/raid1/www/Hosts/bankrupt/TCREUR_Public/240501.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
Wednesday, May 1, 2024, Vol. 25, No. 88
Headlines
F R A N C E
ERAMET SA: Fitch Lowers LongTerm IDR to 'BB', Outlook Stable
IQERA GROUP: S&P Cuts Sr. Sec. Notes Rating to 'CCC+', Outlook Neg
G E R M A N Y
ONE HOTELS: Fitch Assigns 'BB-(EXP)' Rating to Sr. Secured Notes
PROCREDIT HOLDING: Fitch Assigns 'BB-' Rating to Subordinated Notes
I R E L A N D
BRIDGEPOINT CLO VI: S&P Assigns Prelim B-(sf) Rating to F Notes
CARLYLE EURO 2020-1: Fitch Affirms 'Bsf' Rating on Class E Notes
CARLYLE EURO 2021-3: Fitch Affirms 'B-sf' Rating on Class E Notes
CARLYLE EURO 2022-5: Fitch Puts 'B-sf' Reset Final E-R Notes Rating
CARLYLE GLOBAL 2014-1: Fitch Affirms B+sf Rating on Cl. F-RR Notes
CVC CORDATUS XII: Fitch Affirms 'Bsf' Rating on Class F Notes
CVC CORDATUS XV: Fitch Affirms 'B-sf' Rating on Class F Notes
HENLEY CLO X: S&P Assigns Prelim B- (sf) Rating to Class F Notes
SEAPOINT PARK: Fitch Affirms 'B-sf' Rating on Class E Notes
VERSEY PARK: Fitch Affirms 'B-sf' Rating on Class E Notes
WILLOW PARK: Fitch Affirms 'B+sf' Rating on Class E Notes
WILTON PARK: Fitch Affirms 'B-sf' Rating on Class F Notes
I T A L Y
CENTURION NEWCO: S&P Affirms 'B-' ICR, Alters Outlook to Negative
LA DORIA: Moody's Assigns First Time 'B1' Corporate Family Rating
LA DORIA: S&P Assigns 'B' LT ICR, Outlook Stable
PRISMA SPV: Moody's Cuts Rating on EUR80MM Class B Notes to Caa1
K O S O V O
PROCREDIT BANK: Fitch Hikes LongTerm IDR to 'BB+', Outlook Stable
L U X E M B O U R G
RADAR BIDCO: S&P Assigns 'B+' LT ICR, Outlook Stable
N E T H E R L A N D S
UNIT4 GROUP: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
R U S S I A
IPOTEKA-BANK: Fitch Assigns 'BB-' Final Rating to Sr. Unsec Notes
S W I T Z E R L A N D
VERISURE HOLDING: Moody's Rates New EUR300MM Sr. Secured Notes 'B1'
T U R K E Y
FORD OTOMOTIV: Fitch Assigns BB+ Final Rating to $500MM Eurobond
FORD OTOMOTIV: S&P Assigns 'BB-' Long-Term ICR, Outlook Positive
SEKERBANK TAS: Fitch Assigns CCC-(EXP) Rating to AT1 Capital Notes
U K R A I N E
CITY OF KYIV: S&P Affirms 'CCC+' Long-Term ICR, Outlook Stable
U N I T E D K I N G D O M
CHESHIRE 2021-1: Fitch Lowers Class F Notes Rating to 'B+sf'
CONSORT HEALTHCARE: Moody's Cuts Rating on GBP93.3MM Bonds to Caa3
CONTOURGLOBAL: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
FEATHERFOOT BAYER: Enters Administration, Owes Creditors GBP14,713
GEOFFREY OSBORNE: Goes Into Administration, 100 Jobs Affected
GOBUBBLE LIMITED: Collapses Into Administration
HOPS HILL NO.4: S&P Assigns Prelim BB (sf) Rating to E-Dfrd Notes
HUGHUB: Lack of Funding Prompts Administration
INTAGLIO ENGRAVING: Enters Administration, Owes Creditors GBP2.6MM
ROBERTO COSTA: Goes Into Administration
SRS CARE: Goes Into Administration
TRK BRIXTON: Falls Into Administration
- - - - -
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F R A N C E
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ERAMET SA: Fitch Lowers LongTerm IDR to 'BB', Outlook Stable
------------------------------------------------------------
Fitch Ratings has downgraded Eramet S.A.'s Long-Term Issuer Default
Rating (IDR) to 'BB' from 'BB+' and its senior unsecured debt
instrument rating to 'BB'/'RR4' from 'BB+'/'RR4'. The Outlook on
the Long-Term IDR is Stable.
The downgrade reflects Eramet's reduced financial flexibility
linked to negative free cash flow over the next four years amid a
large investment programme of around EUR900 million gross capex a
year and weak cash flow generation in 2023, which together move
EBITDA net leverage higher towards 2x after 2024.
Following recent news of manganese supply disruptions, Fitch
estimates that consolidated EBITDA will be much improved in 2024 at
around EUR800 million (before dividends from associates; excluding
New Caledonia) and EBITDA net leverage should remain low at
end-2024, at around 1x. The 'BB' IDR is supported by Eramet's
portfolio of large, cost-competitive assets across the manganese,
minerals sands, nickel ore, and lithium segments, albeit this is
mostly in geographies with weaker operating environments.
KEY RATING DRIVERS
Earnings Supported by Supply Disruptions: South32, an important
high-grade producer of manganese, announced earlier this week that
repairs on its port terminal following cyclone Megan may take up to
early spring 2025. As a result, the supply balance is now
meaningfully in deficit and Fitch has lifted its manganese high
grade price assumption to USD5.75/dmtu in 2024 and USD5.25/dmtu in
2025.
Fitch assumes that combined earnings (consolidated EBITDA plus
dividends from WedaBay) will improve to EUR950 million for 2024 and
2025 (excluding subsidiary Société Le Nickel; SLN). Applying
Fitch's price assumptions and volume growth broadly in line with
management guidance (including the full ramp-up of lithium phase 1
by 2026), Fitch expects EUR820 million for 2026 and EUR1.1 billion
for 2027.
Subsidiary Under Pressure: SLN has been facing immense pressure
since the ferronickel price faltered in 2023. SLN has relied on
support from the French state to continue as a going concern. Fitch
views it as unlikely that SLN will return to meaningful
profitability over the next four years. As Eramet has committed to
not provide any more funding to this business, Fitch expects the
most economic view on financials would be to de-consolidate SLN.
Until an agreement has been reached for the restructuring of the
nickel industry in New Caledonia and there is more clarity about
future operations, Fitch will also consider the consolidated
profile (including SLN).
SLN Restructuring in Progress: Eramet reported negative EBITDA of
EUR-120 million for SLN in 2023 due to uncompetitive electricity
supply in New Caledonia, a drop in ferronickel prices, and reduced
mining volumes amid difficulties in obtaining necessary permits.
The French government has been working with stakeholders to
negotiate a support package for the nickel industry to preserve
employment (including the prospect for EUR200 million of
electricity subsidies, future investment into competitive power
supply and visibility around operating permits), but no agreement
has been reached.
The French government has converted its EUR320 million loan to SLN
into subordinated preference shares without any mandatory payment
obligations (which Fitch treats as non-debt based on shareholder
loan considerations under its Corporate Rating Criteria). The
French state will need to absorb future negative free cash flow
through further support measures.
Significant Growth Investment: Eramet will spend around EUR900
million of gross capex over 2024-2027, on average (excluding SLN).
This includes investment into existing assets to support volume
growth in manganese (ore and alloys) and mineral sands (around 45%
of capex spent). Growth capex is deployed mostly for capacity
increases in lithium (to 75,000 tonnes) over the coming years and
the recycling project ReLieVe in France. Significant amounts of
investment will only start generating earnings beyond the forecast
horizon.
Leverage Will Rise: Eramet had EUR622 million of net debt at
end-2023 (treating the EUR260 million French state loan pro forma
as equity). The heavy investment phase will keep free cash flow
negative over the next four years, and Fitch anticipates net debt
will rise to around EUR1.8 billion by 2026. EBITDA net leverage
will remain low at around 1x in 2024, linked to the positive
effects of supply tightness in the manganese market. In later years
Fitch expects EBITDA net leverage to range around 2x for some
time.
Financial Policy in Focus: Eramet has a target leverage of net
debt/adjusted EBITDA below 1.0x (as per company definition) on
average through the cycle. This is commensurate with its 'BB'
rating (assuming reasonable variations in factoring from year to
year, which Fitch includes in its debt calculations). If, due to
continued earnings weakness and ongoing capital spending, the group
were to exceed this target metric materially for more than 24
months, the financial profile could exceed its negative
sensitivities.
Favourable Cost Position: Fitch estimates that Eramet is positioned
in the second quartile on average. The manganese operations are
placed in the first/second quartile for business costs by CRU, and
still represent more than half of earnings for the next four years.
Guidance for the Centenario lithium project in Argentina indicates
a placement in the lower half (around 30% of earnings in the
future) and nickel operations at WedaBay are ranked at or below the
25th percentile for all-in sustaining costs by CRU (dividends are
estimated at around 10% of combined earnings longer-term).
Competition in Energy Transition Applications: With its continued
weak property market, China - the largest commodity consumer - has
shifted its ambitions and stimulus towards building capacities for
high-quality manufacturing. This has led to ramp up of production
and intensifying global competition across renewables, electric
vehicles, and greentech supply chains. Nonetheless, supply in the
mining sector across lithium and nickel has expanded ahead of
demand, and the market should be well-supplied over the medium term
(manganese has been materially affected by supply disruptions from
2Q24).
Fitch expects prices for nickel and lithium to remain at moderate
levels, as per its price assumptions (detailed below). Cheaper raw
materials will make large scale EV and renewables adoption easier
and more accessible to the wider public. It will also reduce
innovation pressure on increasing the energy density of batteries
(which will ultimately reduce raw material use in the future).
Nonetheless, increased manufacturing volumes will lead to market
tightness in some of those materials in the longer term, depending
on which battery chemistries take market share as the energy
transition gathers pace.
Indonesian Country Ceiling Applied: EBITDA from operations in
France, Norway and the US, together with repatriation of dividends
from Indonesia, are sufficient to comfortably cover hard-currency
gross interest expense over the forecast horizon. Fitch has applied
Indonesia's Country Ceiling of 'BBB' as it is the lowest among
these countries.
DERIVATION SUMMARY
Endeavour Mining plc (BB/Stable) has a commitment to maintaining
net debt/EBITDA below 0.5x, even in a lower gold price environment.
Its financial policy is more conservative than Eramet's. Endeavour
has sold two mines in Burkina Faso, and Eramet is about to start
production at its lithium project in Argentina. As a result, both
groups will have comparable country risk in three or four years'
time. They have similar cost positions, but Endeavour's reserve
life is shorter.
Sibanye-Stillwater Limited (BB/Negative) produces precious group
metals that are required for the energy transition (mainly for
catalytic converter processes) and prospectively for battery
materials (the Keliber lithium project is anticipated to come
on-line in 2026). Sibanye also has gold assets in South Africa that
sit in the fourth quartile of the global cost curve.
Both Sibanye and Eramet experienced material price declines linked
to major earnings-contributing commodities in 2023. While Sibanye's
EBITDA net leverage remains below 1x at end-2023, profitability has
weakened to an extent that a number of operations are pursuing
economic restructuring. Across the portfolio, Eramet has a better
cost position and prospectively wider diversification of
commodities, with mine lives either similar to Sibanye's, or
slightly longer.
KEY ASSUMPTIONS
- Manganese ore price CIF China of USD5.75 per dry metric tonne
unit (dmtu) in 2024, USD5.25 in 2025, USD4.87 in 2026 and USD5.15
in 2027
- LME spot nickel price of USD17,000 per tonne in 2024, USD16,000
in 2025, USD15,000 in 2026 and beyond
- Lithium carbonate price of USD12,500 per tonne in 2024, USD13,000
in 2025, USD13,600 in 2026 and USD15,200 in 2027
- Volumes in line with management guidance for 2024, with manganese
ore production increasing to around 8 million tonnes by 2026
- WedaBay expanding to 60 million wet metric tonnes over the medium
term
- Argentina ramping up to 6,000 tonnes in 2024, 20,000 tonnes in
2025, 24,000 tonnes in 2026 and 40,000 tonnes in 2026
- On average, gross capex of around EUR900 million over 2024-2027,
assuming Argentina phase 2b goes ahead and the ReLieVe recycling
project in France (capex does not include the SonicBay project);
for the three projects no final investment decisions have been
made; however, Fitch assumes that two of the three pending projects
are likely to go ahead over the next 12-24 months
- Equity contributions of cumulative EUR330 million for the capex
programme from minority shareholders
- Dividends received from associates net of dividends to be paid to
minorities to reduce to below EUR100 million by 2025 (from EUR180
million in 2023); this includes dividends received from WedaBay of
around EUR165 million in 2024, EUR135 million in 2025 and EUR100
million in 2026 and beyond
- No defined pay-out ratio for dividends implemented. Fitch expects
limited dividends of EUR31 million a year during the heavy
investment phase of 2024-2027, unless earnings were to
significantly outperform its rating case and deleveraging is
achieved, or Eramet is able to maintain its leverage cap of 1.0x
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to A
Positive Rating Action/Upgrade
- EBITDA net leverage below 1.5x on a sustained basis (2023: 1.8x)
- Operating EBITDA margin above 25% on a sustained basis (2023:
10%)
- Improvement in business profile that leads to decreasing cash
flow variability from additional product or geographic
diversification, or both
- Transparent support mechanism for SLN that avoids negative
impacts on Eramet's financial flexibility
- Successful ramp-up of projects that allows to fund future growth
from internally generated cash flows
Factors that Could, Individually or Collectively, Lead to A
Negative Rating Action/Downgrade
- EBITDA net leverage above 2.5x on a sustained basis (2023: 1.8x)
- EBITDA interest remaining below 5.0x on a sustained basis (2023:
3.7x)
- Operating EBITDA margin below 20%
- Adverse changes to the operating environment in any important
jurisdiction, including changes to capital controls or repatriation
requirements, re-negotiation of royalties, or adverse changes to
mining legislation that affect operations
- Any intention or commitment to absorb losses of SLN or provide
new funding to SLN
LIQUIDITY AND DEBT STRUCTURE
Robust Liquidity: As of 31 December 2023, Eramet held around EUR1.5
billion of cash and cash equivalents (including bank deposits and
70% of other short-term investments that were reported as current
financial assets in the accounts). The group has an undrawn
revolving credit facility of EUR935 million with maturity in June
2028, EUR145 million of available term loan (which was drawn in
January 2024), and EUR290 million available under the Glencore
lithium prepay facility.
The business is funded beyond December 2025, but Fitch expects it
to raise additional financing over the next 12 months to pre-fund
capital commitments in anticipation of sanctioning Argentina phase
2b, the ReLieVe recycling project in France, and the SonicBay HPAL
investment (its rating forecast assumes that the former two will go
ahead). Most liquidity is held at the corporate centre or offshore.
There are capital controls in place for Gabon, which has a large
earnings contribution, but for which only 35% of revenues need to
be repatriated, which is less than combined operating and capital
expenditure for those operations.
ISSUER PROFILE
Eramet is a France-based mid-sized metals & mining company that
specialises in manganese (ore and alloys), nickel, and mineral
sands, and is developing lithium as its fourth main business
segment.
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
----------- ------ -------- -----
Eramet S.A. LT IDR BB Downgrade BB+
senior
unsecured LT BB Downgrade RR4 BB+
IQERA GROUP: S&P Cuts Sr. Sec. Notes Rating to 'CCC+', Outlook Neg
------------------------------------------------------------------
S&P Global Ratings took the following rating actions. S&P:
-- Downgraded Garfunkelux Holdco 2 S.A. (Lowell) to 'B' from 'B+',
with a negative outlook;
-- Downgraded Sherwood Parentco Ltd. (Arrow) to 'B' from 'B+',
with a stable outlook; and
-- Affirmed its 'BB-' rating on KRUK S.A.
These ratings are no longer under criteria observation.
S&P also lowered its ratings on iQera Group SAS and its senior
secured notes to 'CCC+' from 'B', with a negative outlook.
Finally, S&P affirmed its ratings on:
-- AFE S.A.;
-- Axactor ASA;
-- B2 Impact ASA; and
-- PRA Group Inc.
S&P said, "The revision of our methodology affects our approach to
calculating revenue and EBITDA for the DDP sector. The industry
reports in terms of cash EBITDA, which adds back to EBITDA the
principal collected that flows through the cash flow accounts. We
consider that this approach overestimates the capacity of a DDP to
repay debt because they need to continue to invest in new
portfolios to replenish their estimated remaining collections and
maintain their business model. The past 12 months, during which the
industry achieved only modest debt reduction, despite increasing
refinancing risk, offers a good illustration. A key difference
between DDPs and other corporates is that DDPs do not need to sell
a product or service to generate cash flow; instead, they collect
unpaid debts from thousands of clients. Moreover, given the
generally high levels of cash generated, we consider that in a
stress scenario DDPs could use a significant part of this cash
toward debt repayment. Therefore, we adjust revenue and EBITDA by
adding back 50% of principal collected as the portfolio amortizes
(market practice, as described above, is to add back 100%).
"In our view, this change makes it easier to compare metrics on
DDPs with those in the rest of the corporate sector. Furthermore,
we clarified that for DDPs we do not typically deduct accessible
cash and liquid investments from debt. We view these funds as
transitory and typically expect them to be allocated to new
portfolio investments. That said, if management clearly earmarks
cash for debt repayment, we would deduct it from debt.
"After implementing the change to our methodology, we lowered our
ratings on Arrow Global and Lowell by one notch. Compared with the
rest of the industry and the broader corporate sector, we now see
their financial positions as weaker than we previously thought. We
forecast that S&P Global Ratings-adjusted debt to EBITDA will
remain high in 2024, at 7.0x-7.5x for Lowell and 6.5x-7.0x for
Arrow."
Table 1
S&P Global Ratings-adjusted debt to EBITDA (x)
--FISCAL YEAR ENDED DEC.31--
2022A 2023A 2024F 2025F
AFE S.A. 5.3 8.2 5.5-6.0 5.5-6.0
Axactor ASA 5.7 5.4 5.0-5.5 5.0-5.5
B2 Impact ASA 4.0 3.5 4.0-4.5 4.0-4.5
Garfunkelux Holdco 2 S.A.
(Lowell) 8.5 8.3 7.0-7.5 7.0-7.5
Intrum AB 5.5 6.7 7.0-7.5 6.0-6.5
iQera Group SAS 13.0 9.2 >10.0 >10.0
KRUK S.A. 3.0 3.6 4.0-4.5 4.0-4.5
PRA Group 4.1 5.4 4.2-4.7 4.0-4.5
Sherwood Parentco Ltd.
(Arrow Global Group) 8.5 11.4 6.5-7.0 6.0-6.5
*All figures adjusted by S&P Global Ratings.
a--Actual.
f--Forecast.
S&P said, "Industry conditions for DDPs are tough as we flagged
before. Most European economies achieved a soft landing and
employment remains strong, limiting the supply of nonperforming
loans. At the same time, borrowing costs have surged due to higher
interest rates, creating a material drag on profitability in this
capital-intensive sector. In light of industry conditions, we
revised down our business risk assessments on two companies: iQera
to weak from fair and Intrum to fair from satisfactory."
Some DDPs are questioning their whole business model and have
limited or even halted investments in new portfolios. Arrow Global
has already switched to an alternative fund management business
model for its operations. Intrum emphasized in its strategy update
that it targets a more capital-light model and has sold a large
part of its assets to Cerberus. Moreover, as increasingly negative
investor sentiment and higher scrutiny forces players to reduce
leverage, their capacity to invest in new portfolios is also
reduced (as is the case for iQera, Intrum, and Lowell), just when
returns are seeming to increase for new vintages. In S&P's view, if
DDPs fail to replenish their estimated remaining collections, they
will erode their prospective EBITDA, and thus the efficiency and
profitability of their whole business.
S&P said, "In our view, companies that have less leverage and that
focused on organic growth over the past five years, rather than
undertaking mergers and acquisitions, are now better positioned.
Companies such as B2 Impact and Kruk, for example, are likely to
have more financial flexibility. This will enable them to
continuously invest in more-profitable portfolios, as competition
for unsecured portfolios starts to diminish. We anticipate that
they will therefore show higher growth and profitability, relative
to peers.
In the current environment, S&P sees refinancing risk as key. In
addition to higher base interest rates, investors in the sector are
demanding increased risk premiums, which puts further pressure on
DDPs' ability to refinance. That said, the picture is not uniform;
some companies have been able to issue new debt at decent spreads
during 2023 and early 2024, while others with more leverage have
seen a sharp increase in coupon or have chosen to delay their
refinancing until market conditions are better. Companies may make
this decision if the yield on their current bonds indicates that
any new issuance would be too costly.
Debt maturity concentrations also raise concerns. The maturity
concentrations at some companies shown in the chart below adds to
refinancing risk. Recent announcements by Intrum and iQera
exemplify the challenges faced by the industry; both have indicated
that they are evaluating the long-term viability of their capital
structure and exploring different options with the help of external
consultants and legal advisors. This implies a higher risk of
distressed exchange and prompted S&P to lower its ratings on these
entities and assign negative outlooks or place ratings on
CreditWatch with negative implications.
S&P said, "On a more-positive note, collections performance should
remain resilient, with only some softening expected. Our economic
base case still assumes that the U.S. and European economies in
which our rated DDPs operate will see a soft landing in 2024. We
also expect both labor markets to remain tight and that continuing
disinflation will be positive for collections. Pockets of risk
remain because inflation has a lagging effect and higher interest
rates will feed through to asset quality and ultimate repayment
capacity. That said, in the medium term, this phenomenon will have
positive effect on future market supply for DDPs. Another specific
downside risk for secured collections is that the real estate
market could eventually freeze if investors delay purchases because
central banks have postponed rate cuts."
AFE S.A.
Primary analyst: Dmitry Nazarov
S&P said, "After AFE completed its debt restructuring in February
2024, we saw a material improvement in its liquidity and debt
maturity profile. Available liquidity increased by about EUR56
million and the company extended its earliest debt maturity to
2030. At the same time, the recapitalization increased AFE's debt
by EUR94 million, adding to its already high leverage. Immediately
after the recapitalization, we estimate that the company's gross
debt to S&P Global Ratings-adjusted EBITDA ratio exceeded 9.0x and
its gross loan-to-value (LTV) ratio was above 90%. This elevated
level of leverage reflects both the higher amount of gross debt and
AFE's weak collection performance over 2023.
"In our view, despite the improved liquidity and enhanced capital
structure, questions still remain regarding management's ability to
restore AFE to a sustainable business model. AFE's management
expects its collections to show a marked improvement in 2024, based
on the planned realization of some real estate investments,
combined with greater recovery from its NPL portfolios. Our base
case includes core collections improving to EUR140 million-EUR150
million in 2024; we estimate that collections were about EUR93
million in 2023." The improvement would drive EBITDA growth and
support deleveraging. That said, real estate assets are often
illiquid and valuations can be uncertain. Therefore, collections
from the real estate assets might be lower than expected and take
longer to realize. Similarly, if the economy worsens, contrary to
our expectations, collecting cash from secured NPLs may be delayed.
In turn, this could lower the amount of cash that AFE has available
to resume investments in new assets and reduce leverage.
Outlook
S&P said, "The stable outlook indicates that, having completed its
comprehensive funding restructuring and recapitalization, we expect
AFE to maintain adequate liquidity and improve the sustainability
of its business through better collection performance over the next
12 months. We also expect it to accelerate investments and the pace
of deleveraging."
Downside scenario: S&P could lower the rating if AFE fails to
improve its collection performance and profitability. This would
raise concerns regarding the ability of management and the
shareholders to revive the company's business and to reduce
leverage over time.
Upside scenario: S&P could raise the rating if it saw a substantial
improvement in AFE's business and financial sustainability. This
would depend on higher collections and earnings; increased
investment in new assets, at least at replacement rate; and lower
adjusted debt to EBITDA and LTV ratios.
AFE S.A.--Key Metrics*
--FISCAL YEAR ENDED DEC.31--
2022A 2023A 2024F 2025F
Debt to EBITDA (x) 5.3 8.2 5.5-6.0 5.5-6.0
Company-reported debt
to cash EBITDA (x) 3.1 -- -- --
EBITDA interest
coverage (x) 3.1 1.3 2.0-2.2 2.2-2.6
FOCF to debt (%) 1.2 11.5 5.0-6.0 3.0-4.0
Debt-to-tangible
equity (x) 40 5.1 2.5-3.0 1.5-2.0
*All figures adjusted by S&P Global Ratings, except where noted.
a--Actual.
e--Estimate.
f--Forecast.
FOCF--Free operating cash flow.
Axactor ASA
Primary analyst: Alejandro Peniche
Axactor is smaller than other European DDPs, but its continued
growth, supported by increased collections from its NPL portfolios
is helping it to close the gap. Under S&P's base case, the
company's revenue growth is forecast to increase to close to 12%
during 2024 as it builds on its new investments.
The company refinanced its 2024 maturity in the fourth quarter of
2023. As a result, Axactor now faces limited refinancing risk for
the next 12-24 months; its next bullet payment is due in 2026. S&P
said, "That said, we expect the company to continue to invest in
new portfolios, such that its FOCF to debt will be close to nil. If
Axactor wants its growth to outpace our base case, we anticipate
that it will need to raise further debt. We currently assume that
Axactor's debt profile will remain stable and its collections will
support its cash flow profile. Therefore, we forecast stable
adjusted debt to EBITDA ratios of 5.0x-5.5x over the next two
years."
Outlook
S&P said, "The stable outlook indicates that we expect gross
collections at Axactor to continue to grow over the next 12 months.
This will enable it to sustain relatively stable adjusted debt to
EBITDA of about 5.0x and to comply with its bond covenants while
maintaining sufficient headroom. We also expect it to maintain an
adequate liquidity profile with low refinancing risk."
Downside scenario: S&P said, "We could lower our ratings if the
company's collection performance weakens or if it pursues a
more-aggressive financial policy and higher leverage. This would
happen if adjusted debt to EBITDA rose above 6x, or interest
coverage were sustainably below 2x, or if we see pressure on
covenants."
Upside scenario: S&P said, "We see limited upside for our ratings
over the next 12 months. However, we could raise the rating if
Axactor sustainably improves its leverage beyond our current
expectations, such that it could sustain adjusted debt to EBITDA
below 4.5x without jeopardizing future earnings potential. This
implies portfolio acquisitions at least in line with its
replacement rate. An upgrade would also depend on sufficient
headroom under its covenants and no indications of asset quality
problems."
