/raid1/www/Hosts/bankrupt/TCREUR_Public/240126.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Friday, January 26, 2024, Vol. 25, No. 20
Headlines
C Y P R U S
G CITY EUROPE: Moody's Cuts CFR to B2 & Alters Outlook to Negative
F R A N C E
LUNE HOLDINGS: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
G E O R G I A
GEORGIA: Fitch Affirms 'BB' Foreign Currency IDR, Outlook Positive
G R E E C E
PIRAEUS FINANCIAL: Fitch Assigns 'B' Rating on Sub. Tier 2 Notes
I R E L A N D
BLACK DIAMOND 2015-1: Moody's Hikes Rating on Class F Notes to Ba1
CAIRN CLO XVI: S&P Assigns Prelim B-(sf) Rating on Cl. F Notes
I T A L Y
BPER BANCA: Fitch Assigns B+ Rating on EUR500MM Jr. Sub. Notes
M O N T E N E G R O
VEKTRA JAKIC: Montenegrin Court Names New Bankruptcy Receiver
R O M A N I A
ROMAERO: Enters Insolvency, Experta Named Judicial Administrator
T U R K E Y
TURK EKONOMI: Fitch Assigns CCC+ Final Rating on Subordinated Notes
ULKER BISKUVI: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
U N I T E D K I N G D O M
ARGUS MEDIA: S&P Affirms 'B+' Issuer Credit Rating, Outlook Stable
ARRIVAL: On Brink of Insolvency, Seeks Rescue Funding
JUPITER MORTGAGE 1: Fitch Assigns CCC Rating on Class X Notes
KENHAM BUILDING: Cash Flow Problems Prompt Administration
NRI CIVILS: Owed Suppliers GBP4.8 Mil. at Time of Collapse
TRINITY SQUARE 2021-1: Fitch Affirms 'CCC' Rating on Class H Debt
[*] UK: Scottish Firms in Critical Financial Distress Up 25.9%
X X X X X X X X
[*] BOOK REVIEW: The Titans of Takeover
- - - - -
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C Y P R U S
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G CITY EUROPE: Moody's Cuts CFR to B2 & Alters Outlook to Negative
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Moody's Investors Service has downgraded to B2 from B1 the
long-term corporate family rating and senior unsecured bond ratings
of G City Europe Limited ("G City Europe" or "the company",
formerly known as Atrium European Real Estate Limited).
Concurrently, it has downgraded the ratings on G City Europe's
subordinate notes to Caa1 from B3 and downgraded Atrium Finance
PLC's (Atrium) backed senior unsecured euro medium term notes to B2
from B1. The outlook on both entities has been changed to negative
from stable.
RATINGS RATIONALE
RATIONALE FOR THE RATING OUTLOOK
The downgrade results from a combination of factors that resulted
in a weaker credit profile of G City Europe. Governance concerns
have increased that weaken the credit quality of G City Europe due
to the financial integration into G City Ltd. ("parent"), paired
with upcoming refinancing needs in a continued challenging
operating environment for real estate companies in Europe in
particular when executing asset disposals.
Based on the existing asset base and ongoing refinancing activities
at moderate LTV's, G City Europe relies on disposals next to
secured loans to support a refinancing of the 2025 bonds, its
hybrids and Atrium's 2027 bonds, as long as capital market access
is uncertain or too expensive. At the same time, given recent and
expected disposal success, there is a growing risk that G City
Europe will be a key source of funds to cover shorter term
liquidity needs at its parent level, as evidenced by the repurchase
of bonds held by and payback of debt to the parent next to the
granting of secured guarantees for parental debt. Moody's considers
G City Europe's ownership structure and its parent's liquidity and
credit position to weaken its credit quality. Moody's will
increasingly consider the parent's credit quality in assessing G
City Europe's ratings.
The negative outlook reflects increasing refinancing risk with a
shrinking unencumbered asset base as well as uncertainty around a
use of proceeds if disposals were successful. These challenges
outweigh G City Europe's disposal success and continued efforts
alongside a good performing asset pool, which will facilitate both
earnings growth as well as investor and bank funding appetite.
While Moody's expect continued generation of cash through disposals
and asset encumbrance, cash leakage to the parent remains a
concern.
LIQUIDITY
G City Europe's current liquidity position is sufficient until
September 2025, but is weak considering the upcoming bond maturity.
The company has limited liquidity needs from capital spending that
Moody's estimate at about EUR40 million annually until the larger
September 2025 maturity (EUR344 million as of November 28, 2023,
EUR381 million as per Q3 2023 reporting). Funding for the bond
maturity is not yet secured and will have to stem from disposals
and secured funding next to EUR30 million cash on balance sheet as
of Q3 2023. The company received a secured EUR125 million on its
Promenada center during Q4 2023, the most valuable asset in its
asset base. Furthermore G City Europe has designated both the
Pakrac and Flora as assets held for sale, with a total net assets
of EUR260 million post secured debt on the assets. The company has
access to a EUR350 million shareholder facility, which Moody's do
not consider a third party liquidity source given the parents' own
rolling liquidity needs.
STRUCTURAL CONSIDERATIONS
The Caa1 rating on the subordinated hybrid notes issued by G City
Europe reflects the deeply subordinated nature of the hybrid notes.
The subordinated hybrid notes no longer qualify equity treatment
under Moody's Hybrid Equity Credit methodology after the downgrade
of G City Europe to a non-investment-grade company. The first reset
date for the subordinate hybrid notes is in 2026. Moreover, G City
Europe has access to a subordinated facility from G City Ltd.,
maturing in 2026.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Factors that could lead to an upgrade:
-- Substantially reduced refinancing exposure at parent level, and
visibility of shareholder support to G City Europe if need be
-- Disposals resulting in material deleveraging of the company and
providing for a stabilised fixed charge cover above 1.6x
considering higher refinancing cost and hybrid reset in the future
-- Tangible early refinancing of future debt maturities
-- Moody's-adjusted debt/total asset drops below 60%
Factors that could lead to a downgrade:
-- Failure to dispose further assets and provide for refinancing
well ahead of the 2025 maturity, resulting in tighter liquidity
-- Further material cash payments to the parent entity or a
deterioration of credit quality of G City Ltd.
-- Operational weakness in the company's retail assets
-- A persistent deterioration of the local currency against the
euro
-- Moody's-adjusted debt/total asset deteriorates to 65%
-- Moody's-adjusted fixed charge cover drops below 1.4x
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was REITs and Other
Commercial Real Estate Firms published in September 2022.
PROFILE
G City Europe owns a EUR2 billion portfolio of 12 shopping centres
and 2 residential multifamily assets plus EUR270 million of
development and land assets as of September 2023. The company
generated gross rental income of EUR80 million during the first 9
months of 2023. The company is focused on the more stable CEE
countries of Poland (A2 stable) and the Czech Republic (Aa3
stable), while the assets in the Czech Republic are held for sale.
G City Europe is a private subsidiary of G City Ltd., an
Israel-listed property company.
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F R A N C E
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LUNE HOLDINGS: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
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Fitch Ratings has affirmed Lune Holdings S.a r.l.'s (Kem One)
Long-Term Issuer Default Rating (IDR) at 'B' with a Stable Outlook
and its senior secured rating at 'B'. The Recovery Rating is
'RR4'.
Fitch anticipates a drop in Kem One's EBITDA and a deterioration in
leverage in 2023-2024 due to weak chemicals industry dynamics, but
the rating affirmation is supported by the forecasted deleveraging
in the subsequent years. Fitch expects Kem One to implement its
capex plan scheduled until 2025 supported by strong liquidity
generated in 2021-2022. The rating reflects Kem One's position as
the second-largest polyvinyl chloride (PVC) manufacturer in western
Europe and reduced supplier dependency due to its new ethylene
import terminal.
The ratings also reflect Kem One's concentrated business profile as
a regional integrated producer of polyvinyl chloride (PVC) with a
significant exposure to the construction sector and input-price
volatility, as well as its vulnerability to production issues and
moderate scale.
KEY RATING DRIVERS
Growing PVC Imports Hurting Margins: Kem One faced decreasing
prices in 2023 amidst growing PVC imports from countries with lower
production cost such as the U.S. The European Commission announced
an antidumping investigation into US and Egyptian PVC exports in
November 2023. As demonstrated in the polyethylene terephthalate
(PET) and monoethylene glycol markets, potential imposition of
antidumping duties could deter the import volume and stabilise the
market.
Utilisation Rates Remain Low: Kem One's utilisation rate remained
low in 2023, and Fitch expects production to remain constrained in
2024 due to the ongoing inflow of low-cost products from foreign
markets and soft demand in Europe. Although Kem One in response
halted production of chlorine and caustic soda at its Fos-sur-Mer
plant in France in November 2023, Fitch expects the impact of this
change to be limited. Kem One's utilisation of the Fos-sur-Mer
plant in 2023 was already low due to the plant's outdated
production assets with low energy efficiency and product quality.
It plans to upgrade the facility in Fos-sur-Mer in 2024-2025 while
utilising the Lavera facility as a primary production asset for
caustic soda during the period.
Weak EBITDA Forecast: Fitch forecasts a gradual recovery of the
construction market and the overall economy which will support
higher demand and production levels for PVC in 2025. As a result,
Fitch forecasts Kem One's EBITDA to drop to EUR128 million in 2023
from EUR357 million in 2022 and remain weak in 2024 before
beginning to recover in 2025.
Moderate Mid-Cycle Leverage: Fitch forecasts EBITDA gross leverage
to have increased to 3.8x in 2023 and rise further to 5.3x in 2024
due to weak chemicals market conditions. Fitch anticipates a
gradual normalisation thereafter, with EBITDA gross leverage
declining below 3.5x by 2025. Fitch expects the company to remain
free cash flow (FCF) positive over 2023-2026 except for 2024
despite expansionary capex.
Moderate Capex Execution Risk: As of year-end 2023, the conversion
of the Fos-sur-Mer cells to a bi-polar membrane technology was
around 50% completed and estimated to be finalised in 2025. As
evidenced at the Lavera site in 2017, the successful conversion
should materially improve energy efficiency and reduce annual
maintenance costs. Lower energy costs and improved product quality
of caustic soda will further support profitability. No other major
investments are planned, and significantly lower capex will support
stronger FCF.
Adequate Cost Position: Kem One holds a relatively competitive cost
position among European PVC and caustic soda producers due to
strategies such as backward integration into salt mining for
chlorine and caustic soda production. Kem One also owns an ethylene
import terminal (thereby reducing dependence on local suppliers)
and benefits from France's ARENH programme, which protects the
company from volatile electricity prices. Completion of the ongoing
investments in energy-efficient bi-polar membrane electrolysis at
the Fos-sur-Mer plant will further improve Kem One's energy
efficiency.
