/raid1/www/Hosts/bankrupt/TCREUR_Public/240102.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, January 2, 2024, Vol. 25, No. 2
Headlines
B E L G I U M
OXURION NV: Enters Into LOI with Atlas, Averts Bankruptcy
G E R M A N Y
SCHOEN KLINIK: Fitch Affirms 'B+' LongTerm IDR, Outlook Stable
I R E L A N D
BARINGS EURO 2023-2: Fitch Assigns B-sf Final Rating to Cl. F Notes
BOSPHORUS CLO V: Fitch Ups E Notes Rating to BB+sf, Outlook Stable
L U X E M B O U R G
AFE SA: S&P Downgrades ICR to 'CC' on Proposed Debt Restructuring
SK NEPTUNE: S&P Lowers LT ICR to 'D' on Forbearance Agreement
N E T H E R L A N D S
BALKANS REAL: Fitch Affirms 'BB(EXP)' LongTerm IDR, Outlook Stable
BRIGHT BIDCO: RiverNorth Marks $190,900 Loan at 60% Off
U N I T E D K I N G D O M
FARFETCH LTD: S&P Downgrades LT ICR to 'CC', Outlook Negative
KEMBLE WATER: Fitch Lowers Rating on Senior Secured Debt to 'CCC'
ROB CROSS DARTS: Enters Liquidation, Owes GBP579,000 in Taxes
SELFRIDGES: Seeks Cash Injection from Thai Co-Owner
[*] UK: Almost 30,000 Businesses Likely to Collapse Next Year
[*] UK: More Big Firms Expected to Go Bust in 2024, Experts Warn
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B E L G I U M
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OXURION NV: Enters Into LOI with Atlas, Averts Bankruptcy
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Oxurion NV (Euronext Brussels: OXUR), a biopharmaceutical company
headquartered in Leuven, on Dec. 28 disclosed it has avoided
bankruptcy by entering into a binding letter of intent (LOI) with
Atlas Special Opportunities LLC (Atlas) and an addendum to the
existing subscription agreement for convertible bonds with Atlas.
Pursuant to these agreements, Atlas will continue to fund Oxurion
under the existing EUR20.8 million funding program with a focus on
Oxurion's preclinical programs and monetizing its other existing
assets, potentially including both THR-149 and THR-687, while at
the same time Oxurion is putting in place a debt restructuring plan
with Oxurion's creditors and seeking future corporate transactions
or a business combination that would be complementary to debt
restructuring, all of which remains uncertain.
For the last five years, Oxurion's preclinical program has been
focused on developing innovative therapeutics to preserve the
vision of elderly people suffering from Age-related Macular
Degeneration (AMD) generally, and Geographic Atrophy (GA)
specifically. GA is an advanced form of AMD and is the leading
cause of blindness worldwide -- GA is estimated to affect between
5-8 million people currently and is expected to increase at a rate
of 7% annually.
The market potential for GA is estimated at between USD3-6 billion
by 2028. Given this market potential, vast amounts of time and
capital that have been invested to find an effective treatment for
GA. Earlier this year the FDA approved the first medicine for the
treatment of GA, SYFOVRE(R)1 (pegcetacoplan injection) from
Apellis. SYFOVRE was shown in clinical trials to reduce the rate of
GA lesion growth by no more than 36% with monthly IVT injections,
with no significant improvement in vision, which leaves a
tremendous unmet need for an effective treatment for GA. In August
of this year, a second product was approved for GA,
IZERVAY(TM)2(avacincaptad pegol intravitreal solution) from Iveric
Bio, an Astellas company, with a similar profile to SYFOVE. Prior
to the approval of IZERVAY, Iveric Bio, whose principal asset was
IZERVAY, was acquired by Astellas for USD 5.9 billion,
demonstrating the significant value assets for treating GA can
potentially generate.
Both SYFOVRE and IZERVAY target a single pathway, the complement
pathway. However, the causes of GA are multifactorial and Oxurion
has developed a disease specific target discovery platform enabling
it to study the disease from different angles in a rapid and
capital efficient manner. Using the platform, Oxurion has already
identified potential novel pathways involved in the pathogenesis of
AMD/GA disease that have the potential to provide better treatment
options for GA patients that are not focused solely on the
complement pathway.
The next step for Oxurion is to seek to validate these targets in
various in vitro and in vivo models that the preclinical team has
developed over the past years and that are representative of the
disease characteristics of AMD/GA (patient in a dish). Oxurion's
approach potentially differentiates it from other methods through
its unbiased target discovery approach and its multitargeting drug
format, which the Company considers to be necessary to improve
efficacy compared to the standard of care for such a
multi-factorial disease.
The Company expects that, if successful, its lead generation work
could allow Composition of Matter patents to be filed in 2024,
which would be the next value inflection point, after which the
Company estimates it would take around two years and a further
investment of approximately EUR20 million in working capital before
initiating a proof of concept study.
Had the Company not been capital constrained, it would have
undertaken these efforts previously. Atlas has now committed to
fund the Company's running costs including the GA program at least
through 2024, provided the modified liquidity and market
capitalization conditions set forth below are met, and to consider
means of further monetizing both the Oncurious and Oxurion assets
(potentially including THR-687 and THR-149), and in parallel to
seek future corporate transactions or business combinations.
To achieve these aims, the Company has agreed with the Chief
Development Officer (CDO), the newly promoted Chief Scientific
Officer (CSO), and the entire preclinical team to stay at the
Company. The team consists of six world-class scientists with
combined experience in researching retina diseases of more than 75
years, including 4 PhD's/MDs. The team is led by Dr. Andy De Deene,
CDO, who is a medical doctor with more than 15 years of retina drug
development experience and led the development of Jetrea® which
was approved in over 50 countries, and Philippe Barbeaux, CSO, a
PhD with more than 15 years of preclinical experience in
retina-related diseases. Andy and Philippe will both be members of
the Executive Committee, together with the new acting CEO/CFO,
Pascal Ghoson, who is a former M&A specialist at Rothschild bank
and CFO of various listed companies on Euronext.
Given that the Company will change its focus to preclinical
development, the size of the Company will be reduced to
approximately 10 persons, and the remainder of the Company's
personnel, including the current CEO/CFO Tom Graney, will
participate in a voluntary redundancy program on terms that have
been agreed, which will result in a cost saving of approximately
67% of its personnel cost going forward.
Under the terms of the LOI, Atlas commits to pay EUR500,000 to
Kreos Capital VI (UK) Limited/Pontifax Medison Finance (Israel)
L.P. and Pontifax Medison Finance (Cayman) L.P. (Kreos/Pontifax),
and Kreos/Pontifax have agreed to remove the freeze on the
Company's bank accounts up to the same amount to pay certain costs
related to December 2023. In addition, Atlas has committed to
finance the additional funds required to cover the one-off expenses
related to implementation of the LOI, for a total amount of
EUR355,000 ("LOI costs"). Atlas has also committed to funding the
preclinical program through 2024 in monthly tranches of EUR 300,000
to be paid monthly starting in January 2024 through December 2024
("Running costs"), provided that the conditions of the Atlas
funding program, which are described below, are met (together the
Running costs and the LOI costs are referred to as the "Working
Capital costs"), allowing for Oxurion to stay in going concern, but
not to exceed the remaining amount under the Atlas funding program,
which is EUR8.5 million. Atlas will not receive any commission fee
in the context of the LOI.
The Working Capital costs will be funded through the issuance of
mandatory convertible bonds after the date of the LOI under the
terms of the existing Atlas funding program. Atlas has agreed to
waive liquidity and market capitalization conditions of the
convertible bonds to fund the LOI Costs and the convertible bonds
issued to set-off the EUR500,000 reimbursement of Kreos/Pontifax.
Subsequent tranches are subject to facilitated liquidity and market
capitalization conditions (market cap at EUR500,000 and total
trading value of last 22 days above EUR200,000). Atlas currently
holds 296 convertible bonds in a total amount of
EUR7.4 million.