Axactor ASA--Key Metrics*
--FISCAL YEAR ENDED DEC.31--
2022A 2023A 2024F 2025F
Debt to EBITDA (x) 5.7 5.4 5.0-5.5 5.0-5.5
Company-reported debt
to cash EBITDA (x) 3.7 3.9 -- --
EBITDA interest
coverage (x) 2.9 2.2 2.0-2.2 2.0-2.2
FOCF to debt (%) (13.4) (0.3) (5.0)-(5.4) (1.0)-0
Debt-to-tangible
equity (x) (1.0) (1.0) (1.0)-(2.0) (1.0)-(2.0)
*All figures adjusted by S&P Global Ratings, except where noted.
a--Actual.
e--Estimate.
f--Forecast.
FOCF--Free operating cash flow.
B2 Impact ASA
Primary analyst: Alejandro Peniche
After a year in which it increased its cash-adjusted EBITDA and
took a conservative approach to debt volumes, B2's leverage ratios
compare favorably with those of its industry peers. Largely thanks
to a significant one-off collection, adjusted debt to EBITDA was
3.5x in December 2023. S&P expects it to be 4.0x-4.5x for the next
two years, given that B2 is likely to increase its investments.
S&P said, "Over the next 12 months, we anticipate that B2 will
focus its growth efforts on its unsecured portfolio, taking
advantage of the market dynamics within the DDP industry and its
lower-than-peers financial leverage. The company prepaid its EUR200
million debt due in May 2024, thus reducing its refinancing risk.
Combined with lower leverage, this has put the company in a
favorable financial position to invest. We expect it to be able to
increase investment volumes and to achieve higher internal rates of
return than many of its peers.
"In addition, we expect liquidity to remain sound, mainly supported
by B2's strong funds from operations and improved collections in
2023. The latter also enabled B2 to increase cash and equivalents
by nearly 20%, year on year. When it refinanced its May 2024
maturity, B2 issued only EUR100 million to the market; it prepaid
50% of the remaining EUR100 million using cash, and 50% from its
revolving credit facility (RCF), which matures in 2025. We expect
the company to proactively extend its RCF beyond 2025. B2 has no
other maturities due in 2024 or 2025."
Outlook
S&P said, "The stable outlook indicates that we anticipate that B2
will maintain sound collection levels for the next 12 months. These
will translate into stable adjusted EBITDA and EBITDA margins of
around 60%. We also predict that the company will maintain its
competitive position within the European debt collection market and
will continue to actively manage its liquidity."
Downside scenario: S&P said, "We could lower the rating on B2 if
the company is overly aggressive in its growth plans, so that its
leverage approaches 5x. Although we consider the scenario less
likely, we could also lower the rating if B2's collections
deteriorate materially due to a weaker macroenvironment or if the
company were to recognize substantial negative revaluations,
indicating portfolio mispricing."
Upside scenario: S&P said, "We could raise the rating on B2 if we
saw a material reduction in leverage to levels sustainably below
4x, with interest coverage above 3x. An upgrade would also depend
on the company maintaining well-spread maturities and keeping its
weighted-average maturities above two years. Further improvement in
B2's competitive position would also support an upgrade."
B2 Impact ASA--Key Metrics*
--FISCAL YEAR ENDED DEC.31--
2022A 2023A 2024F 2025F
Debt to EBITDA (x) 4.0 3.5 4.0-4.5 4.0-4.5
Company-reported debt
to cash EBITDA (x) 2.3 1.9 -- --
EBITDA interest
coverage (x) 3.9 2.8 3.2-3.4 3.1-3.3
FOCF to debt (%) 9.2 15.5 1.3-1.9 (1.3)-(1.9)
Debt-to-tangible
equity (x) 2.3 2.2 1.9-2.1 2.0-2.2
*All figures adjusted by S&P Global Ratings, except where noted.
a--Actual.
f--Forecast.
FOCF--Free operating cash flow.
Garfunkelux Holdco 2 S.A. (Lowell)
Primary analyst: Dmitry Nazarov
S&P said, "Lowell's leverage is forecast to remain persistently
high under our base case, with adjusted debt to EBITDA still close
to 7.0x by the end of 2025. It is therefore in a more vulnerable
position than higher-rated sector peers and other corporates rated
'B+'. Lowell's business model is very capital intensive and cash
collections dominate its revenue mix. In our view, this constrains
its ability to reduce its leverage; to achieve a material reduction
in leverage, Lowell would need to rely on asset sales and reduce
new investments.
"We forecast that financial leverage under the new criteria will
gradually converge to 7x, from 8.3x at year-end 2023. Lower
investment volumes in 2023 and 2024 are likely to have a moderately
negative effect on core collections, only partially offset by a
growth in servicing income. Although operating efficiency is
improving, supported by cost-control initiatives, we do not expect
to see meaningful growth in adjusted EBITDA over the next two
years. We forecast that management will continue making portfolio
sales to generate liquidity and repay debt over 2024-2025. This
strategy would allow Lowell to reduce leverage to some degree,
especially this year, but we anticipate that leverage will remain
high.
"Lowell faces increasing refinancing risks in the coming months
because its senior secured notes mature in November 2025. Although
management still has time to refinance the notes, access to the
financial market for highly leveraged distressed debt purchasers is
complicated, in our view. In our base-case scenario, we assume that
Lowell will be able to refinance, given its large scale and solid
market position. However, an inability to refinance the note in the
coming months could indicate an unsustainable capital structure,
weigh on future liquidity, and prompt management to consider a
distressed exchange. The negative outlook reflects these growing
risks."
Outlook
The negative outlook signifies that Lowell faces increased
refinancing risks, given its persistently high leverage and
deteriorating investor sentiment toward European distressed debt
purchasers. It also incorporates the risk that Lowell will prove
unable to reduce leverage as S&P currently expects.
Downside scenario: S&P said, "We could lower the rating if Lowell
fails to refinance its senior secured notes within the next three
to six months. Such a scenario would increase the risk of a
distressed debt exchange. We could also downgrade Lowell if,
contrary to our base case, it is unable to reduce its adjusted debt
to EBITDA below 7x within the next two years, or to increase
interest coverage closer to 2x."
Upside scenario: S&P could revise the outlook back to stable if
Lowell refinances its senior secured notes in the coming months
without breaching their original terms, and if the expected
reduction in leverage materializes.
Garfunkelux Holdco 2 S.A.--Key Metrics*
--FISCAL YEAR ENDED DEC.31--
2022A 2023A 2024F 2025F
Debt to EBITDA (x) 8.5 8.3 7.0-7.5 7.0-7.5
Company-reported debt
to cash EBITDA (x) 4.0 3.7§ -- --
EBITDA interest
coverage (x) 2.2 1.6 1.7-1.9 1.5-1.7
FOCF to debt (%) (3.3) 6.4 8.0-9.0 5.0-6.0
Debt-to-tangible
equity (x) (3.3) (4.4) (2.0)-(3.0) (2.0)-(3.0)
*All figures adjusted by S&P Global Ratings, except where noted.
a--Actual.
e--Estimate.
f--Forecast.
FOCF--Free operating cash flow.
Intrum AB
Primary analyst: Alejandro Peniche
Intrum recently announced that it is appointing two external
advisors (Houlihan Lokey and Milbank) to help it evaluate
alternative means of strengthening its capital structure. S&P said,
"Although management didn't provide any guidance on the options to
be considered, in our view, the appointment of external advisors
implies an increased likelihood of a distressed debt exchange;
previously, we considered this to be unlikely. Given the reaction
of the equity and bond markets to the announcement, we consider
Intrum's access to these markets to be impaired." This also
increases the probability of a refinancing deal that seeks to
extend existing finance.
S&P said, "Intrum's announcement may have other implications, which
we are still assessing. Once the company has shared its complete
refinancing plans, we will determine the effect on its capital
structure and overall credit quality.
"Despite the revised strategy and ongoing transition to a less
capital-intensive business model, we consider that Intrum's
business risk profile has deteriorated during the past couple of
years." Several factors support our opinion:
-- Profitability lags that of several peers because Intrum has a
higher share of servicing than investing, compared with some
peers--this gives it lower, but somewhat more predictable and
stable margins;
-- Some portfolios in Italy have been negatively revalued;
-- S&P projects that Intrum's scale, compared with others in the
investing segment, will be reduced following the Cerberus deal;
and
-- The transitional risks inherent to the company's changes in
strategy and management could hamper its operations while it moves
away from a capital-intensive strategy toward one with a lighter
balance sheet.
S&P said, "We consider that most of the risks we previously
highlighted by applying a negative comparable adjustment have been
encompassed in our revised assessment of Intrum's business risk
profile. Therefore, we no longer apply this adjustment to our
rating on Intrum. Finally, we expect Intrum's adjusted debt to
EBITDA to be consistently above 6x, and that interest coverage will
exceed 2x."
CreditWatch
S&P said, "We placed the rating on Intrum on CreditWatch with
negative implications on March 18, 2024, to indicate the
significant likelihood that we would lower the ratings on Intrum
within the next 90 days if we considered that a distressed debt
restructuring had become more likely. We could remove our ratings
from CreditWatch and affirm them if we considered the company more
likely to achieve a conventional refinancing of its upcoming debt
maturities."
Intrum AB--Key Metrics*
--FISCAL YEAR ENDED DEC.31--
2022A 2023A 2024F 2025F
Debt to EBITDA (x) 5.5 6.7 7.0-7.5 6.0-6.5
Company-reported debt
to cash EBITDA (x) 4.1 4.4 -- --
EBITDA interest
coverage (x) 5.0 2.2 1.9-2.1 2.0-2.2
FOCF to debt (%) (1.6) 4.5 6.0-7.0 7.0-8.0
Debt-to-tangible
equity (x) (2.9) (3.8) (4.8) 5.2
*All figures adjusted by S&P Global Ratings, except where noted.
a--Actual.
e--Estimate.
f--Forecast.
FOCF--Free operating cash flow.
iQera Group SAS
Primary analyst: Thierry Chauvel
iQera recently announced that it was assessing its options to
ensure its medium- and long-term development, with the assistance
of its financial and legal advisers; this suggests a higher
probability of a distressed exchange. Management didn't provide any
information about the different options open to the group. S&P
said, "Although iQera has sufficient liquidity to repay the
upcoming September 2024 maturity, we see an increased likelihood of
a distressed debt exchange because the company has to choose
between short-term debt repayment and longer-term business
viability. In our view, the company's capital structure is
currently unsustainable given its very high leverage and growing
interest burden. In addition, iQera had to move 77% of its
estimated remaining collections into "co-investor structures,"
which effectively limit its near-term cash flow generation."
In the past, iQera has financed or refinanced the acquisition of
new debt portfolios with the help of co-investor debt, using
special-purpose vehicle (SPV) structures. This strategy has enabled
iQera to buy larger and more profitable portfolios than it could
have afforded on its own. However, use of such structures
effectively means that third-party investors rank senior to iQera's
equity tranche. SPV structures therefore offer a one-off positive
liquidity effect; thereafter, they direct a large part of the cash
flows from collections toward co-investors while iQera benefits
only later.
Given the difficult market conditions over the past 12 months,
iQera has been forced to increase its co-investor debt. On 22
April, iQera announced that after the asset-backed securitization
it undertook in January 2024, 77% of its total estimated remaining
collections were in portfolios funded by co-investor debt. This
implies that its attributable collections from those portfolios
will be further delayed and we now forecast that attributable
collections and cash revenue will be lower in 2024 and 2025 than we
previously expected. In turn, this will significantly reduce
iQera's funds from operations and its ability to invest in new debt
portfolios.
Unless it receives further shareholder support, iQera will have to
decide in the coming weeks whether to repay the bond maturing in
September 2024 or to restructure its debt. Repaying the bond would
constrain its ability to invest in further portfolios, deplete its
attributable estimated remaining collections and, in turn, decrease
its future attributable collections. Restructuring would allow it
to use the more-available cash to invest in new debt portfolios and
so support its longer-term prospects. iQera has limited geographic
diversification, is small in absolute terms, and is increasingly
reliant on co-investor debt. These factors prompted us to revise
its business risk profile to weak from fair.
Outlook
S&P's negative outlook indicates that it could lower the rating if
we believed that a distressed exchange on its bond maturing in
September 2024 was imminent.
Downside scenario: S&P could lower our ratings if a distressed
exchange is announced by the company or appears inevitable.
Upside scenario: S&P could revise the outlook to stable if the
company is able to improve its capital structure and liquidity
while avoiding a distressed exchange; for example, through
shareholder support.
iQera Group SAS--Key Metrics*
--FISCAL YEAR ENDED DEC.31--
2022A 2023A 2024F 2025F
Debt to EBITDA (x) 13.0 9.2 >10.0 >10.0
Company-reported debt
to cash EBITDA (x) 3.8 4.2 -- --
EBITDA interest
coverage (x) 1.3 1.4
=============
G E R M A N Y
=============
ONE HOTELS: Fitch Assigns 'BB-(EXP)' Rating to Sr. Secured Notes
----------------------------------------------------------------
Fitch Ratings has assigned One Hotels GmbH's (Motel One;
B+(EXP)/Stable) proposed EUR500 million senior secured notes an
expected senior secured debt rating of 'BB-(EXP)' with a Recovery
Rating of 'RR3'. The assignment of final ratings is subject to
final documentation confirming to information already received.
The company plans to use proceeds from senior secured debt,
including the proposed notes alongside a EUR800 million term loan B
(TLB), to refinance bridge facilities obtained to finance the
buyout of a minority shareholder's 35% stake.
Motel One's 'B+(EXP)' IDR reflects its moderate business scale and
diversification balanced by superior profitability and expected
positive free cash flow (FCF) generation. It also assumes the
company will deleverage over the next three years as
post-transaction leverage is high and outside the range that is
commensurate with a 'B+(EXP)' rating. This is based on its
expectation of a smooth execution of Motel One's growth strategy
and continuation of strong performance of the existing asset base.
KEY RATING DRIVERS
Moderate Scale and Diversification: Fitch assesses Motel One's
business profile as in line with the low 'BB' category rating in
view of its business scale and diversification. It operates
primarily under one brand, with some diversification across western
Europe, although the main German market accounted for 65% of
revenue in 2023. The room system size of 26,470 rooms in 2023 is
more in line with the 'B' category median but its scale assessment
benefits from superior EBITDAR margin, which translates into
EBITDAR of more than EUR400 million, close to the 'BB' category
median.
Material Business Growth: Pro-forma for the carve-out of its
real-estate assets, Fitch estimates that Motel One's revenue grew
by a third and Fitch-adjusted EBITDA increased to more than EUR230
million in 2023. This was driven by post-pandemic business
recovery, pricing power and hotel network expansion. Fitch believes
that growth will decelerate from 2024 but remain high versus other
western European peers due to new hotel openings and its assumption
that Motel One will retain its ability to price rooms above
inflation.
Furthermore, Fitch expects a positive impact from international
travel to Germany, which lagged other markets in 2023 and is likely
to benefit from the European football championship competition in
2024.
Manageable Strategy Execution Risks: Motel One's strategy relies on
the expansion of its hotel portfolio through leasing new
properties, which does not require upfront capex unlike asset-heavy
operators that invest in hotel construction. Its rating case
assumes the number of hotels increasing to 117 by 2027 (2023: 94),
in line with the company's secured pipeline, which bears limited
execution risks as contracts with property owners are already
signed.
Motel One has a record of new hotels quickly reaching profitability
and the pipeline does not consider any large assets in new markets.
Fitch also assumes that hotels will be opened on time as delays
have mostly been contained to within three months in the past
couple of years.
Superior Profitability: Motel One's EBITDAR margin of around 50% is
the highest in Fitch's global lodging portfolio, with the exception
of Wyndham Hotels & Resorts Inc., for which fully franchised
operations lead to around 80% EBITDAR margins. Motel One's superior
profitability in comparison with asset-heavy peers results from its
prime locations, standardised rooms and operating efficiencies.
Fitch expects high profit margins to translate into positive
pre-dividend FCF, despite higher interest payments for the new
debt.
EBITDA Margin Improvement: Its rating case assumes a gradual EBITDA
margin improvement over 2024-2027 due to pricing actions and an
increase in the number of fully ramped-up hotels relative to new
openings. Fitch also expects margins to benefit from portfolio
composition changes towards markets with higher rates and
occupancies, such as London and Paris. These strong and mildly
growing operating margins are critical to the company's
deleveraging trajectory, underpinning the 'B+(EXP)' IDR.
Positive FCF, Self-Funded Growth: The 'B+(EXP)' IDR reflects Motel
One's sustained positive FCF, supported by strong operating
margins, and its ability to self-fund its medium-term expansion.
This inherent FCF generating capacity balances its limited scale
and diversification, and differentiates it from lower-rated sector
peers. Deteriorating FCF would signal structural weaknesses of
Motel One's operating risk or a more aggressive financial policy,
and would put pressure on the rating.
No Dividend Commitment: The company intends to operate with EUR100
million-EUR150 million of cash on its balance sheet, with excess
cash potentially used for bolt-on M&A, investments in new hotels or
dividends. This capital allocation would generally be neutral for
the ratings as Fitch considers gross leverage in its analysis,
although dividend distributions would affect FCF.
Motel One has been paying dividends from internally-generated cash
but has no dividend commitment to its shareholders. Its analysis
assumes some recurring dividends from 2025, subject to the
limitation provisions of the financing documentation, as well as
taking into account the measured financial policy of the company's
shareholders.
Strong Deleveraging Capacity: Motel One's 'B+(EXP)' rating is
conditional on rapid deleveraging over the next three years. Fitch
estimates EBITDAR leverage at 6.3x in 2024, which is high for the
rating, but Fitch expects the rating headroom to increase
substantially over 2025-2026 as EBITDAR growth will lead to organic
deleveraging.
DERIVATION SUMMARY
In terms of room system size and business scale, Motel One is
significantly smaller than higher rated globally diversified peers
such as Accor SA (BBB-/Positive), Hyatt Hotels Corporation
(BBB-/Stable), and Wyndham Hotels & Resorts Inc. (BB+/Stable). It
also has a weaker financial structure, with higher leverage and
more limited financial flexibility. This results in significant
rating differential with these peers.
Fitch sees NH Hotel Group S.A. (BB-/Stable) as the closest peer of
Motel One, in view of its predominantly European operations and
similar scale in EBITDAR, despite larger room system size. Motel
One is rated one notch lower than NH Hotel, which reflects NH
Hotel's lower financial leverage and stronger pre-dividend FCF
generation.
Motel One is rated two notches above Greek hotel operator Sani/Ikos
Group Newco S.C.A. (B-/Stable) due to its larger scale, better
diversification, stronger FCF profile and lower leverage. Motel One
has the same rating as Dubai-based operator FIVE Holdings (BVI)
Limited (B+/Stable) despite being larger, more profitable and
better-diversified. This is because Fitch expects stronger
deleveraging for FIVE.
KEY ASSUMPTIONS
- Sales growth CAGR of around 12% for 2024-2027
- Organic growth is supported by a steady improvement in occupancy
rates, alongside above-inflation growth in the room night daily
rate
- EBITDAR margins steadily improving towards 51.6% in 2027 from
around 50% in 2023, supported by a strong focus on cost management,
fast turnaround of new hotels to profitability and improving
occupancy rates at existing sites
- No significant working-capital outflows to 2027
- Capex at 6%-10% of revenue per year, for maintenance of existing
sites including redesign and new site openings
- Annual dividend payments of EUR75 million in 2024 (already paid)
followed by assumed pay-out at 50% of consolidated net income
RECOVERY ANALYSIS
Fitch assumes that the company would be reorganised as a
going-concern (GC) in bankruptcy rather than liquidated. In its
bespoke recovery analysis, Fitch estimates GC EBITDA available to
creditors of around EUR180 million. This reflects Fitch's view of a
sustainable, post-reorganisation EBITDA level on which Fitch bases
the enterprise valuation (EV). Distress would likely arise from an
erosion of the brand value leading to a loss of market share in an
inflationary cost environment. At the GC EBITDA, the company will
generate reduced operating cash flow that would provide limited
room for investments in growth capex.
Fitch has applied a 6.0x EV/EBITDA multiple to the GC EBITDA to
calculate a post-reorganisation EV. This multiple reflects the
company's strong brand and business model concept, prime inner-city
locations and high profitability. This is 0.5x higher than
International Park Holdings (Portaventura) given the latter's
single-location asset and lower diversification.
Motel One's envisaged EUR1.3 billion senior secured debt (including
its EUR500 million senior secured notes and EUR800 million TLB)
ranks equally with its EUR100 million revolving credit facility
(RCF), which Fitch assumes to be fully drawn in a default. Its
waterfall analysis generates a ranked recovery for Motel One's
senior secured debt in the 'RR3' band, indicating a 'BB-(EXP)'
instrument rating, one notch above the IDR. The waterfall analysis
output percentage on current metrics and assumptions is 69%.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- Successful execution of the growth strategy translating into
double-digit revenue growth and EBITDAR expansion
- EBITDAR leverage below 5.5x on a sustained basis
- EBITDAR fixed-charge coverage above 1.8x on a sustained basis
- Consistently positive FCF
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- Material slowdown in revenue growth, with EBITDAR margin
remaining flat or decreasing
- EBITDAR leverage above 6x on a sustained basis
- EBITDAR fixed-charge coverage below 1.5x on a sustained basis
- Neutral to negative FCF
LIQUIDITY AND DEBT STRUCTURE
Comfortable Liquidity: Pro-forma for the upcoming transaction,
Fitch expects Motel One to have cash on balance sheet of around
EUR130 million at end-2024, together with an undrawn RCF of EUR100
million. Combined with a highly cash generative business model,
this is sufficient to support the company's expansion plans and
cover financing costs without external funding. Motel One also has
a negative working capital position, which typically allows it to
generate cash as it expands.
Fitch restricts EUR20 million of reported cash for the minimum cash
required for day-to-day operations, and to cover intra-year swings
in working capital.
ISSUER PROFILE
Motel One is a hotel operator with a growing market position within
its niche "affordable design" segment in western Europe.
DATE OF RELEVANT COMMITTEE
18 April 2024
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery
----------- ------ --------
One Hotels GmbH
senior secured LT BB-(EXP) Expected Rating RR3
PROCREDIT HOLDING: Fitch Assigns 'BB-' Rating to Subordinated Notes
-------------------------------------------------------------------
Fitch Ratings has assigned ProCredit Holding AG's (PCH;
BBB/Stable/bb) EUR125 million subordinated notes due July 2034
(ISIN DE000A383C84) a final 'BB-' long-term rating.
The final rating is in line with the expected rating assigned on 17
April 2024 (see Fitch Rates ProCredit Holding AG's Upcoming
Subordinated Tier 2 Bonds 'BB-(EXP)').
All other issuer and debt ratings are unaffected.
KEY RATING DRIVERS
The subordinated notes' rating is one notch below PCH's Viability
Rating (VR) of 'bb'. The VR, which reflects its assessment of the
entity's standalone strength, is used as the anchor rating for this
instrument as it best indicates the risk of the issuer becoming
non-viable, and reflects its view that extraordinary support from
PCH's international financial institutions shareholder (which
drives its Long-Term Issuer Default Rating of BBB) is less likely
to fully extend to non-senior obligations. However, the expected
rating is notched down once for loss severity, rather than its
baseline two notches, from the VR to reflect its view that a large
or full loss is likely to be mitigated by institutional support.
Fitch does not additionally notch the subordinated notes for
non-performance risk because write-down of the notes will only
occur once the point of non-viability is reached and there is no
coupon flexibility before non-viability. The notes may be subject
to bail-in action at the point of non-viability, including
conversion, write-down of bondholder claims or any other resolution
measure in accordance with the EU recovery and resolution
legislation. The subordinated bond rank (i) junior to all PCH's
senior obligations; (ii) equally with all other subordinated
obligations of PCH; and (iii) in priority to PCH's more junior
obligations.
The subordinated notes have a maturity in 2034, with a call right
in 2029, and constitute direct, unsecured, unconditional and
subordinated obligations of PCH. The notes qualify as Tier 2
regulatory capital. The net proceeds from the issue of the notes
are being used for activities as described in PCH's green bond
framework, including green project financing, and to prudently
manage regulatory capital ratios.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
PCH's subordinated debt rating is primarily sensitive to a change
in the anchor rating. It is also sensitive to a revision in Fitch's
assessment of potential loss severity in case of non-performance,
including its view that partial support could mitigate losses.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
An upgrade of the bank's VR would lead to an upgrade of the
expected subordinated debt rating.
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.
DATE OF RELEVANT COMMITTEE
12 April 2024
Entity/Debt Rating Prior
----------- ------ -----
ProCredit Holding AG
Subordinated LT BB- New Rating BB-(EXP)
=============
I R E L A N D
=============
BRIDGEPOINT CLO VI: S&P Assigns Prelim B-(sf) Rating to F Notes
---------------------------------------------------------------
S&P Global Ratings assigned preliminary credit ratings to
Bridgepoint CLO VI DAC's class A to F European cash flow CLO notes.
At closing, the issuer will issue unrated subordinated notes.
Under the transaction documents, the rated notes will pay quarterly
interest unless a frequency switch event occurs. Following this,
the notes will switch to semiannual payments. The portfolio's
reinvestment period will end approximately four and a half years
after closing.
The preliminary ratings reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The transaction's legal structure, which S&P expects to be
bankruptcy remote.
-- The transaction's counterparty risks, which S&P expects to be
in line with its counterparty rating framework.
Portfolio benchmarks
CURRENT
S&P Global Ratings' weighted-average rating factor 2,852.62
Default rate dispersion 375.56
Weighted-average life (years) 4.98
Obligor diversity measure 112.91
Industry diversity measure 20.60
Regional diversity measure 1.12
Transaction key metrics
CURRENT
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.00
Actual 'AAA' weighted-average recovery (%) 35.50
Actual weighted-average spread (%) 4.20
Actual weighted-average coupon (%) 5.48
Rating rationale
S&P said, "We understand that at closing the portfolio will be
well-diversified, primarily comprising broadly syndicated
speculative-grade senior-secured term loans and senior-secured
bonds. Therefore, we have conducted our credit and cash flow
analysis by applying our criteria for corporate cash flow CDOs.
"In our cash flow analysis, we used the EUR400 million target par
amount, the actual weighted-average spread (4.20%), the actual
weighted-average coupon (5.48%), and the actual weighted-average
recovery rates for all rating levels. We applied various cash flow
stress scenarios, using four different default patterns, in
conjunction with different interest rate stress scenarios for each
liability rating category.