ARENH Supports Margins: The ARENH programme partially insulates Kem
One's electricity costs from volatile spot power prices. This
scheme, which ends in 2025, allows French industrial consumers to
benefit from a low rate of EUR42/MWh for about 66% of their
consumption. As electricity is the second largest variable cost
after ethylene for PVC manufacturers, this maintains the
competitiveness of Kem One's production at times of volatile energy
costs.
Exposure to Construction Sector: Kem One is highly exposed to the
cyclical construction sector as its key end market. The company's
profitability was directly hit by depressed construction markets in
Europe amid unprecedented interest rate hikes during 2023. Kem
One's limited regional diversification also exacerbates its
exposure to a downturn of the construction sector in western
Europe, its main region of operations.
Caustic Soda Mitigates Cyclical Impact: Caustic soda is a
co-product of chlorine production and exhibits a diverging demand
pattern in its end markets that can counterbalance PVC market
dynamics. This helps mitigate the cyclical profitability of PVC
operations. Ordinarily, during periods of subdued PVC demand,
production rates decrease across Europe, leading to a shortage of
caustic soda and an increase of its price. In 2023, however, the
influx of PVC imports eliminated incentives for PVC producers to
reduce operating rates. Oversupplies of both PVC and caustic soda
then resulted in lower margins for both products.
Concentrated Assets: Manufacturing at only two chlor-alkali plants
exposes Kem One to cash-flow volatility during unforeseen
production disruptions. It is also exposed to the price volatility
of ethylene, a main raw material, and to supplier concentration.
The new ethylene import terminal should mitigate supply-disruption
risk but Kem One would benefit from further operational
improvements to reduce unplanned outages.
DERIVATION SUMMARY
Kem One's EMEA chemical peers are Petkim Petrokimya Holdings A.S.
(B-/Stable), Nobian Holding 2 B.V. (B/Stable), Root Bidco S.a.r.l.
(B/Stable), and Roehm Holding GmbH (B-/Stable).
Petkim is comparable to Kem One in terms of similar asset
concentration and commodity focus. Kem One has a smaller production
scale, weaker end-market diversification, and more volatile cash
flows. However, Kem One has a stronger market position and benefits
from a more stable economic environment.
Nobian operates within the same chlor-alkali value chain but is not
integrated into PVC production. Nobian's margins are significantly
higher, and the company benefits from strong barriers to entry as
it is the leading European merchant of high-purity salt and
supplies chlorine by pipeline to a captive clientele of large
chemical manufacturers. Although its leverage is higher, it has a
better earnings visibility due to long-term contracts with
take-or-pay clauses, backward integration and much larger scale.
Root Bidco is a manufacturer of crop protection, bio-nutrition and
bio-control products. It is significantly more leveraged than Kem
One, but generates more stable cash flows, higher margins, benefits
from a more diversified portfolio of products and raw materials,
and operates in fast growing markets serving the resilient
agriculture industry.
Roehm is a partly integrated producer of methyl methacrylates
(MMA). It is larger, more geographically diversified and more
profitable than Kem One. However, it is also exposed to cyclical
end-markets and to volatility in raw material and MMA prices, and
it is significantly more leveraged.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Total annual volumes of PVC and caustic soda sold on average of 1
million tons in 2023-2026
- EBITDA margin to decline to 8.9% in 2024 and improve to 14.4% on
average in 2025-2026
- Average annual capex of EUR120 million
- No dividend or M&A
RECOVERY ANALYSIS
The recovery analysis assumes that Kem One would be reorganised as
a going-concern (GC) in bankruptcy rather than liquidated.
The GC EBITDA estimate reflects Fitch's view of a sustainable,
post-reorganisation EBITDA level upon which Fitch bases the
enterprise valuation (EV). The GC EBITDA of EUR85 million reflects
prolonged oversupply negatively affecting margins, and corrective
measures, such as cost-cutting efforts or asset rationalisation, to
offset the adverse conditions.
An EV multiple of 4x is applied to the GC EBITDA to calculate a
post-reorganisation enterprise value, in line with commodity
chemicals peers with concentrated assets.
Fitch assumes the super senior EUR100 million RCF to be fully
drawn.
After deducting 10% for administrative claims, its analysis
resulted in 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 41%.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- EBITDA gross leverage below 3.0x on a sustainable basis
- A record of stable production at an increased utilisation rate
- EBITDA margin above 12% on a sustained basis
- Positive FCF on a sustained basis
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- EBITDA gross leverage above 4.5x on a sustained basis
- Negative FCF on a sustained basis
- Recurring production disruption preventing from a sustainable
improvement of profitability
LIQUIDITY AND DEBT STRUCTURE
Stable Liquidity Position: As of end September 2023, Kem One's cash
balance and undrawn RCF totaled EUR280 million. This establishes a
good financial foundation for the company's investment programme,
which includes the conversion of the electrolysis at its
Fos-sur-Mer facility by 2025. Fitch forecasts positive FCF in
2023-2026 (except for 2024) indicating that the ongoing investment
programme can be internally funded without extra financing.
Refinancing risk is limited as Kem One's financial debt is mainly
composed of its seven-year EUR412 million senior secured notes due
in 2028. Kem One is also funded by a super senior EUR100 million
RCF, which is subject to a springing leverage covenant.
ISSUER PROFILE
Kem One is an integrated producer of PVC, caustic soda and
chloromethanes based in France. It is the second largest PVC
manufacturer in Europe.
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
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Lune Holdings
S.a r.l. LT IDR B Affirmed B
senior secured LT B Affirmed RR4 B
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G E O R G I A
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GEORGIA: Fitch Affirms 'BB' Foreign Currency IDR, Outlook Positive
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Fitch Ratings has affirmed Georgia's Long-Term Foreign-Currency
Issuer Default Rating (IDR) at 'BB' with a Positive Outlook.
KEY RATING DRIVERS
Fundamental Rating Strengths and Weaknesses: The rating is
supported by Georgia's strong governance and economic development
indicators relative to the 'BB' medians, its credible macroeconomic
and fiscal policy framework (notwithstanding policy changes that
have raised concerns about institutional independence and
effectiveness), moderate level of public debt, and sound banking
sector.
These factors are balanced by high financial dollarisation and
weaker external finances compared with peers, including high
(albeit falling) net external debt and a large negative
international investment position, and geopolitical risks. The
Positive Outlook reflects continued strong economic growth,
alongside a marked fall in inflation, and greater confidence in the
durability of large migrant and capital inflows since 2022 that
have boosted potential growth and the external position.
Solid Economic Growth Prospects: Georgia posted real economic
growth of 6.9 % yoy in January-November 2023, driven by very strong
services growth. The positive spillovers on economic activity from
the arrivals of migrants from Russia, Belarus and Ukraine in
2022-23 appear to be continuing. Fitch assumes that the vast
majority of the migrant population will stay in the country for the
medium term, boosting potential growth. Fitch estimates growth of
5% in 2024 and 5.1% in 2025.
Suspended IMF Programme: Changes to the central bank law in June
2023 led to the creation of the posts of first deputy governor and
acting governor, superseding the existing succession structure.
Additionally, the central bank has changed the rules framework
around enforcement of Western sanctions on Georgian citizens,
requiring any targets to be first convicted in a Georgian court
before sanctions can be enforced. Georgia's IMF Stand-By Agreement
was suspended in September 2023 amid concerns over institutional
independence raised by the central bank law.
In Fitch's view, these changes undermine the independence of the
central bank and complicates the sanctions enforcement regime for
banks. The fiscal impact of the suspension of the IMF programme
(which were triggered by these concerns) remains limited, but
questions over policy credibility remain unresolved.
Credible Fiscal Anchor: Fitch expects the budget deficit to decline
from an estimated 2.5% of GDP in 2023 to 2.4% in 2024 (budget
target 2.5%) and 2.3% in 2025. Fitch notes that Georgia had
complied with the quantitative performance criteria for public
finances prior to completion of the IMF programme's first review.
Additionally, the commitments to the medium-term deficit of 2.5% of
GDP appears strong. There are upside risks to its forecasts from a
slower than expected pace of capex execution, and stronger than
expected nominal GDP growth.
Moderate Debt Levels: General government debt (GGGD)/GDP stood at
39.3% as of end-3Q23, with domestic debt accounting for 27% of the
total, an increase from 25% at end-2022, in line with the
authorities' strategy. Fitch expects GGGD/GDP to be largely flat at
around 38% of GDP in 2024-25 (projected 'BB' median: 50.2%). A
sharp depreciation of the lari poses the greatest risk to debt
dynamics. However, 94% of external debt is from bilateral and
multilateral donors, mitigating this risk.
Large Current Account Deficits: Following an exceptional increase
in exports and money transfers in 2022, the current account deficit
(CAD) widened to an estimated 5.9% of GDP in 2023 (current 'BB'
median: 2%). Fitch expects the CAD to widen to 6.4% of GDP in 2024,
primarily owing to a smaller secondary income surplus, before
falling back to 5.9% in 2025, still well above peer medians.
Continued money transfers from Russia are unlikely to be of the
scale seen in 2022-23, while the bulk of the migrants who moved to
the country will be classified as residents.
Gross external debt declined to around 79% of GDP as of 3Q2023 -
the lowest level since 2014 - aided by very strong nominal GDP
growth and GEL appreciation. However, net external debt levels, at
an estimated 42.5% of GDP at end-2023, remain well above the peer
median (17%).
Fall in Inflation: Strong base effects, and a strong lari led to
inflation falling to 0.4% as of end-2023 (National Bank of Georgia
(NBG) target: 3%). Core inflation is higher, at 2% as of end-2023,
driven in part by strong wage growth (16.3% yoy as of 3Q23) and
resulting domestic demand. Fitch expects annual average inflation
to remain within the NBG's target in 2024-25. The NBG cut rates by
only 150bp in 2023 to 9.5%, and is set to remain cautious about the
pace of loosening, in order to avoid spurring excessive credit
growth (17.3% nominal as of November 2023).
EU Accession; Geopolitical Risks: In December 2023, the European
Council granted Georgia EU candidate country status, representing
an important step in the accession process. Negotiations will now
proceed over nine priority areas that the EU has identified for
Georgia, including progress with judicial reforms,
'de-oligarchisation', and media freedoms.
Geopolitical risks with regards to Russia remain high, in the
context of international scrutiny with regard to sanctions
enforcement, and Georgia's aspirations to join NATO and the EU.
