/raid1/www/Hosts/bankrupt/TCREUR_Public/240321.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
Thursday, March 21, 2024, Vol. 25, No. 59
Headlines
A U S T R I A
SIGNA DEVELOPMENT: Fitch Affirms Then Withdraws 'D' LongTerm IDR
SIGNA PRIME: Klaus-Michael Kuehne in Talks on Emergency Loan
F R A N C E
FNAC DARTY: S&P Rates New EUR500MM Senior Unsecured Notes 'BB+'
G E R M A N Y
DOUGLAS GMBH: Fitch Puts 'B-' LongTerm IDR on Watch Positive
PROGROUP AG: Moody's Affirms 'Ba3' CFR & Alters Outlook to Stable
PROGROUP AG: S&P Alters Outlook to Negative, Affirms 'BB' LT ICR
I R E L A N D
AVOCA CLO XXIX: Fitch Assigns 'B-(EXP)sf' Rating to Class F Notes
I T A L Y
RED & BLACK AUTO: Moody's Ups Rating on EUR21MM D Notes from Ba1
L U X E M B O U R G
RADAR BIDCO: S&P Assigns Preliminary 'B+' LT ICR, Outlook Stable
SUNSHINE LUXEMBOURG VII: Fitch Puts 'B' LongTerm IDR on Watch Pos.
N E T H E R L A N D S
PB INTERNATIONAL: Fitch Affirms 'C' Senior Unsecured Notes Rating
N O R W A Y
HURTIGRUTEN GROUP: S&P Downgrades Issuer Credit Rating to 'SD'
S P A I N
BOLUDA TOWAGE: Moody's Hikes CFR to B1 & Alters Outlook to Stable
BOLUDA TOWAGE: S&P Alters Outlook to Stable, Affirms 'BB-' ICR
S W E D E N
INTRUM AB: S&P Cuts ICR to 'B' on Evaluation of Capital Structure
SAS AB: US Bankruptcy Court Approves Chapter 11 Plan
S W I T Z E R L A N D
SUNSHINE LUXEMBOURG: Moody's Puts 'B2' CFR on Review for Upgrade
T U R K E Y
TURKIYE: Fitch Hikes LongTerm IDR to 'B+', Outlook Positive
U N I T E D K I N G D O M
DG RISK: Enters Administration, Liabilities Total GBP367,392
HNVR MIDCO: Moody's Upgrades CFR to B2 & Alters Outlook to Stable
SEAFOOD PRODUCTS: Collapses Into Administration
T DOBSON: Goes Into Administration
TRADESMITH LIMITED: Goes Into Administration
TRICIS LIMITED: Falls Into Administration
X X X X X X X X
[*] Landfair Capital Closes Inaugural Fund, Landfair EDO
- - - - -
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A U S T R I A
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SIGNA DEVELOPMENT: Fitch Affirms Then Withdraws 'D' LongTerm IDR
----------------------------------------------------------------
Fitch Ratings has affirmed Signa Development Selection AG's (Signa
Development) Long-Term Issuer Default Rating (IDR) at 'D', and
subsequently withdrawn the rating.
Signa Development's rating reflected its self-administration
insolvency proceeding initiated on 29 December 2023.
The rating has been withdrawn for commercial reasons. Accordingly,
Fitch will no longer provide rating or analytical coverage on Signa
Development.
KEY RATING DRIVERS
Insolvency Procedure Continues: Signa Development continues
operations under the supervision of the court-appointed insolvency
administrator. The company plans to repay its debt according to its
restructuring plan. Under the Austrian law such a plan requires a
minimum 30% of the insolvent entity's debt to be repaid within two
years. The plan is scheduled for approval at its creditors' meeting
in mid-March 2024.
DERIVATION SUMMARY
Not applicable as the rating has been withdrawn.
KEY ASSUMPTIONS
Not applicable as the rating has been withdrawn.
RATING SENSITIVITIES
Rating sensitivities are not applicable given the rating
withdrawal.
LIQUIDITY AND DEBT STRUCTURE
Not applicable as the rating has been withdrawn.
ESG CONSIDERATIONS
Signa Development has an ESG score of '5' for Group Structure
reflecting its complexity, transparency as an unlisted entity and
high levels of related-party transactions including recent cash
outflows. This has a negative impact on the credit profile, and is
highly relevant to the ratings in conjunction with other factors.
Signa Development has an ESG score of '5' for Governance Structure.
This reflects the previous active participation of the founder
within Signa Development without being a supervisory or management
board member of Signa Development. Fitch understands from
management the founder has now stepped down from this active
participation. This has a negative impact on the credit profile,
and is highly 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.
Following the withdrawal of Signa Development rating, Fitch will no
longer be providing the associated ESG Relevance Scores.
Entity/Debt Rating Prior
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Signa Development
Selection AG LT IDR D Affirmed D
LT IDR WD Withdrawn D
SIGNA PRIME: Klaus-Michael Kuehne in Talks on Emergency Loan
------------------------------------------------------------
Arno Schuetze at Bloomberg News reports that Signa Prime and the
holding company of logistics billionaire Klaus-Michael Kuehne are
in talks about handing the insolvent property firm a lifeline as
creditors meet to discuss its restructuring plan.
Kuehne Holding, a Signa Prime shareholder, and some banks are
considering an emergency loan for more than EUR100 million (US$109
million), Bloomberg relays, citing people familiar with the matter.
According to Bloomberg, it would provide liquidity to cover bills
and continue construction on developments, they said, asking not to
be identified discussing private information.
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F R A N C E
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FNAC DARTY: S&P Rates New EUR500MM Senior Unsecured Notes 'BB+'
---------------------------------------------------------------
S&P Global Ratings assigned its 'BB+' issue rating and '3' recovery
rating to the proposed EUR500 million senior unsecured notes set to
be issued by FNAC Darty S.A. (Fnac). The '3' recovery rating
indicates its expectation of meaningful recovery prospects
(50%-70%; rounded estimate: 65%) in the event of a default.
Fnac--which sells leisure products, consumer electronics, and
household appliances--will use the proceeds from the proposed
EUR500 million fixed-rate notes, together with about EUR100 million
of cash on the balance sheet, to redeem EUR300 million senior
unsecured notes coming due in May 2024. It will also repay up to
EUR300 million of the EUR350 million senior unsecured notes due in
May 2026. As part of the transaction, the company will reduce the
amount of the delayed-drawn term loan (DDTL) to EUR100 million,
complementing the existing EUR500 million revolving credit facility
(RCF) with an additional credit facility line.
While the expected higher interest expenses on the proposed notes
will marginally depress Fnac's free cash flow generation, the
proposed transaction is leverage neutral. In the medium term,
management's commitment to reduce the company's leverage to a
reported year-end debt-to-EBITDA ratio of about 1.5x should also
help to cushion the impact of higher interest costs and will
mitigate the risk emanating from the relatively high seasonality in
net debt.
S&P said, "On Feb. 26, 2024, we affirmed our 'BB+' long-term issuer
credit rating on Fnac, with the negative outlook unchanged,
reflecting that we expect difficult trading conditions for brown
and white goods in 2024 due to waning demand and possible supply
chain issues from geopolitical tensions. While we believe that
management should be able to protect the group's profitability by
passing on inflationary pressure to consumers and implement
cost-saving measures, the group's trading performance continues to
depend on the second half of the year, particularly around Black
Friday and the winter gift-giving season, on which we have little
visibility at this stage given the current macroeconomic hurdles in
France. That said, the company's liquidity remains strong,
supported by about EUR1 billion of cash at the transaction's close,
the RCF, and the DDTL, which should enable the company to withstand
volatile intra-year trading conditions without deteriorating Fnac's
financial standing."
Key Metrics
FNAC Darty SA--Forecast summary
--FISCAL YEAR ENDED DEC. 31—
(MIL. EUR) 2022A 2023A 2024E 2025F 2026F
Revenue 7,949 7,875 7,898 8,048 8,207
EBITDA (reported) 553 403 518 572 608
Plus/(less): Other 5 92* 7 7 7
EBITDA 558 495 525 579 615
Less: Cash interest paid (47) (56) (68) (74) (73)
Less: Cash taxes paid (70) 8 (21) (35) (43)
Funds from operations (FFO) 441 447 436 469 498
Cash flow from
operations (CFO) 299 517 451 501 531
Capital expenditure (capex) 130 139 118 121 123
Free operating cash flow
(FOCF) after leases (60) 142 95 140 165
Debt (reported) 937 923 806 790 723
Plus: Lease
liabilities debt 1,141 1,145 1,156 1,168 1,179
Plus: Pension and other
postretirement debt 110 126 126 126 126
Less: Accessible cash
and liquid Investments (917) (1,103) (1,013) (1,110) (1,167)
Plus/(less): Other -- 40§ 40 40 40
Debt 1,270 1,130 1,115 1,013 901
Cash and short-term
investments (reported) 932 1,121 1,029 1,128 1,186
ADJUSTED RATIOS
Annual revenue growth (%) (1.2) (0.9) 0.3 1.9 2
EBITDA margin (%) 7.0 6.3 6.6 7.2 7.5
Debt/EBITDA (x) 2.3 2.3 2.1 1.7 1.5
FFO/debt (%) 34.7 39.5 39.1 46.3 55.3
EBITDAR coverage ratio (x) 2 1.7 1.7 1.8 1.9
All figures are adjusted by S&P Global Ratings, unless stated as
reported.
a--Actual.
e--Estimate.
f--Forecast.
*Excluding the impact from the EUR85 million French Competition
Authority fine.
§Adjusting for the factoring program.
Issue Ratings - Recovery Analysis
Key analytical factors
-- S&P rates Fnac's proposed EUR500 million senior unsecured notes
and its EUR50 million 2.625% unsecured bond maturing in 2026 'BB+',
in line with the long-term issuer credit rating.
-- The recovery rating is '3', indicating S&P's expectation of
meaningful recovery prospects (50%-70%; rounded estimate: 65%) in
the event of default.
-- S&P's hypothetical default scenario assumes intense competition
in the French electronics retail market, alongside a severe
macroeconomic downturn, leading to a deterioration in the group's
margins and operating performance.
-- S&P values Fnac as a going concern, underpinned by its leading
position in French consumer electronics and home appliances retail,
its strong store network, and solid brand equity.
Simulated default assumptions
-- Year of default: 2029
-- Jurisdiction: France
-- Emergence EBITDA: EUR170 million
-- EBITDA multiple: 5.5x
Simplified waterfall
-- Gross enterprise value: EUR933 million
-- Net recovery value for waterfall after administrative expenses
(5%): EUR886 million
-- Estimated senior unsecured debt claims: EUR1.09 billion [1]
-- Recovery rating: 3 (recovery expectations 50%-70%, rounded
estimate: 65%)
[1] All debt amounts include six months of prepetition interest.
RCF and DDTL assumed 85% drawn at default.
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G E R M A N Y
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DOUGLAS GMBH: Fitch Puts 'B-' LongTerm IDR on Watch Positive
------------------------------------------------------------
Fitch Ratings has placed Douglas GmBH's 'B-' Long-Term Issuer
Default Ratings (IDR) and its instrument ratings of 'B' and 'CCC'
on Rating Watch Positive (RWP).
The RWP reflects the potential for Douglas's credit profile to
improve as result of the announced intention to list the company,
raise around EUR1.1 billion of new equity and apply proceeds to
reduce debt as well as refinance remaining debt. Management also
stated it plans to pursue further de-leveraging. In Fitch's view,
this could result in a one or more notches upgrade.
Fitch will likely upgrade the IDR upon completion of the new
capital structure that would follow the planned IPO. The magnitude
of the upgrade will depend on pro-forma leverage and fixed charge
interest cover at completion, as well as the further de-leveraging
trajectory resulting from the group's future dividend policy.
KEY RATING DRIVERS
RWP Reflects Planned Deleveraging: Douglas's planned IPO launch and
debt reduction could support an upgrade of its IDR. Douglas
announced earlier this week that it intends to utilise part of the
expected around EUR800 million proceeds from the IPO, together with
around EUR300 million equity investment from its current
controlling shareholders to reduce debt by around EUR1.1 billion
and subsequently further reduce leverage. Under the current
sensitivities, Fitch could upgrade the IDR to 'B' subject to
leverage dropping below 6.5x, the EBITDAR fixed-charge coverage
ratio remaining above 2.0x, sustained positive free cash flow (FCF)
and strong business performance.
Capitalised Leases: As of end-September 2023, Douglas had gross
debt of just over EUR2.5 billion, consisting of EUR1.3 billion of
secured notes and EUR0.6 billion of senior payment-in-kind (PIK)
notes that it will seek to redeem early, as well as a EUR0.7
billion term loan B. However, given that the company's stores are
mostly leased and based on its corporate rating methodology, Fitch
calculates a lease-adjusted debt position of EUR4.9 billion
including financial debt and capitalised leases. This leads to
high, albeit improved, lease-adjusted EBITDAR-based gross leverage
of 7.2x at end-2023 (end-2022: 8.2x), supporting the current
rating.
Improving Credit Metrics: Fitch estimates that the announced debt
reduction could lead to leverage metrics strongly improving to
5.1x-5.3x, a level that is consistent with a mid to high 'B'
category IDR. The debt reduction, in conjunction with the company's
prospective debt refinancing, could allow savings on interest
payments and potentially increase the currently weak EBITDAR
fixed-charge coverage of 1.5x, towards the minimum level of 2.0x
that Fitch would consider consistent with an upgrade from 'B-'.
Strong Business Recovery: Douglas performed strongly in the
financial year ending September 2023 (FY23) and 1QFY24, with
like-for-like sales growth of 13.4% and 7.5%, respectively,
following very strong growth of 22% in FY22. This growth resulted
from a post-pandemic recovery in demand for beauty products, as
well as Douglas increasing prices and improving its product mix.
