and social factors have a material influence on our credit rating analysis. Positively, diagnostic laboratories played a role during the pandemic by providing COVID-19 testing. Nevertheless, they benefitted from a windfall that we view as temporary, and we expect it will continue to decline, notably as prices gradually reduce in line with government measures to contain health care budgets in certain jurisdictions." THYSSENKRUPP AG: Egan-Jones Retains BB- Senior Unsecured Ratings ---------------------------------------------------------------- Egan-Jones Ratings Company, on November 2, 2023, retained its 'BB-' foreign currency and local currency senior unsecured ratings on debt issued by thyssenkrupp AG. EJR also withdraws rating on commercial paper issued by the Company. Headquartered in Essen, Germany, thyssenkrupp AG manufactures industrial components. ============= H U N G A R Y ============= NITROGENMUVEK: S&P Lowers ICR to 'CCC+' on High Carbon Tax Burden ----------------------------------------------------------------- S&P Global Ratings lowered to 'CCC+' from 'B' its long-term issuer credit rating on Nitrogenmuvek and its issue rating on its senior unsecured notes. At the same time, S&P placed the ratings on CreditWatch with negative implications. S&P said, "The CreditWatch placement reflects the increasing probability that we could lower our ratings on the company by one or more notches within the next few months. This could happen if the company were to launch an exchange offer or maturity extension for its outstanding bond that could compromise its original promise and which we could view as distressed." In July 2023, the Hungarian government promulgated its emission trading system (ETS) decree, which was amended and came into force in October. It introduces two new payment obligations to companies like Nitrogenmuvek that receive free emission allowances for at least 50% of annual carbon dioxide (CO2) emissions. The obligations comprise an ETS tax equaling to about EUR36 per ton (/ton) for annual CO2 emissions and a fee related to transferred free allowances at 15% of its daily market value. S&P said, "The new ETS decree severely impairs Nitrogenmuvek's ability to generate viable, positive EBITDA margins and maintain a sustainable capital structure. In July 2023, the Hungarian government promulgated the decree, which was amended and came into force in October. The decree introduces two new payment obligations to companies like Nitrogenmuvek that have an annual emission of over 25,000 tons of CO2, of which they receive at least 50% free emission allowances. These include an ETS tax equaling to about EUR36/ton for annual CO2 emissions and a fee related to the transfer of free allowances at 15% of its daily market value. We estimate the additional costs caused by the new ETS taxes and fees will total EUR45-EUR50/ton of CO2 emissions, which will significantly increase Nitrogenmuvek's production costs and are very difficult to fully pass on to customers. "We understand Nitrogenmuvek views the ETS government decree as unlawful and detrimental to its legitimate business interests. Therefore, it is initiating various litigation processes against it, including seeking an immediate tax deferral from the Hungarian tax authority. We also understand that the company is confident of its case and believes it will prevail in the courts. It can take two or more years for the litigation processes to conclude and, in our view, the outcome of this is highly uncertain. "We anticipate negative EBITDA for 2023, which will recover in 2024-due to higher sales volume, but our adjusted leverage is likely to remain very high in 2024. The company expects expenses related to ETS taxes and fees will amount to about HUF9.5 billion for 2023 (for about 10 months production), of which about HUF1.5 billion was paid in November and the remainder is due in 2024. We estimate this, combined with a seasonality-driven shift of demand to early next year, will lead to EBITDA declining to about negative HUF5 billion in 2023. We understand Nitrogenmuvek is now sitting on a comfortable inventory level, which it built up in 2023 when natural gas prices were significantly below last year's levels. Although we understand that the company intends to resume the production in early 2024 after unwinding inventory, if and at which level it will run its production depends on the market price for its products. In our base case, we assume higher sales volume next year driven by normalizing demand for nitrogen fertilizers, which will be lower in 2025 without the catch-up effect expected for 2024. Based on S&P Global Commodity Insights' forecasts of EUR315-EUR325/ton for calcium ammonium nitrate (CAN) in 2024-2025, we anticipate Nitrogenmuvek will report a low EBITDA margin of 5.0%-5.5%. As a result, our base case expects EBITDA to be HUF5 billion-HUF10 billion in 2024-2025. We forecast EBITDA will be lower in 2025 versus 2024, as we assume lower sales volumes and a slightly lower CAN price. "We note that Nitrogenmuvek's operating performance is highly sensitive to a number of factors, several of which are outside of its control. These include selling prices, realized sales volumes, the phasing related to planting seasons and associated demand evolution, and natural gas prices. All these factors are subject to fluctuations and can result in highly volatile earnings for the company. On top of this, we consider the burden of the additional costs from carbon taxation. "We expect free operating cash flow to be negative in 2023 given negative EBITDA despite working capital improvements and low capital expenditure (capex). We anticipate a slight improvement in FOCF in 2024--driven by higher EBITDA. However, it will remain negative, as this will be offset by higher investment into the ammonia plant upgrade and carbon tax payments. In case of granted tax relief for all tax payments until the final court decision, FOCF would turn positive in 2024. As a result, we anticipate that S&P Global Ratings-adjusted debt to EBITDA will improve in 2024 versus 2023, but likely remain very high, at above 9x, which is likely to further deteriorate in 2025. "Thus, we view the capital structure as unsustainable because of Nitrogenmuvek's high debt burden in combination with much lower EBITDA due to the new carbon tax.The issuer's future economic and refinancing prospects are dependent on favorable market prices for nitrogen fertilizers and more importantly, in the long term, the outcome of the litigation processes that it is initiating against the new carbon taxation. If the new Hungarian ETS legislation persists, the disproportionate carbon tax and fee will be of detriment to the company's competitiveness against producers in other countries that are not subject to a similar tax burden. This, in our view, will challenge the economic parameters within which the business operates and increase its reliance on the supportive price of nitrogen fertilizers, which are cyclical and can be highly volatile. "This also heightens the looming refinancing risks, as reflected in the CreditWatch negative placement. Nitrogenmuvek's capital structure mainly consists of a EUR200 million bond due in May 2025. We understand the company intends to proactively negotiate the refinancing of the bond before May 2024--when the bond becomes due in less than 12 months. In addition to the challenging capital market conditions amid high interest rates and weak economic growth, the high carbon tax burden and ongoing litigation processes will, in our view, increase the refinancing risks. Although we understand an exchange offer/buyback of bonds from the market is a less preferred option for the company, we see considerable risks of a distressed exchange, for example in case of a maturity extension, given the low issuer credit rating with an unsustainable capital structure and the potentially increasing liquidity pressure Nitrogenmuvek will be facing, especially beyond 12 months. "We view liquidity as adequate in the next 12 months, including the ETS tax and transactional fees to be paid for 2023. This is supported by planned inventory unwinding in the next several months and cost reduction due to the company's production stop expected for at least November-December 2023, and no large debt maturity until May 2025. However, liquidity will likely quickly deteriorate beyond 2024 due to continuous negative EBITDA, the bond maturity in May 2025, and ETS tax and fee payments for 2024 becoming due--if the tax deferral from the Hungarian Tax Authority that the company applied for is not approved and granted by then. "The CreditWatch negative placement reflects the increasing probability that we could lower our ratings on the company by one or more notches within the next few months. This could happen if the company were to launch an exchange offer or maturity extension for its outstanding bond that could compromise its original promise and which we could view as distressed. "We could affirm our ratings on Nitrogenmuvek if the company successfully refinances its current bond outstanding and maintains adequate liquidity in the next few months." Assumptions -- Revenue decline of about 30% to HUF130 billion-HUF135 billion in 2023, reflecting a normalization of nitrogen fertilizer prices from the extraordinarily high level in 2022 despite a recovery in sales volumes reflecting healthy demand. -- For 2024, we forecast a 25%-30% increase in sales volume, reflecting the unwinding of inventory built up in 2023 and normalizing demand for nitrogen fertilizers; we expect lower sales volume in 2025 without catch up effect in 2024. -- A slight decrease in CAN prices to EUR315-EUR325/ton in 2024-2025. -- Title transfer facility natural gas price of $14 per million British thermal units (/mmBtu) for the remainder of 2023 and 2024, slightly down to $12/mmBtu in 2025. -- About 4% negative EBITDA margin in 2023, improving to 5%-5.5% thereafter, reflecting slightly lower selling prices and the negative effect of ETS taxes and fees included as operating expenses, which amount to HUF9 billion-HUF10 billion in our base case. -- Capital expenditure (capex) of about HUF1.9 billion in 2023, increasing to about HUF4 billion in 2024, mostly due to projects related to improvements to the ammonia plant. We assume capex will reduce to a minimum level of about HUF1 billion from 2025 before the conclusion of the litigation processes. -- Working capital will start normalizing from the last quarter of 2023, given the stop of production in the last two months of the year. We assume production will resume early 2024 in our base case, with utilization slightly below 2023 levels, and high carbon taxation weighing on increasing demand for nitrogen fertilizers. -- No acquisitions. -- An extraordinary dividend of HUF5 billion in 2023, and no dividends from 2024. Key metrics -- EBITDA of negative HUF5 billion in 2023, increasing to HUF5 billion-HUF10 billion in 2024. -- Negative FOCF of HUF3 billion-HUF5 billion in 2023-2024. S&P said, "We view environmental factors as a negative consideration in our credit rating analysis of Nitrogenmuvek Zrt. Producers of nitrogen-based fertilizers have higher environmental exposure than the broader chemical industry, and face tightening regulations regarding greenhouse gas emissions as well as increasing carbon costs. This risk is heightened by the new Hungarian ETS government decree, which came into force in October 2023, as this will lead to additional costs of EUR45-EUR50/ton of CO2 emission for the company, which is very difficult to pass on to customers. This will materially reduce the company's competitiveness, earnings, and cash flow, and even decrement its long-term economic viability. We understand the company is committed to complying with European environmental regulations and plans to start a feasibility study on "green" ammonia production in Hungary with the European Bank for Reconstruction and Development. However, the additional carbon tax burden will constrain Nitrogenmuvek's funds for future decarbonization investments. In addition, we think the company lags larger industry peers in setting up sustainability initiatives. Governance factors have an overall neutral influence. The company is owned by the Bige family, which we do not view as a rating constraint given its track record of effective governance and prioritizing investment in business development over shareholder distributions." ============= I R E L A N D ============= BARINGS EURO 2018-3: Fitch Affirms Bsf F Notes Rating, Outlook Neg ------------------------------------------------------------------ Fitch Ratings has revised Barings Euro CLO 2018-3 DAC class E and F notes' Outlook to Negative from Stable. All notes have been affirmed. Entity/Debt Rating Prior ----------- ------ ----- Barings Euro CLO 2018-3 DAC A-1 XS1914503377 LT AAAsf Affirmed AAAsf A-2 XS1914504003 LT AAAsf Affirmed AAAsf B-1 XS1914504425 LT AAsf Affirmed AAsf B-2 XS1914505158 LT AAsf Affirmed AAsf C XS1914505745 LT Asf Affirmed Asf D XS1914507014 LT BBBsf Affirmed BBBsf E XS1914506800 LT BBsf Affirmed BBsf F XS1914507105 LT Bsf Affirmed Bsf TRANSACTION SUMMARY Barings Euro CLO 2018-3 DAC is a cash flow CLO comprising mostly senior secured obligations. The transaction is actively managed by Barings (U.K.) Limited and exited its reinvestment period in July 2023. KEY RATING DRIVERS Par Erosion: Since Fitch's last rating action in February 2022, the portfolio has seen further erosion of approximately 1.5% of target par as calculated by Fitch. As per the last trustee report on 17 October 2023, the transaction was below par by 3%. Reported defaults stand at EUR9.7 million, or 2.4% of the target par. The Negative Outlook on the class E and F notes reflects a moderate default-rate cushion against credit-quality deterioration and defaults in view of current unfavorable macro-economic condition, despite modest near- and medium-term refinancing risk, with approximately 0.8% of the portfolio maturing by 2024, and 4.3% in 2025. The Negative Outlook indicates rating downgrade should further losses erode the default-rate cushion but Fitch expects ratings to remain within the current rating category. Sufficient Cushion for Senior Notes: Although the par erosion has reduced the default-rate cushion for all notes, the senior class notes have retained sufficient buffer to support their current ratings and should be capable of withstanding further defaults in the portfolio. This supports the Stable Outlook of the class A-1 to D notes. 'B'/'B-' Portfolio: Fitch assesses the average credit quality of the obligors at 'B'/'B-'. The Fitch weighted average rating factor (WARF) of the current portfolio is 25.2, and of the Fitch-stressed portfolio whereby entities on Negative Outlook are notched down one level as per its criteria was 26.4 as of 18 November 2023. High Recovery Expectations: Senior secured obligations comprise 95.0% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate (WARR) of the current portfolio under the current criteria is 61.0%. Diversified Portfolio: The top-10 obligor concentration as calculated by the trustee is 15.7%, which is below the limit of 20%, and the largest issuer represents 2.1% of the portfolio balance. Deviation from Model-implied Ratings: The class B to D note ratings are one notch below their model-implied ratings (MIR). The deviation reflects Fitch's view that the default-rate cushion is not yet commensurate with their MIRs given heightened macro-economic risk and reinvestment risk in the short term. Transaction Outside Reinvestment Period: Although the transaction exited its reinvestment period in July 2023 the manager can reinvest unscheduled principal proceeds and sale proceeds from credit-risk obligations, subject to compliance with the reinvestment criteria. Given the manager's ability to reinvest, Fitch's analysis is based on a stressed portfolio using the agency's collateral quality matrix specified in the transaction documentation. Fitch analysed the matrix with a 20% fixed-rate limit, which is currently used by the manager. Fitch also applied a haircut of 1.5% to the WARR as the calculation of the WARR in the transaction documentation is not in line with the agency's current CLO Criteria. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade An increase of the default rate (RDR) at all rating levels in the current portfolio by 25% of the mean RDR and a decrease of the recovery rate (RRR) by 25% at all rating levels would have no impact on the class A to C notes, but would lead to a downgrade of one notch for the class D notes, four notches for the class E notes and to below 'B-sf' for the class F notes. Downgrades may occur if the build-up of the notes' credit enhancement following amortisation does not compensate for a larger loss expectation than initially assumed due to unexpectedly high levels of defaults and portfolio deterioration. Due to the better metrics and shorter life of the current portfolio than the Fitch-stressed portfolio as well as the MIR deviation, the class C to F notes display a rating cushion of one notch, and the class B displays of two notches. The class A notes have no rating cushion. Should the cushion between the current portfolio and the Fitch-stressed portfolio be eroded either due to manager trading or negative portfolio credit migration, a 25% increase of the mean RDR and a 25% decrease of the RRR across all ratings of the Fitch-stressed portfolio would lead to downgrades of two notches for the class B to D, notes to below 'B-sf' for the class E and F notes but would have no impact on the class A notes. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A reduction of the RDR at all rating levels in the Fitch-stressed portfolio by 25% of the mean RDR and an increase in the RRR by 25% at all rating levels would result in upgrades of up to four notches for all notes, except for class A notes. Further upgrades may occur if the portfolio's quality remains stable and the notes start to amortise, leading to higher credit enhancement across the structure. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European securities and markets authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. BLUEMOUNTAIN EUR 2016-1: Moody's Affirms B1 Rating on F-R Notes --------------------------------------------------------------- Moody's Investors Service has upgraded the ratings on the following notes issued by BlueMountain EUR CLO 2016-1 Designated Activity Company: EUR50,000,000 Class B-R Senior Secured Floating Rate Notes due 2032, Upgraded to Aaa (sf); previously on Aug 15, 2022 Affirmed Aa1 (sf) EUR26,400,000 Class C-R Deferrable Mezzanine Floating Rate Notes due 2032, Upgraded to Aa3 (sf); previously on Aug 15, 2022 Affirmed A1 (sf) EUR21,800,000 Class D-R Deferrable Mezzanine Floating Rate Notes due 2032, Upgraded to A3 (sf); previously on Aug 15, 2022 Affirmed Baa1 (sf) Moody's has also affirmed the ratings on the following notes: EUR235,200,000 (Current outstanding balance EUR184,782,702) Class A-R Senior Secured Floating Rate Notes due 2032, Affirmed Aaa (sf); previously on Aug 15, 2022 Affirmed Aaa (sf) EUR25,000,000 Class E-R Deferrable Junior Floating Rate Notes due 2032, Affirmed Ba2 (sf); previously on Aug 15, 2022 Affirmed Ba2 (sf) EUR11,200,000 Class F-R Deferrable Junior Floating Rate Notes due 2032, Affirmed B1 (sf); previously on Aug 15, 2022 Upgraded to B1 (sf) BlueMountain EUR CLO 2016-1 Designated Activity Company, issued in April 2016, is a collateralised loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured European loans. The portfolio is managed by BlueMountain Fuji Management, LLC. The transaction's reinvestment period ended in April 2022. RATINGS RATIONALE The rating upgrades on the Class B-R, C-R and D-R notes are primarily a result of the deleveraging of the senior notes following amortisation of the underlying portfolio since the payment date in October 2022. The affirmations on the ratings on the Class A-R, E-R and F-R notes are primarily a result of the expected losses on the notes remaining consistent with their current rating levels, after taking into account the CLO's latest portfolio, its relevant structural features and its actual over-collateralisation ratios. The Class A-R notes have paid down by approximately EUR50.2 million (21.3%) in the last 12 months and EUR50.4 million (21.4%) since closing. As a result of the deleveraging, over-collateralisation (OC) has increased across the capital structure. According to the trustee report dated October 2023 [1] the Class A/B, Class C, Class D, Class E and Class F OC ratios are reported at 143.23%, 130.12%, 120.98%, 111.96% and 108.34% compared to October 2022 [2] levels of 139.96%, 128.10%, 119.72%, 111.37% and 107.99%, respectively. Moody's notes that the October 2023 principal payments are not reflected in the reported OC ratios. In light of reinvestment restrictions during the amortisation period, and therefore the limited ability to effect significant changes to the current collateral pool, Moody's analysed the deal assuming a higher likelihood that the collateral pool characteristics would maintain an adequate buffer relative to certain covenant requirements. Key model inputs: 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: EUR347.7m Defaulted Securities: EUR1.0m Diversity Score: 61 Weighted Average Rating Factor (WARF): 2983 Weighted Average Life (WAL): 3.7 years Weighted Average Spread (WAS) (before accounting for Euribor floors): 3.61% Weighted Average Coupon (WAC): 4.38% Weighted Average Recovery Rate (WARR): 44.37% Par haircut in OC tests and interest diversion test: none The default probability derives from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The estimated average recovery rate on future defaults is based primarily on the seniority of the assets in the collateral pool. In each case, historical and market performance and a collateral manager's latitude to trade collateral are also relevant factors. Moody's incorporates these default and recovery characteristics of the collateral pool into its cash flow model analysis, subjecting them to stresses as a function of the target rating of each CLO liability it is analysing. Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in December 2021. Counterparty Exposure: The rating action took into consideration the notes' exposure to relevant counterparties, such as account bank, using the methodology "Moody's Approach to Assessing Counterparty Risks in Structured Finance 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: The main source of uncertainty in this transaction is the pace of amortisation of the underlying portfolio, which can vary significantly depending on market conditions and have a significant impact on the notes' ratings. Amortisation could accelerate as a consequence of high loan prepayment levels or collateral sales by the collateral manager or be delayed by an increase in loan amend-and-extend restructurings. Fast amortisation would usually benefit the ratings of the notes beginning with the notes having the highest prepayment priority. -- Recovery of defaulted assets: Market value fluctuations in trustee-reported defaulted assets and those Moody's assumes have defaulted can result in volatility in the deal's over-collateralisation levels. Further, the timing of recoveries and the manager's decision whether to work out or sell defaulted assets can also result in additional uncertainty. Moody's analysed defaulted recoveries assuming the lower of the market price or the recovery rate to account for potential volatility in market prices. Recoveries higher than Moody's expectations would have a positive impact on the notes' ratings. In addition to the quantitative factors that Moody's explicitly modelled, qualitative factors are part of the rating committee's considerations. These qualitative factors include the structural protections in the transaction, its recent performance given the market environment, the legal environment, specific documentation features, the collateral manager's track record and the potential for selection bias in the portfolio. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, can influence the final rating decision. CAIRN CLO XIII: Fitch Alters Outlook on 'B-sf' F Note Rating to Pos ------------------------------------------------------------------- Fitch Ratings has revised the Outlook on four tranches of Cairn CLO XIII DAC to Positive from Stable and affirmed all notes, as detailed below. Entity/Debt Rating Prior ----------- ------ ----- Cairn CLO XIII DAC A XS2327435066 LT AAAsf Affirmed AAAsf A-1 Loan LT AAAsf Affirmed AAAsf A-2 Loan LT AAAsf Affirmed AAAsf B XS2327435819 LT AAsf Affirmed AAsf C XS2327436460 LT Asf Affirmed Asf D XS2327437351 LT BBB-sf Affirmed BBB-sf E XS2327437948 LT BBsf Affirmed BBsf F XS2327437518 LT B-sf Affirmed B-sf TRANSACTION SUMMARY Cairn CLO XIII DAC is a securitisation of mainly senior secured loans (at least 90%) with a component of senior unsecured, mezzanine, and second-lien loans. The portfolio is actively managed by Cairn Loan Investments II LLP. The transaction will exit its reinvestment period in November 2025. KEY RATING DRIVERS Stable Asset Performance; Limited Refinancing Risk: The rating actions reflect the stable performance and larger break-even default-rate cushions than at the last review in January 2023. However, the break-even default rate cushion for the class E notes is smaller than for the other class notes, which results in its Rating Outlook remaining stable. The transaction is currently 0.2% below par and is passing all collateral-quality, portfolio-profile and coverage tests. Exposure to assets with a Fitch-derived rating of 'CCC+' and below is 1.4%, according to the latest trustee report, and the portfolio has EUR1 million of defaulted assets. In addition, the transaction has a small proportion of assets with near-term maturities, with approximately 1.3% of the portfolio maturing before end-2024, and 1.5% maturing in 2025, which limits near-term refinancing risk. 'B'/'B-' Portfolio: Fitch assesses the average credit quality of the obligors at 'B'/'B-'. The Fitch-calculated weighted average rating factor (WARF) of the current portfolio is 25.1. High Recovery Expectations: Senior secured obligations comprise 98.9% of the portfolio as calculated by the trustee. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch-calculated weighted average recovery rating (WARR) of the current portfolio is 61.4%. Diversified Portfolio: The portfolio is well-diversified across obligors, countries and industries. No obligor represents more than 1.5% of the portfolio balance, as reported by the trustee. The exposure to the three-largest Fitch-defined industries is 39.9% as calculated by Fitch. Deviation from MIRs: The class B, C, E and F notes' ratings are one notch below their model-implied ratings (MIR) and the class D notes two notches below. The deviations reflect the agency's view that the default-rate cushion is yet not commensurate with their MIRs amid uncertain macroeconomic conditions and the lack of deleveraging. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade A 25% increase of the mean default rate (RDR) and a 25% decrease of the recovery rate (RRR) across all ratings of the current portfolio would have no impact on all the classes of notes except the class E notes, which would see a downgrade of one notch. Based on the current portfolio, downgrades may occur if the loss expectation is larger than initially assumed, due to unexpectedly high levels of default and portfolio deterioration. Due to the better metrics and shorter life of the current portfolio than the Fitch-stressed portfolio, the class C and E notes display a rating cushion of one notch, the class B and D notes two notches and the class F notes four notches. The class A notes display no rating cushion. Should the cushion between the current portfolio and the Fitch-stressed portfolio be eroded, due to manager trading or negative portfolio credit migration, a 25% increase of the mean RDR and a 25% decrease of the RRR across all ratings of the Fitch-stressed portfolio would lead to downgrades of up to four notches. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A 25% reduction of the mean RDR and a 25% increase in the RRR across all ratings of the Fitch-stressed portfolio would lead to upgrades of up to five notches for the rated notes, except for the 'AAAsf' notes. During the reinvestment period, based on the Fitch-stressed portfolio, upgrades may occur on better-than-expected portfolio credit quality and a shorter remaining weighted average life test, allowing the notes to withstand larger-than-expected losses for the transaction's remaining life. After the end of the reinvestment period, upgrades may occur on stable portfolio credit quality and deleveraging, leading to higher credit enhancement and excess spread available to cover losses in the remaining portfolio. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European securities and markets authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. CUMULUS STATIC 2023-1: Fitch Assigns BB-sf Final Rating to E Notes ------------------------------------------------------------------ Fitch Ratings has assigned Cumulus Static CLO 2023-1 DAC notes final ratings, as detailed below. Entity/Debt Rating Prior ----------- ------ ----- Cumulus Static CLO 2023-1 DAC Class A XS2716095075 LT AAAsf New Rating AAA(EXP)sf Class B XS2716095232 LT AAsf New Rating AA(EXP)sf Class C XS2716095406 LT Asf New Rating A(EXP)sf Class D XS2716095661 LT BBBsf New Rating BBB(EXP)sf Class E XS2716095828 LT BB-sf New Rating BB-(EXP)sf Subordinated Notes XS2716096479 LT NRsf New Rating NR(EXP)sf TRANSACTION SUMMARY Cumulus Static CLO 2023-1 DAC is an arbitrage cash flow collateralised loan obligation (CLO) that is serviced by Blackstone Ireland Limited. Net proceeds from the issue of the notes have been used to purchase a static pool of primarily secured senior loans and bonds, with a target par of EUR325 million. KEY RATING DRIVERS 'B' Portfolio Credit Quality (Neutral): Fitch places the average credit quality of obligors at 'B' /'B-'. The Fitch-weighted average rating factor (WARF) of the identified portfolio is 23.9. High Recovery Expectations (Positive): Senior secured obligations and first lien loans make up around 100% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch-weighted average recovery rate (WARR) of the current portfolio is 63.5%. Diversified Portfolio Composition (Positive): The largest three industries comprise 35.4% of the portfolio balance, the top 10 obligors represent 10.8% of the portfolio balance and the largest obligor represents 1.2% of the portfolio. Static Portfolio (Positive): The transaction does not have a reinvestment period and discretionary sales are not permitted. Fitch's analysis is based on the current portfolio, which the agency stressed by applying a one-notch downgrade to all obligors with a Negative Outlook (floored at 'CCC-'), which in turn is 12% of the current portfolio. Post the adjustment on Negative Outlook, the WARF of the portfolio is 24.9. Deviation from Model-Implied Ratings: The class B, C, and D notes are rated one notch below and the class E notes two notches below their model-implied ratings (MIR), respectively. This reflects insufficient break-even default rate cushion on Fitch-stressed portfolio at the MIRs, due to current uncertain macro-economic conditions. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade A 25% increase of the mean default rate (RDR) across all ratings and a 25% decrease of the recovery rate (RRR) across all ratings of the current portfolio would lead to downgrades of up to three notches for the rated notes. Downgrades, which are based on the current portfolio, may occur if the loss expectation is larger than initially assumed, due to unexpectedly high levels of default and portfolio deterioration. Due to the better WARF of the identified portfolio than the Fitch-stressed portfolio and the deviation from the MIRs, class B, C, and D notes display a rating cushion of one notch, and the class E notes of two notches. Should the cushion between the identified portfolio and the Fitch-stressed portfolio be eroded due to manager trading or negative portfolio credit migration, a 25% increase of the mean RDR across all ratings and a 25% decrease of the RRR all ratings of the Fitch-stressed portfolio would lead to downgrades of up to three notches for the rated notes. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A 25% reduction of the mean RDR across all ratings and a 25% increase in the RRR across all ratings of the Fitch-stressed portfolio would lead to an upgrade of up to four notches for the rated notes, except for the 'AAAsf' rated notes. Upgrades may occur on stable portfolio credit quality and deleveraging, leading to higher credit enhancement and excess spread available to cover losses in the remaining portfolio. DATA ADEQUACY The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European securities and markets authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. DRYDEN 51 2017: Moody's Affirms B2 Rating on EUR12.5MM Cl. F Notes ------------------------------------------------------------------ Moody's Investors Service has upgraded the ratings on the following notes issued by Dryden 51 Euro CLO 2017 Designated Activity Company: EUR27,000,000 Class C Mezzanine Secured Deferrable Floating Rate Notes due 2031, Upgraded to Aa3 (sf); previously on Jul 6, 2022 Upgraded to A1 (sf) EUR20,000,000 Class D Mezzanine Secured Deferrable Floating Rate Notes due 2031, Upgraded to Baa1 (sf); previously on Jul 6, 2022 Affirmed Baa2 (sf) Moody's has also affirmed the ratings on the following notes: EUR205,500,000 (Current outstanding amount EUR137,859,991) Class A-1 Senior Secured Floating Rate Notes due 2031, Affirmed Aaa (sf); previously on Jul 6, 2022 Affirmed Aaa (sf) EUR31,579,000 (Current outstanding amount EUR21,184,821) Class A-2 Senior Secured Fixed Rate Notes due 2031, Affirmed Aaa (sf); previously on Jul 6, 2022 Affirmed Aaa (sf) EUR31,500,000 Class B-1 Senior Secured Floating Rate Notes due 2031, Affirmed Aaa (sf); previously on Jul 6, 2022 Upgraded to Aaa (sf) EUR21,053,000 Class B-2 Senior Secured Fixed Rate Notes due 2031, Affirmed Aaa (sf); previously on Jul 6, 2022 Upgraded to Aaa (sf) EUR22,000,000 Class E Mezzanine Secured Deferrable Floating Rate Notes due 2031, Affirmed Ba2 (sf); previously on Jul 6, 2022 Affirmed Ba2 (sf) EUR12,500,000 Class F Mezzanine Secured Deferrable Floating Rate Notes due 2031, Affirmed B2 (sf); previously on Jul 6, 2022 Affirmed B2 (sf) Dryden 51 Euro CLO 2017 Designated Activity Company, issued in May 2017, is a collateralised loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured European loans. The portfolio is managed by PGIM Limited. The transaction's reinvestment period ended in July 2021. RATINGS RATIONALE The rating upgrades on the Class C and Class D notes are primarily a result of the deleveraging of the senior notes following amortisation of the underlying portfolio and the improvement in over-collateralisation ratios over the last year. The affirmations on the ratings on the Class A-1, A-2, B-1, B-2, E and F notes are primarily a result of the expected losses on the notes remaining consistent with their current rating levels, after taking into account the CLO's latest portfolio, its relevant structural features and its actual over-collateralisation ratios. The Class A-1 and A-2 notes have paid down by approximately EUR41.2 million (20.6%) since October 2022 and EUR78.0 million (32.9%) since closing. As a result of the deleveraging, over-collateralisation (OC) has increased for Class A to E notes. According to the trustee report dated October 2023 [1] the Class A/B, Class C, Class D and Class E OC ratios are reported at 149.87%, 132.91%, 122.63% and 113.02% compared to October 2022 [2] levels of 144.09%, 130.01%, 121.24% and 112.86%, respectively. Key model inputs: 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: EUR316.5m Defaulted Securities: EUR7.5m Diversity Score: 44 Weighted Average Rating Factor (WARF): 3005 Weighted Average Life (WAL): 2.9 years Weighted Average Spread (WAS) (before accounting for Euribor floors): 3.92% Weighted Average Coupon (WAC): 4.8% Weighted Average Recovery Rate (WARR): 42.1% Par haircut in OC tests and interest diversion test: none The default probability derives from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The estimated average recovery rate on future defaults is based primarily on the seniority of the assets in the collateral pool. In each case, historical and market performance and a collateral manager's latitude to trade collateral are also relevant factors. Moody's incorporates these default and recovery characteristics of the collateral pool into its cash flow model analysis, subjecting them to stresses as a function of the target rating of each CLO liability it is analysing. Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in December 2021. Counterparty Exposure: The rating action took into consideration the notes' exposure to relevant counterparties, such as account bank and swap provider, 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: 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 [use when applicable or delete- more available at end of template: the collateral manager or be delayed by an increase in loan amend-and-extend restructurings. Fast amortisation would usually benefit the ratings of the notes beginning with the notes having the highest prepayment priority. -- Recovery of defaulted assets: Market value fluctuations in trustee-reported defaulted assets and those Moody's assumes have defaulted can result in volatility in the deal's over-collateralisation levels. Further, the timing of recoveries and the manager's decision whether to work out or sell defaulted assets can also result in additional uncertainty. Moody's analysed defaulted recoveries assuming the lower of the market price or the recovery rate to account for potential volatility in market prices. Recoveries higher than Moody's expectations would have a positive impact on the notes' ratings. In addition to the quantitative factors that Moody's explicitly modelled, qualitative factors are part of the rating committee's considerations. These qualitative factors include the structural protections in the transaction, its recent performance given the market environment, the legal environment, specific documentation features, the collateral manager's track record and the potential for selection bias in the portfolio. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, can influence the final rating decision. EURO-GALAXY VI: Moody's Affirms B2 Rating on EUR12MM Class F Notes ------------------------------------------------------------------ Moody's Investors Service has upgraded the ratings on the following notes issued by Euro-Galaxy VI CLO Designated Activity Company: EUR30,500,000 Class B-1 Senior Secured Floating Rate Notes due 2031, Upgraded to Aaa (sf); previously on Jun 30, 2022 Upgraded to Aa1 (sf) EUR12,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2031, Upgraded to Aaa (sf); previously on Jun 30, 2022 Upgraded to Aa1 (sf) EUR22,000,000 Class C Senior Secured Deferrable Floating Rate Notes due 2031, Upgraded to Aa3 (sf); previously on Jun 30, 2022 Upgraded to A1 (sf) Moody's has also affirmed the ratings on the following notes: EUR245,500,000 (Current outstanding amount EUR212,037,089) Class A Senior Secured Floating Rate Notes due 2031, Affirmed Aaa (sf); previously on Jun 30, 2022 Affirmed Aaa (sf) EUR22,500,000 Class D Senior Secured Deferrable Floating Rate Notes due 2031, Affirmed Baa1 (sf); previously on Jun 30, 2022 Upgraded to Baa1 (sf) EUR27,500,000 Class E Senior Secured Deferrable Floating Rate Notes due 2031, Affirmed Ba2 (sf); previously on Jun 30, 2022 Affirmed Ba2 (sf) EUR12,000,000 Class F Senior Secured Deferrable Floating Rate Notes due 2031, Affirmed B2 (sf); previously on Jun 30, 2022 Affirmed B2 (sf) Euro-Galaxy VI CLO Designated Activity Company, issued in March 2018, is a collateralised loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured European loans. The portfolio is managed by PineBridge Investments Europe Limited. The transaction's reinvestment period ended in October 2022. RATINGS RATIONALE The rating upgrades on the Class B-1, B-2 and C notes are primarily a result of the deleveraging of the senior notes following amortisation of the underlying portfolio since the last rating action in June 2022. The transaction is also benefiting of a shorter weighted average life of the portfolio which reduces the time the rated notes are exposed to the credit risk of the underlying portfolio. The affirmations on the ratings on the Class A, D, E and F notes are primarily a result of the expected losses on the notes remaining consistent with their current rating levels, after taking into account the CLO's latest portfolio, its relevant structural features and its actual over-collateralisation ratios. The Class A notes have paid down by approximately EUR33.5 million (13.6%) since the last rating action in June 2022. As a result of the deleveraging, over-collateralisation (OC) has increased across the capital structure. According to the trustee report dated September 2023 [1] the Class A/B, Class C, Class D, Class E and Class F OC ratios are reported at 140.95%, 130.54%, 121.36%, 111.76% and 108.04% compared to May 2022 [2] levels of 139.23%, 129.35%, 120.59%, 111.38% and 107.79% respectively. 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 shorter amortisation profile than it had assumed at the last rating action in June 2022. Key model inputs: 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: EUR367.5m Defaulted Securities: none Diversity Score: 60 Weighted Average Rating Factor (WARF): 3105 Weighted Average Life (WAL): 3.8 years Weighted Average Spread (WAS) (before accounting for Euribor floors): 3.84% Weighted Average Coupon (WAC): 5.43% Weighted Average Recovery Rate (WARR): 44.43% Par haircut in OC tests and interest diversion test: none The default probability derives from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The estimated average recovery rate on future defaults is based primarily on the seniority of the assets in the collateral pool. In each case, historical and market performance and a collateral manager's latitude to trade collateral are also relevant factors. Moody's incorporates these default and recovery characteristics of the collateral pool into its cash flow model analysis, subjecting them to stresses as a function of the target rating of each CLO liability it is analysing. Moody's notes that the November 2023 trustee report was published at the time it was completing its analysis of the September 2023 data. Key portfolio metrics such as WARF, diversity score, weighted average spread and life, and OC ratios exhibit little or no change between these dates. Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in December 2021. Counterparty Exposure: The rating action took into consideration the notes' exposure to relevant counterparties, such as account bank, using the methodology "Moody's Approach to Assessing Counterparty Risks in Structured Finance 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: 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. 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. GOLDENTREE LOAN 2: Fitch Affirms 'B-sf' Rating on Class F Notes --------------------------------------------------------------- Fitch Ratings has upgraded GoldenTree Loan Management EUR CLO 2 DAC 's class B-1-A to D notes and affirmed the rest, as detailed below. Entity/Debt Rating Prior ----------- ------ ----- GoldenTree Loan Management EUR CLO 2 DAC A XS1911601000 LT AAAsf Affirmed AAAsf B-1-A XS1911601349 LT AA+sf Upgrade AAsf B-1-B XS1914357022 LT AA+sf Upgrade AAsf B-2 XS1911601778 LT AA+sf Upgrade AAsf C-1-A XS1911602073 LT A+sf Upgrade Asf C-1-B XS1914370553 LT A+sf Upgrade Asf D XS1911602313 LT BBB+sf Upgrade BBBsf E XS1911602669 LT BB-sf Affirmed BB-sf F XS1911602743 LT B-sf Affirmed B-sf TRANSACTION SUMMARY GoldenTree Loan Management EUR CLO 2 DAC is a cash flow CLO mostly comprising senior secured obligations. The transaction is actively managed by GoldenTree Loan Management, LP and exited its reinvestment period in July 2023. KEY RATING DRIVERS Stable Performance; Losses Below Expectation: Since Fitch's last rating action in December 2022, the portfolio's performance has been stable. The transaction is marginally failing its weighted average life (WAL) test but passing all others. The transaction is below par by 3.17% and has EUR1.7 million of defaulted assets in the portfolio. The transaction has manageable near- and medium-term refinancing risk, with 1.93% of the assets in the portfolio maturing in 2024 and 9.8% in 2025, as calculated by Fitch. It has adequate default-rate cushion at the current ratings to absorb refinancing risk. Overall losses have remained largely unchanged since the last review and t well below its rating-case assumptions. This has resulted in the upgrade of the class B-1-A, B-1-B, B-2, C-1-A, and C-1-B notes. Reinvesting Transaction: Although the transaction is outside the reinvestment period, the manager can still reinvest unscheduled principal proceeds and sale proceeds from credit-risk obligations, subject to compliance with the reinvestment criteria. Given the manager's ability to reinvest, its analysis is based on a stressed portfolio factoring in the collateral quality matrix embedded in the transaction documentation. Fitch has applied a haircut of 1.5% to the weighted average recovery rate (WARR), which was inflated by a recovery rate definition that is not consistent with its current rating criteria. 