Fitch does not expect the long-standing unresolved conflicts
involving Russia in Abkhazia and South Ossetia to escalate in the
medium term.
Governance Risks: Georgia outperforms its peers on World Bank
Governance Indicators, but perceptions of governance are at risk
from the changes to the central bank law, and widening rifts
between the government and the president (which resulted in a
failed presidential impeachment attempt in 2023). The ruling
Georgian Dream party currently appears to be in pole position to
win the parliamentary elections in October 2024. Fitch does not
expect major changes to economic policy arising from the election.
Strong Banking Sector, High Dollarisation: The Georgian banking
sector is stable, with strong asset quality (non-performing loan
ratio of 1.6% as of 3Q23), high profitability (3Q23: return on
equity of 27%), and high capitalisation (regulatory capital ratio
of 22.4% as of 3Q23). Dollarisation in deposits and lending remains
relatively high in Georgia, at 50.8% and 45% as of November 2023,
respectively. FX credit growth was particularly strong in
January-November 2023, at 19% yoy. Macroprudential measures
introduced by the NBG are intended to gradually reduce the level of
FX lending growth, but this will take time to achieve.
ESG - Governance: Georgia has an ESG Relevance Score of '5' and
'5[+]' for political stability and rights, and for the rule of law,
institutional and regulatory quality and control of corruption,
respectively. Theses scores reflect the high weight that the World
Bank Governance Indicators (WBGI) have in its proprietary Sovereign
Rating Model (SRM). Georgia has a medium WBGI ranking at the 60th
percentile, reflecting moderate institutional capacity, established
rule of law, a moderate level of corruption and political risks
associated with the unresolved conflict with Russia.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- External Finances: A marked increase in external vulnerability,
for example, from sharp reversal of capital inflows, sizeable
decline in international reserves, or sustained widening of the
current account deficit.
- Structural: Substantial worsening of domestic political or
geopolitical risks with adverse consequences for economic
performance or governance.
- Macro: A weakening of the macroeconomic policy framework that
undermines the monetary and/or fiscal policy anchors.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- External Finances: A reduction in external vulnerability, for
example from a sizeable increase in international reserves and/or
narrowing in the current account deficit closer to peer levels,
potentially leading to the removal of the -1 notch on external
finances.
- Macro: Strong and sustained GDP growth leading to a reduction in
macroeconomic vulnerabilities and higher GDP per capita, alongside
reinforcing confidence in the strength of the policy framework.
- Public Finances: Government debt/GDP being placed on a stable
downward path over the medium term.
SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO)
Fitch's proprietary SRM assigns Georgia a score equivalent to a
rating of 'BB+' on the Long-Term Foreign-Currency (LT FC) IDR
scale.
Fitch's sovereign rating committee adjusted the output from the SRM
to arrive at the final LT FC IDR by applying its QO, relative to
SRM data and output, as follows:
- External Finances: -1 notch, to reflect that relative to its peer
group, Georgia has higher net external debt, a structurally larger
current account deficit, and a large negative net international
investment position.
COUNTRY CEILING
The Country Ceiling for Georgia is 'BBB-', 2 notches above the LT
FC IDR. This reflects strong constraints and incentives, relative
to the IDR, against capital or exchange controls being imposed that
would prevent or significantly impede the private sector from
converting local currency into foreign currency and transferring
the proceeds to non-resident creditors to service debt payments.
Fitch's Country Ceiling Model produced a starting point uplift of
+2 notches above the IDR. Fitch's rating committee did not apply a
qualitative adjustment to the model result.
ESG CONSIDERATIONS
Georgia has an ESG Relevance Score of '5' for political stability
and rights as WBGI have the highest weight in Fitch's SRM and are
therefore highly relevant to the rating and a key rating driver
with a high weight. As Georgia has a percentile rank below 50 for
the respective governance indicator, this has a negative impact on
the credit profile.
Georgia has an ESG Relevance Score of '5[+]' for rule of law,
institutional, regulatory quality and control of corruption as WBGI
have the highest weight in Fitch's SRM and are therefore highly
relevant to the rating and are a key rating driver with a high
weight. As Georgia has a percentile rank above 50 for the
respective governance indicators, this has a positive impact on the
credit profile.
Georgia has an ESG Relevance Score of '4' for human rights and
political freedoms as the voice and accountability pillar of the
WBGI is relevant to the rating and a rating driver. As Georgia has
a percentile rank below 50 for the respective governance indicator,
this has a negative impact on the credit profile.
Georgia has an ESG Relevance Score of '4' for creditor rights as
willingness to service and repay debt is relevant to the rating and
is a rating driver for Georgia, as for all sovereigns. As Georgia
has a restructuring of public debt in 2004, this has a negative
impact on the credit profile.
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
----------- ------ -----
Georgia LT IDR BB Affirmed BB
ST IDR B Affirmed B
LC LT IDR BB Affirmed BB
LC ST IDR B Affirmed B
Country Ceiling BBB- Affirmed BBB-
senior
unsecured LT BB Affirmed BB
senior
unsecured ST B Affirmed B
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G R E E C E
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PIRAEUS FINANCIAL: Fitch Assigns 'B' Rating on Sub. Tier 2 Notes
----------------------------------------------------------------
Fitch Ratings has assigned Piraeus Financial Holdings S.A.'s
(HoldCo) EUR500 million subordinated Tier 2 notes (ISIN:
XS2747093321) due April 17, 2034 a final long-term rating of 'B'.
The notes have been issued under HoldCo's EUR25 billion euro
medium-term note programme and qualify as Tier 2 regulatory
capital.
The rating is in line with the expected rating assigned on 8
January 2024 (see 'Fitch Publishes Piraeus HoldCo's 'BB-' Rating;
Rates Upcoming Tier 2 Notes 'B(EXP)' on www.fitchratings.com).
All issuer and other debt ratings are unaffected.
KEY RATING DRIVERS
The notes constitute direct, unsecured, unconditional and
subordinated obligations of HoldCo.
The rating of the notes is notched off twice from HoldCo's
Viability Rating (VR) of 'bb-' for loss severity to reflect their
poor recovery prospects given their junior ranking. No notching is
applied for incremental non-performance risk because write-down of
the notes will only occur once the point of non-viability is
reached, and there is no coupon flexibility before non-viability.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The notes would likely be downgraded if HoldCo's VR is downgraded.
In turn, HoldCo's VR is sensitive to change in the VR of Piraeus
Bank S.A. (Piraeus), the group's main operating company and core
bank.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
The notes would likely be upgraded if HoldCo's VR is upgraded.
DATE OF RELEVANT COMMITTEE
January 8, 2024
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
The VR of Holdco is equalised with the VR of Piraeus.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Piraeus Financial
Holdings S.A.
Subordinated LT B New Rating B(EXP)
=============
I R E L A N D
=============
BLACK DIAMOND 2015-1: Moody's Hikes Rating on Class F Notes to Ba1
------------------------------------------------------------------
Moody's Investors Service has upgraded the ratings on the following
notes issued by Black Diamond CLO 2015-1 Designated Activity
Company:
EUR23,600,000 Refinancing Class E Senior Secured Deferrable
Floating Rate Notes due 2029, Upgraded to Aa3 (sf); previously on
Jun 23, 2023 Upgraded to A3 (sf)
EUR9,500,000 Class F Senior Secured Deferrable Floating Rate Notes
due 2029, Upgraded to Ba1 (sf); previously on Jun 23, 2023 Upgraded
to Ba2 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR24,800,000 Refinancing Class D Senior Secured Deferrable
Floating Rate Notes due 2029, Affirmed Aaa (sf); previously on Jun
23, 2023 Upgraded to Aaa (sf)
Black Diamond CLO 2015-1 Designated Activity Company, issued in
September 2015 and refinanced in January 2018, is a multi-currency
collateralized loan obligation (CLO) backed by a portfolio of
mostly high-yield senior secured European and US loans. The
portfolio is managed by Black Diamond CLO 2015-1 Adviser, L.L.C.
(the "Manager"). The transaction's reinvestment period ended in
October 2019.
RATINGS RATIONALE
The rating upgrades on the Class E and F Notes are primarily a
result of the significant deleveraging of the senior notes
following amortisation of the underlying portfolio since the last
rating action in June 2023.
The Class B and Class C notes have fully repaid and Class D notes
have started paying down (0.6% of Class D original balance) since
Moody's last rating action in June 2023. As a result of the
deleveraging, over-collateralisation (OC) has increased across the
capital structure.
According to the trustee report dated December 6, 2023 [1] the
Class C, Class D, Class E and Class F OC ratios are reported at
497.7%, 214.6%, 139.3% and 122.0% compared to the last rating
action in June 2023, the Class C, Class D, Class E and Class F OC
ratios reported as of May 12, 2023 [2] were at 228.0%, 161.2%,
126.1% and 115.9% respectively. Moody's notes that the January 2024
principal payments are not reflected in the reported OC ratios.
The affirmation on the ratings on the Class D 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 the last rating action
in June 2023.
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: EUR74.7m
Defaulted Securities: EUR3.0m
Diversity Score: 20
Weighted Average Rating Factor (WARF): 3275
Weighted Average Life (WAL): 3.0 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.5%
Weighted Average Recovery Rate (WARR): 45.5%
Par haircut in OC tests and interest diversion test: 0.02%
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
Moody's notes that the December 6, 2023 trustee report was
published at the time it was completing its analysis of the
December 19, 2023 data. Key portfolio metrics such as WARF,
diversity score, weighted average spread and life, and OC ratios
exhibit little or no change between these dates. The incremental
EUR1.65 million of principal proceeds reported on December 19, 2023
[3] was from a collateral sale which had been incorporated in
Moody's model runs.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
December 2021.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties, such as account bank, using the
methodology "Moody's Approach to Assessing Counterparty Risks in
Structured Finance methodology" published in October 2023. Moody's
concluded the ratings of the notes are not constrained by these
risks.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.
Additional uncertainty about performance is due to the following:
-- Portfolio amortisation: The main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales by the collateral manager or
be delayed by an increase in loan amend-and-extend restructurings.
Fast amortisation would usually benefit the ratings of the notes
beginning with the notes having the highest prepayment priority.
-- Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Moody's analysed
defaulted recoveries assuming the lower of the market price or the
recovery rate to account for potential volatility in market prices.
Recoveries higher than Moody's expectations would have a positive
impact on the notes' ratings.
-- Foreign currency exposure: The deal has exposures to non-EUR
denominated assets. Volatility in foreign exchange rates will have
a direct impact on interest and principal proceeds available to the
transaction, which can affect the expected loss of rated tranches.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available to
rating committees, including macroeconomic forecasts, input from
other Moody's analytical groups, market factors, and judgments
regarding the nature and severity of credit stress on the
transactions, can influence the final rating decision.