The Fitch-adjusted EBITDA margin improved to 9.6% in FY23, after
being unsustainably low in FY20-FY21. The company generated EUR48
million of FCF in FY23. It could maintain or increase this, subject
to its post-IPO dividend policy and a potential reduction in
interest payments costs.
Discretionary Consumer Spending on Beauty: Despite being subject to
discretionary consumer spending, beauty has been less susceptible
to cyclicality than other retail sub-sectors, such as consumer
electronics, furniture and apparel. Together with Douglas's leading
market position, this should moderate the impact of stagnating
consumer spending in 2024. Fitch projects revenue will still grow
in FY24 and margins will remain intact, as potential weakness
during the rest of the year should be limited while the strong
Christmas performance of 1QFY24 - Douglas's most important quarter
- supports overall results.
Douglas's existing rating drivers are detailed in "Fitch Revises
Douglas's Outlook to Stable; Affirms IDR at 'B-'", dated 13 March
2023.
DERIVATION SUMMARY
Fitch assesses Douglas's rating using its Ratings Navigator for
non-food retailers. Fitch also compares its credit profile with
mainly store-based luxury and online beauty retailers, given its
strong and increasing e-commerce capabilities, as well as with
selected branded-beauty product companies. Douglas is one of
Europe's largest retailers with scale, product breadth and
multi-channel distribution that are commensurate with a 'BB' rating
category business profile. These strengths are balanced by a
currently aggressive financial structure.
Douglas's multi-notch rating difference with luxury, predominantly
store-based retailer Capri Holdings Limited (BBB-/Rating Watch
Negative) is due to its materially stronger operating and cash flow
profitability, as well as lower leverage. Compared with German
electronics retailer Ceconomy AG (BB/Stable), Douglas shows similar
business characteristics in terms of market position, geographic
focus and exposure to discretionary spending, but currently has a
significantly weaker financial profile given Ceconomy's limited
financial debt.
Pure online beauty retailer THG PLC (B+/Negative) is rated two
notches above Douglas, mainly due to a more conservative post-IPO
financial policy with EBITDA gross leverage projected to improve
below 5.5x by FY24. However, THG's Negative Outlook reflects
heightened execution risks as it seeks to improve profit margins
and FCF amid a weakened consumer environment in most of its
markets, stiff competition, and higher costs in 2022-2023, which
are putting pressure on profits.
Comparability of Douglas with The Very Group Limited (B-/Negative)
is limited, given the latter's high exposure to consumer finance
services supporting online retail activities. Very Group also
generates limited FCF but carries higher gross leverage of over
8.0x and a lower EBITDAR margin of around 11%.
The rating of skincare product manufacturer, Sunshine Luxembourg
VII SARL (Galderma; B/Positive), partly reflects similar business
risks to Douglas's, given their exposure to consumer sentiment and
preferences and the importance of marketing investments and
distribution networks as well as fairly highly leveraged capital
structures. Galderma benefits from intrinsically higher operating
and cash flow margins as well as the medicinal nature of some of
its products, which is supported by in-house R&D. Along with scale
and product and geographic breadth, this supports Galderma's higher
IDR.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
Fitch's rating case assumptions currently reflect the basis for a
'B-' IDR and do not reflect post IPO and refinancing completion
assumptions:
Like-for-like sales growth decelerating in FY23-FY24, reflecting
weakening consumer sentiment and smaller price increases
Online sales growing at a faster rate than in-store sales to FY26
Fitch-adjusted EBITDA margin flat at 8.1% in FY23, gradually
improving towards 8.7% in FY26
PIK notes' interest paid cash over FY23-FY26
Annual capex at around 3% of sales over FY23-FY26
No M&A
RECOVERY ANALYSIS
Fitch's Key Recovery Rating Assumptions:
Fitch assumes that Douglas would be considered a going-concern in
bankruptcy and that it would be reorganised rather than
liquidated.
In its bespoke going-concern recovery analysis Fitch considered an
estimated post-restructuring EBITDA available to creditors of
around EUR300 million. In its view, bankruptcy could come as a
result of prolonged economic downturn combined with more
difficulties in the turnaround of the store network or weaker than
expected online performance.
Fitch has used a distressed enterprise value/EBITDA multiple of
5.5x. This is 0.5x higher than the 5.0x mid-point used for the
corporates universe outside the US, due to the company's exposure
to rapid online sales growth and already developed omnichannel
capabilities, which combined with its leading position in Europe
and high brand awareness would result in a higher than average EV
multiple.
Fitch has assumed the EUR170 million senior secured revolving
credit facility (RCF) would be fully-drawn upon default. Secured
creditor claims also include the EUR1,305 million senior secured
notes and the term loan B for EUR675 million. Fitch assumes all
senior secured debt to rank equally among themselves. The EUR475
million senior PIK toggle notes will be subordinated to senior
secured debt.
After deducting 10% for administrative claims, its principal
waterfall analysis generated a ranked recovery for the senior
secured debt in the 'RR3' category with a waterfall generated
recovery computation (WGRC) of 58%, while the senior notes ranked
recovery is in the 'RR6' category with a WGRC of 0%, reflecting
their subordination to a large portion of secured debt.
Instrument ratings have been placed on RWP reflecting the RWP on
the IDR and also expected improvement in recoveries outcome (%),
after the debt reduction from proceeds raised via IPO and equity
injection.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- The completion of the IPO leading us to assess Douglas's credit
profile as stronger due to a lower financial leverage and/or a more
conservative financial policy, would result in an upgrade of at
least one notch.
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- The ratings are on RWP, therefore negative rating action is
unlikely. However, if the IPO and the debt reduction transaction do
not materialise, it could result in the removal of the RWP and
affirmation of the ratings.
For previous rating sensitivities, see "Fitch Revises Douglas's
Outlook to Stable; Affirms IDR at 'B-'" dated 13 March 2023.
LIQUIDITY AND DEBT STRUCTURE
Liquidity to Temporarily Deteriorate: FCF margins improved in FY23
on the completion of the store restructuring programme, despite
some investments still being made in new store openings and
refurbishments. However, FCF absorption in FY24 will likely reduce
available cash. Fitch then expects a gradual recovery from FY25
that should allow Douglas to maintain adequate liquidity to FY26.
Douglas's FY23 unrestricted cash on its balance sheet totaled
EUR162 million. It also had access to EUR160 million under its
committed EUR170 million RCF (EUR10.4 million is reserved for
rental guarantees). Fitch restricts fiscal year-end cash by EUR100
million to consider seasonal working-capital swings. Douglas
benefited from extended maturities following a refinancing in 2021.
All of its debt is now maturing in 2026.
ISSUER PROFILE
Douglas is a leading pan-European beauty and personal care products
retailer present in 27 countries, with number one or two position
in most of its markets.
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
----------- ------ -------- -----
Kirk Beauty SUN
GmbH
Subordinated LT CCC Rating Watch On RR6 CCC
Douglas GmbH LT IDR B- Rating Watch On B-
senior secured LT B Rating Watch On RR3 B
PROGROUP AG: Moody's Affirms 'Ba3' CFR & Alters Outlook to Stable
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Moody's Ratings has affirmed the Ba3 long term corporate family
rating of the German paper-based packaging producer Progroup AG and
its Ba3-PD probability of default rating. Concurrently, Moody's has
assigned a Ba3 instrument rating on the proposed EUR750 million
backed senior secured notes. The rating agency also affirmed the
company's Ba3 instrument ratings on the existing EUR600 million
guaranteed senior secured bonds. The outlook has been changed to
stable from positive.
Proceeds from the backed senior secured notes issuance will be used
to fund the refinancing of the company's existing EUR600 million
guaranteed senior secured bonds as well as to prefund growth
investments and to cover the related transaction fees.
RATINGS RATIONALE
The rating action reflects Moody's expectation that Progroup's
Moody's adjusted gross leverage will increase towards 4.5x,
pro-forma the proposed refinancing as of December 2023. Moody's
also anticipate an additional leverage increase in 2024 due to not
only an increased debt load but also a likely continued downward
trend in earnings on a rolling 12-month basis for several more
quarters. Despite recent signs of selling prices bottoming out, and
a EUR60/ton price increase implemented in March 2024 for the
European containerboard, Moody's expect that the average selling
price this year will still be lower than the 2023 average.
However, Moody's believe Progroup will continue to outperform the
market in terms of volume development. In 2023, Progroup managed to
increase its corrugated board volume by 4.3% despite a market
volume contraction due to destocking and muted economic activity.
Moody's believe the company will strive to increase its market
share, leveraging its cost-efficient and modern asset base to
sustain lower prices for longer, even if it means accepting a lower
profitability than usual.
Progroup adheres to a fairly aggressive growth strategy, expanding
its capacity and investing significantly beyond its maintenance
capex needs notwithstanding that these investments make strategic
sense and will strengthen the company's business profile and
competitive position over time. Consequently, Progroup experienced
phases of substantial negative free cash flow generation, which was
offset by additional debt, as seen during the construction of its
containerboard mill PM3 in 2019-20. This led to a peak leverage of
5.1x at the end of 2020. However, a favorable market environment
amidst the pandemic, coupled with lower capex and higher volumes,
facilitated rapid deleveraging, reducing Moody's adjusted leverage
to 2.1x as early as 2022.
Currently, Progroup is not pursuing such a major investment like
the construction of a new containerboard mill. However, it invests
into several significant projects, including the construction of
two large converters in Germany and Italy, each with a 200k ton
corrugated sheet capacity, a waste-to-energy plant to supply the
PM3 machine, and the purchase of land for a potential PM4 machine
in Stockstadt, Germany. These combined investments will result in
substantial expenditure for 2024. Moody's predict that Progroup's
FCF will turn distinctly negative this year before reverting to
positive in 2025-26 due to lower capex spending. Additionally,
Moody's expect leverage to reach its peak in mid-2024 with a
gradual decline in the second half to around 5.5x at the year-end
2024 and a quicker deleveraging in a stronger market environment to
around 4x - 4.5x in 2025. A deviation from this expectation would
create negative rating pressure.
The rating is mainly supported by (1) the company's high
profitability as Moody's-adjusted EBITDA margin was around 22% on
average over the last five years, which is above industry standards
and even ahead of that of market leaders; (2) cost-efficient asset
base that is technically advanced and conveniently located to limit
transport costs; (3) a financial policy that target maintaining
long-term net leverage ratio below 3.0x (3.2x at the year-end
2023), which is largely commensurate with a Ba rating; and (4) a
track-record of swift deleveraging after capex-driven leverage
spikes.
The rating is primarily constrained by (1) the company's modest
scale, narrow product range and geographical diversification
compared to its larger peers, such as Smurfit Kappa Group plc (Baa3
Ratings Under Review); (2) some degree of operational risk because
its own containerboard products come from three mills in Germany;
(3) volatility in its credit metrics because of significant swings
in input costs and selling prices, reflecting cyclical demand,
exacerbated by periods of oversupply; and (4) the risk of leverage
remaining at a high level because of aggressive growth strategy
that is partially debt-funded.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects Moody's expectation that Progroup's
credit metrics will materially deteriorate in 2024 because of
higher debt load. However, market recovery along with additional
volumes and earnings contribution from growth investments will
improve metrics in 2025 so that Moody's adjusted gross leverage
will decline towards the 3x – 4x range that Moody's deem
appropriate for the Ba3 rating category. Inability to demonstrate a
deleveraging path in the second half of 2024 and throughout 2025
will create negative pressure on the rating.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive rating pressure could arise if:
-- Moody's-adjusted gross debt/ EBITDA below 3x on a sustained
basis;
-- Moody's-adjusted retained cash flow/ debt above 20% on a
sustained basis;
-- Moody's-adjusted EBITDA margin above 20% on a sustained basis.
Conversely, negative rating pressure could arise if:
-- Moody's-adjusted gross debt/ EBITDA above 4x on a sustained
basis;
-- Moody's-adjusted retained cash flow/ debt below 10% on a
sustained basis;
-- Moody's-adjusted EBITDA margin below 15% on a sustained basis;
-- Negative FCF over several years leading to deterioration in
liquidity profile.
LIQUIDITY
Progroup's liquidity profile is solid. The company reported EUR130
million of cash on balance sheet at the year-end 2023. Pro-forma
the proposed refinancing, Progroup's cash position will increase
close to EUR300 million. In addition, in Q3 2023 Progroup has
replaced its EUR50 million revolving credit facility (RCF) with the
new EUR200 million 5-year sustainability linked RCF that remained
fully undrawn. The RCF contains two annual extension options and a
springing covenant in form of a minimum reported EBITDA amount
tested quarterly in case more than 40% of the facility is in use.
Progroup claims that its maintenance capex is very low at around
EUR20-30 million p.a. However, its growth capex varies greatly and
leads to periods of materially negative free cash flow as in
2018-20 during the construction of the PM3. While having been
positive since then, Moody's expect high investments in 2024 to
result in a negative FCF of around EUR130 - EUR170 million,
prefunded through the notes issuance. Moody's assume that lower
investments in 2025-26 will lead to positive FCF once again,
stabilizing Progroup's liquidity at around EUR80-100 million
level.
STRUCTURAL CONSIDERATION
The proposed backed senior secured notes are rated Ba3, in line
with the CFR. This is primarily because senior secured debt
constitutes most of the company's outstanding liabilities, and the
new EUR200 million senior secured revolving credit facility is
ranking pari passu with the bonds. The guarantor pool is strong and
consist of all material subsidiaries representing 88% of revenue,
98% of EBITDA and 96% of assets as of December 2023.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Paper and
Forest Products published in December 2021.
COMPANY PROFILE
Headquartered in Landau, Germany, Progroup AG (Progroup) is one of
the leading European paper-based packaging companies focusing on
the production of containerboard and its conversion into corrugated
sheet board. The company owns three containerboard mills in Germany
and 12 corrugated sheet board plants across six European countries,
as well as one combined heat and power plant in Eisenhüttenstadt,
Germany. In 2023, Progroup generated approximately EUR1.3 billion
of revenue and employed around 1,700 people. The company was
founded by Juergen Heindl in 1992 and remains family owned with the
son of the founders Maximilian Heindl acting as its current CEO
since the beginning of 2023.