Atlas formally commits not to convert Convertible Bonds issued
after the LOI to pay the Working Capital costs and the LOI costs
(the "New Convertible Bonds") and to only convert old convertible
bonds (i.e. convertible bonds issued in accordance with the
Subscription Agreement and outstanding on the date of the second
amendment to the funding program (the "Old Convertible Bonds"))
having a combined EUR value equivalent to the New Convertible Bonds
issued after the date of the LOI until the earlier date between (i)
12 months from the date of the LOI, (ii) the announcement by the
Company of a potential partnership or transaction involving a third
party or any major scientific update, or (iii) when the last
rolling 22 trading days total volume of shares traded on the market
is valued above EUR1 million, in which case Atlas will be entitled
to convert and trade shares in excess of the amount of New
Convertible Bonds, but agrees not trade more than 30% of the total
daily volume traded. The Atlas funding program is described further
below and in section 13 (pp. 46 – 50) of the Prospectus dated
March 29, 2023 (link), the supplements dated June 13, 2023 (link)
August 22, 2023 (link), Section 1. (pp. 1 – 2) of the Third
Supplement dated October 2, 2023 (link) and November 15, 2023
(link) (the "Prospectus") and the Board reports dated March 7, 2023
(link) and respectively October 2, 2023 (link).
Thomas Clay, Patrik De Haes and Tom Graney have stepped down from
the Board as a condition of the LOI, and Charles Paris de
Bollardière (former secretary of the Board of TotalEnergies),
James Hartmann (former auditor at the U.S. Securities & Exchange
Commission and Chief Compliance officer of various companies) have
been co-opted as new independent directors and the new CEO/CFO,
Pascal Ghoson, has been co-opted as a new executive director (the
"New Board"). This press release is issued by the New Board.
The primary driver underlying the Company's communication last
month that it was preparing to file for bankruptcy and that
shareholders would likely not receive any value for their shares,
was the right held by Kreos/Pontifax to enforce their security
interest to freeze the Company's liquid assets, which they did.
That risk has been eliminated by Atlas successfully agreeing terms
with Kreos/Pontifax to acquire their outstanding debt of around EUR
2.1 million for approximately EUR1.6 million by entering into a
binding agreement to purchase the debt along with assignment of the
claim and related pledge, rights, interests, and security of
Kreos/Pontifax, which shall be transferred to Atlas when
Kreos/Pontifax is repaid, which is expected to occur on January 1,
2024, and until then, Kreos/Pontifax has agreed not to enforce
their security interest. This repayment from Atlas to
Kreos/Pontifax will not be dilutive to the shareholders. A
comparable second rank security package shall cover any future New
Convertible Bonds' subscriptions. Oxurion shall immediately partly
reimburse the debt transferred from Kreos/Pontifax to Atlas with
its own financial means and funds provided via
New Convertible Bonds, and reduce the debt and the related pledge
to around EUR0.5 million by mid-January 2024.
The conversion of mandatory convertible bonds under the existing
funding program will significantly dilute existing shareholders,
and to limit the amount of the dilution, while at the same time
avoiding bankruptcy, as described above, Atlas has formally
committed to limit its conversions of convertible bonds as
described above. Concerning the amount of the dilution from the
shares converted for the convertible bonds, while it is difficult
to predict, the attached Annex to this press release attempts to
project the possible dilution at a hypothetical conversion price of
EUR0.000460 to EUR0.000092. For instance, the conversion of the
Working Capital costs of EUR4,950,000, could, at a hypothetical
conversion price of EUR0.000460 to EUR0.000092, lead to the
issuance of 10,761,000,000 to 53,805,000,000 new shares (depending
on the conversion price), being a dilution of the voting rights of
75.51% to 93.91% and a financial dilution of 36.92% to 84.31%
compared to the situation as of the date of this press release.
Reference is made to the attached dilution table as Annex 1. In the
event the total Working Capital costs would amount to the total
remaining amount under the Atlas funding program, i.e. EUR8.5
million, this could lead to the issuance of 18,479,000,000 to
92,392,000,000 new shares (depending on the conversion price),
being a dilution of the voting rights of 84.12% to 96.36% and a
financial dilution of 41.12% to 86.51% compared to the situation as
of the date of this press release. Were Atlas to convert all EUR7.4
million in convertible bonds that they currently hold, together
with the entire EUR8.5m remaining under the Atlas Funding Program,
at the hypothetical conversion prices set out above, and maintain
ownership of all shares issued upon conversion, which is not its
intent, this would result in Atlas holding more than 90% of
Oxurion's shares. However, given that Atlas intends to sell its
shares issued upon conversion, it is highly unlikely that it would
cross the threshold of 30% of the voting rights of Oxurion.
In view of the extent of the dilution, any prospect of recovery for
existing shareholders as far as share value is concerned is
remote.
At the same time, Oxurion is in the process of negotiating a debt
restructuring plan with Oxurion's larger creditors, which seeks
their agreement to a significant reduction of their debt, combined
with potential conversion to equity, payment delays and maturity
extensions. The Company's current debts amount to approximately
EUR15 million. The Company's largest creditors are Atlas,
Kreos/Pontifax and Syneos Healthcare. It is uncertain whether the
Debt Restructuring will be successful, but were that to be the
case, it is expected that the repayments will be financed by the
Company issuing additional New Convertible Bonds to Atlas and
potential debt for equity swaps (the "Debt Repayment"). While the
amount of the Debt Repayment is being negotiated, the total amount
of the New Convertible Bonds to be issued for the Working Capital
Costs, LOI Costs, plus the Debt Repayments, shall not exceed the
remaining funding available under the Atlas funding program as of
the date of the LOI, which is EUR8.5 million. Reference is made to
the dilution table in Annex 1.
Based on the foregoing, the Board has determined that the
bankruptcy conditions are not met and the Company therefore will
not file for bankruptcy as long that continues to be the case.
About Oxurion
Oxurion (Euronext Brussels: OXUR) -- http://www.oxurion.com-- is
engaged in developing next-generation standard of care ophthalmic
therapies for the treatment of retinal disease. Oxurion is based in
Leuven, Belgium.
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G E R M A N Y
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SCHOEN KLINIK: Fitch Affirms 'B+' LongTerm IDR, Outlook Stable
--------------------------------------------------------------
Fitch Ratings has assigned Schoen Klinik SE's (Schoen) term loan B
(TLB) a final senior secured rating of 'BB' with a Recovery Rating
of 'RR2'. Fitch has also affirmed Schoen's Long-Term Issuer Default
Rating (IDR) at 'B+'. The Outlook is Stable.
The 'B+' IDR is supported by Schoen's solid market position in the
non-cyclical and well-funded German private hospital market and
significant financial flexibility enhanced by real-estate
ownership. These strengths are balanced with Schoen´s high EBITDAR
gross leverage, a personnel-intensive fixed cost base and limited
geographical footprint exposing its credit profile to potential
changes in a single reimbursement system.
The Stable Outlook reflects its view of Schoen's moderating
leverage through organic profitability improvement and a prudent
financial policy versus that of traditional sponsor-owned
healthcare providers.
KEY RATING DRIVERS
Defensive Specialised Operations: Schoen has strong market
positions in specialised medical and rehabilitation services in
Germany, benefitting from stable and steadily growing demand. Its
well-established national market position, albeit in narrowly
defined areas, and a reasonably diversified range of services also
contribute to greater operating resilience than narrow
service-focused providers'. Schoen's defensive business profile is
further supported by the regulated nature of the sector with high
barriers to entry, requiring strong technical and investment
expertise.
Significant Financial Flexibility: Schoen's considerable financial
flexibility stems from cash-generative operations and its
unencumbered real estate base. Schoen owns nearly all its hospital
facilities, unlike most Fitch-rated EMEA healthcare-service
providers. This strategic decision provides Schoen with greater
financial flexibility, which is reflected in its EBITDAR
fixed-charge coverage of 2.5x-3.0x estimated for 2023-2026, versus
1.5x or less for most peers within the 'B' rating category.
In addition, the ownership of valuable real estate ensures some
stability in times of financial uncertainty, serving as collateral
or a source of additional liquidity in the form of sale and
leaseback (SALB), which is capped at EUR400 million, as per its TLB
documentation. The value of the property portfolio also supports
the two-notch uplift of the instrument rating from the IDR to
'BB'.
Deleveraging Capacity; Moderate Execution Risks: Fitch views
Schoen's recent Imland acquisition as being in line with its
consolidation-driven growth strategy, as it increases scale and
broadens its somatic treatment portfolio, despite an initially
dilutive impact on profitability. The debt-funded acquisition will
lift EBITDAR gross leverage to a peak 5.5x in 2023. Fitch believes
Schoen has sufficient organic deleveraging capacity through
operational efficiencies and occupancy rate increases, but it may
still face moderate execution risks in bringing EBITDAR gross
leverage to below 4.5x in the next 12-18 months.
