/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/240515.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 15, 2024, Vol. 25, No. 98 Headlines I R E L A N D AVOCA CLO XX: Fitch Affirms 'B-sf' Rating to Class F Notes PENTA CLO 12: Fitch Puts 'B-sf' Reset Final Rating to Cl. F-R Debt PROVIDUS CLO X: Fitch Assigns 'B-sf' Final Rating to Class F Notes I T A L Y FIBER BIDCO: Fitch Affirms 'B+' LongTerm IDR, Outlook Stable LA DORIA: Fitch Assigns 'B' Final LongTerm IDR, Outlook Positive L U X E M B O U R G ARDAGH GROUP: Fitch Lowers LongTerm IDR to 'CCC' ARDAGH METAL: Fitch Lowers LongTerm IDR to 'B-', Outlook Negative S W E D E N AINAVDA PARENTCO: Fitch Assigns First Time 'B(EXP)' Long-Term IDR T U R K E Y TURK P VE I: Fitch Affirms 'B+' IFS Rating, Outlook Positive U N I T E D K I N G D O M BENCHMARK LEISURE: Council Set to Announce New Operator CHAMBERLAIN: Commences Liquidation Process DIMITRIJE TUCOVIC: Serbia to Auction Off Assets on June 11 LEWTRENCHARD MANOR: Enters Voluntary Liquidation LGC SCIENCE: Fitch Lowers LongTerm IDR to 'B', Outlook Stable PHOELEX LIMITED: Goes Into Administration YORKSHIRE DALES: Enters Liquidation, Ceases Trading - - - - - ============= I R E L A N D ============= AVOCA CLO XX: Fitch Affirms 'B-sf' Rating to Class F Notes ---------------------------------------------------------- Fitch Ratings has upgraded Avoca CLO XX DAC class D-R and E notes, while affirming the rest. Entity/Debt Rating Prior ----------- ------ ----- Avoca CLO XX DAC A-1-R XS2417114712 LT AAAsf Affirmed AAAsf A-2-R XS2417114639 LT AAAsf Affirmed AAAsf B-1 XS1970747447 LT AAsf Affirmed AAsf B-2-R XS2417115107 LT AAsf Affirmed AAsf C-R XS2417115362 LT Asf Affirmed Asf D-R XS2417115792 LT BBB+sf Upgrade BBBsf E XS1970749732 LT BBsf Upgrade BB-sf F XS1970749815 LT B-sf Affirmed B-sf TRANSACTION SUMMARY Avoca CLO XX DAC is a cash flow-collateralised loan obligation (CLO) comprising mostly senior secured obligations. The transaction is outside of its reinvestment period and the portfolio is actively managed by KKR Credit Advisors (Ireland). KEY RATING DRIVERS Stable Performance, Low Refinancing Risk: Based on the last trustee report dated 28 March 2024, the transaction is passing all its collateral-quality and portfolio-profile tests. The transaction is just below target par and has no defaulted assets in the portfolio. As calculated by the trustee, exposure to assets with a Fitch-derived rating of 'CCC+' and below is 3.2% versus a limit of 7.5%. The transaction has low near- and medium-term refinancing risk, with 1.3% of the portfolio maturing before end-2025, as calculated by Fitch. The stable performance has resulted in the affirmation and upgrades. Large Cushion Supports Stable Outlooks: All notes have large default-rate buffers to support their ratings and should be capable of absorbing further defaults in the portfolio. The ratings also reflect the notes' sufficient credit protection to withstand deterioration in the credit quality of the portfolio in line with their 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 25.4 as reported by the trustee. High Recovery Expectations: Senior secured obligations comprise 97.3% 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%. Diversified Portfolio: The portfolio is well-diversified across obligors, countries and industries. The top 10 obligor concentration is 13.1%, and no obligor represents more than 1.6% of the portfolio balance, as calculated by Fitch. Transaction Outside Reinvestment Period: Although the transaction exited its reinvestment period in January 2024, the manager can reinvest unscheduled principal proceeds and sale proceeds from credit impaired obligations subject to compliance with the reinvestment criteria. Given the manager's ability to reinvest, Fitch's analysis is based on a stressed portfolio using the agency's matrix specified in the transaction documentation. 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 result from stable portfolio credit quality and notes amortisation 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 Avoca CLO XX 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. PENTA CLO 12: Fitch Puts 'B-sf' Reset Final Rating to Cl. F-R Debt ------------------------------------------------------------------ Fitch Ratings has assigned Penta CLO 12 DAC reset final ratings, as detailed below. Entity/Debt Rating Prior ----------- ------ ----- Penta CLO 12 DAC A-Loan LT PIFsf Paid In Full AAAsf A-N XS2544631323 LT PIFsf Paid In Full AAAsf B XS2544641710 LT PIFsf Paid In Full AAsf C XS2544642874 LT PIFsf Paid In Full Asf Class