PROGROUP AG: S&P Alters Outlook to Negative, Affirms 'BB' LT ICR
----------------------------------------------------------------
S&P Global Ratings revised its outlook on the rating on German
corrugated board producer Progroup AG to negative from stable. S&P
affirmed its 'BB' long-term issuer credit rating on the company and
its 'BB' issue rating on its EUR600 million senior secured notes
due in 2026. At the same time, S&P assigned its 'BB' issue rating
to the proposed EUR750 million senior secured notes. S&P will
remove its issue rating on the existing EUR600 million senior
secured notes upon completion of the refinancing transaction.
The negative outlook reflects a one-in-three chance of a downgrade
if adjusted leverage does not decrease to 4.0x over the next 12
months.
S&P said, "The negative outlook reflects our view that Progroup's
leverage at year-end 2024 will exceed our previous expectation. We
anticipate revenues will increase by 4%-5% in 2024, spurred by
volume growth but partly offset by lower prices. Despite this, we
forecast adjusted EBITDA will decline by about 13% to EUR175
million-EUR185 million in 2024 due to rising recovered paper and
energy prices. We expect EBITDA will recover to EUR220
million-EUR230 million in 2025 because of further volume growth, a
higher absorption of fixed costs, and cost savings. High expansion
capex and weakened adjusted EBITDA will increase adjusted leverage
to about 4.5x in 2024, from 3.2x in 2023. We anticipate leverage
will decline to about 3.5x by 2025 because of higher revenues that
result from volume growth. Yet, leverage will remain on the upper
end of our current rating level.
"Growth capex will continue to constrain adjusted FOCF. Progroup's
greenfield expansion strategy results in weak FOCF cycles every few
years. We expect total capex will peak at about EUR220 million in
2024, from about EUR174 million in 2023, mostly due to the
expansion of the company's corrugated capacity and investments in a
new waste-to-energy plant. We expect negative FOCF of EUR150
million for 2024, down from positive EUR23 million in 2023. The
deterioration in FOCF reflects higher capex, lower EBITDA, and
higher cash interest and tax expenses. We expect FOCF will turn
slightly positive to about EUR20 million-EUR40 million in 2025 as
total capex will decline to about EUR130 million.
"The rating on Progroup is supported by the company's track record
of successfully implementing greenfield expansion projects, a
well-invested asset base, and long-term industry growth prospects.
The rating benefits from long-term industry growth prospects that
are supported by e-commerce and sustainability trends, as well as
relatively stable end-markets. Moreover, Progroup's relatively new
machinery, compared with the industry average, supports its cost
efficiency over the medium term. We also note positively the
company's experience in implementing greenfield expansion projects
and ramping them up to nearly full capacity. Additionally, the
proposed refinancing transaction supports Progroup's liquidity and
extends its debt maturity profile."
The negative outlook reflects a one-in-three chance of a downgrade
if adjusted leverage does not decrease to 4.0x over the next 12
months.
S&P said, "We could downgrade Progroup if the company's leverage
remained above 4.0x over the next 12 months. This could be the
result of lower-than-expected adjusted EBITDA margins, led by an
extended period of adverse pricing pressure in containerboard or
corrugated board. It could also result from an unexpected outage at
one of the company's mills or cost overruns.
"We could revise the outlook to stable over the next 12 months if
Progroup's operating performance helped reduce adjusted leverage to
about 3.0x-3.5x on a sustained basis."
=============
I R E L A N D
=============
AVOCA CLO XXIX: Fitch Assigns 'B-(EXP)sf' Rating to Class F Notes
-----------------------------------------------------------------
Fitch Ratings has assigned Avoca CLO XXIX DAC's expected ratings.
The assignment of final ratings is contingent on the receipt of
final documents conforming to information already reviewed.
Entity/Debt Rating
----------- ------
Avoca CLO XXIX DAC
A-Loan LT AAA(EXP)sf Expected Rating
A-Note XS2756960568 LT AAA(EXP)sf Expected Rating
B XS2756960725 LT AA(EXP)sf Expected Rating
C XS2756961376 LT A(EXP)sf Expected Rating
D XS2756961533 LT BBB-(EXP)sf Expected Rating
E XS2756961707 LT BB-(EXP)sf Expected Rating
F XS2756961962 LT B-(EXP)sf Expected Rating
Subordinated Note
XS2756962184 LT NR(EXP)sf Expected Rating
TRANSACTION SUMMARY
Avoca CLO XXIX DAC is a securitisation of mainly senior secured
obligations (at least 90%) with a component of corporate-rescue
loans, senior unsecured, mezzanine, second-lien loans and
high-yield bonds.
Net proceeds from the note issuance will be used to fund a
portfolio with a target par of EUR400 million. The portfolio will
be actively managed by KKR Credit Advisors (Ireland) Unlimited
Company (KKR). The collateralised loan obligation (CLO) has a
4.6-year reinvestment period and an 8.5-year weighted average life
(WAL) test.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors at 'B'/'B-'. The Fitch weighted
average rating factor of the identified portfolio is 25.6.
High Recovery Expectations (Positive): At least 90% of the
portfolio will comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate of the identified portfolio is 61%.
Diversified Portfolio (Positive): The exposure to the 10 largest
obligors and fixed-rate assets for assigning the expected ratings
is limited to 20% and 12.5%, respectively, to be based on Fitch's
test matrices. The transaction also includes various concentration
limits, including the maximum exposure to the three largest
Fitch-defined industries in the portfolio at 40%. These covenants
ensure that the asset portfolio will not be exposed to excessive
concentration.
Portfolio Management (Neutral): The transaction has a 4.6-year
reinvestment period and includes reinvestment criteria similar to
those of other European transactions. Fitch's analysis is based on
a stressed portfolio with the aim of testing the robustness of the
transaction structure against its covenants and portfolio
guidelines.
Cash Flow Modelling (Positive): The WAL used for the transaction's
Fitch-stressed portfolio analysis is 12 months less than the WAL
covenant, to account for structural and reinvestment conditions
after the reinvestment period, including passing the
over-collateralisation (OC) and Fitch 'CCC' limitation tests, among
other things. Combined with Fitch's loan pre-payment expectations,
this ultimately reduces the maximum possible risk horizon of the
portfolio.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A 25% increase in the mean default rate (RDR) and a 25% decrease in
the recovery rate (RRR) across all the ratings of the current
portfolio would lead to downgrades of no more than one notch for
the class B, C, D and E notes, and to below 'B-sf' for the class F
notes.
Based on the current portfolio, downgrades may occur if the loss
expectation is larger than initially assumed due to unexpectedly
high levels of defaults and portfolio deterioration. Owing to the
current portfolio's better metrics and shorter life than the
stressed-case portfolio, the class F notes display a rating cushion
of three notches, the B, D and E notes of two notches, and the
class C notes one notch.
Should the cushion between the current portfolio and the
stressed-case portfolio be eroded, either due to manager trading or
negative portfolio credit migration, a 25% increase in the mean RDR
and a 25% decrease in the RRR across all the ratings of the
stressed-case portfolio, would lead to downgrades of up to four
notches for the notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction in the RDR and a 25% increase in the RRR across all
the ratings of the stressed-case portfolio would lead to upgrades
of up to four notches for the notes, except for the 'AAAsf' rated
notes, which are at the highest level on Fitch's scale and cannot
be upgraded.
During the reinvestment period, based on the stressed-case
portfolio, upgrades may occur on better-than-expected portfolio
credit quality and a shorter remaining WAL test, leading to the
ability of the notes to withstand larger-than-expected losses for
the remaining life of the transaction.
After the end of the reinvestment period, upgrades may occur on
stable portfolio credit quality and deleveraging, leading to higher
credit enhancement and excess spread being available to cover
losses in the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Avoca CLO XXIX DAC
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
=========
I T A L Y
=========
RED & BLACK AUTO: Moody's Ups Rating on EUR21MM D Notes from Ba1
----------------------------------------------------------------
Moody's Ratings has upgraded the ratings of the notes in Red &
Black Auto Italy S.r.l. The rating action reflects the increase of
credit enhancement for the affected Notes.
Moody's affirmed the rating of the notes that had sufficient credit
enhancement to maintain its current rating.
EUR945M Class A Notes, Affirmed Aa3 (sf); previously on Feb 6,
2023 Affirmed Aa3 (sf)
EUR15M Class B Notes, Upgraded to A1 (sf); previously on Feb 6,
2023 Upgraded to A3 (sf)
EUR19M Class C Notes, Upgraded to A3 (sf); previously on Feb 6,
2023 Upgraded to Baa2 (sf)
EUR21M Class D Notes, Upgraded to Baa3 (sf); previously on Feb 6,
2023 Upgraded to Ba1 (sf)
RATINGS RATIONALE
The rating action is prompted by the increase in credit enhancement
for the affected tranches.
Key Collateral Assumptions
As part of the rating action, Moody's reassessed its default
probability and portfolio credit enhancement assumptions for the
portfolio reflecting the collateral performance to date. The
performance of the transaction has been stable since closing. Total
delinquencies have remained largely unchanged in the past year,
with 90 days plus arrears currently standing at 0.62% of current
pool balance. Cumulative defaults are 0.58% of the original
balance. Moody's maintained the default probability at 1.50% of the
current portfolio balance. Moody's also maintained the portfolio
credit enhancement at 10.0%.
Increase in Available Credit Enhancement
The credit enhancement available for the Classes B, C and D Notes
increased to 9.98%, 6.02% and 1.64% from 7.55%, 4.36% and 0.84%
respectively since the previous rating action. The rated tranches
are currently redeeming principal pro rata and the reserve fund is
now non-amortising.
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Auto Loan- and Lease-Backed ABS" published in
November 2023.
Factors That Would Lead to an Upgrade or Downgrade of the Ratings:
Factors or circumstances that could lead to an upgrade of the
ratings include: (1) performance of the underlying collateral that
is better than Moody's expected, (2) an increase in available
credit enhancement, (3) improvements in the credit quality of the
transaction counterparties and (4) a decrease in sovereign risk.
Factors or circumstances that could lead to a downgrade of the
ratings include: (1) an increase in sovereign risk, (2) performance
of the underlying collateral that is worse than Moody's expected,
(3) deterioration in the Notes' available credit enhancement, and
(4) deterioration in the credit quality of the transaction
counterparties.
===================
L U X E M B O U R G
===================
RADAR BIDCO: S&P Assigns Preliminary 'B+' LT ICR, Outlook Stable
----------------------------------------------------------------
S&P Global Ratings assigned its preliminary 'B+' long-term issuer
credit rating to Radar Bidco S.a.r.l. (Swissport), and its
preliminary 'B+' issue rating to the proposed term loan.
The stable outlook reflects S&P's forecast of consistent EBITDA
improvement over the next 12 months, underpinned by successful
implementation of cost-saving measures and proactive revenue
management.
Swissport's fair business risk profile reflects its position as the
world's leading independent provider of airport logistics services.
This includes a No. 1 position for ground handling, with a market
share of about 15%, and a No. 2 position in cargo handling, with a
market share of about 13%. Swissport benefits from its reputation
as a well-established brand with high quality and safety standards,
its greater breadth of services than competitors, and its global
footprint. In addition, Swissport's position in cargo handling is
reinforced by its 114 warehouses secured on long 10- to 20-year
leases. These factors support Swissport's high annual contract
retention rate of about 90% and its ability to stay highly
competitive in winning new contracts as airlines increasingly
outsource ground and cargo handling. We also acknowledge
Swissport's solid average contract length with its customers of
about 3.5 years.
Swissport benefits from its broad geographic footprint and
reasonable customer diversity. In 2022, Swissport generated 49% of
its revenue from Europe, the Middle East, and Africa (EMEA), 40%
from the Americas, and 11% from the Asia-Pacific region, from over
850 customers in 302 airports globally. Its customer base is
diversified, with its 10 top customers contributing 34% of revenue
and its 50 top customers contributing 66% of revenue (in the 12
months ended July 2023) across many contracts.
On the other hand, Swissport's business risk profile is constrained
by inherent volatility in air freight and passenger flights.
Although Swissport's cargo revenue (about 23% of revenue in 2023)
was resilient to pandemic-related shocks, it is exposed to
potential cyclicality in air freight volumes. Swissport's ground
handling revenue (about 77% of revenue in 2023) dropped sharply in
2020-2021 as air passenger flights fell during the pandemic. While
S&P assumes there will be more stability in the long term,
Swissport remains exposed to potential cyclicality in passenger
flights susceptible to general economic prospects and unforeseen
geopolitical events.
Swissport has solid profitability. Swissport's S&P Global
Ratings-adjusted EBITDA margin improved to about 11% in 2023 and
S&P forecasts that it should see further improvement in 2024 to at
least its pre-pandemic level of about 12% or above, after it was
squeezed to just 6.5% in 2022, due to the unprecedented
acceleration in wage inflation and high exceptional costs, as the
company's ground handling business was recovering from the
pandemic. The forecast improvement should be supported by
Swissport's value creation plan, with EUR73 million in cumulative
cost savings to be realized by 2026 (for example, from
transformation of its commercial organization and operations,
continuous standardization and digitalization of operations, and
rostering optimization).
Swissport's aggressive financial risk profile reflects its
financial sponsor (FS-5) ownership. S&P said, "We forecast that
Swissport's S&P Global Ratings-adjusted gross debt to EBITDA will
be about 4.2x in 2024 (compared with an opening level of about 5x).