Commitment to Prudent Financial Policies: Schoen's commitment to
EBITDA net leverage below 4.0x (or about 4.5x Fitch-defined EBITDAR
gross leverage) supports the shareholders' intention of positioning
the company for a possible IPO or large-scale M&A in a fragmented
market.
Fitch anticipates Schoen will remain opportunistic on M&A,
targeting under-performing hospitals and restoring their
profitability. Its rating case considers scope for bolt-on
acquisitions of EUR100 million over the next three-to-four years,
funded with internal cash flows and Fitch-estimated debt issues.
Fitch views a larger transaction as event risk, due to integration
complexity and acquisition economics.
Industry-Leading Profitability, Temporarily Subdued: Fitch projects
Schoen's EBITDA margin will remain temporarily subdued at slightly
below 12% to end-2024 due to the impact of high but gradually
receding inflationary pressure and the consolidation of the
margin-dilutive Imland operations. Nevertheless, Schoen's
profitability compares favourably with its European direct peers',
supported by low rent expenses and operating efficiency, with a
high degree of in-sourced operations. Fitch estimates payor rates
will improve by mid-single digits in 2023-2024 which, coupled with
occupancy rates returning to pre-pandemic levels, should support
EBITDA margin improvement to above 12% by 2025.
Limited Margin Improvement: The sector's high intrinsic operating
leverage with labour costs projected to remain at around 60% of
revenues limits Schoen's further EBITDA margin improvement to
around 12.5%-13.0% in the long term. This is because maintaining
high service standards is an essential competitive differentiation
and necessary to comply with regulatory requirements.
Constructive Regulatory Frameworks: Schoen's rating benefits from
stable and well-funded, state-backed healthcare systems in Germany
and the UK. Constructive pricing frameworks allow private operators
to pass on most cost inflation, albeit with a delay of 12-18 months
due to a base-rate calculation mechanism. All of Schoen's hospitals
are included in the German federal states' hospital plan, leading
to low reimbursement risk via statutory health insurance
companies.
Germany's promotion of rehabilitation care to reduce the
longer-term burden on social care and the UK government's pledge to
increase the share of the NHS budget for adult mental health (at
least GBP2.3 billion a year by 2023-2024) provide a supportive
framework for independent private operators.
DERIVATION SUMMARY
Fitch rates Schoen under Fitch's Ratings Navigator for Healthcare
Providers. Global sector peers tend to cluster in the 'B'/'BB'
range, driven by the traits of their respective regulatory
frameworks influencing the quality of funding and government
healthcare policies, and by companies' operating profiles,
including scale, service and geographic diversification, and payor
and medical indication mix. Many sector providers pursue
debt-funded M&A strategies, given the importance of scale and
limited room for maximising organic return.
European sector peers have similar operating characteristics of
stable patient demand with a regulated but limited ability to
enforce price increases above inflation, and the necessity of
driving operating efficiencies while maintaining well-invested
clinic networks to safeguard competitive sustainability.
Nevertheless, ratings tend to be constrained by weak credit metrics
as expressed in highly leveraged balance sheets due to continuing
national and cross-border market consolidation with EBITDAR
leverage at 6.0x-7.0x and tight EBITDAR fixed charge cover of
around 1.5x.
Fitch compares Schoen against high-yield European peers such as
Mehilainen Yhtyma Oy (B/Stable), Almaviva Developpement (B/Stable),
and Median B.V. (B-/Stable). Schoen's IDR benefits from a more
conservative financial policy and higher profitability as a result
of owning hospital facilities and lower rent expenses, which also
translate into higher free cash flow (FCF) and better coverage
compared with its peers. Compared with other asset-heavy healthcare
providers, Schoen has smaller scale and a less diversified
geographic footprint than Fresenius Helios, the healthcare provider
branch of Fresenius SE & Co. KGaA (BBB-/Stable).
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Revenue growth of 12.7% in 2023 and 15.5% in 2024, driven by the
Imland acquisition, mid-single-digit payor fee increases and
occupancy recoveries. Revenue growth of 4%-5% p.a. for the
following three years, driven mostly by organic growth
- EBITDA margin to remain at around 11.5% in 2023-2024, and
improving to 12.5%-13.0% in 2025-2026
- Working-capital outflows of EUR5 million a year from 2024
onwards
- Capex (excluding state grants received) at 5.5%-6.5% of sales in
2023-2024 and at 4.5% for 2025-2026
- Fitch-estimated acquisition spend of EUR100 million in the next
three-to-four years
- Fitch-estimated dividends of EUR20 million-EUR25 million a year
for 2024-2026
RECOVERY ANALYSIS
Fitch assumes that Schoen will be liquidated in bankruptcy rather
than reorganised as a going-concern, given its ownership of
substantial real estate. Fitch also expects that prior to distress
the company will sell and lease back up to EUR400 million of its
real-estate assets and use a third of the proceeds towards debt
repayment, in accordance with the TLB documentation.
Fitch maintains standard advance rates on the market value of
real-estate assets, net of EUR400 million SALB, leading to a total
estimated liquidation value of EUR635 million. After deducting 10%
for administrative claims from the liquidation value, the
allocation of value in the liability waterfall results in a
Recovery Rating of 'RR2' for Schoen's EUR350 million TLB, leading
to a 'BB' instrument rating.
Schoen also has an equally-ranking term loan A (TLA), promissory
notes and a EUR125 million revolving credit facility (RCF) that
Fitch assumes will be fully drawn prior to distress. The above
results in a waterfall- generated recovery computation percentage
of 83% based on current metrics and assumptions.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Successful Imland integration and execution of medium-term
strategy leading to a further increase in scale and occupancy rates
plus further diversification of services
- Steadily increasing EBITDA, with EBITDA margins above 12% on a
sustained basis
- FCF margins at low single digits on a sustained basis
- Consistent financial policy supporting EBITDAR gross leverage
below 4.5x on a sustained basis
- EBITDAR fixed charge coverage above 2.5x on a sustained basis
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Inability to increase occupancy rates, coupled with
slower-than-expected integration of the Imland acquisition, leading
to an erosion of EBITDA margins to below 10% on a sustained basis
- Neutral-to-negative FCF margins on a sustained basis
- EBITDAR gross leverage above 5.5x on a sustained basis
- EBITDAR fixed charge coverage below 2.0x on a sustained basis
LIQUIDITY AND DEBT STRUCTURE
Comfortable Liquidity: Fitch views Schoen's liquidity as
comfortable with around EUR20 million-EUR30 million in projected
freely available post-dividend year-end cash for 2023-2026
(excluding EUR15 million that Fitch treats as restricted and not
readily available for debt service), and an EUR125 million
available committed RCF. Schoen does not have any major maturities
until December 2027, when the remaining TLA balance comes due.
ISSUER PROFILE
Schoen is a German-based private hospital operator, with a small
presence in the UK. It focuses on providing mental health, somatic
and rehabilitation services.
ESG CONSIDERATIONS
Schoen has an ESG Relevance Score of '4' for Exposure to Social
Impacts as it operates in the healthcare market, which is subject
to sector regulation, as well as budgetary and pricing policies
adopted in Germany and the UK. Rising healthcare costs expose
private hospital operators to high risks of adverse regulatory
changes, which could constrain the companies' ability to maintain
operating profitability and cash flows. This has a negative impact
on the credit profile, and is relevant to the rating in conjunction
with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Schoen Klinik SE LT IDR B+ Affirmed B+
senior secured LT BB New Rating RR2 BB(EXP)
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I R E L A N D
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BARINGS EURO 2023-2: Fitch Assigns B-sf Final Rating to Cl. F Notes
-------------------------------------------------------------------
Fitch Ratings has assigned Barings Euro CLO 2023-2 DAC final
ratings, as detailed below.
Entity/Debt Rating Prior
----------- ------ -----
Barings Euro
CLO 2023-2 DAC
A XS2708352872 LT AAAsf New Rating AAA(EXP)sf
A-Loan LT AAAsf New Rating AAA(EXP)sf
B-1 XS2708353094 LT AAsf New Rating AA(EXP)sf
B-2 XS2708353250 LT AAsf New Rating AA(EXP)sf
C XS2708353417 LT Asf New Rating A(EXP)sf
D XS2708353680 LT BBB-sf New Rating BBB-(EXP)sf
E XS2708353847 LT BB-sf New Rating BB-(EXP)sf
F XS2708354068 LT B-sf New Rating B-(EXP)sf
Subordinated
XS2708354225 LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
Barings Euro CLO 2023-2 DAC is a securitisation of mainly senior
secured obligations (at least 90%) with a component of senior
unsecured, mezzanine, and second-lien loans. The note proceeds were
used to fund an identified portfolio with a target par of EUR400
million. The portfolio is managed by Barings (U.K.) Limited. The
CLO envisages a 4.6-year reinvestment period and a 7.6-year
weighted average life (WAL).