CAIRN CLO XVI: S&P Assigns Prelim B-(sf) Rating on Cl. F Notes
--------------------------------------------------------------
S&P Global Ratings assigned its preliminary credit ratings to Cairn
CLO XVI DAC's class A, B-1, B-2, C, D, E, and F notes. At closing,
the issuer will issue unrated 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 its counterparty rating framework.
Portfolio benchmarks
CURRENT
S&P weighted-average rating factor 2,653.54
Default rate dispersion 626.24
Weighted-average life (years) 4.77
Obligor diversity measure 132.40
Industry diversity measure 15.53
Regional diversity measure 1.28
Transaction key metrics
CURRENT
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.00
Covenanted 'AAA' weighted-average recovery (%) 36.87
Covenanted weighted-average spread (%) 3.95
Covenanted weighted-average coupon (%) 3.35
Rating rationale
Under the transaction documents, the rated notes will pay quarterly
interest unless a frequency switch event occurs. Following this,
the notes will switch to semiannual payments. The portfolio's
reinvestment period will end approximately 4.47 years after
closing.
S&P said, "The portfolio is well-diversified, primarily comprising
broadly syndicated speculative-grade senior-secured term loans and
senior-secured bonds. Therefore, we have conducted our credit and
cash flow analysis by applying our criteria for corporate cash flow
CDOs.
"In our cash flow analysis, we used the EUR400 million target par
amount, and the portfolio's covenanted weighted-average spread
(3.95%), covenanted weighted-average coupon (3.35%), and covenanted
weighted-average recovery rates at the 'AAA' level and actual
targeted weighted-average recovery rates at each other rating
level. We applied various cash flow stress scenarios, using four
different default patterns, in conjunction with different interest
rate stress scenarios for each liability rating category.
"Under our structured finance sovereign risk criteria, we consider
that the transaction's exposure to country risk is sufficiently
mitigated at the assigned preliminary ratings.
"Until the end of the reinvestment period on July 15, 2028, the
collateral manager may substitute assets in the portfolio for so
long as our CDO Monitor test is maintained or improved in relation
to the initial ratings on the notes. This test looks at the total
amount of losses that the transaction can sustain as established by
the initial cash flows for each rating, and it compares that with
the current portfolio's default potential plus par losses to date.
As a result, until the end of the reinvestment period, the
collateral manager may through trading deteriorate the
transaction's current risk profile, as long as the initial ratings
are maintained.
"At closing, we expect that the transaction's documented
counterparty replacement and remedy mechanisms will 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 to F notes. Our credit and cash flow analysis indicates
that the available credit enhancement for the class B-1, B-2, C, D,
and E notes could withstand stresses commensurate with higher
ratings than those we have assigned. However, as the CLO will enter
its reinvestment phase from closing, during which the transaction's
credit risk profile could deteriorate, we have capped our
preliminary ratings assigned to those notes.
"Taking the above factors into account and following our analysis
of the credit, cash flow, counterparty, operational, and legal
risks, we believe that our preliminary ratings are commensurate
with the available credit enhancement for all the rated classes of
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 preliminary ratings on the class A
to E notes based on four hypothetical scenarios.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
The transaction securitizes a portfolio of primarily senior-secured
leveraged loans and bonds, and it is managed by Cairn Loan
Investments II LLP.
Environmental, social, and governance factors
S&P said, "We regard the exposure to environmental, social, and
governance (ESG) credit factors in the transaction as being broadly
in line with our benchmark for the sector. Primarily due to the
diversity of the assets within CLOs, the exposure to environmental
credit factors is viewed as below average, social credit factors
are below average, and governance credit factors are average. For
this transaction, the documents prohibit assets from being related
to the following industries and activities:
-- Anti-personnel mines, cluster weapons, depleted uranium,
nuclear weapons, white phosphorus, biological and chemical weapons,
or weapons of mass destruction;
-- Any obligor that derives more than 10% of its revenue from
civilian firearms;
-- Tobacco production or derives 5% of revenue from products that
contain tobacco;
-- Coal extraction and mining activities;
-- Pornography or prostitution;
-- Payday lending;
-- Any obligor that derives 1% or more of its revenue from thermal
coal, oil sands, or unconventional oil and gas extraction;
-- Any obligor that derives more than 5% of its revenue from
gambling operations, land-based casinos, and online gambling;
-- Controversial practices in land use and biodiversity;
-- Soy, cattle, or timber;
-- Trading in protected wildlife;
-- Marijuana, illegal drugs or narcotics;
-- Palm oil and palm fruit products;
-- Soft commodities (wheat, rice, meat, soy, sugar, diary, fish,
and corn; and
-- Activities that violate one or more of the United Nations
Global Compact principles, the International Labour Organisation
conventions, and the UN Guiding Principles on Business and Human
Rights.
Accordingly, since the exclusion of assets from these industries
does not result in material differences between the transaction and
S&P's ESG benchmark for the sector, it has not made any specific
adjustments in its rating analysis to account for any ESG-related
risks or opportunities.
Ratings list
PRELIM PRELIM AMOUNT CREDIT
CLASS RATING* (MIL. EUR) INTEREST RATE§
ENHANCEMENT(%)
A AAA (sf) 248.00 3mE + 1.72% 38.00
B-1 AA (sf) 32.00 3mE + 2.90% 27.00
B-2 AA (sf) 12.00 6.50% 27.00
C A (sf) 24.00 3mE + 3.85% 21.00
D BBB- (sf) 26.00 3mE + 5.20% 14.50
E BB- (sf) 15.00 3mE + 7.72% 10.75
F B- (sf) 14.10 3mE + 9.43% 7.23
Sub notes NR 26.30 N/A N/A
*The preliminary ratings assigned to the class A, B-1, and B-2
notes address timely interest and ultimate principal payments. The
preliminary ratings assigned to the class C, D, E, and F notes
address ultimate interest and principal payments. §The payment
frequency switches to semiannual and the index switches to 6mE when
a frequency switch event occurs.
NR--Not rated.
N/A--Not applicable.
3mE--Three-month Euro Interbank Offered Rate.
=========
I T A L Y
=========
BPER BANCA: Fitch Assigns B+ Rating on EUR500MM Jr. Sub. Notes
--------------------------------------------------------------
Fitch Ratings has assigned BPER Banca S.p.A.'s (BPER, BBB-/Stable)
EUR500 million additional Tier 1 (AT1) (ISIN IT0005579492)
instruments a final long-term rating of 'B+'.
The rating is in line with the expected rating published on January
8, 2024 (Fitch Rates BPER's Additional Tier 1 Notes 'B+(EXP)').
All issuer and other debt ratings are unaffected.
KEY RATING DRIVERS
BPER's AT1 notes are rated four notches below its 'bbb-' Viability
Rating (VR), comprising two notches for poor recovery prospects and
two notches for incremental non-performance risk relative to the
anchor VR given their fully discretionary, non-cumulative coupons.
The notching is in line with Fitch's baseline notching for AT1
instruments.
Fitch has not applied additional notching for incremental
non-performance risk as the bank operates with comfortable headroom
above its mandatory coupon-omission trigger. At end-September 2023,
the buffer above the common equity Tier 1 (CET1) ratio trigger
amounted to about 480bp.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The notes would likely be downgraded if BPER's VR is downgraded.
The rating could also be downgraded if non-performance risk
increases relative to the risk captured in the bank's VR. This
could reflect an unfavourable change in capital management or
flexibility, or an unexpected decline in capital buffers over
regulatory requirements, for example.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
The notes would likely be upgraded if BPER's VR is upgraded.
DATE OF RELEVANT COMMITTEE
January 5, 2024
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
BPER Banca S.p.A.
junior
subordinated LT B+ New Rating B+(EXP)
===================
M O N T E N E G R O
===================
VEKTRA JAKIC: Montenegrin Court Names New Bankruptcy Receiver
-------------------------------------------------------------
Iskra Pavlova at SeeNews reports that Montenegro's Commercial Court
said on Jan. 18 it appointed Dragan Popovic as bankruptcy receiver
at troubled wood-processing company Vektra Jakic.
Dragan Popovic was assigned the job after the previous receiver,
Milos Popovic, stepped down on Jan. 12 several days after his
appointment to the position, the court said in a statement, SeeNews
relates.
The statement read Milos Popovic submitted his resignation because
he already serves as a receiver in several complex bankruptcy
cases, such as the cases involving construction machines builder
Radoje Dakic and salt producer Solana Bajo Sekulic, SeeNews notes.
The Commercial Court has said the bankruptcy procedure at Vektra
Jakic was launched on Dec. 26 upon the request of Montenegro's
revenue and customs administration, SeeNews recounts.
According to earlier media reports, the revenue and customs
administration first submitted a bankruptcy request in 2021,
seeking EUR7.4 million (US$8.1 million) of overdue taxes and
concession fees from Vektra Jakic, SeeNews relays.
Pljevlja-based Vektra Jakic, once Montenegro's biggest
wood-processing company, halted production at the end of 2018,
SeeNews discloses.
=============
R O M A N I A
=============
ROMAERO: Enters Insolvency, Experta Named Judicial Administrator
----------------------------------------------------------------
Bogdan Todasca at SeeNews reports that Romanian aerospace company
Romaero said it has officially entered insolvency following the
approval of its insolvency proceedings filing by the Bucharest
Tribunal on Jan. 17.
Local insolvency specialist Expert Insolventa SPRL was appointed as
judicial administrator, Romaero said in a report filed with the
Bucharest Stock Exchange on Jan. 18, SeeNews relates.
The list of creditors includes Romanian lenders CEC Bank and Banca
Comerciala Romana (BCR), insolvency and restructuring specialist
CIT Restructuring, and water management, treatment and supply
company Apa Nova Bucharest, SeeNews relays, citing a document
published on the Bucharest Tribunal's website.
In December, the aerospace company filed for insolvency proceedings
with the Bucharest Tribunal, initially scheduled for a ruling on
Jan. 26, SeeNews recounts. However, at Romaero's request, the
court expedited the process, SeeNews notes.
Romaero shares were suspended from trading on the Bucharest Stock
Exchange on Jan. 17, SeeNews discloses.
===========
T U R K E Y
===========
TURK EKONOMI: Fitch Assigns CCC+ Final Rating on Subordinated Notes
-------------------------------------------------------------------
Fitch Ratings has assigned Turk Ekonomi Bankasi A.S.'s (TEB) USD400
million issue of Basel III-compliant Tier 2 capital notes due 2034
a final rating of 'CCC+'. The Recovery Rating is 'RR5'.