We understand that its private equity owners, including Strategic
Value Partners (SVP), intend to maintain leverage not higher than
the opening level, consistent with the debt documentation, which
restricts the company from incurring additional debt such that its
senior secured net leverage would exceed the opening level, and
aligned with their intention of a potential exit, which may be via
an IPO."
S&P said, "Our base-case forecast assumes stable demand for air
passenger travel, with dynamic pricing offsetting cost inflation
and potential volatility in cargo volumes. Swissport's aircraft
ground handling volumes recovered close to the pre-pandemic level
in 2023, from 83% in 2022, and we assume growth will normalize and
track the global GDP growth rate of about 3% in 2024-2025. This is
in line with our expectation for airlines (Swissport's major
customers), which we think will continue benefitting from robust
passenger volumes in 2024, supported by uninterrupted demand for
travel that has so far remained resilient to increased living costs
and interest rates. That said, the pace of global air passenger
traffic growth appears to be softening given supply side challenges
(such as delays in aircraft deliveries, issues with engines, and
some aircraft types) that will continue in 2024-2025 in our view.
We also consider acceleration in air traffic growth in
Asia-Pacific, which was still lagging the rest of the world in 2023
(especially international travel to and from China). We expect
cargo volumes to continue normalizing from record-high levels in
2021, fueled by supply chain bottle necks related to the pandemic.
In 2022, cargo volumes fell 5.4% and then further by close to 2% in
2023. We forecast a 1%-3% decline in 2024, followed by a moderate
growth resumption. We view our total revenue growth forecast of
5%-7% in 2024-2025 (after 18% in 2023 and 57% in 2022) as
achievable, as we understand that Swissport will continue
implementing moderate price increases on its contracts both in
ground and cargo handling to offset lingering cost inflation. This
is supported by favorable underlying industry conditions and
Swissport's leading market positions.
"We see limited headroom for operating underperformance or higher
debt--as such we apply a negative comparable ratings analysis
modifier. This could hinder the opening pro forma gross adjusted
debt to EBITDA of about 5.0x from decreasing to below 4.5x, which
is the threshold for a higher 'BB-' rating. Moreover, we have not
yet observed a track record of adjusted leverage below 4.5x.
"The final ratings will depend on our receipt and satisfactory
review of all final transaction documentation. The preliminary
ratings should not be construed as evidence of final ratings. If we
do not receive final documentation within a reasonable time frame,
or if final documentation departs from materials reviewed, we
reserve the right to withdraw or revise our ratings. Potential
changes include, but are not limited to, use of loan proceeds,
maturity, size and conditions of the loans, financial and other
covenants, security, and ranking.
"The stable outlook reflects our forecast of consistent EBITDA
improvement over the next 12 months. This is underpinned by
successful implementation of cost-saving measures under the value
creation plan and proactive revenue management offsetting lingering
wage cost inflation and supported by underlying growth in air
passenger travel and cargo volumes. It also reflects our
expectation that Swissport will not contemplate potential
shareholder distributions or debt-funded acquisitions, even though
permitted by the financing documentation, or undertake them in such
a way that it would result in Swissport's S&P Global
Ratings-adjusted gross debt to EBITDA (adjusted gross leverage
ratio) of above 5x.
"We could lower the rating if Swissport's adjusted debt to EBITDA
stayed above 5x for a prolonged period, as compared with an opening
leverage level of about 5x. This could happen if operating
performance falls significantly short of our base-case forecast,
such that revenue growth stalls or margins do not recover to at
least pre-pandemic levels. This could also occur if the company
decides to follow a more aggressive financial policy with large
debt-funded shareholder distributions or acquisitions, in which
case we would very likely revise our financial sponsor assessment
to FS-6.
"We could raise the rating if Swissport lowers its adjusted debt to
EBITDA below 4.5x and demonstrates a commitment to sustain it at
that level, underpinned by its intention of an exit, which may be
via an IPO, within the next 12-24 months."
SUNSHINE LUXEMBOURG VII: Fitch Puts 'B' LongTerm IDR on Watch Pos.
------------------------------------------------------------------
Fitch Ratings has placed Sunshine Luxembourg VII SARL's (Galderma)
'B' Long-Term Issuer Default Rating (IDR) and 'B+' senior secured
rating on Rating Watch Positive (RWP). The rating action follows
the announcement of the planned equity sale on the initial public
offering (IPO) and intention to use the up to USD2.3 billion
proceeds for debt repayment.
The RWP reflects its estimates that in the event of successful
completion of the IPO and subsequent debt repayment, Galderma will
deleverage to materially below its positive leverage sensitivity.
This is likely to lead to a multi-notch upgrade, placing the IDR
comfortably in the 'BB' rating category.
Fitch expects to resolve the RWP upon the completion of the IPO and
debt repayment.
KEY RATING DRIVERS
IPO to Accelerate Deleveraging: Galderma's planned use of the IPO
equity proceeds will lead to further debt reduction, with
Fitch-calculated EBITDA leverage declining toward 3.0x through 2024
from an estimated 5.4x at end-2023. This follows the USD1 billion
debt repayment completed during 2H23 from proceeds of the private
placement of newly-issued shares from current shareholders, new
investors and management.
Increasing Profitability Aids Deleveraging Capacity: Fitch
estimates Galderma's Fitch-calculated EBITDA margin improved to
above 22% in 2023, mainly driven by growing operational leverage,
gains from premiumisation and cost savings following its spin-off
in 2019, despite high R&D investments in nemolizumab. Fitch expects
some normalisation of the Fitch-calculated EBITDA margin in 2024 at
around 22.5% after faster-than-anticipated realisation of EBITDA
margin improvement targets.
Resilient Growth Potential: According to Galderma's preliminary
2023 results, the group's revenue grew by 8.5% to USD4 billion in
2023, in line with Fitch's expectations, despite softening
macroeconomic environment in many regions of operations. This was
driven by volume growth in all product categories, acceleration of
expansion in international markets such as China, India and Brazil,
as well as market share gains and progress on portfolio expansion.
The company also benefitted from growth in injectable aesthetics,
with strong momentum in neuromodulators and a recovering fillers
market.
Improving Financial Flexibility: Upon IPO completion, Fitch expects
improvement in the group's financial flexibility with enhanced
liquidity and access to capital markets, in addition to a lower
leveraged financial structure. The potential upgrade indicated by
the RWP would be further supported by the company's commitment to
its medium-term target of EBITDA leverage at below 2x, signalling a
prudent financial policy.
Nemolizumab to Boost 2025 Earnings: Galderma's new product
nemolizumab, for the treatment of itch in people with atopic
dermatitis and prurigo nodularis disease, has completed Phase III
trials with a good overall efficacy results. Nemolizumab has
received regulatory filings acceptances for two indications in the
US and the EU. Fitch has assumed revenue ramp up from USD150
million over 2025-2026 in the Fitch rating case, suggesting further
opportunities for EBITDA growth and deleveraging toward the
company's long-term leverage target.
DERIVATION SUMMARY
Fitch rates Galderma under its Global Rating Navigator Framework
for Consumer Companies. Under this framework, Fitch recognises that
its operations are driven by marketing investments, a
well-established and diversified distribution network and the
moderate importance of R&D-led innovation capability. Its
prescription business benefits from a consolidated business profile
with diversification by product and geography, and good exposure to
mature markets, although these carry execution risks.
Compared with global consumer Fitch-rated peers, such as Johnson &
Johnson and Unilever PLC (A/Stable) and Allergan plc, Galderma's
business risk profile is weighed down by its smaller scale and
weaker diversification. Higher leverage has been the key difference
for Galderma's rating compared with international peers across both
the consumer and pharma sectors.
Relative to personal care peers Natura & Co Holding S.A.
(BB/Positive) and Avon Products, Inc. (BB/Positive), which Fitch
rates on the basis of the consolidated profile of their parent
Natura & Co, Galderma has lower scale and pre-IPO higher leverage,
with the second factor to be resolved in the event of a successful
IPO and debt repayment.
Fitch also compares Galderma with packaged food company Sigma
HoldCo BV (B/Positive), which has comparable EBITDA. Despite higher
leverage (pre-IPO) at Galderma, the group benefits from stronger
business profile with better growth prospects and wider
diversification. Galderma now exhibits a faster expected
deleveraging trajectory due to planned debt repayment upon IPO
completion and margins reinforcement, reflected in the RWP.
KEY ASSUMPTIONS
- Sales of USD4 billion in 2023 with high single-digit annual sales
growth from 2024 onwards
- Fitch-defined EBITDA margin sustainably above 22% over 2023-2026
- Capex of around 3.5-5.0% of sales in 2025-2026
- Working-capital outflow of USD21 million in 2023 due to
supply-phasing payments and higher safety stock, followed by USD50
million annual outflows to 2026
- Bolt-on M&A of USD40 million annually from 2024. Earn-out payment
in 2024 of USD50 million related to its Alastin acquisition
RECOVERY ANALYSIS
The recovery analysis assumes that Galderma would be restructured
as a going concern rather than liquidated in a default.
In its bespoke recovery analysis, Fitch estimates going concern
EBITDA available to creditors of USD520 million. The going concern
EBITDA is based on a stressed scenario reflecting operational
issues at its prescription business (loss of patent protection;
delays or higher investments to develop the pipeline of new
products) or perpetuated by lower growth and weaker margin
development than envisaged in the aesthetics and consumer product
categories in an inflationary environment. The going concern EBITDA
reflects Fitch's view of a sustainable, post-reorganisation EBITDA
level on which Fitch bases its valuation.
Fitch applies a distressed enterprise value-to-EBITDA multiple of
6.0x to calculate a going concern enterprise value, reflecting
Galderma's large scale and business diversity.
Galderma's USD500 million senior secured revolving credit facility
is assumed to be fully drawn on default and ranks pari passu to its
senior secured first-lien term loans (USD3.6 billion). Therefore,
after deducting 10% for administrative claims, its waterfall
analysis output percentage of 65% generates a ranked recovery for
the senior secured loans in the 'RR3' band, leading to a 'B+'
instrument rating, one notch above the IDR.
The RWP on the instrument rating suggests improved recovery post
the IPO completion and debt repayment.
RATING SENSITIVITIES
Fitch expects to resolve the RWP upon completion of the IPO and
announced debt reduction strategy
Independent of the IPO completion:
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Maintenance of healthy operating performance translating in FCF
margin rising towards 5% as well as a commitment to a more
conservative financial policy
- Gross leverage consistently below 7x EBITDA
- EBITDA interest coverage increasing towards 3.0x
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Gross leverage was above 8.0x EBITDA
- EBITDA interest coverage weakened to below 2.0x
- FCF margin deteriorated to neutral to negative
LIQUIDITY AND DEBT STRUCTURE
Improving Financial Flexibility: At December 2023, Galderma's
liquidity of USD825 million included USD368 million of cash on
balance sheet and USD457 million undrawn under the revolving credit
facility. Following the private placement of USD1 billion for
subordinated and senior debt repayment, total financial debt was
USD4.9 billion at end-2023. Upon IPO completion, Fitch expects
further improvement of the group's financial flexibility with
enhanced liquidity and access to capital markets, in addition to a
lower leveraged financial structure.
ISSUER PROFILE
Galderma, formerly Nestle Skin Health, provides medical, aesthetic
and consumer skin care products globally.
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
----------- ------ -------- -----
Sunshine Luxembourg
VII SARL LT IDR B Rating Watch On B
senior secured LT B+ Rating Watch On RR3 B+
=====================
N E T H E R L A N D S
=====================
PB INTERNATIONAL: Fitch Affirms 'C' Senior Unsecured Notes Rating
-----------------------------------------------------------------
Fitch Ratings has downgraded Indonesia-based garment manufacturer
PT Pan Brothers Tbk's Long-Term Issuer Default Rating (IDR) to 'RD'
from 'C'. Fitch has also affirmed the rating on Pan Brothers'
USD171 million senior unsecured notes due December 2025, issued by
PB International B.V. at 'C' with a Recovery Rating of 'RR4'. At
the same time, Fitch Ratings Indonesia has downgraded Pan Brothers'
National Long-Term Rating to 'RD(idn)' from 'C(idn)'.
The rating action follows Pan Brothers' confirmation that it has
failed to cure the missed interest payment due 26 January 2024 on
its USD171 million of 7.625% senior unsecured notes due 2025 upon
expiration of its 30-day grace period.
'RD' National Ratings indicates an uncured payment default on a
bond, loan or other material financial obligation but the issuer
has not entered into bankruptcy filings, administration,
receivership, liquidation or other formal winding-up procedure and
has not otherwise ceased business.
KEY RATING DRIVERS
Bond Coupon Passed Cure Period: Pan Brothers' has not paid a USD6.5
million semi-annual coupon on its USD171 million notes due December
2025 within its grace period. It is in the process of requesting
bondholders to allow the release of the interest reserve account
(IRA) to fulfil this obligation. However, this requires 100%
approval, which may take time to complete.
In addition, the bond indenture stipulates that Pan Brothers must
ensure that there is the equivalent of one semi-annual coupon
amount in the IRA at all times. However, Pan Brothers intends to
request to replenish this amount in instalments given its tight
cash flow. This may not be agreeable to the bondholders
Liquidity Crisis: Pan Brothers' short-term liquidity is critically
weak. Fitch estimates that Pan Brothers had about USD28 million in
cash at end-2023, which included the USD6.5 million in restricted
cash in the IRA.
In addition, negotiations continue on the extension of its USD124
million syndicated loan that was due December 2023, as the company
does not have cash to repay the loan. A waiver has been granted by
the panel banks until 1 April 2024 for completion.
Ongoing Financial Obligations: The default could be prolonged given
that Pan Brothers has multiple financial obligations. The next
interest payment on the December 2025 bond is due in July 2024, and
there are also the negotiations over extending the syndicated loan
facility. Any re-rating would be based on the finalisation of these
agreements and the resultant capital structure.
The company also has high working-capital requirements and limited
access to new funding. It will have to rely on existing bank lines
and its limited cash balance to fund working capital needs.