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch places the
average credit quality of obligors in the 'B' category. The Fitch
weighted average rating factor (WARF) of the identified portfolio
is 24.5.
Strong Recovery Expectation (Positive): At least 90% of the
portfolio will comprise senior secured obligations. 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 identified portfolio is 63.9%.
Diversified Portfolio (Positive): The transaction also includes
various concentration limits, including the maximum exposure to the
three largest Fitch-defined industries in the portfolio at 40%.
These covenants ensure that the asset portfolio will not be exposed
to excessive concentration.
Portfolio Management (Neutral): The transaction has four matrices;
two effective at closing and two at one year post-closing (or two
years if the WAL steps up one year post-closing), all with
fixed-rate limits of 7.5% and 15%. All four matrices are based on a
top-10 obligor concentration limit of 20%. The closing matrices
correspond to a 7.6-year WAL test while the forward matrices
correspond to a 6.6-year WAL test.
The transaction can step up the WAL test by one year at any time
after one year post-closing, subject to passing all tests and the
adjusted collateral principal amount (defaults at Fitch-calculated
collateral value) is at least at the reinvestment target par
balance. The switch to the forward matrices is subject to the
collateral principal amount (defaults at Fitch-calculated
collateral value) is at least at the reinvestment target par
balance. The transaction has reinvestment criteria governing
reinvestment similar to those of other European transactions.
Fitch's analysis is based on a stressed-case portfolio with the aim
of testing the robustness of the transaction structure against its
covenants and portfolio guidelines.
Cash flow Modelling (Neutral): The WAL used for the transaction's
Fitch-stressed portfolio and matrices analysis is 12 months less
than the WAL covenant to account for structural and reinvestment
conditions after the reinvestment period, including the
satisfaction of the over-collateralisation test and Fitch 'CCC'
limit, together with a consistently decreasing WAL covenant. These
conditions would in the agency's opinion reduce the effective risk
horizon of the portfolio during stress periods.
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 RRR across all ratings would result in
downgrades to below 'B-sf' for the class F notes, of one notch for
the class B and D notes and of two notches for the class C and E
notes but no impact on the class A notes.
Downgrades, which are based on the identified portfolio, 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 of the identified portfolio than the
Fitch-stressed portfolio the rated notes display a rating cushion
to a downgrade of up to two notches for the class B, D, and E
notes, and one notch for the class C notes. The class F and the
'AAAsf' notes have no rating cushion.
Should the cushion between the identified portfolio and the
Fitch-stressed portfolio erode due to manager trading or negative
portfolio credit migration, a 25% increase of the mean RDR across
all ratings and a 25% decrease of the RRR all ratings of the
Fitch-stressed portfolio would lead to downgrades of up to four
notches for the rated notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings would result in upgrades of
no more one notch for the class C notes, two notches for the class
B, D and F notes and three notches for the class E notes.
During the reinvestment period, upgrades based on the
Fitch-stressed portfolio, 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, except for the 'AAAsf' notes,
may occur on stable portfolio credit quality and deleveraging,
leading to higher credit enhancement and excess spread available to
cover losses in the remaining portfolio.
DATA ADEQUACY
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
BOSPHORUS CLO V: Fitch Ups E Notes Rating to BB+sf, Outlook Stable
------------------------------------------------------------------
Fitch Ratings has upgraded Bosphorus CLO V DAC's class B-1, B-2, D,
and E notes, and affirmed the rest, as detailed below.
Entity/Debt Rating Prior
----------- ------ -----
Bosphorus CLO V DAC
A-1 XS2073812336 LT AAAsf Affirmed AAAsf
A-2 XS2082334249 LT AAAsf Affirmed AAAsf
B-1 XS2073813060 LT AA+sf Upgrade AAsf
B-2 XS2073813730 LT AA+sf Upgrade AAsf
C XS2073814381 LT A+sf Affirmed A+sf
D XS2073814977 LT BBB+sf Upgrade BBBsf
E XS2073816162 LT BB+sf Upgrade BBsf
F XS2073816329 LT B-sf Affirmed B-sf
TRANSACTION SUMMARY
Bosphorus CLO V DAC is a securitisation of mainly senior secured
loans with a component of senior unsecured, mezzanine, and
second-lien loans. The portfolio is actively managed by Cross Ocean
Adviser LLP. The transaction will exit its reinvestment period in
June 2024.
KEY RATING DRIVERS
Transaction Outperforms Rating Case: The rating actions reflect the
good performance of the transaction, with no defaults and all
relevant tests passing. In addition, the transaction has limited
refinancing risk, with none of the portfolio assets maturing before
the end of 2024, and 2.1% maturing in 2025. The transaction is
currently 0.4% below par. The default-rate cushion of each class of
notes at their respective rating case provides a buffer to absorb
additional losses above the rating case, as underlined by their
Stable Outlooks.
'B' Portfolio: Fitch assesses the average credit quality of the
obligors at 'B'. The Fitch-calculated weighted average rating
factor of the current portfolio is 24.57.
High Recovery Expectations: Senior secured obligations comprise
99.1% 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 is
63.25%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. No obligor can represent more
than 2.5% of the portfolio balance, while the top 10 obligor
exposure is at 18.55%, as calculated by Fitch. Exposure to the
three-largest Fitch-defined industries limited to 27.7%
Transaction Within Reinvestment Period: Given the manager's ability
to reinvest, Fitch's analysis is based on a stressed portfolio and
tested the notes' achievable ratings across all Fitch test
matrices, since the portfolio can still migrate to different
collateral quality tests and the level of fixed-rate assets could
change. Fitch has applied a haircut of 1.5% to the inflated WARR in
the transaction documentation as it was based on old criteria and
inconsistent with the agency's current CLO Criteria. The 1.5%
represents the average inflation observed in the reported WARR
across EMEA CLOs as a result of the inconsistency.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A 25% increase of the mean default rate (RDR) and a 25% decrease of
the recovery rate (RRR) across all ratings of the current portfolio
would have no impact on the class A-1, A-2, B-1, B-2, D, and F
notes, but would lead to a downgrade of two notches for the class E
notes.
Based on the current portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration. Due to the
better metrics and shorter life of the current portfolio than the
Fitch-stressed portfolio, the class B-1, B-2. and E notes display a
rating cushion of one notch, the class D notes two notches and the
class F notes five notches. The class A-1, A-2 and C notes display
no rating cushion.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR and a 25% increase in the RRR
across all ratings of the Fitch-stressed portfolio would lead to
upgrades of up to five notches for the rated notes, except for the
'AAAsf' rated notes, which are at the highest level on Fitch's
scale and cannot be upgraded.
DATA ADEQUACY
Bosphorus CLO V 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.
===================
L U X E M B O U R G
===================
AFE SA: S&P Downgrades ICR to 'CC' on Proposed Debt Restructuring
-----------------------------------------------------------------
S&P Global Ratings lowered its long-term issuer credit rating on
AFE S.A. and its issue level rating on its senior secured notes
(SSNs) to 'CC' from 'CCC'.
S&P said, "The negative outlook indicates that we will lower our
rating on the company to 'SD' (selective default) and on its SSNs
to 'D' (default), upon completion and implementation of the
proposed transaction.
"We will likely raise the ratings on AFE and the SSNs to the 'CCC+'
level shortly after we record the default, based on a material
improvement of its liquidity and debt maturity profile."
On Dec. 22, 2023, AFE proposed a restructuring of its outstanding
debt, including the SSNs, and reached an agreement on acquisition
by AGG Capital Management Ltd.
The downgrade follows AFE's Dec. 22, 2023, announcement of its
intention to restructure its outstanding debt. Under the proposals,
AFE is planning to extend maturity of its SSNs by six years to July
15, 2030, with increased interest rate to three-month Euro
Interbank Offered Rate (EURIBOR) plus 750 basis points (bps) from
three-month EURIBOR plus 500 bps. Noteholders providing their
consent to the proposed restructuring before Jan. 9, 2024, will get
a 1% consent fee payable in cash.
As per the conditions of the restructuring, AFE has also received a
EUR96 million bridge facility from funds managed by Arrow Global
Group and some other investors, and has used the facility to repay
its revolving credit facility (RCF), maturing on Dec. 31, 2023.