'B' Portfolio: Fitch assesses the average credit quality of the transaction's underlying obligors at 'B'. The weighted-average rating factor (WARF), as calculated by Fitch under its latest criteria, is 24.1. High Recovery Expectations: Senior secured obligations comprise 96.0% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The WARR, as calculated by Fitch, is 64.4%. Diversified Portfolio: The portfolio is well-diversified across obligors, countries and industries. The top 10 obligor concentration, as calculated by Fitch, is 15.2%, and no obligor represents more than 2.0% of the portfolio balance. Fixed-rate assets reported by the trustee are 9.9% of the portfolio balance, versus a limit of 10%. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade A 25% increase of the mean default rate (RDR) and a 25% decrease of the recovery rate (RRR) across all ratings of the current portfolio would have no impact on the class A, B-1-A, B-1-B, B-2, C-1-A, C-1-B and D notes but would lead to downgrades of one notch for the class E and F notes. Downgrades may occur if the build-up of the notes' credit enhancement following amortisation does not compensate for a larger loss than initially assumed due to unexpectedly high levels of defaults and portfolio deterioration. Due to the better metrics and shorter life of the current portfolio than the Fitch-stressed portfolio, the class B-1-A, B-1-B and B-2 notes display a rating cushion of one notch, the class D and E notes two notches and the class F notes three notches. The class A, C-1-A and C-1-B notes display no rating cushion. Should the cushion between the current portfolio and the Fitch-stressed portfolio be eroded, due to manager trading or negative portfolio credit migration, a 25% increase of the mean RDR and a 25% decrease of the RRR across all ratings of the Fitch-stressed portfolio would lead to downgrades of up to four notches. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A 25% reduction of the mean RDR and a 25% increase in the RRR across all ratings of the Fitch-stressed portfolio would lead to upgrades of up to five notches for the rated notes, except for the 'AAAsf' rated notes. During the reinvestment period, based on the Fitch-stressed portfolio, upgrades may occur on better-than-expected portfolio credit quality and a shorter remaining WAL test, allowing the notes to withstand larger-than-expected losses for the transaction's remaining life. After the end of the reinvestment period, upgrades may occur on stable portfolio credit quality and deleveraging, leading to higher credit enhancement and excess spread available to cover losses in the remaining portfolio. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European securities and markets authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. MV CREDIT III: S&P Assigns B- (sf) Rating on EUR10MM Class F Notes ------------------------------------------------------------------ S&P Global Ratings assigned credit ratings to MV Credit Euro CLO III DAC's class A to F European cash flow CLO notes. At closing, the issuer also issued unrated subordinated notes. Under the transaction documents, the rated notes will pay quarterly interest unless a frequency switch event occurs. Following this, the notes will switch to semiannual payments. The portfolio's reinvestment period will end approximately 4.46 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 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 2686.23 Default rate dispersion 394.45 Weighted-average life (years) 4.66 Obligor diversity measure 117.59 Industry diversity measure 20.21 Regional diversity measure 1.26 Transaction key metrics CURRENT Portfolio weighted-average rating derived from S&P's CDO evaluator B 'CCC' category rated assets (%) 0.62 Actual 'AAA' weighted-average recovery (%) 37.31 Actual weighted-average coupon (%) 5.63 Actual weighted-average spread (%) 4.52 Rating rationale S&P said, "At closing, 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 EUR325 million target par amount, the covenanted weighted-average spread (4.30%), covenanted weighted-average coupon (5.00%) and covenanted weighted-average recovery rate at each rating level. We applied various cash flow stress scenarios, using four different default patterns, in conjunction with different interest rate stress scenarios for each liability rating category. "Under our structured finance sovereign risk criteria, we consider that the transaction's exposure to country risk is sufficiently mitigated at the assigned 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. "Until the end of the reinvestment period on May 15, 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 it compares that with the current portfolio's default potential plus par losses to date. As a result, until the end of the reinvestment period, the collateral manager may through trading deteriorate the transaction's current risk profile, if the initial ratings are maintained. "Our credit and cash flow analysis indicates that the available credit enhancement for the class B-1 to E 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 our ratings on the notes. "Following our analysis of the credit, cash flow, counterparty, operational, and legal risks, we believe that our ratings are commensurate with the available credit enhancement for the class A, B-1, B-2, C, D, E, and F notes. "In addition to our standard analysis, to provide an indication of how rising pressures among speculative-grade corporates could affect our ratings on European CLO transactions, we have also included the sensitivity of the ratings on the class A to E notes based on four hypothetical scenarios. "As our ratings analysis 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." The transaction securitizes a portfolio of primarily senior secured leveraged loans and bonds, and is managed by MV CREDIT S.À R.L., acting through its Paris Branch. Ratings AMOUNT CREDIT CLASS RATING* (MIL. EUR) INTEREST RATE(%)§ ENHANCEMENT(%) A AAA (sf) 201.50 3mE + 1.80 38.00 B-1 AA (sf) 32.50 3mE + 3.20 27.08 B-2 AA (sf) 3.00 6.70 27.08 C A (sf) 18.50 3mE + 4.00 21.38 D BBB- (sf) 21.50 3mE + 6.00 14.77 E BB- (sf) 13.50 3mE + 8.32 10.62 F B- (sf) 10.00 3mE + 10.31 7.54 Sub NR 31.75 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. §The payment frequency switches to semiannual and the index switches to six-month EURIBOR when a frequency switch event occurs. 3mE--Three-month Euro Interbank Offered Rate. NR--Not rated. N/A--Not applicable. PENTA CLO 6: Fitch Hikes Rating on Class E-R Notes to 'BB+sf' ------------------------------------------------------------- Fitch Ratings has upgraded Penta CLO 6 DAC class C-R to E-R notes and revised the Outlook on the class B-1-R and B-2-R notes to Positive from Stable. Entity/Debt Rating Prior ----------- ------ ----- Penta CLO 6 DAC A-R XS2367155236 LT AAAsf Affirmed AAAsf B-1-R XS2362602596 LT AAsf Affirmed AAsf B-2-R XS2362602679 LT AAsf Affirmed AAsf C-R XS2362602836 LT A+sf Upgrade Asf D-R XS2362602919 LT BBB+sf Upgrade BBBsf E-R XS2362603214 LT BB+sf Upgrade BBsf F-R XS2362603560 LT B-sf Affirmed B-sf X-R XS2362601945 LT AAAsf Affirmed AAAsf TRANSACTION SUMMARY Penta CLO 6 DAC is a cash flow CLO comprising mostly senior secured obligations. The transaction is actively managed by Partners Group (UK) Management Limited and will its reinvestment period in January 2026. KEY RATING DRIVERS Stable Performance; Low Refinancing Risk: Since Fitch's last rating action in February 2022, the portfolio continued to see stable performance. As per the last trustee report dated 10 October 2023, the transaction was passing all of its collateral-quality and portfolio-profile tests. In addition, the notes have limited near- and medium-term refinancing risk, with 1.1% of the assets in the portfolio maturing before 2024, and 6.5% in 2025, as calculated by Fitch. This, together with larger break-even default-rate cushions since the last review in December 2022, has resulted in today's upgrades. Large Cushion for All Notes: All notes have large default-rate buffers to support their ratings and should be capable of absorbing defaults in the portfolio. This also reflects its expectation that the notes have sufficient credit protection to withstand deterioration in the credit quality of the portfolio at current ratings. 'B'/'B-' Portfolio: Fitch assesses the average credit quality of the underlying obligors at 'B'/'B-'. The Fitch-calculated weighted average rating factor (WARF) of the current portfolio is 34.4 as reported by the trustee based on the old criteria and 26.2 as calculated by Fitch under its latest criteria. High Recovery Expectations: Senior secured obligations comprise 100% of the portfolio. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch-calculated weighted average recovery rate (WARR) of the current portfolio is 62.4%. Diversified Portfolio: The top-10 obligor concentration as calculated by the trustee is 11.1%, which is below the limit of 15% based on current matrix covenants, and no obligor represents more than 1.4% of the portfolio balance. Exposure to the three-largest Fitch-defined industries is 31.9% as calculated by the trustee. Deviation from Modelled-Implied Ratings: The class B-1-R and B-2-R notes' model-implied ratings (MIRs) are one notch above their current ratings. The deviations reflect Fitch's view that the default-rate cushion at the MIRs for these notes are not yet commensurate with the respective stress, given uncertain macroeconomic conditions and the lack of deleveraging. Transaction Inside of Reinvestment Period: The transaction will exit its reinvestment period in January 2026. Given the manager's ability to reinvest, Fitch analysis is based on stressing the portfolio to the covenanted limits for Fitch-calculated weighted average life (WAL), Fitch-calculated WARF, Fitch-calculated WARR, weighted average spread (WAS) and fixed-rate asset share. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade An increase of the default rate (RDR) at all rating levels in the current portfolio by 25% of the mean RDR and a decrease of the recovery rate (RRR) by 25% at all rating levels would have no impact on the class A-R to C-R notes, but would lead to a downgrade of two notches for the class D-R and E-R notes and to below 'B-sf' for the class F-R notes. Downgrades may occur if the build-up of the notes' credit enhancement following amortisation does not compensate for a larger loss expectation than initially assumed due to unexpectedly high levels of defaults and portfolio deterioration. Due to the better metrics and shorter life of the current portfolio than the Fitch-stressed portfolio as well as the MIR deviation, the class B-1-R and B-2-R notes display a rating cushion of two notches, and the class D-R, E-R and F-R notes of one notch. The class A-R and C-R notes have no rating cushion. Should the cushion between the current portfolio and the Fitch-stressed portfolio be eroded either due to manager trading or negative portfolio credit migration, a 25% increase of the mean RDR and a 25% decrease of the RRR across all ratings of the Fitch-stressed portfolio would lead to downgrades of one notch for the class A-R notes, two notches for the class B-1-R and B-2-R notes, three notches for the class C-R and D-R notes, five notches for the class E-R notes, and to below 'B-sf' for the class F-R notes. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A reduction of the RDR at all rating levels in the Fitch-stressed portfolio by 25% of the mean RDR and an increase in the RRR by 25% at all rating levels would result in upgrades of up to five notches for all notes, except for the class A-R and C-R notes. Further upgrades may occur if the portfolio's quality remains stable and the notes start to amortise, leading to higher credit enhancement across the structure. DATA ADEQUACY Fitch has checked the consistency and plausibility of the information it has received about the performance of the asset pool and the transaction. Fitch has not reviewed the results of any third-party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. The majority of the underlying assets or risk-presenting entities have ratings or credit opinions from Fitch and/or other nationally recognised statistical rating organisations and/or European securities and markets authority-registered rating agencies. Fitch has relied on the practices of the relevant groups within Fitch and/or other rating agencies to assess the asset portfolio information or information on the risk-presenting entities. Overall, and together with any assumptions referred to above, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable. TIKEHAU CLO DAC: Moody's Ups Rating on EUR17.5MM E-R Notes to Ba2 ----------------------------------------------------------------- Moody's Investors Service has upgraded the ratings on the following notes issued by Tikehau CLO DAC: EUR21,750,000 Class B-1R Notes due 2034, Upgraded to Aa1 (sf); previously on Aug 11, 2021 Definitive Rating Assigned Aa2 (sf) EUR15,000,000 Class B-2R Notes due 2034, Upgraded to Aa1 (sf); previously on Aug 11, 2021 Definitive Rating Assigned Aa2 (sf) EUR19,250,000 Class C-R Notes due 2034, Upgraded to A1 (sf); previously on Aug 11, 2021 Definitive Rating Assigned A2 (sf) EUR24,500,000 Class D-R Notes due 2034, Upgraded to Baa2 (sf); previously on Aug 11, 2021 Definitive Rating Assigned Baa3 (sf) EUR17,500,000 Class E-R Notes due 2034, Upgraded to Ba2 (sf); previously on Aug 11, 2021 Definitive Rating Assigned Ba3 (sf) Moody's has also affirmed the ratings on the following notes: EUR3,000,000 (Current outstanding amount EUR375,000) Class X-R Notes due 2034, Affirmed Aaa (sf); previously on Aug 11, 2021 Definitive Rating Assigned Aaa (sf) EUR217,000,000 Class A-R Notes due 2034, Affirmed Aaa (sf); previously on Aug 11, 2021 Definitive Rating Assigned Aaa (sf) EUR11,000,000 Class F-R Notes due 2034, Affirmed B3 (sf); previously on Aug 11, 2021 Definitive Rating Assigned B3 (sf) Tikehau CLO DAC issued in July 2015 and refinanced in December 2017 and August 2021 is a collateralised loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured European loans. The portfolio is managed by Tikehau Capital Europe Limited. The transaction's reinvestment period will end in February 2024. RATINGS RATIONALE The rating upgrades on the Class B-1R, B-2R, C-R, D-R and E-R Notes are primarily a result of the benefit of the shorter period of time remaining before the end of the reinvestment period in February 2024. The affirmations on the ratings on the Class X-R, A-R and F-R notes are primarily a result of the expected losses on the notes remaining consistent with their current rating levels, after taking into account the CLO's latest portfolio, its relevant structural features and its actual over-collateralisation ratios. In light of reinvestment restrictions during the amortisation period, and therefore the limited ability to effect significant changes to the current collateral pool, Moody's analysed the deal assuming a higher likelihood that the collateral pool characteristics would maintain an adequate buffer relative to certain covenant requirements. The 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: EUR351.6m Defaulted Securities: none Diversity Score: 56 Weighted Average Rating Factor (WARF): 2931 Weighted Average Life (WAL): 3.79 years Weighted Average Spread (WAS) (before accounting for Euribor floors): 4.07% Weighted Average Coupon (WAC): 4.57% Weighted Average Recovery Rate (WARR): 43.66% The default probability derives from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The estimated average recovery rate on future defaults is based primarily on the seniority of the assets in the collateral pool. In each case, historical and market performance and a collateral manager's latitude to trade collateral are also relevant factors. Moody's incorporates these default and recovery characteristics of the collateral pool into its cash flow model analysis, subjecting them to stresses as a function of the target rating of each CLO liability it is analysing. Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in December 2021. Counterparty Exposure: The rating action took into consideration the notes' exposure to relevant counterparties, such as account bank, using the methodology "Moody's Approach to Assessing Counterparty Risks in Structured Finance" published in October 2023. Moody's concluded the ratings of the notes are not constrained by these risks. Factors that would lead to an upgrade or downgrade of the ratings: The rated notes' performance is subject to uncertainty. The notes' performance is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. The collateral manager's investment decisions and management of the transaction will also affect the notes' performance. Additional uncertainty about performance is due to the following: -- Portfolio amortisation: Once reaching the end of the reinvestment period in January 2024, the main source of uncertainty in this transaction is the pace of amortisation of the underlying portfolio, which can vary significantly depending on market conditions and have a significant impact on the notes' ratings. Amortisation could accelerate as a consequence of high loan prepayment levels or collateral sales by the collateral manager or be delayed by an increase in loan amend-and-extend restructurings. Fast amortisation would usually benefit the ratings of the notes beginning with the notes having the highest prepayment priority. -- Weighted average life: The notes' ratings are sensitive to the weighted average life assumption of the portfolio, which could lengthen as a result of the manager's decision to reinvest in new issue loans or other loans with longer maturities, or participate in amend-to-extend offerings. In addition to the quantitative factors that Moody's explicitly modelled, qualitative factors are part of the rating committee's considerations. These qualitative factors include the structural protections in the transaction, its recent performance given the market environment, the legal environment, specific documentation features, the collateral manager's track record and the potential for selection bias in the portfolio. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, can influence the final rating decision. ========= I T A L Y ========= EOLO SPA: Fitch Affirms 'B-' LongTerm IDR, Outlook Stable --------------------------------------------------------- Fitch Ratings has affirmed Eolo SpA's Long-Term Issuer Default Rating (IDR) at 'B-' with a Stable Outlook. Fitch also affirmed the company's senior secured notes (SSN) at 'B' with a Recovery Rating of 'RR3'. Eolo's ratings reflect its high leverage and its expectations of persistently negative free cash flow (FCF) due to high capex requirements. The affirmation follows Eolo's good operating performance to date and the company's recent access to unsecured local debt for short-term liquidity. Revenue and company defined adjusted EBITDA in the first half of FY24 grew by around 6.5% and 7.3%, respectively, compared with the first half of FY23. The Stable Outlook reflects Fitch's expectations that Eolo is likely to be able to access financing to fund its capex plan. A failure to do so in the next six to 12 months would affect the company's ability to implement its growth plans and lead to liquidity concerns. KEY RATING DRIVERS Negative FCF: The long duration of negative FCF combined with significant execution risks are key risks to Eolo's rating and business profile. Fitch expects Eolo's FCF to remain negative until FY28. Fitch expects its Fitch-defined EBITDA margin, which treats leases as operating expenses, to increase to about 36.4% in FY27 from around 33.8% in FY23. A low tax charge and mild-to-neutral cashflows from working capital feed into a high cash flow from operations (CFO) margin averaging around 23% for FY23-FY27. However, high capex requirements, 40%-50% of revenue over the next five years, will keep FCF negative. The company has some financial flexibility and discretion to reduce capex, which could alleviate short-term liquidity pressures. However, this is likely to affect the company's growth and ability to build scale. Leverage Peak in 2025: Fitch expects Eolo's EBITDA Leverage to peak at 7.3x in FY24 and FY25. Fitch expects EBITDA growth to be sufficient to offset continued gross debt increases, resulting in stable leverage in FY25. Its forecasts assume additional funding, on top of committed loans, of EUR150 million for FY25-FY27, as allowed by Eolo's bond indenture, which Fitch models as additional debt. As of 1H24 Eolo's availability under its EUR140 million revolving credit facility (RCF) was of EUR38 million. In addition, Eolo has received a total of EUR19.5 million in unsecured term loans from local banks since the beginning of this year. Fitch expects the company to exhaust its availability under the RCF in FY25 and need an additional EUR54 million and EUR45 million of liquidity in FY25 and FY26, respectively. Good Customer Growth: Eolo's customer base grew by 5% year on year in the first half of 2024. This follows a period of lower overall market broadband line growth compared to the Covid period. However the migration from copper to fibre-to-the-home (FTTH) and fixed wireless access (FWA) remains strong. The company increased its market share to 3.46% as of June 2023 compared to 3.25% in the previous year. The share of 28 GHz technology among its active contracts increased to 42% in 1H24 from 32.4% in the same period last year, which Fitch views positively as customers using this technology have lower churn than those using Eolo's 5GHz technology. FTTH Offer and Open Fiber: Eolo sells Open Fiber S.p.A's FTTH services in some rural areas of Italy and is likely to increasingly do so. This helps offset Eolo's potential FWA subscriber loss as FTTH is rolled out in its areas of presence. Eolo's fibre offer is of EUR29.90 a month for 1Gbps and is available in 3,400 municipalities. This offer enables Eolo to add or migrate its subscriber base without capex, but it is also likely to dilute Eolo's EBITDA margin in the long term as it acts as a reseller. This impact is low so far, with only around 1% of Eolo's customer base on the fibre offer. In addition, Eolo recently closed another agreement with Open Fiber where the former will provide its FWA technology with another 100 base transceiver stations (BTS), on top of last year's agreement of 300 to cover Open Fiber's commitments in several locations. Fitch believes this highlights Eolo's capabilities as an FWA provider in Italy and its strong position in the rural areas of the country. Expected Margin Evolution: Fitch expect's Eolo's Fitch-defined EBITDA margin to decrease to 32.5% in FY24 from 33.8% in FY23. The lower margin is due to higher costs for labour and marketing and to increased network expenses. Part of these costs are fixed and key to supporting Eolo's growth plan. Fitch expects profitability to slowly increase from FY25, alongside customer and revenue growth. Fitch assumes Eolo's average revenue per user (ARPU) will grow from around EUR28 a month, after its transition to inflation-linked contracts, which Fitch expects to complete by the end of this year. High Capex Requirements: Fitch expects Eolo's capex to remain high at over EUR430 million for FY24-FY27. This includes estimated spend to cover the extension of the right-of-use of frequencies. These investments involve customer premise equipment (CPE) and BTS. Investments will complete the coverage of Eolo's addressable market and upgrade its network technology. CPE expenditure is linked to customer growth, while the pace of BTS capex is more discretionary. Fitch believes BTS capex is likely to keep pace with customer growth and technology upgrades to maintain network service quality. Fitch estimates that in case of distress Eolo's minimum capex would be of EUR60 million-70 million. With this level of capex, the company is likely to be able to invest in minimum short-term customer additions but at the expense of its longer-term growth. Risks to FWA Operating Environment: Fitch sees a possibility for FWA to be a key technology in Italy, where FTTH networks will not be deployed or where fibre-to-the-cabinet connection is sub-optimal. Fitch believes long-run FTTH coverage will be 85%-90% of Italian households, leaving a 10%-15% market opportunity for FWA. However, in the long term FWA may be challenged by alternative wireless technologies such as satellite broadband and the extensive deployment of 5G mobile networks. Medium-term household data consumption is increasing exponentially and should support broadband fixed connectivity usage. Infrastructural Approach to Financial Policy: Fitch expects Eolo to focus on increasing FWA coverage and on accelerating its subscriber expansion. This will result in high capex to build its infrastructure and connect customers. However, this business plan may prevent deleveraging and FCF break-even over the medium term. In certain scenarios such as slow revenue growth Fitch may sees Eolo requiring extra funding to achieve its targets. Fitch expects Eolo's shareholders may intervene should the company struggle to meet its funding requirements through the debt capital markets. DERIVATION SUMMARY Eolo holds a strong position in the FWA technology niche of the Italian broadband market. This enables the company to grow its customer and geographical coverage in suburban and rural areas of Italy, where the roll-out of fibre networks is slow and structurally sub-optimal. In this niche, Eolo mainly competes with Linkem, but with limited geographical overlap. Eolo's ratings are based on an expanding business model, high leverage, and large capex requirements driving negative FCF. Its operating and financial profiles are commensurate with a 'B-' rating. Eolo is comparable with the speculative-grade issuers covered by Fitch in the telecommunications sector, particularly smaller ones that cover niche market positions. Nuuday A/S (B/ Stable) also has high leverage and capex requirements driving negative FCF. It is the leader in the end-user market for mobile and broadband services in Denmark. For its infrastructure it relies on its network partner TDC NET A/S (BB/Stable). Like Eolo, TalkTalk Telecom Group Plc's (B-/Rating Watch Negative) ratings reflect high leverage, material refinancing risk and its expectation of consistently negative Fitch-defined FCF, which will also affect its liquidity headroom. However, TalkTalk's potential liquidity issues are more pressing, as reflected in the Rating Watch Negative on its ratings. High leverage, tight liquidity and limited visibility of FCF generation improvement are key constraints and risks to Eolo's ratings. KEY ASSUMPTIONS - Revenue growth of around 6.6% in FY24 and 5.9% FY25, before decreasing to 5.3% and 4.3% in FY26 and FY27, respectively - Gross subscribers growing at an average of 4%-5% a year for FY24-FY27, with moderate growth in ARPU and decreasing churn - Moderate growth in ARPU from around EUR28 a month - Limited cash tax payments due to large losses carried forward up to FY27 - Capex at around 50% of revenue in FY24 and FY25 and 30%-40% in FY26-FY28 - Open fibre agreement to have a EUR15 million-20 million positive impact on working capital between FY24 and FY25. RECOVERY ANALYSIS Its recovery analysis assumes Eolo would be considered a going concern (GC) in bankruptcy, and that it would be reorganised rather than liquidated. This is based on the inherent value of its customer portfolio of broadband clients in suburban and rural areas in Italy. Fitch has assumed a 10% administrative claim. Fitch assesses GC EBITDA at around EUR75 million. Its distressed scenario assumes slower customer growth, stagnation in pricing and higher capex requirements to maintain the customer base. This will lead to shrinking margins and higher cash needs to fund capex, causing increases in leverage. At the GC EBITDA level, Fitch expects Eolo to be FCF negative. However, the company may be able to achieve positive FCF after scaling back capex requirements, following a cut in unprofitable areas from its FWA coverage. A sale to another telecoms operator with greater scale may also be an option. Fitch uses a 5.0x multiple, at the mid-point of its distressed multiples range for high-yield and leveraged- finance credits. Its choice of multiple is justified by the potential attractiveness of the business for other Italian telecoms operators, balanced by the lack of FCF generation in the medium term. Eolo's EUR140 million RCF is assumed to be fully drawn on default. The RCF ranks super senior and ahead of SSNs. Its waterfall analysis generates a ranked recovery for the SSN noteholders in the 'RR3' category, leading to a 'B' instrument rating. This results in a waterfall-generated recovery computation output percentage of 51%. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade - A successful roll-out of the FWA network leading to broadband leadership in target niches with customer expansion and control on pricing - Evidence of improvements in cash flow generation leading to neutral FCF margins in 18 to 24 months - EBITDA leverage sustainably below 5.0x - Increase in liquidity headroom through additional facilities or reimbursements under the RCF Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade - Disruptions to FWA expansion due to faster-than-expected and more efficient roll-out of fibre networks in rural and suburban areas in Italy, leading to a higher customer churn - EBITDA leverage higher than 6.5x, caused by a reduction in margins and by increases in gross debt - Evidence of deterioration in short-term liquidity, in the absence of possible equity injections to fund the capex plan LIQUIDITY AND DEBT STRUCTURE Additional Liquidity Required: Fitch expects Eolo's cash position as of FY24 at around EUR10 million with a remaining undrawn RCF availability of around EUR7 million. Fitch expects the company to draw down the remaining available portion of the RCF in FY25. Fitch expects additional cash requirements over the next six to 12 months to continue funding the company's capex plan. Failure to do so would compromise the company's ability to execute its growth plan and could lead to liquidity issues. ISSUER PROFILE Eolo is a provider of broadband and ultra broadband services in Italy. It focuses on rural and suburban areas through the deployment of FWA, and is the leading operator in Italy for this technology. ESG CONSIDERATIONS The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- Eolo SpA LT IDR B- Affirmed B- senior secured LT B Affirmed RR3 B POPOLARE BARI 2016: Moody's Lowers Rating on EUR14MM B Notes to Ca ------------------------------------------------------------------ Moody's Investors Service has downgraded the ratings of two notes in Popolare Bari NPLs 2016 S.r.l. The rating action reflects lower than anticipated cash-flows generated from the recovery process on the non-performing loans (NPLs) and under-hedging. EUR126.5M Class A Notes, Downgraded to Caa2 (sf); previously on Apr 4, 2022 Downgraded to B1 (sf) EUR14M Class B Notes, Downgraded to Ca (sf); previously on Apr 4, 2022 Downgraded to Caa3 (sf) RATINGS RATIONALE The rating action is prompted by lower than anticipated cash-flows generated from the recovery process on the NPLs and under-hedging. Lower than anticipated cash-flows generated from the recovery process on the NPLs: The portfolio is serviced by Prelios Credit Servicing S.p.A. ("PRECS"; unrated). As of the end of the latest collection period (May 2023) the Cumulative Collection Ratio, based on collections net of legal and procedural costs, was at 56%, down from the 65% recorded at the time of last rating action, meaning that current collections levels are significantly lower than anticipated in the original Business Plan projections. Indeed, through the collection period ending on May 2023, fourteen collection periods since closing, aggregate cumulative gross collections were EUR89.9 million versus original Business Plan expectations of EUR160.9 million. In particular, collections have been particularly poor on the unsecured portion of the portfolio, representing around 46.96% of the current Gross Book Value ("GBV"), according to the servicer's loan classification. The servicer's latest Business Plan, updated as of March 2023, expects total amount of future collections lower than the outstanding amount of the Class A Notes. The NPV Cumulative Profitability Ratio (the ratio between the Net Present Value of collections against the expected collections as per the original business plan, for positions which have been either collected in full or written off) was at 95% as of the latest payment date, unchanged from the previous rating action. Unpaid interest on Class B increased to around EUR3.04 million as of June 2023, up from EUR1.6 million as of the latest rating action. Interest payments to Class B are currently being subordinated, given the subordination trigger has been hit. Gross collections represent around 18.7% of the GBV at the closing date. To date, 67% of collections were coming from judicial proceedings. 15% of the proceeds were coming from Notesales strategies (i.e. outright disposals or sales of one or more NPL portfolio claims), which is higher than the average observed for similar transactions. In terms of Cumulative Collections Ratio, the transaction has underperformed the servicers' original expectations starting on the 5th collection period after closing, with the gap between actual and servicers' expected collections increasing. In terms of the underlying portfolio, the GBV stood at EUR324.21 million as of June 2023, down from EUR479.89 million at closing. The portfolio still exhibits a significant geographical concentration in the southern regions of Italy, in particular in the Abruzzo and Puglia regions (respectively 29% and 22% of total outstanding GBV, according to the latest Servicer's report). In particular, Moody's notes that the unsecured pool also exhibits significant borrower concentration. Out of the approximately EUR155.67 million reduction in GBV since closing, principal payments to Class A have been around EUR58.56 million. In particular, Moody's notes that the Class A notes received no principal payment on the latest payment date in June 2023, with the currently outstanding amount of Class A remaining unchanged at EUR67.93 million since the previous payment date. In particular, Moody's also notes the ratio between the Class A repayment and the amount of periodic gross proceeds has exhibited a significant downturn in the latest payment periods. The advance rate, i.e. the ratio between Class A notes balance and the outstanding gross book value of the backing portfolio, stood at 20.95% as of June 2023, down from 21.84% as of the last rating action, but up from the 20.61% of the previous interest payment date. The current advance rate is higher than the average of other NPLs Moody's rate, and that the rate of its decline has been slow compared to its peers and in line with lower rated transactions. Simulation of cashflows from the remaining pool in light of portfolio characteristics, coupled with the outstanding balance of the Class A and Class B Notes are no longer consistent with the ratings prior to the downgrades. Under-hedging: The transaction benefits from an interest rate cap referenced to the 6-month Euribor rate, with J.P. Morgan Securities Plc (Aa1(cr)/P-1(cr)) as the cap provider and and JP Morgan Chase Bank, N.A. (Aa1(cr)/P-1(cr)) as the cap guarantor. Under the cap agreement, from the closing date to December 2024, the SPV receives the difference, if positive, between the six-month Euribor and the 0.10% strike. Given the current levels of reference rates and bearing in mind the relatively low cap strike, Moody's notes that the impact of the hedging coverage is significant for the transaction. The notional of the interest rate cap, determined at closing, was initially equal to EUR140.5 million in December 2016, decreasing thereafter based on a pre-defined schedule in consideration of the anticipation of the senior notes' amortization. Given the Class A notes have so far amortised at a slower pace than the scheduled notional amount set out in the cap agreement, and that the Class B notes have received no principal payments, the Class A notes are currently partially unhedged and the Class B notes are fully unhedged. Moody's notes that the current hedging coverage for Class A is very low at 26.5%, with a scheduled cap notional for the current payment period at EUR18.0 million, while Class A notes outstanding balance stands at EUR67.9 million. The 6-month EURIBOR reference rate for the last payment date was 2.752%, as it was fixed 6 months before. But given current reference rates, the interest rate for next periods will be higher, and the transaction may face increasing difficulties in making principal repayments on the senior notes, which may in turn further deteriorate hedging coverage in the short term. Moody's also notes that the Class A notes will be fully unhedged starting from December 2024. NPL transactions' cash flows depend on the timing and amount of collections. Due to the current economic environment, Moody's has considered additional stresses in its analysis, including a 6 to 12-months delay in the recovery timing. Benchmarking and performance considerations against other Italian NPLs have also been factored in the analysis. Moody's has also taken into account the potential cost of the GACS Guarantee within its cash flow modelling, while any potential benefit from the guarantee for the senior Noteholders has not been considered in its analysis. The principal methodology used in these ratings was "Non-Performing and Re-Performing Loan Securitizations Methodology" published in July 2022. Factors that would lead to an upgrade or downgrade of the ratings: Factors or circumstances that could lead to an upgrade of the ratings include: (1) the recovery process of the non-performing loans producing significantly higher cash-flows in a shorter time frame than expected; (2) improvements in the credit quality of the transaction counterparties; and (3) a decrease in sovereign risk. Factors or circumstances that could lead to a downgrade of the ratings include: (1) significantly lower or slower cash-flows generated from the recovery process on the non-performing loans due to either a longer time for the courts to process the foreclosures and bankruptcies, a change in economic conditions from Moody's central scenario forecast or idiosyncratic performance factors. For instance, should economic conditions be worse than forecasted and the sale of the properties generate less cash-flows for the issuer or take a longer time to sell the properties, all these factors could result in a downgrade of the ratings; (2) deterioration in the credit quality of the transaction counterparties; and (3) increase in sovereign risk. =================== L U X E M B O U R G =================== ENDO LUXEMBOURG: $2BB Bank Debt Trades at 35% Discount ------------------------------------------------------ Participations in a syndicated loan under which Endo Luxembourg Finance Co I Sarl is a borrower were trading in the secondary market around 65.1 cents-on-the-dollar during the week ended Friday, December 1, 2023, according to Bloomberg's Evaluated Pricing service data. The $2 billion facility is a Term loan that is scheduled to mature on March 25, 2028. About $1.98 billion of the loan is withdrawn and outstanding. Endo Luxembourg Finance Company I S.a r.l is in the pharmaceutical industry. The Company's country of domicile is Luxembourg. EP BCO: S&P Affirms 'BB-' LT ICR, Alters Outlook to Stable ---------------------------------------------------------- S&P Global Ratings revised its outlook on EP Bco S.A. to stable from negative and affirmed its 'BB-' long-term issuer credit rating on EP Bco and its 'BB-' issue rating on its first-lien term loan and revolving credit facility (RCF). S&P also affirmed its 'B' issue rating on the second-lien term loan. S&P assigned its 'BB-' issue rating and '3' recovery to EP Bco's proposed amendment and extension of the senior TLB and its 'B' issue rating to the proposed amendment of the second-lien term loan. The stable outlook reflects S&P's expectation that EP Bco will continue working on its deleveraging path by increasing cash flow generation throughout its business growth and improving its operating performance. The latter benefits from the company's global terminal platform with its diversified essential commodity exposure and customer base, complemented by growing logistics services, and a variable cost base. EP Bco, the nonoperating holding company of international port infrastructure operator Euroports Holdings S.a.r.l. (Euroports), is proposing to amend and upsize its senior term loan B (TLB) to up to EUR500 million, from currently EUR365 million, and to downsize its subordinated term loan to EUR70 million, from EUR105 million. EP Bco will use the proceeds to refinance all existing debt liabilities, including a shareholder loan (FundCo loan) that S&P used to treat as equity. While the proposed transaction will increase gross senior debt, it will also extend maturities and reduce interest expenses. EP Bco plans to increase its total debt by about EUR100 million, extend maturities by three years, and save interest expenses. EP Bco's proposed changes to the capital structure include the amendment and upsizing, and extension of the rated EUR365 million first-lien TLB due in June 2026 to EUR500 million. The new maturity date will be in June 2029. Similarly, the second-lien term loan will be downsized to EUR70 million, from EUR105 million. EP Bco will use the proceeds to cover transaction and compensation cost and to repay the EUR35 million difference of the second-lien term loan, EUR18 million drawn under the RCF, and EUR66 million of shareholder loans (FundCo loan). This will increase gross senior debt leverage by 27% and total gross debt by 17% in our analysis as we treated the shareholder loan as equity. In addition, we see the transaction as adequate liability management because it shows that EP Bco anticipates the refinancing of medium-term liabilities by shifting to a slightly more senior capital structure. S&P expects EP Bco will deleverage through cash flow generation from business growth instead of lower levels of indebtedness over the next three to five years. Therefore, a robust operating performance will remain key for the sustainability of the ratings. Improved operating and financial performance will enable EP Bco to absorb an increase in leverage and remain consistent with the 'BB-' rating. We see the company's recent strengthened performance as credit-positive because it enables it to expand faster than we expected. We do not expect that EP Bco's margins will exceed 13%-14% since the low single-digit margins of Manuport Logistics (MPL), Euroports' logistics and freight-forwarding business, will continue weighing negatively on the overall group's level and stability of the profitability. S&P said, "That said, our rating headroom will remain limited, and negative deviations from our base case could have negative implications on the ratings. We see the sustainability of the current operating performance, especially the performance of the port business, as key credit consideration to maintain ratings at the existing level. We anticipate weighted average FFO to debt of at least 9% and debt to EBITDA of 6.0x-6.5x over the next three years." Logistics services generate increasing profits, which support business growth but expose EP Bco to cash