Liquidity pressure is heightened, as Fitch expects working capital
to remain mildly negative and there are annual maintenance capex
requirements.
Declining Revenue: Fitch estimates revenue to have declined by
around 5% in 2023 on weaker customer demand, with a modest recovery
in 2024. Fitch forecasts the EBITDA margin will remain at around 8%
due to rising wage pressure.
ESG - Management Strategy: Improvement in its cash generation is
dependent on Pan Brothers' strategy development and implementation
in terms of working-capital and debt-maturity management. Its debt
repayment and refinancing capacity relies on its ability to attract
new bank lenders beyond its previous and current lenders, or
finding alternative sources of funding
DERIVATION SUMMARY
The rating reflects the failure to cure missed semi-annual coupon
payment within the grace period.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within the Rating Case for the Issuer:
- Revenue to drop by 5% in 2023. Low single-digit growth in 2024 as
demand recovers;
- Stable EBITDA margin of around 8% in 2023 and 2024 on the
company's cost-plus margin model;
- Capex of around USD4 million in 2023 in the absence of capacity
expansion;
- No dividend payments in 2023-2024.
RECOVERY ANALYSIS
The recovery analysis assumes that Pan Brothers would be
reorganised as a going-concern in bankruptcy rather than
liquidated. Fitch assumes a 10% administrative claim.
Going-Concern Approach
- The going-concern EBITDA estimate reflects Fitch's view of a
sustainable, post-reorganisation EBITDA level upon which Fitch
bases the enterprise valuation.
- Fitch estimates EBITDA at USD62 million to reflect industry
conditions and competitive dynamics.
- An enterprise value multiple of 5x EBITDA is applied to the
going-concern EBITDA to calculate a post-reorganisation enterprise
value. The multiple factors in Pan Brothers' customer quality and
stable demand. The multiple also applies a discount from the median
of around 8x for comparable Asian apparel peers, which are
generally larger than Pan Brothers.
- The going-concern enterprise value corresponds to a 'RR3'
Recovery Rating for the senior unsecured notes after adjusting for
administrative claims. Nevertheless, Fitch has rated the senior
unsecured bonds at 'C' with a Recovery Rating of 'RR4' because,
under its Country-Specific Treatment of Recovery Ratings Criteria,
Indonesia is classified under the Group D of countries in terms of
creditor friendliness, and instrument ratings of issuers with
assets located in this group are subject to a soft cap at the
issuer's IDR and a Recovery Rating of 'RR4'.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive
rating action/upgrade:
- Fitch would reassess Pan Brothers' credit profile and its debt
issuance if a debt restructuring process is completed or there is
successful resolution to the current default.
Factors that could, individually or collectively, lead to negative
rating action/downgrade:
- Fitch may downgrade the ratings to 'D' if Pan Brothers has
entered into bankruptcy filings, administration, receivership,
liquidation or other formal winding-up procedures, or otherwise
ceased business.
LIQUIDITY AND DEBT STRUCTURE
Insufficient Liquidity: Pan Brothers had USD32 million of available
cash and no committed undrawn facilities at end-September 2023.
This is insufficient to cover short-term debt maturities, which
largely constitute a USD124 million syndicated loan that matured in
December 2023. Fitch also estimates free cash flow to have been
negative in 2023, driven by a weaker working capital position,
which will further drag on liquidity.
ISSUER PROFILE
Pan Brothers is one of Indonesia's largest garment manufacturers,
with Adidas and Uniqlo as its main customers. The company has a
production capacity of up to 117 million pieces a year, and exports
represented around 95% of total sales in 2022.
ESG CONSIDERATIONS
Pan Brothers has an ESG Relevance Score of '5' for Management
Strategy, due to the impact of its strategy development and
implementation in terms of working-capital management and funding.
This has a negative impact on the credit profile, and is highly
relevant to the rating, resulting in the weak liquidity position
and high refinancing risk that underpins the rating.
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
----------- ------ -------- -----
PT Pan Brothers Tbk LT IDR RD Downgrade C
Natl LT RD(idn) Downgrade C(idn)
PB International
B.V.
senior
unsecured LT C Affirmed RR4 C
===========
N O R W A Y
===========
HURTIGRUTEN GROUP: S&P Downgrades Issuer Credit Rating to 'SD'
--------------------------------------------------------------
S&P Global Ratings lowered its long-term issuer credit rating on
Norway-based cruise ship operator Hurtigruten Group to 'SD'
(selective default) from 'CC' and its issue ratings on the term
loan B (TLB) and the term loan B1 (TLB1) to 'D' (default) from
'CC'. Subsequently, S&P has withdrawn the ratings on Hurtigruten
Group AS and these instruments. Its 'CCC-' issue rating on the
EUR300 million Explorer II bond remains unchanged because the bond
is not part of the restructuring process.
S&P will re-evaluate Hurtigruten Group's business and financial
prospects under the new capital structure over the next days.
S&P said, "We view Hurtigruten Group's debt restructuring
transaction as a distressed exchange. In our view, the transaction
offers lenders less than they were promised originally and is
therefore tantamount to a default. Under the proposed transaction,
the previous instruments--including the TLB and TLB1 under the NFA
the SFA--now have a more junior ranking, given the EUR205 million
super senior facility as well as the subordination of a part of the
outstanding debt. Debt maturities were extended beyond the original
maturity date. Additionally, the timing of payments has been slowed
because of the capitalization of interest and the fact that a large
proportion of the debt now has a payment-in-kind element. We
believe all these modifications were done without appropriate
compensation. Without the debt restructuring transaction, the
likelihood of a conventional default was high. Therefore, we
lowered our issue rating on the TLB due in February 2026 and the
TLB1 due in February 2027 to 'D' from 'CC'. Our 'CCC-' issue rating
on the EUR300 million Explorer II bond remains unchanged as the
bond is not part of the restructuring process."
=========
S P A I N
=========
BOLUDA TOWAGE: Moody's Hikes CFR to B1 & Alters Outlook to Stable
-----------------------------------------------------------------
Moody's Ratings has upgraded the corporate family rating to B1 from
B2, the probability of default rating to B1-PD from B2-PD and the
existing backed senior secured term loans and backed revolving
credit facility (RCF) ratings to B1 from B2 of Boluda Towage S.L.
Concurrently, Moody's has assigned B1 instrument ratings to the
proposed EUR1,100 million backed senior secured term loan B3 and
EUR110 million backed senior secured RCF. Moody's will withdraw the
instrument ratings on the existing term loans and RCF once the
amend & extend transaction closes as per the rating agency's
practice. The outlook was changed to stable from positive.
"The rating action reflects Boluda's continued solid financial
performance during 2023 and Moody's expectation of ongoing EBITDA
growth to support deleveraging" says Daniel Harlid, Boluda's lead
analyst and Vice President – Senior Credit Officer at Moody's.
"Moody's continue to favorably view Boluda's business profile to
benefit from its critical importance in the maritime ecosystem and
expect that credit metrics will continue to strengthen over the
next 2-3 years", Mr. Harlid added. "The proposed amend & extend
transaction actively addresses the concentrated refinancing risk of
Boluda and Moody's consider the acquisitions as well as the
enlarged rating perimeter being complementary. Nevertheless,
Boluda's meaningful capital expenditures will dampen its free cash
flow generation while the company is facing ongoing inflationary
cost pressure", Mr. Harlid continues.
RATINGS RATIONALE
Boluda's B1 CFR is supported by the company's market-leading
position as World's largest provider of towage services and its
strong track record, with long dated relationships with some of
Europe's largest cargo ports; the critical nature of the services
it provides to its customers and ports; lack of competition in a
large number of ports that it operates in; its history of
relatively low sensitivity to economic cycles, reflected by its
historically stable profitability; and significantly reduced
leverage, with Moody's-adjusted debt/EBITDA estimated at 4.8x as of
December 2023.
However, the rating is constrained by the company's small size,
with revenue of EUR750 million as of 2023 pro forma for the recent
transactions; high fixed-cost base because of contracts with ports
stipulating minimum capacity and significant revenue exposure to
ports in Belgium and the Netherlands, two competitive markets;
relatively weak interest coverage ratios and the exposure to rising
interest rates given the floating debt; and history of limited FCF
generation driven by meaningful capital expenditure.
RATIONALE FOR STABLE OUTLOOK
The stable outlook is based on Moody's expectation of continued
revenue growth of 2%-3%, supporting a Moody's-adjusted EBITA margin
of around 18% over the next 12-18 months. Moody's expect the
company to focus on deleveraging following the recent transactions
and expect Moody's adjusted leverage being maintained around 5.0x.
This, however, leaves no room for shareholder distributions beyond
the projected annual dividend of EUR5 million.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive ratings pressure would continue to build if the company
sustains a Moody's-adjusted debt / EBITDA below 4.5x, an
EBITA/Interest Coverage Ratio maintained above 2.5x and at the same
time shows an EBITA margin maintained above 20% (Moody's adjusted).
A prerequisite for a ratings upgrade would be to continue
generating free cash flow above 5% FCF/debt and maintaining good
liquidity at all times.
Negative ratings pressure could be the result of a debt / EBITDA
ratio above 5.5x while sustaining a EBITA margin below 15%. A
weakening liquidity profile and free cash flow moving toward zero
would also cause negative ratings pressure.
LIQUIDITY PROFILE
Boluda's liquidity is good, supported by a cash balance of EUR89
million pro forma for the proposed transaction and the proposed
increased, fully undrawn revolving credit facility (RCF) of EUR110
million maturing in 2029. Working capital swings are limited and
Moody's expects the company to generate around EUR150 million in
annual funds from operations (per Moody's projections), the
majority of which will be applied towards capital spending for dry
docking and new vessels, amounting to EUR140 million and EUR119
million in 2024 and 2025 and Moody's expect only limited
shareholder distributions. The terms of the RCF require compliance
with one springing covenant, which needs to be tested when the
facility is drawn by more than 40% with a defined covenant level at
9.0x, recently providing ample headroom.
STRUCTURAL CONSIDERATIONS
In Moody's Loss Given Default analysis, the proposed EUR1,100
million Term Loan B3 and the EUR110 million RCF both rank pari
passu with each other. The instruments are guaranteed by companies
within the restricted group, which together account for at least
80% of the consolidated EBITDA (excluding certain jurisdictions)
and are secured by pledges over shares in group companies,
intercompany loans and bank accounts of the issuer. Local
facilities at operating companies are partially secured by assets
and rank ahead of the term loan and RCF but recently limited in
size.
COVENANTS
Moody's has reviewed the marketing draft terms for the new credit
facilities. Notable terms include the following:
Guarantor coverage will be at least 80% of consolidated revenues
(determined in accordance with the credit agreement) and include
material subsidiaries representing 5% or more of consolidated
revenues while excluding subsidiaries generating negative EBITDA as
well as certain jurisdictions. Security will be granted over key
shares, material bank accounts and key receivables.
Incremental facilities are permitted up to EUR235 million or 1.0x
consolidated EBITDA. Unlimited pari passu debt is permitted up to a
company defined senior net leverage ratio of 5.4x.
Restricted payments are permitted if total net leverage is 4.5x or
lower, and the same level applies to restricted investments with
both restrictions being having customary grower baskets.
Adjustments to consolidated EBITDA include cost savings and
synergies including run rate effects of such actions, capped at 15%
of consolidated EBITDA.
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
Headquartered in Madrid, Spain, Boluda is one of the World's
largest providers of maritime towage and related services. Its
origins date back to the early 19th century and the company has
since the start been owned by the same family, Boluda Fos. The
company's fleet of more than 420 vessels generates the bulk of its
revenue in Europe but has operations in Africa and Latin America as
well. In 2023 the company reported revenue of EUR631 million and
EBITDA of EUR189 million.
BOLUDA TOWAGE: S&P Alters Outlook to Stable, Affirms 'BB-' ICR
--------------------------------------------------------------
S&P Global Ratings revised its outlook on Spanish tugboat operator
Boluda Towage S.L. to stable from negative and affirmed its 'BB-'
long-term issuer credit rating on the company. S&P also affirmed
the 'BB-' rating on Boluda's senior secured debt. The recovery
rating on the debt is '3' (50%-70%, rounded recovery estimate:
50%). In addition, S&P assigned its 'BB-' issue rating and '3'
recovery rating (50%-70%, rounded estimate: 50%) to the new
proposed EUR210 million TLB add-on.
The stable outlook hinges on S&P's expectation that Boluda's steady
organic revenue growth, successful integration of new companies,
and sustained EBITDA expansion will offset the anticipated increase
in debt in 2024, translating into adjusted FFO to debt of at least
12%.
S&P said, "Boluda's 2023 EBITDA outpaced our October-2023 base case
while its disciplined use of excess cash resulted in moderately
reduced adjusted debt and credit measures exceeding our
expectations. We expect Boluda's adjusted EBITDA increased to
EUR185 million-EUR190 million in 2023 up from EUR166 million in
2022. This was on the back of a strong 9%-10% revenue growth to
EUR631 million fueled by higher volumes (tug moves) especially in
Europe and Mexico, a positive tariff mix effect (with increased
contribution from typically more profitable liquified natural gas
[LNG], oil and gas, and tanker cargo sectors), and tariff
increases. Higher rates helped to offset the lingering cost
inflation and return profitability to pre-pandemic levels of
EBITDA-to-revenue at about 30%. Our forecast EBITDA has likely
translated into excess cash and somewhat lower adjusted debt in
2023, underpinned by strict cash management, as reflected in lower
gross capital investments of EUR70 million-EUR75 million (below
EUR83 million in 2022) and insignificant dividend distributions. We
expect our adjusted debt decreased to EUR840 million-EUR850 million
in 2023 from EUR889 million in 2022."