After the implementation of restructuring, AFE will swap the bridge
facility for a new six-year EUR133 million super senior term loan
facility with 1% cash interest and 11.5% payment-in-kind (PIK)
interest. AFE is also planning to attract EUR25 million in cash by
issuing an additional SSN tranche in favor of AGG and other
investors to use for general corporate purposes. Meanwhile, AFE's
equity will be transferred to the new holding structure where AGG's
fund will have controlling ownership. Arrow Global will become an
investment advisor and the key servicer of AFE's remaining assets.
S&P said, "To implement the proposed restructuring, AFE needs to
get consent from at least 90% of noteholders, and we understand
that so far the group has secured support from 94.7% of
noteholders. We therefore expect that the proposed restructuring
will be finalized in first quarter 2024."
S&P said, "We will view the proposed transaction as tantamount to a
default upon implementation.We think that the proposed transaction
is a distressed restructuring, because AFE could not refinance its
debt on market conditions and had a very weak liquidity, which
would not allow it to repay its RCF maturing end-2023. We also
think that AFE's noteholders do not receive sufficient compensation
for the proposed maturity extension of the notes by six years. We
therefore think that the investors will receive less value than
promised in AFE's original bond's documentation. Upon the
completion of the restructuring, we will therefore lower our rating
on AFE to 'SD' and our issue level rating on its senior secured
notes to 'D'.
"We will likely upgrade AFE and its SSNs to 'CCC+' area shortly
after we record the default, based on material improvement of its
liquidity and debt profile maturity. After the restructuring, AFE
will receive about EUR56 million of free liquidity, while its debt
maturity profile will extend by six years. That said, after the
restructuring, AFE's gross debt will increase by EUR100 million,
and its leverage will remain very high with a loan-to-value ratio
of close to 93% (82% if net with available cash) and debt to EBITDA
exceeding 5.0x. Although AFE's leverage might improve over time
thanks to increased investments and collections, there remains an
uncertainty on the collection performance and valuation of AFE's
assets over the next year.
"The negative outlook indicates that we will lower our issuer
credit rating on the company to 'SD' (selective default) and on its
SSNs to 'D' (default), upon completion and implementation of the
proposed transaction."
SK NEPTUNE: S&P Lowers LT ICR to 'D' on Forbearance Agreement
-------------------------------------------------------------
S&P Global Ratings lowered its long-term issuer credit rating on
Heubach's parent, SK Neptune Husky Intermediate IV S.a.r.l., to 'D'
(default) from 'CCC+'.
S&P said, "At the same time, we lowered our issue ratings on
Heubach's $610 million term loan B due in 2029 and its RCF to 'D'
from 'CCC+'. The '3' recovery ratings are unchanged, indicating our
expectation of meaningful (50%-70%; rounded estimate: 60%)
recovery."
On Dec. 14, 2023, Luxembourg-based pigments manufacturer Heubach
announced that it had entered into a forbearance agreement with its
term loan and revolving credit facility (RCF) lenders in
anticipation of missing the fourth-quarter interest payments. The
agreement provides relief until April 30, 2024.
S&P understands that Heubach will miss the interest payments due on
Dec. 31, 2023, and March 30, 2024.
S&P said, "The downgrade reflects Heubach's decision to seek
forbearance on interest payments on its term loan and RCF ahead of
the Dec. 31, 2023, due date. Under the forbearance agreement dated
Dec. 14, 2023, the term loan and RCF lenders agreed to not exercise
or enforce certain remedies relating to this nonpayment until April
30, 2024. In our view, this represents a default on the term loan
and RCF because Heubach will not meet its contractual obligation to
pay interest in a timely manner.
"We understand that Heubach's decision to seek forbearance and miss
the payments was the result of a continued weak operating
performance due to challenging economic conditions and high
exceptional costs from its acquisition of a majority stake in
Clariant AG's pigments business. This resulted in weak cash flow
and depleting liquidity. In addition, the company is subject to a
springing financial covenant stipulating leverage of 6.3x, tested
when drawings on the RCF exceed 35%. Heubach would have breached
this covenant, had it been tested, further exacerbating the
liquidity pressure. Heubach had drawn 34.4% of its RCF as of Sept.
30, 2023."
=====================
N E T H E R L A N D S
=====================
BALKANS REAL: Fitch Affirms 'BB(EXP)' LongTerm IDR, Outlook Stable
------------------------------------------------------------------
Fitch Ratings has affirmed Balkans Real Estate B.V.'s (BRE)
expected Long-Term Issuer Default Rating (IDR) at 'BB(EXP)' with a
Stable Outlook. Fitch has also affirmed BRE's planned bond expected
'BB(EXP)' senior unsecured rating, which has a Recovery Rating of
'RR4'.
BRE's ratings are constrained by the group's concentration on 12
office and retail assets, located in Belgrade, Serbia, limiting
asset and geographical diversification. A short weighted average
remaining lease length (WALL) and substantial lease expires in 2024
and 2025 expose BRE to re-letting risk. However, its portfolio
quality and strong position in an under-supplied Belgrade office
market should enable BRE to maintain high occupancy with rents at
comparable levels.
The assignment of a final IDR is contingent on BreAtt B.V. (a joint
venture (JV) between BRE and Atterbury Europe, a property
investment company) guaranteeing a substantial portion of BRE's
planned unsecured debt, formalising cash flows from BreAtt B.V.to
BRE and reducing the risk of currently segregated secured funding
affecting cash circulation within the group. The assignment of a
final unsecured rating on the planned bond is contingent on final
documentation conforming to information already received.
KEY RATING DRIVERS
CPI Rent Uplifts: Indexation applied by BRE to January 2023
invoices was on average 6.9% for retail tenants and 7.2% for office
tenants, broadly reflecting the euro zone CPI for 2022 as
referenced in most of BRE's lease contracts. The indexation was
lower than inflation in Serbia (11.9% on average in 2022, Fitch
forecast of 12.6% in 2023). Higher local inflation, growing
footfall and a stable euro-to-dinar exchange rate have helped
retail tenants absorb the rent increase.
Decreasing unemployment and increased real wages should lift retail
tenants' revenues in 2024. This, and lower euro zone inflation
estimated for 2023 (Fitch forecast: 2.9%), will limit the risk of
indexation in January 2024 making retail rents unaffordable. Office
tenants are less sensitive to this increase in occupancy costs.
TLD Office Acquisition: In July 2023 BRE acquired Tri Lista Duvana
(TLD), an office building with gross leasable area (GLA) of over
8,000 sqm, prominently located in the Belgrade city centre, facing
the Serbian National Assembly. TLD was developed (completion in
2022) by a party within the wider Centurion Venture Capital B.V.
(CVC) group, outside the BRE consolidation perimeter. The
acquisition was effectively settled as a non-cash transaction,
including repayment of inter-company loans provided by BRE. TLD's
value of EUR24.2 million was confirmed by a third-party valuation.
TLD is over 97% leased and generates around EUR1.5 million rent per
year.
Small, Quality Portfolio: Besides TLD, BRE owns four other quality
office assets located in the New Belgrade district, including the
landmark Usce Towers. The office portfolio was valued at EUR200
million (30% of total value) and at end-3Q23 had vacancy of 5%, in
line with the market vacancy of A-class office space in Belgrade.
This, together with retail assets (EUR480 million, 70% of total
value), results in a total portfolio value of EUR0.7 billion (at
100%).
Strong Core Retail Portfolio: BRE's four shopping centres (SCs),
with GLA of 23,000 sqm-46,000 sqm and market value of around EUR50
million-EUR160 million have a strong position in the Belgrade SC
market. The assets have low vacancy (around 4%), except at Usce SC,
which is due to pending redevelopment. The occupancy costs ratio
(OCR, rents + service charges divided by tenants' store sales) are
affordable at around 13% for bigger SCs (Usce, BEO and Delta City)
and 9% for Mercator, which has a higher share (41%) of lower-margin
fast-moving capital good (FMCG) retailers in its GLA.
Short WALL: At end-June 2023, BRE's portfolio had a WALL to
earliest-break of 2.8 years, but it would be closer to 2.2 years if
the long-term (almost nine years remaining) lease with Microsoft is
excluded. Microsoft, which leases the Usce Tower II for its
research and development centre, is BRE's top tenant (9% of total
rent) and among the group's top 10 tenants generating 30% of rent.