"Under our structured finance sovereign risk criteria, we consider
that the transaction's exposure to country risk is sufficiently
mitigated at the assigned preliminary ratings.
"At closing, we expect that the transaction's documented
counterparty replacement and remedy mechanisms will adequately
mitigate its exposure to counterparty risk under our current
counterparty criteria.
"We expect the transaction's legal structure and framework to be
bankruptcy remote, in line with our legal criteria."
Until the end of the reinvestment period on Nov. 14, 2028, the
collateral manager may substitute assets in the portfolio for so
long as our CDO Monitor test is maintained or improved in relation
to the initial ratings on the notes. This test looks at the total
amount of losses that the transaction can sustain as established by
the initial cash flows for each rating, and it compares that with
the current portfolio's default potential plus par losses to date.
As a result, until the end of the reinvestment period, the
collateral manager may through trading deteriorate the
transaction's current risk profile, as long as the initial ratings
are maintained.
S&P said, "Following our analysis of the credit, cash flow,
counterparty, operational, and legal risks, we believe the
preliminary ratings are commensurate with the available credit
enhancement for the class A to F notes. Our credit and cash flow
analysis indicates that the available credit enhancement for the
class B to E notes could withstand stresses commensurate with
higher preliminary ratings than those we have assigned. However, as
the CLO will be in its reinvestment phase starting from closing,
during which the transaction's credit risk profile could
deteriorate, we have capped our assigned preliminary ratings on the
notes.
"Taking the above factors into account and following our analysis
of the credit, cash flow, counterparty, operational, and legal
risks, we believe that our assigned preliminary ratings are
commensurate with the available credit enhancement for all of the
rated classes of notes.
"In addition to our standard analysis, to provide an indication of
how rising pressures among speculative-grade corporates could
affect our ratings on European CLO transactions, we have also
included the sensitivity of the ratings on the class A to E notes
based on four hypothetical scenarios.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
The transaction securitizes a portfolio of primarily senior secured
leveraged loans and bonds, and is managed by Bridgepoint Credit
Management Ltd.
Environmental, social, and governance
S&P said, "We regard the exposure to environmental, social, and
governance (ESG) credit factors in the transaction as being broadly
in line with our benchmark for the sector. Primarily due to the
diversity of the assets within CLOs, the exposure to environmental
credit factors is viewed as below average, social credit factors
are below average, and governance credit factors are average. For
this transaction, the documents prohibit assets from being related
to certain activities, including, but not limited to the following:
the production or trade of illegal drugs or narcotics; the
development, production, maintenance of weapons of mass
destruction, including biological and chemical weapons; manufacture
or trade in pornographic materials; payday lending; and tobacco
distribution or sale. Accordingly, since the exclusion of assets
from these industries does not result in material differences
between the transaction and our ESG benchmark for the sector, no
specific adjustments have been made in our rating analysis to
account for any ESG-related risks or opportunities."
Ratings list
PRELIM. PRELIM. AMOUNT CREDIT
CLASS RATING* (MIL. EUR) INTEREST RATE (%)§ ENHANCEMENT
(%)
A AAA (sf) 248.00 3mE + 1.49 38.00
B AA (sf) 42.00 3mE + 2.25 27.50
C A (sf) 27.00 3mE + 2.70 20.75
D BBB- (sf) 26.00 3mE + 3.80 14.25
E BB- (sf) 17.00 3mE + 6.65 10.00
F B- (sf) 12.00 3mE + 8.16 7.00
Subordinated NR 29.70 N/A N/A
*The preliminary ratings assigned to the class A and B notes
address timely interest and ultimate principal payments. The
preliminary ratings assigned to the class C, D, E, and F notes
address ultimate interest and principal payments.
§The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
3mE--Three-month Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
CARLYLE EURO 2020-1: Fitch Affirms 'Bsf' Rating on Class E Notes
----------------------------------------------------------------
Fitch Ratings has affirmed Carlyle Euro CLO 2020-1 DAC notes. The
Outlooks are Stable.
This rating review was prompted by the discovery of the
participation in the last rating committee that reviewed this
rating by a rating committee member, who should not have been
taking part in that rating committee because they were in their
"cooling off" period with respect to the relevant party around
which that analyst must rotate. Fitch reconvened a rating committee
as soon as the analysis could be updated following this discovery,
to determine if the date of the original committee or the rating
action could have been influenced by a conflict of interest. The
new rating committee did not identify any such conflict.
Entity/Debt Rating Prior
----------- ------ -----
Carlyle Euro
CLO 2020-1 DAC
A-1 XS2115124740 LT AAAsf Affirmed AAAsf
A-2A XS2115125556 LT AAsf Affirmed AAsf
A-2B XS2115126281 LT AAsf Affirmed AAsf
B XS2115126877 LT Asf Affirmed Asf
C XS2115127412 LT BBBsf Affirmed BBBsf
D XS2115128063 LT BBsf Affirmed BBsf
E XS2115128147 LT Bsf Affirmed Bsf
TRANSACTION SUMMARY
Carlyle Euro CLO 2020-1 DAC is a cash flow CLO comprising mostly
senior secured obligations. The transaction is actively managed by
CELF Advisors LLP and will exit its reinvestment period in
September 2024.
KEY RATING DRIVERS
Par Erosion: Since Fitch's last rating action in January 2022, the
portfolio has had erosion of par from being 0.8% above par, to 1.4%
below par as calculated by Fitch. However, as per the last trustee
report dated 3 April 2024, the transaction was passing all of its
collateral-quality and portfolio-profile tests and has reported
defaults of EUR1.4 million.
Low Refinancing Risk: The notes have limited near- and medium-term
refinancing risk, with 3.2% of the assets in the portfolio maturing
before 2025, and 12.7% in 2026, as calculated by Fitch.
Cushion for All Notes: All notes have substantial default-rate
buffers to support their ratings and should be capable of absorbing
further defaults in the portfolio. This also reflects its
expectation that the notes have sufficient credit protection to
withstand deterioration in the credit quality of the portfolio at
current ratings.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the underlying obligors at 'B'/'B-'. The Fitch-calculated weighted
average rating factor (WARF) of the current portfolio is 34.4 as
reported by the trustee based on old criteria.
High Recovery Expectations: Senior secured obligations comprise
99.9% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets. The Fitch-calculated weighted average recovery
rate (WARR) of the current portfolio is 62.0% based on the latest
criteria.
Diversified Portfolio: The top-10 obligor concentration as
calculated Fitch is 11.2%, and no obligor represents more than 1.3%
of the portfolio balance. Exposure to the three-largest
Fitch-defined industries is 23.0% as calculated by the trustee.
Deviation from MIR: The one-notch deviations from the model-implied
ratings (MIR) for the class A-2 to D notes reflect the insufficient
breakeven default-rate cushion at their MIRs within the
Fitch-stressed portfolio for which the agency has notched down by
one levels assets on Negative Outlook, considering uncertain
macro-economic conditions.
Reinvestment Allowed: The transaction is within its reinvestment
period until September 2024 and the manager can reinvest subject to
compliance with the reinvestment criteria. Given the manager's
ability to reinvest, Fitch analysis is based on a portfolio the
agency has stressed to their covenanted limits, while also
factoring in a 1.5% haircut to the WARR covenant that is not
consistent with Fitch's current criteria.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
An increase of the default rate (RDR) at all rating levels in the
current portfolio by 25% of the mean RDR and a decrease of the
recovery rate (RRR) by 25% at all rating levels would have no
impact on the class A and B notes, but would lead to a downgrade of
no more than one notch for the class A-2 and C notes, and to below
'B-sf' for the class F notes. Downgrades may occur if the build-up
of the notes' credit enhancement following amortisation does not
compensate for a larger loss expectation than assumed due to
unexpectedly high levels of defaults and portfolio deterioration.
Due to the better metrics and shorter life of the current portfolio
than the Fitch-stressed portfolio as well as the MIR deviation, the
class A-2 and E notes display a rating cushion of one notch, the
class C notes of two notches, and the class B and F notes of three
notches. The class A notes have no rating cushion.
Should the cushion between the current portfolio and the
Fitch-stressed portfolio be eroded either due to manager trading or
negative portfolio credit migration, a 25% increase of the mean RDR
and a 25% decrease of the RRR across all ratings of the
Fitch-stressed portfolio would lead to no impact on the class A
notes, but a downgrade of two notches for the class A-2 to C notes,
four notches for the class D notes, and to below 'B-sf' for the
class F notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A reduction of the RDR at all rating levels in the Fitch-stressed
portfolio by 25% of the mean RDR and an increase in the RRR by 25%
at all rating levels would result in upgrades of up to four notches
for all notes, except for the AAAsf rated tranches. Further
upgrades may occur if the portfolio's quality remains stable and
the notes start to amortise, leading to higher credit enhancement
across the structure.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Fitch does not provide ESG relevance scores for Carlyle Euro CLO
2020-1 DAC. In cases where Fitch does not provide ESG relevance
scores in connection with the credit rating of a transaction,
programme, instrument or issuer, Fitch will disclose in the key
rating drivers any ESG factor which has a significant impact on the
rating on an individual basis.
CARLYLE EURO 2021-3: Fitch Affirms 'B-sf' Rating on Class E Notes
-----------------------------------------------------------------
Fitch Ratings has affirmed Carlyle Euro CLO 2021-3 DAC's notes with
Stable Outlooks.
This rating review was prompted by the discovery of the
participation in the last rating committee that reviewed this
rating by a rating committee member, who should not have been
taking part in that rating committee because they were in their
"cooling off" period with respect to the relevant party around
which that analyst must rotate. Fitch reconvened a rating committee
as soon as the analysis could be updated following this discovery,
to determine if the date of the original committee or the rating
action could have been influenced by a conflict of interest. The
new rating committee did not identify any such conflict.
Entity/Debt Rating Prior
----------- ------ -----
Carlyle Euro CLO
2021-3 DAC
A-1 XS2411210623 LT AAAsf Affirmed AAAsf
A-2-A XS2411211191 LT AAsf Affirmed AAsf
A-2-B XS2411211357 LT AAsf Affirmed AAsf
B XS2411211431 LT Asf Affirmed Asf
C XS2411211944 LT BBB-sf Affirmed BBB-sf
D XS2411211860 LT BB-sf Affirmed BB-sf
E XS2411212082 LT B-sf Affirmed B-sf
TRANSACTION SUMMARY
Carlyle Euro CLO 2021-3 DAC is a securitisation of mainly senior
secured loans with a component of senior unsecured, mezzanine, and
second-lien loans. The portfolio is managed by CELF Advisors LLP,
which is part of the Carlyle Group. The CLO will exit its
reinvestment period in January 2027.
KEY RATING DRIVERS
Stable Performance: The affirmation reflects stable asset
performance. As per the trustee report dated 12 March 2024, the
transaction is below par by 1.0%. However, it is passing all
collateral quality, portfolio profile and coverage tests. Exposure
to assets with a Fitch-derived rating of 'CCC+' and below is 3.3%
according to the trustee report, versus a limit of 7.5%. The
portfolio has EUR7.5 million of defaulted assets.
Reinvesting Transaction: The reinvestment period is scheduled to
end in January 2027. Given the manager's ability to reinvest, its
analysis is based on a stressed portfolio in line with the
covenanted limits.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the transaction's underlying obligors at 'B'/ 'B-'. The weighted
average rating factor, as calculated by Fitch under its latest
criteria, was 26.9 as of 13 April 2024.
High Recovery Expectations: Senior secured obligations comprise
98.9% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets. The Fitch-calculated weighted average recovery
rate was 60.5%, as of 13 April 2024.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration, as calculated by Fitch, is 14.4%, and no obligor
represents more than 1.5% of the portfolio balance. The exposure to
the three-largest Fitch-defined industries is 24.4% as calculated
by the trustee. Fixed-rate assets are currently reported by the
trustee at 11.5% of the portfolio balance.
Cash Flow Analysis: Fitch used a customised proprietary cash flow
model to replicate the principal and interest waterfalls and the
various structural features of the transaction, and to assess their
effectiveness, including the structural protection provided by
excess spread diverted through the par-value and interest-coverage
tests.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Downgrades may occur if the build-up of the notes' credit
enhancement following amortisation does not compensate for a larger
loss expectation than initially assumed, due to unexpectedly high
levels of defaults and portfolio deterioration.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrades may occur if the portfolio quality remains stable and the
notes start amortising, leading to higher credit enhancement across
the structure.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
ESG CONSIDERATIONS
Fitch does not provide ESG relevance scores for Carlyle Euro CLO
2021-3 DAC. In cases where Fitch does not provide ESG relevance
scores in connection with the credit rating of a transaction,
programme, instrument or issuer, Fitch will disclose in the key
rating drivers any ESG factor which has a significant impact on the
rating on an individual basis.
CARLYLE EURO 2022-5: Fitch Puts 'B-sf' Reset Final E-R Notes Rating
-------------------------------------------------------------------
Fitch Ratings has assigned Carlyle Euro CLO 2022-5 DAC Reset final
ratings, as detailed below.
Entity/Debt Rating Prior
----------- ------ -----
Carlyle Euro
CLO 2022-5 DAC
A-1 Loan LT PIFsf Paid In Full AAAsf
A-1 Note
XS2532766818 LT PIFsf Paid In Full AAAsf
A-1-R Loan LT AAAsf New Rating
A-1-R Note
XS2807509729 LT AAAsf New Rating
A-2 A XS2532767030 LT PIFsf Paid In Full AAsf
A-2 B XS2532767386 LT PIFsf Paid In Full AAsf
A-2-R XS2807509992 LT AAsf New Rating
B XS2532767543 LT PIFsf Paid In Full Asf
B-R XS2807510495 LT Asf New Rating
C XS2532767626 LT PIFsf Paid In Full BBB-sf
C-R XS2807510651 LT BBB-sf New Rating
D XS2532767972 LT PIFsf Paid In Full BB-sf
D-R XS2807510578 LT BB-sf New Rating
E XS2532768277 LT PIFsf Paid In Full B-sf
E-R XS2807511030 LT B-sf New Rating
Sub-R Notes
XS2807511113 LT NRsf New Rating
TRANSACTION SUMMARY
Carlyle Euro CLO 2022-5 DAC is a securitisation of mainly senior
secured loans. The transaction has a target par of EUR357.5
million. The portfolio is managed by Carlyle CLO Management Europe
LLC, which is part of the Carlyle Group. The CLO envisages a
4.5-year reinvestment period and an 8.5-year weighted average life
(WAL).
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 (WARF) of the identified portfolio is 25.6.
Strong Recovery Expectation (Positive): At least 90% of the
portfolio will comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate (WARR) of the identified portfolio is 62.1%.
Diversified Portfolio (Positive): The transaction has four Fitch
matrices. Two are effective at closing, corresponding to a top-10
obligor concentration limit at 20%, fixed-rate asset limits of 5%
and 12.5% and 8.5-year WAL. Two others can be selected by the
manager at any time from one year after closing as long as the
collateral principal amount (including defaulted obligations at
their Fitch-calculated collateral value) is above the reinvestment
target par balance and corresponding to the same limits as the
closing matrices except for a WAL of 7.5 years.
The transaction also includes various concentration limits,
including a 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 4.5-year
reinvestment period and includes reinvestment criteria similar to
those of other European transactions. Fitch's analysis is based on
a stressed-case portfolio with the aim of testing the robustness of
the transaction structure against its covenants and portfolio
guidelines.
Cash Flow Modelling (Positive): The WAL used for the transaction's
Fitch-stressed portfolio and matrices analysis is 12 months less
than the WAL covenant at the issue date. This is to account for the
strict reinvestment conditions envisaged by the transaction after
its reinvestment period. These include, among others, passing the
coverage tests, the Fitch 'CCC' bucket limitation and Fitch WARF
test post-reinvestment, together with a progressively decreasing
WAL covenant. These conditions would in the agency's opinion reduce
the effective risk horizon of the portfolio in a stress period.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A 25% increase of the mean default rate (RDR) and a 25% decrease of
the recovery rate (RRR) across all ratings of the identified
portfolio would have no impact on the class A-1 and A-2 notes and
would lead to a downgrade of one notch for class B to D notes, and
to below 'B-sf' for the class E notes.
Based on the identified portfolio, downgrades may occur if the loss
expectation is larger than assumed, due to unexpectedly high levels
of default and portfolio deterioration. Due to the better metrics
and shorter life of the identified portfolio than the
Fitch-stressed portfolio, the class A-2 to E notes display a rating
cushion of two notches.
Should the cushion between the identified portfolio and the
Fitch-stressed portfolio be eroded either due to manager trading or
negative portfolio credit migration, a 25% increase of the mean RDR
and a 25% decrease of the RRR across all ratings of the
Fitch-stressed portfolio would lead to downgrades of up to four
notches for the rated notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR and a 25% increase in the RRR
across all ratings of the Fitch-stressed portfolio would lead to an
upgrade of up to three notches for the rated notes, except for the
'AAAsf' notes.
During the reinvestment period, based on the Fitch-stressed
portfolio, upgrades may result from better-than-expected portfolio
credit quality and a shorter remaining WAL test, allowing the notes
to withstand larger-than-expected losses for the remaining life of
the transaction. After the end of the reinvestment period, upgrades
may result from stable portfolio credit quality and deleveraging,
leading to higher credit enhancement and excess spread available to
cover for losses in the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Fitch does not provide ESG relevance scores for Carlyle Euro CLO
2022-5 DAC. In cases where Fitch does not provide ESG relevance
scores in connection with the credit rating of a transaction,
programme, instrument or issuer, Fitch will disclose in the key
rating drivers any ESG factor which has a significant impact on the
rating on an individual basis.
CARLYLE GLOBAL 2014-1: Fitch Affirms B+sf Rating on Cl. F-RR Notes
------------------------------------------------------------------
Fitch Ratings has affirmed Carlyle Global Market Strategies Euro
CLO 2014-1 DAC's notes and revised the Outlooks on the class
B-1-RR, B-2-RR and B-3-RR notes to Positive from Stable.
This rating review was prompted by the discovery of the
participation in the last rating committee that reviewed this
rating by a rating committee member, who should not have been
taking part in that rating committee because they were in their
"cooling off" period with respect to the relevant party around
which that analyst must rotate. Fitch reconvened a rating committee
as soon as the analysis could be updated following this discovery,
to determine if the date of the original committee or the rating
action could have been influenced by a conflict of interest. The
new rating committee did not identify any such conflict.
Entity/Debt Rating Prior
----------- ------ -----
Carlyle Global Market
Strategies Euro
CLO 2014-1 DAC
A-RR XS1839726426 LT AAAsf Affirmed AAAsf
B-1-RR XS1839725964 LT AA+sf Affirmed AA+sf
B-2-RR XS1839726004 LT AA+sf Affirmed AA+sf
B-3-RR XS1847616296 LT AA+sf Affirmed AA+sf
C-1-RR XS1839726186 LT A+sf Affirmed A+sf
C-2-RR XS1847611495 LT A+sf Affirmed A+sf
D-RR XS1839726269 LT BBB+sf Affirmed BBB+sf
E-RR XS1839726343 LT BB+sf Affirmed BB+sf
F-RR XS1839725295 LT B+sf Affirmed B+sf
TRANSACTION SUMMARY
Carlyle Global Market Strategies Euro CLO 2014-1 DAC is a cash-flow
CLO. The underlying portfolio of assets mainly consists of
leveraged loans and is managed by CELF Advisors LLP. The deal
exited its reinvestment period in October 2022.
KEY RATING DRIVERS
Stable Performance and Par Erosion: As per the last trustee report
dated 3 April 2024, the transaction is below par by 4% due to
defaulted assets and trading loses. The transaction is passing all
of its tests other than the weighted average life test. Exposure to
assets with a Fitch-derived rating of 'CCC+' and below is 4.4%,
versus a limit of 7.5%. There are approximately EUR6 million of
defaulted assets in the portfolio.
Manageable Refinancing Risk: The transaction has limited exposure
to near- and medium-term refinancing risk, with 0.3% of the assets
in the portfolio maturing before 2024 and 4.9% in 2025, as
calculated by Fitch. All notes have retained sufficient buffers to
support their current ratings and should be capable of withstanding
further defaults in the portfolio.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the underlying obligors at 'B'/'B-'. The Fitch-calculated weighted
average rating factor (WARF) of the current portfolio is 34.7 based
on outdated criteria. The WARF is 27.2 as calculated by Fitch under
its latest criteria.
High Recovery Expectations: Senior secured obligations comprise
99.2% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets. The Fitch-calculated weighted average recovery
rate (WARR) of the current portfolio was 60.8%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration, as calculated by Fitch, is 17.4%, and no obligor
represents more than 2.1% of the portfolio balance. The exposure to
the three-largest Fitch-defined industries is 23.6% as calculated
by the trustee. Fixed-rate assets are currently reported by the
trustee at 7.3% of the portfolio balance, which compares favourably
with the current maximum of 10%.
Deviation from MIR: The class B-1-RR, B-2-RR, B-3-RR, C-1-RR,
C-2-RR and D-RR notes' ratings are one notch below their
model-implied ratings (MIR). The deviation reflects the limited
cushion on the current portfolio at their MIRs. In addition, credit
enhancement for the class B-1-RR, B-2-RR and B-3-RR notes is not in
line with the typical average credit enhancement for 'AAAsf' rated
notes.
Cash Flow Analysis: Fitch used a customised proprietary cash flow
model to replicate the principal and interest waterfalls and the
various structural features of the transaction, and to assess their
effectiveness, including the structural protection provided by
excess spread diverted through the par-value and interest-coverage
tests.
Transaction Outside Reinvestment Period: Although the transaction
exited its reinvestment period in October 2022, the manager can
reinvest unscheduled principal proceeds and sale proceeds from
credit-risk obligations after the reinvestment period, subject to
compliance with the reinvestment criteria. Given the manager's
ability to reinvest, Fitch's analysis is based on a portfolio where
it stresses the transaction's covenants to their limits. The WARR
has been reduced by 1.5% to address the inflated WARR, as the
transaction documents use an old WARR definition that is not in
line with Fitch's current criteria.
As the transaction is deleveraging, credit enhancement for the
notes is increasing. Credit enhancement for the class A-RR to D-RR
notes is above its original level despite the deal being below par.
The build-up of credit enhancement for the class B-1-RR, B-2-RR,
B-3-RR notes supports the revision of the Outlooks to Positive from
Stable, as Fitch expects credit enhancement for these notes to
continue increasing to levels usually seen for 'AAAsf' rated
notes.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Downgrades may occur if build-up of the notes' credit enhancement
following amortisation does not compensate for a larger loss
expectation than initially assumed due to unexpectedly high levels
of defaults and portfolio deterioration.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrades may occur if the portfolio quality remains stable and the
notes start amortising, leading to higher credit enhancement across
the structure.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Carlyle Global Market Strategies Euro CLO 2014-1 DAC
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating 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.
ESG CONSIDERATIONS
Fitch does not provide ESG relevance scores for Carlyle Global
Market Strategies Euro CLO 2016-1 DAC. In cases where Fitch does
not provide ESG relevance scores in connection with the credit
rating of a transaction, programme, instrument or issuer, Fitch
will disclose in the key rating drivers any ESG factor which has a
significant impact on the rating on an individual basis.
CVC CORDATUS XII: Fitch Affirms 'Bsf' Rating on Class F Notes
-------------------------------------------------------------
Fitch Ratings has affirmed CVC Cordatus Loan Fund XII DAC's
ratings.
This rating review was prompted by the discovery of the
participation in the last rating committee that reviewed this
rating by a rating committee member, who should not have been
taking part in that rating committee because they were in their
"cooling off" period with respect to the relevant party around
which that analyst must rotate. Fitch reconvened a rating committee
as soon as the analysis could be updated following this discovery,
to determine if the date of the original committee or the rating
action could have been influenced by a conflict of interest. The
new rating committee did not identify any such conflict.
Entity/Debt Rating Prior
----------- ------ -----
CVC Cordatus Loan
Fund XII DAC
A-1-R XS2325581481 LT AAAsf Affirmed AAAsf
A-2-R XS2325582299 LT AAAsf Affirmed AAAsf
B-1-R XS2325582885 LT AAsf Affirmed AAsf
B-2-R XS2325583420 LT AAsf Affirmed AAsf
C-R XS2325584071 LT Asf Affirmed Asf
D XS1899142886 LT BBB+sf Affirmed BBB+sf
E XS1899143934 LT BBsf Affirmed BBsf
F XS1899143421 LT Bsf Affirmed Bsf
TRANSACTION SUMMARY
CVC Cordatus Loan Fund XII DAC is a cash flow CLO comprising mostly
senior secured obligations. The transaction is actively managed by
CVC Credit Partners European CLO Management LLP and exited its
reinvestment period in July 2023. At closing of the 2021 refinance,
the class A-1-R to C-R notes were issued and the proceeds used to
refinance the existing notes. The class D, E and F and the
subordinated notes were not refinanced.
KEY RATING DRIVERS
Stable Performance, Deleveraging: As per the last trustee report
dated 29 February 2024, the transaction was passing all its
collateral-quality and portfolio-profile tests. The transaction is
currently 0.2% below target par, as it was during the previous
review in October 2023. The transaction has 3.7% of assets with a
Fitch-derived rating of 'CCC+' and below, versus a limit of 7.5%.
The portfolio has no defaulted assets. The transaction started to
deleverage in November 2023.
Low Refinancing Risk: The transaction has low near- and medium-term
refinancing risk, with 6.5% of the portfolio maturing before the
end of 2025, as calculated by Fitch. The transaction's stable
performance has resulted in similar break-even default-rate
cushions versus the last review in October 2023. All notes have
retained sufficient buffer to support their current ratings and
should be capable of absorbing further defaults in the portfolio.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the underlying obligors at 'B'/'B-'. The Fitch-calculated weighted
average rating factor (WARF) of the current portfolio is 25.6 under
its latest criteria.
High Recovery Expectations: Senior secured obligations comprised
97.0% of the portfolio, as per the latest trustee report. Fitch
views the recovery prospects for these assets as more favourable
than for second-lien, unsecured and mezzanine assets. The
Fitch-calculated weighted average recovery rate (WARR) of the
current portfolio was 61.0%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration, as calculated by Fitch, is 14.8%, and no obligor
represents more than 1.8% of the portfolio balance. Exposure to the
three-largest Fitch-defined industries is 27.0% as calculated by
Fitch. Fixed-rate assets as reported by the trustee are at 9.6% of
the portfolio balance, which is within the current limit of 10%.