flow volatility. EP Bco benefited from high shipping freight rates that have a positive effect on MPL's global freight-forwarding. MPL accounted for more than half of EP Bco's revenues over the past two years, up from historical levels of 40%. More importantly, MPL generated 30% of EP Bco's EBITDA in 2022, which is well above the historical 15% contribution. S&P said, "We expect MPL's EBITDA contribution will be about 20% over the medium to long term. In our view, logistics services are more exposed to cyclical downturns and suffer from an inherent volatility. They are unlike terminal operations, which only comprise transportation infrastructure assets and benefit from cash flow stability, thanks to supportive concession frameworks and long-term contracts. Therefore, we expect increased exposure to cash flow volatility. We slightly adjusted our rating triggers to reflect the increased exposure to a more volatile business nature, compared with other pure transportation infrastructure assets, and now expect that EP Bco will maintain a weighted average FFO to debt above 8%." Terminal operations will continue to be the main source of growth, despite coal phase-outs. Despite its exposure to commodity market risk and some revenue concentration on the top 20 clients, which account for 45% of total revenues, EP Bco maintained a good operating performance by extending its commodities exposure and expanding business with existing and new clients. The increasing demand for the existing commodity portfolio and EP Bco's focus on using renewable energy from wind farms located near terminals--particularly, Baltic and Mediterranean Sea--will offset the reduction in coal exposure, which accounts for 7% of revenues. Forest products, bulk agricultural commodities, and metal industries, which accounts for the company's largest exposure at 48% of 2022 revenues, will drive volume growth over the short term. S&P said, "On the flip side, we foresee a consecutive drop in fertilizers in 2023 and 2024, on the back of global supply constraints that will limit volume trades, and reducing coal volumes from 2024. Nevertheless, we expect revenues will remain somewhat stable in 2024 and increase in line with volumes at 2%-3%." S&P said, "The stable outlook reflects our expectations that EP Bco will continue to expand its business and improve its operating performance, thanks to its global terminal platform, which has a diversified commodity exposure and customer base, growing logistics services, and a variable cost base. This should enable the company to maintain a credit profile commensurate with the 'BB-' rating, even after it has increased its senior leverage. We expect EP Bco will maintain an S&P Global Ratings-adjusted FFO to debt consistently above 8% and debt to EBITDA of up to 6.5x. Our rating also reflects minority shareholders' active participation and the strong shareholder agreement that balances the decision-making process and limits the power of majority shareholders. We tend to see the latter as a highly complex group that could potentially increase the credit risk of EP Bco." S&P could lower the issuer credit rating on EP Bco if it believes: -- The company fails to sustain its good operating performance or the business is more volatile than we anticipated; -- FFO to debt will fall below 8% and debt to EBITDA will increase above 6.5x on average over 2024-2026. This could result from a setback in operating performance in connection with a shortfall in volumes from key customers, a failure to contain earnings pressures, or higher-than-expected debt-funded acquisitions and investments that are not sufficiently compensated by EBITDA growth; -- The financial policy does not support deleveraging because of its acquisitive appetite and dividend distributions when allowed under the financial covenants; -- There is any change in the shareholder agreement or governance that could lead us to reassess our rating approach and that may not be consistent with EP Bco's credit quality, which is delinked from that of its parent Cycorp; -- EP Bco's access to capital markets or bank support will diminish, reducing financial flexibility and the company's ability to maintain at least adequate liquidity; or -- There is a risk of a breach of the springing leverage-based financial covenant, which is tested if RCF drawings exceed 40%. S&P could upgrade EP Bco if the company maintains a stable and predictable operating performance that enables it to keep FFO to debt consistently above 10% and debt to EBITDA below 5.5x. S&P said, "ESG factors are an overall neutral consideration in our credit rating analysis of EP Bco. We believe strong minority shareholders--sovereign wealth funds PMV and FPIM hold a combined stake of 46.6%--and their powers under the shareholder agreement protect the company from potential negative intervention from its majority shareholder. From an environmental perspective, EP Bco decreased its coal exposure to 5%-6% of revenues over 2020-2021, from 16% in 2017. Yet, the energy crisis led to an increase in coal volumes in 2022. Additionally, we do not see climate risk as an imminent consideration for EP Bco's terminals." TRAVELPORT FINANCE: $2.80BB Bank Debt Trades at 56% Discount ------------------------------------------------------------ Participations in a syndicated loan under which Travelport Finance Luxembourg Sarl is a borrower were trading in the secondary market around 43.9 cents-on-the-dollar during the week ended Friday, December 1, 2023, according to Bloomberg's Evaluated Pricing service data. The $2.80 billion facility is a Term loan that is scheduled to mature on May 30, 2026. About $37.0 million of the loan is withdrawn and outstanding. Travelport Finance Luxembourg Sarl operates as a subsidiary of Travelport Holdings Ltd. The Company's country of domicile is Luxembourg. ===================== N E T H E R L A N D S ===================== BRIGHT BIDCO: $300MM Bank Debt Trades at 62% Discount ----------------------------------------------------- Participations in a syndicated loan under which Bright Bidco BV is a borrower were trading in the secondary market around 38.3 cents-on-the-dollar during the week ended Friday, December 1, 2023, according to Bloomberg's Evaluated Pricing service data. The $300 million facility is a payment-in-kind Term loan that is scheduled to mature on October 31, 2027. The amount is fully drawn and outstanding. Amsterdam, The Netherlands-based Bright Bidco B.V. designs and manufactures discrete semiconductor devices and circuits for light emitting diodes (LEDs). The Company's country of domicile is the Netherlands. LEALAND FINANCE: $500MM Bank Debt Trades at 53% Discount -------------------------------------------------------- Participations in a syndicated loan under which Lealand Finance Co BV is a borrower were trading in the secondary market around 47.4 cents-on-the-dollar during the week ended Friday, December 1, 2023, according to Bloomberg's Evaluated Pricing service data. The $500 million facility is a Term loan that is scheduled to mature on June 30, 2025. The amount is fully drawn and outstanding. Lealand Finance is an affiliate of CB&I Holdings B.V. and Chicago Bridge & Iron Company B.V. The Companyâ€™s country of domicile is the Netherlands. =========== R U S S I A =========== ALMALYK MINING: S&P Affirms 'B+' ICR on Progressing Expansion ------------------------------------------------------------- S&P Global Ratings affirmed its 'B+' long-term foreign and local currency issuer credit ratings on Uzbekistani copper and gold miner JSC Almalyk Mining and Metallurgical Complex (Almalyk). The stable outlook balances S&P's expectation that the Yoshlik project will be completed on time without major cost overruns with our view that FFO to debt will remain in the 20%-30% range in the next few years. The Yoshlik expansion is in entering its final phase of development, but capital expenditure (capex) for the upcoming 12 months is still sizable. The three-year $4.8 billion greenfield project is due to be completed by the end of 2024, with ramp-up expected during 2025. The project aims to almost double the company's annual production of copper to 290 thousand tons (kt) from 148 kt and gold to 1,050 thousand ounces (koz) from 550 koz (from 17.1 tons to 32.7 tons). The company has managed to secure full financing for the project despite the necessity to replace part of the sources in the process. S&P said, "The company has unsanctioned Russian entities among its lenders, but we understand it has a plan to avoid any disruptions to payments or operations, in case the situation changes. We also note that there have been no major delays, to date, in the construction phase, while all the equipment supplies have been contracted. We therefore see the risks of Almalyk being unable to complete the project as receding. That said, some residual risks remain, as the company still has about Uzbek som (UZS) 20 trillion of capex due in the next 12 months, roughly 40% of the total. Although not our base-case scenario, a significant delay in project realization or cost revisions could deteriorate the company's metrics and postpone expected deleveraging following the Yoshlik launch, especially if this coincides with an industry downturn." The extraction of about $1 billion from the company in 2022 weakened its credit metrics, which led us to revise downward the likelihood of support to moderately high from high. In 2022, Almalyk distributed UZS5.1 trillion of dividends and UZS5.6 trillion of other distributions to the state, a total of UZS10.7 trillion (close to $1 billion). This compares with S&P Global Ratings-adjusted EBITDA of UZS14.1 trillion or peak-of-investment-cycle capex of UZS12.7 trillion for the same year. The distribution resulted in FFO to debt of 30% for 2022, compared with our expectation of 50%. S&P said, "We have therefore revised our expectations from a year ago, and no longer expect FFO to debt to be above 30% in the coming years. The distributions are also roughly equal to the capital injections of UZS11 trillion the government committed to the company when Yoshlik was launched in 2021. The company received about UZS5 trillion in 2021-2022 but in the form of loans, which could be converted to equity at some point. The remaining UZS6 trillion is to be received in the next 12 months. We see the government's intervention as a reversal of the original financing plan and a negative factor in our assessment of government support. This also raises questions about the consistency of the government's approach to supporting Almalyk. We have therefore revised our assessment of Almalyk's link with the government to strong from very strong and overall likelihood of support to moderately high from high. We will continue to monitor the government's policies toward the company and could revise our assessment further if the government's decisions continue to weaken Almalyk's credit quality." Industry conditions continue to support Almalyk, despite slowing economic growth, which should result in solid EBITDA of UZS15 trillion-UZS16 trillion in 2023. S&P said, "Fundamentals for copper and gold, Almalyk's key products, remain healthy in our view. Copper is one of the key energy transition metals, with a wide range of applications within solar panels and wind turbines to electric vehicles, as well as traditional electricity grids, which will need to be heavily upgraded to incorporate a more renewable focused energy mix globally. We therefore expect relatively steady demand, along with the currently low stock levels, to support the prices at $8,500 per ton in 2024 and $8,700 in 2025 and beyond, compared with an average of $8,600 in 2023. Gold prices remain strong as economic uncertainties intensify, although we expect them to moderate over the next few years to about $1,700 per ounce (/oz) in 2024 and $1,500/oz in 2025, from an average of $1,900/oz in 2023. We therefore expect Almalyk's EBITDA to be solid, at UZS15 trillion-UZS16 trillion in 2023, UZS16.5 trillion-UZS17.5 trillion in 2024, and UZS19 trillion-UZS20 trillion in 2025, reflecting Yoshlik's ramp up. In late 2024, after the mine is completed, and for most of 2025, Almalyk will sell copper concentrate (which will also contain gold, silver, and molybdenum) instead of refined metals, as its new smelter won't be ready until late 2025. The company aims to additionally produce and sell 1 million tons of copper concentrate annually until the new smelter is finished, which will contain 150 thousand tons of copper. Sales of concentrate will be an important contributor to the company's cash flow generation, although not as profitable as refined metals sales." S&P said, "The stable outlook reflects that we expect Almalyk to continue to deliver stable EBITDA of about UZS15 trillion-US17 trillion in 2023-2024. At the same time, we expect the company to complete its Yoshlik expansion in 2024, without material delays and overruns. The financing for the project has been fully secured and construction is on track, which reduces project-related risks. We expect that FFO to debt to remain within 20%-30% for the next two to three years, which we view as commensurate with the current rating." S&P could take a negative rating action if the company's leverage continues to increase, with FFO to debt falling below 20% under current industry conditions without near-term prospects of recovery, which could materialize from a combination of: -- Operation setbacks leading to lower output and EBITDA generation. -- Additional significant distributions to the government, as dividends or in other forms. -- Material cost overruns or ramp-up delays at Yoshlik. S&P could also lower the rating if Almalyk's liquidity were to deteriorate materially, as a result of cash flows being insufficient to cover liquidity needs, such as upcoming maturities and capex needs. Ratings upside is contingent on completion of project Yoshlik in 2024, which should significantly boost copper, silver, and gold production, while reducing reliance on one mine, Kalmakir. S&P could consider raising the rating if the company starts producing ore at Yoshlik on time and budget, with FFO to debt improving to comfortably above 30%, while discretionary cash flow turns positive. S&P said, "Governance factors are a negative consideration in our credit analysis of Almalyk, as for many other corporates we rate in Uzbekistan, where we see governance risks as elevated. Additionally, we note developing corporate practices and lower transparency and disclosure compared with peers in emerging markets. Environmental factors are a moderately negative consideration, similar to its copper- and gold-producing peers. Copper and gold ore extraction and refining are energy intensive processes, generating substantial greenhouse gas emissions and waste products. Social risks are also a moderately negative consideration, in line with most mining peers globally, due to the inherent health and safety risks in the industry." UZBEKISTAN: S&P Affirms 'BB-/B' Sovereign Credit Ratings -------------------------------------------------------- On Dec. 1, 2023, S&P Global Ratings affirmed its 'BB-/B' long- and short-term foreign and local currency sovereign credit ratings on Uzbekistan. The outlook is stable. The transfer and convertibility (T&C) assessment remains 'BB-'. Outlook S&P said, "The stable outlook reflects our expectation that Uzbekistan's comparatively strong fiscal and external stock positions and low interest burden should continue to help its economy withstand potential negative macroeconomic spillover effects from the Russia-Ukraine war. The stable outlook also incorporates our expectation of a rising government and external debt burden." Downside scenario S&P could lower the ratings if Uzbekistan's fiscal and external positions weaken more than it currently expects, leading to faster growth in total external debt. This could, for instance, result from a more significant fallout from the Russia-Ukraine war through the channels of trade, remittances, or higher domestic social risks. In addition, the ratings could come under pressure if inadequate government oversight or administrative capacity led to payment delays by government-related entities (GREs), with possible implications for government-guaranteed debt. Upside scenario S&P could raise the ratings if Uzbekistan's economic reforms result in stronger economic growth potential and broader diversification of export receipts and fiscal revenue, while fiscal and external metrics improved. Rationale Amid the ongoing Russia-Ukraine war, weaker growth outlook in China and other key trade partners, and still-high inflation, Uzbekistan is largely addressing risks to growth and social stability through fiscal stimulus and administrative price controls. S&P said, "We estimate a fiscal deficit of 5.5% of GDP this year relative to 3.5% in our previous forecasts, because the government increased wages and social spending. We also expect fiscal consolidation will proceed more slowly since some of the social spending will be harder to reverse." S&P considers that part of the debt burden of GREs could potentially crystallize on the government's balance sheet. The recent deterioration in the payment capacity of some GREs in the gas and agriculture sectors, due to weak corporate governance and financial profiles, could also have spillover effects on the broader economy. Nevertheless, the government has started raising tariffs for electricity and gas, while still maintaining much lower prices than several of its neighbors. Energy price liberalization and other economic reforms including privatizations should support economic growth of above 5% over the next four years. Uzbekistan's high development needs will keep imports and current account deficits elevated, while its commodity exports are susceptible to volatility in prices. The one-off impact from an influx of remittances and money transfers in 2022, mainly from Russia, will fade. Uzbekistan has also turned to a net gas importer from a net exporter as domestic gas consumption has spiked, while production has declined. S&P expects that gross external financing needs will average about 92% of current account receipts and usable reserves over the next four years. S&P said, "Our ratings on Uzbekistan are supported by the economy's overall net external asset position and the government's moderate debt levels, although these metrics are on a weakening trajectory. Uzbekistan's fiscal and external stock positions have historically benefitted from the policy of transferring some revenue from commodity sales to the sovereign wealth fund, the Uzbekistan Fund for Reconstruction and Development (UFRD). In addition, external borrowing was limited for many years under the previous regime of the former president, Islam Karimov, and it only began to rise in recent years. "Our ratings are constrained by Uzbekistan's low economic wealth, measured by GDP per capita, and low--albeit improving--monetary policy flexibility. In our view, policy responses are difficult to predict, given the highly centralized decision-making process and less developed accountability and checks and balances between institutions." Institutional and economic profile: Growth momentum to remain strong, notwithstanding significant external risks -- S&P estimates economic growth at 5.6% in 2023, followed by slightly lower growth of about 5.0% of GDP over 2024-2026. -- Economic and governance reforms, including plans to partially privatize several GREs, will continue at a gradual pace. -- S&P also believes decision-making will remain centralized and the perception of corruption high, although on an improving trend. Uzbekistan's economy continues to weather the spillover effects from the Russia-Ukraine war reasonably well, even as remittance inflows and money transfers from Russia decrease from the highs of 2022. Remittance inflows declined by one-third during the first nine months of 2023 to $8.4 billion, after almost doubling to $17 billion (21% of GDP) for full-year 2022. The decline this year likely reflects one-off transfers of savings last year after the war started, decreasing number of Uzbek workers in Russia, higher living costs in Russia, and the strengthening of the Uzbek sum (UZS) against the Russian ruble. That said, remittances are still about 45% higher than in 2021. Russia remains Uzbekistan's largest remittance source, contributing about 80% of total remittances. S&P expects real GDP growth averaging 5.2% over 2023-2026, supported by domestic demand and investment. Government stimulus in the form of tax incentives for businesses, export incentives, and social protection measures including providing subsidized mortgages and free medical services for vulnerable parts of the population, will drive consumption growth even as remittance inflows slow. The government also plans to expand the generation of electricity and volumes of gas, along with production of copper, gold, silver, and uranium, mainly through public private partnerships (PPPs) and foreign investment. Uzbekistan's growth has been heavily investment-led over the past five years, with one of the highest investment-to-GDP ratios globally at about 35%. The government has borrowed externally to support projects in the electricity, oil and gas, transportation, and agricultural sectors. Foreign direct investment (FDI) inflows remain relatively low and concentrated in the extractive industries. We expect that FDI inflows will increase only gradually despite the ambitious pipeline of privatizations, partially due to lower investment from Russian companies. Uzbekistan's broader economic reforms, including the planned transformation and privatization of GREs, and energy subsidy reforms should continue to support longer-term economic growth. In August 2023, the government consolidated the ownership of 31 key state-owned corporates and banks under the Ministry of Finance with a view to reforming them and eventually privatizing some of these entities. Authorities started to raise electricity and gas tariffs for businesses from October after several years of delays due to the pandemic and external uncertainty. S&P expects that energy price liberalization will be phased over several years. Uzbekistan has made progress on the economic modernization agenda since reforms began in 2017. These have included a new privatization