BRE's short WALL reflects almost 30% of its rents expiring (or
having break option) in 2024 and 2025. Fitch expects that the
attractiveness of BRE's assets will ensure successful replacement
and retention of tenants, including, for example, Inditex (5% of
rent) or Fashion Company (3%) from the current top 10 list, with
limited impact on passing rents.
Decreasing Leverage: Fitch forecasts BRE's 2023 net debt/EBITDA to
decrease to 6.0x (2022: 7.3x), aided by rent indexation, limited
capex and dividends. The rent indexation increase, albeit lower
than in 2023, and continued low dividends in 2024-2026 will help
reduce net leverage further to 5.3x. Capex for Usce and Beo SCs
redevelopment (EUR25 million in 2024-2025) will largely be offset
by proceeds from the disposal of BRE's remaining two non-core
retail properties. BRE's existing debt is around 70% interest
rate-hedged or fixed-rate, which would increase after the planned
fixed-rate bond. Assuming an average cost of debt increasing to
6.5%, EBITDA interest coverage will be above 2x for 2023-2026.
Governance Structure Limitations: BRE is owned by CVC, a holdco
that also owns shares in a FMCG distribution company in Serbia.
Confluence Property Management, a property management business
previously owned by CVC and managing mainly BRE assets, was merged
into BRE in 2022. CVC is ultimately owned by Petar Matic. The
private ownership means financial disclosure and corporate
governance are not comparable with listed companies'. The
concentrated ownership and lack of independent directors on BRE's
board means that processes and the arm's length nature of
related-party transactions do not have independent oversight.
DERIVATION SUMMARY
BRE's small EUR0.7 billion (at 100% of total value), Serbian
(sovereign rating: BB+/Stable) property portfolio is concentrated
on a limited number of retail and office assets and has the highest
country risk exposure among central and eastern European (CEE)
Fitch-rated peers. BRE's limited asset and geographical
concentration is similar to the retail-focused EUR1 billion
portfolio of AKROPOLIS GROUP, UAB (BB+/Stable). Nevertheless,
Akropolis's country risk exposure is materially lower as its assets
are in Lithuania (A/Stable) and Latvia (A-/Positive), both EU and
eurozone members. MAS plc's (BB/Stable) core EUR0.9 billion CEE
portfolio is located predominantly (75% of net rent) in Romania
(BBB-/Stable) but has slightly lower asset concentration.
The portfolios of NEPI Rockcastle N.V. (BBB+/Stable), valued at
EUR6.4 billion, Globalworth Real Estate Investments Limited
(BBB-/Negative) at EUR2.8 billion, and Globe Trade Centre S.A.
(GTC, BB+/Stable) at EUR2.0 billion are bigger and more
diversified. However only GTC shares BRE's asset class
diversification between retail (64% of market value) and offices
(36%).
BRE's loan-to-value (LTV) of around 53%, combined with the
high-yielding nature of Serbian-located assets, results in net
debt/EBITDA at below 6x. This is similar to NEPI's leverage, but
NEPI assets are lower-yielding (net initial yield of 7.0%).
Akropolis's financial profile is more conservative with net
debt/EBITDA forecast at less than 4.5x until 2026. Akropolis has a
net initial yield estimated at around 7% and LTV of below 35%. The
financial profiles of Globalworth and GTC are weaker.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Like-for-like net rent increases of 10% in 2023, mostly due to
inflation-linked rent indexation. Stable rents in 2024-2026,
reflecting lower indexation and some rent decreases at renewals
- Stable occupancy rate at around 96% to 2026
- Over EUR30 million of disposal proceeds until end-2025
- Around EUR55 million of total capex (including maintenance capex)
until end-2026
- On average EUR7 million dividends per year paid to CVC (EUR5
million) and Atterbury Europe (EUR2 million)
- Planned unsecured bond at 7.25% fixed coupon
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Expansion of the portfolio in higher-rated countries creating
meaningful diversification, within the financial profile detailed
below, and maintaining portfolio quality
- Unencumbered assets/unsecured debt cover above 1.75x
- Net debt/EBITDA below 7.0x
- EBITDA interest cover above 1.5x
- Improved corporate governance
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Net debt/EBITDA above 8.0x and LTV trending above 60%
- EBITDA interest cover below 1.2x
- Unencumbered assets/unsecured debt cover below 1.25x
- Liquidity score below 1.0x
- Transactions with related-parties detrimental to BRE's interests
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: At end-1H23, BRE had EUR29 million of readily
available cash, excluding EUR10 million of cash held on its secured
loans' related reserve accounts. Debt maturities in the next 12
months of EUR23 million consist of secured bank loan amortisations.
These will be covered by the cash flow generated by BRE assets. BRE
does not use committed revolving credit facilities as a contingent
source of liquidity.
BRE assets, except for a small retail property, are funded with
secured debt, leaving no meaningful unencumbered investment
properties in its asset pool. Proceeds from the planned bond are
expected to allow the group to repay the majority of existing
secured loans, resulting in an unencumbered investment property
assets/unsecured debt of 1.7x.
ESG CONSIDERATIONS
BRE has an ESG Relevance Score of '4' for Governance Structure due
to the lack of corporate governance attributes that would both
mitigate key person risk from the sole shareholder Petar Matic and
ensure independent oversight of related-party transactions. This
has a negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Balkans Real
Estate B.V. LT IDR BB(EXP) Affirmed BB(EXP)
senior
unsecured LT BB(EXP) Affirmed RR4 BB(EXP)
BRIGHT BIDCO: RiverNorth Marks $190,900 Loan at 60% Off
-------------------------------------------------------
The RiverNorth Funds has marked its $190,909 loan extended to
Bright Bidco BV to market at $77,318 or 40% of the outstanding
amount, as of September 30, 2023, according to a disclosure
contained in RiverNorth's Form N-CSR for the Fiscal Year ended
September 30, 2023, filed with the Securities and Exchange
Commission.
RiverNorth is a participant in a First Lien Loan (3M SOFR + 9.00%,
1.00% Floor) to Bright Bidco BV. The loan matures on October 31,
2027.
The RiverNorth Funds was established under the laws of Ohio by an
Agreement and Declaration of Trust dated July 18, 2006. The Trust
is an open-end management investment company registered under the
Investment Company Act of 1940, as amended.
Amsterdam, The Netherlands-based Bright Bidco B.V. designs and
manufactures discrete semiconductor devices and circuits for light
emitting diodes (LEDs).
===========================
U N I T E D K I N G D O M
===========================
FARFETCH LTD: S&P Downgrades LT ICR to 'CC', Outlook Negative
-------------------------------------------------------------
S&P Global Ratings lowered its long-term issuer credit rating on
Farfetch Ltd. to 'CC' from 'CCC+'. S&P also lowered its issue
rating on the term loan to 'CCC-' from 'CCC+' and placed it on
CreditWatch developing to reflect the uncertainty on the timely
completion and implications of the sale. The '3' (50%) recovery
rating on this debt is unchanged.
The negative outlook on the long-term issuer credit rating reflects
S&P's opinion of the virtual certainty that Farfetch Ltd. will
default on its convertible notes (not rated) in the next few
months.
Farfetch Holdings PLC (Farfetch Holdings), an intermediary holding
company owned by Farfetch Ltd., has announced its intention to sell
Farfetch businesses via an English-law pre-pack administration
process to Athena Topco LP, a holding company owned by Coupang
Inc., and funds managed or advised by Greenoaks Capital Partners
LLC, and subsequently to delist and liquidate Farfetch Ltd.
Athena Topco will acquire Farfetch businesses after making a $500
million bridge loan available to reduce the immediate acute
liquidity needs the company is facing. On Dec. 18, 2023, Farfetch
announced an agreement with Athena Topco, an entity owned by
Coupang Inc., and Greenoaks Capital Partners, for Farfetch Holdings
to sell 100% of its businesses and assets. The agreement is subject
to regulatory approvals and completion of an independent sale
process. The acquirer has offered a $500 million committed
first-lien, delayed-draw term bridge loan facility available
Farfetch Holdings and certain direct and/or indirect subsidiaries
to meet the short-term liquidity needs of the group, which will be
converted into equity when the transaction closes. The group
expects to close the sale by April 30, 2024, during the exclusivity
period, having received regulatory approvals.
The issuer of convertible notes, Farfetch Ltd., will be delisted in
January 2024 and liquidated upon the completion of the sale. In
addition, the group announced that, upon completion of the sale,
the convertible note holders will not recover any of their
outstanding investments. S&P, therefore, considers the default of
Farfetch Ltd. on its convertible notes to be a virtual certainty,
expected in first-half 2024, upon the completion of the sale.