Deviation from MIRs: Except for the class A-1-R, A-2-R and D notes,
the notes' ratings are one notch below their model-implied ratings
(MIR). The deviations reflect insufficient cushions at their MIRs
and uncertain macro-economic conditions that may result in a
deteriorating portfolio credit profile.
Cash Flow Analysis: Fitch used a customised proprietary cash flow
model to replicate the principal and interest waterfalls and the
various structural features of the transaction, and to assess their
effectiveness, including the structural protection provided by
excess spread diverted through the par-value and interest-coverage
tests.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Based on the current portfolio, downgrades may occur if its loss
expectation is larger than assumed, due to unexpectedly high levels
of defaults and portfolio deterioration.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrades may result from stable portfolio credit quality and
deleveraging, leading to higher credit enhancement and excess
spread available to cover losses in the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Fitch does not provide ESG relevance scores for CVC Cordatus Loan
Fund XII. In cases where Fitch does not provide ESG relevance
scores in connection with the credit rating of a transaction,
programme, instrument or issuer, Fitch will disclose in the key
rating drivers any ESG factor which has a significant impact on the
rating on an individual basis.
CVC CORDATUS XV: Fitch Affirms 'B-sf' Rating on Class F Notes
-------------------------------------------------------------
Fitch Ratings has affirmed CVC Cordatus Loan Fund XV DAC. The
Outlooks remain on Stable for all notes.
This rating review was prompted by the discovery of the
participation in the last rating committee that reviewed this
rating by a rating committee member, who should not have been
taking part in that rating committee because they were in their
"cooling off" period with respect to the relevant party around
which that analyst must rotate. Fitch reconvened a rating committee
as soon as the analysis could be updated following this discovery,
to determine if the date of the original committee or the rating
action could have been influenced by a conflict of interest. The
new rating committee did not identify any such conflict.
Entity/Debt Rating Prior
----------- ------ -----
CVC Cordatus Loan
Fund XV DAC
A-R XS2382262793 LT AAAsf Affirmed AAAsf
B-1-R XS2382262959 LT AAsf Affirmed AAsf
B-2-R XS2382263171 LT AAsf Affirmed AAsf
C-R XS2382263338 LT Asf Affirmed Asf
D-R XS2382263502 LT BBB-sf Affirmed BBB-sf
E XS2025846671 LT BB-sf Affirmed BB-sf
F XS2025847216 LT B-sf Affirmed B-sf
TRANSACTION SUMMARY
The transaction is a cash flow CLO comprising mostly senior secured
obligations. It is actively managed by CVC Credit Partners European
CLO Management LLP and will exit its reinvestment period in
February 2026.
KEY RATING DRIVERS
Stable Asset Performance: The transaction's metrics indicate stable
asset performance. The transaction is currently below target par.
It is passing all collateral-quality, portfolio-profile and
coverage tests. Exposure to assets with a Fitch-derived rating of
'CCC+' is 2.7%, according to the latest trustee report, versus a
limit of 7.5%. The portfolio has no defaulted assets.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the transaction's underlying obligors at 'B'/'B-'. The weighted
average rating factor, as calculated by Fitch under its latest
criteria, is 25.6.
High Recovery Expectations: Senior secured obligations comprise
95.9% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets. The weighted average recovery rate, as calculated
by Fitch, is 59.8%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. No obligor represents more than
2.3% of the portfolio balance. Exposure to the three-largest
Fitch-defined industries is 29.8% as calculated by Fitch.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Based on the current portfolio, downgrades may occur if the loss
expectation is larger than assumed, due to unexpectedly high levels
of default and portfolio deterioration.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrades may result from stable portfolio credit quality and
deleveraging, leading to higher credit enhancement and excess
spread available to cover losses in the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Fitch does not provide ESG relevance scores for CVC Cordatus Loan
Fund XV DAC. In cases where Fitch does not provide ESG relevance
scores in connection with the credit rating of a transaction,
programme, instrument or issuer, Fitch will disclose in the key
rating drivers any ESG factor which has a significant impact on the
rating on an individual basis.
HENLEY CLO X: S&P Assigns Prelim B- (sf) Rating to Class F Notes
----------------------------------------------------------------
S&P Global Ratings assigned preliminary credit ratings to Henley
CLO X DAC's class A to F European cash flow CLO notes. At closing,
the issuer will issue unrated subordinated notes.
Under the transaction documents, the rated notes will pay quarterly
interest unless a frequency switch event occurs. Following this,
the notes will permanently switch to semiannual payments.
The portfolio's reinvestment period will end approximately five
years after closing, while the non-call period will end
approximately two years after closing.
The preliminary ratings reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which S&P expects to be
bankruptcy remote.
-- The transaction's counterparty risks, which S&P expects to be
in line with its counterparty rating framework.
Portfolio benchmarks
CURRENT
S&P Global Ratings' weighted-average rating factor 3,004.70
Default rate dispersion 398.32
Weighted-average life (years) 4.71
Weighted-average life (years) extended
to cover the length of the reinvestment period 5.14
Obligor diversity measure 138.52
Industry diversity measure 19.36
Regional diversity measure 1.31
Transaction key metrics
CURRENT
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.44
Actual 'AAA' weighted-average recovery (%) 36.25
Actual weighted-average spread (net of floors; %) 4.30
S&P said, "Our preliminary ratings reflect our assessment of the
preliminary collateral portfolio's credit quality, which has a
weighted-average rating of 'B'. We understand that at closing the
portfolio will be well-diversified, primarily comprising broadly
syndicated speculative-grade senior secured term loans and senior
secured bonds. Therefore, we have conducted our credit and cash
flow analysis by applying our criteria for corporate cash flow
CDOs."
Asset priming obligations and uptier priming debt
Under the transaction documents, the issuer can purchase asset
priming (drop down) obligations and/or uptier priming debt to
address the risk of a distressed obligor either moving collateral
outside the existing creditors' covenant group or incurring new
money debt senior to the existing creditors.
S&P said, "In our cash flow analysis, we used the EUR450 million
target par amount, the covenanted weighted-average spread (4.10%),
the covenanted weighted-average coupon (4.75%), and the actual
portfolio weighted-average recovery (WAR) rates for all rated
notes, except the class A notes, where we used covenanted WAR rate
of 35.75% provided by the manager. We applied various cash flow
stress scenarios, using four different default patterns, in
conjunction with different interest rate stress scenarios for each
liability rating category.
"Until the end of the reinvestment period on July 20, 2029, the
collateral manager may substitute assets in the portfolio for so
long as our CDO Monitor test is maintained or improved in relation
to the initial ratings on the notes. This test looks at the total
amount of losses that the transaction can sustain as established by
the initial cash flows for each rating, and compares that with the
current portfolio's default potential plus par losses to date. As a
result, until the end of the reinvestment period, the collateral
manager may through trading deteriorate the transaction's current
risk profile, if the initial ratings are maintained.
"Under our structured finance sovereign risk criteria, we expect
the transaction's exposure to country risk to be sufficiently
mitigated at the assigned preliminary ratings.
"At closing, we expect that the transaction's documented
counterparty replacement and remedy mechanisms will adequately
mitigate its exposure to counterparty risk under our current
counterparty criteria.
"We expect the transaction's legal structure and framework to be
bankruptcy remote. The issuer is expected to be a special-purpose
entity that meets our criteria for bankruptcy remoteness.
"Our credit and cash flow analysis show that the class B, C, D, and
E notes benefit from break-even default rate (BDR) and scenario
default rate cushions that we would typically consider to be in
line with higher ratings than those assigned. However, as the CLO
is still in its reinvestment phase, during which the transaction's
credit risk profile could deteriorate, we have capped our
preliminary ratings on the notes. The class A notes can withstand
stresses commensurate with the assigned preliminary ratings.
"For the class F notes, our credit and cash flow analysis indicate
that the available credit enhancement could withstand stresses
commensurate with a lower rating. However, we have applied our
'CCC' rating criteria, resulting in a preliminary 'B- (sf)' rating
on this class of notes.
The ratings uplift for the class F notes reflects several key
factors, including:
-- The class F notes' available credit enhancement, which is in
the same range as that of other CLOs S&P has rated and that has
recently been issued in Europe.
-- The preliminary portfolio's average credit quality, which is
similar to other recent CLOs.
-- S&P's model generated BDR at the 'B-' rating level of 28.23%
(for a portfolio with a weighted-average life of 5.14 years),
versus if we were to consider a long-term sustainable default rate
of 3.1% for 5.14 years, which would result in a target default rate
of 15.93%.
-- S&P does not believe that there is a one-in-two chance of this
tranche defaulting.
-- S&P does not envision this tranche defaulting in the next 12-18
months.
-- Following this analysis, S&P considers that the available
credit enhancement for the class F notes is commensurate with the
assigned preliminary 'B- (sf)' rating.
-- Following S&P's analysis of the credit, cash flow,
counterparty, operational, and legal risks, it believes its
preliminary ratings are commensurate with the available credit
enhancement for the class A to F notes.
S&P said, "In addition to our standard analysis, to indicate how
rising pressures among speculative-grade corporates could affect
our ratings on European CLO transactions, we have also included the
sensitivity of the ratings on the class A to E notes based on four
hypothetical scenarios.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category--and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met--we have not included the above scenario analysis results
for the class F notes."
Environmental, social, and governance
S&P regards the exposure to environmental, social, and governance
(ESG) credit factors in the transaction as being broadly in line
with its benchmark for the sector. Primarily due to the diversity
of the assets within CLOs, the exposure to environmental credit
factors is viewed as below average, social credit factors are below
average, and governance credit factors are average.
For this transaction, the documents prohibit assets from being
related to certain activities, including but not limited to, the
following: trade of illegal drugs or narcotics, including
recreational marijuana; one whose revenues are more than 5% derived
from tobacco and tobacco-related products; from sale or
manufacturing of civilian firearms; from pornography, prostitution;
from the extraction of thermal coal, oil sands, fossil fuels from
unconventional source one whose revenues are more than 1% derived
from sale or extraction of thermal coal, coal based power
generation, or oil sands; one whose any revenue is from illegal
deforestation; mining of or trade in uranium or asbestos fibres; a
fur trade, exotic wild animal trade and overfishing in breach of
regulatory quotas or in restricted areas engaged in material
ongoing violations of "The Ten Principles of the UN Global
Compact". Accordingly, since the exclusion of assets from these
industries does not result in material differences between the
transaction and our ESG benchmark for the sector, no specific
adjustments have been made in S&P's rating analysis to account for
any ESG-related risks or opportunities.
Ratings
PRELIM. PRELIM. AMOUNT
CLASS RATING* (MIL. EUR) SUB (%) INTEREST RATE§
A AAA (sf) 275.60 38.76 Three/six-month EURIBOR
plus 1.48%
B AA (sf) 46.10 28.51 Three/six-month EURIBOR
plus 2.10%
C A (sf) 27.00 22.51 Three/six-month EURIBOR
plus 2.65%
D BBB- (sf) 34.90 14.76 Three/six-month EURIBOR
plus 3.75%
E BB- (sf) 20.90 10.11 Three/six-month EURIBOR
plus 6.65%
F B- (sf) 16.20 6.51 Three/six-month EURIBOR
plus 8.26%
Sub. Notes NR 36.20 N/A N/A
*The preliminary ratings assigned to the class A and B notes
address timely interest and ultimate principal payments. The
preliminary ratings assigned to the class C, D, E, and F notes
address ultimate interest and principal payments.
§The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
SEAPOINT PARK: Fitch Affirms 'B-sf' Rating on Class E Notes
-----------------------------------------------------------
Fitch Ratings has upgraded Seapoint Park CLO DAC's class A2A and
A2B notes to 'AA+sf' from 'AAsf' and affirmed the others, as
detailed below.
Entity/Debt Rating Prior
----------- ------ -----
Seapoint Park CLO DAC
A1 XS2066776431 LT AAAsf Affirmed AAAsf
A2A XS2066777082 LT AA+sf Upgrade AAsf
A2B XS2066777751 LT AA+sf Upgrade AAsf
B XS2066778486 LT Asf Affirmed Asf
C XS2066779294 LT BBBsf Affirmed BBBsf
D XS2066779880 LT BBsf Affirmed BBsf
E XS2066780201 LT B-sf Affirmed B-sf
TRANSACTION SUMMARY
Seapoint Park CLO DAC is a cash flow CLO comprising mostly senior
secured obligations. The transaction will exit its reinvestment
period in May 2024, the portfolio is actively managed by Blackstone
Ireland Limited.
KEY RATING DRIVERS
Resilient Performance; Low Refinancing Risk: The rating actions
reflect the transaction's resilient performance and low refinancing
risk. As per the last trustee report dated 9 February 2024, the
transaction is passing all of its collateral quality and portfolio
profile tests. The transaction is currently above target par. The
transaction has 2% of assets with a Fitch-derived rating of 'CCC+'
and below, as reported by the trustee, versus a limit of 7.5%.
Near- and medium-term refinancing risk is also low, with 3% of the
assets in the portfolio maturing before the end of 2025, as
calculated by Fitch.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the underlying obligors at 'B'/'B-'. The Fitch-calculated weighted
average rating factor of the current portfolio is 24.7 as reported
by the trustee.
High Recovery Expectations: Senior secured obligations comprise
97.2% of the portfolio as calculated by the trustee. Fitch views
the recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch-calculated
weighted average recovery rate of the current portfolio as reported
by the trustee was 61.4%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration is 14%, and no obligor represents more than 1.9% of
the portfolio balance, as calculated by Fitch.
Transaction Still in Reinvestment Period: The transaction will exit
its reinvestment period in May 2024. Given the manager's ability to
continue to reinvest, Fitch's analysis is based on a stressed
portfolio and tested the notes' achievable ratings across the Fitch
matrix, since the portfolio can still migrate to different
collateral quality tests.
Cash Flow Analysis: Fitch used a customised proprietary cash flow
model to replicate the principal and interest waterfalls and the
various structural features of the transaction, and to assess their
effectiveness, including the structural protection provided by
excess spread diverted through the par-value and interest-coverage
tests.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Downgrades may occur if the build-up of the notes' credit
enhancement following amortisation does not compensate for a larger
loss expectation than initially assumed, due to unexpectedly high
levels of defaults and portfolio deterioration.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrades may occur if the portfolio quality remains stable and the
notes start amortising, leading to higher credit enhancement across
the structure.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Fitch does not provide ESG relevance scores for this transaction.
In cases where Fitch does not provide ESG relevance scores in
connection with the credit rating of a transaction, programme,
instrument or issuer, Fitch will disclose in the key rating drivers
any ESG factor which has a significant impact on the rating on an
individual basis.
VERSEY PARK: Fitch Affirms 'B-sf' Rating on Class E Notes
---------------------------------------------------------
Fitch Ratings has revised Vesey Park CLO DAC's class C Outlook to
Positive from Stable, while affirming all ratings.
This rating review was prompted by the discovery of the
participation in the last rating committee that reviewed this
rating by a rating committee member, who should not have been
taking part in that rating committee because they were in their
"cooling off" period with respect to the relevant party around
which that analyst must rotate. Fitch reconvened a rating committee
as soon as the analysis could be updated following this discovery,
to determine if the date of the original committee or the rating
action could have been influenced by a conflict of interest. The
new rating committee did not identify any such conflict.
Entity/Debt Rating Prior
----------- ------ -----
Vesey Park CLO DAC
A-1 XS2133192646 LT AAAsf Affirmed AAAsf
A-2A XS2133193370 LT AA+sf Affirmed AA+sf
A-2B XS2133193966 LT AA+sf Affirmed AA+sf
B XS2133194345 LT Asf Affirmed Asf
C XS2133194857 LT BBB-sf Affirmed BBB-sf
D XS2133195235 LT BB-sf Affirmed BB-sf
E XS2133196555 LT B-sf Affirmed B-sf
TRANSACTION SUMMARY
Vesey Park CLO DAC is a cash flow collateralised loan obligation
(CLO) actively managed by Blackstone Ireland Limited. It closed on
21 April 2020 and the reinvestment period will end on 16 November
2024.
KEY RATING DRIVERS
Stable Performance: As per the last trustee report dated 20 March
2024, the transaction was passing all its collateral-quality and
portfolio-profile tests. The transaction is currently 1.3% above
target par, and has approximately EUR3 million of defaulted assets.
The transaction has 2.0% of assets with a Fitch-derived rating of
'CCC+' and below, versus a limit of 7.5%. The stable performance
along with the recent par-build has led to today's Outlook revision
of the class C notes.
Low Refinancing Risk: The transaction has low near- and medium-term
refinancing risk, with 1.6% of the portfolio maturing before the
end of 2025, as calculated by Fitch.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the underlying obligors at 'B'/'B-'. The Fitch-calculated weighted
average rating factor (WARF) of the current portfolio is 25.2 under
its latest criteria.
High Recovery Expectations: Senior secured obligations comprised
96.9% of the portfolio, as per the latest trustee report. Fitch
views the recovery prospects for these assets as more favourable
than for second-lien, unsecured and mezzanine assets. The
Fitch-calculated weighted average recovery rate (WARR) of the
current portfolio was 61.1%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration, as calculated by Fitch, is 12.9%, and no obligor
represents more than 1.5% of the portfolio balance. The exposure to
the three-largest Fitch-defined industries is 32.1% as calculated
by Fitch. Fixed-rate assets as reported by the trustee are at 5.7%
of the portfolio balance, which is within the current limit of
10%.
Transaction Within Reinvestment Period: The transaction is within
its reinvestment period until November 2024. The manager can also
reinvest unscheduled principal proceeds and sale proceeds from
credit-risk obligations after the reinvestment period, subject to
compliance with the reinvestment criteria. Given the manager's
ability to reinvest, Fitch's analysis is based on a portfolio where
Fitch stresses the transaction's covenants to their limits.
Deviation from MIRs: The class C notes are one notch below their
model-implied rating (MIR) while all other classes are in line with
their MIRs. The deviation reflects insufficient cushion at the MIR
and uncertain macro-economic conditions that may result in a
deteriorating portfolio credit profile.
Cash Flow Analysis: Fitch used a customised proprietary cash flow
model to replicate the principal and interest waterfalls and the
various structural features of the transaction, and to assess their
effectiveness, including the structural protection provided by
excess spread diverted through the par-value and interest-coverage
tests.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings of
the identified portfolio and would lead to a downgrade of no more
than one notch for the class C notes and would have no negative
rating impact on the other notes.
Based on the identified portfolio, downgrades may occur if the loss
expectation is larger than assumed, due to unexpectedly high levels
of default and portfolio deterioration. Due to the better metrics
and shorter life of the identified portfolio than the
Fitch-stressed portfolio, the class E notes have a four-notch
cushion; the class B notes a three-notch cushion; the class C and D
notes each a two-notch cushion; and the class A2 notes a one-notch
cushion. Ther class A1 notes have no rating cushion.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings of the Fitch-streseds
portfolio would lead to upgrades of up to five notches, except for
the 'AAAsf' rated notes.
Upgrades may result from stable portfolio credit quality and
deleveraging, leading to higher credit enhancement and excess
spread available to cover losses in the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Fitch does not provide ESG relevance scores for Vesey Park CLO DAC.
In cases where Fitch does not provide ESG relevance scores in
connection with the credit rating of a transaction, programme,
instrument or issuer, Fitch will disclose in the key rating drivers
any ESG factor which has a significant impact on the rating on an
individual basis.
WILLOW PARK: Fitch Affirms 'B+sf' Rating on Class E Notes
---------------------------------------------------------
Fitch Ratings has upgraded Willow Park CLO DAC's class A-2A, A-2B
and B notes and affirmed the others. The Outlooks are Stable.
This rating review was prompted by the discovery of the
participation in the last rating committee that reviewed this
rating by a rating committee member, who should not have been
taking part in that rating committee because they were in their
"cooling off" period with respect to the relevant party around
which that analyst must rotate. Fitch reconvened a rating committee
as soon as the analysis could be updated following this discovery,
to determine if the date of the original committee or the rating
action could have been influenced by a conflict of interest. The
new rating committee did not identify any such conflict.
Entity/Debt Rating Prior
----------- ------ -----
Willow Park CLO DAC
A-1 XS1699702038 LT AAAsf Affirmed AAAsf
A-2A XS1699702467 LT AAAsf Upgrade AA+sf
A-2B XS1699705056 LT AAAsf Upgrade AA+sf
B XS1699705304 LT AAsf Upgrade A+sf
C XS1699705643 LT BBB+sf Affirmed BBB+sf
D XS1699706021 LT BB+sf Affirmed BB+sf
E XS1699706294 LT B+sf Affirmed B+sf
TRANSACTION SUMMARY
The transaction is a cash flow CLO comprising mostly senior secured
obligations. It is actively managed by Blackstone Ireland Limited
and exited its reinvestment period in July 2022.
KEY RATING DRIVERS
Stable Performance; Amortising Transaction: The class A-1 notes are
49% paid down since the transaction closed in November 2017 and
EUR86.5 million has been repaid since the last review in July 2023.
The class A-2A, A-2B and B notes' upgrades reflect their stable
performance and larger break-even default-rate cushions since the
last review. The transaction is currently 1.2% below par and the
exposure to assets with a Fitch-derived rating of 'CCC+' and below
is 4.3%, according to the latest trustee report.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the transaction's underlying obligors at 'B'/'B-'. The
weighted-average rating factor (WARF), as calculated by Fitch under
its latest criteria, is 25.1.
High Recovery Expectations: Senior secured obligations comprise
99.3% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets. The weighted average recovery rate, as calculated
by Fitch, is 62.2%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. No obligor represents more than
2.9% of the portfolio balance. The exposure to the three-largest
Fitch-defined industries is 32.8% as calculated by Fitch.
Deviation from Model-implied Ratings: The class B notes ratings are
one notch below their model-implied ratings (MIR). The deviation
reflects limited default-rate cushion at the MIR under the
Fitch-stressed portfolio for which assets on Negative Outlook have
been notched down by one level, and uncertain macro-economic
conditions that increase risk.
Cash Flow Modelling: The transaction exited its reinvestment period
in July 2022, and is currently failing the weighted average life
(WAL) test and another agency's WARF test, both of which need to be
satisfied for the manager to reinvest. The manager has not made any
purchases since July 2022. Fitch's analysis is based on the
Fitch-stressed portfolio with the WAL stressed to four years for
the rating-default-rates (RDR) to account for refinancing risk.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Based on the current portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrades may result from stable portfolio credit quality and
deleveraging, leading to higher credit enhancement and excess
spread available to cover losses in the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Fitch does not provide ESG relevance scores for Willow Park CLO
DAC. In cases where Fitch does not provide ESG relevance scores in
connection with the credit rating of a transaction, programme,
instrument or issuer, Fitch will disclose in the key rating drivers
any ESG factor which has a significant impact on the rating on an
individual basis.
WILTON PARK: Fitch Affirms 'B-sf' Rating on Class F Notes
---------------------------------------------------------
Fitch Ratings has affirmed Wilton Park CLO DAC's notes, as detailed
below.
Entity/Debt Rating Prior
----------- ------ -----
Wilton Park CLO DAC
Class A XS2698487316 LT AAAsf Affirmed AAAsf
Class B-1 XS2698487662 LT AAsf Affirmed AAsf
Class B-2 XS2698487829 LT AAsf Affirmed AAsf
Class C XS2698489106 LT Asf Affirmed Asf
Class D XS2698489445 LT BBB-sf Affirmed BBB-sf
Class E XS2698489528 LT BB-sf Affirmed BB-sf
Class F XS2698489791 LT B-sf Affirmed B-sf
TRANSACTION SUMMARY
Wilton Park CLO DAC is a securitisation of mainly senior secured
obligations (at least 90%) with a component of senior unsecured,
mezzanine, second-lien loans and high-yield bonds. Note proceeds
were used to fund a portfolio with a target par of EUR400 million.
The portfolio is actively managed by Blackstone Ireland Limited.
The CLO has a 4.5-year reinvestment period and a 7.5-year weighted
average life test (WAL).
This rating review was prompted by the discovery of the
participation in the last rating committee that reviewed this
rating by a rating committee member, who should not have been
taking part in that rating committee because they were in their
"cooling off" period with respect to the relevant party around
which that analyst must rotate. Fitch reconvened a rating committee
as soon as the analysis could be updated following this discovery,
to determine if the date of the original committee or the rating
action could have been influenced by a conflict of interest. The
new rating committee did not identify any such conflict.
KEY RATING DRIVERS
Stable Performance and Low Refinancing Risk: The transaction's
performance has been stable and refinancing risk is low. As per the
latest trustee report, the transaction is passing all collateral
quality and portfolio profile tests and is above target par.
According to the latest trustee report, the transaction has 0.85%
of assets with a Fitch-derived rating of 'CCC+' and below, which is
below the limit of 7.50%. There are no defaulted assets and none of
the assets in the portfolio is maturing before the end of 2025.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the underlying obligors at 'B'/'B-'. The weighted average rating
factor of the current portfolio is 24.8 as calculated by Fitch.
High Recovery Expectations: Senior secured obligations comprise
96.9% of the portfolio as calculated by the trustee. Fitch views
the recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch-calculated
weighted average recovery rate of the current portfolio as reported
by the trustee is 61.9%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration is 12.7%, and no obligor represents more than 1.5% of
the portfolio balance, as reported trustee.
Transaction Still in Reinvestment Period: The transaction closed
less than a year ago and will only exit its reinvestment period in
May 2028. Given the manager's ability to continue to reinvest,
Fitch's analysis is based on a stressed portfolio and tested the
notes' achievable ratings across the Fitch matrix, since the
portfolio can still migrate to different collateral quality tests.
Cash Flow Analysis: Fitch used a customised proprietary cash flow
model to replicate the principal and interest waterfalls and the
various structural features of the transaction, and to assess their
effectiveness, including the structural protection provided by
excess spread diverted through the par-value and interest-coverage
tests.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
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.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrades may occur on stable portfolio credit quality and
deleveraging, leading to higher credit enhancement and excess
spread available to cover losses in the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
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.
ESG CONSIDERATIONS
Fitch does not provide ESG relevance scores for this transaction.
In cases where Fitch does not provide ESG relevance scores in
connection with the credit rating of a transaction, programme,
instrument or issuer, Fitch will disclose in the key rating drivers
any ESG factor which has a significant impact on the rating on an
individual basis.
=========
I T A L Y
=========
CENTURION NEWCO: S&P Affirms 'B-' ICR, Alters Outlook to Negative
-----------------------------------------------------------------
S&P Global Ratings affirmed its 'B-' ratings on IT service provider
Centurion Newco (Engineering) and its senior secured notes; the
recovery rating remains at '3', and S&P has revised its rounded
recovery estimate to 50% from 55%, since the company's use of
factoring has increased.
