/raid1/www/Hosts/bankrupt/TCREUR_Public/231212.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 12, 2023, Vol. 24, No. 248
Headlines
F R A N C E
BIOGROUP: S&P Cuts Issuer Credit Rating to 'B-', Outlook Stable
I R E L A N D
BAIN CAPITAL 2019-1: Fitch Affirms 'B-sf' Rating on Class F Notes
BLACKROCK EUROPEAN VI: Fitch Affirms 'B-sf' Rating on Cl. F Notes
CVC CORDATUS XV: Moody's Affirms B3 Rating on EUR9MM Cl. F Notes
DRYDEN 27 2017: Moody's Cuts Rating on EUR13MM F-R Notes to Caa1
HARVEST CLO XI: Fitch Alters Outlook on 'B+sf' F-R Notes to Neg.
JUBILEE CLO 2018-XX: Fitch Affirms 'B-sf' Rating on Class F Notes
JUBILEE CLO 2018-XXI: Fitch Ups Rating on Class F-R Notes to 'B+sf'
OCP EURO 2023-8: S&P Assigns Prelim B- (sf) Rating on Cl. F Notes
ST. PAUL'S XI: Moody's Affirms B1 Rating on EUR9.8MM Cl. F Notes
K A Z A K H S T A N
FREEDOM FINANCE: S&P Alters Outlook to Positive, Affirms 'B+' ICR
FREEDOM FINANCE: S&P Upgrades LT ICR to 'BB' on Criteria Revision
L U X E M B O U R G
CULLINAN HOLDCO: Fitch Alters Outlook on 'B+' LongTerm IDR to Neg.
R U S S I A
ANOR BANK: Fitch Assigns 'B-' LongTerm IDR, Outlook Stable
FERGANA REGION: S&P Affirms 'B+' Long Term ICRs, Outlook Stable
UZEX JSC: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
S L O V A K I A
NOVIS INSURANCE: Fitch Cuts IFS Rating to 'CC', Removes Neg. Watch
S W E D E N
NILAR INTERNATIONAL: Files for Insolvency, Trustee Seeks New Owner
T U R K E Y
ANADOLUBANK AS: Fitch Alters Outlook on 'B-' LongTerm IDR to Stable
SEKERBANK TAS: Fitch Alters Outlook on 'B-' LongTerm IDR to Stable
U N I T E D K I N G D O M
CAZOO GROUP: Completes $630-Mil. Debt Restructuring
COLT GROUP: Moody's Confirms Ba2 CFR, Outlook Negative
JEHU GROUP: Former Employees Await Report on Final Payouts
STEPHENSON LAW: Enters Liquidation, Owes Over GBP1.5 Million
VBITES: Goes Into Administration, 24 Jobs Affected
VEHICLE CONVERSION: Shuts Down Bradford Factory, 150+ Jobs Lost
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F R A N C E
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BIOGROUP: S&P Cuts Issuer Credit Rating to 'B-', Outlook Stable
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S&P Global Ratings lowered its issuer credit rating on France-Based
CAB, Biogroup's holding company, and its issue-level rating on its
senior secured facilities (term loan, senior secured notes [SSNs],
and revolving credit facility [RCF]) to 'B-' from 'B'. The '3'
recovery rating remains unchanged, indicating its expectation for
meaningful (50%-70%; rounded estimate: 55%) recovery. At the same
time, S&P lowered its issue-level rating on Laboratoire Eimer
SELAS' senior unsecured notes to 'CCC' from 'CCC+'. S&P's '6'
recovery rating remains unchanged, indicating its expectation for
negligible (0%-10%; rounded estimate: 0%) recovery.
The stable outlook reflects S&P's expectation that CAB's S&P Global
Ratings financial leverage on the cash interest paying debt and put
options will decline to 7.5x over the next 12 months, primarily
through the improvement of its EBITDA margins as management
implements cost-cutting initiatives to restore efficiencies and
realize synergies.
The return to routine activities triggered a significant cutback in
CAB's volumes amid persistent challenging operating conditions. As
anticipated, the company experienced a further significant decline
in its volumes in 2023. This decline stemmed from both the
anticipated decrease in PCR test sales and an approximately 5%
reduction in core testing tariffs, implemented by a French health
care regulator, as a setback following the generous contribution of
PCR testing during the pandemic. S&P said, "We now expect CAB's
revenue will be close to EUR1.5 billion in 2023, which compares
with our previous assumption of EUR1.65 billion in our base-case
forecast from December 2022. The reduction in the PCR volumes has
been constant since 2022 and we expect the decline to continue.
Therefore, we expect a very limited contribution from PCR testing
in 2024 and little to none thereafter."
In addition, Biogroup, similar to other French labs, must now cope
with the new triennial plan introduced by the French Ministry of
Health to regulate overall spending following their highly
supportive policy during the pandemic. Consequently, the health
care authority's total budget dedicated to reimbursed lab testing
will increase by 0.4% per year until the end of 2026. To surpass
this 0.4% growth level, the company must gain market share or
increase volumes in specialty tests not covered by the agreement.
On the positive side, the new agreement provides visibility for the
next three years.
S&P said, "We see EBITDA slightly recovering in 2024 supported by
management's cost-saving initiatives and the realization of
synergies. We estimate CAB's margins will be lower than we
previously forecast in 2023. Inflationary pressures have been more
pronounced than we previously anticipated, which has inflated the
company's cost base, mostly due to the high level of full-time
employees (FTEs) in its workforce.
"In our view, as we enter a post-pandemic operating framework, we
believe that management will take the opportunity to focus on
finalizing the integration of CAB's recent acquisitions and
implementing their cost-cutting initiatives to adapt its headcount
to the post-pandemic volume environment and achieve significant
margin improvement. Therefore, we expect the initiatives
implemented by CAB, focusing on expanding both its top and bottom
line, will restore its historical profitability and efficiency. The
group has already started to reduce the number of FTEs in its
workforce in 2023 because its COVID-19 testing volumes have
declined significantly relative to 2022. We anticipate that the
company may implement additional cost-cutting measures to optimize
its FTE workforce during 2024. Therefore, we expect CAB's
(Biogroup) margins will improve gradually as it streamlines its
cost base.
"Under our current base-case forecast, we assume Biogroup's
deleveraging trajectory will be slower in 2023 and 2024. In our
December 2022 forecast, we assumed the company's S&P Global Ratings
financial leverage on the cash interest paying debt and put options
would almost reach 7.0x in 2023. We add to debt the put options
that minority shareholders biologists may exercise.
"Our current forecast assumes the company's S&P Global Ratings
financial leverage on the cash interest paying debt and put options
will peak at 7.8x by year-end 2023 (up from 4.5x in 2022) before
decreasing to about 7.5x in 2024. We expect the rise in its
leverage will stem from a faster-than-expected decline in its
COVID-19-related volumes and from tariff reduction in 2023. The
establishment of a new regulatory framework for the next three
years will provide visibility but limit the potential for margins
enhancement.
"We currently do not project any sizable acquisitions because we
understand the management is primarily focused on implementing cost
savings initiatives. Also, we expect the consolidation of the
company's market will slow considerably because sellers are still
aligned with their previous EBITDA multiples, which Biogroup would
refuse to pay given the tough financing conditions. However, we
believe, if the company did engage in mergers and acquisitions
(M&A), it would lead it to deviate further from our base-case
assumptions.
"We anticipate CAB's EBITDA interest coverage and free operating
cash flow (FOCF) to debt will weaken materially relative to our
December 2022 base-case forecast. We anticipate the company's
EBITDA interest coverage will significantly decrease to 2.5x in
2023, from 6.6x in 2022, due to its increased interest rates and
the marked decline in EBITDA. We anticipate the company's EBITDA
interest coverage will remain near this level, given our
expectation for a slow recovery in its EBITDA and our expected
increase in its cash interest expense. However, we still expect
CAB's FOCF generation will remain strongly positive at about EUR150
million-EUR160 million in 2023 before increasing above EUR200
million from 2024 onwards, while will result in FOCF to debt of
about 4.8%-5.5% in 2024 and 2025.
"Biogroup's lack of near-term refinancing risk provides it with a
cushion to implement its cost-savings initiatives. Given the
company's medium-dated maturity profile (no significant maturities
until the RCF in 2027 and SSNs in 2028), we believe it has ample
time to deliver on its cost savings and restore its profitability.
We view CAB's liquidity as good and supported by its EUR604 million
of cash as of September 2023, which it partly used to replenish its
RCF. Biogroup's EUR271 million RCF was undrawn as of October 2023.
Also, we expect the company will generate about EUR150
million-EUR160 million of FOCF in 2023 and about EUR200 million
next year, which will further enhance its liquidity position and
support its ability to undertake acquisitions, especially if some
put options are exercised. The company's FOCF generation is more
significant than that of its peers, though we view it as still
somewhat weak compared with its debt load (less than 5%)."
The latest shift in CAB's governance mirrors management's sustained
commitment to organize the group. Biogroup's current CEO and
president, Dr. Isabelle Eimer, recently announced the appointment
of Frederic Dauche as new CEO starting November 2023. This move
aligns with the company's ongoing strengthening of its management
team following the passing of Dr. Stephane Eimer in June 2022.
S&P said, "The stable outlook reflects our expectation that CAB's
operating performance and profitability will recover over
2024-2025. Our base-case assumes that management will pursue its
cost-cutting initiatives to restore the company's historical
profitability levels and deliver synergies while substantially
reducing the pace and size of its new M&A.
"We forecast CAB's S&P Global Ratings financial leverage on the
cash interest paying debt and put options will remain about 7.5x in
2024 before improving to slightly above 7.0x in 2025. We currently
expect strong positive FOCF generation over the next 12-24
months."
S&P could lower its ratings on CAB (Biogroup) in the next 12 months
if it shows an inability to deliver cost savings, leading to a
further operating underperformance, coupled with a
slower-than-expected recovery in its EBITDA trajectory. Potential
additional large debt-funded transactions at high multiples would
also pressure the company's performance, which could jeopardize the
long-term sustainability of its capital structure.
S&P could take a positive rating action on CAB (Biogroup) if it
displays the ability and willingness to maintain S&P Global Ratings
financial leverage on the cash interest paying debt and put options
) of sustainably below 7.0x. This could occur if the company
generates higher-than-expected revenue and improves its
profitability while continuing to generate strong FOCF generation,
supported by its successful realization of cost savings and
synergies.
Governance factors are a moderately negative consideration in S&P's
credit rating analysis of Biogroup. This reflects the predominant
role of Dr. Isabelle Eimer, widow of the founder, who is the
company's current chairman. Recently, the entity appointed Mr.
Frederic Dauche as CEO to replace Dr. Isabelle Eimer, who succeeded
her husband.
S&P said, "Furthermore, although we consider the company as
majority controlled by its management, we note the complexity of
its capital structure, which includes Caisse de depôt et placement
du Quebec along with various other funds through special-purpose
vehicles. In our opinion, this could lead to a misalignment of
incentives in the event of unexpected financial distress.
Nevertheless, part of this complexity is due to the French
regulatory framework, which requires having one owning biologist
for each laboratory.
"Environmental and social factors have no material influence on our
credit rating analysis of CAB. Positively, diagnostic laboratories
played an important role during the pandemic by providing COVID-19
testing."
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I R E L A N D
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BAIN CAPITAL 2019-1: Fitch Affirms 'B-sf' Rating on Class F Notes
-----------------------------------------------------------------
Fitch Ratings has upgraded Bain Capital Euro CLO 2019-1 DAC class B
to D notes, as detailed below.
Entity/Debt Rating Prior
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Bain Capital Euro
CLO 2019-1 DAC
A XS2075846811 LT AAAsf Affirmed AAAsf
B XS2075847462 LT AA+sf Upgrade AAsf
C XS2075848940 LT A+sf Upgrade Asf
D XS2075849674 LT BBB+sf Upgrade BBBsf
E XS2075850094 LT BBsf Affirmed BBsf
F XS2075850250 LT B-sf Affirmed B-sf
TRANSACTION SUMMARY
Bain Capital Euro CLO 2019-1 DAC is a cash flow CLO comprising
mostly senior secured obligations. The transaction is actively
managed by Bain Capital Credit U.S. CLO Manager, LLC and exits its
reinvestment period in April 2024.
KEY RATING DRIVERS
Better Asset Performance: Since Fitch's last rating action in
February 2022, the transaction has experienced par losses of EUR1.7
million, which is about 0.43% of the target par. This is mainly due
to defaulted assets or the manager making some trading losses on
selling weaker assets, but this par loss is well below its rating
case assumptions. The transaction was still passing all
collateral-quality, portfolio-profile and coverage tests, as per
the last trustee report dated 6 November 2023.
The resilient performance of the transaction with portfolio losses
below rating cases, combined with the manageable near- and
medium-term refinancing risk, with only 0.98% of the assets in the
portfolio maturing before 2024, and 3.9% in 2025, have resulted in
the upgrade of class B to D notes and affirmation of all others.
'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 32.66 as
reported by the trustee based on the old criteria and 24.94 as
calculated by Fitch under its latest criteria.
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 rate (WARR) of the current portfolio was
63% as calculated by Fitch under its current criteria.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration is 10.17% as calculated by Fitch, and no obligor is
more than 1.2% of the portfolio balance.
Deviation from MIRs: Class E and F notes' model-implied ratings
(MIRs) are one notch above their current ratings. The deviations
reflect the agency's view that the default-rate cushion is not yet
commensurate with their MIRs given uncertain macroeconomic
conditions.
Transaction During Reinvestment Period: The transaction exits its
reinvestment period in April 2024, but the manager can reinvest
unscheduled principal proceeds and sale proceeds from credit-risk
obligations after the reinvestment period, subject to compliance
with the reinvestment criteria.
Fitch's analysis is based on a stressed portfolio, given the
manager's ability to reinvest. Fitch has tested the notes'
achievable ratings across all of its matrices, since the portfolio
can still migrate to different collateral quality tests and the
level of fixed-rate assets could change. Fitch has also applied a
haircut of 1.5% to the WARR as the calculation of the WARR in
transaction documentation reflects an earlier version of Fitch's
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 class A and B notes. It would lead to downgrades of no
more than two notches for class C to E notes, and to below 'B-sf'
for 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, class B, D and E notes display a rating
cushion of one notch, while class F notes display a rating cushion
of five notches. Class A and C 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 up to three
notches for class A to E notes and to below 'B-sf' for class F
notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A reduction of the RDR at all rating levels by 25% of the mean RDR
and an increase in the RRR by 25% at all rating levels in the
Fitch-stressed portfolio would result in upgrades of up to five
notches. Upgrades may also occur if the portfolio's quality remains
stable and the notes continue to amortise, leading to higher credit
enhancement across the structure.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Bain Capital Euro CLO 2019-1 DAC
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized 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.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
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.