The final rating is the same as the expected rating assigned on 9
January 2024.
The notes qualify as Basel III-compliant Tier 2 instruments and
contain contractual loss-absorption features, which can be
triggered at the point of non-viability. According to the terms,
the notes are subject to permanent partial or full write-down on
the occurrence of a non-viability event (NVE). Equity conversion is
not part of the terms.
KEY RATING DRIVERS
The notes are rated one notch below TEB's Long-Term Foreign
Currency (LTFC) Issuer Default Rating (IDR) of 'B-' in accordance
with Fitch's Bank Rating Criteria.
The one notch for loss severity, rather than its baseline two
notches, reflects Fitch's view of below-average recovery prospects
for the notes in an NVE. This reflects its view that shareholder
support from BNP Paribas S.A. (BNPP; A+/Stable) could help mitigate
losses, and incorporates the cap on the bank's LTFC IDR at 'B-' due
to its view of government intervention risk.
The anchor rating of TEB's LTFC IDR reflects its view that BNPP,
the parent of TEB, would likely seek to restore TEB's solvency
without imposing losses on subordinated creditors. It also reflects
the likelihood that a TEB default would be driven by some form of
transfer and convertibility restrictions, rather than a loss of
solvency or liquidity.
TEB's LTFC IDR is driven by shareholder support from higher-rated
BNPP, and underpinned by its Viability Rating of 'b-'. Fitch uses
the LTFC IDR as the anchor rating for the certificates as Fitch
believes that potential extraordinary shareholder support is likely
to flow through to the bank's subordinated debt holders. Its view
of support is based on TEB's strategic importance to, and
integration and role within, the wider BNPP group and its small
size relative to BNPP's ability to provide support.
Fitch has not applied any notches for incremental non-performance
risk, as the agency believes that write-down of the notes will only
occur once an NVE is triggered and there is no coupon flexibility
prior to non-viability and as the notes do not incorporate
going-concern loss-absorption features.
The notes' 'RR5' Recovery Rating reflects below-average recovery
prospects in a default.
An NVE is triggered when the bank has incurred losses and has
become, or is likely to become, non-viable as determined by the
Banking and Regulatory Supervision Authority (BRSA). The bank will
be deemed non-viable should it reach the point at which the BRSA
determines its operating license is to be revoked and the bank
liquidated, or the rights of TEB's shareholders (excluding
dividends), and the management and supervision of the bank, are
transferred to the Savings Deposit Insurance Fund on the condition
that losses are deducted from the share capital of current
shareholders.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
As the notes are notched down from TEB's shareholder support-driven
LTFC IDR, their rating is sensitive to a downgrade of the IDR. The
notes' rating is also sensitive to an unfavourable revision in
Fitch's assessment of loss severity and incremental non-performance
risk.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
The notes' rating is sensitive to an upgrade of TEB's LTFC IDR.
DATE OF RELEVANT COMMITTEE
December 21, 2023
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
TEB's IDRs are driven by shareholder support from BNPP.
ESG CONSIDERATIONS
TEB'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 entity. This
has a moderately negative credit impact on TEB's credit profile and
is relevant to the rating in combination with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Turk Ekonomi
Bankasi A.S.
Subordinated LT CCC+ New Rating RR5 CCC+(EXP)
ULKER BISKUVI: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
-------------------------------------------------------------
Fitch Ratings has affirmed Ulker Biskuvi Sanayi A.S.'s (Ulker)
Long-Term Issuer Default Rating (IDR) at 'B'. The Outlook is
Stable. Fitch has also affirmed its senior unsecured rating at 'B'
with a 'RR4' Recovery Rating.
Ulker's IDR remains constrained by the Country Ceiling of Turkiye,
where the group generates over 60% of its EBITDA. Its Standalone
Credit Profile would commensurate with a higher rating given
significant deleveraging achieved since 2021, improved
profitability and increased scale with EBITDA estimated to have
exceeded USD400 million in 2023. The rating remains supported by
Ulker's strong position in the Turkish confectionery market, which
has enabled it to successfully pass on cost increases, supporting
healthy profitability and the resumption of positive free cash flow
(FCF) generation.
The Stable Outlook is primarily driven by the same for Turkiye's
sovereign rating. Also, it reflects Ulker's improved credit profile
and reduced liquidity risks after its refinancing of material
maturities in 2023. Fitch sees manageable refinancing risk on the
assumption that Ulker will take further steps in 2024 to refinance
its USD600 million Eurobond due in 2025. Lack of progress in this
regard could result in a negative rating action.
KEY RATING DRIVERS
Country Ceiling Constraint: Ulker's IDR is constrained by the 'B'
Country Ceiling of Turkiye, as EBITDA from countries with higher
Country Ceilings - Saudi Arabia (AA-), United Arab Emirates (AA+)
and Kazakhstan (BBB+) - is not sufficient to cover the group's
hard-currency interest expense. Fitch expects hard-currency
interest coverage to gradually improve toward 0.9x by end-2025 from
an estimated 0.7 in 2023 due to assumed growing profits in Ulker's
international markets and further deleveraging over 2024-2026.
Given that coverage will still remain below the 1.0x threshold for
applying a higher Country Ceiling to 2026 Fitch continues to use
Turkiye's Country Ceiling for Ulker's IDR.
Reduced Leverage: EBITDA net leverage fell to 2.9x at end-2022
(2021: 7.4x), as Ulker's cash balance bolstered by the sale of
financial assets and strong operating performance offset a foreign
exchange (FX)-driven increase in debt. Fitch estimates
Fitch-calculated leverage to have reduced further to 2.2x at
end-2023 despite an unfavourable impact on costs and debt from
further Turkish lira depreciation and forecast it to fall below 2x
from 2024. This is in line with Ulker's management commitment to
deleveraging to below 2x, which signals an improvement in its
financial profile relative to Fitch's rating sensitivities for the
IDR, albeit constrained by the Country Ceiling.
Resilient Performance: Ulker delivered strong revenue growth of
about 67% in 9M23, as it passed on major cost increases and grew
sales volumes in most markets of its operations. Fitch estimates
Fitch-adjusted EBITDA margin to have risen to 21.6% in 2023 from
19.3% in 2022 and 17.8% in 2021 and to remain above 20% to 2026.
This will be driven by increased scale, efficiency savings and the
integration of Önem Gıda Sanayi ve Ticaret A.Ş. operations.
Ulker has a strong record of progressive and active management of
input materials and strong pricing power due to the appeal of its
products, as well as resilient consumer demand in Turkiye and its
other markets of operation.
Strengthening Treasury Policies: Fitch positively views changes in
Ulker's cash-management practices, including liquidation of its
portfolio of financial assets and a strengthened liquidity position
since end-2022. In 2023 the group also repurchased USD50 million of
Eurobond ahead of a refinancing of a bulk maturity in 2025.
Nevertheless, loans to related parties remain a credit weakness, as
Ulker still has about USD67 million of loans issued to its parent,
Yildiz Holding A.S., but Fitch expects greater discipline, with no
additional loans to be provided to related parties.
Restored FCF: Fitch estimates a strong rebound in its FCF margin to
6% in 2023 from 0.7% in 2022, due to an increase in EBITDA, further
normalisation of working-capital requirement and a fairly modest
rise in interest costs following recent debt repayments. Fitch
understands from management that Ulker does not have material capex
projects or near-term intention to make dividend payments, and thus
expect FCF margins to remain strong at above 5% to 2026. This
should help build up some liquidity by October 2025, when Ulker's
USD600 million Eurobond matures, but Fitch assumes the majority of
it would be refinanced with new debt.
High FX Risks: Ulker's foreign operations and policy of maintaining
about 80% of cash in hard currencies (78% as of September 2023)
help reduce FX exposure arising from its debt being almost fully
denominated in hard currencies. Fitch estimates that in 2023
foreign operations to have accounted for 34% of Ulker's revenue and
36% of EBITDA, due to hard currency-denominated exports and sales
in Saudi riyal and United Arab Emirates dirham, both of which are
pegged to the US dollar.
Market Leader in Turkiye: Ulker's ratings continue to benefit from
a strong position as the largest confectionery producer in Turkiye,
with a 35% share in the snack market in 1H23. It has leading market
positions in chocolate and biscuits, but a second position in
cakes. Ulker is also a leader in Saudi Arabia's and Egypt's biscuit
markets and a strong confectionary producer in Kazakhstan.
Ringfencing from Parent: The rating is predicated on Ulker being
ringfenced from the rest of Yildiz group and Fitch assumes that
Ulker's cash flows will not be used to service the substantial debt
at Yildiz nor at Ulker's sister companies. However, Fitch includes
in its calculation of leverage metrics the guarantees that Ulker
provides for obligations of third parties (2022: TRY756 million).
DERIVATION SUMMARY
Ulker compares well against Argentinean confectionery producer
Arcor S.A.I.C. (B/Stable). Arcor's IDR is one notch higher than
Argentina's Country Ceiling due to its strong debt service ratio as
per Fitch's criteria. Both companies have comparable operational
scale, with their credit profiles benefiting from the strength of
local brands and geographic diversification. Both companies
generate about 30%-40% of revenue outside their domestic markets
and are exposed to FX risks due to substantial debt in hard
currencies. At the same time Ulker's stronger EBITDA margin is
partly balanced by slightly higher leverage.
Ulker is rated lower than Mexico-based Grupo Bimbo, S.A.B. de C.V.
(BBB+/Stable), the world's largest baked goods producer with about
a 3% market share, due to its smaller scale and geographic
footprint and higher leverage.
Ulker is rated lower than Coca-Cola Icecek AS (CCI; BBB/Stable),
which generates the majority of sales and EBITDA outside Turkiye
and has a different applicable Country Ceiling (Kazakhstan, BBB+),
where CCI generates enough cash flows (2022: 26% of EBITDA in
Kazakhstan) to cover hard-currency interest expenses with
sufficient headroom. CCI's ratings also benefit from a one-notch
uplift for potential support from The Coca-Cola Company. CCI is
also bigger in size by sales and EBITDA and is lower leveraged than
Ulker.
Ulker is rated in line with Sigma Holdco BV (B/Positive), the
world's largest plant-based spread producer. Ulker is smaller in
scale, less geographically diversified and generates lower EBITDA
margins but has significantly lower leverage than Sigma.