The negative outlook indicates that S&P could lower the rating if
the company's quarterly results this year suggest exceptional costs
or adjusted leverage may not reduce substantially, if FOCF fails to
turn positive before the effects of factoring, or if liquidity
weakens.
S&P said, "Engineering incurred high exceptional cost throughout
2023, leading to weaker credits metrics than we anticipated.
Although Engineering's revenue increased by 18% in 2023 to EUR1,7
billion, due to the consolidation of Be (organic growth was 4.5%),
and the company's adjusted EBITDA margin increased to 15.3%, very
high exceptional costs incurred throughout 2023 led to a material
divergence from our initial base case. These high exceptionals
result from the implementation of the company's transformative
program in 2022-2023. The S&P Global Ratings-adjusted EBITDA margin
reached 7.7% (after provision, exceptional, and capitalized
development costs), leading leverage to peak at 14.5x compared to
our initial expectation of 9.3x for full-year 2023. The combination
of these high exceptional costs, and a peak in reported capital
expenditure (capex) to EUR91 million, led FOCF after leases and
before factoring, to turn to negative EUR69 million.
"We anticipate these costs to reduce substantially, supporting
progressive deleveraging and a return to positive FOCF generation
from 2024. We expect continued topline growth, a decline in
provisions, which we deduct from EBITDA, and a sharp reduction of
exceptional costs to support deleveraging to around 11.5x in 2024
and 10.3x in 2025. We also expect capex will reduce from the high
level in 2023, supporting a return to positive FOCF after leases to
EUR11 million in 2024, gradually improving to EUR30 million in
2025. We therefore affirmed our 'B-' ratings. We however
acknowledge that exceptional cost overruns or an operating margin
decline could lead to material divergence from our base case, and
therefore revised our outlook to negative from stable.
"The negative outlook reflects that any divergence in actual
performance compared with our base case during 2024, including
relative to the forecast drop in exceptional costs and rebound of
FOCF, could raise doubts about the sustainability of Engineering's
capital structure ahead of its bond's maturity in September 2026,
possibly leading to a downgrade.
"We could lower the rating if the company's quarterly results in
2024 suggest that exceptional costs or adjusted leverage will fail
to reduce substantially, if FOCF after leases fails to rebound to
positive territory before the effects of factoring, or if liquidity
weakens.
"We could revise the outlook to stable if the company's finances
showed sustained performance in line with our base case and its
liquidity profile remains adequate."
Rating upside is remote but could occur if Engineering reduces its
adjusted debt to EBITDA to sustainably below 9x, with FOCF to debt
higher than 3%.
LA DORIA: Moody's Assigns First Time 'B1' Corporate Family Rating
-----------------------------------------------------------------
Moody's Ratings has assigned a first-time B1 long-term corporate
family rating and B1-PD probability of default rating to La Doria
S.p.A (La Doria or the company), a leading European producer and
distributor of shelf-stable private label food, based in Italy. At
the same time, Moody's has assigned B1 instrument rating to La
Doria's proposed EUR500 million backed senior secured floating rate
notes due 2029. The outlook is stable.
Proceeds from the proposed instruments will be used to refinance
the company's existing debt, fund a shareholder payment of around
EUR125 million and fund related transaction fees and expenses.
"The B1 rating is supported by La Doria's leading market position
in selected food categories, relatively good operating margins and
flexible cost structure. These strengths are offset by the
company's high financial leverage of around 4.4x, a degree of
geographical concentration, with sales mainly in the UK and a
substantial client concentration," says Valentino Balletta, a
Moody's Analyst and lead analyst for La Doria.
"The rating assumes that the company's Moody's adjusted leverage
will remain around 4.0x – 4.5x which is high for the rating
category, leaving limited room for potential weaker than expected
operating performance. High leverage, is however compensated by a
good liquidity profile and projected positive free cash flow
generation," adds Mr. Balletta.
RATINGS RATIONALE
The B1 rating considers La Doria's leading market position in
selected private-label product categories; its relatively good
operating margins, particularly considering its private-label
business; its flexible cost structure, pass through capabilities
and hedging strategy; and its good liquidity profile and projected
positive free cash flow (FCF).
At the same time, the B1 rating reflects the company's high
Moody's-adjusted total debt to EBITDA estimated to remain around
4.0x – 4.5x on an ongoing basis. Moody's anticipates, on the back
of underling earnings growth driven by volume increase, a focus on
profitable categories and strategic actions.
La Doria's operating performance have improved substantially since
the pandemic, supported by strong revenue growth, mainly driven by
a material increase in volume due to higher in-home consumption and
more recently by the increasing shift to private label products by
cost conscious consumers, but also because of a better mix and
continued operating efficiencies. Moody's expects the company's
profitability to remain relatively good because of its defensible
category leadership in some of its products, but also because of
investment in production capacity and efficiency done in the past,
which support margins and its cost leadership. This profitability,
coupled with limited capital spending supports positive
Moody's-adjusted FCF expectations of more than EUR30 million in
2024 and around EUR50 million per year thereafter, on the back of
resilient underlying EBITDA and lower capital spending.
However, Moody's believes and factors in that tough competition in
some of the company's key markets, with the associated price
pressures, might slow down the improvement in profitability, though
increasing demand for more affordable private label food products
in a challenging macro environment should support pricing near
term.
The rating also takes into account a degree of geographical
concentration, with sales mainly in the UK, despite exposures to
other countries, which along with its focus on private label in the
retail channel, create a substantial client concentration, with top
3 customers representing around 49% of sales. However, the company
has solid relationships with its largest customers and benefits
from its leading position as a producer of shelf stable private
labels. Nonetheless, such concentration remains a risk because
making it susceptible to potential fluctuations or adverse changes
in private labels demand that could hinder the company's growth
trajectory.
ESG CONSIDERATIONS
ESG and specifically governance is a key driver of the rating
action. This reflects the weight placed on La Doria's financial
policy and concentrated ownership under private equity ownership by
Investindustrial. Moody's expects the sponsor to maintain a high
level of tolerance for leverage as demonstrated by recent adoption
of a shareholders friendly financial policy with a dividend
recapitalization transaction and right sizing of the capital
structure. Exposure to environmental and social risks exist but
have less influence on the rating.
LIQUIDITY
La Doria is expected to have a good liquidity profile, supported by
an expected cash balance of EUR90 million post-closing of the
transaction, and access to a EUR85 million super senior revolving
credit facility (RCF) which is expected to remain undrawn. Moody's
also expect the company to generate consistently positive Moody's
adjusted free cash flow around EUR30 million in 2024 and increasing
overtime.
The company usually experiences net working capital fluctuations in
the second half of the year due to elevated stock levels linked to
the tomato harvest and purchasing campaign. However, the company
has access to multiple receivables factoring programmes for a total
committed amount of EUR143 million, renewable every year (used for
around EUR70 million as of December 2023) to manage this
seasonality. This allows the company to minimize its working
capital needs during the year and release cash.
There are no significant debt maturities until 2029, when the
EUR500 million senior secured notes are due.
STRUCTURAL CONSIDERATIONS
La Doria's probability of default rating of B1-PD incorporates the
use of a 50% family recovery rate assumption.
The B1 rating of the backed senior secured floating-rate notes due
in 2029 and issued by La Doria S.p.A., is in line with the CFR. The
super senior revolving credit facility ranks at the top of Moody's
Loss Given Default (LGD) waterfall, followed by the EUR500 million
backed senior secured notes and trade payables. The size of the
revolving credit facility is not significant enough to warrant a
notching of the bonds below the CFR according to Moody's loss given
default waterfall.
The RCF and the senior secured notes share the same collateral
package, consisting of shares in all material operating
subsidiaries of the group, representing at least 98% of
consolidated EBITDA.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects Moody's expectations that La Doria's
credit metrics will remain resilient, with its Moody's-adjusted
gross leverage to remain below 4.5x over the next 12 to 18 months,
also supported by increasing free cash flow generation that could
potentially be utilized for strategic bolt-on acquisitions. The
stable outlook also assumes that the company will not embark in any
material debt funded acquisitions or further shareholders
distributions and will maintain at least an adequate liquidity
profile.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward rating pressure is currently limited in light of the
company's business concentration and high leverage. Potential
upward pressure could materialize over time if La Doria continues
to successfully execute its strategy and deliver on organic sales
and EBITDA growth supporting deleveraging and business
diversification. Quantitatively, that would translate into
Moody's-adjusted gross leverage sustainably below 3.5x, a
Moody's-adjusted free cash flow-to-debt in high single digit in
percentage terms, and a Moody's-adjusted EBITA to interest expense
above 2.75x, on a sustainable basis. It also requires maintaining a
prudent financial policy and good liquidity.
Downward rating pressure could develop if La Doria's operating
performance weakens with a material decline in EBITDA margins.
Quantitatively, this would translate into a Moody's-adjusted gross
leverage sustained above 4.5x, or its Moody's-adjusted FCF to-debt
ratio moving into low single digit in percentage terms, or its
Moody's-adjusted EBITA to interest expense declining below 2.25x,
for a prolonged period of time. In addition, the ratings could be
lowered if financial policy becomes more aggressive and if the
company's liquidity profile deteriorates.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Consumer
Packaged Goods published in June 2022.
COMPANY PROFILE
Headquartered in Angri, Italy, La Doria S.p.A. is the leading
European producer and distributor of shelf-stable private label
products. The company's key products include tomato-based products,
ready-made sauces, canned pulses, juices and fruit drinks. To a
lesser extent, product offering also include dried pasta, canned
tuna and salmon, and other related products, which are manufactured
by third-party producers and distributed through its logistic
distribution platform in the UK. The company operates six
production sites and markets its products in Italy and abroad,
principally in the UK, Germany, Japan and Australia, with
established long-lasting customer relationships with many of the
leading European grocery retailers. The company generated revenues
of EUR1.2 billion and company-reported EBITDA of EUR148 million in
2023, and is majority owned since 2022 by the private equity firm
Investindutrial.
LA DORIA: S&P Assigns 'B' LT ICR, Outlook Stable
------------------------------------------------
S&P Global Ratings assigned its 'B' long-term issuer credit rating
to Italy-based private-label food and beverage maker La Doria
S.p.A.and 'B' issue rating to the proposed EUR500 million of senior
secured floating rate notes due 2029 with a recovery rating of '3'
(55% recovery prospects). As part of the transaction, the group
will issue an EUR85 million super senior revolving credit facility
(RCF--not rated), which S&P expects will remain undrawn and will
support the group's liquidity.
The stable outlook reflects S&P's view that the group's operating
performance in 2024-2025 should be resilient, with healthy and
recurring annual free operating cash flow (FOCF) of at least EUR25
million-EUR30 million, and S&P Global Ratings-adjusted debt to
EBITDA below 5.0x.
La Doria's focus on the private label segment (96% of sales in
2023) supports its growth as consumers are making more
price-conscious choices in the current macroeconomic environment.
At end-2023 it posted revenue of EUR1.24 billion, up about 20%
year-on-year, supported by a 19% price increase to compensate for
higher input costs. S&P evaluates positively the group's resilient
volume performance, growing about 1.5% year-on-year. This solid
operating performance comes after robust revenue growth in 2022 of
about 17% that was supported by an 11% price increase and a 6%
volume expansion. As a result, the group has strengthened its
leading market position in its core markets, of the U.K. and Italy,
and in its core private label categories of tomato derivatives,
ready to use sauces, and beans. This follows a solid track record
of organic growth, with revenue increasing at a compound annual
growth rate (CAGR) of about 12% over 2018-2023, and EBITDA growing
by 22% CAGR over the same period. This momentum was helped by
shifts in consumers behavior during the pandemic ,supported by the
group's focus on the grocery channel and very limited exposure to
food service (less than 3% of its sales in 2023).
Inflation-led increases in living costs have pushedconsumers toward
more affordable products, including private labels. European
supermarkets and discounters have put greater focus on their
private label offerings, including La Doria's tomato derivatives,
ready-to-use sauces, beans, and pulses. These core products are
generally more commoditized than other packaged food products and
therefore consumers are more sensitive to price. S&P said, "In the
U.K. and Italy, we understand private label has increased its
market share penetration in all of La Doria's core categories
during the past five years. Some differences between geographies
remain; for example, in Italy private label for tomato derivatives
is estimated to represent about 35% of the market (on a retail
selling-price basis) while in U.K. it's 60%-65% of the overall
market. As inflation eases, we do not expect the private label gain
to reverse but we see potential for some gradual market share
gains."
La Doria operates in resilient food categories supported by
favorable consumption trends toward healthy and plant-based
foods.The group's offering includes canned tomatoes (peeled,
chopped, puréed, and cherry; 24% of total sales in 2023),
ready-made sauces (15.5%), vegetables, mainly beans (28.5%), and
fruit juices and other beverages (about 7%). The remaining portion
of sales (about 25%) derives from U.K. subsidiary LDH Limited (in
which La Doria has an 84% stake) acting as pure
importer/distributor of other food categories such as pasta, canned
fish, and pet food supplied by third-party manufacturers.
Tomatoes and beans align with growth trends driven by increased
consumer interest in health benefits, better-balanced diets, and
plant-based nutrition. This momentum, combined with the convenience
of shelf-stable products (compared with fresh and frozen foods)
should support revenue growth in the mid-single digits. Euromonitor
estimates shelf-stable beans will achieve 4%-5% average annual
value growth both in the U.K. and Italy in 2024-2027. Over the same
period, shelf-stable tomatoes are expected to remain fairly flat in
the more mature Italian market, while growing 3%-4% in the U.K. as
more consumers embrace the category's versatility and convenience.
Fruit juices (7% of the group's sales) are expected to decline, as
consumer preferences turn to beverages with less sugar.
La Doria has a wide geographic footprint in terms of sales, but its
tomato suppliers are all in Italy, exposing it to potential
volatility of product quality and availability influenced by
weather conditions and harvest yields. La Doria has diversified its
geographic sales away from its domestic Italian market, and now
serves more than 60 countries. As of 2023, Italy accounted for just
15% of the group's sales, while the U.K., its main market,
generated 58% of sales. Other main destinations are Germany (6%),
Australia (2%-3%), and the U.S. (1%-2%). Other European countries
account for roughly 13% of sales and the rest is generated outside
Europe. That said, S&P's assessment takes into consideration risks
B relating to the concentration of tomato suppliers in South Italy
and the fact that all six of the group's production facilities in
Italy. This could expose the group to some volatility in tomato
price, availability, and quality stemming from adverse weather
conditions or changes in agricultural regulations, among others.
That said, the group has well-established relationships with its
core supplier base, with its top five suppliers accounting for 25%
of the total cost of goods sold. Its proximity to tomato farmers is
a plus as its helps ensure product quality, cost efficiency, and
control of the supply chain.
La Doria's established relationships with retailers--40 years in
the case of its main U.K. retail partner--partly mitigates customer
concentration risk. S&P said, "We believe these relationships stem
from the reliability, quality, and cost-effectiveness of its
product range. Moreover, the reputation of Italian tomatoes
represents a key differentiating factor for international sales. La
Doria has not had any material product recalls and has a track
record of good service level as well as sustainability credentials,
which is particularly important to U.K. retailers where
private-label penetration is high (about 60%-65% for tomato
derivatives and close to 50% for ready-to-use sauces). The U.K.
grocery scene is quite concentrated with the top-five retailers
comprising 55%-60% of the market, according to S&P Global Ratings'
analysis. This leads to some customer concentration risk for La
Doria, with its top-three customers accounting for about 50% of
group revenues in 2023. We believe La Doria's product category
diversity slightly mitigates this risk."
La Doria's U.K. subsidiary LDH allows the group to offer a broader
product range to its retail customers. LDH is a logistics platform
that enables La Doria to distribute a broader range of products
including canned fish, dry pasta, canned sweetcorn, and pet foods
produced by third-party manufacturers. This business model is based
on trading operations and complements the group's core operations
as it reinforces its position in the growing U.K. market. It allows
La Doria to be a one-stop-shop for its main retailers, leveraging a
more diversified product offering. U.K. retailers and discounters
typically engage in partnerships with one or just a few private
label manufacturers to reduce complexity and increase efficiency.
Downside risks to this business model relate to the additional
complexity of managing a broader product offering. In addition, S&P
notes this business's profit margins are much lower than group's
average.
The business is exposed to seasonality of the harvesting cycle for
tomatoes and fruits, but S&P does not observe any seasonality in
sales. The harvesting period for tomatoes usually lasts from July
to September, while for some fresh fruits, such as apricots,
peaches and pears, it is between June and September. Trade working
capital typically peaks in the second half of the year due to
inventory build-up covering 12 months of required supplies of
tomatoes and fruit, providing some visibility in terms of commodity
availability and price. Moreover, tomato prices in Italy are
governed by a framework agreement defining a reference price for
both round and long tomatoes. This reached EUR150 and EUR160 per
ton, respectively, in southern and central Italy in 2023, up from
EUR130 and EUR140 per ton the year before. This provides some
transparency on production costs, supporting La Doria's
negotiations with retailers and its ability to pass on higher
commodity costs to them.
Pass-through mechanisms and flexible cost structures should support
a stable EBITDA margin of around 11% over 2024-2025. S&P said, "We
estimate La Doria's variable operating costs--primarily raw
materials and packaging--are 75%-85% of its total costs. The group
also relies on seasonal workers, providing further cost
flexibility. This should help profitability stay stable at about
11.0% over 2024-2025, after peaking at 11.8% in 2023. La Doria's
agreement framework with retailers allows for effective price
negotiations, at least once per year. We also understand the group
has foreign-exchange hedging policies to mitigate the effects of
sterling-euro fluctuations on its U.K. subsidiary. Lastly, the
group has internal metal cans productions (a key packaging) at two
plants in Italy (meeting 99% of its needs), which allows for better
production efficiency, reduced cost volatility, and helps avoid
potential availability issues, while improving its carbon
footprint."
S&P said, "The group has a well-invested asset base that we
estimate will support FOCF generation of at least EUR25
million-EUR30 million per year.La Doria recently completed its
expansionary investment plans, partly financed though government
subsidies, to significantly increase its capacity and improve its
sustainability footprint. The asset base's current utilization rate
is adequate and there is no material expansionary investment needed
to deliver the 1%-2% average annual volume growth, factored into
our base case for 2024-2027. We therefore anticipate annual capital
expenditure (capex) will normalize at about EUR20 million at
year-end 2025, from the EUR25 million-EUR30 million we forecast for
2024, mainly due to some efficiency-related investments. Limited
capex needs, coupled with effective working capital management,
should translate into annual FOCF of at least EUR25 million-EUR30
million from 2024. The higher interest burden of EUR35
million-EUR40 million per year reflecs the higher debt quantum in
the capital structure.
"Ownership by a financial sponsor with a limited track record of
maintaining leverage below 5.0x, is a key constraint to the rating.
We forecast S&P Global Ratings-adjusted debt to EBITDA of about
4.5x in 2024-2025, up from 3.2x in 2023. That reflects the new
capital structure to fund the EUR125 million extraordinary
shareholder distribution. Our rating assignment takes into
consideration the risk of a possible deviation from our base-case
credit metrics due to higher-than-anticipated discretionary
spending on shareholder remuneration or debt-funded acquisitions.
Our leverage calculation does not include cash and cash equivalents
on the group's balance sheet because of its private equity
ownership by Investindustrial, which indirectly has an 81.2% stake
in La Doria. Our main debt adjustments for 2024 include: EUR70
million-EUR75 million in outstanding factoring (total program
availability is EUR140 million-EUR150 million), which is broadly in
line with the previous year; limited pension and lease liabilities
of EUR5 million-EUR6 million; and about EUR18 million for the
put-option liability in respect of the non-controlling interests in
LDH UK. In addition, we expect S&P Global Ratings-adjusted EBITDA
interest coverage of 3.0x-3.5x in 2024-2025, which aligns with the
'B' rating.
"La Doria has some headroom under its credit metrics to fund future
bolt-on acquisitions. We understand that the group has ambitions to
act as a consolidator in its markets and categories. This could
result in some bolt-on acquisitions to acquire additional
manufacturing capabilities, leveraging expected ongoing private
label penetration in some European countries such as in North
Europe. The group could also diversify its product offering by
entering into new adjacent categories or internalizing some
production lines in its U.K. trading business. While we believe the
group will pursue this strategy through bolt-on acquisitions, our
current base case is based on organic growth with no contribution
from M&A. Therefore, any acquisitions financed through internal
cash flow generation would likely result in improved leverage.
"The stable outlook reflects our view that the group should post a
resilient operating performance in 2024-2025, while maintaining
healthy and recurring annual FOCF of at least EUR25 million-EUR30
million and S&P Global Ratings-adjusted debt to EBITDA of about
4.5x.
"We could lower the rating if S&P Global Ratings-adjusted debt to
EBITDA deteriorated to more than 7.0x with no prospects of
deleveraging in the short term. This could stem from
higher-than-expected competition from branded and private label
players translating into a deterioration in La Doria's
profitability, with FOCF generation turning negative. Rating
pressure could also arise if we saw higher-than-expected
discretionary spending through large debt-funded M&A or shareholder
distributions.
"We could consider a positive rating action if we consider La Doria
will sustain higher positive annual FOCF, and has established a
track record of maintaining leverage comfortably below 5.0x coupled
with a clear financial policy commitment to maintain leverage at
this level on a sustainable basis. We would also expect prudent
discretionary spending on M&A and with regards to shareholder
distributions.
"Environmental factors are a negative consideration in our credit
rating analysis. We believe La Doria's main exposure is to physical
risk caused by climate change and environmental degradation,
including floods and droughts, among others, that can damage
agricultural outputs and harvest yields." This is particularly so
for tomatoes. La Doria's concentration in the Italian south regions
and the difficult replacement of suppliers exposes it to commodity
availability issues, and potential volatility in quality and
earnings.
The group has clear sustainability commitments. Currently, 39% of
its energy requirements are internally generated, 99% of its waste
is earmarked for recovery, its entire corrugated cardboard needs
are sourced from recycled materials, and 99% of its metal cans are
made in house. This supports La Doria's relationships with key
retailers which increasingly want to partner with manufacturers
that have solid sustainability credentials to achieve their own ESG
goals.
Social factors are an overall neutral factor for S&P's rating
analysis. The primary product categories in which La Doria operates
benefit from increased consumer trends in favor of plant-based
products and reducing meat consumption. Fruit juices are declining
as consumers opt for lower-sugar foods and drinks (only 7% of sales
are generated from this category).
S&P said, "Governance factors are a moderately negative
consideration in our credit rating analysis as is the case for most
rated entities owned by private-equity sponsors. We believe the
company's highly leveraged financial risk profile points to
corporate decision-making that prioritizes the interests of the
controlling owners. This also reflects generally finite holding
periods and a focus on maximizing shareholder returns. We view
positively the experienced management team as well as the founding
family's involvement in key management roles."
PRISMA SPV: Moody's Cuts Rating on EUR80MM Class B Notes to Caa1
----------------------------------------------------------------
Moody's Ratings has downgraded the ratings of Class A and B notes
in Prisma SPV S.r.l. The rating action reflects lower than
anticipated cash-flows generated from the recovery process on the
non-performing loans (NPLs), and unpaid interest in the case of
Class B notes.
EUR1210M Class A Notes, Downgraded to Ba1 (sf); previously on Jul
22, 2020 Downgraded to Baa2 (sf)
EUR80M Class B Notes, Downgraded to Caa1 (sf); previously on Jul
22, 2020 Confirmed at B3 (sf)
RATINGS RATIONALE
The rating action is prompted by lower than anticipated cash-flows
generated from the recovery process on the NPLs and unpaid interest
in the case of Class B notes.
Lower than anticipated cash-flows generated from the recovery
process on the NPLs:
The portfolio is serviced by doValue S.p.A. ("doValue"; unrated).
As of March 2024, Cumulative Collection Ratio was at 88.2%, based
on collections net of legal and procedural costs, meaning that
collections are coming slower than anticipated in the original
Business Plan projections. This compares against 113.0% at the time
of the latest rating action in July 2020. Through the September
2023 collection period, eight collection periods since closing,
aggregate collections net of legal and procedural costs were
EUR1,037.8 million versus original business plan expectations of
EUR1,181.5 million. In terms of Cumulative Collections Ratio, the
transaction has underperformed the servicers' original expectations
starting on the 2nd collection period after closing, with the gap
between actual and servicers' expected collections increasing over
time. Indeed 2023 gross collections reduced by 35.7% compared to
2022 gross collections. The servicer's latest available Business
Plan expects total amount of future collections slightly higher
than the outstanding amount of the Class A Notes.
NPV Cumulative Profitability Ratio (the ratio between the Net
Present Value of collections against the expected collections as
per the original business plan, for positions which have been
either collected in full or written off) stood at 95.65%, slightly
below original servicer's expectations and lower than median value
of profitability ratio for Italian NPLs which is 114%. The ratio
remained stable in the last four collection periods, below 100%
since the fourth collection period. However, it only refers to
closed positions while the time to process open positions and the
future collections on those remain to be seen.
In term of underlying portfolio, the reported Gross Book Value
("GBV") stood at EUR4,142 million as of March 2024 (this includes
GBV at cut-off date for open positions), down from EUR6,056 million
at closing, mostly concentrated in North West Italy (39%). As main
peculiarity in this transaction, almost 100% of the loans in the
portfolio are extended to individuals. Also, almost 100% of the
secured properties are residential.
Out of the approximately EU 1,839 million reduction in GBV since
closing, principal payments to Class A have been around EUR680
million. The advance rate (the ratio between Class A notes balance
and the outstanding gross book value of the backing portfolio)
stood at 12.61% as of September 2023, down from 18.61% as of the
last rating action. Simulation of cashflows from the remaining pool
in light of portfolio characteristics, coupled with the outstanding
balance of the Class A and Class B Notes are no longer consistent
with the ratings prior to the downgrades.
Given the characteristics of the cap agreement in place, the
outstanding notes are fully hedged, unlike other transactions that
are experiencing under-hedging.
Unpaid interest in Class B
Interest payments to Class B are currently being subordinated,
given the subordination trigger has been hit in November 2023. The
unpaid interest on Class B is EUR5.19 million as of November 2023.
The Cumulative Collection Ratio was at 88.2%, while the trigger is
hit below 90%. The missed payments will only be repaid senior once
the ratio is above 100%.