BLACKROCK EUROPEAN VI: Fitch Affirms 'B-sf' Rating on Cl. F Notes
-----------------------------------------------------------------
Fitch Ratings has upgraded BlackRock European CLO VI DAC Class B-1
and B-2 notes, and affirmed all other notes. The Outlooks are
Stable.
Entity/Debt Rating Prior
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BlackRock European
CLO VI DAC
A-1 XS1854556377 LT AAAsf Affirmed AAAsf
A-2 XS1856350829 LT AAAsf Affirmed AAAsf
B-1 XS1854556963 LT AA+sf Upgrade AAsf
B-2 XS1854557771 LT AA+sf Upgrade AAsf
C XS1854558407 LT Asf Affirmed Asf
D XS1854559397 LT BBBsf Affirmed BBBsf
E XS1854559553 LT BBsf Affirmed BBsf
F XS1854559983 LT B-sf Affirmed B-sf
TRANSACTION SUMMARY
BlackRock European CLO VI DAC is a cash flow CLO comprised of
mostly senior secured obligations. The transaction is actively
managed by BlackRock Investment Management (UK) Limited and exited
its reinvestment period in April 2023.
KEY RATING DRIVERS
Stable Performance; Deleveraging Transaction: Since Fitch's last
rating action in January 2023, the portfolio's performance has been
stable. As per the last trustee report dated 15 November 2023, the
transaction is in breach of its weighted average life (WAL) test,
but passing all other collateral quality and portfolio profile
tests. Exposure to assets with a Fitch-derived rating of 'CCC+' and
below is 4.59%, according to the latest trustee report, versus a
limit of 7.5%. There is approximately EUR7.523 million of defaulted
assets in the portfolio, and the transaction is currently 0.76%
below par. However, total par loss is well below its rating case
assumptions.
Deleveraging of the class A-1 and A-2 notes in October 2023 has
resulted in increasing credit enhancement for the other senior
notes. The transaction's stable performance, combined with the
recent deleveraging of the class A-1 and A-2 notes, has resulted in
larger break-even default-rate cushions versus the last review.
This led the upgrades and affirmations.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the underlying obligors at 'B'/'B-'. The Fitch-calculated weighted
average rating factor of the current portfolio is 24.92 as
calculated by Fitch under its latest criteria.
High Recovery Expectations: Senior secured obligations comprise
92.95% 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 of the current portfolio as reported by the trustee was
60.47%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration, as calculated by Fitch, is 11.84%, and no obligor
represents more than 1.38% of the portfolio balance. The exposure
to the three-largest Fitch-defined industries is 24.88% as
calculated by the trustee. Fixed-rate assets currently are reported
by the trustee at 11.08% of the portfolio balance, which compares
favourably with the current maximum of 12.5%.
Transaction Outside Reinvestment Period: Although the transaction
exited its reinvestment period in April 2023, the manager can
reinvest unscheduled principal proceeds and sale proceeds from
credit-risk obligations after the reinvestment period, subject to
compliance with the reinvestment criteria. Given the manager's
ability to reinvest, the analysis is based on a portfolio that
Fitch stresses to the transaction's covenant limits.
Cash Flow Analysis: Fitch used a customised proprietary cash flow
model to replicate the principal and interest waterfalls and the
various structural features of the transaction, and to assess their
effectiveness, including the structural protection provided by
excess spread diverted through the par-value and interest-coverage
tests.
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 identified portfolio would have no negative rating impact on
any of the notes.
Based on the identified portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of defaults and portfolio deterioration. Due to the
better metrics and shorter life of the identified portfolio, the
class F notes have a five-notch cushion, the class D notes a
four-notch cushion, the class E notes a two-notch cushion and the
class B-1, B-2 and C notes a one-notch cushion. There is no rating
cushion for the class A-1and A-2 notes.
Should the cushion between the identified portfolio and the stress
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 across all ratings of the stressed
portfolio would lead to downgrades of up to four notches for the
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 Fitch's stress portfolio
would lead to upgrades of up to five notches, except for the
'AAAsf' rated notes, which are at the highest level on Fitch's
scale and cannot be upgraded.
Upgrades may occur in case of stable portfolio credit quality and
deleveraging, leading to higher credit enhancement and excess
spread available to cover losses on the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
BlackRock European CLO VI DAC
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations 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.
CVC CORDATUS XV: Moody's Affirms B3 Rating on EUR9MM Cl. F Notes
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Moody's Investors Service has upgraded the ratings on the following
notes issued by CVC Cordatus Loan Fund XV Designated Activity
Company:
EUR28,500,000 Class B-1-R Senior Secured Floating Rate Notes due
2032, Upgraded to Aa1 (sf); previously on Sep 15, 2021 Definitive
Rating Assigned Aa2 (sf)
EUR12,000,000 Class B-2-R Senior Secured Fixed Rate Notes due
2032, Upgraded to Aa1 (sf); previously on Sep 15, 2021 Definitive
Rating Assigned Aa2 (sf)
EUR24,000,000 Class C-R Senior Secured Deferrable Floating Rate
Notes due 2032, Upgraded to A1 (sf); previously on Sep 15, 2021
Definitive Rating Assigned A2 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR246,000,000 Class A-R Senior Secured Floating Rate Notes due
2032, Affirmed Aaa (sf); previously on Sep 15, 2021 Definitive
Rating Assigned Aaa (sf)
EUR27,000,000 Class D-R Senior Secured Deferrable Floating Rate
Notes due 2032, Affirmed Baa3 (sf); previously on Sep 15, 2021
Definitive Rating Assigned Baa3 (sf)
EUR22,500,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2032, Affirmed Ba3 (sf); previously on Sep 15, 2021
Affirmed Ba3 (sf)
EUR9,000,000 Class F Senior Secured Deferrable Floating Rate Notes
due 2032, Affirmed B3 (sf); previously on Sep 15, 2021 Affirmed B3
(sf)
CVC Cordatus Loan Fund XV Designated Activity Company, originally
issued in September 2019 and refinanced in September 2021, is a
collateralised loan obligation (CLO) backed by a portfolio of
mostly high-yield senior secured/mezzanine European loans. The
portfolio is managed by CVC Credit Partners European CLO Management
LLP. The transaction's reinvestment period will end in February
2024.
RATINGS RATIONALE
The rating upgrades on the Class B-1-R, B-2-R and C-R notes are
primarily a result of the benefit of the shorter period of time
remaining before the end of the reinvestment period in February
2024.
The affirmations on the ratings on the Class A-R, D-R, E and F
notes are primarily a result of the expected losses on the notes
remaining consistent with their current rating levels, after taking
into account the CLO's latest portfolio, its relevant structural
features and its actual over-collateralisation ratios.
In light of reinvestment restrictions during the amortisation
period, and therefore the limited ability to effect significant
changes to the current collateral pool, Moody's analysed the deal
assuming a higher likelihood that the collateral pool
characteristics would maintain an adequate buffer relative to
certain covenant requirements. In particular, Moody's assumed that
the deal will benefit from a shorter amortisation profile and
higher spread levels than it had assumed at refinancing.
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: EUR399.3 million
Diversity Score: 58
Weighted Average Rating Factor (WARF): 2988
Weighted Average Life (WAL): 4.06 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 4.02%
Weighted Average Coupon (WAC): 4.33%
Weighted Average Recovery Rate (WARR): 43.57%
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's
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 February 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.
DRYDEN 27 2017: Moody's Cuts Rating on EUR13MM F-R Notes to Caa1
----------------------------------------------------------------
Moody's Investors Service has taken a variety of rating actions on
the following notes issued by Dryden 27 R Euro CLO 2017 Designated
Activity Company:
EUR33,250,000 Class B-1-R Senior Secured Floating Rate Notes due
2033, Upgraded to Aa1 (sf); previously on Mar 24, 2021 Definitive
Rating Assigned Aa2 (sf)
EUR21,500,000 Class B-2-R Senior Secured Fixed Rate Notes due
2033, Upgraded to Aa1 (sf); previously on Mar 24, 2021 Definitive
Rating Assigned Aa2 (sf)
EUR13,000,000 Class F-R Mezzanine Secured Deferrable Floating Rate
Notes due 2033, Downgraded to Caa1 (sf); previously on Mar 24, 2021
Definitive Rating Assigned B3 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR278,500,000 (Current outstanding amount EUR277,061,912) Class
A-R Senior Secured Floating Rate Notes due 2033, Affirmed Aaa (sf);
previously on Mar 24, 2021 Definitive Rating Assigned Aaa (sf)
EUR30,250,000 Class C-R Mezzanine Secured Deferrable Floating Rate
Notes due 2033, Affirmed A2 (sf); previously on Mar 24, 2021
Definitive Rating Assigned A2 (sf)
EUR32,500,000 Class D-R Mezzanine Secured Deferrable Floating Rate
Notes due 2033, Affirmed Baa3 (sf); previously on Mar 24, 2021
Definitive Rating Assigned Baa3 (sf)
EUR24,000,000 Class E-R Mezzanine Secured Deferrable Floating Rate
Notes due 2033, Affirmed Ba3 (sf); previously on Mar 24, 2021
Definitive Rating Assigned Ba3 (sf)
Dryden 27 R Euro CLO 2017 Designated Activity Company, issued in
May 2017 and refinanced in March 2021, is a collateralised loan
obligation (CLO) backed by a portfolio of mostly high-yield senior
secured European loans. The portfolio is managed by PGIM Loan
Originator Manager Limited ("PGIM"). The transaction's reinvestment
period ended in April 2023.
RATINGS RATIONALE
The upgrades on the ratings on the Class B-1-R and B-2-R notes are
primarily a result of a shorter weighted average life of the
portfolio which reduces the time the rated notes are exposed to the
credit risk of the underlying portfolio.
The downgrade to the rating on the Class F-R notes is primarily a
result of the deterioration in over-collateralisation ratios over
the last year, a shorter weighted average life of the portfolio
which leads to reduced time for excess spread to cover shortfalls
caused by future defaults and the impact of the fixed floating
asset liability mismatch.
The affirmations on the ratings on the Class A-R, C-R, D-R and E-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 over-collateralisation ratios of the rated notes have
deteriorated over the last year. According to the trustee report
dated October 2023 [1] the Class A/B, Class C, Class D, Class E and
Class F OC ratios are reported at 137.20%, 125.73%, 115.38%,
108.76% and 105.48%, compared to October 2022 [2] levels of
138.93%, 127.36%, 116.91%, 110.23% and 106.92% 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: EUR454.0m
Defaulted Securities: EUR9.8m
Diversity Score: 58
Weighted Average Rating Factor (WARF): 3001
Weighted Average Life (WAL): 3.9 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 4.10%
Weighted Average Coupon (WAC): 4.36%
Weighted Average Recovery Rate (WARR): 40.95%
Par haircut in OC tests and interest diversion test: 0.38%
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 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. 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.
HARVEST CLO XI: Fitch Alters Outlook on 'B+sf' F-R Notes to Neg.
-----------------------------------------------------------------
Fitch Ratings has revised the Outlooks on Harvest CLO XI DAC's
class E-R and F-R notes to Negative from Stable. All notes have
been affirmed.
Entity/Debt Rating Prior
----------- ------ -----
Harvest CLO XI DAC
A-RR XS2339929098 LT AAAsf Affirmed AAAsf
B-1-R XS1627782185 LT AA+sf Affirmed AA+sf
B-2-R XS1627782342 LT AA+sf Affirmed AA+sf
B-3-R XS1629312296 LT AA+sf Affirmed AA+sf
C-R XS1627782425 LT A+sf Affirmed A+sf
D-R XS1627781963 LT BBB+sf Affirmed BBB+sf
E-R XS1627782268 LT BB+sf Affirmed BB+sf
F-R XS1627782003 LT B+sf Affirmed B+sf
TRANSACTION SUMMARY
Harvest CLO XI DAC is a cash flow CLO comprising mostly senior
secured obligations. The transaction is actively managed by
Investcorp Credit Management EU Limited and exited its reinvestment
period in June 2021.
KEY RATING DRIVERS
Par Erosion; Refinancing Risk: As per the last trustee report on 31
October 2023, the transaction was below par by 4.2%. Reported
defaults stand at EUR2.8 million, or 0.8% of the target par. The
Negative Outlooks on the class E-R and F-R notes reflect a moderate
default-rate cushion against credit quality deterioration and
defaults in view of current unfavorable macro-economic conditions
as well as near- and medium-term refinancing risk, with
approximately 4.0% of the portfolio maturing by 2024, and 13.3% in
2025.
The Negative Outlooks indicate the possibility of downgrades should
further losses erode the default-rate cushion. However, Fitch
expects the 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 Outlooks on the class A-RR
to D-R notes.
'B' Portfolio: Fitch assesses the average credit quality of the
transaction obligors at 'B'. The reported Fitch weighted average
rating factor (WARF) of the current portfolio is 31.86 as of 31
October 2023, against a covenanted maximum of 33.4. The
Fitch-calculated WARF under its current CLO criteria is 23.55.
High Recovery Expectations: Senior secured obligations comprise
97.5% 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 62.3%.
Diversified Portfolio: The top-10 obligor concentration as
calculated by the trustee is 20.8%, which is above the 20% limit,
and the largest issuer represents 3.3% of the portfolio balance,
above the 3.0% limit. Unhedged fixed rate assets account for 5.4%
of the portfolio balance, above the 5.0% limit.
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 result in downgrades of no more than
three notches for the class E-R notes and to below 'B-sf' for the
class F-R notes.
Downgrades may occur if the loss expectation of the current
portfolio is larger 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-R, E-R and F-R notes display
a rating cushion of one notch, and the class D-R notes of three
notches.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrades, except for the class A-RR notes, which are already at the
highest rating on Fitch's scale, may occur on better-than-expected
portfolio credit quality and deal performance, leading to higher
credit enhancement and excess spread available to cover losses in
the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
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
Recognized Statistical Rating Organizations 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.