Adjusted EBITDA growth will accelerate in 2024 to up to EUR250
million according to S&P's base-case. S&P expects this significant
30% year-on-year growth to be underpinned by:
-- Organic growth from contract renewals and ramp up of recently
won contracts (for example, new LNG contracts in Germany) in the
context of a favorable tariff environment.
-- Equity in kind contributions of smaller towage businesses
(Medtug, Latam Dos, and the Asian businesses, with reported 2023
EBITDA of about EUR27 million in total) from the broader group.
-- Contribution from the completed purchase of Resolve Marine
Services (Gibraltar), which reported EUR5.6 million EBITDA in 2023
and two planned acquisitions of smaller towage service providers
(with closing expected by May 2024).
Boluda's adjusted debt will increase while free operating cash flow
(FOCF) will be low due to high investment into new tugs. S&P
understands that Boluda plans to use proceeds from the proposed
EUR210 million TLB add-on--as part of the senior facilities'
amend-and-extent transaction--to finance acquisitions as well as
the payment for the completed Gibraltar acquisition and partial
debt repayment for the Asian businesses. The transaction also
foresees an extension of the existing EUR890 million TLB and EUR90
million RCF by 3.5 years, including upsizing the latter by EUR20
million. In addition, Boluda will assume new debt from acquisitions
and equity in kind contributions of the towage businesses. S&P
said, "We also expect Boluda to upsize its gross capex to up to
EUR150 million (thereof EUR40 million-EUR45 million for
maintenance) in 2024. This will be to renew its existing fleet and
to acquire new tugboats for recently won contracts, which will
constrain FOCF, although we forecast it will stay slightly
positive. As a result, we expect adjusted debt to increase to
EUR1.2 billion-EUR1.25 billion by 2024-end."
S&P said, "We forecast that credit measures will weaken in 2024 but
stay commensurate with the 'BB-' rating, before rebounding to more
comfortable levels in 2025.Our forecasts indicate a robust organic
top line growth, supplemented by the impact from planned
acquisitions and equity in kind contributed businesses. This,
underpinned by firm EBITDA margins of at least 30% could largely
offset the incremental debt increase and result in adjusted FFO to
debt falling only slightly to 12%-13% (from 13%-14% as per our 2023
base case), which is commensurate with the 12% threshold for the
'BB-' rating on Boluda. From 2025, Boluda could start generating
more meaningful excess cash flows. Under our base case, FOCF will
be up to EUR50 million in 2025 on the back of continued earnings
growth and reduced gross capex. This would result in lower adjusted
debt and, combined with gradually expanding EBITDA, support
adjusted FFO to debt strengthening to about 15%.
"The stable outlook hinges on our expectation that Boluda's steady
2%-3% organic revenue growth, successful integration of new
companies, and sustained adjusted EBITDA expansion will offset the
anticipated increase in adjusted debt in 2024, translating in
adjusted FFO to debt of at least 12%. It also assumes disciplined
financial policy and treasury management, which would respect the
minimal threshold for the 'BB-' rating."
Downside scenario
S&P said, "We could lower the rating if Boluda's EBITDA
underperformed our base case, for example, due to a
lower-than-expected contribution from the newly consolidated
businesses, any unexpected major changes in trading patterns
leading to reduced port activity, for example from heightened
geopolitical risks or large customer losses. This would result in
adjusted FFO to debt falling below 12% with limited prospects for
improvement. A major debt-funded acquisition could also pressure
the rating."
Upside scenario
S&P could raise its rating if Boluda's earnings and cash flow
improved materially and outperformed its base case such that
adjusted FFO to debt strengthened sustainably to at least 18%. This
could occur for example if the group generates
stronger-than-expected FOCF and uses it for debt repayment.
Environmental factors are a negative consideration in S&P's credit
rating analysis of Boluda. Like other ship owners and operators,
the company is exposed to increasingly stringent greenhouse gas
emission regulations. These could lead to higher costs, as cleaner
fuels are more expensive, and accelerate its capital spending on
modern eco-friendly ships or retrofits of existing vessels. That
said, Boluda has passed fuel cost inflation to customers and has a
relatively young and efficient fleet (16 years old versus 50 years
of useful life). The company is also acquiring more environmentally
friendly tugboats. Furthermore, to reduce the gas emissions
produced by the combustion of diesel oil, hulls are kept as clean
as possible for longer; new generation antifouling paint is cutting
down on water resistance.
===========
S W E D E N
===========
INTRUM AB: S&P Cuts ICR to 'B' on Evaluation of Capital Structure
-----------------------------------------------------------------
S&P Global Ratings lowered to 'B' from 'BB-' its long-term ratings
on Nordic debt collector Intrum AB (publ) and its senior notes and
affirmed at 'B' its short-term rating on the company. At the same
time, S&P placed the ratings on CreditWatch with negative
implications. The recovery rating on the senior notes is unchanged
at '4', indicating its expectation of average (30%-50%, rounded
estimate: 40%) recovery in the event of a payment default.
The CreditWatch placement incorporates the significant likelihood
that S&P may lower the ratings on Intrum within the next 90 days if
the prospects of a distressed debt restructuring have further
increased.
S&P said, "We believe that the possibility of a distressed debt
restructuring has increased. Intrum announced that it is appointing
two external advisors (Houlihan Lokey and Milbank) to assist it in
the evaluation of alternatives to strengthen its capital structure.
While management didn't provide guidance on options that it will
consider, we believe that the appointment of external advisors
implies an increased likelihood of a distressed debt exchange that
we previously considered to be unlikely.
"The announcement is inconsistent with our previous expectations.
On Feb. 5, we downgraded the company to 'BB-' because its leverage
(measured as cash-adjusted debt to EBITDA) had increased following
the sale of part of its back book to Cerberus. However, this sale
improved the company's liquidity. Indeed, given its improved
liquidity resources, we saw limited refinancing risks in 2024 and
the first half of 2025. (Intrum has SEK7.9 billion of debt due to
mature in 2024 and SEK13.5 billion due to mature in 2025; in
aggregate, these represent 37% of Intrum's total interest-bearing
liabilities.) We also noted management's commitment to deleverage
through cash flow generation and selective asset sales, toward its
2025-2026 goal of 3.5x cash-adjusted debt to EBITDA. We also
expected the company to issue new debt proactively in capital
markets. Following the announcement and related reaction of the
equity and bond markets, Intrum's access to equity and bond markets
is impaired, in our view, increasing the probability of a
refinancing deal that seeks to extend existing finance.
"In our opinion, the capital structure review could acknowledge
broader challenges in the business. Our downgrade of Intrum through
the comparative rating adjustment reflects our view that the
company's credit profile has weakened but is in transition. For
example, we note that while Intrum remains a leading player within
the distressed debt industry in terms of size and diversity, its
profitability has been deteriorating. The Cerberus sale was part of
a further pivot toward an asset-light, servicing-centric business
model, but while servicing income tends to be more stable and
consistent than investment income, it's typically also less
profitable.
"The CreditWatch placement with negative implications incorporates
the significant likelihood that we would lower the ratings on
Intrum within the next 90 days if the prospects of a distressed
debt restructuring have further increased.
"We could remove our ratings from CreditWatch and affirm them if we
saw improved prospects that the company would achieve a
conventional refinancing of its upcoming debt maturities."
SAS AB: US Bankruptcy Court Approves Chapter 11 Plan
----------------------------------------------------
SAS AB on March 19 disclosed that the U.S. Bankruptcy Court for the
Southern District of New York (the "Court") has approved SAS' Plan
of Reorganization ("Chapter 11 Plan").
The effectiveness of the Chapter 11 Plan remains subject to various
conditions precedent, including approvals from various regulatory
authorities and the completion of a Swedish company reorganization
at the SAS AB level.
SAS currently expects to emerge from the chapter 11 process around
the end of the first half of 2024, and reiterates its expectation
that there will be no recovery for subordinated creditors and no
value for SAS AB's existing shareholders.
All of SAS AB's common shares and listed commercial hybrid bonds
are expected to be cancelled, redeemed and delisted in connection
with emergence from the restructuring proceedings. SAS' operations
and flight schedule remain unaffected by the restructuring
proceedings and SAS will continue to serve its customers in the
ordinary course throughout this process.
SAS initiated voluntary chapter 11 proceedings in the U.S. in order
to accelerate the implementation of its comprehensive business
transformation plan, SAS FORWARD. The aim of the chapter 11
process was to reach agreements with key stakeholders, restructure
the company's debt obligations, reconfigure its aircraft fleet, and
emerge with a significant capital injection.
Over the course of the chapter 11 process, SAS has successfully
reconfigured its aircraft fleet and reached amended lease
agreements with 15 lessors, representing 59 aircraft. Through the
amended lease agreements, SAS expects to achieve the targeted
annual cost savings of at least SEK 1.0 billion in reduced aircraft
lease expenses and annual cash flow items relating to aircraft
financing.
SAS has also successfully concluded a competitive exit financing
solicitation process, selecting Castlelake, L.P., on behalf of
certain funds or affiliates ("Castlelake"), Air France-KLM S.A.
("Air France-KLM") and Lind Invest ApS ("Lind Invest"), together
with the Danish state, as the winning bidder consortium. The agreed
transaction structure includes a total investment in reorganized
SAS corresponding to USD 1,200 million, which includes USD 475
million in new unlisted equity and USD 725 million in secured
convertible debt.
The Chapter 11 Plan, which was approved by the Court on March 19,
is supported by more than 99 percent of the creditors that voted on
the Chapter 11 Plan.
Anko van der Werff, President & Chief Executive Officer of SAS,
comments: "This is a major milestone for SAS in our transformation
plan, SAS FORWARD. The approved Chapter 11 Plan is supported by
more than 99 percent of our creditors that voted, and it sets a
clear path to exiting the restructuring proceedings. We look
forward to emerging as a competitive and financially stronger
airline with a stable equity structure. I would like to thank our
investors and our other stakeholders who have worked constructively
with us in reaching this milestone, and our creditors for their
confidence in our plan. I would also like to thank our employees
for their dedication and determination throughout this process. We
still have work to do but this marks a powerful step towards
realizing SAS' potential to remain at the forefront of the airline
industry for years to come."
The effectiveness of the Chapter 11 Plan remains subject to various
conditions precedent, including approvals from various regulatory
authorities and the completion of a Swedish company reorganization
at the SAS AB level. SAS reiterates its expectation that there will
be no recovery for subordinated creditors and no value for SAS AB's
existing shareholders. All of SAS AB's common shares and listed
commercial hybrid bonds are expected to be cancelled, redeemed and
delisted in connection with emergence from the restructuring
proceedings.
Information regarding chapter 11 cases
Additional information regarding SAS' voluntary chapter 11 cases is
available on SAS' dedicated restructuring website. U.S. court
filings and other documents related to the chapter 11 cases in the
U.S. are available on a separate website administered by SAS'
claims agent, Kroll Restructuring Administration LLC.
Advisors
Weil, Gotshal & Manges LLP is serving as global legal counsel and
Mannheimer Swartling Advokatbyra AB is serving as Swedish legal
counsel to SAS. Seabury Securities LLC and Skandinaviska Enskilda
Banken AB are serving as investment bankers, and Seabury Securities
LLC is also serving as restructuring advisor to SAS. Skadden, Arps,
Slate, Meagher & Flom LLP is serving as legal counsel, Rothschild &
Co is serving as investment banker, and SkyWorks Holdings LLC is
serving as aviation consultant to Castlelake. White & Case LLP,
Euclid Law and Sheppard, Mullin, Richter & Hampton LLP are serving
as co-legal counsel to Air France-KLM. Bech-Bruun Law Firm P/S is
serving as legal counsel and Latham & Watkins LLP is serving as US
legal counsel to Lind Invest. Wilkie Farr & Gallagher LLP is
serving as legal counsel, Jefferies LLC is serving as investment
banker, AlixPartners, LLP is serving as financial advisor, Alton
Aviation Consultancy LLC is serving as industry advisor, and DLA
Piper LLP is serving as Scandinavian counsel to the Official
Committee of Unsecured Creditors.
About Scandinavian Airlines
SAS SAB -- https://www.sasgroup.net/ -- Scandinavia's leading
airline, with main hubs in Copenhagen, Oslo and Stockholm, is
flying to destinations in Europe, USA and Asia. In addition to
flight operations, SAS offers ground handling services, technical
maintenance, and air cargo services. SAS is a founder member of the
Star Alliance, and together with its partner airlines offers a wide
network worlxdwide.
SAS AB and its subsidiaries, including Scandinavian Airlines
Systems Denmark-Norway-Sweden and Scandinavian Airlines of North
America Inc., sought protection under Chapter 11 of the U.S.
Bankruptcy Code (Bankr. S.D.N.Y. Lead Case No. 22-10925) on July 5,
2022. In the petition filed by Erno Hilden, authorized
representative, SAS AB estimated assets between $10 billion and $50
billion and liabilities between $1 billion and $10 billion.
Judge Michael E. Wiles oversees the cases.
The Debtors tapped Weil, Gotshal & Manges, LLP as global legal
counsel; Mannheimer Swartling Advokatbyra AB as special counsel;
FTI Consulting, Inc. as financial advisor; Ernst & Young AB as tax
advisor; and Seabury Securities, LLC and Skandinaviska Enskilda
Banken AB as investment bankers. Seabury is also serving as
restructuring advisor. Kroll Restructuring Administration, LLC is
the claims agent and administrative advisor.
The U.S. Trustee for Region 2 appointed an official committee to
represent unsecured creditors in the Debtors' Chapter 11 cases. The
committee is represented by Willkie Farr & Gallagher, LLP.
=====================
S W I T Z E R L A N D
=====================
SUNSHINE LUXEMBOURG: Moody's Puts 'B2' CFR on Review for Upgrade
----------------------------------------------------------------
Moody's Ratings has placed the ratings of Sunshine Luxembourg VII
SARL (Galderma or the company) on review for upgrade, including its
B2 long-term corporate family rating, its B2-PD probability of
default rating, and the B1 ratings on the company's senior secured
bank credit facilities. Previously, the outlook was stable.