law, an increase in transparency regarding economic data, and the liberalization of trade and foreign exchange regimes. The government also passed laws to privatize agricultural and nonagricultural land, abolished state orders for cotton, liberalized wheat prices, and expanded the concept of private property. Fiscal transparency has increased with the government bringing significant extra-budgetary spending onto the budget. Despite strong growth, the country's credit quality is constrained by relatively low GDP per capita when compared globally, estimated at $2,400 in 2023. That said, Uzbekistan benefits from favorable demographics, given that its population is young. Almost 90% are at, or below, working age, which presents an opportunity for labor-supply-led growth. However, it will remain challenging for job growth to match demand, in S&P's view. Weakness in the Russian economy, where most of Uzbekistan's permanent and seasonal expatriates are employed, could further exacerbate this issue. S&P said, "In our view, the risk of significant secondary U.S. and EU sanctions on Uzbek companies and institutions doing business with Russia remains relatively low since the government tries to remain compliant with Western-alliance-led sanction requirements. For example, in 2022 the Russian Mir card system was partially suspended and the purchase of UzAgroExportBank by Russian Sovkombank was halted due to sanctions on Russia. The bank was later sold to a local Uzbek investor. We understand that one private company, Promcomplektlogistic, reportedly breached sanctions, leading to secondary sanctions imposed by the U.S. In response, the government introduced enhanced diligence processes, automated screening measures, and stress testing." A new constitution adopted in May 2023 lengthened the presidential term limit to seven years from five and allows the current president to remain in power until 2037. The incumbent president, Shavkat Mirziyoyev, won the election held on July 9, 2023, that followed the constitutional referendum, by securing 87% of the votes. International observers noted a lack of competition in the election. In S&P's view, policy responses can be difficult to predict, considering the centralized decision-making process and, despite reforms, a limited number of checks and balances between institutions. Significant uncertainty over future succession remains. Flexibility and performance profile: Government and external debt levels to continue rising -- S&P expects net general government debt will reach about 28.5% of GDP by 2026, compared to a net asset position in 2017. -- After a temporary dip in 2022, we forecast Uzbekistan's current account deficits will average nearly 5.3% of GDP through 2026. These will be funded through a combination of net FDI and debt. -- Despite improvements in monetary policy in recent years, S&P still views the central bank's operational independence as constrained, while loan dollarization remains elevated at about 43%. To mitigate the fallout from the Russia-Ukraine war and high food prices, the government has further increased wages and social spending this year. Authorities increased allocations for health spending, tax incentives for businesses and importers of food, food price controls, and financial resources for exporters. S&P said, "We expect the fiscal deficit will reach 5.5% of GDP in 2023, significantly higher than the budgeted 3.0%. From 2024, we expect gradual fiscal consolidation on the back of electricity and gas tariff reforms, moderating capital expenditure, and better targeted social spending, along with improvements in tax collection. As the government works to reduce the gray economy and improve operations at GREs, we expect the tax base will gradually increase." The government expects the fiscal deficit to drop to 4% in 2024 and 3% in 2025. S&P expects slower fiscal consolidation over the coming years, with the deficit projected to reach 3.7% of GDP by 2026 because of potentially higher expenditure on social protection, such as medical services, pensions, and targeted support to vulnerable populations. Further risks to its fiscal projections remain, including from reliance on the sale of commodities, such as gold, the prices of which can be volatile. Social spending, including wages, makes up about 50% of government expenditure and can be difficult to adjust for political reasons. S&P said, "As a result of higher-than-anticipated fiscal deficits, we expect gross government and government-guaranteed debt will increase to 42% of GDP in 2026, from 37% in 2022. We include government-guaranteed debt in government debt because of the close links with GREs." The state debt law approved by the president in April sets a permanent debt ceiling at 60% of GDP. There are also limits on annual borrowing, PPP debt levels, and state guarantees. The state is allowed to borrow external debt of up to $5 billion in 2024. S&P thinks there is also a risk that the relatively large nonguaranteed GRE and PPP debt materializes on the government's balance sheet. GREs have significantly increased borrowings in recent years, particularly in foreign currency, to finance energy and infrastructure projects. Notwithstanding limits on new external debt, GREs could face challenges in repaying this debt if some of the projects fare worse than expected, or if there are lapses in management or supervision. To reduce external risks and exposure to fluctuations in currency movements and build domestic capital markets, the government is increasing domestic borrowing. The proportion of domestic debt to total debt increased to 18% as of June 30, 2023, from 11% at year-end 2022. Slightly more than half of domestic debt is in short-term treasury bonds and bills. The government also issued U.S.-dollar-denominated Eurobonds in October 2023 of $660 million, and sum-denominated green bonds worth UZS4.25 trillion (about $349 million). The green bonds were placed for three years at an annual rate of 16.25%, while the five-year Eurobonds were priced at 7.85%. The government is looking to introduce the participation of nonresidents in local currency debt. As the proportion of domestic and commercial debt increases, borrowing costs will also rise from a low base. Currently, about 90% of external debt is on concessional terms. The weighted-average interest rate is about 17% for short-term treasury bills and the 10-year government bonds. The government plans to continue raising concessional debt in parallel from the World Bank, Asian Infrastructure Bank, and Asian Development Bank to finance its developmental needs. The government's liquid assets, estimated at 17% of GDP in 2023, are mostly kept at the UFRD. Founded in 2006, and initially funded with capital injections from the government, the UFRD receives revenue from gold, copper, and gas sales above certain cutoff prices. S&P includes only the external portion of UFRD assets in our estimate of the government's net asset position because we view the domestic portion, which consists of loans to GREs and capital injections to banks, as largely illiquid and unlikely to be available for debt-servicing if needed. Uzbekistan's exports remain reliant on commodities, which comprise about 40% of goods exports, particularly gold. The current account deficit surged during first-half 2023 to 7.7% of GDP, largely due to a drop in remittances and strong import growth. Higher global commodity prices and gold sales helped exports increase significantly in 2022. However, S&P expects gold prices to decline gradually over its forecast period from $1,850 per ounce (/oz) in 2023, to $1,500/oz in 2024 and $1,400 in 2025. Conversely, increasing copper prices could offset part of the decline. S&P projects that current account deficits will average 5.3% over 2023-2026, fueled by imports of capital and high-tech goods. Uzbekistan became a net importer of gas in October 2023 after it started importing Russian gas via a pipeline through Kazakhstan. Along with increasing household consumption, large projects like the Gas to Liquids Plant, Shurtan Gas Chemical Complex, and Gas Chemical Complex MTO (methanol to olefin) will add to gas consumption and imports over its forecast period. Uzbekistan remains in a net external asset position vis-a-vis the rest of the world. However, the country's gross external debt has been rising in recent years, particularly within the public and financial sectors. S&P said, "In our view, this increase primarily reflects the opening of the economy and its sizable investment and development needs. A large proportion of the rise is attributed to official rather than commercial creditors. Our current external forecasts are based on the expectation of a moderation in the pace of foreign debt accumulation over the forecast horizon." S&P said, "We estimate that Uzbekistan's usable foreign exchange reserves will marginally decline through 2026 due to lower gold prices and ongoing current account deficits. The Central Bank of Uzbekistan's (CBU's) holdings of monetary gold comprise nearly 80% of total usable reserves. The CBU is the sole purchaser of gold mined in Uzbekistan. It purchases the gold with local currency, then sells U.S. dollars in the local market to offset the effect of its intervention on the Uzbek sum. We exclude UFRD assets from the CBU's reserve assets because we consider them as fiscal assets. Our view is supported by the budgetary use of external UFRD assets in the domestic economy over the past four years. The UFRD's total assets were $16.7 billion as of Oct. 31, 2023, with the liquid portion at $6.5 billion." Uzbekistan's monetary policy effectiveness has been improving in recent years. One of the most significant reforms in that regard was the liberalization of the exchange rate regime in September 2017 to a managed float from a crawling peg, which was heavily overvalued compared with the parallel-market rate. The CBU intervenes in the foreign exchange market intermittently to smooth volatility and mitigate the increase in local currency from its large gold purchases. In 2020, the CBU adopted measures to transition to an inflation-targeting mechanism. Inflation remains high due to elevated energy and food prices, averaging 10.4% in the first nine months of 2023. The CBU expects it to fall to about 5% by second-half 2025, a delay from its earlier projection of 2024. S&P forecasts inflation will remain near 11.0% this year, then average 7.7% in 2024-2026. The CBU maintained its policy rates at 14% at an October 2023 meeting, after reducing them 100 basis points in March 2023 following earlier rounds of tightening. S&P said, "In our view, the large footprint of state-owned banks in the sector, at about 70% of total assets, and preferential government lending programs reduce the effectiveness of the monetary transmission mechanism. However, we note that directed lending at preferential rates has been gradually diminishing. Dollarization, although declining, also remains high at about 45% of loans and 32% of deposits as of October 2023. We expect local currency deposit growth will outpace that in foreign currency because of interest rate variances and differences in the reserve requirement for banks. "In our view, Uzbekistan's banking sector will continue to show resilience. We consider that the economic recovery and low penetration of retail lending in Uzbekistan (with household debt to GDP at below 10%) will remain among the key factors contributing to lending demand growth in the next few years. However, we think credit costs will remain elevated at about 2.0%-2.2% in 2023-2024. The funding profiles of Uzbek banks are largely stable, supported by sizable funding from the state and international financial institutions and growth in corporate and retail deposits. Nevertheless, access to long-term funding remains scarce in the domestic market. While the license withdrawals affecting Turkiston Bank and Hi-Tech Bank in 2022 suggest a clean-up of weaker institutions, they also underpin our view of a less predictable and transparent approach to regulatory actions." In accordance with S&P's relevant policies and procedures, the Rating Committee was composed of analysts that are qualified to vote in the committee, with sufficient experience to convey the appropriate level of knowledge and understanding of the methodology applicable. At the onset of the committee, the chair confirmed that the information provided to the Rating Committee by the primary analyst had been distributed in a timely manner and was sufficient for Committee members to make an informed decision. After the primary analyst gave opening remarks and explained the recommendation, the Committee discussed key rating factors and critical issues in accordance with the relevant criteria. Qualitative and quantitative risk factors were considered and discussed, looking at track-record and forecasts. The committee's assessment of the key rating factors is reflected in the Ratings Score Snapshot above. The chair ensured every voting member was given the opportunity to articulate his/her opinion. The chair or designee reviewed the draft report to ensure consistency with the Committee decision. The views and the decision of the rating committee are summarized in the above rationale and outlook. The weighting of all rating factors is described in the methodology used in this rating action. Ratings List RATINGS AFFIRMED UZBEKISTAN Sovereign Credit Rating BB-/Stable/B Transfer & Convertibility Assessment BB- Senior Unsecured BB- =========== T U R K E Y =========== ISTANBUL METROPOLITAN: Fitch Assigns 'B' Rating on Sr. Unsec Notes ------------------------------------------------------------------ Fitch Ratings has assigned Istanbul Metropolitan Municipality's debut USD715 million senior unsecured fixed coupon (10.5%) green notes (XS2730249997/US46522TAC27), due 6 December 2028, a final long-term rating of 'B'. The proceeds from the green bond issuance will be used to finance eligible green projects. These will mainly include clean transportation investments, such as metro line constructions or procuring fully electric or zero emission vehicles for public transportation. The final rating was assigned following the receipt of final documents conforming to information already received. KEY RATING DRIVERS The green bond represents a direct, unconditional, unsubordinated and unsecured obligation of Istanbul and will rank pari passu with all of its present and future unsecured and unsubordinated obligations, which are rated in line with Istanbul's Long-Term Foreign-Currency IDR. Istanbul has a 'Vulnerable' risk profile and debt sustainability that Fitch assesses in the 'aa' category leading to a Standalone Credit Profile of 'b+'. Fitch revised the Outlook on Istanbul's IDRs to Stable in September following the rating action on Turkiye and affirmed the IDRs at 'B'. Istanbul's IDRs are capped by the Turkish sovereign IDRs (B/Stable). About 95% of Istanbul's total debt is in foreign currency and unhedged, exposing it to significant FX risk and therefore an increase in its total debt due to significant FX volatility. Fitch expects the operating balance to remain resilient in its rating case, at 32% of operating revenue in 2027 (2022: 46%), despite the large capex-induced increase in funding. This leads to a still robust payback ratio at 4.6x (2022: 2.4x), while the actual debt service coverage ratio will weaken to 1.1x by 2027 from 2.7x in 2022. At end-2022, Istanbul had maintained a robust operating performance with its operating balance improving to TRY26.0 billion from TRY12.4 billion in 2021 amid high inflation. The bond issuance is in line with the Fitch's expected increase in total debt over the rating case. Consequently, Fitch expects no change in Istanbul's primary and secondary debt metrics over the medium term. KEY ASSUMPTIONS Qualitative Assumptions: Fitch assumes that green bond issued will remain senior, unsecured, and equalised with Istanbul's Long-Term Foreign-Currency IDR until its redemption. Quantitative Assumptions: Not applicable to this rating action. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: An upgrade of Istanbul's IDR would lead to positive rating action on the senior unsecured notes. Factors that could, individually or collectively, lead to negative rating action/downgrade: A downgrade of Istanbul's IDR would lead to negative rating action on the senior unsecured notes. ISSUER PROFILE Istanbul is the largest city in Turkiye with about 15.9 million inhabitants. The city has a crucial role in Turkiye's economy, due its strategic location as an international junction of land and sea trade routes, contributing an average 30.5% of national GDP. Fitch classifies Istanbul as 'Type B' local and regional government, meaning it is required to cover debt service from its own operating cash flow on an annual basis. COMMITTEE MINUTE SUMMARY Committee date: 12 September 2023 There was an appropriate quorum at the committee and the members confirmed that they were free from recusal. It was agreed that the data was sufficiently robust relative to its materiality. During the committee no material issues were raised that were not in the original committee package. The main rating factors under the relevant criteria were discussed by the committee members. The rating decision as discussed in this rating action commentary reflects the committee discussion. PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS Istanbul's IDRs are capped by Turkiye's sovereign IDRs. ESG CONSIDERATIONS The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Prior ----------- ------ ----- Istanbul Metropolitan Municipality senior unsecured LT B New Rating B(EXP) TURK TELEKOMUNIKASYON: $189MM Bank Debt Trades at 22% Discount -------------------------------------------------------------- Participations in a syndicated loan under which Turk Telekomunikasyon AS is a borrower were trading in the secondary market around 78.3 cents-on-the-dollar during the week ended Friday, December 1, 2023, according to Bloomberg's Evaluated Pricing service data. The $189 million facility is a Term loan that is scheduled to mature on September 30, 2030. The amount is fully drawn and outstanding. Turk Telekomunikasyon A.S. is an integrated telecommunications services provider for businesses and individuals. The Company offers land and mobile telecommunications solutions, as well as Internet services. The Company's country of domicile is Turkey. =========================== U N I T E D K I N G D O M =========================== AMPHORA FINANCE: GBP301MM Bank Debt Trades at 57% Discount ---------------------------------------------------------- Participations in a syndicated loan under which Amphora Finance Ltd is a borrower were trading in the secondary market around 43.3 cents-on-the-dollar during the week ended Friday, December 1, 2023, according to Bloomberg's Evaluated Pricing service data. The GBP301 million facility is a Term loan that is scheduled to mature on June 1, 2025. The amount is fully drawn and outstanding. Amphora Finance Limited operates as a special purpose entity. The Company was formed for the purpose of issuing debt securities to repay existing credit facilities, refinance indebtedness, and for acquisition purposes. The Company's country of domicile is the United Kingdom. DIGNITY FINANCE: Fitch Lowers Rating on Class A Notes to 'BB+' -------------------------------------------------------------- Fitch Ratings has downgraded Dignity Finance plc's class A notes to 'BB+' from 'BBB' and class B notes to 'CCC' from 'B'. The class A notes have been maintained on Rating Watch Negative (RWN). Entity/Debt Rating Prior ----------- ------ ----- Dignity Finance Plc Dignity Finance Plc/Project Revenues - Second Lien/2 LT LT CCC Downgrade B Dignity Finance Plc/Project Revenues - First Lien/1 LT LT BB+ Downgrade BBB RATING RATIONALE The downgrades reflect further weakening of Dignity's cash flows, the slower-than-expected recovery of market share and reliance on the liquidity facility or further equity injections for debt repayment over the short to medium term. The downgrade also reflects the announcement of a consent solicitation process on 20 November 2023. If approved and executed, this would result in the full repayment of the class A notes, and only partial repayment of the class B notes, to cancel both classes of notes. This would be deemed by Fitch as a default of the class B notes. Under Fitch's rating case, the lower of the average and the median rent-adjusted free cash flow (FCFR) debt service coverage ratio (DSCR) for the class A and B notes declined to 1.4x from 1.6x and 0.9x from 1.0x, reflecting more cautious expectations on gaining market share while giving credit to Dignity's deleveraging plans to partially prepay the class A noteholders by disposing of seven crematoria assets. The RWN reflects execution risk on the company's deleveraging plan. Resolution could take place beyond the next six months. KEY RATING DRIVERS Industry Profile - Midrange Weakening Operating Environment The acceleration of price competition and Dignity's response with an alternative low-priced range of products and more flexible packages highlight the growing exposure of the funeral business to discretionary spending and behavioural changes. The recent interest of the Competition and Markets Authority and HM Treasury in the funeral and crematoria business increases uncertainty over the regulatory framework, in Fitch's view. In addition, the pandemic facilitated the trend towards unattended funerals and simplified cremations, which together with increased price competition and transparency, represent structural changes to the sector, weakening Dignity's operating environment. Fitch views volume risk as limited, with predictable long-term demand. Operating environment - Midrange; Barriers to entry - Midrange; Sustainability - Stronger Company Profile - Midrange Declining Long-term Stability Dignity's ability to increase tariffs across all business segments has reduced as a consequence of consumers' more price-conscious behaviour and the company's strategy to re-gain market share. Fitch therefore expects the positive effects of the new strategy to be delayed and margins to remain under pressure in the medium term. Financial performance has substantially worsened over the last two years. Financial performance - Weaker; Company operations - Midrange; Transparency - Stronger; Dependence on operator - Midrange; Asset quality - Midrange Debt Structure (Senior tranche level) - Stronger Solid Debt Structure The notes are fixed-rate and fully amortising, benefiting from a strong UK whole business securitisation (WBS) security package as well as strong structural features such as a tranched liquidity facility and high thresholds for both restricted payment conditions and the financial covenant. Debt profile - Stronger; Security package - Stronger; Structural features - Stronger Debt Structure (Mezzanine tranche level) - Midrange Contractually Subordinated Class B Notes Fitch assesses the class B notes' debt structure as weaker than that of the class A notes, reflecting their contractual subordination and late maturity in 2049. The very long-dated maturity of the class B notes makes them vulnerable to further re-shaping of the industry and Dignity's weakening profitability. Debt profile - Midrange; Security package - Midrange; Structural features - Stronger Financial Profile The rent-adjusted lower of the average and median FCFR DSCR is 1.4x for the class A notes and 0.9x for the class B notes. PEER GROUP Dignity has no direct peers due to its unique industry within the Fitch WBS universe. The closest peer is CPUK Finance Limited (class A notes: BBB/Stable), which operates in the holiday and leisure industry. Dignity benefits from a stronger, albeit weakening industry profile than CPUK. CPUK is even more exposed to discretionary spending and volume fluctuations, which makes the projection of long-term cash flows challenging. Dignity's financial performance is substantially weaker than CPUK's. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Class B - Bondholder approval of the proposed consent solicitation Class A - Continuous deterioration of issuer cashflow generation - Significant delays in executing the proposed deleveraging plan Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade Class B - Probability of full repayment of the class B notes increases Class A - Material improvement in cash generating ability and profitability - Successful execution of the deleveraging plan TRANSACTION SUMMARY Dignity Finance Plc is a financing vehicle for the securitisation comprising 690 funeral homes and 44 crematoria as at September 2023. The Dignity group is the UK's second-largest provider of funeral services and the largest provider of crematoria services. CREDIT UPDATE Cash Flows in Decline The transaction's cash flow-generating ability has substantially weakened over the last four years. The securitisation's EBITDA was GBP30.8 million in the 52 weeks ending 29 September 2023, down 14.7% from March 2023. The reported FCF DSCR (without equity cure) was 0.6x as of 29 September 2023. Cost Pressures Reduced Margins Dignity faces various pressures from increasing staff, energy, regulatory costs and the high cost of funeral plans due to changes in regulations and costs associated with funeral plans that were rescued from non-FCA compliant providers. It is unable to fully pass on these cost increases to customers due to increased price competition. Covenant Waiver to Avoid Default On 4 September 2023, the class A bondholders consented to reinstatement of the covenant waiver for 15 months covering five covenant tests starting from December 2023. The DSCR calculation definition was changed to allow for paydowns of the class A notes to be factored into the calculation of debt service on a pro-forma basis as though the pay-down took place at the start of the period. Equity cures would need to be implemented as a condition to the waiver but there would not be a cap on the equity cure amount as per the previous consent solicitation process. Dignity Plc injected a total equity of GBP32.7 million in the 52 weeks ending 29 September 2023, of which GBP19.8 million was used to cure the financial covenant and the remaining GBP12.9 million was an additional cash transfer to fund maintenance capex and pay fees related to the business restructuring and transition of rescue plans. The waiver and equity injections prevented a breach of the financial covenant, the appointment of a financial advisor and, potentially a borrower level event of default. Partial Asset Sale for Debt Service Relief On 29 September 2022, the issuer obtained consent from the class A bondholder to sell seven crematoria. The freehold and leasehold assets reside outside the securitisation but the trade associated with them is within the securitisation. Another consent solicitation process in August 2023, allowed GBP70 million to be drawn from a variety of sources and not just a sale of the selected crematoria assets and extend the period of the pay down of the GBP70 million to the end of December 2024. Upon the sale, Dignity Plc is required to inject a minimum GBP70 million into the securitisation to partially prepay some of the class A notes in consideration for the assets leaving the security group. Should the net proceeds be higher than the minimum amount of GBP70 million, the excess amount will also enter the securitisation and the company is obliged to apply these amounts (net of certain transaction costs) towards prepayments. This prepayment of GBP70 million at December 2024 will lower debt service and provide some relief to the issuer in servicing the notes. On 20 November 2023, the company launched a consent solicitation process, with a proposal to redeem class A notes in full at 100% of the outstanding and class B notes at 84.25% of the outstanding and collapse the WBS structure. If this new consent solicitation process is approved, there will be further amendments to the documentation with regard to prepayment clauses and permitted actions to be carried out in connection with the refinancing event. Liquidity At end-September 2023, the securitisation had around GBP4.4 million of cash available for operating purposes in addition to a committed and undrawn GBP55 million liquidity facility. In addition, Dignity Plc has entered into a GBP50 million loan facility agreement with Phoenix UK Fund Ltd, which was fully drawn in 1H23 to meet obligations and pay expenses relating to the acquisition of Dignity plc. Fitch did not include the loan in its analysis. Instead the full repayment of the notes in the rating case relied on the drawings of the liquidity facility. FINANCIAL ANALYSIS Key assumptions within the rating case are: - Sale of seven crematoria with GBP70 million of net proceeds applied to prepayment of the class A notes - Underlying average revenue per funeral at GBP2,384 and market share at 12.1% in 2023. Market share to gradually rise towards 12.7% in the long term - Underlying average revenue per cremation at GBP1,112 in 2023 and GBP1,150 in 2024 - Higher-than-average mortality rates to persist in the short term, and long-term mortality growth in line with Office of National Statistics forecast - Margins for funeral services below 15% and for cremation below 60% - Maintenance capex of around 5% of revenue ESG CONSIDERATIONS Dignity Finance Plc has an ESG Relevance Score of '4' for Human Rights, Community Relations, Access & Affordability due to increased price competition in the funeral sector and general affordability, which 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. EMPIRE CINEMA: Rescued from Administration by Omniplex ------------------------------------------------------ STV News reports that a cinema in Clydebank that previously plunged into administration has been saved by a major chain as part of a GBP22 million takeover. According to STV News, the Empire cinema will remain open after it was confirmed the company's location has been taken over by Omniplex Cinema Group. The venue, one of the only in Scotland to serve hot butter with its salted popcorn, will remain open following its fall into administration in July -- and will even undergo a renovation, STV News states. Following Empire's collapse, six cinemas across England were closed by administrators, with 150 jobs lost, STV News relates. However, Clydebank, alongside Birmingham, Ipswich and High Wycombe, were kept open and will now be rebranded as Omniplex with the new sites opening up this week, STV News notes. The cinema company says the move is part of its plan to expand across Great Britain and more sites are expected to be announced in 2024 as part of a GBP22.5 million investment, STV News discloses. FOLGATE INSURANCE: A.M. Best Affirms B(Fair) FS Rating ------------------------------------------------------ AM Best has affirmed the Financial Strength Rating of B (Fair) and the Long-Term Issuer Credit Rating of "bb+" (Fair) of Folgate Insurance Company Limited (Folgate) (United Kingdom). The outlook of these Credit Ratings (ratings) is stable. The ratings reflect Folgate's balance sheet strength, which AM Best assesses as adequate, as well as the company's adequate operating performance, very limited business profile and appropriate enterprise risk management (ERM). The balance sheet strength assessment considers Folgate's relatively small capital base, which increases the sensitivity of its risk-adjusted capitalization to shocks. Folgate's BCAR scores have been volatile in recent years, though actions taken by management in 2022 and 2023 to de-risk the company's balance sheet are expected to support at least a very strong level of risk-adjusted capitalization, prospectively. The impact of the holding company, Anglo London Holdco Ltd (ALL), is considered neutral; ALL's consolidated risk-adjusted capitalization, as measured by BCAR, improved to the strongest level in 2022. Moreover, ALL's consolidated financial leverage decreased to nil in the first half of 2023, from a high of more than 60% in 2018. Folgate reported a five-year (2018-2022) weighted average return-on-equity ratio (ROE) of -3.7%. ROEs were volatile over this period, with losses in the more recent years significantly impacted by unrealized losses in the company's fixed income portfolio. Folgate is managed by its sister company—Anglo Pacific Consultants (London) Limited (APC) —via a service level agreement. Folgate and APC are the sole operating entities of the Anglo London group. Folgate cannot operate in isolation and its reported underwriting profitability is highly impacted by commission and fee agreements with APC. Consideration is therefore given to the overall profitability of the Anglo London group, which recorded a five-year weighted average ROE of 18.1%. Folgate's underwriting book of business is highly concentrated by product and geography. In addition, AM Best views Folgate's position in the competitive UK market as vulnerable and highly dependent on third parties. This is partly mitigated by APC's underwriting expertise and long-standing relationships. Folgate's risk management framework is largely based on regulatory requirements in the United Kingdom. Whilst the company's risk management capabilities are considered broadly commensurate to its risk profile, AM Best will continue to monitor whether underwriting losses and reserve deficiencies in recent years are evidence of potential weaknesses in ERM. JF RENSHAW: Bought Out of Administration by British Bakels ---------------------------------------------------------- Dan Haygarth at Liverpool Echo reports that Liverpool cake firm Renshaw has been saved after being bought from administration. JF Renshaw, found behind Liverpool Women's Hospital on Crown Street, and its parent company Real Good Food plc went into administration on Dec. 4 after warning last week that it intended to do so, Liverpool Echo relates. According to Liverpool Echo, administrators from Interpath Advisory were called in and have immediately announced the JF Renshaw business and its assets have been sold to British Bakels Ltd, the UK arm of a Swiss ingredients company. Renshaw is said to make 90% of Britain's marzipan and most of the country's ready-rolled icing. This sale saves the company's Liverpool site and all of its jobs, Liverpool Echo notes. Real Good Food plc and Renshaw had been hit by challenging trading conditions recently, Liverpool Echo discloses. Earlier this year, the ECHO reported that more than 100 jobs had been lost at Real Good Food as it brought in plans to "radically reform" the group as it battled a "perfect storm" of rising costs and lower revenues, Liverpool Echo recounts. The company reduced its headcount from 318 to 201 in the year to March 31, 2023, and had lowered it further to 186 by September, Liverpool Echo relays. As it announced its intention to call in administrators last week, Real Good Food said its "performance had been constrained by supply issues and cash constraints which are continuing and that sales in November and December were expected to be lower than previously forecast", Liverpool Echo notes. Over the year to April 2023, its revenue also decreased from GBP40.4 million to GBP32.4 million, Liverpool Echo discloses. According to figures filed with the London Stock Exchange, Real Good Food's pre-tax losses were cut from GBP18.9 million to GBP9 million during the financial year and its total net debt increased from GBP25.5 million to GBP31.2 million, Liverpool Echo relates. LONTRA LTD: Enters Administration, Buyer Being Sought for Assets ---------------------------------------------------------------- Business Sale reports that Lontra Ltd, a manufacturer of industrial compressors, has ceased trading and fallen into administration, with a buyer now being sought for its assets. The company had a manufacturing facility in Doncaster and an office in Napton, Warwickshire. According to Business Sale, the firm's GBP17 million "smart factory" in Doncaster only began production in August 2023 as the company sought to meet growing industry requirements and bring to market its new environmentally-friendly air delivery technology for industrial settings. The firm had developed its Blade Compressor technology, which demonstrated several innovations and environmental benefits. However, it encountered major challenges bringing its green tech product to market and also suffered as a result of constraints on both investment funding and industrial capital expenditure in the industry, Business Sale relates. As a result of the company's struggles, it ceased trading and Phil Pierce, Chad Griffin and Mark Hodgett of FRP Advisory were appointed as joint administrators, Business Sale states. Upon their appointment, 45 employees were made redundant, while seven were retained to assist in the administration process, Business Sale notes. The joint administrators are now seeking a buyer for Lontra's assets and intellectual property, Business Sale relays. In the company's accounts for the year ending June 30 2022, its fixed assets were valued at just over GBP3 million and current assets at slightly over GBP11 million, while net assets stood at GBP5.7 million, Business Sale discloses. MICHAEL J LONSDALE: Owed GBP64.9 Million to Trade Creditors ----------------------------------------------------------- Development Finance Today reports that collapsed M&E specialist Michael J Lonsdale (MJL) went into administration owing GBP64.9 million to trade creditors. Jeremy Karr, Jamie Taylor and Dominik Czerwinke at Begbies Traynor were formally appointed as joint administrators of the company in October, Development Finance Today recounts. According to Development Finance Today, in the statement of proposals for achieving the purpose of administration, MJL blamed the conflict between Ukraine and Russia in February 2022 for a surge in raw material prices, escalated utility costs, material shortages and delayed deliveries -- which "posed challenges" in project completion. On October 2, 2023, the company also owed GBP2.9 million to its 265 staff and GBP50 million in intercompany loans (such as directors and shareholders), Development Finance Today discloses. The statement also suggested that the Lonsdale "may have insufficient property to enable a distribution to be made to unsecured creditors", adding that MJL's leasehold land and property has no realisable value, Development Finance Today notes. PINEWOOD GROUP: S&P Alters Outlook to Negative, Affirms 'BB-' ICR ----------------------------------------------------------------- S&P Global Ratings revised its outlook to negative from stable and affirmed its 'BB-' long-term issuer credit rating on U.K.-based filming facilities provider Pinewood Group Ltd. (Pinewood). S&P also affirmed its 'BB' issue rating and maintained its '2' (70%-90%; rounded estimate: 80%) recovery rating on Pinewood's senior secured notes. S&P said, "The negative outlook reflects that we may downgrade Pinewood in the next six months if the refinancing of the £750 million notes does not progress, or if the company does not demonstrate capacity to bring debt to EBITDA below 13x or increase interest coverage back to 2.4x or above. "The negative outlook reflects our view that the shortening of the weighted-average debt maturity implies higher refinancing risks for Pinewood. The company's £750 million senior secured notes, which account for about two-thirds of total debt, mature in September 2025. This results in a weighted-average debt maturity of about 2.9 years as of November 2023--below the three-year minimum requirement we expect for peers in the real estate industry. We note that Pinewood's own cash flows are insufficient for repayment of the notes maturing in September 2025, and it will therefore need new financing. We understand management is considering different refinancing options, but the discussions are still at an early stage. In our view, this enhances refinancing and liquidity risk for Pinewood. "We expect interest rates to remain high and now forecast Pinewood's interest coverage ratio will likely deteriorate following the refinancing of the £750 million notes. Pinewood currently benefits from a low cost of debt of about 3.5% from the £1,050 million senior secured notes, which represent about 90% of total debt. However, we forecast the cost of new debt will be at least double this. If Pinewood refinances the £750 million notes only with debt, we estimate its interest coverage will remain at about 1.8x, which is below our downgrade threshold of 2.4x. In the 12 months ended Sept. 30, 2023, Pinewood's S&P Global Ratings-adjusted interest coverage was already 1.8x because EBITDA was depressed by several factors. These included the recently finished writers' and actors' strikes affecting revenue from ancillary services and delaying the leasing out of the Toronto stages, but we anticipate some recovery toward 2.4x. "Positively, Pinewood's large expansionary project worth about £700 million is in the final phase and the new stages have been let out, so we expect incremental EBITDA to partly balance interest coverage pressure. In October 2023, Pinewood completed its Shepperton North West project comprising three stages with a total area of 165,000 square feet (sq ft), which have been let out to Prime Video. In first-quarter 2024, Pinewood also expects to finalize its Shepperton South project, which includes 14 stages with a total area of 775,000 sq ft. These projects have already been prelet to Netflix and Prime Video. We note that the new letting contracts are long term and rents are retail price index (RPI)-linked with only upward revisions and no caps. As of Sept. 30, 2023, Pinewood had about £90 million of cash and £80 million available under the revolving credit facility (RCF), which covers the remaining capital expenditure (capex) needs. "Pinewood's incumbent studios are 100% let out under 10-year U.K. RPI-linked contracts. The largest content producers, such as Disney and Netflix, signed in 2019, and Prime Video signed in 2022. These contracts, which account for about 85%-90% of Pinewood's current revenue, do not have break clauses and upward revisions in line with inflation are not capped. We also factor in the new long-term letting contract from December 2023 for the remaining five stages in Toronto, which complements the existing Toronto portfolio of occupational letting contracts with CBS and Netflix and results in 100% occupancy of the Toronto stages. In our updated base case factoring the completion of the new stages, EBITDA should increase to about £130 million in the year ending March 2025, from about £93 million in the previous year. This will partly offset pressure on the interest coverage ratio from expected higher interest rates on the new debt to be raised. We will reassess Pinewood's capital structure and the main ratios in the next one or two quarters when more information about the timeline and the capital structure after refinancing activities is available. "The negative outlook reflects that we may downgrade Pinewood in the next six months if the refinancing of the £750 million notes is not addressed and the weighted-average maturity of the portfolio shortens to well below three years, increasing refinancing and liquidity risk. "We could lower the rating if refinancing and liquidity risk related to Pinewood's £750 million notes heightens due to delays. "We could also downgrade Pinewood if we believe the shareholder has adopted a more aggressive financial policy or if they do not support Pinewood's capital structure if debt refinancing remains challenging, elevating refinancing and liquidity risks. "In particular, we would consider downgrading Pinewood if its debt to EBITDA does not decrease to below 13x or if its interest coverage remains well below 2.4x. We would also view negatively Pinewood's reported loan to value (LTV) ratio increasing above 50% without near-term recovery potential. "Furthermore, although not part of our base case, we might lower the rating if we see evidence of Pinewood's rental activities deteriorating, which could be caused by sluggish demand linked to a downturn in the media industry. "We will revise the outlook to stable if the company addresses the refinancing concerns, with its weighted-average debt maturity sustainably improving to at least 3.0 years. For the outlook revision we would expect its assets to continue to generate steady income, supported by sustainable demand for media content and contributions from the recently built stages. The long-term contracts with Disney, Netflix, and Prime Video will also continue to bolster the company's performance. Moreover, to revise the outlook, Pinewood's EBITDA interest coverage