JUBILEE CLO 2018-XX: Fitch Affirms 'B-sf' Rating on Class F Notes
-----------------------------------------------------------------
Fitch Ratings has upgraded Jubilee CLO 2018-XX DAC's class D notes
and affirmed the rest, as detailed below.
Entity/Debt Rating Prior
----------- ------ -----
Jubilee CLO
2018-XX DAC
A XS1826049097 LT AAAsf Affirmed AAAsf
B-1 XS1826050426 LT AAsf Affirmed AAsf
B-2 XS1826049683 LT AAsf Affirmed AAsf
B-3 XS1834758861 LT AAsf Affirmed AAsf
C-1 XS1826051077 LT Asf Affirmed Asf
C-2 XS1834758192 LT Asf Affirmed Asf
D XS1826051663 LT BBB+sf Upgrade BBBsf
E XS1826052471 LT BBsf Affirmed BBsf
F XS1826052638 LT B-sf Affirmed B-sf
TRANSACTION SUMMARY
Jubilee CLO 2018-XX DAC is a cash flow CLO comprising mostly senior
secured obligations. The transaction is actively managed by
Alcentra Ltd and exited its reinvestment period in July 2022.
KEY RATING DRIVERS
Stable Performance; Manageable Refinancing Risk: Since Fitch's last
rating action in January 2023, 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 above
par by 0.03% and has EUR2.1 million of defaulted assets in the
portfolio.
The transaction has manageable near- and medium-term refinancing
risk, with 4.0% of the assets in the portfolio maturing in 2024 and
10.7% in 2025, as calculated by Fitch. It has adequate default-rate
cushion at the current ratings to absorb refinancing risk. This,
together with the stable asset performance, has resulted in the
upgrade of the class D notes and affirmation of all others.
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.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the transaction's underlying obligors at 'B'/'B-'. The weighted
average rating factor (WARF), as calculated by Fitch under its
latest criteria, is 25.2.
High Recovery Expectations: Senior secured obligations comprise
98.8% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets. The weighted average recovery rate (WARR), as
calculated by Fitch, is 61.5%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration, as calculated by Fitch, is 15.4%, and no obligor
represents more than 1.8% of the portfolio balance. Fixed-rate
assets reported by the trustee are 6.5% of the portfolio balance,
versus a limit of 7.5%.
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 any of the rated notes. Downgrades may
occur if build-up of the notes' credit enhancement following
amortisation does not compensate for a larger loss expectation than
initially assumed due to unexpectedly high levels of defaults and
portfolio deterioration.
Due to the better metrics and shorter life of the current portfolio
than the Fitch-stressed portfolio, the class C-1 and C-2 notes
display a rating cushion of one notch, the class B-1, B-2, B-3 and
E notes two notches, the class D notes three notches and the class
F notes five 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 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.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
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.
JUBILEE CLO 2018-XXI: Fitch Ups Rating on Class F-R Notes to 'B+sf'
-------------------------------------------------------------------
Fitch Ratings has upgraded Jubilee CLO 2018-XXI DAC class B-R to
F-R notes.
Entity/Debt Rating Prior
----------- ------ -----
Jubilee CLO
2018-XXI DAC
A-R XS2308742639 LT AAAsf Affirmed AAAsf
B-R XS2308742985 LT AA+sf Upgrade AAsf
C-1-R XS2308743520 LT A+sf Upgrade Asf
C-2-R XS2309373111 LT A+sf Upgrade Asf
D-R XS2308743959 LT BBB+sf Upgrade BBB-sf
E-R XS2308744338 LT BB+sf Upgrade BB-sf
F-R XS2308744254 LT B+sf Upgrade B-sf
TRANSACTION SUMMARY
Jubilee CLO 2018-XXI DAC is a cash flow CLO comprising mostly
senior secured obligations. The transaction is actively managed by
Alcentra Limited and will exit its reinvestment period in April
2025.
KEY RATING DRIVERS
Good Performance; Low Refinancing Risk: Since Fitch's last rating
action in December 2022, the portfolio continued to perform well
with no defaulted assets and is slightly above par. As per the last
trustee report dated 2 November 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 0.6% of the assets in the portfolio maturing
before 2024, and 4.1% in 2025, as calculated by Fitch. This,
together with larger break-even default-rate cushions as a result
of the better-thanrating case performance, resulted in today's
upgrades. Their large default-rate buffers should allow the
transaction to absorb defaults in the portfolio, as underscored by
the Stable Outlook of all notes.
'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 24.6 as
reported by the trustee based on the latest criteria.
High Recovery Expectations: Senior secured obligations comprise
99.3% 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 62.7%.
Diversified Portfolio: The top-10 obligor concentration and the
largest obligor as calculated by Fitch is, respectively, 16.1% and
2.1% of the portfolio balance. Exposure to the three-largest
Fitch-defined industries is 35.5% as calculated by the trustee.
Deviation from Modelled-Implied Ratings: The class B-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: 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 E-R notes, but would lead to a downgrade
of one notch 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-R and E-R notes display a rating cushion of one notch, the
class D-R notes of two notches, and the class F-R notes of three
notches. The class A-R, C-1-R and C-2-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, three notches for the class B-R to D-R notes,
four 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 three
notches for all notes, except for the class A-R, C-1-R and C-2-R
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, leading to the
ability of the notes to withstand larger-than-expected losses for
the remaining life of the transaction. 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.
OCP EURO 2023-8: S&P Assigns Prelim B- (sf) Rating on Cl. F Notes
-----------------------------------------------------------------
S&P Global Ratings assigned preliminary ratings to OCP Euro CLO
2023-8 DAC's class A-Loan and class A to F European cash flow CLO
notes. At closing, the issuer will also issue unrated class Z notes
and subordinated notes.
The preliminary ratings reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior-secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which S&P expects to be
bankruptcy remote.
-- The transaction's counterparty risks, which S&P expects to be
in line with our counterparty rating framework.
Portfolio benchmarks
CURRENT
S&P weighted-average rating factor 2,872.93
Default rate dispersion 480.22
Weighted-average life (years) 4.33
Weighted-average life (years) extended
to cover the length of the reinvestment period 5.10
Obligor diversity measure 127.83
Industry diversity measure 21.84
Regional diversity measure 1.31
Transaction key metrics
CURRENT
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.00
Actual 'AAA' weighted-average recovery (%) 37.57
Actual weighted-average spread (net of floors; %) 4.60
Actual weighted-average coupon (%) 4.54
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.
Asset Priming Obligations And Uptier Priming Debt
Under the transaction documents, the issuer can purchase asset
priming (drop down) obligations and/or uptier priming debt to
address the risk, where a distressed obligor could either move
collateral outside the existing creditors' covenant group or incur
new money debt senior to the existing creditors.
Rationale
At closing, the portfolio will be well-diversified, primarily
comprising broadly syndicated speculative-grade senior-secured term
loans and senior-secured bonds. Therefore, S&P has conducted its
credit and cash flow analysis by applying its criteria for
corporate cash flow CDOs.
S&P said, "In our cash flow analysis, we used the EUR350 million
target par amount, the weighted-average spread (4.60%), the
weighted-average coupon (4.54%), and the actual weighted-average
recovery rates calculated in line with our CLO criteria for all
classes of ratings. 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."
Until the end of the reinvestment period on Jan. 20, 2029, 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, as long as the initial ratings
are maintained.
S&P said, "Under our structured finance sovereign risk criteria, we
consider that the transaction's exposure to country risk is
sufficiently mitigated at the assigned preliminary ratings.
"We expect the transaction's documented counterparty replacement
and remedy mechanisms to adequately mitigate its exposure to
counterparty risk under our current counterparty criteria.
"We expect the transaction's legal structure and framework to be
bankruptcy remote, in line with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our preliminary ratings
are commensurate with the available credit enhancement for the
class A-Loan and class A to F notes.
"Our credit and cash flow analysis indicates that the available
credit enhancement for the class B to F notes could withstand
stresses commensurate with the same or 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 preliminary ratings assigned to the
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-Loan and
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."
Ratings
CLASS PRELIM. PRELIM. AMOUNT INTEREST RATE§ CREDIT
RATING* (MIL. EUR) ENHANCEMENT(%)
A AAA (sf) 108.85 3mE +1.74% 38.00
A-Loan AAA (sf) 108.15 3mE +1.74% 38.00
B AA (sf) 39.375 3mE +2.45% 26.75
C A (sf) 20.125 3mE +3.30% 21.00
D BBB- (sf) 22.40 3mE +5.75% 14.60
E BB- (sf) 16.10 3mE +8.04% 10.00
F B- (sf) 8.75 3mE +9.64% 7.50
Z NR 1.00 N/A N/A
Subordinated NR 28.45 N/A N/A
*The preliminary ratings assigned to the class A-Loan, A, and B
notes address timely interest and ultimate principal payments. The
ratings assigned to the class C to F notes address ultimate
interest and principal payments.
§The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
NR--Not rated.
N/A--Not applicable.
3mE--Three-month Euro Interbank Offered Rate.
ST. PAUL'S XI: Moody's Affirms B1 Rating on EUR9.8MM Cl. F Notes
----------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by St. Paul's CLO XI DAC:
EUR14,000,000 Class B-1-R Senior Secured Floating Rate Notes due
2032, Upgraded to Aaa (sf); previously on Sep 22, 2021 Definitive
Rating Assigned Aa2 (sf)
EUR20,000,000 Class B-2-R Senior Secured Fixed Rate Notes due
2032, Upgraded to Aaa (sf); previously on Sep 22, 2021 Definitive
Rating Assigned Aa2 (sf)
EUR10,000,000 Class C-1-R Senior Secured Deferrable Floating Rate
Notes due 2032, Upgraded to Aa3 (sf); previously on Sep 22, 2021
Definitive Rating Assigned A2 (sf)
EUR18,000,000 Class C-2-R Senior Secured Deferrable Fixed Rate
Notes due 2032, Upgraded to Aa3 (sf); previously on Sep 22, 2021
Definitive Rating Assigned A2 (sf)
EUR26,000,000 Class D-R Senior Secured Deferrable Floating Rate
Notes due 2032, Upgraded to Baa2 (sf); previously on Sep 22, 2021
Definitive Rating Assigned Baa3 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR248,000,000 Class A-R Senior Secured Floating Rate Notes due
2032, Affirmed Aaa (sf); previously on Sep 22, 2021 Definitive
Rating Assigned Aaa (sf)
EUR23,000,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2032, Affirmed Ba2 (sf); previously on Sep 22, 2021
Upgraded to Ba2 (sf)
EUR9,800,000 Class F Senior Secured Deferrable Floating Rate Notes
due 2032, Affirmed B1 (sf); previously on Sep 22, 2021 Upgraded to
B1 (sf)
St. Paul's CLO XI DAC, issued in July 2019 and refinanced in
September 2021, is a collateralised loan obligation (CLO) backed by
a portfolio of mostly high-yield senior secured European loans. The
portfolio is managed by Intermediate Capital Managers Limited. The
transaction's reinvestment period will end in January 2024.
RATINGS RATIONALE
The rating upgrades on the Class B-1-R, Class B-2-R, Class C-1-R,
Class C-2-R and Class D-R notes are primarily a result of the
benefit of the shorter period of time remaining before the end of
the reinvestment period in January 2024.
The affirmations on the ratings on the Class A-R, Class E and Class
F notes are primarily a result of the expected losses on the notes
remaining consistent with their current rating levels, after taking
into account the CLO's latest portfolio, its relevant structural
features and its actual over-collateralisation ratios.
In light of reinvestment restrictions during the amortisation
period, and therefore the limited ability to effect significant
changes to the current collateral pool, Moody's analysed the deal
assuming a higher likelihood that the collateral pool
characteristics would maintain an adequate buffer relative to
certain covenant requirements. 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 September 2021.
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: EUR404.9 million
Defaulted Securities: none
Diversity Score: 58
Weighted Average Rating Factor (WARF): 3037
Weighted Average Life (WAL): 4.14 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 4.34%
Weighted Average Coupon (WAC): 5.40%
Weighted Average Recovery Rate (WARR): 43.70%
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: 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. The effect on the ratings of
extending the portfolio's weighted average life can be positive or
negative depending on the notes' seniority.
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.
===================
K A Z A K H S T A N
===================
FREEDOM FINANCE: S&P Alters Outlook to Positive, Affirms 'B+' ICR
-----------------------------------------------------------------
S&P Global Ratings revised the rating outlook on Freedom Finance
Insurance JSC (FFI) to positive from stable. At the same time, S&P
affirmed the 'B+' long-term issuer credit and financial strength
ratings on FFI. S&P also raised the Kazakhstan national scale
rating on FFI to 'kzBBB+' from 'kzBBB'.
S&P said, "The implementation of our revised criteria for analyzing
insurers' risk-based capital was not a driver of our outlook
revision for FFI. Our analysis indicates the company's capital and
earnings would remain at the satisfactory level over the next
one-to-two years.
"We have captured the benefits of risk diversification more
explicitly in our analysis, which supports capital adequacy. The
company's higher interest rate risk and liability risk charges
largely offset these improvements.
"The positive outlook reflects our view that we could raise our
ratings in the next 12 months if the company continued to improve
its earnings, expand robustly, and maintain its capital adequacy at
least at 99.8% (measured by our capital model). It also factors in
our expectation that FFI's business will remain unaffected by the
challenges its parent faces."
S&P could consider an upgrade over the next 12 months if:
-- FFI's profitability further solidifies, and underwriting
volatility reduces due to business diversification moving more in
line with local peers and the Kazakh market average; and
-- FFI's capital adequacy remains at least at 99.8% as per our
capital model.
S&P could revise the outlook to stable over the next 12 months if:
-- FFI's operating performance appears to be unsustainable,
leading to a material deterioration of earnings and capital
position becomes volatile, contrary to our expectations; or
-- FFI is unable to sustain its capital adequacy at 99.8%.
S&P said, "The outlook revision and raising of the national scale
rating reflect our view that FFI's operating performance has
improved over 2023. As per third quarter 2023, the company achieved
solid profitability of Kazakhstani tenge 5.3 billion and a return
on equity (ROE) of 40.6%, which is moving more in line with that of
local peers and the market average. In the past couple of years,
FFI has implemented several underwriting measures to improve
profitability, limiting underwriting risk and strengthening
underwriting controls. The company's rapid business growth on the
back of the merger with former London-Almaty Insurance JSC
increased its scale and scope of business and is gradually
improving portfolio diversification. We expect the company will
continue to source solid profitable growth opportunities to further
increase its scale, diversify its operations, and increase its
earnings capacity in 2024-2025. Although, in our view, FFI's
operating performance somewhat lags that of local peers, with a
three-year net combined ratio (loss and expense) of 144%, versus
the 94% domestic market average. Although, we expect the company
will continue to build a track record of solid earnings consistent
with higher-rated peers, while sustaining sufficient capital
buffers.