The rating action follows the company's announcement on March 13,
2024 that it has launched an initial public offering (IPO) on the
SIX Swiss Stock Exchange. The company plans to raise proceeds of
CHF2.0 billion to CHF2.3 billion ($2.3 billion to $2.6 billion),
with a free float of between 20.8% and 22.1%, implying a market
capitalisation of CHF11.8 billion to CHF12.6 billion ($13.4 billion
to $14.3 billion).
RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR
DOWNGRADE OF THE RATINGS
The review for upgrade follows Galderma's IPO filing, which, if
executed, should boost the company's financial flexibility through
its access to public equity markets, improve its liquidity profile
and lead to a positive impact on adjusted leverage. On completion,
expected on March 25, 2024, the company will apply part of the IPO
proceeds, alongside proceeds from a new approximately $2.9 billion
debt financing, to prepay in full its existing external debt
facilities.
Moody's expects that if the IPO is successful, the company's
Moody's-adjusted debt / EBITDA will reduce below 3.5x from 5.9x as
at December 2023, pro forma for the transaction. Leverage is
expected to reduce further to below 3x in 2024 through continued
earnings growth. The debt reduction will also improve the company's
interest cover metrics, with Moody's-adjusted EBITDA / interest
expected to exceed 4x in 2024, compared to 1.5x in 2023. After the
IPO Moody's expects the company to generate material positive free
cash flow from 2024, compared to breakeven free cash flow in 2023.
During 2023, Galderma reported strong performance, with sales above
$4 billion for the first time, driven by volume growth, product mix
and price increases. In line with top line growth, company-adjusted
Core EBITDA margin expanded by around 200 basis points to 23.1%. In
2024, the company guides for a 7% – 10% top line growth at
constant currencies but flat Core EBITDA margin due to the planned
increased investments related to R&D and commercial launch of
potential blockbuster dermatology drug nemolizumab.
Moody's review will focus on (i) the deleveraging impact of the
IPO, (ii) Galderma's financial policy post-IPO, (iii) the group's
new ownership structure and strategic objectives, and (iv) an
evaluation of the current and forecasted operating trends and FCF
generation capacity. Moody's expects the company to adopt a more
conservative financial policy as a listed company, which is a
governance consideration under Moody's General Principles for
Assessing Environmental, Social and Governance Risks Methodology.
Moody's expects the review to conclude shortly after closing of the
IPO in late March. Should the IPO and debt reduction conclude as
envisaged, Moody's expects the CFR could be upgraded by at least
two notches.
Before the ratings were placed on review, Moody's stated that:
The ratings could be upgraded if (1) the company continues to
maintain organic revenue and EBITDA growth at least in the
mid-single digit percentages; and (2) the company's
Moody's-adjusted leverage reduces towards 5x on a sustainable
basis; and (3) its Moody's-adjusted cash flow from operations to
debt sustainably increases above 10%; and (4) the company maintains
a financial policy targeted at deleveraging, with no material
debt-funded acquisitions or shareholder distributions.
The ratings could be downgraded if (1) the company's revenues or
EBITDA fail to grow on an organic basis; or (2) its
Moody's-adjusted gross debt/EBITDA increases towards 6.5x on a
sustained basis; or (3) the company does not increase its
Moody's-adjusted cash flow from operations to debt sustainably
above 5%; or (4) the company undertakes material debt-funded
acquisitions or shareholder distributions; or (5) liquidity
deteriorates.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Pharmaceuticals
published in November 2021.
CORPORATE PROFILE
Headquartered in Zug, Switzerland, Galderma is a leading skincare
company offering injectable aesthetics, therapeutic dermatology and
dermatological skincare products. Established in 1981, it has over
6,500 employees and was a wholly-owned subsidiary of Nestlé S.A.
(Aa3 stable) until a consortium of financial sponsors led by EQT
and ADIA carved it out in mid-2019. In 2023, the company reported
revenue of $4.1 billion.
===========
T U R K E Y
===========
TURKIYE: Fitch Hikes LongTerm IDR to 'B+', Outlook Positive
-----------------------------------------------------------
Fitch Ratings has upgraded Turkiye's Long-Term Foreign-Currency
Issuer Default Rating (IDR) to 'B+' from 'B'. The Outlook is
Positive.
KEY RATING DRIVERS
The upgrade of Turkiye's IDR and the Positive Outlook reflects the
following key rating drivers and their relative weights:
High
Stronger Policies, Reduced Vulnerabilities: The upgrade reflects
increased confidence in the durability and effectiveness of
policies implemented since the pivot in June 2023, including
greater-than-expected frontloading of monetary policy tightening,
in reducing macroeconomic and external vulnerabilities. Inflation
expectations have eased and external liquidity risks have
moderated, reflected by more favourable external financing
conditions, higher reserves, lower FX-protected deposits and a
narrowing current account deficit.
The Positive Outlook reflects Fitch's expectation that Turkiye's
overall macroeconomic policy stance should be consistent with a
significant decline in inflation (albeit inflation will likely
remain significantly higher than rating peers), as well as a
continued reduction in external vulnerabilities in terms of lower
current account deficits and stronger liquidity buffers.
Reduced External Liquidity Risks: International reserves stood at
USD131 billion at the beginning of March, USD32 billion higher than
June 2023. Reserves declined in the first two months of the year,
but in Fitch's view the decline is temporary and reflects reduced
portfolio inflows, maturing FX-protected deposits, winter-related
seasonality in external payments and some election-related
uncertainty. The structure of reserves remains weak, as the central
bank's net foreign asset position (minus FX swaps) remains
negative, at minus USD62 billion in early March, although this is
an improvement from minus USD76 billion in June.
Fitch expects that lower current account deficits, sustained
improvement in external financing conditions and some portfolio
inflows will lift international reserves to USD148 billion at
end-2024 and USD159 billion by end-2025, raising reserve coverage
to 4.5 months of current external payments, above the 3.7 months
projected for 'B' peers. FX-protected deposits, which Fitch views
as a contingent claim on international reserves, declined to USD77
billion at end-February from USD130 billion at the end of August.
Policy Shift Makes Progress: The central bank has tightened
monetary conditions through a combination of larger-than-expected
interest rate hikes to 45% (3650bp since June), absorption of
excess liquidity through reserve requirements and deposit auctions,
and targeted credit policies. Inflation expectations have eased,
and overall credit growth has slowed, but it remains high for
household loans. FX and FX-protected deposits declined to 56% of
total deposits at end-February 2024 (down 13pp since June 2023),
driven by lower FX-protected deposits.
Any premature easing of monetary policy or additional stimulus in
terms of income or fiscal policy, although not expected, would
undermine the benign effects of the policy adjustment given the
high level of inflation and inflation expectations, and weakened
monetary policy transmission mechanisms
Inflation Declines, but Remains High: Fitch forecasts inflation to
average 58% in 2024 and finish the year at 40%, above the central
bank's intermediate target of 36%. Fitch's base case assumes that a
tight monetary policy stance in combination with strengthened
consistency of fiscal, income and credit policies will bring
inflation down to 29% in 2025, still multiples of the projected 'B'
and 'BB' medians.
Medium
Lower Current Account Deficits: As subdued external demand will
dampen exports, the majority of the external deficit correction
will come from lower consumer and gold imports due to slower
domestic demand and the expected continuation of the policy
rebalancing process. Fitch forecasts the current account deficit to
fall to 2.6% of GDP in 2024, from 4.2% of GDP in 2023, while
recovery in Turkiye's main trading partners, continued growth in
tourism receipts and a relatively tight policy stance will lead the
deficit to decline further to 2.2% of GDP in 2025, below the 2.6%
projected for the 'B' median.
Total external debt maturing over the next 12 months was USD226
billion at end-2023, leaving Turkiye vulnerable to changes in
investor sentiment. There is a record of resilience in access to
external financing for the sovereign and private sector.
Turkiye's 'B+' IDRs also reflect the following key rating drivers:
Wider Deficits, Low Debt: The central government budget deficit
rose to 5.2% of GDP, the largest since 2009, but below the 6.4%
budgeted projection. As earthquake-related spending reached an
estimated 3.6% of GDP in 2023, the government comfortably met its
objective to maintain an underlying central government deficit
(without accounting for earthquake reconstruction costs) below 3%
of GDP. Fitch forecasts that the central government budget deficit
will remain roughly stable in GDP terms at 5.2%, as Fitch expects
that year to be the main year for earthquake reconstruction
(projected at 2.6% of GDP), before declining sharply to 3% of GDP
in 2025 as reconstruction costs fade.
Fitch estimates that general government debt declined to 30.4% of
GDP in 2023, as high nominal GDP growth and negative real
government yields in the domestic market outweighed higher
borrowing and significant lira depreciation. Fitch forecasts debt
to remain relatively stable, but interest payments to increase
(10.3% of government revenues in 2025), as the share of debt
subject to interest rate re-fixing within 12 months is high at 54%.
Despite increased issuance of local-currency debt and repayment of
foreign-currency debt issued in the local market, the share of
foreign-currency denominated debt remained high at 64% in 2023.
Growth to Slow Down: Growth was resilient at 4.5% in 2023, but
Fitch expects that a tighter policy mix weighing more forcefully on
domestic demand and private consumption after 1Q24, combined with
relatively weak external demand, will result in growth slowing to
2.8% in 2024. Growth could then pick up slightly to 3.1% in 2025 on
improved growth prospects for Turkiye's main trading partners.
Local Elections, Geopolitics: Its base case assumes that the
outcome of the local elections in March will not lead to a policy
reversal. Governance indicators, as measured by the World Bank,
have weakened continuously over the past decade and represent a
weakness relative to 'B' and 'BB' peers. The volatile regional
environment and the efforts to maintain an active and independent
foreign policy bring geopolitical challenges, but these are not
expected to affect the rating in the near term.
ESG - Governance: Turkiye has an ESG Relevance Score (RS) of '5'
for both Political Stability and Rights and for the Rule of Law,
Institutional and Regulatory Quality and Control of Corruption.
Theses scores reflect the high weight that the World Bank
Governance Indicators (WBGI) have in its proprietary Sovereign
Rating Model. Turkiye has a medium WBGI ranking at the 33rd
percentile reflecting a moderate level of rights for participation
in the political process, moderate but deteriorating institutional
capacity due to increased centralisation of power in the office of
the president and weakened checks and balances, uneven application
of the rule of law and a moderate level of corruption.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Macro: Failure to maintain a policy mix consistent with reducing
risks to macroeconomic and financial stability, including through a
significant decline in inflation.
- External Finances: Failure to improve the level and composition
of international reserves, for example, as a result of reduced
market confidence in the commitment to consistent macroeconomic
policies.
- Structural Features: Deterioration of the domestic political or
security situation or international relations that affects the
economy and external finances.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Macro: Evidence of sustained progress in Turkiye's disinflation
process and greater confidence that the current policy
normalisation and rebalancing process will lead to a sustained
decline in inflation.
- External Finances: Sustained strengthening in external buffers,
for example due to increased capital inflows, which in turn leads
to improvements in the level and composition of international
reserves and reduced dollarisation.
SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO)
Fitch's proprietary SRM assigns Turkiye 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
score to arrive at the final LT FC IDR by applying its QO, relative
to SRM data and output, as follows:
The removal of the -1 notch for Macro reflects Fitch's view that
the effects of previously weak monetary policy relative to 'B'
peers, including political interference, in recent years is being
captured in the high inflation figures feeding into the SRM, and
its forward-looking assessment that the current macroeconomic
policy direction will lead to lower inflation and reduced
macroeconomic and financial stability risks.
- External Finances: -1 notch, to reflect a very high gross
external financing requirement, low international liquidity ratio,
a weak central bank net foreign asset position, and risks of
renewed balance of payments pressures in the event of changes in
investor sentiment.
Fitch's SRM is the agency's proprietary multiple regression rating
model that employs 18 variables based on three-year centred
averages, including one year of forecasts, to produce a score
equivalent to a LT FC IDR. Fitch's QO is a forward-looking
qualitative framework designed to allow for adjustment to the SRM
output to assign the final rating, reflecting factors within its
criteria that are not fully quantifiable and/or not fully reflected
in the SRM.
COUNTRY CEILING
The Country Ceiling for Turkiye is 'B+', in line with the LT FC
IDR. This reflects no material 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
'0' notches above the IDR. Fitch's rating committee did not apply a
qualitative adjustment to the model result.
ESG CONSIDERATIONS
Turkiye has an ESG Relevance Score of '5' for Political Stability
and Rights as World Bank Governance Indicators 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 Turkiye has a
percentile rank below 50 for the respective Governance Indicator,
this has a negative impact on the credit profile.
Turkiye has an ESG Relevance Score of '5' for Rule of Law,
Institutional & Regulatory Quality and Control of Corruption as
World Bank Governance Indicators 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 Turkiye has a percentile rank
below 50 for the respective Governance Indicators, this has a
negative impact on the credit profile.
Turkiye has an ESG Relevance Score of '4' for Human Rights and
Political Freedoms as the Voice and Accountability pillar of the
World Bank Governance Indicators is relevant to the rating and a
rating driver. As Turkiye has a percentile rank 50 for the
respective Governance Indicator, this has a negative impact on the
credit profile.
Turkiye has an ESG Relevance Score of '4' for International
Relations and Trade, as Turkiye faces the risk of renewed balance
of payments pressures in the event of changes in investor sentiment
given the high external financing requirements., which has a
negative impact on the credit profile, is relevant to the rating
and a rating driver.