However, the group plans to continue to service its debt under the
existing term loan agreement and the lenders of the credit
agreement have agreed to forbear several events of default to allow
the sale. S&P said, "We understand that the credit agreement with
term loan lenders has been amended to allow for the sale to occur
without triggering events of defaults during the exclusivity
period, which runs until April 30, 2024. As per management's
representations, under the terms of the transaction support and the
bridge facility agreements, if the transaction is completed under
the outlined timeframe and announced terms and conditions, Farfetch
Holdings and its subsidiaries would not default under the term loan
agreement. In such a scenario, depending on operating performance,
capital structure, liquidity, and other factors after closing, we
could consider raising the rating on the term loans. However, if
the sale is not completed at all or on time, or if the conditions
materially differ from those announced, we view the potential risk
of default for the term loan as inevitable within the next six
months, absent unanticipated significantly favorable changes in the
issuer's circumstances."
S&P said, "The negative outlook reflects that we are likely to
lower our long-term issuer credit rating on Farfetch Ltd. to 'SD'
(selective default) in the next few months, following the closing
of the sale and the nonpayment of the financial obligations related
to the convertible notes.
"We would lower the rating on Farfetch Ltd. to 'SD' if the company
defaults on the convertible notes and continues to service its term
loan. We would typically lower the rating of Farfetch Ltd. to 'D'
(default) if the company defaults on all its obligations or files
for insolvency."
Rating upside is unlikely at this stage and would involve
unforeseen favorable circumstances.
S&P said, "The CreditWatch developing on the $600 million senior
secured term loan, which we also downgraded to 'CCC-' from 'CCC+',
reflects the uncertainty regarding the closing and final conditions
of the sale transaction and the creditworthiness of the surviving
business. Rating upside would depend on the outcome of the sale
transaction and its implications for the term loans. Rating
downside would likely occur if the announced transaction does not
close as expected. We expect to review the ratings in the coming
weeks and months as more information becomes available regarding
the outcome of the sale transaction and of the group's
creditworthiness."
KEMBLE WATER: Fitch Lowers Rating on Senior Secured Debt to 'CCC'
-----------------------------------------------------------------
Fitch Ratings has downgraded holding company Kemble Water Finance
Limited's Long-Term Issuer Default Rating (IDR) and senior secured
debt rating to 'CCC' from 'B'. The Recovery Rating remains 'RR4'.
The downgrade mainly reflects that Kemble will have to engage with
syndicated banks to amend and extend (A&E) the GBP190 million loan
due April 2024 under terms that could be viewed as a distressed
debt exchange (DDE), under its criteria.
The downgrade also reflects rising liquidity pressure due to
increased regulatory and political scrutiny of the dividend
distribution from Thames Water Utilities Limited (TWUL) to Kemble.
There is limited visibility of the liquidity position beyond
end-March 2024 (FY24).
Fitch also sees material challenges beyond the next few months,
since the equity contributions from shareholders in the five-year
price control period ending March 2025 (AMP7) at the TWUL level
remain conditional and there is currently limited visibility on
regulatory development and further shareholder support in the next
five-year price control period ending March 2030 (AMP8). A strong
operational turnaround at TWUL would be needed to improve
profitability and the prospects for future dividend distribution to
Kemble.
KEY RATING DRIVERS
Refinancing Risk: Kemble has to refinance a GBP190 million loan due
in April 2024. In the parliamentary committee in December 2024,
management confirmed its plans to proceed with an A&E of the loan.
The A&E could be viewed as a DDE under its criteria, a key
consideration for the negative rating action.
Liquidity Under Pressure: Increasing regulatory scrutiny from the
UK water regulatory authority (Ofwat) on the dividend distribution
to Kemble from TWUL increases the risk to Kemble's primary source
of cash flows for debt service. This materially weakens debt market
access for the holding company, in its view.
With Kemble's cash balance estimated at about GBP20 million as of
the end of November 2023, dividends from TWUL become even more
critical. Fitch notes that TWUL's latest decision to distribute
dividends (paid usually every six-months) of GBP37.5 million in
October 2023 has been subject to an information request from Ofwat.
Kemble's annual interest burden stands at around GBP80
million-GBP85 million in FY24. Fitch does not forecast covenant
cash-lock up at TWUL in the remainder of AMP7; however, risk of
regulatory cash-lock up is increasing, in its view.
Limited Relief from Committed Line: In a scenario of insufficient
dividend receipts to cover interest expenses at Kemble, the GBP150
million working capital facility could be used for Kemble debt
service to secured creditors. Nonetheless, Fitch believes the use
of the committed working capital facility would be seen by existing
and potential lenders as a last resort to avoid a payment default
of servicing Kemble interest.
Conditional Equity Support Fundamental: Fitch believes shareholder
support at TWUL mainly depends on progress on the refocused
turnaround plan (approved by TWUL's board in November 2023),
together with appropriate risk-and-return balance for AMP8 (Draft
Determination due in May/June 2024, final regulatory outcome in
December 2024). Fitch sees the execution and timing of the
uncommitted equity of GBP750 million in AMP7 as uncertain. In
addition, management has guided for a further GBP2.5 billion of
conditional shareholder equity support during AMP8.
Covenant Forecasts Include Equity: Fitch expects both TWUL and
Kemble to comply with their financial covenants in the remainder of
AMP7. For the purposes of covenant calculation, management deems it
reasonable to include GBP500 million and GBP250 million of
additional equity receipts at TWUL in FY24, and FY25, respectively.
The closing net debt/Regulatory Capital Value (RCV) at Kemble (on a
covenant basis) was 86.4% at end September 2023 compared with an
event of default of 95%.
TWUL Lock-up a Key Risk: TWUL's risk of regulatory cash lock-up
will increase from April 2025, since the revised licence condition
will include a monitored credit rating falling to 'BBB'/Negative or
below (vs. current condition being at 'BBB-'/Negative or below).
A lock-up event would be followed by a three-month grace period
before enforcement, subject to Ofwat's review of financial
resilience. Application, exemption, or extension of the grace
period are three possible outcomes of Ofwat's review.
Refocused Turnaround Plan: Fitch sees execution risk around TWUL's
refocused turnaround plan, which now prioritises a lower number of
initiatives. The plan, under the leadership of the new CEO starting
in January 2024, aims to strengthen the company's performance in
key areas like pollution, leakage, supply interruptions and water
quality. Successful delivery of the plan is fundamental to
mitigating the impact of higher operating and financing costs and
tightening regulation, improving TWUL's creditworthiness and
ultimately the dividends stream to Kemble in the medium to long
term.
Standalone Assessment under PSL: Fitch rates Kemble on a standalone
basis using the stronger subsidiary/weaker parent approach under
its Parent and Subsidiary Linkage (PSL) Rating Criteria. This
assessment reflects 'insulated' legal ring-fencing as underlined by
a well-defined contractual framework, and tight financial controls
imposed by Ofwat and designed to support TWUL's financial profile.
Fitch views access and control as overall 'porous' as TWUL operates
with separate cash management and a mixture of external and
intercompany funding.
DERIVATION SUMMARY
Kemble's 'CCC' IDR is weaker than its peer Osprey Acquisitions
Limited (OAL; IDR BB+/Stable; senior secured BBB-), the
intermediate holding company for Anglian Water Services Limited
(AWS). Anglian Water Services Financing Plc's (AWSF) senior secured
debt rating is 'A-'/Stable. AWSF is AWS's debt financing vehicle.