"We believe FFI's underwriting margins will benefit from its
insurance portfolio clean-up measures and the increasingly
profitable voluntary insurance products in the portfolio in
2024-2025. This, in our view, will support FFI's prospective
underwriting results in 2024-2025. We expect that firmer
underwriting controls and ongoing cost-efficiency measures will
prevent material earnings volatility in the medium term. As a
result, we now think that the company will be able to deliver a
combined ratio of 99%-100% or below. In addition, FFI's
high-quality investment portfolio will likely expand due to
business growth and benefit from currently higher investment rates.
A less volatile underwriting performance and increasing investment
results should support a strong ROE of 30%-35% in 2024-2025.
"We believe FFI's balance sheet remains solid with a more
sustainable and resilient capital position. We consider the
company's investment portfolio conservative in the domestic market,
with investments primarily in sovereign and government-related
entities' instruments rated 'BBB' on average. However, we
acknowledge some pressure on the capitalization amid the recent and
expected business growth and company's repurchase agreement
leverage (which was around 2.0x on Nov. 1, 2023).
"We now view FFI as a strategically important subsidiary of FRHC,
which owns FFI through its Kazakhstan-based broker subsidiary
Freedom Finance JSC, instead of moderately strategic. FFI's
contribution to group's operating results has improved to 5% as of
Sept. 30, 2023, compared to less than 1% at the time of
acquisition. Still, the property/casualty insurer only comprises a
small part of the group when measured by assets (3%) and capital
(5%). We believe FFI is important to the group's long-term
strategy, which envisages business diversification but also
considers insurance business to be an essential part of its
financial services offering. Moreover, FFI has improved
collaboration with other group members as 30%-38% of gross premiums
written are distributed via the sister bank. In our base-case
scenario, we do not expect any pressure on FFI's capital or
profitability, or a deterioration of its creditworthiness, because
of the challenges its parent faces.
"Moreover, we assume the regulatory framework will continue to
prevent an outflow of funds--for example through dividend payments
or material investments--from FFI to support the group. The
regulatory framework also includes the Agency of the Republic of
Kazakhstan for Regulation and Development of the Financial Market's
constant oversight of FFI.
"Consequently, we can rate FFI up to three notches higher than the
group credit profile to reflect our view of FFI as an insulated
entity."
FREEDOM FINANCE: S&P Upgrades LT ICR to 'BB' on Criteria Revision
-----------------------------------------------------------------
S&P Global Ratings raised its long-term issuer credit and financial
strength ratings on Freedom Finance Life JSC (FFL) to 'BB' from
'BB-'. The outlook is negative. S&P also raised its Kazakhstan
national scale rating on the insurer to 'kzA+' from 'kzA-'.
The improved capital adequacy primarily reflects an increase in
total adjusted capital owing to S&P no longer deducting deferred
acquisition costs on FFL's obligatory employer's liability
insurance business.
S&P has also captured the benefits of risk diversification more
explicitly in our analysis, which supports capital adequacy.
Lower risk charges on annuity insurance supports capitalization.
S&P said, "The negative outlook on FFL mirrors that on its parent,
indicating that we could lower the ratings in the next 12 months if
we downgrade the parent given that we already apply the maximum of
three notches of insulation from the parent's group credit profile
(GCP). We could also lower the ratings on FFL if we consider that
its stand-alone creditworthiness deteriorates over the next 12
months."
S&P could take a negative rating action on FFL over the next 12
months if:
-- S&P downgrades the parent.
-- S&P's view on the regulatory framework's ability to protect FFL
from negative intervention from Freedom Holding Corp. changes, not
allowing it to maintain the three notches of insulation of our
ratings on FFL relative to the parent's GCP;
-- FFL's business risk profile becomes constrained by reputation
risks within the group, for example from an increase in policy
lapses or a material slowdown of premium growth; or
-- The insurer's capital position deteriorated, due to
weaker-than-expected operating performance, investment losses,
excessive growth, or considerable dividends.
S&P said, "We might revise the outlook to stable following a
similar action on the parent. This would also hinge on our view
that the regulatory framework's ability to protect FFL from
negative intervention from Freedom Holding Corp. does not change,
allowing us to maintain the three notches of insulation of our
ratings on FFL relative to the GCP.
"The upgrade mainly reflects our view that FFL's capital adequacy
is materially stronger under our revised capital model. We no
longer deduct deferred acquisition costs on the obligatory
employer's liability insurance as business from capital. Also, our
risk charges on life annuity reserves have decreased. As a result,
FFL's capital adequacy has improved to the 99.99% confidence level
under our model.
"Considering the continued exceptional business growth and
still-modest absolute capital (less than $1 billion), we adjust our
view of FFL's overall capital and earnings to strong."
The company has been de-risking its investment portfolio since
2020, and asset quality continued improving sustainably in 2023.
Investment-grade instruments (rated 'BBB-' and above) constitute
about 86% of invested assets as of Nov. 1, 2023, compared with 65%
two years earlier. This is now more comparable with that of local
peers.
FFL will hold on to its solid competitive position in the evolving
domestic market, backed by its sound profitability. As Kazakhstan's
third-largest life insurer by gross written premium, FFL achieved
exceptionally strong premium growth and almost doubled its
insurance portfolio in 2023, partly owing to the bancassurance
business' expansion. S&P said, "We expect FFL to continue focusing
on profitability, achieving a return on assets (ROA) of 13%-15% and
a return on equity (ROE) of over 35% in 2023-2024. We nevertheless
expect zero dividends over the forecast period, because the group
is committed to continuously investing in growth."
S&P said, "We now view FFL as a strategically important subsidiary
of FRHC, which owns FFL through Kazakhstan-based broker subsidiary
Freedom Finance JSC. FFL's contribution to the group's operating
results is consistently above 10%, despite the life insurer still
being only a small part of the group as measured by assets (4%) and
capital (8%). We think FFL is important to the group's long-term
strategy, which envisages diversifying business and considers
insurance an essential part of its financial services offering. In
our base-case scenario, we do not expect any pressure on FFL's
capital or profitability because of the challenges its parent faces
and that could otherwise lead to a deterioration of its
creditworthiness.
"We assume the regulatory framework will continue to prevent an
outflow of funds--for example, through dividend payments or
material investments--from FFL to support the group. The regulatory
framework also includes constant oversight of FFL from the Agency
of the Republic of Kazakhstan for Regulation and Development of the
Financial Market. Consequently, we can rate FFL up to three notches
higher than the GCP to reflect our view of FFL as an insulated
entity."
Environmental, social and governance credit factors have no
material impact on our analysis of FFL.
===================
L U X E M B O U R G
===================
CULLINAN HOLDCO: Fitch Alters Outlook on 'B+' LongTerm IDR to Neg.
------------------------------------------------------------------
Fitch Ratings has revised Cullinan Holdco SCSp's (Graanul) Outlook
to Negative from Stable and affirmed its Long-Term Issuer Default
Rating (IDR) at 'B+'. Fitch has also downgraded Graanul's senior
secured rating to 'B+' from 'BB-' following the revision of the
Recovery Rating to 'RR4' from 'RR3'.
The Negative Outlook reflects uncertainties related to recovery in
wood pellet markets, and the ability of Graanul to improve EBITDA
margins following a sharp decline in earnings in 2023, driven by
the impact of negative margin contract, lower sales and weaker
pricing on the spot pellet market. It also reflects the forecast
leverage remaining above its negative sensitivity in 2023-2024, as
well as lower liquidity, which Fitch expects to be constrained by
end-2023. A consistent improvement in earnings, coupled with the
formal signing of a disputed contract with a key customer and
improved liquidity, would be important considerations for revising
the Outlook back to Stable.
The rating reflects Graanul's generally predictable cash flow
underpinned by medium-term take-or-pay contracts with
investment-grade or high sub-investment-grade utilities, and by
cost inflation pass-through or fixed-price escalation provisions.
Fitch expects that the company will commit to de-leveraging due to
weaker-than-previously-anticipated growth prospects, and will
balance M&A activities and dividend pay-out with maintaining its
credit profile.
KEY RATING DRIVERS
Earnings Decline: Fitch assumes over a 50% decrease in Graanul's
EBITDA in 2023 from 2022 due to challenging market conditions for
the European wood pellet business, coupled with the impact of
negative margin contract with a major customer, which was 27% of
volumes sold in 9M23. Margins were further affected by the release
of inventories of pellets in 3Q23 and the sale-on-spot market at
lower margins. The company expects to sign the amended contract in
December 2023, which would include revised pricing from 4Q23
onwards.
Leverage Spikes: Fitch expects EBITDA net leverage to rise to about
10.1x in 2023 from 4.4x in 2022 due to a sharp decline in earnings.
Fitch expects an improvement in earnings from 2024 due to the
revision of a disputed contract, incremental contracted volumes
sales from a new contract as well as gradual balancing of the wood
pellet market, driven by the higher utilisation of pellets by
industrial customers and the lower supply of industrial pellets to
spot markets. A gradual recovery will, in its view, drive leverage
down to 5.7x in 2024 and to below 5.0x in 2025-2026.
Fitch believes market fundamentals for wood pellets in Europe will
remain sound over the medium term. In its view, as feedstock
availability improves, Graanul's ability to maximise its capacity
is conditional on winning new long-term contracts, potentially
outside Europe and its successful expansion in the premium pellet
market.
Liquidity Temporarily Lower: As of end-September 2023, the company
had about EUR32 million of cash and EUR75 million undrawn funds
under EUR100 million revolving credit facility (RCF). Fitch assumes
that the additional drawdown of the RCF is, however, limited to
EUR15 million as the utilisation of over 40% could trigger a test
of financial covenant on the RCF with a maximum leverage of 8.73x.
The company has already built up its inventories by end-3Q23, and
Fitch expects Graanul to cover its liquidity needs in 4Q23-1Q24
without excessive RCF drawings.
Excess Cash for Distributions: Fitch forecasts Graanul's free cash
flow (FCF) to recover to about break-even in 2023 and to improve to
about EUR40 million-50 million in 2024-2025. However, Fitch expects
the company to maintain only a moderate cash balance, with excess
cash to be used for bolt-on M&A.
Regulatory Risk: Fitch views the current regulatory environment as
broadly supportive for pellet producers, although the
sustainability of feedstock faces increased regulatory scrutiny.
Recent developments in the EU markets are positive due to the
revised Renewable Energy Directive (RED III) adopted in September
2023, which, despite certain restrictions, continues to count
primary woody biomass as 100% renewable and zero-rated in the EU
Emissions Trading System. Subsidies for biomass in the UK,
Graanul's largest contracted market, run until 2027.
However, the country's strategy beyond that period has not yet been
formalised, leading to uncertainty.
Medium-Term Revenue Visibility: About 75% of Graanul's revenue, on
average, is contracted on a take-or-pay basis with the balance sold
on the spot market. Graanul targets take-or-pay contracts with a
duration of three to five years in contrast to peers such as Enviva
Inc., which has a weighted average contract duration of 14 years.
Shorter contracts allow for more frequent pricing renegotiation,
but, at the same time, may reduce long-term earnings visibility.
Self Sufficiency Aids Margin Resilience: Graanul's partial
self-sufficiency in the energy and heat production from six owned
combined heat and power plants, combined with its own fleet of four
vessels covering its shipping needs and a predominantly variable
cost base, also support margin resilience.
Small Scale: Cullinan's scale is small with an end-2022
Fitch-adjusted EBITDA of EUR139 million, despite being one of the
largest European wood pellet producers. Fitch forecasts EBITDA to
recover to about EUR128 million by 2025, based on modest production
increases and bolt-on acquisitions.
Concentrated Customer Base: Graanul has a concentrated customer
base with the three largest European offtakers, Drax Group Holdings
Limited (BB+/Stable), RWE AG (BBB+/Stable) and Orsted A/S
(BBB+/Negative), which account for the majority of its contracted
volumes. Customer concentration is not uncommon among pellet
producers who bid for large contracts that often result in a
significant share by a single customer in the total revenue mix.
Strong Renewal Rate: Renewal rates have historically been strong
and Graanul has a long-lasting relationship of more than 10 years
with its top three customers. In 1Q23, Graanul had a one-off
shipment cancellation, but it remains strongly positioned for
future renewals as it is the second-largest European wood-pellet
supplier located in close proximity to its customers, with an
ability to provide sustainable bulk deliveries of good-quality
product.
DERIVATION SUMMARY
Graanul is the largest wood-pellet manufacturer in Europe and
competes directly with the largest global pellet producer Enviva
Inc. (CCC-/RWN). Graanul has a smaller production capacity than
Enviva and is focused primarily on European pellet markets. Enviva
is facing a significant decline in earnings in 2023, potential
covenant breach and its profitability issues are likely to extend
into 2024. By contrast, Fitch sees a clearer path to recovery for
Graanul from 2024 onwards.
Both companies use take-or-pay contracts, but Graanul prefers
shorter-term durations (three to five years) versus Enviva's
weighted average of 14 years. Graanul's shorter contracts and
proximity to European customers result in stronger EBITDA margins.
Sunoco LP (BB+/Stable) is the largest fuel distributor in the US,
distributing about eight billion gallons a year. In addition to
distributing motor fuel, Sunoco also distributes other petroleum
products such as propane and lubricating oil, and about 25% of its
volumes is sold under long-term contracts. Sunoco is larger than
both Enviva and Graanul and its leverage is forecast at 3.8x in
2023.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Capex on average at EUR17 million per annum in 2023-2026
- Reduction in volumes to about 2 million tonnes in 2023 followed
by a gradual organic recovery to about 2.4 million tonnes by 2026
- EBITDA margin of about 13% in 2023 and about 23% in 2024-2025
- M&A of EUR30 million in 2024, EUR40 million in 2025 and EUR60
million in 2026
- No dividends over in 2023-2026
RECOVERY ANALYSIS
Recovery Analysis Assumptions:
- Its recovery analysis assumes that Graanul would be reorganised
as a going concern (GC) in bankruptcy rather than liquidated.