Turkiye 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 Turkiye, as for all sovereigns. As Turkiye
has a track record of 20+ years without a restructuring of public
debt and captured in its SRM variable, this has a positive 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
----------- ------ -----
Turkiye LT IDR B+ Upgrade B
ST IDR B Affirmed B
LC LT IDR B+ Upgrade B
LC ST IDR B Affirmed B
Country Ceiling B+ Upgrade B
senior
unsecured LT B+ Upgrade B
Hazine
Mustesarligi
Varlik Kiralama
Anonim Sirketi
senior
unsecured LT B+ Upgrade B
===========================
U N I T E D K I N G D O M
===========================
DG RISK: Enters Administration, Liabilities Total GBP367,392
------------------------------------------------------------
Business Sale reports that DG Risk Consultants Limited, a risk and
security management consultancy based in Devon, fell into
administration on March 15, with the Gazette confirming the
appointment of Siann Huntley and Sean Ward of Leonard Curtis as
joint administrators on March 19.
According to Business Sale, in the company's accounts for the year
to December 31, 2020, its fixed assets were valued at GBP3.1
million and current assets at GBP3.2 million. However, the
company's debts at the time left it with net liabilities totalling
GBP367,392, Business Sale discloses.
HNVR MIDCO: Moody's Upgrades CFR to B2 & Alters Outlook to Stable
-----------------------------------------------------------------
Moody's Ratings has upgraded HNVR Midco Limited's (HBX Group or the
company, formerly known as Hotelbeds) long term corporate family
rating to B2 from B3 and the probability of default rating to B2-PD
from B3-PD. Concurrently, Moody's has also upgraded the ratings of
the backed senior secured revolving credit facility (RCF) and
backed senior secured term loans issued by HNVR Holdco Limited, a
subsidiary of HBX Group, to B2 from B3. The outlook on all ratings
changed to stable from positive.
HBX Group, through its subsidiary HNVR Holdco Limited, is
contemplating to reprice its guaranteed senior secured term loan B2
due September 2028 and term loan D due September 2027. As part of
the contemplated transaction, the Company will repay the stub of
EUR148 million of guaranteed senior secured term loan B1 due
September 2025 by upsizing the term loan D by EUR148 million.
EUR240 million of existing cash on balance sheet will also be used
to fund a shareholder distribution.
RATINGS RATIONALE
The rating action reflects HBX Group's strong performance during
the fiscal year that ended in September 2023 (fiscal year 2023),
which Moody's expect to continue improving on a sustainable basis,
the resultant strengthening of credit metrics that are commensurate
with a B2 rating, and Moody's view that the company's financial
policy is commensurate with the higher rating levels despite the
planned shareholder distribution.
In fiscal year 2023 HBX Group's total transaction value (TTV)
increased 37% to EUR8.1 billion, with room nights volumes above
2019 levels. Benefiting from a gross profit margin improvement to
7.8% from 6.8% and high operating leverage, HBX Group's
company-adjusted EBITDA improved to EUR354 million from EUR160
million in fiscal year 2022. The first quarter of fiscal year 2024
(ended in December 2023) has continued to show strong momentum,
with last twelve months company-adjusted EBITDA at EUR369 million.
As a result of the strong performance, credit metrics improved to
levels in line with the B2 rating expectations, with
Moody's-adjusted leverage and free cash flow (FCF) to debt (before
working capital inflows) standing at 5.2x and 7.8%, respectively,
as of the end of fiscal year 2023. The transaction launched aiming
at repricing the guaranteed senior secured term loans B2 and D and
repaying the guaranteed senior secured term loan B1 with an
upsizing of the guaranteed senior secured term loan D and planned
EUR240 million shareholder distribution from cash on balance, is
broadly neutral to the rating. This transaction will moderately
improve the maturity profile of the company while Moody's considers
that HBX Group's liquidity profile will remain good pro forma for
the shareholder distribution.
HBX Group's rating is also supported by its leading market position
in a fragmented industry; and diversification in terms of
customers, hotel suppliers, and source and destination geographies.
Concurrently, the B2 CFR is constrained by the company's still
relatively weak credit metrics; a competitive accommodation
distribution market and risks of disintermediation; risks from
exogenous shocks (for example, pandemics and terrorism),
cybersecurity threats and system disruptions; and the risk of
shareholder friendly actions.
RATING OUTLOOK
HBX Group's stable rating outlook reflects Moody's expectation that
the company's credit metrics will remain commensurate with the B2
ratings triggers over the next 12 to 18 months. The outlook
incorporates Moody's assumption that there will be no significant
increase in leverage from any future debt-funded acquisitions or
shareholder distributions, and that the company will maintain a
good liquidity position.
LIQUIDITY
HBX Group has good liquidity. As of December 31, 2023, the company
had EUR716 million of liquidity, consisting of EUR468 million of
cash on balance and a fully undrawn EUR248 million backed senior
secured revolving credit facility (RCF). Pro forma for the EUR240
million shareholder distribution, Moody's estimates cash on balance
will remain above EUR150 million at the lowest point of the working
capital cycle, which together with forecast positive
pre-shareholder distribution FCF generation of above EUR150 million
in fiscal years 2024 and 2025 support the rating agency's liquidity
assessment. Liquidity sources are ample to cover the expected
intra-year working capital swings and ensure compliance with a
EUR75 million minimum liquidity covenant. However, the reduction of
the RCF to EUR157 million from September 2024 onwards may weaken
the company's access to external sources of financing, in
particular during times of lower market access, which may also
coincide with periods where travel demand is weak and working
capital dynamics negative.
STRUCTURAL CONSIDERATIONS
HBX Group's capital structure consists of a fully undrawn EUR248
million senior secured RCF, thereof EUR90 million maturing in
September 2024 and EUR157 million maturing in September 2026; a
EUR148 million guaranteed senior secured term loan B1 maturing in
September 2025; a EUR760 million guaranteed senior secured term
loan B2 maturing in September 2028; a EUR400 million guaranteed
senior secured term loan C and a EUR400 million guaranteed senior
secured term loan D, both maturing in September 2027. The term
loans and the RCF are rated in line with the CFR, reflecting the
first-lien-only structure and the pari passu ranking of the
facilities.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Positive rating pressure could develop if the company delivers
revenue and EBITDA growth, such that Moody's-adjusted leverage
improves to towards 4.0x; Moody's-adjusted FCF/debt improves well
above 10%; and Moody's-adjusted EBITA/ interest expense improves
towards 3.0x, all on a sustained basis. Any positive rating action
would also consider a review of market dynamics.
Negative rating pressure could develop if the company's revenue and
EBITDA development is weaker than expected, such that
Moody's-adjusted leverage weakens to above 5.5x; Moody's-adjusted
FCF/debt falls below 5%; or Moody's-adjusted EBITA/ interest
expense weakens to below 2.0x, all on a sustained basis; or if the
company's liquidity deteriorates.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
HBX Group is a leading independent business-to-business (B2B)
travel marketplace and technology solutions provider with a strong
global footprint (around thrice as large as the number two
competitor, according to management). Through its accommodation
business (88% of company-adjusted EBITDA), the company distributes
hotel rooms to the travel industry from an inventory of around
200,000 hotels across more than 170 countries and serving around
60,000 clients in more than 190 countries. Additionally, the
company also distributes mobility and experiences (e.g., transfers,
car rentals and activities) on a B2B basis, and operates a range of
travel-related ventures. In the 12 months that ended December 31,
2023, HBX Group reported a gross operating profit (GOP) of EUR664
million and company-adjusted EBITDA of EUR369 million, according to
unaudited financials.
SEAFOOD PRODUCTS: Collapses Into Administration
-----------------------------------------------
Business Sale reports that Seafood Products Limited, a wholesaler
of fish based in Farnham, Surrey, fell into administration on March
11, with the Gazette posting the appointment of Danny Allen of 360
Insolvency as administrator on March 13.
According to Business Sale, in the company's accounts for the year
to March 31, 2023, it reported turnover of GBP33.1 million,
compared to GBP24.8 million for its previous reporting period from
January 1, 2022, to March 31, 2022, while going from a post-tax
loss of GBP267,545 to a profit of GBP22,025.
At the time, its fixed assets were valued at around GBP285,000 and
current assets at GBP3.7 million, while net assets amounted to just
under GBP1.7 million, Business Sale discloses.
T DOBSON: Goes Into Administration
----------------------------------
Business Sale reports that T Dobson & Sons (Produce) Limited, a
fruit and vegetable wholesale group based in Preston, fell into
administration earlier this month, with David Acland and Martyn
Rickels of FRP Advisory appointed as joint administrators.
According to Business Sale, in the company's accounts for the year
to March 31, 2022, it reported turnover of GBP35.1 million, up from
GBP27.2 million a year earlier, but saw its pre-tax profits plummet
from just under GBP148,000 to GBP30,275.
At the time, its fixed assets were valued at GBP2.1 million and
current assets at GBP5.9 million, while net assets amounted to
slightly under GBP1.8 million, Business Sale discloses.
TRADESMITH LIMITED: Goes Into Administration
--------------------------------------------
Business Sale reports that Tradesmith Limited, a manufacturer of
windows, doors and conservatories based in Hailsham, East Sussex,
fell into administration earlier this month, with Nicola Fisher and
Christopher Herron of Herron Fisher appointed as joint
administrators.
According to Business Sale, in the company's accounts for the year
to March 31, 2023, its fixed assets were valued at GBP106,345 and
current assets at just under GBP750,000. At the time, its net
assets were valued at GBP443,317, Business Sale notes.
TRICIS LIMITED: Falls Into Administration
-----------------------------------------
Business Sale reports that TriCIS Limited, a designer and
manufacturer of Secure Integrated Solutions (SIS) primarily for
clients in the government and defence sectors, fell into
administration on March 7, with the appointment of Lucinda Coleman
and Nicholas Harris of Francis Clark as joint administrators
confirmed by the Gazette on March 19.
According to Business Sale, in the company's accounts for the year
ending March 31, 2023, its fixed assets were valued at close to
GBP2.1 million and current assets at GBP769,115. At the time, its
net assets totalled GBP615,736, Business Sale notes.
===============
X X X X X X X X
===============
[*] Landfair Capital Closes Inaugural Fund, Landfair EDO
--------------------------------------------------------
Landfair Capital ("Landfair" or the "Firm"), an independent
investment firm specializing in providing liquidity solutions in
European real estate markets that are underserved by traditional
sources of capital, on March 18 announced the close of its
inaugural fund, Landfair EDO.
Focusing on Germany, Ireland, the UK, and Spain, the pan-European
Fund provides innovative and structured capital solutions. Landfair
specializes in situations that require a deep fundamental
understanding of asset values and in identifying pockets of
inefficiency or dislocation within key European markets. This
includes non-performing loans and distressed debt, credit and
hybrid strategies, and special situations.
Landfair was founded in 2020 by Jonathan Fragodt and Stefan Jaeger,
who each bring over 20 years of investment experience and a strong
track record in European distress and credit opportunities.
Starting their careers in Germany, both founders have a proven
track record, consistently delivering attractive returns across
various market cycles. Before Landfair, Mr. Fragodt was a partner
at Castlelake, having previously worked at AB CarVal (formerly
Cargill Value Investment). Mr. Jaeger served as Managing Director,
Acquisitions, at Colony Capital, having previously spent ten years
in investment banking, specializing in structured finance and
distressed debt.
In 2021, Landfair entered a strategic partnership with B-Flexion.
As an anchor investor, B-Flexion made a significant capital
commitment to Landfair EDO as well as to future Landfair investment
products. Other investors in the Fund include a high-quality mix of
European and US institutional investors, family offices, and
charitable foundations.
Mr. Fragodt, co-founder, and partner at Landfair, said: "The close
of Landfair EDO allows us to focus on the new and developing
opportunity set in European real estate-backed credit markets. As a
new manager, Landfair is free to focus on the new distressed
opportunity set without the burden of having to manage a legacy
portfolio that has been adversely impacted by the recent economic
downturn.
"We want to thank our limited partners for their support. We are
proud to have their trust and their long-term commitment. We are
optimistic about the future and very excited for the next
chapter."
Since the initial close of Landfair EDO, the Fund has deployed
approximately half of total commitments.
"Our investment strategy has been tested through multiple market
cycles throughout our careers, and we expect significant
opportunities to deliver strong performance in the current and
future market environment. Our extensive sourcing network enables
Landfair to be very disciplined in our selection criteria, and we
apply a consistent investment approach to extract value through
active management, restructuring, and the repositioning of assets,"
said Stefan Jaeger, co-founder, and partner, Landfair.
"We believe the next few years, in particular, will be
characterized by great opportunities for dislocated investing."
* * *
Aaron Bass, Senior Consultant at Montfort Communications Ltd., says
Landfair expects to deploy capital to European real estate
opportunities valued at over EUR400 million during the investment
period of the fund, and already has some notable deals including
Citi's new European bank headquarters at Waterfront South Central
in Dublin's North Docklands.
About Landfair
Landfair -- http://www.landfair.com-- is an independent
alternative private credit manager focused on European asset backed
dislocated opportunities. The firm was founded in 2020 by an
experienced management team with offices in Zug, Switzerland and
London, UK. Landfair specializes in providing capital and liquidity
through innovative and structured solutions, with a focus on
complex transactions and high-quality assets with limited
competition due to capital dislocation.
About B-Flexion
B-Flexion -- http://www.bflexion.com-- is a private,
entrepreneurial investment firm, partnering with sophisticated
capital to meet the shared goal of delivery exceptional value over
generations. The firm invests in and partners with asset managers
across sectors including Private Equity, Venture Capital,
Infrastructure, Technology, Real Estate, Hedge Funds, Public and
Private credit and Public Securities. In addition to seeding and
building asset managers, the firm also drives expansion by growing
operating businesses in transformative industries principally in
the fields of Life Sciences, Healthcare Services and Digital
Health.
Media Contact:
Gay Collins
Montfort Communications
gaycollins@montfort.london
+44 (0)7798 626282
Aaron Bass
Montfort Communications
Bass@montfort.london
+44 (0)7800 666 380
*********
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