OAL's higher rating reflects its stronger liquidity, lower gearing,
higher dividend cover capacity and stronger regulatory performance
of the underlying operating companies.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Ofwat's final determinations financial model used as main
information source
- Allowed wholesale weighted average cost of capital of 1.92%
(RPI-based) and 2.92% (CPIH-based) in real terms, excluding retail
margins
- RPI of 8% for FY24 and 3.9% for FY25
- CPIH of 6% in FY24 and 2.8% in FY25
- Fitch case assumes totex underperformance of about GBP2 billion
across AMP7 with 70% from capex and remaining 30% from operating
expenditure
- Net nominal cash outcome delivery incentive penalties of around
GBP180 million for AMP7
- Equity injections from Kemble to TWUL of GBP750 million in
2024-2025
- Fitch case assumes no external dividends
- No-cash lock up, and a continuation of dividend stream from TWUL
to service debt at Kemble
RECOVERY ANALYSIS
Kemble's recovery analysis is based on a going-concern approach
- RCV would be fully recoverable at default, with a 10%
liquidation-value administrative claim, reflecting the negative
mark-to-market value on index-linked swaps
- Default at Kemble due to the dividend lock-up at TWUL (85% net
debt to RCV)
- Kemble's net debt to RCV assumed at about 10%, including a full
draw-down of its liquidity facility
- Its waterfall analysis output percentage on current metrics and
assumptions is 50%, corresponding to 'RR4' for senior secured debt
RATING SENSITIVITIES
Factors that could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Addressing the short-term refinancing risk
- Evidence of timely equity support
- Increasing dividends distributions from TWUL, comfortably
covering Kemble's debt service on a sustained basis, allowing for
gradual cash increase at Kemble's level
- Evidence of material operating performance improvement at the
TWUL level
Factors that could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- Ongoing pressure on liquidity and slow progress with debt
refinancing
- Failure to provide timely equity support
- Indication of debt restructuring on terms that would constitute a
DDE based on Fitch's definition
- A cash-lock at TWUL, or TWUL's inability to distribute dividends
at least sufficient to cover Kemble's debt service
LIQUIDITY AND DEBT STRUCTURE
Insufficient Liquidity: Liquidity is insufficient to cover
short-term debt maturities, which are related to a GBP190 million
syndicated loan maturity due 30 April 2024. FY25 does not have any
further debt maturities, and the next are due in FY26 for about
GBP510 million between July-December 2025. Fitch has low visibility
of dividends from TWUL being sufficient to cover interest payments
at Kemble level.
As at end-FY23, Kemble held about GBP45 million (excluding TWUL's
cash balance) of unrestricted cash and cash equivalents and undrawn
committed working capital facility of GBP150 million expiring
November 2027, sized to cover 18 months of interest payments.
Kemble's documentation requires it to maintain on a reasonable
endeavour basis liquidity sized for 12 months of interest
payments.
ISSUER PROFILE
Kemble is the holding company of TWUL, the largest of
Ofwat-regulated, regional monopoly provider of water and wastewater
services in England and Wales, based on its RCV of about GBP18.9
billion as of end-FY23. TWUL provides water and wastewater services
to over 15 million customers across London and the Thames Valley.
SUMMARY OF FINANCIAL ADJUSTMENTS
- Statutory cash interest reconciled with investor reports
- Statutory total debt reconciled with investor reports
- Capex and EBITDA net of grants and contributions
- Cash Post Maintenance Interest Cover Ratios (PMICRs) adjusted to
include 50% of the accretion charge on index-linked swaps with
five-year pay-down, and 100% of the accretion charge on
indexed-linked swaps with less than five-year pay-down
ESG CONSIDERATIONS
Kemble has an ESG Relevance Score of '4' for customer welfare -
fair messaging, privacy & data security due to large penalties
expected for the customer service performance measure in AMP7. This
has a negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
Kemble has an ESG Relevance Score of '4' for group structure due to
its debt being contractually and structurally subordinated to TWUL,
which has a negative impact on the credit profile, and is relevant
to the ratings in conjunction with other factors.
Kemble has an ESG Relevance Score of '4' for exposure to
environmental impacts due to the impact severe weather events could
have on its operational performance and financial profile. These
include colder winters, heavy rainfalls and extreme heat during
summers that cause higher leakage and mains bursts, as well as
higher internal sewer flooding and pollution incidents. Although
severe weather events are unpredictable in nature, they have the
potential to significantly increase operating costs and lead to
additional outcome delivery incentives (ODI) penalties, which haves
a negative impact on the credit profile, and are relevant to the
ratings in conjunction with other factors.
Kemble has an ESG Relevance Score of '4' for water & wastewater
management due to TWUL's significantly weaker-than-sector average
operational performance and sizeable penalties under AMP7. This has
a negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Thames Water (Kemble)
Finance Plc
senior secured LT CCC Downgrade RR4 B
Kemble Water Finance
Limited LT IDR CCC Downgrade B
senior secured LT CCC Downgrade RR4 B
ROB CROSS DARTS: Enters Liquidation, Owes GBP579,000 in Taxes
-------------------------------------------------------------
David Marchant at Offshore Alert reports that Rob Cross Darts Ltd.,
a British company owned by 2018 PDC World Darts Champion Rob Cross,
who is currently in the semi-finals of this year's ongoing
tournament, has gone into liquidation with an estimated deficiency
of GBP579,807, most of which is owed in taxes.
Mr. Cross is the firm's biggest debtor, owing GBP423,608 that was
loaned to him.
SELFRIDGES: Seeks Cash Injection from Thai Co-Owner
---------------------------------------------------
Libby Cherry and Lucca de Paoli at Bloomberg Law report that the
company that owns the iconic Selfridges department store on
London's Oxford Street is asking its parent Central Group for more
cash due to the insolvency of its other owner Signa.
According to Bloomberg Law, Cambridge Properties Holding Limited is
in discussions with the Thai group for future financing to meet
upcoming debt payments, according to accounts filed last week. The
co-owner Signa Prime Selection AG applied for insolvency on Dec.
28, Bloomberg Law relates.
"Discussions are not yet finalized, and significant uncertainty
therefore exists in relation to the financial support that the
group will require," Bloomberg Law quotes the filing as saying.
[*] UK: Almost 30,000 Businesses Likely to Collapse Next Year
-------------------------------------------------------------
Shawn Johnson at BusinessNews reports that the new findings warn
that almost 30,000 businesses will go bankrupt next year, with the
vast majority being small companies.
According to BusinessNews, PwC experts claim there will be a
"significant" increase in businesses collapsing, with companies in
the hotels and catering, manufacturing, and transport and storage
sectors likely to suffer the most.
The findings said the impact of high energy prices, sluggish
economic growth and high interest rates is likely to hit again next
year, BusinessNews relates.
"There are also likely to be a lot of zombie businesses, namely
those that have been riding the wave of chronically low interest
rates, which may face difficulties. Well," BusinessNews quotes
Barrett Kupelian, chief economist at PwC, as saying.
PwC also suggests that despite a decline in headline inflation,
consumer prices will remain high in 2024, BusinessNews notes.
It added: Consumer prices will still be about a quarter higher than
at the start of 2021. "Consumers will therefore continue to
readjust their spending based on their priorities and
preferences."
[*] UK: More Big Firms Expected to Go Bust in 2024, Experts Warn
----------------------------------------------------------------
Henry Saker-Clark at The Scotsman reports that more big firms are
likely to go bust in the year ahead amid the "double whammy" of
high borrowing costs and pressure on consumer budgets, according to
insolvency experts.
According to The Scotsman, administrators and restructuring
specialists also warned that high-growth companies such as tech
firms could be among those facing financial turbulence. It comes
after another year of tough economic conditions resulted in
increased business failures during 2023, The Scotsman notes.
Official figures from the Insolvency Service recently showed the
total of company failures over the first 11 months of 2023 was more
than reported during the entirety of 2022, The Scotsman discloses.
PwC's head of insolvency David Kelly said both the construction
sector and business services industries each saw almost a fifth of
total insolvencies, The Scotsman relates. He said he therefore
expects these areas to "remain the hardest hit in 2024".
Hospitality and retail have also contributed to business failures
as they have been impacted by higher energy prices, pressure on
consumer finances and borrowing costs, The Scotsman states. Around
17% of all insolvencies have come from the hospitality sector and
14% have come from retailers, The Scotsman relays. This included
high-profile failures such as the administration of Wilko, which
had operated 400 shops and employed more than 12,000 workers,
according to The Scotsman. Paperchase, Planet Organic and Le Pain
Quotidien were also among those to enter insolvency during 2023,
The Scotsman recounts.
Rob Hornby, partner and managing director of AlixPartners, said he
expects company insolvencies to continue apace in 2024, The
Scotsman relates.
"We are expecting next year to be a big year for insolvency," The
Scotsman quotes Mr. Hornby as saying. "That is likely to be across
the board, both in terms of geographies and sectors."
The director at the restructuring and advisory specialist said
typically high-growth areas, such as technology, could see
turbulence as financing comes under increased pressure.
Hornby and Richard Fleming, managing director and head of
restructuring for Europe at Alvarez & Marsal, both said they
expected more firms to use restructuring plans this year in an
effort to avoid full administrations, The Scotsman notes.
Nevertheless, Mr. Fleming, as cited by The Scotsman, said there was
potential for some large failures in the year ahead as those with
large debt burdens face particular pressure due to high interest
rates.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
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Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
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