- The GC EBITDA reflects its view of a sustainable,
post-reorganisation EBITDA on which Fitch bases the enterprise
valuation (EV).
- Fitch has reduced the GC EBITDA to EUR85 million (net of lease
charges) from EUR100 million due to higher-than-previously-assumed
volatility of earnings in 2023. However, in its view, this
deterioration was driven by an exceptional combination of factors
such as disputed contract terms, temporary stoppage of certain UK
biomass plants running on a Contract-for-Difference basis and
oversupply of pellet market coupled with a spike in raw material
prices and energy costs. Post re-organisation EBITDA calculation
assumes production levels of about 2 million tonnes and corrective
actions including the successful re-negotiation of the disputed
contract.
- Fitch uses a multiple of 5.0x to estimate a GC enterprise value
for Graanul due to its position as the second-largest wood-pellet
producer in Europe and contractual nature of its operations.
- Its RCF is ranked as super senior to its senior secured notes.
- After deducting 10% for administrative claims, its analysis
generated a waterfall-generated recovery computation (WGRC) in the
'RR4' band, indicating a 'B+' rating for the senior secured notes.
The WGRC output percentage on current metrics and assumptions is
45%.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- The Negative Outlook makes a positive rating action unlikely at
least in the short term. Fitch may revise the Outlook to Stable on
leverage returning to below negative sensitivity, improved
profitability and liquidity and normalisation of the wood pellet
market
- EBITDA net leverage consistently below 4.3x would lead to a
positive rating action
- Improvement in the business profile including scale, customer
diversification and contract duration
- A clearly defined financial policy
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- EBITDA net leverage consistently above 5.0x
- Unfavourable conclusion of contractual dispute and/or
deteriorating liquidity
- Supply-chain issues, loss of contracts and/or a material
reduction in share of contracted revenue leading to the
deterioration of the financial profile
- Aggressive financial policy with debt-funded M&A or substantial
dividend distributions
- Adverse developments in regulation related to biomass energy
LIQUIDITY AND DEBT STRUCTURE
Liquidity Is Temporarily Lower: As of end-September 2023, the
company had about EUR32 million of cash and EUR75 million undrawn
funds under EUR100 million RCF. The potential additional drawdown
of the RCF is, however, limited to EUR15 million as the utilisation
of over 40% would trigger a financial covenant on the RCF.
The company has already built up its inventories by end-3Q23, and
Fitch expects the current funds to be sufficient to cover liquidity
needs. Recovery in EBITDA should also remove any constraints on RCF
utilisation from 2024 onwards.
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
----------- ------ -------- -----
Cullinan Holdco SCSp LT IDR B+ Affirmed B+
senior secured LT B+ Downgrade RR4 BB-
===========
R U S S I A
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ANOR BANK: Fitch Assigns 'B-' LongTerm IDR, Outlook Stable
----------------------------------------------------------
Fitch Ratings has assigned Uzbekistan-based Joint-stock company
Anor Bank Long-Term Issuer Default Ratings (IDRs) of 'B-' with
Stable Outlooks and a Viability Rating (VR) of 'b-'.
KEY RATING DRIVERS
Anor's Long-Term IDRs are driven by its standalone
creditworthiness, as reflected by its 'b-' VR. The VR captures the
bank's only developing business model and a limited record of
operations, which result in a limited franchise and a lossmaking
performance in the last three years. The VR also considers Anor's
weak capitalisation and high deposit concentrations.
Small Digital Bank, Retail Focus: Anor is a small bank, accounting
for less than 1% of sector assets and loans and below 2% of sector
deposits in Uzbekistan's concentrated banking system at end-3Q23.
It was established in 2020 by local private shareholders with
previous banking experience. Anor has adopted a branchless digital
bank business model and focuses on providing unsecured consumer
lending online, although it has also recently started to develop
corporate and SME financing.
Lending Growth, Granular Retail Book: Since its inception, Anor has
expanded its loan book at a much higher rate than the broader
market, and Fitch expects this above-sector growth to continue into
2024. The bank is focused on granular and high-margin unsecured
retail lending, which is risky by nature, but also results in
significantly lower loan concentrations and dollarisation (below 4%
of gross loans at end-3Q23 under local GAAP) compared with other
Fitch-rated banks in Uzbekistan.
Low Impaired Loan Ratios: Impaired (Stage 3) loans made up a low
2.5% of gross loans at end-2022, although this should be viewed in
the context of high lending growth. All problem loans were granular
retail exposures. Fitch expects the impaired loans ratio to grow in
the medium term due to loan seasoning although it should remain
well below 10% in 2023- 2024 in its baseline scenario.
Growing Business to Boost Performance: Anor has been loss-making
over the past three years in IFRS accounts, mainly due to high
operating costs related to establishing its commercial operations
from scratch and building its loan and deposit franchise. Fitch
expects the bank to become profitable in 2023 as increased business
volumes result in higher economies of scale. Operating profit will
improve to about 4% of regulatory risk-weighted assets in 2024 in
its baseline scenario but the bank's net return is highly sensitive
to trends in loan quality.
Tight Capital Ratios: Anor has consumed almost all capital
injections from its shareholder for lending growth, leading to very
tight local GAAP capital ratios, with the Tier 1 ratio of 10.6% at
end-3Q23, only 60bp above the statutory minimum. Anor's Fitch Core
Capital (FCC) ratio was much lower at 5% at end-2022 because in its
regulatory accounts the bank books fee income upfront, which
results in higher internal profit generation and thus boosts
regulatory capital.
However, this makes the bank's regulatory performance (and capital
ratios) sensitive to volumes of new loan production. Stronger
profitability in 2023-2024 and full profit retention should support
the bank's IFRS capitalisation, and Fitch expects the FCC ratio to
exceed 10% next year. Nonetheless, the bank's capital buffers will
likely remain only moderate, given continued loan book expansion.
Concentrated Funding, Limited Liquidity: Anor is predominantly
funded by customer accounts (95% of total liabilities at end-3Q23
under local GAAP), which are primarily term deposits sourced from
retail customers. While single-name deposit concentration has
decreased this year, it remains high, with the 20 largest
depositors making up 30% of total liabilities at end-3Q23. Fitch
expects further diversification of customer funds to be gradual and
the bank's funding costs to remain above the sector average. Anor's
liquidity position is modest, with total liquid assets (16% of
total assets at end-3Q23) covering only about 20% of customer
accounts.
Emerging, Structurally Weak Economy: Uzbekistan's economy remains
heavily dominated by the state despite recent market reforms and
privatisation plans, resulting in weak governance and generally
poor financial transparency. Sector risks stem from high
dollarisation, significant exposure to long-term project finance
and a reliance on external debt.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Anor's ratings could be downgraded in case of a material
deterioration in asset quality or if the improvement in the bank's
performance is below its expectations. Significant deposit outflows
by the largest customers would also weigh on the ratings.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
An upgrade of Anor's VR and Long-Term IDRs would require a material
strengthening of the bank's business profile and, as a result,
stronger profitability on a sustainable basis and higher capital
ratios. Improvements in Fitch's assessment of Uzbekistan's
operating environment could also be credit positive.
Anor's 'ns' Government Support Rating (GSR) reflects its low market
shares and thus limited systemic importance. Support from the
bank's private shareholders cannot be reliably assessed and is
therefore not factored into the ratings.
Upside potential for the GSR is currently limited and would require
significant growth of the bank's franchise, making it at least
moderately systemically important.
VR ADJUSTMENTS
The capitalisation and leverage score of 'b-' is below the 'bb'
category implied score, due to the following adjustment reason:
'historical and future metrics' (negative).
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
----------- ------
Joint-stock company
ANOR BANK LT IDR B- New Rating
ST IDR B New Rating
LC LT IDR B- New Rating
LC ST IDR B New Rating
Viability b- New Rating
Government Support ns New Rating
FERGANA REGION: S&P Affirms 'B+' Long Term ICRs, Outlook Stable
---------------------------------------------------------------
On Dec. 8, 2023, S&P Global Ratings affirmed its 'B+' local and
foreign currency long-term issuer credit ratings on the Uzbekistani
Region of Fergana. The outlook is stable.
Outlook
S&P said, "The stable outlook reflects our assumption that Fergana
will maintain strong budgetary performance with transfers from the
central government. In addition, we assume the region will owe no
debt to commercial lenders, absent changes in the national
regulation that prohibits local and regional governments (LRGs)
from commercial borrowing."
Downside scenario
S&P might lower the ratings if the relationship between Fergana and
the Uzbekistani government changes, resulting in lifted
restrictions on budgetary deficits, and the region's budgetary
performance indicators deteriorates materially following such a
change.
Upside scenario
S&P might consider an upgrade if the institutional framework under
which Fergana operates improved or the region's wealth level
materially increased.
Rationale
S&P said, "The ratings on Fergana are supported by our assumption
that the region will maintain strong performance to comply with
national regulation. We also factor in that Fergana probably won't
resort to commercial borrowing in the next several years." The
ratings are constrained by the very volatile and centralized
Uzbekistani institutional framework for LRGs, the region's low
wealth--with local GDP per capita at about $1,300--and management's
limited ability to influence regional budgetary performance, due to
central government controls.
A volatile framework in Uzbekistan and low wealth levels are the
main rating constraints
Fergana operates under a volatile institutional setting. In S&P's
view, the highly centralized decision-making process affects the
region's budgetary flexibility. The central government's stance on
key taxes, transfers, and expenditure responsibilities changes
frequently. The political practices, procedures, and regulatory
environment are in early stages. The framework undergoes frequent
modifications, upsetting the stability of both the region's revenue
sources and its spending mandates. The central government oversees
LRGs' activities, requiring the regions to maintain a balanced
budget and forbidding commercial borrowing. The visibility on
systemic changes remains low, consequently undermining reliable
medium-term planning at the local level. Furthermore, the
substantial investment requirements and a high share of social
expenditure continue to restrict spending flexibility for
Uzbekistani LRGs, including Fergana.
S&P said, "We think the decision-making ability of Fergana's
financial management team is limited markedly by the centralized
institutional settings in Uzbekistan. The region's management
started medium-term planning in 2018, and there are discrepancies
between forecast and actual financial indicators. In our view, debt
and liquidity management practices are starting to develop, and
their effectiveness has yet to be tested. These factors constrain
the region's creditworthiness.
"We view Fergana's economy as very weak in a national and
international context, mostly due to low GDP per capita. Moreover,
we think the economy is relatively concentrated in agriculture. The
region accounted for 10% of the country's population but
contributed 5.5% of GDP as of mid-2023. Nevertheless, we expect the
region's economy to expand parallel to that of Uzbekistan, at 5.5%
real GDP growth on average per year until 2025, propelled by
developments in the industrial and service sectors."
Budgetary performance should remain strong enough, and the debt
burden will stay very low
Fergana complies with Uzbekistani legislation that prohibits
deficits in accordance with local definitions. S&P said, "However,
we adjust data based on our methodology, resulting in divergences
from Fergana's reporting. In particular, we don't consider budget
surpluses from the previous years and loans from the central
government revenue sources, nor do we consider debt repayments
expenditure. In accordance with S&P Global Ratings' definitions,
Fergana ran a deficit after capital accounts of 2.6% in 2022. The
deficit was predominantly covered with the budget surplus of 2021
(Uzbekistani sum [UZS] 170 billion) and short-term loans from the
government (UZS51 billion). We expect average the balance after
capital accounts during our forecast period to 2025 to be close to
zero. We anticipate that revenue sources will be volatile, given
the central government's track record of frequently revising tax
rates. We also project a slight increase in capital expenditure
over the next few years, following the region's objective to invest
more in infrastructure development predominately with central
budget sources of financing."
S&P thinks substantial infrastructure needs will limit economic
development prospects and somewhat limit budget flexibility.
However, the funding backlog is unlikely to lead to material debt
accumulation because the national legislation prohibits LRG
commercial borrowings. Currently, the region's debt to commercial
lenders is zero.
S&P understands Fergana oversees some state-owned enterprises in
the region. It has no stakes in regional enterprises, with no track
record of the regional government providing subsidies, capital
injections, or extraordinary support to these companies. Districts
and municipalities are financially healthy thanks to central
government support.
S&P said, "We assume Fergana's liquidity position will remain
solid, particularly considering the almost-zero debt. However, we
think the region's debt service coverage ratio might fall sharply
if the region attracts debt over the long term. Nevertheless, this
is not our base-case scenario. Fergana is eligible to receive
interest-free budget loans to cover liquidity shortages. Over
2022-2023 Fergana received UZS101 billion of these loans with
redemption in 2023-2024. However, in our view, these loans can be
extended. At the same time, we think access to external funding is
limited, due to the weaknesses of Uzbekistan's capital market and
banking sector."
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
FERGANA REGION
Issuer Credit Rating B+/Stable/--
UZEX JSC: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
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Fitch Ratings has affirmed JSC UZEX's (or Uzbek Commodity Exchange)
Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs)
at 'B'. The Outlooks are Stable.
KEY RATING DRIVERS
Constrained by TrustBank Exposure: UZEX's ratings are constrained
by its high reliance on Private Joint Stock Bank TrustBank
(B/Stable) where UZEX places the bulk of its liquid assets. As a
result, Fitch believes that a default of TrustBank would trigger a
failure and likely a default of UZEX. UZEX is in the process of
diversifying its bank placements with its recently concluded
agreement with Octobank, a domestic private bank.
UZEX's ratings also consider the absence of corporate debt, its
good profitability and its established franchise in the small
segment of commodity trade intermediation and market infrastructure
in Uzbekistan.
High Concentration Risk: UZEX's balance sheet is largely driven by
clearing-related margin deposits, which given the short-term nature
of clearing activities, are generally placed in liquid assets (cash
and on-demand deposits). Until recently, UZEX utilised a single
counterparty for liquidity management purposes, which results in
high reliance on Trustbank and very high concentration risk (the
majority of UZEX's assets relate to short-term placements with the
bank). Fitch also views Trustbank, which has a direct and indirect
37% stake in UZEX, as a related party.
Credible Niche Franchise: UZEX is Uzbekistan's main commodity
exchange with an estimated market share of around 90% at end-2022.
Commodities, including cotton and copper, are a relevant part of
Uzbekistan's economy, but UZEX's franchise is small and
concentrated compared with that of more diversified domestic
financial institutions, notably banks. UZEX offers trading,
clearing and settlement in a wide range of commodities but five
groups of commodities (cement, sugar, cotton, metals and oil & gas)
account for around 70% of total revenue.