No parent-subsidiary linkage or operating-environment aspects
affect Ulker's rating. Fitch would consider linking Ulker's rating
to Yildiz's credit profile if the current ringfencing weakens.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- US dollar to Turkish lira at 29.5 at end-2023, and 34 at
end-2024- 2025
- Revenue growth at about 63% in 2023, 41% in 2024 and 21% in 2025,
driven mostly by inflation in Turkiye and Turkish lira
depreciation
- EBITDA margin increasing to 21.6% in 2023 (2022: 19.3%), but to
decline to around 20.4% in 2024 and stabilising at 20.9% in
2025-2026, due to positive currency translation impact from
overseas revenue
- No further investments in financial assets or loans to related
parties to 2026
- Capex at 2.5 % of sales each year until 2026
- Dividends to minorities at around TRY200 million a year until
2026
- No common dividends
- No M&A to 2026
RECOVERY ANALYSIS
KEY RECOVERY RATING ASSUMPTIONS
Under its Corporates Recovery Ratings and Instrument Ratings
Criteria, Fitch applies a bespoke approach to recovery analysis for
issuers rated 'B+' and below. Its recovery analysis assumes that
Ulker would be reorganised as a going-concern (GC) in bankruptcy
rather than liquidated, given the inherent value in its brands and
market positions. Fitch has assumed a 10% administrative claim.
Fitch has increased Ulker's GC EBITDA to USD225 million (from
USD185 million last year), which is still lower than its estimate
of about USD425 million EBITDA in 2023 as it incorporates severe FX
stress and a reduced ability to pass on cost increases to consumers
during financial distress. An enterprise value (EV) multiple of
4.5x is applied to GC EBITDA to calculate a post-reorganisation
EV.
In its debt waterfall, Fitch assumes that Ulker's debt ranks
equally with unsecured debt issued by operating companies and its
letter-of-credit facilities. Ulker bears more than 80% of the
consolidated debt, leaving little material structural subordination
within its debt structure.
After completing its refinancing in April 2023 and USD50 million
repurchase of its USD650 million Eurobond in July 2023 its
waterfall analysis generated a ranked recovery for the senior
unsecured debt, in the 'RR2' band, indicating a higher rating than
the IDR. However, the Eurobond rating is capped at 'RR4'/50% in
line with Ulker's IDR of 'B' based on Fitch's country-specific
treatment of Recovery Ratings for Turkish issuers.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to a
Positive Rating Action or an Upgrade:
- Upgrade of Turkiye's Country Ceiling in combination with
- EBITDA net leverage remaining below 4.5x, supported by healthy
operating performance and a consistent financial and cash
management policy
- Stable market shares in Turkiye or internationally translating
into resilient operating margins
- Neutral to positive FCF on a consistent basis
Factors That Could, Individually or Collectively, Lead to a
Negative Rating Action or Downgrade:
- Downgrade of Turkiye's Country Ceiling to below 'B'
- Deteriorated liquidity position with inability to repay or
refinance debt maturing in 2025 on a timely basis
- EBITDA net leverage above 5.5x due to M&A, investments in
high-risk securities or related-party transactions leading to
significant cash leakage outside Ulker's scope of consolidation
- Increased competition or consumers trading down that erode
Ulker's market share in key markets and leading to deteriorating
operating margins
- Negative FCF on a consistent basis
LIQUIDITY AND DEBT STRUCTURE
Satisfactory Liquidity: At end-September 2023, Ulker had TRY9.7
billion of cash relative to TRY4.9 billion of short-term debt after
the refinancing of its debt due in April 2023. It raised USD330
million of new, three-year debt, which, together with cash, was
used to refinance USD457 million debt maturing in April 2023. Its
short-term liquidity position is sufficient but Fitch expects the
group to take actions to refinance its next large maturity, a
USD600 million Eurobond due in October 2025.
ESG CONSIDERATIONS
Ulker has an ESG Relevance Score of '4' for Group Structure due to
the complexity of the structure of the wider Yildiz group and
material related-party transactions. 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
----------- ------ -------- -----
Ulker Biskuvi
Sanayi A.S. LT IDR B Affirmed B
senior
unsecured LT B Affirmed RR4 B
===========================
U N I T E D K I N G D O M
===========================
ARGUS MEDIA: S&P Affirms 'B+' Issuer Credit Rating, Outlook Stable
------------------------------------------------------------------
S&P Global Ratings affirmed its 'B+' rating on U.K.-based price
reporting agency Argus Media (Argus) and assigned a 'B+' issue
rating to the proposed term loan with a '3' recovery rating,
reflecting its expectation of meaningful (60%) recovery prospects.
S&P also assigned a new management and governance (M&G) assessment
of neutral to Argus following the Jan. 7 publication of its revised
criteria for evaluating the credit risks presented by an entity's
M&G framework.
The stable outlook reflects S&P's view that, after a temporary
spike in leverage to about 6x in fiscal 2024 Argus will prioritize
deleveraging and adjusted debt to EBITDA will reduce toward 5x on
the back of continued organic earnings growth and EBITDA margins
above 40%.
Fleet Topco Ltd., parent Argus is planning to refinance its capital
structure by issuing a $135 million revolving credit facility (RCF)
and $1.2 billion senior secured term loan, of which it will use the
proceeds to redeem its outstanding $479 million term loan and
distribute about $749 million to shareholders.
The outlook assumes the group will remain committed to its
financial policy and won't undertake material debt-funded
acquisitions or shareholder distributions until its leverage
reduces to less than 3.5x on a company-adjusted basis.
The affirmation reflects S&P's view that, following the
transaction, Argus' adjusted leverage will reduce below 5.5x in
line with its financial policy commitment. Argus is planning to
refinance its capital structure by issuing a $1.2 billion senior
secured term loan due in 2031 and a $135 million RCF due in 2030.
Argus will use the proceeds to redeem the existing $479 million
term loan maturing in October 2026 and distribute a $749 million
dividend to shareholders. As a result, the company's financial debt
will almost double, leading its S&P Global Ratings-adjusted
leverage to increase to about 5.9x in fiscal 2024 from 3.0x in
fiscal 2023. S&P assumes that from fiscal 2025, leverage will
reduce toward 5x, as a result of strong earnings growth and the
company's demonstrated commitment to reducing leverage toward its
financial policy target.
S&P said, "Following the transaction, Argus will no longer be
controlled by a financial sponsor and we assume it will maintain
its financial policy targeted at deleveraging in the near term. As
part of the transaction, Mr. Binks and GA will buy out Hg's
minority stake in Argus, equivalent to about 25% of common equity.
As a result, Mr. Binks will own 59% of ordinary common equity and
control about 60% of voting rights, and private equity sponsors
will no longer control the company. We have therefore revised our
view of Argus' financial policy and amended our calculation of S&P
Global Ratings-adjusted debt by netting off surplus cash. We expect
that over the medium term, Argus will maintain a prudent approach
to leverage, reducing it toward their 3.5x company-adjusted net
leverage target (equivalent to about 4.0x of our adjusted
leverage).
"We expect Argus will maintain strong operating performance and
cash flow in fiscal 2024 and fiscal 2025. In fiscal 2023, the
company saw a strong 15% increase in revenue and 18% in EBITDA,
thanks to growth in recurring subscription-based revenue, price
increases, new customers, and a strong rebound of in-person events
in its conference business. It has also maintained strict cost
management, with an 8% increase in staff expense that was well
below its top-line growth. In fiscal 2024 and fiscal 2025, we
expect Argus' revenue and earnings will continue to increase,
reflecting underlying growth in the liquified petroleum gas (LPG)
and oil fuels markets; entry into new markets such as agriculture
chemicals, metals, and fertilizers; the rollout of new analytics
and data science products; and new customers. The complexity of new
energy markets, volatility of supply and demand and prices, and the
ongoing energy transition entail the need for more price reporting
data, in our view. We anticipate the conference business will also
benefit from the energy transition, which supports demand for
specialized industry events. Argus has increased its personnel in
commercial and technology to sustain this growth in operations, but
we expect the overall increase in operating costs will be below
top-line growth, translating into a continued modest rise in EBITDA
margins that are already above the industry average."
Argus will pay higher cash interest on the new debt, but its free
cash flow generation will remain robust. Following the transaction,
Argus' cash interest will increase to about $82 million in fiscal
24 from $30 million in fiscal 23, weighing on its free cash flow
and leading to free operating cash flow (FOCF) of about $94 million
in fiscal 2024 compared with $121 million in fiscal 2023. At the
same time, S&P forecasts the group's FOCF generation will remain
robust over the forecast period with FOCF to debt of about 8%,
given its relatively low capital spending (capex) investment needs
and positive working capital inflows due to the way Argus bills its
customers in advance. Thus, it assumes FOCF will be sufficient to
fund small bolt-on acquisitions and debt amortization, and
potentially leave room for dividend payments from fiscal 2025,
after Argus' leverage reduces to its target levels.
The rating is supported by Argus' robust business characteristics.
The company is the No.2 player in the cross-commodity price
reporting agency (PRA) market by share, accounting for about 20%,
behind incumbent S&P Global Commodity Insights (previously known as
S&P Global Platts; part of S&P Global, which also owns S&P Global
Ratings), which has a market share of over 50%. Argus is more than
twice the size of the next-largest competitor OPIS, a division of
News Corp., by market share. Its strengths include its global
operations, strong growth dynamics in the underlying markets,
mission-critical products, high customer retention (above 95%), an
approximately 20% market share, and low customer concentration,
with the largest representing 2.6% of average annual value (AAV)
and the top 20 about 24.8% AAV on June 30, 2023.
S&P said, "The stable outlook reflects our view that, after a
temporary spike in leverage to about 6x in fiscal 2024, Argus will
prioritize deleveraging and adjusted debt to EBITDA will reduce
toward 5x on the back of continued organic earnings growth, EBITDA
margin remaining above 40% and robust FOCF. The outlook assumes the
group will remain committed to its financial policy and won't
undertake material debt-funded acquisitions or shareholder
distributions until its leverage reduces to less than 3.5x on a
company-adjusted basis.
"We could lower the rating in the next 12 months if adjusted
leverage doesn't reduce to less than 5.5x or FOCF to debt falls
below 5.0%. This could occur if Argus pursues large debt-funded
acquisitions or shareholder distributions, or if it underperforms
our base case such that revenue and earnings decline materially,
for example, due to increased competition, loss of key customers,
or inability to constrain rising operating costs.
"An upgrade is unlikely in the next year. Beyond then we could
consider an upgrade if Argus' adjusted leverage reduces comfortably
below 4.5x and FOCF to debt exceeds 10.0%, and the company builds a
track record of maintaining leverage at such levels, while it
continues to operate successfully.