NPL transactions' cash flows depend on the timing and amount of
collections. Due to the current economic environment, Moody's has
considered additional stresses in its analysis, including a 6 month
delay in the recovery timing. Benchmarking and performance
considerations against other Italian NPLs have also been factored
in the analysis.
Moody's has also taken into account the potential cost of the GACS
Guarantee within its cash flow modelling, while any potential
benefit from the guarantee for the senior Noteholders has not been
considered in its analysis.
Methodology Underlying the Analysis:
The principal methodology used in these ratings was "Non-performing
and Re-performing Loan Securitizations" published in April 2024.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors or circumstances that could lead to an upgrade of the
ratings include: (1) the recovery process of the non-performing
loans producing significantly higher cash-flows in a shorter time
frame than expected; (2) improvements in the credit quality of the
transaction counterparties; and (3) a decrease in sovereign risk.
Factors or circumstances that could lead to a downgrade of the
ratings include: (1) significantly lower or slower cash-flows
generated from the recovery process on the non-performing loans due
to either a longer time for the courts to process the foreclosures
and bankruptcies, a change in economic conditions from Moody's
central scenario forecast or idiosyncratic performance factors. For
instance, should economic conditions be worse than forecasted and
the sale of the properties generate less cash-flows for the issuer
or take a longer time to sell the properties, all these factors
could result in a downgrade of the ratings; (2) deterioration in
the credit quality of the transaction counterparties; and (3)
increase in sovereign risk.
===========
K O S O V O
===========
PROCREDIT BANK: Fitch Hikes LongTerm IDR to 'BB+', Outlook Stable
-----------------------------------------------------------------
Fitch Ratings has upgraded Kosovo's ProCredit Bank Sh.a.'s (PCBK)
Long-Term Issuer Default Rating (IDR) to 'BB+' from 'BB'. The
Outlook is Stable. PCBK's Shareholder Support Rating (SSR) has also
been upgraded to 'bb+' from 'bb'. The Short-Term Issuer Default
Rating has been affirmed at 'B'.
The rating actions follow Fitch's reassessment of country risks
following the assignment of Kosovo's sovereign rating (see 'Fitch
Assigns Kosovo 'BB-' IDR; Outlook Stable', published 19 April
2024).
PCBK's Viability Rating (VR) of 'b+' and xgs ratings are unaffected
by the rating actions.
KEY RATING DRIVERS
Shareholder Support: PCBK's Long-Term IDR is higher than that of
Kosovo to reflect its expectations that the bank would benefit from
support from its 100% shareholder, ProCredit Holding AG (PCH;
BBB/Stable), even in the case of an extreme sovereign stress. Fitch
believes the owner's commitment to the Kosovan subsidiary is
sufficiently strong for us to rate it two notches above the
sovereign while transfer and convertibility risks are relatively
low as reflected by Kosovo's 'BBB-' Country Ceiling.
Strategic Subsidiary: PCBK's Long-Term IDR and SSR reflect Fitch's
view of potential support from its sole shareholder, PCH. Support
considerations include the strategic importance of south-eastern
Europe to PCH, PCBK's strong integration within the group and the
parent's proven record of providing liquidity and support to its
subsidiary.
Country Risks: PCBK's capacity to utilise parent support to service
obligations remains linked to country risks in Kosovo, which
although reduced, still limit the extent to which potential support
can be factored into the bank's ratings. Under Fitch's Bank Rating
Criteria, uplifts to banks' Long-Term IDRs above the sovereign
rating, where shareholder support is strong, is typically limited
to two notches due to the residual uncertainty about the continuity
of support in the event of a sovereign default.
The key rating drivers for PCBK's VR are those outlined in its
rating action commentary published on 26 June 2023 (see 'Fitch
Affirms Kosovo's ProCredit Bank Sh.a. at 'BB'; Outlook Stable').
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
PCBK's Long-Term IDR and SSR would be downgraded on adverse changes
to Fitch's perception of country risks in Kosovo, including a
downgrade of the sovereign rating. The ratings could also be
downgraded following a substantial decrease in the bank's strategic
importance to PCH, which is primarily based on PCH's commitment to
the country and the region.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
PCBK's Long-Term IDR and SSR could be upgraded as a result of an
upgrade of Kosovo's sovereign rating.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
PCBK's Long-Term IDR and SSR are linked to the Long-Term IDR of its
parent, PCH. The bank's Long-Term IDR is also linked to Kosovo's
sovereign rating given country risk considerations.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
ProCredit Bank Sh.a. LT IDR BB+ Upgrade BB
ST IDR B Affirmed B
Shareholder Support bb+ Upgrade bb
===================
L U X E M B O U R G
===================
RADAR BIDCO: S&P Assigns 'B+' LT ICR, Outlook Stable
----------------------------------------------------
S&P Global Ratings assigned its 'B+' long-term issuer credit rating
to Radar Bidco S.a.r.l. (Swissport) and its 'B+' issue rating to
the 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. S&P also acknowledges
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.
Conversely, 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 EBITDA margin
improved to about 11%, as adjusted by S&P Global Ratings, in 2023.
S&P forecasts further improvement in 2024 to 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 of
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 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, "In our base-case forecast, we assume 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 cost of living 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 5x 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 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 S&P Global Ratings-adjusted gross
debt to EBITDA (adjusted gross leverage ratio) of above 5x.
"We could lower the rating if 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
negatively 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.
"Governance factors are a moderately negative consideration in our
credit rating analysis of Swissport. Our assessment of the
company's financial risk profile as aggressive reflects corporate
decision-making that prioritizes the interests of the controlling
owners, in line with our view of most of our rated entities owned
by private-equity sponsors. Our assessment also reflects generally
finite holding periods and a focus on maximizing shareholder
returns.
"Social factors are a negative consideration in our credit rating
analysis of Swissport, reflecting the susceptibility of the
aviation industry to health and safety disruptions. Swissport was
hit hard by the pandemic-related decline in air travel, a health
and safety risk, which forced the company into a comprehensive
financial restructuring. Swissport's key ground handling segment
(which represented about 70% of the company's EBITDA in 2019) was
deeply impacted by airline capacity cuts, as its earnings are
directly correlated to air passenger volumes. The less affected
performance of its cargo handling segment was not sufficiently
strong to mitigate this."
=====================
N E T H E R L A N D S
=====================
UNIT4 GROUP: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
-----------------------------------------------------------
Fitch Ratings has affirmed Unit4 Group Holding B.V.'s (Unit4,
formerly Bock Capital Bidco B.V.) Long-Term Issuer Default Rating
(IDR) at 'B' with a Stable Outlook. Fitch has also affirmed the
company's senior secured loan facilities at 'B+' with a Recovery
Rating of 'RR3'/66%. The proposed EUR175 million tap issue, if
completed according to its terms, would be rated on par with the
existing debt rating although recoveries upon default would reduce
to 54%.
The 'B' IDR reflects Unit4's robust business model balanced with an
expected increase in EBITDA leverage by end-2024 following a EUR175
million tap issue in April 2024, albeit with significant
flexibility to deleverage and improve it from 2025 with only
moderate execution risks. Unit4 benefits from sticky customer
relationships leading to strong revenue stability, with growth
largely in line with the broader enterprise resource planning (ERP)
software market.
KEY RATING DRIVERS
Leverage Spike Manageable: Fitch expects only a moderate increase
in leverage on issuing EUR175 million of additional debt in April
2024. Although the total amount of debt increases by more than a
quarter, Fitch expects this to be balanced by continued strong
improvement in EBITDA generation in 2024. As a result, Fitch
expects leverage slightly above the 6.5x gross EBITDA leverage
downgrade threshold at end-2024 (6.5x at end-2023), trending
towards 6x by 2027.
Successful Turnaround: Unit4 successfully turned around its
financial performance with EBITDA margins rebounding to 25% in 2023
from 18% in 2022. This allowed the company to return to sustainably
strong free cash flow (FCF) generation. The key contributors were
cost optimisation, with a number of efficiency-improving
initiatives completed by end-2023, exit from a few onerous
contracts and less generous provision of low-margin support
services. Fitch expects the company to remain focused on
profitability, which should lead to further strong EBITDA growth in
2024. Robust EBITDA growth continued in 1Q24 on yoy basis.
Average Growth Outlook: Fitch expects Unit4's core service revenue
to grow broadly in line with the overall ERP market in the
mid-single digits. Rapidly growing cloud revenue increases the
proportion of recurring revenues in Unit4's total revenue, which
Fitch views as credit positive in the long term, as recurring
revenues are less volatile. Unit4 estimated its recurring revenue
share at 79% in 2023, compared with 74% in 2022.
Cash Accumulation Positive: The company accumulated significant
cash on balance sheet at end-1Q24 (over EUR50 million), which
increases its financial flexibility. Fitch understands the company
intends to apply EUR25 million of cash to contribute to EUR200
million paid in kind debt pre-payment, along with proceeds from the
proposed EUR175 million tap issue. In view of the continuing
positive FCF generation, cash accumulation is likely to continue.
Although gross leverage metrics do not reflect this cash as Fitch
assumes it can be easily up-streamed to shareholders, additional
debt repayments or acquisitions may be positive, assuming purchased
assets would lead to stronger EBITDA.
Pricing Flexibility: Growth will be supported by significant
pricing flexibility as Unit4 can contractually increase its prices
in line with inflation for the majority of its customers. The
company estimated its contractual price indexation potential at
above EUR10 million at end-1Q24, which will be significant
contributor to EBITDA growth this year.
Exceptional Expenses Declining: Fitch expects restructuring and
exceptional expenses (E&R) to decline from 2024 onwards, which will
be a lower drag on cash flow. E&R expenses accounted for more than
50% of EBITDA in 2021-2022 on a cumulative basis, but declined to
below 10% in 2023 and Fitch projects they will further decrease as
key restructuring initiatives have been completed and major onerous
contracts have already been resolved.
Long-Lasting Customer Relationship: Unit4 benefits from typically
stable and long-term customer relationships leading to good revenue
visibility. ERP software is essential for day-to-day operations and
customers usually face a prohibitively high risk of operating
disruption when switching their ERP provider. Unit4's annual
customer churn is about 6%, which is broadly comparable with that
of other ERP providers catering to small and medium-sized
companies, such as TeamSystem Holding S.p.A.
Expanding but Fragmented Market: The overall ERP software market is
large and expanding, which provides ample growth opportunities for
ERP providers including Unit4. However, the market is fragmented
and intensely competitive, with providers of all sizes and market
positioning, ranging from full ERP suite providers to
single-functionality specialists. This diversity makes market share
dominance less important and brings service capabilities and a
focus on specific customer niche to the fore.
Geographic Diversification: Unit4's good geographic diversification
across the Nordics, continental Europe and the UK/Ireland, with
some inroads into APAC and the US, leads to more resilient revenue
generation than single country-focused providers. However, it also
exposes Unit4 to some FX risk, with all of its debt
euro-denominated.
Positive Cash Flow: Unit4's asset-light business model with a
Fitch-defined EBITDA margin in the mid-20s and capex of around 2%
of revenue leads to strong cash generation, in its view. With the
total amount of debt increasing by more than a quarter in 2024, a
proportionally higher share of cash flow will be spent on interest
payments. This will be mitigated by likely lower spend on
exceptional items broadly correlating to E&R profit-and-loss
charges and an interest rate hedge on slightly less than EUR500
million debt effective until end-2025. Fitch projects FCF margin at
close to double digits.
DERIVATION SUMMARY
The closest Fitch-rated peer is TeamSystem S.p.A. (B/Stable), a
leading Italian accounting and ERP software company (about 40%
market share) with the share of recurring revenue in total at close
to 80%, broadly on par with Unit4. TeamSystem holds stronger shares
in its home market, but Unit4 has better geographic
diversification. TeamSystem primarily caters to the SME sector with
a churn rate in the 6%-10% range, comparable with Unit4's.
Another segment peer is Dedalus SpA (B-/Negative), a leading
pan-European healthcare software company, with a lower churn rate
(below 1%) and more supportive industry trends with EU-wide rising
healthcare digitalisation. However, Dedalus has limited pricing
flexibility as many of its customers depend on public funding while
it faces structurally higher R&D costs leading to higher leverage.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Organic revenue growth in the mid-single-digits in 2024-2027
- Improving EBITDA margins to 29% in 2024, and to close to 30% by
2027 from 25% in 2023 following a successful operating turnaround
- An increase in cash interest in line with Fitch's global economic
outlook projections for European benchmark interest rates after the
interest-rate cap expiration in December 2025, and reflective of
additional debt issue in April 2024
- Capex at around 2% of revenue to 2027
- No shareholder distributions
RECOVERY ANALYSIS
- The recovery analysis assumes that Unit4 would be reorganised as
a going-concern (GC) in bankruptcy rather than liquidated, given
the group's intellectual knowledge and wide customer base with a
low churn rate
- Fitch estimates that the post-restructuring EBITDA would be about
EUR95 million. Fitch would expect a default to come from higher
competitive intensity leading to revenue losses or overspend on new
products. EUR95 million EBITDA is about 23% lower than Fitch's
forecast 2024 EBITDA.
- An enterprise value (EV) multiple of 6.0x is applied to the GC
EBITDA to calculate a post-reorganisation EV. The multiple is in
line with that of other similar software companies with a low churn
subscriber base and strong pre-dividend FCF generation
- Administrative claims of 10% deducted from EV to account for
bankruptcy and associated costs
- Total amount of first-lien secured debt for claims includes
EUR675 million senior secured term loan and an equally ranking
multi-currency EUR100 million revolving credit facility (RCF),
which Fitch assumes to be fully drawn upon default
- Fitch estimate expected recoveries for senior secured debt at
66%. If the company successfully issues the proposed EUR175 million
add-on facility, recoveries would change to 54%. This results in
the senior secured debt instrument rating of 'B+' - one notch above
the 'B' IDR - and with a Recovery Rating 'RR3' albeit in the
low-end of the applicable 51%-70% range if the add-on debt is
raised according to plan.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- EBITDA leverage below 5x
- EBITDA interest coverage sustained above 3x
- Disciplined M&A with limited additional debt
- Maintenance of healthy operating performance, with an increasing
contribution of cloud revenues and robust FCF margins
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- EBITDA leverage persistently above 6.5x or slow progress in
deleveraging to below this level due to, for example, shareholder
distributions
- EBITDA interest coverage persistently below 2.5x
- Failure to improve profitability and to maintain robust revenue
growth from cloud services leading to FCF margins in low single
digits
LIQUIDITY AND DEBT STRUCTURE
Sufficient Liquidity: Fitch views Unit4's liquidity as
satisfactory. By management's estimates, the company had above
EUR50 million of cash on its balance sheet at end-1Q24. This is
supported by positive FCF generation and an EUR100 million RCF that
was fully repaid by end-2023 and remained untapped as of end-1Q24
(its maturity is in December 2027). The company's term loan B
facility matures in June 2028.
ISSUER PROFILE
Unit4 is strategically focused on providing ERP solutions for
medium-sized people-centric organisations such as non-profit and
project-driven organisations and public finance entities.
SUMMARY OF FINANCIAL ADJUSTMENTS
Capitalised R&D expenses are treated as a cash cost deducted from
EBITDA
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
----------- ------ -------- -----
Unit4 Group
Holding B.V. LT IDR B Affirmed B
senior secured LT B+ Affirmed RR3 B+
===========
R U S S I A
===========
IPOTEKA-BANK: Fitch Assigns 'BB-' Final Rating to Sr. Unsec Notes
-----------------------------------------------------------------
Fitch Ratings has assigned Joint-Stock Commercial Mortgage Bank
Ipoteka-Bank's (Ipoteka) UZS1.4 trillion 20.5% Eurobond placement
due in 2027 a final rating of 'BB-'. The issue is denominated in
Uzbekistan soums, but all settlements are in US dollars using the
exchange rate set by the Central Bank of Uzbekistan at each
settlement date. The bank is using the proceeds mainly for
financing certain development projects in Uzbekistan.
The assignment of the final rating follows the receipt of documents
conforming to information already received. The final rating is the
same as the expected rating of 'BB-(EXP)' assigned to the unsecured
notes on 18 April 2024.
KEY RATING DRIVERS
The notes' rating is in line with Ipoteka-Bank's Long-Term Foreign
Currency Issuer Default Rating (IDR), as all settlements are in US
dollars. The notes represent direct, unconditional and senior
unsecured obligations of the bank, which rank pari passu with its
other senior unsecured obligations.
Ipoteka's 'BB-' IDR is driven by Fitch's view of a moderate
probability of support from its parent bank, OTP Bank Plc (OTP), as
captured by its 'bb-' Shareholder Support Rating. This view is
based on the bank's majority ownership by OTP, the strategic
importance of Uzbekistan's market and a low cost of potential
support for the parent bank.
For more details on Ipoteka see Fitch's rating action commentary
dated 4 April 2024.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Ipoteka's senior unsecured debt rating could be downgraded if the
bank's IDR was downgraded.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Ipoteka's senior unsecured debt rating could be upgraded if the
bank's IDR was upgraded.
DATE OF RELEVANT COMMITTEE
03 April 2024
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Ipoteka's IDRs are driven by potential support from OTP.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Joint-Stock Commercial
Mortgage Bank
Ipoteka-Bank
senior unsecured LT BB- New Rating BB-(EXP)
=====================
S W I T Z E R L A N D
=====================
VERISURE HOLDING: Moody's Rates New EUR300MM Sr. Secured Notes 'B1'
-------------------------------------------------------------------
Moody's Ratings has assigned a B1 rating to the proposed EUR300
million senior secured notes due 2030 being issued by Verisure
Holding AB, wholly owned subsidiary of Verisure Midholding AB
(Verisure). Verisure's B1 Corporate Family Rating, B1-PD
Probability of Default Rating and B3 senior unsecured notes ratings
remain unchanged. The ratings of the existing B1 senior secured
notes issued by Verisure Holding AB also remain unchanged. The
outlook is positive.
RATINGS RATIONALE
The B1 rating of the proposed notes is in line with the existing
senior secured debt as it shares the same security and guarantee
package. Proceeds from this issuance together with the Amend and
Extend of the EUR800 million term loan B will be used for
refinancing existing senior secured debt including the drawings
under the EUR700 million revolving credit facility (RCF) that stood
at EUR200 million as of December 31, 2023.
The B1 CFR reflects (1) the company's clearly articulated financial
policy of reducing reported net leverage to below 4.5x from 5.3x
for 2023, which the company has potential to achieve over the next
12-18 months; (2) a track record of consistent deleveraging to
Moody's-adjusted gross debt/EBITDA of 5.7x in 2023 compared to 6.5x
in 2022; (3) continued strong operating momentum and low
cancellation rates alongside solid growth in subscribers; (4) a
strong and well established business model; (5) the company's
ability to deliver through EBITDA growth that remains supported by
high expansionary capex; and (6) the extension of the company's
debt maturity profile with the leverage neutral refinancing of
EUR1.01 billion via a combination of the Amend and Extend of the
existing EUR800 million TLB and the proposed notes issuance.
However, the rating remains constrained by (1) free cash flow
remaining negative for at least the next 12-18 months as a result
of significant investment to capture new subscribers as well as
assuming the retirement of 3G services in Norway and Sweden by
2025; (2) medium-term risk of increase in competition from new
entrants, including telecom operators, players in the connected
homes market and DIY providers; and (3) the need to establish a
track record of operating under its recently conservatized
financial policy given the history of dividend recapitalizations in
2021 and 2017.
RATIONALE FOR POSITIVE OUTLOOK
The positive outlook reflects Moody's expectation of sustained
deleveraging through EBITDA growth to below the company's stated
target over the next 12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Upward rating pressure could develop if (1) Verisure demonstrates
adherence to its more conservative financial policy leading to a
Moody's-adjusted gross debt/EBITDA sustained towards 5x; and (2)
increases steady-state free cash flow (before growth spending) to
debt towards 10%, with free cash flow (after growth spending)
trending to turn positive; and (3) maintains strong operating
performance, including stable cancellation rates.
Downward rating pressure could develop if (1) Verisure's
Moody's-adjusted gross debt/ EBITDA is sustained above 6.5x or (2)
operating performance weakens materially or persistently weak free
cash flow generation (before customer acquisition costs).
The principal methodology used in this rating was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
Headquartered in Versoix, Switzerland, Verisure is a leading
provider of professionally monitored alarm solutions. It designs,
sells and installs alarms, and provides ongoing monitoring services
to residential and small businesses across 17 countries in Europe
and Latin America. The company generated around EUR3.1 billion in
annual revenues in 2023.
===========
T U R K E Y
===========
FORD OTOMOTIV: Fitch Assigns BB+ Final Rating to $500MM Eurobond
----------------------------------------------------------------
Fitch Ratings has assigned Ford Otomotiv Sanayi A.S.'s (Ford
Otosan; BB+/Stable) USD500 million Eurobond due 2029 a final
'BB+/RR4' rating following the receipt of final documentation.
Ford Otosan's ratings and Outlook consider its solid
through-the-cycle financial profile, which Fitch views as largely
in line with investment-grade automotive peers. The investment
guarantee scheme embedded in the contract manufacturing agreement
with Ford Motor Company (FMC, BBB-/Stable) helps protect Ford
Otosan's revenue and margins from a market downturn and ensures
complete capex recovery over the planned product cycle. Fitch
expects leverage metrics to closely follow the investment cycle and
that the deleveraging path after the initial investment spike will
be supported by healthy free cash flow (FCF) generation before
dividend distribution.
Ford Otosan's business profile is characterised by its small scale
and limited diversification compared with auto peers, which Fitch
views as constraining the rating. The nature of being a contract
manufacturer implies little brand value although Ford-branded light
commercial vehicles (LCVs) produced by Ford Otosan have a leading
market position in Europe. The internal synergy and ability to fund
R&D needs without tapping into FMC network is limited.
KEY RATING DRIVERS
Leading Europe Segment Market Share: Ford-branded commercial
vehicles (CVs) have a leading position in Europe, which is expected
to grow together with new product launches. Transit, including its
variants, is leading European van unit sales. This translated into
Ford Otosan's export revenues significantly increasing between 2015
and 2023. CV registration in Europe has rebounded strongly since
the start of 2023 from a low base in 2022, but it remains below the
pre-pandemic level.
Fitch expects demand for new CVs to remain strong as leisure and
business services activities continue to recover, which will
support high capacity utilisation levels of 80-90% at Ford Otosan's
plants.
Solid Through-the-Cycle Financial Profile: Ford Otosan's financial
profile is commensurate with Fitch's expectation for low
investment-grade automakers. An EBIT margin between 5%-6% places it
comfortably against the high investment-grade median (6%) in its
rating criteria for auto manufacturers. Fitch forecasts FCF margins
to remain negative to neutral over the rating horizon and EBITDA
net leverage to hover around 2x, driven by funding needs to roll
out a four-year product pipeline. Ford Otosan has a record of
healthy cash flow generation, which gives the company deleveraging
capacity once mass production starts.
Investment Guarantee Scheme: As part of the contract manufacturing
agreement, FMC provides Ford Otosan with an investment guarantee
that secures a contractual volume despite actual sales volumes and
enables Ford Otosan to recover upfront capex over the planned
product cycle. The scheme also entails a cost-plus pricing
mechanism that incorporates the full pass-through of the production
expense and a profit mark-up. The investment guarantee scheme
effectively serves as floor for Ford Otosan's revenue and earnings
and offers some protection from a market downturn, which was
evident by the resilient performance throughout the pandemic.
Scale, Diversification Constrain Rating: Ford Otosan is considered
small compared with European vehicle manufacturers including
Volkswagen AG and Mercedes-Benz Group AG that also feature a much
broader spectrum of vehicle types, brands, and models and are
well-diversified geographically. With expected production capacity
above 900,000 by 2025, Ford Otosan is among the top producers when
compared with the LCV/van segments of Renault, Stellantis N.V., and
VW.
Consequently, Fitch deems Ford Otosan a niche player despite its
leading position in the covered markets and its size and scale
constrain the rating at the current level. Additionally, Ford
Otosan's engineering know-how and own intellectual property rights
are largely associated with Ford-branded trucks that do not have a
meaningful market share outside Turkiye.
Appropriate Funding Structure: Around 10% of Ford Otosan's capital
structure relies on short-term debt financing. This is common for
Turkish corporates. Fitch expects short-term bank lines will remain
available. Ford Otosan has also access to factoring and trade lines
that are not utilised. Its largest customer is Ford Deutschland
Holding GmbH, which it derives around 80% of its annual sales,
keeping receivable turnover to 14 days in Turkiye and 30 days in
Romania. The high hard currency (HC) receivable collection rates
support euro-denominated interest payments on its international
borrowings, mitigating FX risks.
Margin Upside from Domestic Sales: Sales to the domestic market
where Ford Otosan has discretion over pricing and distribution
channels improve its profitability (EBITDA margin) although
domestic unit sales have been volatile yoy and can contract fairly
quickly in a worsening operating environment. Ford brands make up
around 9% of the Turkish auto market share with a leading position
in CVs. The passenger car (PC) market remains competitive and will
remain dominated by Fiat and Renault, in its view. Despite the good
margins from domestic sales, Fitch expects group profitability to
be lower as exports represent around 80% of sales.
Strategic Importance for Ford: Fitch believes that Ford Otosan is
strategically important for its joint venture (JV) parent FMC,
producing about two-thirds of Ford's CV unit sales and one-third of
PCs in Europe and provides a material cost advantage, largely due
to cheaper labour. Ford Otosan is likely to gain more importance
while FMC is ramping down its manufacturing sites in Europe. Ford
Otosan also plays a pivotal role in FMC's global CV strategy and
electrification roadmap. It will manufacture six out of nine FMC's
future electric models, including E-Transit, E-Custom, and the
flagship LCV is set to be a key pillar of its electric vehicle
arm.
Rating Reflects Standalone Profile: As a JV, Ford Otosan's IDR
currently reflects its Standalone Credit Profile (SCP). Fitch views
the links between FMC and Ford Otosan as potentially supporting a
one-notch rating uplift from Ford Otosan's SCP. This reflects its
assessment using Parent and Subsidiary Linkage Rating Criteria
(PSL) where Fitch sees operational and strategic incentives for FMC
to support Ford Otosan, offset by the lack of debt guarantees or
cross-default clauses.
Rise has not applied any additional notching to Ford Otosan's IDR
under the PSL as this would lead to rating equalisation with FMC,
which Fitch does not deem appropriate due to the existing JV
structure and proximity of credit profiles. The rating uplift could
be applicable if Ford Otosan's SCP weakens, FMC guarantees the bulk
of its debt, or if FMC's ratings were upgraded.