should improve to 2.4x and above, with debt to EBITDA returning to 10x-12x." RENEW ENERGY: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable -------------------------------------------------------------- Fitch Ratings has affirmed Indian renewable power producer ReNew Energy Global Plc's (REGP) and onshore subsidiary ReNew Private Limited's (ReNew) Long-Term Issuer Default Rating at 'BB-' with a Stable Outlook. Both are rated at same level due to their similar credit profiles, with REGP as the offshore holding company of the group. The agency has also affirmed the 'BB-' ratings on the US dollar notes issued by ReNew, India Clean Energy Holdings and Diamond II Limited. India Clean Energy Holdings and Diamond II Limited are fully owned subsidiaries of REGP. The affirmation reflects REGP's large and growing portfolio of renewable power assets with long-term power purchase agreements (PPAs), improving receivables and adequate liquidity profile. Fitch expects REGP's high capex for projects under construction to keep its EBITDA net leverage elevated in the near-to-medium term. However, Fitch expects its interest cover, measured as EBITDA net interest cover, to remain adequate for its 'BB-' ratings. KEY RATING DRIVERS Leading Producer: REGP's large and diversified portfolio provides economies of scale and operating advantages, mitigating concentration risk. Its power projects, including those under construction, are diversified by source and geography, which reduces risks from adverse climatic conditions. Fitch expects REGP's solar project generation to remain at the historical plant load factor (PLF) of around 20%-22%, while the wind projects' PLF should increase marginally from the 25% historical level, in the medium term, as new projects with higher PLFs are commissioned. Improved Receivables: Fitch expects REGP's receivable days to improve to 125 in the year ending March 2024 (FY24) due to increasing exposure to sovereign-owned entities that make timely payments and the receipt of payments from state utilities under late payment surcharge rules. Receivable days improved to 152 in FY23 (FY22: 256) as state utilities made payments, especially those from Andhra Pradesh, which accounted for around 45% of receivables in FY22 and cleared a large part of their long outstanding dues in 12 monthly installments, starting August 2022. REGP's key counterparties, state-owned power-distribution utilities that account for about 60% of the current off-take, have weak credit profiles in general. However, Fitch expects REGP's exposure to them to fall to around 40% by FY25, as a large part of its capacity under construction is tied up with counterparties with timely payment records. High Capex: Fitch expects REGP's EBITDA net leverage to remain above 6.0x over FY24-FY25 (FY23: 7.5x), driven by its large investment plans, before improving to around 6x by FY26 on enhanced earnings from its larger scale and improving receivables. Fitch expects capex for capacity under construction to remain high at about INR105 billion a year in FY24 and FY25 (1HFY23: INR75 billion, FY23: INR86 billion). Fitch expects REGP's capex intensity to drop below 100% after FY24 (FY24F: 131%), as its earnings rise from the commissioning of a large part of its under-construction projects. Adequate Financial Profile: Fitch expects REGP's consolidated EBITDA net interest cover to remain above 1.5x in the near-to-medium term, the key negative sensitivity for its 'BB-' ratings. Interest cover remains adequate as more than half of its borrowings are fixed rate, and the majority have long-dated maturity. REGP also has a record of selling stakes at the project level to support capex and maintain its financial profile. The stake increase by Canada Pension Plan Investment Board to more than a 50% economic interest in REGP could be beneficial in the medium-to-long term. Price Certainty, Volume Risk: Fitch believes the long-term PPAs for the group's operating assets offer price certainty and long-term cash flow visibility. Fitch expects more than 90% of group capacity to be sold under PPAs with tenors of 20-25 years, even as REGP increases direct off-take with corporate PPAs. Production volume can still vary under the long-term PPAs because it is based on resource availability, which is affected by seasonal and climatic patterns. Healthy Debt-Service Coverage: Fitch monitors the cash flow from operations (CFO)-based debt service coverage ratio (CFO + interest expense/scheduled project debt amortisations + interest expense) at the ReNew and/or REGP holding-company level and unrestricted projects to analyse liquidity at the unrestricted portfolio, excluding the three restricted groups. Fitch expects the ratio to average around 1.2x in the medium term, higher than the negative sensitivity level of 1x, with an increase in cash generation from larger operational capacity and lower receivables. No Notching for Subordination: Fitch does not notch down the rating of the three US dollar notes issued by ReNew, India Clean Energy Holdings and Diamond II in light of its assessment of at least an average recovery for noteholders. The subordination risk is mitigated by the cash available for upstreaming from REGP's operating projects after servicing their own debt obligations. Its view benefits from REGP's large scale and diversity of projects across geographies, resource types and counterparties. Fitch also factors in the subordination of notes to prior-ranking project debt at operating entities in the group. Fitch does not expect total debt at the ReNew and REGP holding-company level to increase materially in the near-to-medium term. However, a material increase in structural subordination risk at these holding companies could lead to negative rating action. Currency Risk: REGP's earnings are in Indian rupees but its notes are in US dollars, resulting in exposure to foreign-exchange risk. REGP has mitigated this risk by substantially hedging the notes' coupon and principal. DERIVATION SUMMARY Fitch views Greenko Energy Holdings (BB/Negative) and Concord New Energy Group Limited (CNE, BB-/Positive) as REGP's close peers. Greenko, like REGP, is one of India's leading power producers, with a focus on renewable energy. However, REGP's operating capacity has increased to more than Greenko's over the last few years. REGP's resource risk is lower, with higher exposure of 54% to solar-based projects (Greenko: 29% solar and 11% hydro and others). Its counterparty risk is also lower, with 45% capacity contracted with sovereign-owned entities and the rest with state-owned distribution companies (40%) and direct sales (15%). Greenko's better credit assessment than ReNew is supported by the former's stronger financial access, benefitting from its strong shareholders, which enables the company to rely on fresh equity for investments and acquisitions, while utilising cash generated from operations to deleverage. CNE is a renewable power operator in China with 3.6GW of attributable installed capacity of wind and solar farms. Its feed-in tariffs are stable and its counterparty risk is lower than that of REGP, as its revenue stream is mostly reliant on State Grid Corporation of China (A+/Stable) and China's Renewable Energy Subsidy Fund. In comparison, REGP is larger - allowing for diversity and granularity across multiple projects - and financial access has improved after its Nasdaq listing. They have similar financial profiles, resulting in the same overall rating assessment. Continuum Green Energy Limited (CGEL, B+/Positive), another India-based renewable power producer, has lower counterparty risk than REGP, with more than 80% of capacity contracted with timely paying customers. However, CGEL's better counterparty profile is counteracted by high net leverage in the near term of above 10x. This, along with ReNew's larger scale of diversified operating assets of 8.3GW and higher proportion of solar assets, results in CGEL's one-notch lower rating. The Positive Outlook on CGEL's rating reflects its expectation of an improvement in net leverage to around 6.0x by FY25, which would be comparable to ReNew's net leverage. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer: - Plant-load factors in line with average historical performance or resource assessment studies - Plant-wise tariff in accordance with respective PPAs - Average receivable days to reduce to around 125 in FY24 (FY23: 152), helped by regular payments from state distribution companies under the government's late payment surcharge scheme and ReNew's increasing exposure to sovereign-owned entities - Asset-level EBITDA margins of 80%-93%, in line with historical performance or management guidance - Capex to remain high at about INR105 billion a year in FY24 and FY25 (1HFY23: INR75 billion, FY23: INR86 billion). - No dividend payout in the medium term RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: - Net debt/EBITDA below 5.0x on a sustained basis, provided there is no significant increase in REGP's business risk profile. Factors that could, individually or collectively, lead to negative rating action/downgrade: - Operating EBITDA/net interest expense below 1.5x for a sustained period; - Material increase in structural subordination risk at ReNew and/or REGP holding-company level, measured by a sustained decline in their holding company-level CFO-based debt-service coverage ratios (including cash flow from unrestricted projects) to below 1.0x; - Significant and prolonged deterioration of the receivable position; - Failure to adequately mitigate foreign-exchange risk. LIQUIDITY AND DEBT STRUCTURE Liquidity Supported by Market Access: REGP had cash and cash equivalents of INR77 billion at FYE23, against INR63 billion in debt maturing over the next 12 months, including short-term debt of INR42.5 billion. Fitch expects the company to generate negative free cash flow in the near-to-medium term due to ongoing capacity additions. However, this is likely to be mitigated by REGP's policy of funding the equity portion of capex through a mix of capital recycling and internal accruals and its adequate access to onshore and offshore debt markets. REGP has staggered debt maturities and benefits from a sound mix of debt in the form of amortising project-level loans, with tenors of between 13 and 23 years, and five tranches of US dollar notes totalling USD2.4 billion, with an earliest maturity date of April 2024. ISSUER PROFILE ReNew is one of India's leading renewable-energy companies with a total capacity of about 13.8GW. The projects are spread across 10 states, and comprise wind, solar and hydro projects. SUMMARY OF FINANCIAL ADJUSTMENTS Fitch adjusts REGP's EBITDA to exclude the proportion of net profit attributable to minorities at the project level in calculating the EBITDA net leverage ratio and EBITDA net interest expense ratio. ESG CONSIDERATIONS The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Prior ----------- ------ ----- ReNew Energy Global Plc LT IDR BB- Affirmed BB- Diamond II Limited senior secured LT BB- Affirmed BB- ReNew Private Limited LT IDR BB- Affirmed BB- senior secured LT BB- Affirmed BB- India Clean Energy Holdings senior unsecured LT BB- Affirmed BB- STEVE PORTER: Bought Out of Administration by Acclaim Logistics --------------------------------------------------------------- Chris Yandell at Daily Echo reports that Totton-based Acclaim Logistics has acquired an Isle of Wight company after it filed for administration. Acclaim has acquired Cowes-based Steve Porter Transport and senior members of its management team, Daily Echo relates. According to Daily Echo, an Acclaim spokesperson said: "Key supermarket contracts have been preserved, ensuring the continuation of vital supply chain services. "This transition was assisted by the transfer of nearly 20 of the Steve Porter team including managing director Malcolm Gibson." In addition, Acclaim has absorbed the Steve Porter site in Cowes, increasing their warehouse space from 8,000 sq. ft. to 15,000 sq. ft., Daily Echo discloses. VUE ENTERTAINMENT: EUR648MM Bank Debt Trades at 64% Discount ------------------------------------------------------------ Participations in a syndicated loan under which Vue Entertainment International Ltd is a borrower were trading in the secondary market around 36.5 cents-on-the-dollar during the week ended Friday, December 1, 2023, according to Bloomberg's Evaluated Pricing service data. The EUR648.6 millionfacility is a Term loan that is scheduled to mature on December 31, 2027. The amount is fully drawn and outstanding. Vue International is a multinational cinema holding company based in London, England. [*] Fitch Keeps 21 Tranches of 10 UK RMBS Deals on Rating Watch Neg ------------------------------------------------------------------- Fitch Ratings has maintained 21 tranches from 10 UK RMBS transactions on Rating Watch Negative (RWN). The maintained RWN is a result of having not yet obtained noteholder consent to transition to an alternative reference rate, upon the cessation of three-month synthetic sterling LIBOR at end-March 2024. Entity/Debt Rating Prior ----------- ------ ----- Ludgate Funding Plc's Series 2008-W1 Class E XS0353600348 LT BBB+sf Rating Watch Maintained BBB+sf Southern Pacific Financing 06-A Plc Class C XS0241083764 LT AAAsf Rating Watch Maintained AAAsf Class D1 XS0241084572 LT AAsf Rating Watch Maintained AAsf Class E XS0241085033 LT BBB+sf Rating Watch Maintained BBB+sf Newgate Funding Plc Series 2007-1 Class F XS0287778095 LT BB+sf Rating Watch Maintained BB+sf Eurohome UK Mortgages 2007-1 plc Class B1 XS0290420396 LT A-sf Rating Watch Maintained A-sf Class B2 XS0290420982 LT BBBsf Rating Watch Maintained BBBsf Class M2 XS0290419380 LT AA+sf Rating Watch Maintained AA+sf Newgate Funding Plc Series 2007-3 Class D XS0329654312 LT A+sf Rating Watch Maintained A+sf Class E XS0329655129 LT A+sf Rating Watch Maintained A+sf Newgate Funding Plc Series 2006-2 Class E XS0257996743 LT A+sf Rating Watch Maintained A+sf Newgate Funding Plc Series 2006-1 Class E XS0248222571 LT A+sf Rating Watch Maintained A+sf Newgate Funding Plc Series 2007-2 Class F XS0304281024 LT B+sf Rating Watch Maintained B+sf Ludgate Funding Plc Series 2006 FF1 Class A2a XS0274267862 LT AAAsf Rating Watch Maintained AAAsf Class A2b XS0274271203 LT AAAsf Rating Watch Maintained AAAsf Class Ba XS0274268241 LT AA+sf Rating Watch Maintained AA+sf Class Bb XS0274271898 LT AA+sf Rating Watch Maintained AA+sf Class C XS0274272359 LT AA-sf Rating Watch Maintained AA-sf Class D XS0274272862 LT BBB+sf Rating Watch Maintained BBB+sf Class E XS0274269645 LT BBsf Rating Watch Maintained BBsf Ludgate Funding Plc Series 2007 FF1 Class E XS0304515546 LT B-sf Rating Watch Maintained B-sf TRANSACTION SUMMARY The transactions were all issued in or before 2008 and are backed by non-conforming UK mortgages. The notes pay or are pari passu to notes paying interest at a margin above three-month sterling LIBOR, and do not contain robust fall-back provisions in the event of a permanent cessation of LIBOR. To date, the issuers have not been able to obtain consent from noteholders for basic terms modifications to transition their interest obligations to an alternative reference rate. The 10 transactions yet to obtain noteholder consent to transition to an alternative rate have a total of 73 rated tranches: 30 are linked to three-month EURIBOR for an aggregate outstanding balance of EUR428.7 million and 43 currently linked to three-month synthetic LIBOR for an aggregate outstanding balance of GBP627.7 million. Each EURIBOR tranche is linked pari passu to a note paying interest at a margin above 3-month synthetic Sterling LIBOR. Of the 73 tranches, only five have been deemed resilient to the potential interest rate shock upon the permanent LIBOR cessation expected in March 2024. 47 tranches currently have Negative Outlooks and 21 are on RWN. The underlying asset pools are highly seasoned, with a weighted-average pool factor of 21.8%. The notes currently on RWN mostly comprise the junior tranches, as these notes have the least credit enhancement (CE) available and the least protection from losses. The available CE largely depends on the size of the respective reserve funds, the amount of losses incurred from the mortgage pools and the amortisation profiles of the transactions. Of the 10 transactions, the senior notes of Ludgate Funding Plc Series 2006 FF1 (which have been amortising pro-rata until recently), are also vulnerable as they have the least CE at 19.7%, in comparison with CE for the most senior notes in the other nine transactions ranging from 31.3% to 82.6%. Eurohome UK Mortgages 2007-1 plc, Ludgate Funding Plc Series 2006 FF1 and 2008-W1, and Southern Pacific Financing 06-A Plc currently amortise sequentially, while the remaining transactions are amortising on a pro-rata basis. Sequential amortisation will benefit the senior tranches by allowing them to build-up CE as they pay down. The liquidity available to the notes has an important role in their ability to make interest payments in stress scenarios. The transactions benefit from dedicated non-amortising liquidity facilities (except for Southern Pacific Financing 06-A Plc, which has an amortising liquidity facility) to provide coverage on interest shortfalls. The maximum available liquidity as a percentage of the outstanding notes' balance ranges between approximately 9% and 22%, with a median of roughly 10%-12%. The notes will be particularly vulnerable in a scenario where interest rates on the mortgage pool start to decline, while the note coupons remain fixed to the last published three-month synthetic LIBOR rate. The resilience of the notes to this stress is highly dependent on the remaining time until full repayment, and the amount of available liquidity while outstanding. KEY RATING DRIVERS RWN Maintained: The maintained RWN reflects that the transactions have yet to transition to an alternative rate, with the three-month synthetic sterling LIBOR cessation date of end-March 2024 approaching. If the relevant issuers fail to implement a timely transition, Fitch may downgrade these tranches if it becomes apparent the cessation will not be postponed, and the issuers will not be taking any further action to complete a transition. Fitch is aware that the Ludgate and Newgate transactions have begun seeking noteholder consent to complete a transition which, if successful, would lead to the removal of the RWN from the relevant notes. Fitch expects to resolve the RWN within the next six months. Elevated Risk of Fixed-Rate Coupons: The transactions do not contain fall-back provisions that envisage a permanent cessation of three-month synthetic sterling LIBOR. Instead, the transaction documents envisage a short-term disruption event, through which the issuer could make interest payments based on the most recently available three-month synthetic sterling LIBOR rate. Upon a permanent cessation of LIBOR, the application of these provisions would likely leave the notes' coupons fixed at the rate applicable immediately prior to cessation, while the assets continue to pay a floating rate. This mismatch means the transactions could suffer a shortage of interest income in a scenario where the rates on the assets decrease. Assets to Transition to Alternative Floating Rates: The terms and conditions of the underlying mortgage assets typically allow the legal title holder to nominate an alternative reference rate if three-month synthetic Sterling LIBOR is not available. The legal title holder must act reasonably in making its selection of an alternative reference rate. Fitch expects that the selected rate is likely to be a comparable floating rate. Additional Interest Rate Risk Impact: The rating impact will depend on structural protection available to the particular class of notes, the rate at which the note coupons become fixed and the impact of the interest rate stresses applied by Fitch. Fitch tested a scenario where three-month synthetic sterling LIBOR reached the market-implied forward rate at the time of cessation. Fitch placed notes that were downgraded by more than three notches under this scenario on RWN. Increased Litigation Risk: Fitch considers that the issuers may face increased litigation risk if they were to apply the last three-month synthetic sterling LIBOR to all future payments, since this option was not envisioned for a permanent cessation of LIBOR for what were purchased as floating-rate notes. Litigation could result in the issuers incurring increased senior expenses, which may have a further negative impact on ratings, through reducing the available revenue funds to meet the issuers' obligations under the notes. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade Cessation of three-month synthetic sterling LIBOR without timely transition to an alternative reference rate could lead to downgrade of the affected tranches by up to 11 notches. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade The implementation of a basic terms modification to transition to an alternative reference rate would likely lead to a removal of RWN and Stable Outlooks on the relevant tranches. DATA ADEQUACY Fitch has not conducted any checks on the consistency and plausibility of the information it has received about the performance of the asset pools and the transactions. Fitch has not reviewed the results of any third party assessment of the asset portfolio information or conducted a review of origination files as part of its ongoing monitoring. Fitch did not undertake a review of the information provided about the underlying asset pools ahead of the transactions' initial closing. The subsequent performance of the transactions over the years is consistent with the agency's expectations given the operating environment and Fitch is therefore satisfied that the asset pool information relied upon for its initial rating analysis was adequately reliable. Overall, Fitch's assessment of the information relied upon for the agency's rating analysis according to its applicable rating methodologies indicates that it is adequately reliable ESG CONSIDERATIONS No ESG considerations have been amended as part of these rating actions. See previous rating action commentaries for each transaction's ESG scores. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. 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