"ESG factors have a neutral influence on our credit rating analysis
of Argus. Following the transaction, we no longer expect Argus to
be controlled by a private equity sponsor, because Mr. Binks will
have voting control and GA's stake in the company will reduce to
less than 40%. Based on Argus' track-record, we assume that,
following the re-leveraging in fiscal 2024, both shareholders will
be focused on reducing leverage in line with the company's
financial policy target and won't undertake aggressive actions
prioritizing shareholder returns."
ARRIVAL: On Brink of Insolvency, Seeks Rescue Funding
-----------------------------------------------------
Reuters reports that British electric-vehicle company Arrival is
heading closer to insolvency after lining up a new set of advisers
to oversee contingency planning, Sky News reported on Jan. 22.
The company is in talks with accounting firm EY about acting as
administrator if it cannot secure rescue funding, the report added,
Reuters notes.
EV firms that went public in the SPAC boom during the pandemic
capitalized on strong demand from investors looking for the next
Tesla.
However, high interest rates, inflation, supply chain issues and
production struggles have sapped their cash balances with few or no
vehicles on roads, Reuters discloses.
Earlier this month, Arrival said it had missed a Dec. 1 deadline to
make an interest payment on its convertible debt due 2026 as it
battles a cash crunch, Reuters relates.
It also received a notice of delisting from Nasdaq for not
complying with listing rules due to a delay in filing its interim
financial statements and failure to hold an annual shareholder
meeting, according to Reuters.
Late last year, the company said it intended to sell itself or
consider other strategic options, after slashing its global
workforce by about 25%, Reuters recounts.
JUPITER MORTGAGE 1: Fitch Assigns CCC Rating on Class X Notes
-------------------------------------------------------------
Fitch Ratings has assigned Jupiter Mortgage No. 1 PLC's notes
expected rating.
The assignment of final ratings is conditional on the receipt of
final documents conforming to the information already reviewed.
Entity/Debt Rating
----------- ------
Jupiter Mortgage
No.1 PLC
A XS2737623459 LT AAA(EXP)sf Expected Rating
B XS2737623376 LT AA(EXP)sf Expected Rating
C XS2737623533 LT A-(EXP)sf Expected Rating
Class A Loan Note LT AAA(EXP)sf Expected Rating
D XS2737623889 LT BBB(EXP)sf Expected Rating
E XS2737623616 LT B+(EXP)sf Expected Rating
F XS2737623707 LT B-(EXP)sf Expected Rating
X XS2737624267 LT CCC(EXP)sf Expected Rating
Z XS2737618962 LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
The notes are being issued to refinance Jupiter Mortgage No.1 PLC -
a securitisation of loans originated by multiple lenders.
KEY RATING DRIVERS
Mixed Sector Portfolio: The portfolio comprises prime (58%) and
non-conforming (42%) loans. Fitch has split the pool into two based
on each of the originators' lending practices and applied the
relevant prime, buy-to-let (BTL) and non-conforming matrices.
Originator Adjustment Applied: Fitch applied an originator
adjustment of 1.4x and 1.0x to the prime owner-occupied (OO) and
prime BTL sub-pools. When setting the originator adjustment, Fitch
considered the lending criteria of the originators at the time to
be in line with standard OO and BTL offers, while the historical
performance is weaker than Fitch expects for current OO
origination. The approach taken is consistent with comparable
transactions by similar originators.
An originator adjustment of 1.0x was applied to the OO sub-pool of
the non-conforming pool as this sub-pool is in line with the
characteristics, lending practices and historical performance of
non-conforming origination. A 1.5x originator adjustment was
applied to the non-conforming BTL sub-pool, which is consistent
with its approach for similar non-conforming BTL sub-pools. This
reflects the loose underwriting standards compared with current
practices by BTL lenders.
Seasoned Loans and Arrears: About 99.6% of the portfolio was
originated between 2003 and 2009. The mortgage loans have benefited
from considerable house price indexation, with a weighted average
(WA) indexed current loan-to-value (CLTV) of 49.5% leading to a WA
sustainable LTV (sLTV) of 63.0%. The OO loans in total make up
44.7% of the portfolio and contain a high proportion of
self-certified, interest-only and restructured loan arrangements.
Total arrears for the pool are around 20%, in line with the
non-conforming index. For 5% of the collateral portfolio, borrowers
have not made any payments in the last three months.
Rental Income, Restructuring Data: Rental income figures for 58% of
the BTL loans within the prime pool was not provided to Fitch for
its asset analysis. Fitch has assumed the minimum permissible
rental income for the BTL loans based on the originators' lending
criteria at the time of origination, using conservative assumptions
for the interest rate assessment. Loan level restructuring data was
provided to Fitch including the type and date of restructure, Fitch
applied adjustments where the restructure was for credit-related
events and not for inconsequential changes. Fitch expects to
continue to receive such information for ongoing surveillance.
Collateral Underperformance Risk: The asset pool has demonstrated
rising arrears over recent months and this trend is likely to
continue in the months after closing. The defaulted balance as of
the pool cut-off date stands at approximately GBP61 million. The
issuer will incur losses if the sale of property does not result in
sufficient net proceeds to repay the current balance of these
loans. Fitch has accounted for these risks through its rating
determination which for some tranches is one notch below their
model- implied ratings.
Weak Representations and Warranties Framework: The loan sale
agreement contains limited warranties made by the seller in respect
of the underlying assets. The seller has limited resources to
indemnify the issuer and the sponsor's liability to the seller is,
in turn, subject to time limitations. Fitch views this framework as
weaker than normal UK RMBS standards, but the seasoning of the
assets, the availability of assigned rights to the issuer and the
absence of warranty breaches since the original closing in 2021
constitute sufficient mitigating factors.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The transaction's performance may be affected by changes in market
conditions and the economic environment. Weakening economic
performance is strongly correlated to increasing levels of
delinquencies and defaults that could reduce the credit enhancement
available to the notes. In addition, unexpected declines in
recoveries could result in lower net proceeds, which may make some
notes' ratings susceptible to negative rating action depending on
the extent of the decline in recoveries.
Fitch found that a 15% increase in the weighted average foreclosure
frequencies (WAFF) and a 15% decrease in the weighted average
recovery rates (WARR) would lead to downgrades of two notches for
the class A notes, three notches for the class B and class C notes
and five notches for the class D notes. The class E, F and X notes
would be assigned distressed ratings in this scenario.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Stable-to-improved asset performance driven by stable delinquencies
and defaults would lead to increasing credit enhancement and,
potentially, upgrades. Fitch found a decrease in the WAFF of 15%
and an increase in the WARR of 15% would lead to upgrades of two
notches for the class B and class C notes, four notches for the
class D notes, seven notches for the class E notes and five notches
for the class F notes. The class A notes are at the highest
achievable rating on Fitch's scale and cannot be upgraded. The
class X notes would continue to be assigned distressed rating in
this scenario.
CRITERIA VARIATION
A criteria variation has been made to the application of Fitch's UK
RMBS criteria.
Criteria permit for a rating to be assigned that is one notch
higher or lower than the model-implied rating based on other
qualitative or quantitative factors that are not captured directly
in modelling. Fitch has assigned a rating two notches below the
model-implied rating for the class E notes as this class
demonstrates particular vulnerability to reductions in revenue and
recovery rates. These are relevant factors Fitch considers in its
rating determination given collateral historical performance and
the current economic environment.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Fitch was provided with Form ABS Due Diligence-15E (Form 15E) as
prepared by PricewaterhouseCoopers LLP. The third-party due
diligence described in Form 15E focused on the verification of data
fields contained within the loan-level data against the loan
system. Fitch considered this information in its analysis and it
did not have an effect on Fitch's analysis or conclusions.
DATA ADEQUACY
Fitch reviewed the results of a third-party assessment conducted on
the asset portfolio information, and concluded that there were no
findings that affected the rating analysis.
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.
ESG CONSIDERATIONS
Jupiter Mortgage No.1 PLC has an ESG Relevance Score of '4' for
Customer Welfare - Fair Messaging, Privacy & Data Security due to
the high proportion of interest-only loans in legacy OO mortgages,
which has a negative impact on the credit profile, and is relevant
to the ratings in conjunction with other factors.
Jupiter Mortgage No.1 PLC has an ESG Relevance Score of '4' for
Human Rights, Community Relations, Access & Affordability due to a
large proportion of the pool containing OO loans advanced with
limited affordability checks, which has a negative impact on the
credit profile, and is relevant to the ratings in conjunction with
other factors.
Jupiter Mortgage No.1 PLC has an ESG Relevance Score of '4' for
Exposure to Social Impacts due to the high proportion of borrowers
in the pool that have already reverted to a floating rate and are
currently paying a high SVR rate. These borrowers may not be in a
position to refinance. 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.
KENHAM BUILDING: Cash Flow Problems Prompt Administration
---------------------------------------------------------
Greg Pitcher at Construction News reports that luxury-house builder
Kenham Building has called in administrators, with all staff made
redundant.
The west London firm appointed ReSolve partners Cameron Gunn and
Chris Farrington as administrators after encountering cashflow
problems.
Kenham operated for 25 years but hit technical challenges related
to groundworks on a large residential refurbishment scheme. After
losing money on the job, it approached advisory firm ReSolve
shortly before Christmas to assess its options.
With no significant pipeline of new work and clients rejecting
existing contracts, all staff were made redundant. The company had
an average of 19 staff in 2022, but ReSolve has not confirmed how
many were made redundant.
Kenham's last filed accounts show that at the end of 2022 the firm
had more than GBP750,000 in cash along with GBP2.3 million owed to
it by debtors.
The sum owed to creditors within the following year stood at GBP2
million, but this was down from GBP3.1 million at the end of 2021.
NRI CIVILS: Owed Suppliers GBP4.8 Mil. at Time of Collapse
----------------------------------------------------------
Grant Prior at Construction Enquirer reports that Corby-based
groundworks specialist NRI Civils Ltd owed GBP4.8 million to
suppliers and subcontractors when it went into administration.
The scale of the firm's debts were revealed in a Companies House
update after the firm went under last November, Construction
Enquirer notes.
NRI had worked at a Barratt housing job in Cambridgeshire where 83
new homes are being demolished because of faulty foundations,
Construction Enquirer discloses.
The report said NRI had become subject to a dispute with a major
house builder that left "a large hole in its cash flow",
Construction Enquirer relates.
According to Construction Enquirer, NRI had an adjudication hearing
go in its favour but the ruling was disputed and the firm was
placed into administration.
TRINITY SQUARE 2021-1: Fitch Affirms 'CCC' Rating on Class H Debt
-----------------------------------------------------------------
Fitch Ratings has affirmed Trinity Square 2021-1 PLC's (TSQ2021-1)
notes.