Adequate Recurring Profitability: Commodity exchange trading fees
(56% of 2022 operating revenue) and exchange clearing fees (32%)
are UZEX's main sources of revenue. UZEX also services the state
tender process, which is mandatory for government bodies and
state-owned enterprises. This segment contributed 10% to total
revenue in 2022.
UZEX plans to diversify in other non-exchange segments, but so far
these generate negligible revenue. Profitability (both EBITDA
margins and pre-tax income) has historically been low and volatile
but has improved and stabilised since 2018, resulting in an EBITDA
margin of 76% in 2022, which Fitch views as adequate.
Basic Risk Management Practices: Fitch views UZEX's risk management
practices as acceptable for the company's business model.
Counterparty risk management is basic, with flat margin
requirements at 10% not accounting for the varying credit quality
of counterparties or differing volatility inherent in different
commodities.
However, despite the volatile operating environment, UZEX's risk
controls provide reasonable protection against operational and
indirect market risk, as proved by a record of limited
clearing-related losses (not exceeding 2% of pre-tax income in
2019-2022).
Counterparty Risk is Key: UZEX's credit risk overwhelmingly relates
to Trustbank where it typically deposits the majority of assets.
Plans to improve diversification should reduce credit concentration
risk in the long term. Within its clearing activities, UZEX is not
directly exposed to counterparty risk as the company acts as an
agent only (in case of non-delivery by one of the counterparties a
clearing transaction is cancelled with no recourse to UZEX).
No Corporate Debt: UZEX does not have any outstanding corporate
debt and Fitch understands from management that the company does
not have any plans to raise corporate debt in the medium term,
which supports its assessment of UZEX's capitalisation and
leverage. UZEX distributed around 80% of net profit in recent years
and plans to maintain this distribution level in the medium term,
with a minimum distribution of 50%.
Short-Dated Balance Sheet: UZEX's liquidity profile is supported by
its short-dated balance sheet. Customers' collateral deposits are
normally very short term but at end-3Q23 were 97% covered
(end-2022: 106%) by UZEX's liquid and back-to-back assets.
Support Cannot be Relied on: UZEX is the leading commodity exchange
in Uzbekistan, so support from the government cannot be ruled out.
However, UZEX's ratings do not rely on this support because of its
limited importance to the Uzbek financial system or to social
policy.
Fitch views UZEX as too big to be supported by Trustbank. UZEX's
end-3Q23 assets amounted to 2.7x the bank's total capital at the
same date. Moreover, Trustbank controls only a minority stake in
UZEX, which also weighs on its assessment of propensity to
support.
ESG Governance Structure: UZEX's high reliance on related party,
Trustbank (direct and indirect 37% stake), where UZEX keeps
majority of its cash/liquid assets negatively affects its ESG
Relevance Score for Governance Structure.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A downgrade of Trustbank would result in higher counterparty risk
for UZEX and would trigger a downgrade of its IDR.
An abrupt deterioration of UZEX performance, with sizeable losses
threatening the company's solvency, would also result in negative
rating action.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
An upgrade of Trustbank would result in lower counterparty risk for
UZEX and would likely result in the upgrade of its IDR.
In the long term, a significant decrease of reliance on Trustbank
via a diversification of liquidity placements to higher-rated bank
counterparties, would likely result in positive rating action.
ESG CONSIDERATIONS
UZEX has an ESG Relevance Score of '5' for Governance Structure.
This reflects risks arising from a high reliance on related party,
Trustbank. UZEX keeps all of its cash/liquid assets in Trustbank. A
default of Trustbank would, in its view, trigger a failure of UZEX.
Per management discussions, UZEX is in the process of diversifying
to other banks; however, currently this constrains UZEX's ratings
and is highly relevant to the ratings in conjunction with other
factors.
UZEX has an ESG Relevance Score of '4' for Financial Transparency
due to limitations in quality and timeliness of financial
disclosures and auditing processes, which has a negative impact on
the credit profile, and is relevant to the ratings in conjunction
with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit-neutral or have only a minimal credit impact on 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 of the materiality
and relevance of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
JSC UZEX LT IDR B Affirmed B
ST IDR B Affirmed B
LC LT IDR B Affirmed B
LC ST IDR B Affirmed B
Government Support ns Affirmed ns
Shareholder Support ns Affirmed ns
===============
S L O V A K I A
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NOVIS INSURANCE: Fitch Cuts IFS Rating to 'CC', Removes Neg. Watch
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Fitch Ratings has downgraded Slovakian life insurer NOVIS Insurance
Company, NOVIS Versicherungsgesellschaft, NOVIS Compagnia di
Assicurazioni, NOVIS Poistovna a.s.'s (NOVIS) Insurer Financial
Strength (IFS) Rating to 'CC' from 'B'. Fitch has also removed the
IFS Rating from Rating Watch Negative.
The downgrade reflects NOVIS's higher probability of default, in
Fitch's view, following the withdrawal of the insurers' insurance
license on 5 June 2023, and the subsequent rise in lapses. The
downgrade also reflects Fitch's further analysis on the value of
the assets available to serve the liabilities in a potential
liquidation scenario, as well as potential recovery prospects for
policyholders.
KEY RATING DRIVERS
The downgrade of NOVIS's ratings reflects the increased probability
that ceased or interrupted payments to policyholders will occur in
the near future. NOVIS suffered from a significant increase in
lapses following the withdrawal of the insurance license. While
Fitch assumes in its analysis that payments to date have been met
on time, there is greater uncertainty over the insurer's ability to
both continue meeting these payments in a timely manner, as well as
paying the full accrued value of the liabilities to policyholders
in the event of liquidation.
In addition, Fitch assesses NOVIS's high share of intangible assets
on the balance sheet, which are partially covering technical
reserves, as detrimental to both the insurer's capital position and
its liquidity profile. Fitch believes that higher uncertainty
around the amount and the liquidity of NOVIS's assets leads to a
heightened risk that NOVIS will not be able to fully meet its
policyholder obligations.
The Slovakian regulator withdrew NOVIS's insurance license in June
2023 citing a breach of both, the Solvency Capital Requirement and
the Minimum Capital Requirement, and announced that it will request
liquidation proceedings for the company.
Fitch has also revised its assessment of NOVIS's corporate
governance to 'Less Favourable' from 'Moderate', based on the
license withdrawal and the qualified audit opinion within NOVIS's
2022 consolidated annual report. A 'Less Favourable' corporate
governance score weighs negatively on its assessment of an
insurer's business profile score by up to two notches.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- NOVIS enters into formal liquidation
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- An orderly run-off of business operations. However, Fitch regards
this as unlikely.
ESG CONSIDERATIONS
NOVIS has an ESG Relevance Score of '4' for Governance Structure
due to the license withdrawal, which has a negative impact on the
credit profile, and is relevant to the rating in conjunction with
other factors.
NOVIS has an ESG Relevance Score of '4' for Financial Transparency
due to the qualified audit opinion in its 2022 annual report, which
has a negative impact on the credit profile, and is relevant to the
rating[s] in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
NOVIS Insurance
Company, NOVIS
Versicherungsgesellschaft,
NOVIS Compagnia di
Assicurazioni, NOVIS
Poistovna a.s. LT IFS CC Downgrade B
===========
S W E D E N
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NILAR INTERNATIONAL: Files for Insolvency, Trustee Seeks New Owner
------------------------------------------------------------------
Marija Maisch at pv magazine reports that Sweden-based Nilar
International AB filed for insolvency on Dec. 1 and has appointed
Lars Nylund, an attorney for Advokatfirman Fylgia, as trustee in
the bankruptcy.
"The trustee is continuing the company's operations with the aim of
finding a new owner for the business," pv magazine quotes the
company as saying on its website. "The trustee is hoping to find a
solution during January of 2024."
In late November, Nilar gave an update on its financial situation,
stating that it "has a significant need for financing over the
coming years to achieve the goals set out in the business plan", pv
magazine recounts. It also said that it was evaluating strategic
partnerships or a potential sale, pv magazine notes.
Nilar's battery technology is based on nickel metal hydride
electrochemistry with a water-based electrolyte, which provides
high safety while allowing the components to be recycled and
reused.
===========
T U R K E Y
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ANADOLUBANK AS: Fitch Alters Outlook on 'B-' LongTerm IDR to Stable
-------------------------------------------------------------------
Fitch Ratings has revised the Outlook on Anadolubank A.S.'s
Long-Term Foreign-Currency (LTFC) and Local-Currency (LTLC) Issuer
Default Ratings (IDRs) to Stable from Negative and affirmed the
IDRs at 'B-. Fitch has also affirmed the bank's Viability Rating
(VR) at 'b-'.
The Outlook revision reflects Fitch's view that risks to the bank's
standalone credit profile are manageable given profitability
buffers, adequate capitalisation and reasonable FC liquidity.
Near-term operating environment risks have partly abated following
Turkiye's return to a more conventional and consistent policy mix.
However, risks remain due to still challenging market conditions,
including multiple macroprudential regulations, as well as expected
pressures on asset-quality amid the higher lira interest rate and
slower growth environment.
KEY RATING DRIVERS
VR Drives Ratings: Anadolubank's IDRs are driven by its standalone
creditworthiness, as captured by its VR, reflecting its exposure to
the challenging Turkish operating environment, resilient
profitability - notwithstanding its limited franchise - and its
adequate capitalisation and limited refinancing risks. The bank's
'B' Short-Term IDRs are the only possible option mapping to the LT
IDRs in the 'B' rating category.
Operating Environment Pressures Recede: Anadolubank's operations
are concentrated in the challenging Turkish operating environment.
The recent shift towards normalisation of the monetary policy has
reduced near-term macro-financial stability risks and external
financing pressures. Banks remain exposed to high inflation, lira
depreciation, slowing growth expectations, and macroprudential
regulations, despite the recent simplification efforts.
Small Domestic Franchise: Anadolubank has a small market share of
0.3% of sector assets at end-3Q23 (unconsolidated basis) resulting
in limited pricing power. Its self-funded Dutch subsidiary (33% of
consolidated assets) brings some diversification to operations. The
bank's small size and high balance sheet flexibility have enabled
the bank to adapt to, and minimise its exposure to, the
macroprudential regulations in Turkiye.
Short-Term Lira Lending Focus: New loan origination is focused on
short-term LC lending to lower-risk corporates. At end-3Q23, 87% of
loans matured in under one year (96% on a solo bank basis).
Foreign-currency lending, largely originated by the Dutch
subsidiary (mainly to Turkish financial institutions and
corporates), comprises 42% of the consolidated loan book (18% on a
solo basis).
Asset Quality Risks: The improved impaired loans (Stage 3) ratio
(end-3Q23: 1.7%; sector: 1.5%) reflects limited non-performing loan
inflows, strong collections, and loan growth (23.3%, FX-adjusted,
sector: 22.8%). Specific reserves coverage was 76% (sector: 86%).
The bank's focus on short-term LC non-retail loans, low Stage 2
loans ratio (end-3Q23: 1.2%), and moderate loan growth mitigate
asset quality risks. Credit risks remain given sensitivity to the
macro outlook, including rising rates and slowing GDP growth, and
concentration risks.
Non-Interest Income Drives Profits: The operating
profit/risk-weighted assets (RWA) ratio increased to 7.8% in 3Q23
from 7.1% in 2022, mainly supported by strong fees and
customer-driven net trading income. The bank's cost efficiency
(9M23: cost/income: 32%; sector: 29%) is weaker than the sector
average due to limited economies of scale and digital banking
investments. Fitch expects profitability to weaken due to lower GDP
growth and margin tightening, while it remains sensitive to asset
quality risks and potential further regulatory developments.
Adequate Capitalisation: The bank's common equity Tier 1 (CET1)
ratio net of forbearance declined to 12.3% (15.0% including
forbearance) at end-3Q23 from 14.7% at end-2022 (18.8% including
forbearance), driven by lira depreciation and high nominal growth,
despite improved internal capital generation (3Q23
return-on-average equity: 32.7%). Capitalisation remains sensitive
to macro risks, lira depreciation (due to high FC RWA), asset
quality risks and growth.
Limited Refinancing Risk: Customer deposits (end-3Q23: 89% of total
non-equity funding) are fairly granular aside from related-party
deposits (17% of total deposits), but are short-term, and the share
of FC deposits is high (57%) alongside FX protected deposits (19%).
Around 36% of deposits, largely in euros, were sourced through
Anadolubank N.V., with longer maturities than the deposits placed
at Anadolubank in Turkiye.
Anadolubank has limited FC wholesale funding exposure (4% of total
non-equity funding), largely sourced through Anadolubank N.V. FC
liquidity could come under pressure from sector-wide deposit
instability.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The bank's Long-Term IDRs are mainly sensitive to a downgrade of
its VR or to an increase in government intervention risk in the
banking sector, which caps most Turkish banks' LTFC IDRs at 'B-'.
The VR could be downgraded due to deterioration in the operating
environment and potentially due to a sovereign downgrade. A
weakening in the bank's FC liquidity, due to sector-wide deposit
instability, or material erosion of its core capitalisation, could
also lead to a downgrade of the VR.
The Short-Term IDRs are sensitive to changes in the bank's LT
IDRs.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
An upgrade of Anadolubank's ratings would require an improvement in
the operating environment, along with maintained reasonable
profitability, capital buffers and funding profile.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
The affirmation of the National Rating at 'A-(tur)' reflects its
view that Anadolu's creditworthiness in LC relative to other
Turkish issuers is unchanged.
Anadolubank's Government Support Rating (GSR) of 'No Support' (ns)
reflects its view that state support cannot be relied upon, in case
of need, given the bank's limited systemic importance.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The National Rating is sensitive to a change in the bank's
creditworthiness in LC relative to that of other Turkish issuers.
An upgrade of the 'ns' GSR is unlikely given Anadolubank's limited
systemic importance and franchise.
VR ADJUSTMENTS
The 'b-' operating environment score for Turkish banks is lower
than the category implied score of 'bb' due to the following
adjustment reasons: sovereign rating (negative) and macro-economic
stability (negative).