Country Ceiling Not Limiting Factor: Ford Otosan's IDR is not
limited by a Country Ceiling because Fitch applies the Romanian
Country Ceiling of 'BBB+', reflecting its multi-country operations
instead of Turkiye (B+) where the issuer is legally based. This
stems from its estimate that Romania-originated EBITDA in euros
from the contract manufacturing agreement with FMC
(euro-denominated export sales) is more than sufficient to cover
the HC (euro and US dollar) interest expenses.
DERIVATION SUMMARY
Ford Otosan's modest business profile is characterised by its
comparatively smaller size that does not match higher-rated
original equipment manufacturers (OEM) like FMC, or Renault SA,
which have higher production volumes driven by their sizeable
passenger car production capacities. Nevertheless, mirrored by
FMC's leading CV market shares in Europe, Ford Otosan is a sizeable
light/medium CV producer in Europe, with production capacity that
matches or surpasses peers like Mercedes Vans or Renault CVs.
Ford Otosan's heavy/truck manufacturing capacity is smaller than
truck manufacturers like AB Volvo (NR) and Iveco Group N.V.
(BBB-/Stable). Ford Otosan's product diversification is also deemed
limited, with the issuer's revenues dependent on a handful of
Ford-branded models. Its forecast revenues for Ford Otosan are
concentrated on four models including vans and Puma, which is one
of the main reasons its business profile is constrained below
investment-grade medians in its rating criteria for auto
manufacturers.
The issuer has some geographic concentration to the European
market, with no exposure to APAC or the US. Nevertheless, Fitch
does not deem this as a major rating constraint. Its financial
profile compares favourably with most investment-grade rated CV
manufacturers and passenger car OEM. Fitch forecasts an EBIT margin
of around 6% for Ford Otosan, which is at the 'A' rating median and
similar to that of FMC, and Volkswagen AG (A-/Stable).
The heavy investment cycle in new models will drive new debt
issuance and push EBITDA net leverage to around 2x in the medium
term, which is higher than peers, and above investment-grade
medians in its sector criteria. Fitch does not expect EBITDA net
leverage to be below 1.0x in its four-year forecast period, which
is the 'bb' rating median, flagging leverage as a constraint below
investment-grade ratings. As the new models launch, and deliveries
begin, Fitch expects Ford Otosan's capital structure to improve
rapidly. Nevertheless, this impact will be beyond its forecast
period of four years.
KEY ASSUMPTIONS
- Annual export unit sales reaching 700,000 by 2025
- EBITDA margins trending toward mid-single digit in 2027 from high
single digit in 2024
- Capex in line with investment guarantee scheme
- 2024 net working capital change driven by inventory during model
switch
- Dividend pay-out ratio at 50%
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- An upgrade of FMC or strengthening of legal incentives for FMC to
support Ford Otosan
- Net cash position
- Through-the-cycle FCF margin sustained above 4%
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- EBITDA margin sustained below 6%
- Through-the-cycle FCF margin sustained below 1%
- EBITDA net leverage above 2.0x by 2025
- Multi-notch downgrade of FMC or adverse change to contractual
sales to FMC
LIQUIDITY AND DEBT STRUCTURE
Comfortable Liquidity: Ford Otosan had TRY5.0 billion of available
cash as of end-2023, after Fitch's adjustment for restricted cash
at about 2.5% of revenue. Management targets maintaining a level of
cash and credit commitments to meet 21 days of working capital
outflows. The export receivables relate to a single counterparty,
which is Ford Europe. The average receivable collection time at
Turkish and Romanian plants are within 14 days and 30 days,
respectively.
For domestic sales, a direct debit system is used for sales via
dealers to mitigate credit risk. Ford Otosan uses letters of credit
and trade lines for export sales, and has a EUR100 million revolver
for working capital needs. Fitch expects negative FCF in the rating
horizon reflecting a capex spike and ongoing dividend payments.
Barbell Debt Maturity Profile: With placement of the Eurobond,
Otosan's debt structure comprises terms loans and notes. Most term
loans and the Eurobond have maturities between 2026 and 2029. The
short-term debt is refinanced on a rolling basis each year.
ISSUER PROFILE
Ford Otosan is a Turkish automotive manufacturing company that is
specialised in light vehicle production, with leading market shares
in Europe. The company is a joint venture between Koc Holding (41%)
and Ford Motor Company (41%), rest of the shares are free float.
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.
DATE OF RELEVANT COMMITTEE
04 April 2024
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Ford Otomotiv
Sanayi A.S.
senior unsecured LT BB+ New Rating RR4 BB+(EXP)
FORD OTOMOTIV: S&P Assigns 'BB-' Long-Term ICR, Outlook Positive
----------------------------------------------------------------
S&P Global Ratings assigned its 'BB-' long-term issuer credit and
issue ratings to Ford Otomotiv (FO; doing business as Ford Otosan)
and its completed issuance of $500 million in unsecured notes.
The positive outlook on FO mirrors that on Turkiye and S&P's
expectation that the group will continue to pass our hypothetical
sovereign default and transfer and convertibility stress tests
sustainably.
S&P said, "The rating on FO is constrained at one notch above our
'B+' transfer and convertibility (T&C) assessment on Turkiye due to
the company's sizable operations in the country. We anticipate that
the group will generate about 75% of its revenue and 85% of its
EBITDA from assets in Turkiye over 2024-2025, meaning large
exposure to the country's economic conditions and jurisdiction
risks. In a hypothetical sovereign default, we anticipate that the
group would maintain adequate liquidity thanks mainly to its strong
share of revenue denominated in euros, largely mitigating its
exposure to devaluation of the Turkish lira (TRY). We also estimate
that the group can withstand sovereign-related stress, including
capital controls, thanks to hard currency inflows from its plant in
Romania and FO's ability to maintain at least a modest share of
export revenue in hard currency from its Turkish assets. We think
that, in this scenario, the company would retain sufficient hard
currency cash to service its foreign debt obligations and continue
to at least partially deliver on its production commitments to FMC
in Turkiye. Overall, we rate FO above our T&C assessment on the
sovereign because the company passes our stress test, but the
uplift is limited to one notch since we expect its exposure to the
country (measured in terms of EBITDA) will remain above 70% in the
next two years.
"We assess FO's stand-alone credit profile (SACP) at 'bb', based on
its strong commercial vehicle (CV) foothold and moderate
leverage.Our assessment hinges on FMC's solid market position in
the European CV market and FO's relatively solid operating margins
thanks to a cost-plus contractual framework with FMC. The Ford
brand has retained 13%-15% of the European CV market since 2016,
ranking first by brand and second behind Stellantis by auto group.
This position has been supported by healthy demand for its two-ton
Ford Transit and one-ton Ford Custom models. Also, thanks to these
vehicles, the group commands over 30% of the domestic Turkish
medium CV market. FO's heavy truck business is less developed in
Europe, translating in a market share of about 2.5% in 2023. Still,
it ranks second by sales behind Daimler Trucks in the domestic
market, with a share of close to 30%. In the passenger cars (PC)
segment, the production of the Puma model in Romania represented
about 1% of 2023 PC sales in Europe. In the domestic market, FO is
the exclusive importer and reseller of Ford PCs, but its market
share does not exceed 5%, well below that of leaders Fiat and
Renault. Overall, we deem FO's sales of CVs as more profitable than
PCs and view its overall business as somewhat smaller and less
diversified than that of peers such as Renault S.A. (BB+/Stable/B),
Tata Motors Ltd. (BB+/Positive/--), Volvo Car AB (BB+/Stable/--),
and Mitsubishi Motors Corp. (BB+/Stable/--).
"From 2018-2023, FO posted S&P Global Ratings-adjusted free
operating cash flow (FOCF) to sales averaging 6%, which we believe
reflects a sound profitability and cash conversion capacity. FO's
SACP is also supported by its modest debt leverage and our
expectation that financial policy will continue to balance dividend
distributions, growth investments, and leverage. While we
anticipate higher dividend distributions and sustained capital
expenditure (capex) needs in 2024-2025, we anticipate FO will see a
limited increase in adjusted debt to EBITDA to 2.0x-2.2x, from 1.6x
in 2023."
FO has a sound profitability track record, although its margins
remain exposed to cyclical auto markets and volatile domestic
market conditions. The company's international volumes are sold to
FMC Europe under a cost-plus contractual framework where FO
receives a profit markup in hard currency per vehicle produced. The
licensing contract covers the vast majority of variable and fixed
production costs and provides an almost-total recovery of
investments, limiting considerably the exposure to volume risk. S&P
said, "We think this scheme supports FO's profitability, in
addition to the high utilization rates of its Turkiye plants
(ranging from 73% to 88% over 2017-2023) and a competitive labor
cost base. This has allowed the group to maintain S&P Global
Ratings-adjusted EBITDA margin above 8% since 2017. Still, we
anticipate that FO's margins will remain exposed to cyclical auto
demand and pricing, as well as volatile foreign exchange
fluctuations." While about 75% of the group's revenue are in hard
currency, about 50% of its expense is incurred in Turkish lira.
Temporary margin volatility is a risk, notably because any
potential higher costs are typically absorbed with a time lag under
the cost-plus agreement. In addition, the exposure of domestic
sales (about 25% of total revenue) to cyclical domestic auto and
truck demand could add volatility to earnings.
S&P said, "We view FO's vehicles electrification as a key operating
challenge. The group plans to launch the electric versions of the
Custom, Courier, and Puma in 2024 after the smooth start of the
E-Transit production in 2022 (with 14,888 vehicles produced last
year, or about 8% of total Transit volumes). FO has full access to
FMC's research and development (R&D) capabilities and assembles key
components such as battery arrays and trays and e-drives in house.
This allows the company to optimize its R&D, which represented a
mere 1% of its sales historically. The company's battery packs are
sourced externally from LG Energy Solution Ltd. for CVs and SK
Innovation Co. Ltd. for PCs, in line with FMC's European supply
chain setup. We anticipate EV sales to be dilutive to the group's
operating margins until the associated development and input costs
will be abated by volume ramp-up. The transition to electric
drivetrains will be gradual, with FMC targeting to offer an
all-electric fleet of vehicles in Europe by 2035. In the ramp-up
phase, FO will produce EV and internal combustion engine models on
the same lines, providing operating flexibility to adapt to the
pace of transition to the electrification of European CV and PC
markets. We assume this flexibility could help the group smooth and
partly offset the impact of the costly powertrain transition.
"FO's growth ambitions will translate in higher capex intensity and
lower cash conversion through 2025. We anticipate the adjusted
capex-to-sales ratio will stay elevated at about 5% in 2024-2025 as
the company launches the electric version of its different vehicles
and further increases production capacity at Yenikoy (new Custom)
and Craiova (new Courier). This ongoing investment program resulted
in the capex-to-sales ratio increasing to 7.3% in 2023, from an
average of 3.0% over 2017-2022. Considering this jump in spending,
alongside continued working capital investment needs, we project
FOCF to sales will decline to about 1% in the next two years, from
an average of about 6% over 2018-2023. Nevertheless, we maintain
our view of sound cash conversion at FO, because we expect the dip
to be temporary until the investment program's completion by 2025.
"We expect FO's financial policy will continue to ensure moderate
debt levels despite increasing dividend payments. We project that
most of the company's FOCF will remain allocated toward dividends
in the next few years, in line with its minimum dividend payout
ratio policy of 50%. This ratio averaged about 60% over 2017-2023,
and we anticipate that the company could increase its dividend
payment well in excess of our expected FOCF this year on the back
of strong 2023 results. That said, we anticipate FO would likely
reduce distributions if capex requirements were above target or if
market conditions deteriorated in order to keep its debt leverage
in line with its historical leverage. The total dividend payout
fell to about $166 million in 2020 from $230 million in 2019, which
helped the company maintaining strong credit ratios during the
pandemic. We understand FO intends to limit reported net debt to
EBITDA at 3.5x, although in practice it has not exceeded the 1.5x
threshold (slightly above 2.0x in S&P Global Ratings-adjusted
terms) over 2017-2023.
"Overall, we anticipate FO will continue to balance accordingly its
earnings growth, investment plans, and shareholder distributions,
translating in relatively sound S&P Global Ratings-adjusted debt to
EBITDA of 2.0x-2.2x and funds from operations (FFO) to debt of 38%
in 2024-2025. Our debt figure included a deferred purchase
consideration of TRY10.7 billion linked to the Craiova acquisition
from FMC and TRY1.1 billion of pension liabilities as of Dec. 31,
2023, and excludes available cash.
"We view FO as strategically important to FMC. Our assessment of
FO's group status does not propel our rating because we think group
support might not fully offset sovereign-related stress like the
hypothetical introduction of capital controls in its home country.
FMC's 41% stake in FO is balanced by an equal share held by Koc
Holding A.S. (BB-/Positive/B), the investment holding of FO's
founding family. FO has a longstanding relationship with FMC,
having produced its first Ford licensed vehicle in 1967, but is not
consolidated into FMC's perimeter. FO's growth since then is a
testimony to its efficient manufacturing operations, supported by
historically high production capacity utilization rates and a
competitive cost base when compared with FMC's other production
facilities in Europe. FO represents an asset-light investment for
FMC Europe with steady returns (with about $250 million and $200
million of annual dividends paid to FMC in 2023 and 2022), allowing
the Ford brand to maintain a leading position on the European CV
market. We estimate that FO will produce about two-thirds and
one-third of Ford-branded CVs and PCs in Europe in 2024. The
company's share within FMC's European business has increased
following the acquisition from FMC of the Craiova plant in Romania
in 2022. We assume that capacity expansion at the Yenikoy and
Craiova plants coupled with the transition to the production of EVs
across its facilities will continue to support its contribution to
FMC Europe's total volumes sold.
"The positive outlook on FO mirrors that on Turkiye and our
expectation that the group will continue to pass our hypothetical
sovereign default and T&C stress tests sustainably. We also base
the outlook on our expectation that FO will maintain adequate
liquidity and gradually increase its earnings outside its home
country.
"We could revise our outlook on FO to stable following a similar
rating action on Turkiye. We could also lower the rating if the
company fails to pass our sovereign default and T&C stress tests.
Failed tests could arise from setbacks in ramping up production and
profitability at FO's Romania operations or reduced other sources
of hard currency cash to cover foreign debt service and hard
currency raw material imports.
"We could raise our rating if we take a similar action on Turkiye
(including a higher T&C assessment), or we estimate that FO can
sustainably generate more than 30% of its total earnings outside
the country while continuing to pass our hypothetical sovereign
default and T&C stress tests. An upgrade would also hinge on the
company maintaining an adequate liquidity position and credit
metrics in line with our current expectations."
SEKERBANK TAS: Fitch Assigns CCC-(EXP) Rating to AT1 Capital Notes
------------------------------------------------------------------
Fitch Ratings has assigned Sekerbank T.A.S. (Sekerbank;
B-/Positive/b-) planned additional Tier 1 (AT1) capital notes an
expected rating of 'CCC-(EXP)'. The size of the issuance is not yet
determined but is expected to be in the range of USD150 million.
The final rating is subject to the receipt of the final
documentation conforming to information already received by Fitch.
KEY RATING DRIVERS
The notes are Basel-III compliant, perpetual, deeply subordinated,
fixed-rate resettable AT1 debt securities. The notes will have
fully discretionary non-cumulative interest payments and will be
subject to full or partial write-down if the issuer or the group's
common equity Tier 1 (CET1) ratio falls below 5.125%. The principal
write-down can be reinstated and written up at the issuer's
discretion if positive distributable net profit is recorded.
The rating on the notes is three notches below Sekerbank's 'b-'
Viability Rating (VR), in accordance with Fitch's Bank Rating
Criteria. Fitch has only notched the debt rating three times from
Sekerbank's VR (twice for loss severity and only once for
non-performance risk), instead of the baseline four notches, due to
rating compression, as Sekerbank's VR is below the 'BB-' anchor
rating threshold.
The notes will have no fixed maturity, although Sekerbank will have
the option (subject to BRSA approval) to repay the notes after five
years, and every interest payment date thereafter.
Sekerbank's consolidated regulatory CET1 and Tier 1 ratios were
24.6% and 24.7%, respectively, at end-2023, including regulatory
forbearance on foreign-currency risk-weighted assets, well above
their regulatory minimum requirements of 7.0% and 8.5%,
respectively.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
As the notes are notched down from Sekerbank's VR, the rating is
sensitive to a downgrade of the VR. The notes' rating is also
sensitive to an unfavourable revision in Fitch's assessment of
incremental non-performance risk.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
The notes' rating is sensitive to an upgrade of Sekerbank's VR.
ESG CONSIDERATIONS
Sekerbank's ESG Relevance Score for Management Strategy of '4'
reflects an increased regulatory burden on Turkish banks.
Management ability across the sector to determine their own
strategy and price risk is constrained by increased regulatory
interventions and also by the operational challenges of
implementing regulations at the bank level. This has a moderately
negative impact on the bank's credit profile and is relevant to the
bank's rating in combination with other factors.
Unless otherwise disclosed in this section, the highest level of
ESG credit relevance is a score of '3'. This means ESG issues are
credit neutral or have only a minimal credit impact on the entity,
either due to their nature or the way in which they are being
managed by the entity. Fitch's ESG Relevance Scores are not inputs
in the rating process; they are an observation of the materiality
and relevance of ESG factors in the rating decision.
DATE OF RELEVANT COMMITTEE
08 April 2024
Entity/Debt Rating
----------- ------
Sekerbank T.A.S.
Subordinated LT CCC-(EXP) Expected Rating
=============
U K R A I N E
=============
CITY OF KYIV: S&P Affirms 'CCC+' Long-Term ICR, Outlook Stable
--------------------------------------------------------------
On April 26, 2024, S&P Global Ratings affirmed its 'CCC+' long-term
foreign and local currency issuer credit ratings on Ukraine's
capital city Kyiv. The outlook remains stable.
Outlook
The stable outlook reflects the balance between Kyiv's relatively
high cash reserves and low debt service, and the significant
uncertainty stemming from the ongoing war between Russia and
Ukraine.
Downside scenario
S&P said, "We could lower the ratings if we considered that the
city will default with no visibility on potential positive
developments. This could occur, for example, due to increased
security risks, a significant deterioration of Kyiv's liquidity
position, or indications that the city might prioritize spending
needs ahead of debt servicing. We could also lower the rating if we
lowered our T&C assessment on Ukraine."
Upside scenario
S&P said, "We could consider raising the rating on Kyiv if we
raised our T&C assessment on Ukraine, all other factors remaining
unchanged. Stronger T&C would reflect our view of a lower
likelihood of the sovereign restricting non-sovereign entities'
access to foreign exchange needed to satisfy their debt-service
obligations."
Rationale
S&P said, "The 'CCC+' rating on Kyiv reflects our T&C assessment on
Ukraine. A country's T&C assessment reflects S&P Global Ratings'
view of the likelihood of a sovereign's restricting nonsovereign
access to foreign exchange needed to satisfy the nonsovereign's
debt-service obligations. The T&C assessment directly constrains
the foreign currency rating on such entities. We think there could
be a spill-over effect of T&C restrictions on local currency debt
instruments as well. We assess Kyiv's stand-alone credit profile
(SACP) as being one notch higher than our issuer credit rating."
Kyiv's current liquidity position is sound, with cash reserves
exceeding debt service by 5x in the next 12 months. After repaying
the foreign-currency-denominated Eurobond in December 2022, Kyiv's
debt is denominated solely in local currency. The city has a credit
line from the State Savings Bank of Ukraine (Oschadbank) of
Ukrainian hryvnia (UAH) 1.240 billion (about $32 million), of which
UAH300 million was repaid in 2023 and the remaining UAH943 million
will mature in 2024-2026. Kyiv also has three local currency bonds
totaling UAH1.1 billion maturing in 2024-2026. Kyiv continues to
pay interest on these obligations.
In S&P's view, Kyiv's ability to make debt-service payments remains
uninterrupted for now, although S&P acknowledges that the situation
might change quickly due to the war. According to the latest
information available, the city is still honoring its debt-service
obligations and has pledged to continue doing so.
The Russia-Ukraine war brings significant uncertainties to the
city's economy and financials
The very volatile and centralized Ukrainian institutional setting
for the country's local and regional governments (LRGs), the city's
modest GDP per capita relative to LRGs in other countries, and very
weak financial management, weigh on the rating. The ratings are
supported by the city's strong financials so far, high cash
reserves, and very low debt-service needs. Kyiv's tax-supported
debt is relatively low in an international context.
S&P said, "The national economy proved more resilient in 2023 than
we anticipated. Businesses and households have adjusted to the
war-induced uncertainty and shortfalls in critical infrastructure,
including in the transport and power sectors. This, together with
reduced security risks in unoccupied areas, has resulted in an
improvement in consumer and business confidence compared with 2022.
We estimate Ukraine's real GDP growth at 5.5% in 2023. We expect
the country's economic growth will continue in 2024 on domestic
demand expansion and further recovery of seaborne exports. However,
we project growth will soften to 3.9% because of the high base
effect created by a strong agricultural season last year. We
forecast the economy will expand by 4.5%-5.0% annually on average,
thereafter. We project Kyiv's economy will follow the trajectory of
the national economy albeit, as the capital, Kyiv remains Ukraine's
most diversified and wealthy region. The city contributes more than
20% of national GDP and benefits from a strong labor market.
Moreover, its GDP per capita is about 5x above the national
average.
"We regard financial management as very weak. Our view is based on
only emerging long-term planning and large deviations from the
budget in the past. However, we expect the city to stay committed
to honoring its debt obligations. We see for instance that the
city's management demonstrated its commitment to not default when
the Ukrainian government defaulted in August 2022.
"The city's administration remains fully operational despite the
security challenges, and posted only moderate deficits in 2023
Kyiv's deficit after capital accounts made up 3.5% of total revenue
in 2023 compared to the 11% surplus recorded in 2022 and the 5.5%
deficit we forecast for 2023. This was largely due to high spending
growth. We project the city will post a deficit after capital
accounts of about 8% of total revenue in 2024 following some
moderation of revenue growth due to redistribution of personal
income tax (PIT) revenue and high spending needs. In September
2023, PIT revenue from financial support for military personnel was
redistributed from local budgets to the central government. We
estimate this means a 10%-15% loss of PIT receipts for Kyiv.
"We think the deficit will be financed with new debt and drawings
from cash reserves. According to the city's budget for 2024, Kyiv
plans to raise local currency debt and borrow in foreign currency
from European Investment Bank. We therefore expect Kyiv's direct
debt will increase but remain low by international standards. As of
Jan. 1, 2024, the city's direct debt consisted of UAH1.1 billion in
local currency bonds and the UAH943 million credit line from
Oschadbank. Kyiv continues to pay interest on these obligations. We
assess the city's access to bank and capital market funding as
uncertain currently.
"In addition to direct debt, our assessment of the city's total
debt burden (tax-supported debt) includes liabilities of municipal
government-related entities (GREs), which require assistance from
the city's budget. In particular, we factor in all debt of GREs
explicitly guaranteed by Kyiv (Kyivpastrans, Kyivmetro, GVP Energy
Saving Company, and Kyivteploenergo), as well as the commercial
debt of the water utility, given the ongoing support from the
city's budget or strong links with the city. In 2021, Kyiv provided
a EUR140 million guarantee to its heating company and, more
recently, a EUR70 million guarantee to its water company, both have
not yet been taken. We consider that Kyiv's contingent liabilities
are low and include mostly accumulated payables at its utility and
transportation companies. We include all municipal companies' debt
in Kyiv's tax-supported debt.
"As of Jan. 1, 2024, Kyiv had about UAH8.2 billion (about $200
million) of cash available. We therefore believe the city has a
solid liquidity position that covers debt service and repayments
due in the next 12 months by about 5x. Debt service over the next
12 months total UAH1.5 billion, consisting of roughly UAH900
million of coupon payments on local currency bonds, interest on the
credit line and forecast new borrowings, and a UAH600 million
principal payment linked to the credit line and one of the local
currency bonds maturing in September 2024."
In accordance with S&P's relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable. At the onset of the committee, the chair confirmed that
the information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was sufficient
for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee's assessment of the key rating factors is reflected
in the Ratings Score Snapshot above.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision. The
views and the decision of the rating committee are summarized in
the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
Ratings List
RATINGS AFFIRMED
KYIV (CITY OF)
Issuer Credit Rating CCC+/Stable/--
===========================
U N I T E D K I N G D O M
===========================
CHESHIRE 2021-1: Fitch Lowers Class F Notes Rating to 'B+sf'
-------------------------------------------------------------
Fitch Ratings has downgraded Cheshire 2021-1 PLC's class F notes by
three notches, and revised the Outlooks on the class C, D and E
notes to Negative from Stable, as listed below.
Entity/Debt Rating Prior
----------- ------ -----
Cheshire 2021-1 PLC
A XS2386503721 LT AAAsf Affirmed AAAsf
B XS2386503994 LT AAsf Affirmed AAsf
C XS2386504026 LT A+sf Affirmed A+sf
D XS2386504299 LT A-sf Affirmed A-sf
E XS2386504372 LT BBBsf Affirmed BBBsf
F XS2386504455 LT B+sf Downgrade BB+sf
TRANSACTION SUMMARY
Cheshire 2021-1 PLC is a multi-originator securitisation of legacy
owner-occupied and buy-to-let mortgages. The three largest lenders
are GMAC-RFC Limited, Future Mortgages Limited and Mortgages 1
Limited. The transaction is a refinancing of the Dukinfield II PLC
issuance.
KEY RATING DRIVERS
Deteriorating Asset Performance: There has been a material increase
in arrears since the last review. One-month plus arrears have
increased from 31% to 40%. Given Fitch's current asset outlook for
the sector, the agency anticipates asset performance could further
deteriorate. Fitch factored a potential worsening of asset
performance into its analysis when determining the ratings. This
led to the affirmations of the class B, C and D notes at one notch
below their model-implied ratings (MIR).
High Loss Severity: The loss severity to date has been 19.7%, based
on the 10 sold repossession cases since closing. This loss severity
figure implies a recovery rate (RR) below Fitch's expected case RR
assumption in its ResiGlobal Model: UK output for the transaction.
Given the observed performance, Fitch stressed the RR assumptions
in its analysis and this contributed to the downgrade of the class
F notes and the revision of the Outlooks on the class C, D and E
notes to Negative.
Deferred Interest on Junior Notes: The class D, E and F notes
currently have deferred interest and interest is accruing on the
deferred amounts. As per the transaction documents, deferred
interest is not an event of default for class B and below and is
due at the final legal maturity date of the notes on 21 December
2049. The interest deferrals are as a result of insufficient
revenue funds to pay interest on the notes due to the substantial
proportion of the pool that is in arrears.