Entity/Debt Rating Prior
----------- ------ -----
Trinity Square 2021-1
Class A XS2318720864 LT AAAsf Affirmed AAAsf
Class B XS2318721086 LT AAAsf Affirmed AAAsf
Class C XS2318720948 LT A+sf Affirmed A+sf
Class D XS2318721169 LT Asf Affirmed Asf
Class E XS2318721243 LT BBBsf Affirmed BBBsf
Class F XS2318721326 LT BB+sf Affirmed BB+sf
Class G XS2318721599 LT BB-sf Affirmed BB-sf
Class H XS2318723025 LT CCCsf Affirmed CCCsf
TRANSACTION SUMMARY
TSQ2021-1 is a securitisation of legacy owner-occupied (OO) and
buy-to-let mortgages originated by GE Money Home Lending Limited
and GE Money Mortgages Limited. The transaction is a refinancing of
the Trinity Square 2015-1 Plc and Trinity Square 2016-1 Plc
issuances.
KEY RATING DRIVERS
Asset Performance Weakening: The transaction's one-month plus and
three-month plus arrears have increased over the past 12 months and
were 6.99% and 4.79%, respectively, at the October 2023 interest
payment date. The same measures were 4.9% and 3.7% 12 months
previously. Fitch expects a further deterioration in these measures
as higher mortgage costs for floating-rate borrowers in the pool
are expected to persist.
Increasing CE: The affirmation is supported by the increase in
credit enhancement (CE). CE for the class A notes has increased to
22.5% from 18.5% as at the last review, largely due to the
sequential amortisation of the notes and the non-amortising general
reserve fund that provides liquidity and credit support to the
notes.
Rating Lower than MIR: The class D and E notes' ratings are one and
two notches lower, respectively, than their model-implied rating
(MIR). Fitch performed a forward-looking analysis by running
scenarios assuming an increase in the loss levels at all rating
levels, to account for asset performance deterioration beyond that
envisaged by the standard criteria assumptions. This included
increasing the weighted average (WA) foreclosure frequency (FF) by
15%, where the notes' ratings withstood this scenario and supports
the affirmation.
Liquidity Access Constrains Mezzanine Notes: Interest payments for
all notes except class A are deferrable at all times. Fitch
assessed the extent to which the class C, D and E notes would incur
interest deferrals. In its expected case, these notes are not
subject to deferrals, therefore the ratings are commensurate with
investment-grade rating categories. However, their ratings are
constrained at the 'Asf' rating category given the lack of
dedicated liquidity protection.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The transaction's performance may be affected by changes in market
conditions and economic environment. Weakening economic performance
is strongly correlated to increasing levels of delinquencies and
defaults that could reduce CE available to the notes given the
borrowers in this pool are already stretched in affordability.
In addition, unanticipated declines in recoveries could result in
lower net proceeds, which may make certain notes susceptible to
potential negative rating action depending on the extent of the
decline in recoveries. Fitch conducts sensitivity analyses by
stressing a transaction's base-case FF and recovery rate (RR)
assumptions. For example, a 15% increase in the WAFF and a 15%
decrease in the WARR indicates model-implied downgrades of five
notches for the class F notes, three notches for the class B, D and
E notes, one notch for the class C notes and no impact on the class
A notes. The class G and H notes would be assigned distressed
ratings in this scenario.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Fitch tested an additional rating sensitivity scenario by applying
a decrease in the WAFF of 15% and an increase in the WARR of 15%.
The results indicate model-implied upgrades of five notches for the
class F and G notes, four notches for the class E notes, one notch
for the class D notes and no impact on the class C notes. The class
A and B notes are at the highest achievable rating on Fitch's scale
and cannot be upgraded. The c lass H notes would continue to be
assigned distressed ratings.
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
Trinity Square 2021-1
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.
Prior to the transaction closing, Fitch reviewed the results of a
third party assessment conducted on the asset portfolio information
and concluded that there were no findings that affected the rating
analysis.
Prior to the transaction closing, Fitch conducted a review of a
small targeted sample of the originator's origination files and
found the information contained in the reviewed files to be
adequately consistent with the originator's policies and practices
and the other information provided to the agency about the asset
portfolio.
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.
ESG CONSIDERATIONS
TSQ2021-1 has an ESG Relevance Score of '4' for Customer Welfare -
Fair Messaging, Privacy & Data Security, due to the pool exhibiting
an interest-only maturity concentration of legacy non-conforming OO
loans of greater than 20%, which has a negative impact on the
credit profile, and is relevant to the ratings in conjunction with
other factors.
TSQ2021-1 has an ESG Relevance Score of '4' for Human Rights,
Community Relations, Access & Affordability, due to a significant
proportion of the pool containing OO loans advanced with limited
affordability checks, which has a negative impact on the credit
profile, and is relevant to the ratings in conjunction with other
factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
[*] UK: Scottish Firms in Critical Financial Distress Up 25.9%
--------------------------------------------------------------
Scott Reid at The Scotsman reports that the number of Scottish
firms on the brink of collapse jumped by more than a quarter in the
closing months of 2023 as fears continue to grow over a "debt
storm" caused by a string of interest rate hikes and rising costs.
There was a 25.9% rise in levels of Scottish businesses seeing
advanced or "critical" financial distress in the final quarter of
the year compared with the previous three-month period, The
Scotsman relays, citing the findings of the latest Red Flag Alert
from business rescue and recovery specialist Begbies Traynor.
Compared with the same period in 2022, there was a 9.1% increase in
levels of severe distress in the closing quarter of last year, The
Scotsman discloses.
The picture across the UK reflected the trends in Scotland with a
similar quarter-on-quarter uplift in cases of critical distress,
with almost 47,500 UK businesses now affected, The Scotsman notes.
According to The Scotsman, Ken Pattullo, managing partner for
Begbies Traynor in Scotland, said: "It is concerning to see early
and advanced distress in Scotland and, indeed, across the whole of
the UK, continuing to climb. With no respite from high interest
rates and rising costs, both businesses and consumers are
struggling.
"Given the UK's performance in recent years and with further
'stagflation' predicted, a technical recession remains a distinct
possibility in the second half of 2024. This, together with a
climate of global geo-political uncertainty, makes it more
important than ever that businesses proceed with caution and seek
advice from insolvency professionals at the first signs of
trouble."
Some sectors in Scotland were particularly badly hit in the final
months of 2023 with printing and packaging seeing a
quarter-on-quarter rise in critical distress of 150%; hotels
(+111%); professional services (+49%); food and drink (+40%);
leisure and cultural activities (+35%); and construction (+31%),
The Scotsman states. Only two sectors in Scotland saw critical
distress fall since the previous quarter -- travel and tourism
decreased by 23% and utilities by 21%, The Scotsman discloses.
Levels of advanced "significant" distress -- businesses showing
deterioration in key financial ratios and indicators including
those measuring working capital, contingent liabilities, retained
profits and net worth -- also rose in Scotland, by 14.2%
quarter-on-quarter and 5.9% year-on-year, The Scotsman notes. More
than 26,000 Scottish businesses suffered from significant distress
in the fourth quarter of 2023, The Scotsman relays.
===============
X X X X X X X X
===============
[*] BOOK REVIEW: The Titans of Takeover
---------------------------------------
Author: Robert Slater
Publisher: Beard Books
Softcover: 252 pages
List Price: $34.95
Order your personal copy at
http://www.beardbooks.com/beardbooks/the_titans_of_takeover.html
Once upon a time -- and for a very long while -- corporate
behemoths decided for themselves when and if they would merge. No
doubt such decisions were reached the civilized way, in a proper
men's club with plenty of good brandy and better cigars. Like
giants, they strode Wall Street, fearing no one save the odd
trust-busting politico, mutton-chopped at the turn of the twentieth
century, perhaps mustachioed in the 1960s when the word was no
longer trust but monopoly.
Then came the decade of the 1980s. Enter the corporate raiders,
men with cash in hand, shrewd business sense, and not a shred of
reverence for the Way Things Have Always Been Done. These
businesspeople -- T. Boone Pickens, Carl Icahn, Saul Steinberg, Ted
Turner -- saw what others missed: that many of the corporate giants
were anomalies, possessed of assets well worth possessing yet with
stock market performances so unimpressive that they could be had
for bargain prices.
When the corporate raiders needed expert help, enter the investment
bankers (Joseph Perella and Bruce Wasserstein) and the M&A
attorneys (Joseph Flom and Martin Lipton). And when the merger
went through, enter the arbitragers who took advantage of stock
run-ups, people like Ivan "Greed is Good" Boesky.
The takeover frenzy of the 1980s looked like a game of Monopoly
come to life, where billion-dollar companies seemed to change
ownership as quickly as Boardwalk or Park Place on a sweet roll of
dice.
By mid-decade, every industry had been affected: in 1985, 3,000
transactions took place, worth a record-breaking $200 billion. The
players caught the fancy of the media and began showing up in the
news until their faces were almost as familiar to the public as the
postman's. As a result, Jane and John Q. Citizen's in Wall Street
began its climb from near zero to the peak where (for different
reasons) it is today.
What caused this avalanche of activity? Three words: President
Ronald Reagan. Perhaps his most firmly held conviction was that
Big Business was Being shackled by the antitrust laws, deprived a
fair fight against foreign competitors that has no equivalent of
the Clayton Act in their homelands.
Reagan took office on Jan. 20, 1981, and it wasn't long after that
that his Attorney General, William French Smith, trotted before the
D.C. Bar to opine that, "Bigness does not necessarily mean badness.
Efficient firms should not be hobbled under the guise of antitrust
enforcement." (This new approach may have been a necessary
corrective to the over-zealousness of earlier years, exemplified by
the Supreme Court's 1966 decision upholding an enforcement action
against the merger of two supermarket chains because the Court felt
their combined share of 8% (yes, that's "eight percent") of the Los
Angeles market was potentially anticompetitive.)
Raiders, investment bankers, lawyers, and arbitragers, plus the fun
couple Bill Agee and Mary Cunningham --remember them? -- are the
personalities Profiled in Robert Slater's book, originally
published in 1987, Slater is a wonderful writer, and he's given us
a book no less readable for being absolutely stuffed with facts,
many of them based on exclusive behind-the-scenes interviews.
About The Author
Robert Slater (1943-2014) was an American author and
journalist. He was known for over two dozen books, including
biographies of political and business figures like Golda Meir,
Yitzhak Rabin, George Soros, and Donald Trump. Slater graduated
with honors from the University of Pennsylvania in 1966, with a
degree in political science. He received a master's degree in
international relations from the London School of Economics in
1967.
*********
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