ESG CONSIDERATIONS
Anadolubank's ESG Relevance scores for Management Strategy of '4'
reflects increased regulatory intervention in the Turkish banking
sector, which hinders the operational execution of management
strategy, constrains management ability to determine strategy and
price risk and creates an additional operational burden for the
entities. This has a moderately negative credit impact on the
entities' ratings in combination with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Anadolubank A.S. LT IDR B- Affirmed B-
ST IDR B Affirmed B
LC LT IDR B- Affirmed B-
LC ST IDR B Affirmed B
Natl LT A-(tur)Affirmed A-(tur)
Viability b- Affirmed b-
Government Support ns Affirmed ns
SEKERBANK TAS: Fitch Alters Outlook on 'B-' LongTerm IDR to Stable
------------------------------------------------------------------
Fitch Ratings has revised the Outlooks on Sekerbank T.A.S.'s
Long-Term Foreign-Currency (FC) and Long-Term Local-Currency (LC)
Issuer Default Ratings (IDRs) to Stable from Negative and affirmed
the IDRs at 'B-'. Fitch has also affirmed the bank's Viability
Rating (VR) at 'b-'.
The Outlook revision reflects Fitch's view that risks to the bank's
standalone credit profile are manageable given strengthened
capitalisation and sufficient FC liquidity buffers, underpinned by
improved underlying profitability and asset quality. Near-term
operating environment risks have partly abated following Turkiye's
return to a more conventional and consistent policy mix, although
risks remain due to still challenging market conditions, including
multiple macroprudential regulations, as well as expected pressures
on asset quality amid the higher Turkish lira interest rate and
slower growth environment.
Fitch has also upgraded Sekerbank's National Rating to 'BBB+(tur)'
from 'BBB(tur)'. This reflects a strengthening in its LC
creditworthiness relative to other Turkish issuers, following
sustained improvements in the bank's capitalisation, underlying
internal capital generation and asset quality. The Stable Outlook
reflects its view of Sekerbank's stable LC creditworthiness at its
current level relative to other Turkish issuers.
KEY RATING DRIVERS
VR Drives Ratings: Sekerbank's Long-Term IDRs are driven by its
standalone creditworthiness, as reflected in its VR. The VR
considers the concentration of its operations in the challenging
Turkish operating environment, where it has a limited franchise and
small market shares, albeit with a more meaningful regional
presence in Anatolia. It also considers the bank's adequate
capitalisation and FC liquidity, but also material exposure to
cyclical sectors. The bank's 'B' Short-Term IDRs are the only
option mapping to Long-Term IDRs in the 'B' category.
Operating Environment Pressures Recede: The bank's operations are
concentrated in the challenging Turkish operating environment. The
shift towards the normalisation of the monetary policy has reduced
near-term macro-financial stability risks and decreased external
financing pressures. Banks remain exposed to high inflation, lira
depreciation, slowing growth expectations, and multiple
macroprudential regulations, despite recent simplification
efforts.
Limited Franchise; Regional Player: Sekerbank comprised under 0.5%
of sector assets, loans and deposits at end-3Q23, resulting in
limited pricing power. It has a more established franchise in the
central Anatolian region given its niche in agro lending (end-3Q23:
7% of gross loans) and rural sustainable finance.
Exposure to Cyclical Sectors: The bank is highly exposed to the
cyclical SME segment (54% of performing loans at end-3Q23) and the
riskier tourism (18.6%), construction (17.3%) and agro (7.4%)
sectors. Nevertheless, it has tightened underwriting standards and
focused on the clean-up of its loan book following heightened
asset-quality problems, demonstrated by an improvement in
asset-quality metrics, FC loan deleveraging (down 62% in US dollar
terms since 2017, albeit a still-high 42% of gross loans at
end-3Q23), and muted LC loan growth (9M23: 13%), significantly
below inflation and the sector average (42%).
Asset-Quality Risks: The non-performing loan (NPL) ratio improved
to 2.4% at end-3Q23 (end-2022: 4.0%), reflecting collections and
lower NPL inflows, but also write-offs and sales. Stage 2 loans
comprised 7.0% of loans (64% restructured, 19% average reserve
coverage). NPLs were 88% covered by specific reserves. Credit risks
remain given still-high FC lending and exposure to risky segments
amid the higher lira interest rate and slower growth environment.
New loan origination has mainly been short term and in lira,
mitigating risks to some extent.
Trading Gains, Stable Margins: Sekerbank's annualised operating
profit/risk-weighted assets (RWAs) ratio improved to 7.1% in 9M23
(2022: 5.9%), reflecting strong trading gains and broadly retained
margins amid rising sector deposit costs. Fitch expects
profitability to weaken moderately in 2024, amid slower GDP growth
and continued pressure on lira deposit costs. It also remains
sensitive to asset-quality risks, and potential macro and
regulatory developments.
Strengthened Capital Buffers: Capitalisation is adequate, given
sensitivity to macro risks, lira depreciation and asset-quality
risks. The common equity Tier 1 (CET1) ratio strengthened to 20.9%
(18.6% net of forbearance) at end-3Q23 (end-2022: 17.0%) reflecting
strong internal capital generation. Capitalisation is supported by
FC Tier 2 debt (USD85 million, maturity extended to 2032), which
provides a partial hedge against lira depreciation, free provisions
(442bp of RWAs) and full total reserves coverage of NPLs (150%).
Adequate FX Liquidity: Sekerbank is mainly funded by granular
deposits (end-3Q23: 73% of non-equity funding), 44% of which were
in FC and a further 32% in FX-protected deposits. FC wholesale
funding (18% of total funding) largely comprises funding from
international financial institutions and subordinated debt, with
generally medium- to long-term tenors, mitigating refinancing
risks.
FC liquidity (USD238 million), largely comprising FX swaps with the
Central Bank of Turkiye, access to which could become uncertain in
stressed market conditions, was sufficient to cover short-term debt
for up to one year and 29% of FC customer deposits at end-10M23. FC
liquidity could come under pressure in the event of sector-wide
deposit instability.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Sekerbank's Long-Term IDRs are mainly sensitive to a downgrade of
its VR or to an increase in government intervention risk in the
banking sector, which caps most Turkish banks' Long-Term FC IDRs at
'B-'.
The VR is sensitive to deterioration in the operating environment,
and potentially sensitive to a sovereign downgrade. A weakening in
the bank's FC liquidity, due to sector-wide deposit instability, or
material erosion of its core capitalisation, for example due to
asset-quality weakening, could also lead to a downgrade of the VR.
The Short-Term IDRs are sensitive to negative changes in the
Long-Term IDRs.
Sekerbank's National Rating is sensitive to a negative change in
the entity's creditworthiness relative to other rated Turkish
issuers in LC.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
An upgrade of the bank's ratings would require an improvement in
the operating environment, coupled with a track record of healthy
financial performance, including sustained strengthened FC
liquidity and core capitalisation buffers, and stable earnings
performance.
The Short-Term IDRs are sensitive to positive changes in the
Long-Term IDRs.
The National Rating is sensitive to a positive change in
Sekerbank's creditworthiness in LC relative to other rated Turkish
issuers.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Sekerbank's subordinated notes' rating is notched down twice from
its VR anchor rating for loss severity, reflecting its expectation
of poor recoveries in case of default.
The bank's Government Support Rating of 'no support' reflects
Fitch's view that support from the Turkish authorities cannot be
relied upon, given the bank's small size and limited systemic
importance. Shareholder support, while possible, cannot be relied
upon.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The subordinated debt rating is mainly sensitive to a change in
Sekerbank's VR anchor rating. It is also sensitive to a revision in
Fitch's assessment of non-performance risk.
An upgrade of the 'ns' GSR is unlikely given Sekerbank's limited
systemic importance and franchise.
VR ADJUSTMENTS
The operating environment score of 'b-' for Turkish banks is lower
than the category implied score of 'bb', due to the following
adjustment reasons: sovereign rating (negative) and macroeconomic
stability (negative). The latter adjustment reflects heightened
market volatility, high dollarisation and high risk of FX movements
in Turkiye.
ESG CONSIDERATIONS
Sekerbank's ESG Relevance score for Management Strategy of '4'
reflects increased regulatory intervention in the Turkish banking
sector, which hinders the operational execution of management
strategy, constrains management ability to determine strategy and
price risk and creates an additional operational burden for the
bank. This has a moderately negative credit impact on the entity's
ratings in combination with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Sekerbank T.A.S. LT IDR B- Affirmed B-
ST IDR B Affirmed B
LC LT IDR B- Affirmed B-
LC ST IDR B Affirmed B
Natl LT BBB+(tur)Upgrade BBB(tur)
Viability b- Affirmed b-
Gov’t Support ns Affirmed ns
Subordinated LT CCC Affirmed RR6 CCC
===========================
U N I T E D K I N G D O M
===========================
CAZOO GROUP: Completes $630-Mil. Debt Restructuring
---------------------------------------------------
Cazoo Group completed its restructuring transactions on December 6,
2023. The Transactions significantly de-levered the Company through
the exchange of $630 million aggregate principal amount of 2.00%
Convertible Senior Notes due 2027 for a pro rata portion of (1)
$200 million aggregate principal amount of 4.00%/2.00%
cash/payment-in-kind toggle senior secured notes due 2027 and (2)
4,499,721 Class A ordinary shares of Cazoo, which represents
approximately 92% of the 4,891,002 Class A ordinary shares
estimated to be outstanding as of December 6, after giving effect
to the Reverse Stock Split and subject to change due to related
rounding. In connection with the Transactions, the new Board of
Cazoo now consists of five members, comprised of one existing
legacy director and four new directors.
Paul Whitehead, Chief Executive Officer of Cazoo, said, "I am
delighted that we have now completed these transactions. Cazoo
launched only four years ago this week and has already sold almost
150,000 cars entirely online to consumers across the UK. On behalf
of the Company, I'd like to thank Alex Chesterman and the other
retiring Board members for their service and guidance since our
foundation."
"Completion of these transactions represents a significant
inflection point for Cazoo. With an improved capital structure and
encouraging operational momentum, as demonstrated by our successive
record retail GPU figures and much-improved unit economics, we can
look to 2024 with confidence. I and the management team welcome the
opportunity to work with the new Board to deliver continued
progress against our strategic goals of achieving profitable
growth, while capturing a higher share of the UK used car market
and exploring various strategic initiatives to complement our
business model and brand."
After giving effect to a 1-for-100 reverse stock split and the
share increase, Cazoo's authorized share capital is US$22,105,000,
divided into 100,000,000 Class A ordinary shares with a par value
of US$0.20 each, 25,000 Class B ordinary shares with a par value of
US$0.20 each, 500,000 Class C ordinary shares with a par value of
US$0.20 each and 10,000,000 preference shares with a par value of
US$0.20 each. The Reverse Stock Split and increase in share capital
became effective at 4:05 p.m. (ET) on December 5, 2023, and the
Class A ordinary shares began trading on a split-adjusted basis
when the New York Stock Exchange opened for trading on December 6,
2023.
The contemplated distribution of three tranches of warrants to
purchase Cazoo's Class A ordinary shares will be made to holders of
record of Cazoo's Class A ordinary shares (the “Warrant
Distribution”) as of the close of business on December 7, 2023,
after giving effect to the Reverse Stock Split and other than to
holders receiving Class A ordinary shares in the Exchange Offer.
The last day a shareholder could purchase the Class A ordinary
shares, subject to the standard two-day settlement cycle, and be
entitled to the Warrant Distribution was December 5, 2023.
Shareholders that sell their Class A ordinary shares beginning
December 6, 2023 and prior to the close of business on December 7,
2023 subject to the standard two-day settlement cycle will be
eligible to participate in the Warrant Distribution. The Class A
ordinary shares began to trade on an ex-dividend basis at the open
of trading on December 6, 2023. Shareholders entitled to
participate in the Warrant Distribution will receive, in respect of
each Class A ordinary share held as of the record date,
approximately (i) 1.0870 Tranche 1 Warrants, (ii) 1.1905 Tranche 2
Warrants and (iii) 1.3158 Tranche 3 Warrants. The payment date for
the Warrant Distribution is expected to be on or around December
14, 2023. More information about the New Warrants is included in
Cazoo's related registration statement on Form F-1, which was
declared effective by the U.S. Securities and Exchange Commission
on November 16, 2023.
The new Board is chaired by Tim Isaacs. The Board members are:
-- Tim Isaacs;
-- Alan J. Carr;
-- Andrew Herd;
-- Nicholas Pike; and
-- Mary Reilly.
Reilly has served as a Cazoo Director since February 2023.
In the condensed consolidated interim financial statements included
in its Q2 Form 6-K, the Company cautioned that, "we have determined
that, in a downside scenario, certain inherent uncertainties in
forecasting operating performance, including gross profit margin,
raise substantial doubt about our ability to continue as a going
concern, due to the risk that we may not have had sufficient cash
and liquid assets at June 30, 2023, to cover our operating and
capital requirements for the period through to August 31, 2024; and
if sufficient cash cannot be obtained, we would have to
substantially alter, or possibly even discontinue, operations."
In the Q2 Form 6-K, the Company acknowledged it has limited
liquidity and will need to raise additional capital before the
beginning of the second half of 2024 to satisfy its liquidity needs
going forward, as well as to pursue its business objectives and to
capitalize on business opportunities, and there is no assurance
that we will be able to raise the necessary capital on terms
acceptable to the Company or at all.
"As of June 30, 2023 we had cash and cash equivalents of EUR194.6
million. We expect to have cash and cash equivalents in the range
of EUR100 million to EUR115 million on December 31, 2023, with
between EUR20 million and EUR30 million of self-financed inventory.
We currently utilize between EUR30 million and EUR40 million of
cash each quarter in the operations of our business, and from 2024
the cash utilization will reduce to EUR25 million to EUR30 million
per quarter, without giving effect to costs incurred in connection
with the Transactions and other costs related to restructuring or
investigation of strategic opportunities. We believe that our cash
on hand, and available borrowing capacity under stocking loans and
borrowings, will be adequate to meet our liquidity requirements for
at least the twelve months following June 30, 2023. However, we
will need to raise additional outside capital in order to satisfy
our liquidity needs after that date, and there is no guarantee that
we will be able to raise the necessary capital on terms acceptable
to us or at all.
"We adopted a five-year plan that extends the Revised 2023 Plan
through to 2027 (the "Five-Year Plan"). We implemented the Revised
2023 Plan during the six months ended June 30, 2023, and during
that time we closed certain of our vehicle preparation centers,
Customer Centers and offices and made significant headcount
reductions. In accordance with the Revised 2023 Plan, we focused on
improving unit economics, reducing our fixed cost base and
maximizing our cash runway. The Five-Year Plan includes actions to
increase liquidity such as reducing our fixed costs, the sale and
leaseback of owned property and a reduction in inventory.