If arrears continue to increase, interest deferrals may continue to
grow and accrue interest, creating a compounding effect. Fitch has
factored the deferred interest amounts into its analysis and this
contributed to the downgrade of the class F notes and the Negative
Outlooks on the class D and E notes.
Increased CE: Credit enhancement (CE) has increased since the last
review, supporting the affirmations. CE has risen to 20.73% from
19.18% for the class B notes and to 29.60% from 27.28% for the
class A notes.
Asset Analysis Assumptions: Certain loan-level attributes that
attract a foreclosure frequency (FF) adjustment (in relation to
adverse credit history, employment type and income verification)
were not provided to Fitch, but were reported in the Dukinfield II
PLC prospectus. In its analysis, Fitch used these reported
proportions to apply pool-level data adjustments to capture the
relevant FF adjustments.
Additional rental income data was not provided to Fitch. Fitch
assumed that the rental income was sufficient to meet the minimum
interest coverage ratio defined in the underwriting policy at the
time of origination. This assumption is consistent with the
approach applied in Fitch's initial analysis.
Originator Adjustment: In its initial analysis, when setting the
originator adjustment for the portfolio, Fitch considered factors
including the historical performance and average annualised
constant default rate since closing of Dukinfield II PLC. This
resulted in an originator adjustment of 1.0x for the owner occupied
sub-pool and 1.5x for the buy to let sub-pool - these assumptions
have been maintained in the analysis for this rating action.
Junior Notes Constrained: The interest payments for all notes other
than class A are deferrable at all times. In its analysis, Fitch
tested the class A and B notes' ratings on a timely basis and
assessed the materiality of the interest deferability exposure for
the class C to F notes. Fitch considers the liquidity protection in
the structure adequate at the respective ratings. Nonetheless, the
ratings of the class C notes and below are unable to exceed
'A+sf'.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The transaction's performance may be affected by changes in market
conditions and economic environment. Weakening economic performance
is strongly correlated to increasing levels of delinquencies and
defaults that could reduce CE available to the notes.
Additionally, unanticipated declines in recoveries could result
from lower net proceeds, which may make certain notes susceptible
to negative rating action depending on the extent of the decline in
recoveries. Fitch conducts sensitivity analyses by stressing both a
transaction's base-case FF and RR assumptions, and examining the
rating implications on all classes of issued notes. A 15% increase
in the weighted average (WA) FF and a 15% decrease in the WA RR
would imply downgrades of up to one notch for the class B and F
notes, two notches for the class C and D notes and four notches for
the class E notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Stable to improved asset performance driven by stable delinquencies
and defaults would lead to increasing CE and potential upgrades.
Fitch tested an additional rating sensitivity scenario by applying
a decrease in the WAFF of 15% and an increase in the WARR of 15%.
The impact on the notes could be upgrades of up to two notches for
the class B notes, three notches for the class C notes, four
notches for the class D and E notes and seven notches for the class
F notes.
CRITERIA VARIATION
A criteria variation was applied against the Rating Determinations
provisions in Fitch's UK RMBS Rating Criteria to assign a rating to
the class F three notches below its MIR. The criteria states that
for new and existing ratings, a Fitch rating committee can consider
other quantitative and qualitative factors when assigning the
ratings. The final rating considered appropriate by the committee
may be one notch above or below the relevant MIR. The assignment of
a rating three notches below the MIR for the class F notes
therefore constitutes a criteria variation.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
Prior to the transaction closing, Fitch reviewed the results of a
third party assessment conducted on the asset portfolio information
and concluded that there were no findings that affected the rating
analysis.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Cheshire 2021-1 PLC has an ESG Relevance Score of '4' for Customer
Welfare - Fair Messaging, Privacy & Data Security due to exposure
to compliance risks including fair lending practices, mis-selling,
repossession/foreclosure practices, consumer data protection (data
security), which has a negative impact on the credit profile, and
is relevant to the ratings in conjunction with other factors.
Cheshire 2021-1 PLC has an ESG Relevance Score of '4' for Human
Rights, Community Relations, Access & Affordability due to exposure
to accessibility to affordable housing, which has a negative impact
on the credit profile, and is relevant to the ratings in
conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
CONSORT HEALTHCARE: Moody's Cuts Rating on GBP93.3MM Bonds to Caa3
------------------------------------------------------------------
Moody's Ratings has downgraded to Caa3 from Caa1 the underlying and
backed ratings for the GBP93.3 million index-linked guaranteed
senior secured bonds due 2041 (the Bonds) issued by Consort
Healthcare (Tameside) plc (ProjectCo). The outlook has been
maintained at negative.
RATINGS RATIONALE
The ratings downgrade reflects the increased likelihood of a
payment default by ProjectCo following the conclusion of the
adjudication process. A restructuring plan proposed by ProjectCo
may reduce the default risk but is subject to court sanction and
significant uncertainty.
On January 24, 2024, ProjectCo disclosed[1] that the adjudication
with the Tameside and Glossop Integrated Care NHS Foundation Trust
(the Trust) over disputed deductions for contract months September
2020 to December 2021 had found in favour of the Trust, and that
ProjectCo would have to pay GBP8.8 million to the Trust. Pursuant
to a standstill between the parties, the adjudication amount could
not be levied against ProjectCo prior to six weeks after the
adjudication outcome.
Following the expiry of the standstill, ProjectCo further
disclosed[2] the Trust had begun to make deductions from the March
2024 Unitary Payment (UP). As such, ProjectCo had insufficient
cashflow to meet its March 31, 2024 debt service and drew upon its
six-month Debt Service Reserve Account (DSRA) to fund its
obligations.
As well as the adjudication amount, the outcome enables the Trust
to make deductions and award Service Failure Points (SFPs) from
January 2022 to October 2023, which have accrued but had not been
deducted whilst the adjudication was ongoing. ProjectCo has
calculated the accrued deductions at GBP12.3 million, whereas the
Trust has calculated these at GBP20.3 million, with the difference
likely to be settled through dispute resolution.
On April 24, 2024, ProjectCo announced[3] that it does not consider
it possible to reach a settlement which is acceptable to both
parties and was seeking a restructuring plan under Part 26A of the
Companies Act 2006. ProjectCo has proposed a number of measures
under the restructuring plan, including: (1) the spreading of the
settlement amount over the remainder of the project term; (2)
settling and discharging all accrued deductions and SFPs; (3)
changes to deduction and SFP weightings and relief periods; (4)
ProjectCo's commitment to rectify a number of existing defects at
the project site; and (5) changes to operational protocols.
ProjectCo considers it has three classes of creditors, namely the
Trust, Ambac Assurance UK Limited (Ambac) as controlling senior
creditor, and subordinated loan stock subscribers. ProjectCo
anticipates that the different classes of creditors will be
required to vote on the restructuring plan on June 12, 2024, and
that a subsequent court hearing to either sanction or not sanction
the restructuring plan will occur in late June 2024. Under the Act,
the restructuring plan may still be sanctioned if a class of
creditors dissents under cross-class cram down provisions, if the
dissenting class would be no worse off under the restructuring plan
than the relevant alternative, which ProjectCo expects would be
administration.
Moody's expects that if the restructuring plan was sanctioned,
ProjectCo would likely be able to avoid a payment default on its
ongoing debt service obligations, with the next payment due on
September 30, 2024. However, whilst the rating agency does not
currently have sight of ProjectCo's proposed settlement payment
profile, Moody's expects these payments to depress coverage and
ProjectCo to remain materially weaker than pre-2020 expectations.
Alternatively, if the restructuring plan was not sanctioned,
Moody's expectation is that the Trust would continue to levy
significant deductions against the monthly UP and ProjectCo will
have insufficient cashflow to meet its upcoming debt service
obligation. As ProjectCo no longer has a fully funded DSRA, Moody's
expects this would result in a payment default.
The Bonds benefit from an unconditional and irrevocable guarantee
of scheduled principal and interest from Ambac. However, on April
7, 2011, Moody's ratings on Ambac were withdrawn and accordingly
the backed rating reflects the rating of the Project on a
stand-alone basis.
In the downside case, Moody's expects senior creditors to
ultimately be reliant on Ambac's guarantee for debt service
payments. Under the terms of the guarantee, following a payment
default Ambac is obligated to make payments to senior creditors,
but it retains sole discretion over whether these payments are made
on the original debt service schedule or on an accelerated basis.
In this scenario, the ratings reflect Moody's view of expected
recovery for Ambac.
There remains significant uncertainty over recovery prospects
following a ProjectCo default or other termination event. The Trust
would be liable to pay compensation to ProjectCo under the PA, with
Moody's expecting the Trust to opt to pay the estimated fair value
of the PA. The Trust is able to make deductions for rectification
costs as well as outstanding payments, both of which may weigh on
compensation. Furthermore, Moody's has observed a similar process
at The Coventry and Rugby Hospital Company (CRHC, Caa2 negative)
where the Coventry and Warwickshire Partnership NHS Trust (CWPT)
has terminated the smaller portion of the respective PA. CRHC has
estimated the compensation due as +GBP86 million whilst CWPT has
estimated it as -GBP40 million, with the matter being referred to
adjudication after a year of negotiations. If any class of
creditors dissents against the restructuring plan, the calculation
of compensation on termination would be relevant in determining the
counterfactual when applying cross-class cram down provisions.
Moody's notes that Part26A of the Act was only introduced in 2020,
and remains relatively untested compared to other existing
arrangements.
The negative outlook reflects the risk that the restructuring plan
is not sanctioned, or that the legal process becomes protracted and
is not completed prior to the upcoming debt service payment date.
Moody's views the adjudication outcome and consequential deductions
as reflecting negatively on ProjectCo's Track Record, a governance
consideration under Moody's Ratings General Principles for
Assessing Environmental, Social and Governance Risks methodology.
As part of this rating action, ProjectCo's Governance Issuer
Profile Score and Credit Impact Score have been changed to G-5 and
CIS-5 respectively, indicating the governance considerations have a
materially negative impact on the rating.
Consort Healthcare (Tameside) plc is a special purpose company that
in September 2007 signed a PA with the then Tameside and Glossop
Acute Services NHS Trust to redevelop the existing Tameside General
Hospital site in Ashton-under-Lyne, Greater Manchester and to
provide certain hard FM services until August 2041.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The rating could be upgraded if a restructuring plan is sanctioned
which relieves financial pressure on ProjectCo and avoids an
imminent default scenario.
Conversely, the rating may be downgraded if the restructuring plan
is not sanctioned in line with the expected timeline.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Operational
Privately Financed Public Infrastructure (PFI/PPP/P3) Projects
published in March 2023.
CONTOURGLOBAL: Fitch Affirms 'BB-' LongTerm IDR, Outlook Stable
---------------------------------------------------------------
Fitch Ratings has affirmed ContourGlobal Limited's (CG) Long-Term
Issuer Default Rating (IDR) at 'BB-' with a Stable Outlook and also
affirmed ContourGlobal Power Holdings S.A.'s (CGPH) senior secured
notes rating at 'BB+'/'RR2'.
The IDR affirmation with a Stable Outlook reflects Fitch Ratings'
view of CG's unchanged business profile, and holding company
(holdco) deconsolidated leverage that is still commensurate with
the rating after the refinancing at the midco level. The new debt
layer has no recourse to the holdco or any of the holdco's debt
guarantors. Fitch also expects the company to accelerate its
decarbonization and growth strategy, although without immediate
impact on its business profile.
Fitch expects funds from operations (FFO) leverage to average 3.8x
in 2024-2027, comfortably within the rating guidelines despite
lower forecast FFO compared to its previous expectations due to the
midco debt service and lower distributions from the repurposed
Maritsa plant. The leverage reflects a lower amount of holdco debt,
stable distributions from existing assets, asset refinancing
operations throughout 2024-2026, and ambitious acquisitions and
development investments.
KEY RATING DRIVERS
New Debt Structure: Fitch treats the new midco debt as an extension
of asset-level financing (non-recourse debt) as the midco lenders
have no recourse to the holdco, while having an indirect claim on
the assets. There are no cross-default or cross-acceleration
provisions in the midco or holdco documentation.
The upstreaming of cash to the holdco is limited by maintenance of
historical and forward-looking debt service coverage ratios at
midco and at asset level. The holdco cash flows available for debt
service (CFADS) is reduced by debt service at the midco level, but
this is proportional to the reduction of holdco debt through the
refinancing.
Flexibility on Funding Sources: Fitch expects the issuer to
maintain diversified funding sources, including project finance,
midco financing, and holdco financing without any specific
preference, with financial choices subject only to market
conditions.
Neutral Financial Impact from Refinancing: The midco refinancing
had no material impact on the holdco leverage metrics, all else
broadly unchanged. Holdco debt fell by over USD400 million compared
to 2022, but its CFADS also fell by slightly over USD100 million
due to the midco debt service (including the midco RCF repayment),
leading to a broadly neutral impact on leverage metrics.
Solid Performance in 2023: The company registered solid operational
performance in 2023 due to improved operational distributions
(close to USD370 million compared to USD260 million in 2022),
despite lower-than-forecast distributions related to asset-level
refinancing (USD34 million compared to USD340 million).
Operational distributions benefited from inflation-protective
mechanisms (over 70% of adjusted EBITDA) and some exposure to
healthy spot energy prices (around 10% of revenues in 2023 were
uncontracted). The lower asset refinancing proceeds are due both to
the upsized midco refinancing and to the conditions of specific
debt markets.
More Ambitious Growth Strategy: The company expects to add 4GW-5GW
of mostly renewable capacity by 2030. This will be achieved through
a combination of M&A, late-stage greenfield development
partnerships and brownfield development (repowering, hybridization
and repurposing of existing portfolio assets). Fitch forecasts
cumulative investments during 2024-2026 to increase to USD1.5
billion (USD1.2 billion previously).
Fitch views this revised strategy as entailing a higher execution
risk despite contributing to the faster decarbonisation of the
portfolio. Fitch expects holdco to generate material positive free
cash flows before growth investments (over USD200 million a year).
Contracted Operating Profile: CG's business model continues to
focus on long-term inflation-indexed contracted assets, with cost
pass-through clauses where relevant, and mostly investment-grade
offtakers. The company will maintain a diversified portfolio in
terms of geographies and technologies, and focus on low-risk
countries and low carbon-intensity assets for further growth.
Investments in the existing thermal fleet will support the target
of 40% decrease in carbon intensity by 2030 and net zero by 2040.
CG's contracted assets have an average residual contract life of
seven years and close to 90% of 2023 revenue was contracted. The
average credit quality of the offtakers was 'BBB' before political
risk insurance.
Senior Secured Rating: The outstanding holdco senior secure bonds
benefits from a two-notch uplift from CG's 'BB-' IDR, resulting in
the 'BB+'/RR2 senior secured rating, in line with the Corporates
Recovery Ratings and Instrument Ratings Criteria. The higher amount
of non-recourse debt is mitigated by the lower amount (around
USD400 million down on 2022) of holdco debt, but downside risks to
the 'BB+'/RR2 senior secured rating have increased, in its view.
Deconsolidated Approach: Fitch rates CG using a deconsolidated
approach. The main credit metric is holdco-only FFO leverage, which
Fitch calculates as the recourse debt (excluding project finance
debt at subsidiaries and midco financing) divided by holdco-only
FFO before interest paid (dividends from subsidiaries excluding
one-off transactions, and proceeds from sell downs of minority
stakes in projects less holdco operating expenses and taxes).
A material deviation from the current financing structure, with a
much higher share of holdco debt or inclusion of cross-default
clauses at asset level, could lead to a change in the analytical
methodology.
No Effect from Parent Linkage: Fitch rates CG on a standalone basis
as it considers its Parent and Subsidiary Linkage Rating Criteria
does not apply to CG, due to its full ownership by a financial
investor. CG is wholly owned by KKR Global Infrastructure Investors
IV, which is part of funds advised by KKR. This global investment
firm is a long-term investor in CG, with the company part of KKR's
infrastructure investments.
DERIVATION SUMMARY
Fitch rates CG using a deconsolidated approach as the company's
operating assets are largely financed with non-recourse project
debt. CG's operating scale is comparable with that of TerraForm
Power Operating, LLC (TERPO; BB-/Stable), NextEra Energy Partners,
LP (NEP) and Atlantica Sustainable Infrastructure Plc (both
'BB+'/Stable).
TERPO and NEP's US-dominated portfolios of renewable assets are
superior to that of CG, which is 37% renewables with the remaining
generation mainly thermal, and carries re-contracting risk and
political and regulatory risks in emerging markets.
Fitch also views Atlantica's portfolio of assets as superior to
that of CG, given Atlantica's focus on renewables (largely solar,
about 67% of power-generation capacity), longer remaining
contracted life (15 years versus eight) and better geographical
split (largely North America and Europe). This is only mitigated by
the larger size of CG's portfolio. CG therefore has lower debt
capacity than the peers considered.
KEY ASSUMPTIONS
Fitch's Key Assumptions within Its Rating Case for the Issuer:
- Operational distributions from existing assets averaging USD250
million over 2024-2027 with distributions from new assets steadily
increasing from USD20 million in 2024 towards USD160 million in
2027
- Cash extraction from refinancing averaging USD80 million a year
during 2024-2026
- Midco debt service averaging close to USD110 million a year, with
holdco overheads steady at USD30 million
- Interest rates on new holdco debt falling from 7.25% in 2024 to
6.5%, with holdco debt increasing towards USD1.4 billion in 2027,
due to the forecast expansion efforts
- Investments averaging over USD450 million a year
- No dividends
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Holdco-only FFO leverage below 3.5x on a sustained basis and FFO
interest coverage higher than 5x
- Reduced reliance on top five projects/contributors to cash flows
to holdco leading to a higher diversification
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Holdco-only FFO leverage above 4.5x on a sustained basis and FFO
interest coverage lower than 3x
- Major power purchase agreements experiencing unexpected and
material price reduction or termination
- Material deterioration of the business profile due to materially
worse recontracting terms, major political interference,
significant investment overruns or financial stress at the asset
level, or more speculative investments leading to a share of
contracted revenues below 70%
- A material increase in the super senior revolving credit facility
and equally ranking letters of credit facilities, or a material
increase in consolidated leverage could be negative for the senior
secured rating
LIQUIDITY AND DEBT STRUCTURE
Sufficient Liquidity: CG has no significant maturities at holdco
level until 2026. This, together with the EUR40 million undrawn
committed lines, supports its liquidity position despite the
consistently negative FCF after acquisitions and divestitures. The
recently raised midco debt is partially amortizing and is composed
of two tranches with different maturities, which moderates the
refinancing risk.
Project finance debt maturities at operating subsidiaries,
comprising the vast majority of consolidated debt, are evenly
balanced due to debt amortisation.
ISSUER PROFILE
CG is a holding company that operates 6.2GW of gross generation
capacity with about 129 thermal and renewable power generation
assets across 20 countries, through its subsidiaries and
affiliates. CG's cash flows in project companies are supported by
long-term contracts, regulated capacity or regulated
cost-of-service payments.
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
----------- ------ -------- -----
ContourGlobal Limited LT IDR BB- Affirmed BB-
ContourGlobal Power
Holdings S.A.
senior secured LT BB+ Affirmed RR2 BB+
FEATHERFOOT BAYER: Enters Administration, Owes Creditors GBP14,713
------------------------------------------------------------------
Business Sale reports that Featherfoot Bayer Limited, a property
development firm headquartered in Leeds, fell into administration
earlier this month, appointing Lee Lockwood and Gareth Harris of
RSM UK Restructuring Advisory appointed as joint administrators.
According to Business Sale, in its accounts for the year ending
April 30, 2023, Featherfoot Bayer's current assets were valued at
GBP32.6 million. However, the company owed slightly more than that
to creditors, with net liabilities totalling GBP14,713, Business
Sale discloses
GEOFFREY OSBORNE: Goes Into Administration, 100 Jobs Affected
-------------------------------------------------------------
Dave Rogers at Building reports that Geoffrey Osborne has brought
nearly 60 years of trading to a close after the firm formally
called in administrators on April 30.
The firm, set up by its eponymous founder in 1966, confirmed that
restructuring specialist RSM has been appointed administrator,
Building relates.
Around 100 staff at the Reigate-based company have been redundant
with a handful of staff kept on to help with the administration,
Building discloses.
According to Building, joint administrator Damian Webb said:
"Regrettably, despite the substantive efforts of the Osborne team,
it has not been possible to rescue the business.
"This failure is attributable to the macro-economic challenges the
company has faced since covid and the consequent loss of confidence
in the sector from investors and funders."
Osborne had been hoping to novate several contracts, a mixture of
jobs on site and those at second stage and in the pre-construction
phase, to new firms but this process is understood to have stalled,
Building states.
Osborne family member Andrew Osborne has been chairman since 2012.
Osborne, which had a turnover of around GBP90 million, has been
paring back its business in the last few years as part of a
restructuring, Building notes.
GOBUBBLE LIMITED: Collapses Into Administration
-----------------------------------------------
Business Sale reports that GoBubble Limited, a software company
specialising in AI content moderation, fell into administration
earlier this month, with Guy Hollander and Adam Harris of Mazars
LLP being appointed as joint administrators.
According to Business Sale, in the company's accounts for the
period from September 1, 2021 to December 31, 2022, its fixed
assets were valued at GBP356,754 and current assets as slightly
over GBP720,000. At the time, the firm's total assets were valued
at GBP986,318, Business Sale discloses.
HOPS HILL NO.4: S&P Assigns Prelim BB (sf) Rating to E-Dfrd Notes
-----------------------------------------------------------------
S&P Global Ratings assigned preliminary credit ratings to Hops Hill
No.4 PLC's class A notes and class B-Dfrd to E-Dfrd notes. At
closing, the issuer will also issue unrated J-VFN notes and
residual certificates.
This is an RMBS transaction that securitizes a portfolio of
buy-to-let mortgage loans secured on properties in the U.K. The
provisional mortgage portfolio is approximately GBP451 million as
of April 3, 2024, plus a prefunding amount.
The transaction is a refinancing of Hops Hill No.1 PLC, which
closed in 2021, plus some newly-originated loans by Keystone
Property Finance Ltd.
The issuer will use the issuance proceeds to purchase the full
beneficial interest in the mortgage loans from the seller at
closing, plus some prefunded loans up to the first interest payment
date. The issuer will grant security over all of its assets in the
security trustee's favor.
S&P considers the originator's lending criteria to be conservative,
given that none of the loans are in arrears or related to borrowers
currently under a bankruptcy proceeding.
Credit enhancement for the rated notes will consist of
subordination and excess spread.
A liquidity reserve will provide liquidity support to cover senior
fees, swap payments, and cure interest shortfalls on the class A
and B-Dfrd notes. Principal can be used to pay interest on the
class A and B-Dfrd through D-Dfrd notes, provided that, in the case
of the class B-Dfrd to D-Dfrd notes, they are the most senior class
outstanding or the outstanding principal deficiency ledger is less
than 10%.
The main changes against Hops Hill No.3 PLC are the collateral's
higher seasoning due to the refinancing of Hops Hill No.1 PLC and
the non-issuance of class F-Dfrd and G notes.
There are no rating constraints in the transaction under S&P's
counterparty, operational risk, or structured finance sovereign
risk criteria. It considers the issuer to be bankruptcy remote.
Preliminary ratings
CLASS PRELIM. RATING* CLASS SIZE (%)
A AAA (sf) 89.28
B-Dfrd AA (sf) 4.85
C-Dfrd A (sf) 4.00
D-Dfrd BBB (sf) 2.40
E-Dfrd BB (sf) 0.55
J-VFN NR TBD
Residual certs NR N/A
*S&P's preliminary ratings address timely receipt of interest and
ultimate repayment of principal on the class A notes, and the
ultimate payment of interest and principal on the other rated
notes. The J-VFN notes do not provide credit enhancement.
NR--Not rated.
TBD--To be determined.
N/A--Not applicable.
HUGHUB: Lack of Funding Prompts Administration
----------------------------------------------
Damisola Sulaiman at Insurance POST reports that insurance software
provider Hughub has been placed into administration due to a lack
of funding.
According to Companies House filings, two insolvency practitioners
from Resolve Advisory have been appointed, Insurance POST notes.
INTAGLIO ENGRAVING: Enters Administration, Owes Creditors GBP2.6MM
-------------------------------------------------------------------
Business Sale reports that Intaglio Engraving Limited, a
Lancashire-based gravure engraving manufacturer, fell into
administration on April 19, with the Gazette confirming the
appointment of SFP's David Kemp and Richard Hunt as joint
administrators on April 24.
According to Business Sale, in its accounts for the period from
December 31, 2021 to February 9, 2023, the company's fixed assets
were valued at GBP1.4 million and current assets at GBP1.3 million.
At the time, however, the company owed more than GBP2.6 million to
creditors, with total equity standing at just below GBP90,000,
Business Sale notes.
The company, which was founded in 1977, was a niche manufacturer of
gravure printing rollers, serving many of the UK's specialist
gravure print firms. The company underwent a management buyout in
2017.
ROBERTO COSTA: Goes Into Administration
---------------------------------------
Business Sale reports that Roberto Costa Soho Limited, which trades
as Macellaio RC, fell into administration earlier this month,
appointing Nick Parsk and Kalani Gunawardana of Oury Clark
Chartered Accountants as joint administrators.
In its accounts for the year to December 31, 2022, the company's
total assets were valued at around GBP1.6 million, with total
equity standing at GBP419,127, Business Sale discloses.
Roberto Costa Soho Limited is an Italian restaurant based in London
and part of the Macellaio chain.
SRS CARE: Goes Into Administration
----------------------------------
Business Sale reports that SRS Care Solutions Limited, a provider
of bespoke at-home care services based in Paisley, fell into
administration in mid-April, with Scott Milne and Ian Wright of
Quantuma Advisory appointed as joint administrators.
According to Business Sale, in the company's accounts for the year
to March 31, 2022, its total assets were valued at around GBP1.27
million, with net liabilities at the time amounting to GBP62,415.
TRK BRIXTON: Falls Into Administration
--------------------------------------
Business Sale reports that TRK Brixton Limited and TRK Shoreditch
Limited, entities within The Rum Kitchen group of Caribbean
restaurants and cocktail bars, were placed into administration last
week, with Nicola Banham and Colin Haig of Azets appointed as joint
administrators to both.
According to Business Sale, in its accounts for the year to July
31, 2022, TRK Brixton's net assets were valued at GBP544,625, while
TRK Shoreditch had total liabilities amounting to GBP308,676.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
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Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2024. All rights reserved. ISSN 1529-2754.
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