"Given the stage of evolution of our Company, there are certain
inherent uncertainties in forecasting operating performance,
including gross profit margin as well as cash flows. Our ability to
satisfy our current liabilities and maintain daily liquidity is
dependent on successful execution of our Five-Year Plan.
"We cannot assure you that we will succeed in implementing the
Five-Year Plan or that, if implemented, the Five-Year Plan will be
successful in improving our unit economics and financial outlook.
The identification of a substantial doubt about our ability to
continue as a going concern could adversely affect our ability to
obtain additional financing on favorable terms, if at all, and may
cause investors to have reservations about our long-term prospects
and may adversely affect our relationships with suppliers. If we
cannot successfully continue as a going concern, our investors may
lose a large proportion of or even their entire investment.
"We rely, or may rely in the future, on various forms of debt
financing to operate our business, including car financing
facilities, mortgage debt, capital leases and syndicated loans, and
there is no guarantee that such financing will be available in the
future on acceptable terms, or at all. In addition, our leverage
from any such facilities could adversely impact our business,
financial condition and results of operations.
"As of September 30, 2023, we had approximately EUR130 million in
committed car financing facilities to finance purchases of our
inventory with a total of three lenders. We have been notified that
due to a change in global strategy, Santander is ceasing to provide
wholesale stocking loan facilities with effect from January 1,
2024, and, as of November 20, 2023, Santander has terminated our
stocking loan facility, resulting in a reduction in our stocking
loan facilities from EUR130 million to approximately EUR105
million. Our remaining two facilities have no fixed end date but
are subject to periodic review. There are no financial covenants
included in these facilities, but certain facilities have triggers
to revise the loan-to-value terms if cash falls below a certain
level. If availability under these facilities was reduced, we could
choose to cash finance inventory in the short-term, or to reduce
overall levels of inventory held.
"We may in the future seek to extend the maturity of or refinance
our existing debt, or incur new debt to, among other things,
finance our continuing operations, including our inventory
purchases. However, we may be unable to extend these agreements on
terms that are acceptable to us, or at all. If the agreements we
are currently party to are terminated or expire and are not
renewed, or if we are unable to find satisfactory replacements,
whether because of our financial and operating performance or for
other reasons, our inventory supply may decline, resulting in fewer
vehicles available for sale on our website. New funding
arrangements may include higher interest rates or other less
favorable terms. No assurance can be given that financing will be
available in the future on terms acceptable to us, or at all. These
financing risks, in addition to rising interest rates and changes
in market conditions, if realized, could have a material adverse
effect on our business, financial condition, results of operations
and prospects."
Full-text copies of the Company's reports filed on Form 6-K with
the Securities and Exchange Commission are available at
https://tinyurl.com/bddxykrj & https://tinyurl.com/msbm7md4
About Cazoo Group
Cazoo Group -- https://www.cazoo.co.uk/ -- makes buying and selling
a car as simple as ordering any other product online, where
consumers can simply and seamlessly buy, sell or finance a car
entirely online for delivery or collection in as little as 72
hours. Its mission is to transform the car buying and selling
experience across the UK by providing better selection, value,
transparency, convenience and peace of mind. Cazoo was founded in
2018 by serial entrepreneur Alex Chesterman OBE and is a publicly
traded company (NYSE: CZOO).
COLT GROUP: Moody's Confirms Ba2 CFR, Outlook Negative
------------------------------------------------------
Moody's Investors Service has confirmed Colt Group Holdings
Limited's Ba2 corporate family rating and Ba2-PD probability of
default rating. The outlook is negative. Previously, the ratings
were on review for downgrade.
The rating action concludes the review for downgrade that Moody's
initiated on November 21, 2022.
RATINGS RATIONALE
The rating action is prompted by the closing of Colt's acquisition
of Lumen Technologies, Inc.'s (Caa1 negative) EMEA assets. Moody's
notes that the acquisition is transformational for Colt and will
lead to a strengthening of its business profile as well as a
substantial increase in its size. The rating agency expects that
the acquisition will be funded through equity from shareholders.
The change in outlook to negative reflects, however, the
significant execution risks embedded in the recently completed
transaction, particularly in terms of integration of assets from a
complex structure. Meanwhile, the company's ongoing negative free
cash flow (FCF) generation together with the revolving credit
facility (RCF) coming due in February 2025 add pressures to the
credit quality of the company, raising uncertainties about Colt's
long-term financing structure. These risks are to some extent
mitigated by the track-record of financial support from the
shareholders.
Colt's ratings were placed on review for downgrade upon the
announcement of the acquisition because of the overall uncertainty
around the funding. This is because the company's credit metrics
would have materially weakened if the company had decided to fund
the $1.8 billion transaction solely with debt.
The rating agency forecasts Moody's-adjusted gross leverage to be
around 2.2x in 2023 on a pro-forma basis and to increase towards
2.6x-2.7x in 2024 (2022: 1.8x) before stabilizing thereafter. While
Colt will benefit from the initial positive impact of cost
synergies over 2024, Moody's expects the company's debt levels to
increase over the period to fund investments and compensate for the
forecasted negative FCF. The rating agency expects Colt's
Moody's-adjusted leverage to stabilize after 2024 as the benefit
from synergies will likely mitigate the continued increase in
debt.
Colt's Ba2 CFR reflects (1) the company's fully owned and managed
pan-European fibre network; (2) the stronger business profile after
the acquisition of the EMEA assets of Lumen; (3) Moody's assumption
that operating performance will be supported by the targeted cost
synergies, in spite of a challenging operating environment; and (4)
a supportive ownership strategy from the company's controlling
shareholders, SHM Lightning Investors LLC (SHM) and FIL Limited
(FIL, Baa1 stable).
However, the rating is constrained by (1) the still fragmented and
very competitive nature of the business telecoms market in Europe;
(2) ongoing challenges in the Voice segment; (3) execution risks
associated with the integration of Lumen's EMEA assets,
particularly due to its size when compared to the existing business
of Colt; (4) M&A risk; and (5) sustainably negative FCF with the
RCF maturing in February 2025.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
Colt's CIS-3 indicates that ESG considerations have a limited
impact on the current rating. This largely reflects social
challenges, including industry-wide exposure to customer data
security. Governance risks are also present, reflected by the
company's concentrated shareholding and non-independence of its
board of directors. These ESG constraints are mitigated by Colt's
track record of conservative financial policy and access to
liquidity from its shareholders to support its expansion strategy.
This is evidenced in the large revolving credit facility lent by
FMR Capital Holdings LLC (FMR) as well as the expected support for
the acquisition of Lumen's EMEA assets.
LIQUIDITY
Colt has an adequate liquidity supported by cash and cash
equivalents of EUR107 million as of December 2022 as well as a
EUR630 million revolving credit facility lent by FMR and due in
February 2025. The facility, drawn by EUR260 million as of December
2022, is subject to a two year extension if agreed by both parties.
During 2022, Colt has also agreed a $500 million facility with a
related party to fund the future corporate needs related to
acquisition of Lumen's EMEA assets.
Moody's assumes continued support from its shareholders, should
extraordinary funding needs arise.
RATIONALE FOR NEGATIVE OUTLOOK
The negative outlook reflects the execution risks the company will
face post-closing of the acquisition of Lumen's EMEA assets
together with overall uncertainties around its long-term financing
structure. In this context, the rating agency forecasts
Moody's-adjusted leverage to increase materially versus historical
levels while recording sustainably negative FCF generation.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Colt's ratings could be upgraded if the company: (1) achieves and
maintains positive organic revenue growth, leading to substantial
improvements in EBITDA and FCF; (2) keeps its Moody's-adjusted
debt/EBITDA consistently below 1.75x; and (3) improves its
Moody's-adjusted FCF/debt to the low-double digits in percentage
terms.
Colt's ratings could be downgraded if (1) the company's revenue
growth, EBITDA growth and FCF generation turn materially negative
on a sustained basis; or (2) the company's Moody's-adjusted
debt/EBITDA increases sustainably above 2.75x.
Clear signs of a more aggressive financial policy or significantly
reduced support from SHM, FIL and/or FMR compared to Moody's
current assumptions and expectations could also exert pressure on
Colt's ratings. Failure to extend the RCF by the first quarter of
2024 would add pressure to the company's ratings.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Communications
Infrastructure published in February 2022.
COMPANY PROFILE
Incorporated in the UK, Colt provides a range of information and
communication technology services to enterprises across cities in
Europe, Asia and North America, with a focus on network, voice and
data centre services to businesses. The company has an extensive
international next-generation network with deep local fibre access
and co-location assets in key cities as well as information hubs.
In 2022, Colt generated revenue of EUR1,612 million and
company-adjusted EBITDA of EUR435 million.
The company is fully owned by Lightning Investors Limited, which is
primarily owned by SHM and also by FIL. SHM is directly or
indirectly owned by senior employees of FMR, members of their
families, including the Johnson family, and trusts established for
their benefit.
JEHU GROUP: Former Employees Await Report on Final Payouts
----------------------------------------------------------
Greg Pitcher at Construction News reports former employees of
collapsed Jehu Group are still waiting to hear how much money they
are owed after being made redundant more than a year ago, it has
emerged.
According to Construction News, a progress report from
administrators at Begbies Traynor said an Employment Tribunal claim
was underway to determine how much ex-staff were entitled to.
Welsh-headquartered contractor Jehu ceased trading in October 2022,
with more than 100 people losing their jobs, Construction News
recounts.
Begbies Traynor said a payment of just over GBP458,000 had been
paid to former employees by the Redundancy Payment Service,
covering arrears of pay, holiday pay, pay in lieu of notice, and
redundancy pay, Construction News relates.
However, an Employment Tribunal claim for a protective award,
related to an allegation that Jehu Project Services did not provide
adequate consultation to employees in advance of redundancies being
announced, is ongoing and not being defended by the administrators,
Construction News notes.
According to Construction News, a report issued by Begbies Traynor
showed that the insolvency specialist realised almost GBP1.2
million of Jehu assets within a year of appointment.
However, according to the document, nothing had been paid to
preferential or unsecured creditors -- including subcontractors,
banks and HMRC -- in that time, Construction News states.
Unsecured creditors were unlikely to receive a penny, based on the
current outlook, the report warned, according to Construction
News.
Begbies, as cited by Construction News, said there were "sufficient
funds" for full repayment of preferential creditors. Yet it added
that the level of such claims could not be established as the
Employment Tribunal claim had not concluded and this meant "the
preferential element of the outstanding pension contributions to be
claimed" was undetermined, Construction News notes.
The administration has been extended to October 27, 2024,
Construction News discloses.
STEPHENSON LAW: Enters Liquidation, Owes Over GBP1.5 Million
------------------------------------------------------------
Rhys Duncan at Legal Cheek reports that a law firm founded and run
by top legal influencer Alice Stephenson has entered liquidation.
Stephenson Law entered liquidation last month and a resolution for
winding up was published on Nov. 24, Legal Cheek relates.
According to a "Statement of affairs" liquidation document filed
with Companies House, the influencer's firm has an outstanding debt
of over GBP1.5 million, including a hefty GBP800,000 bill to HMRC,
Legal Cheek notes.
Included within the limited remaining assets of the company is a
GBP666,157.72 directors' loan to A Stephenson, Legal Cheek states.
According to Legal Cheek, the document notes that the estimated
value of realising this asset is "uncertain".
VBITES: Goes Into Administration, 24 Jobs Affected
--------------------------------------------------
BBC News reports that VBites, the vegan food business founded by
Heather Mills, ex-wife of Sir Paul McCartney, has collapsed into
administration.
The company blamed rising raw material costs and energy prices, BBC
relates.
Ms Mills launched VBites in 1993, producing plant-based
alternatives in the meat, fish and dairy free sectors.
The business grew as demand jumped for vegan products, acquiring
supplier Redwood Wholefood in 2009, but was hit by rising costs and
supply issues.
Sales of vegan food, which is often more expensive than competing
meat or dairy products, have been hit as shoppers grapple with
higher food prices, BBC discloses.
According to BBC, administrators from Interpath Advisory were
appointed on Dec. 11 after talks to raise new funding for VBites
collapsed.
The company operates from two manufacturing sites, in Peterlee,
County Durham, and Corby, Northamptonshire.
Interpath Advisory, as cited by BBC, said the company would
continue to trade from the site in Peterlee while it looked for a
buyer for the business and its assets.
It said that 29 members of staff based at the Peterlee site had
been kept on to help with trading, BBC notes.
The joint administrators have also kept 25 employees at the site in
Corby to fulfil outstanding orders, BBC discloses.
A total of 24 employees across the business have been made
redundant, according to BBC.
"VBites is one of the UK's leading manufacturers of vegan food
products but unfortunately, and in common with many other companies
across the food manufacturing sector, had seen trading impacted by
rising commodity and energy prices," BBC quotes James Clark, joint
administrator and managing director at Interpath Advisory, as
saying.
VEHICLE CONVERSION: Shuts Down Bradford Factory, 150+ Jobs Lost
---------------------------------------------------------------
Michael Broomhead at Telegraph & Argus reports that more than 150
jobs have been lost in Bradford just before Christmas -- after a
company shut its factory in the city.
Vehicle Conversion Specialists Limited (VCS) -- which operated on
Staithgate Lane -- collapsed into administration last month,
Telegraph & Argus recounts.
The business, which manufactured ambulances, was part of the WN
Vtech group, formerly known as Woodall Nicholson.
According to Telegraph & Argus, administrators from Teneo last week
said "the majority of the group's operations" had been acquired by
Guido Dumarey, owner of the Dumarey Group, a prominent player in
the European automotive sector.
However, a spokesperson for Teneo told the Telegraph & Argus on
Dec. 11 that VCS's Bradford factory was not included in the
acquisition and it had been closed with 152 jobs made redundant.
After VCS went into administration, Teneo, as cited by Telegraph &
Argus, said: "Like many companies in the automotive sector, the
group has experienced challenges around supply chain issues which
has impacted fulfilment of orders and working capital."
It has been confirmed, however, that Brighouse-based Treka Bus
Limited -- which was also part of the WN Vtech group -- was among
the firms bought by Mr. Dumarey.
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