A-R-Loan LT AAAsf New Rating Class A-R-Note XS2799636522 LT AAAsf New Rating Class B-R XS2799636878 LT AAsf New Rating Class C-R XS2799637256 LT Asf New Rating Class D-R XS2799637413 LT BBB-sf New Rating Class E-R XS2799637686 LT BB-sf New Rating Class F-R XS2799637843 LT B-sf New Rating D XS2544643179 LT PIFsf Paid In Full BBB-sf E XS2544643500 LT PIFsf Paid In Full BB-sf F XS2544643765 LT PIFsf Paid In Full B-sf TRANSACTION SUMMARY Penta CLO 12 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 have been used to redeem all existing notes except the subordinated notes, and to fund a portfolio with a target par of EUR400 million. The portfolio is actively managed by Partners Group (UK) Management Ltd. The CLO has an approximately 4.5-year reinvestment period and a 7.5 year weighted average life (WAL) test limit. KEY RATING DRIVERS Average Portfolio Credit Quality (Neutral): Fitch assesses the average credit quality of obligors in the identified portfolio at 'B'/'B-'. The Fitch weighted average rating factor of the identified portfolio is 25.7. High Recovery Expectations (Positive): At least 90% of the portfolio comprises senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch weighted average recovery rate of the identified portfolio is 61.7%. Diversified Asset Portfolio (Positive): The transaction includes four Fitch test matrices, of which two are effective at closing. The matrices correspond to a top 10 obligor concentration limit of 20%, and fixed-rate obligation limits at 5% and 10%. It has two forward matrices corresponding to the same top 10 obligors and fixed-rate asset limits, and a WAL covenant that is one year shorter, which will be effective one year after closing, provided the collateral principal amount (defaults at Fitch-calculated collateral value) is at least at the reinvestment target par balance. The transaction also includes various concentration limits, including the maximum exposure to the three largest Fitch-defined industries in the portfolio at 40%. These covenants ensure that the asset portfolio will not be exposed to excessive concentration. Portfolio Management (Neutral): The transaction has an approximately 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 (Neutral): The WAL used for the Fitch-stressed portfolio and matrices analysis is 12 months less than the WAL covenant for the closing matrices and six months less than the WAL covenant for the forward matrices (due to the six-year WAL haircut floor). This is to account for the strict reinvestment conditions envisaged by the transaction after its reinvestment period. These include, among others, passing both the coverage tests and the Fitch 'CCC' bucket limitation test post reinvestment as well as a WAL covenant that progressively steps down over time, both before and after the end of the reinvestment period. Fitch believes these conditions would reduce the effective risk horizon of the portfolio during the 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) across all ratings and a 25% decrease of the recovery rate (RRR) across all ratings of the identified portfolio would have no impact on the class A-R notes, but would lead to downgrades of two notches for the class B-R notes, one notch for the class C-R, D-R and E-R notes, and to below 'B-sf' for the class F-R notes. Based on the identified portfolio, downgrades may occur if the loss expectation is larger than initially assumed, due to unexpectedly high levels of defaults and portfolio deterioration. Due to the better metrics and shorter life of the current portfolio than the Fitch-stressed portfolio, the class B-R, D-R, E-R and F-R notes display a rating cushion of two notches, and the class C-R notes of one notch. 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 across all ratings and a 25% decrease of the RRR across all ratings of the Fitch-stressed portfolio would lead to downgrades of two notches for the class D-R notes, three notches for the class A-R, C-R and E-R notes, four notches for the class B-R notes and to below 'B-sf' for the class F-R notes. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A 25% reduction of the RDR across all ratings and a 25% increase in the RRR across all ratings of the Fitch-stressed portfolio would lead to upgrades of up to three notches for the notes, except for the 'AAAsf' rated notes, which are at the highest level on Fitch's scale and cannot be upgraded. During the reinvestment period, based on the Fitch-stressed portfolio, upgrades may occur on better-than-expected portfolio credit quality and a shorter remaining WAL test, leading to the ability of the notes to withstand larger-than-expected losses for the remaining life of the transaction. After the end of the reinvestment period, upgrades may 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 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 Penta CLO 12 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. PROVIDUS CLO X: Fitch Assigns 'B-sf' Final Rating to Class F Notes ------------------------------------------------------------------ Fitch Ratings has assigned Providus CLO X DAC final ratings, as detailed below. Entity/Debt Rating Prior ----------- ------ ----- Providus CLO X DAC Class A-1 LT AAAsf New Rating AAA(EXP)sf Class A-2 LT AAAsf New Rating AAA(EXP)sf Class B LT AAsf New Rating AA(EXP)sf Class C LT Asf New Rating A(EXP)sf Class D LT BBB-sf New Rating BBB-(EXP)sf Class E LT BB-sf New Rating BB-(EXP)sf Class F LT B-sf New Rating B-(EXP)sf Subordinated Notes LT NRsf New Rating NR(EXP)sf TRANSACTION SUMMARY Providus CLO X 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 EUR375 million. The portfolio is actively managed by Permira European CLO Manager LLP. The collateralised loan obligation (CLO) has a 4.5-year reinvestment period and a 7.5-year weighted average life (WAL) test at closing. KEY RATING DRIVERS Average Portfolio Credit Quality (Neutral): Fitch places the average credit quality of obligors at 'B'/'B-'. The Fitch-weighted average rating factor (WARF) of the identified portfolio is 26.0. High Recovery Expectations (Positive): At least 90% of the portfolio comprises senior secured obligations. Fitch views the recovery prospects for these assets as more favourable than for second-lien, unsecured and mezzanine assets. The Fitch-weighted average recovery rate (WARR) of the identified portfolio is 63.5%. Diversified Asset Portfolio (Positive): The transaction has two matrices effective at closing corresponding to two fixed-rate asset limits at 5% and 10%, and a 10 largest obligors covenant at 20%. It has also two forward matrices corresponding to the same top 10 obligors and fixed-rate asset limits, which will be effective two years after closing, provided that the collateral principal amount (defaults at Fitch-calculated collateral value) will be at least at the reinvestment target par balance. 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. WAL Step-Up Feature (Neutral): The transaction can extend the WAL by one year on the step-up date, which is one years after closing. The WAL extension is subject to conditions including satisfaction of all the collateral-quality, portfolio-profile, and coverage tests, plus the adjusted collateral principal amount being at least equal to the reinvestment target par balance. Portfolio Management (Neutral): The transaction has a 4.5-year reinvestment period, which is governed by reinvestment criteria that are 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 Fitch-stressed portfolio analysis is 12 months less than the WAL covenant at the issue date, to account for the strict reinvestment conditions envisaged by the transaction after its reinvestment period. These include, among others, passing the coverage tests and the Fitch WARF and 'CCC' bucket limitation test post reinvestment, as well as a WAL covenant that progressively steps down over time, both before and after the end of the reinvestment period. Fitch believes these conditions would reduce the effective risk horizon of the portfolio during the 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) across all ratings and a 25% decrease of the recovery rate (RRR) across all ratings of the identified portfolio would lead to a downgrade of two notches on the class B and C notes, one notch on the class D and E notes, to below 'B-sf' for the class F notes and have no impact on the class A-1 and A-2 notes. Based on the identified portfolio, downgrades may occur if the loss expectation is larger than initially assumed, due to unexpectedly high levels of default and portfolio deterioration. Due to the better metrics and shorter life of the identified portfolio than the Fitch-stressed portfolio, the class B, D, and E notes have a two-notch cushion, the class C notes have a one-notch cushion and the class F notes have a three-notch cushion, while the class A-1 and A-2 notes have no rating cushion. Should the cushion between the identified portfolio and the Fitch-stressed portfolio be eroded due to manager trading or negative portfolio credit migration, a 25% increase of the mean RDR across all ratings and a 25% decrease of the RRR across all ratings of the Fitch-stressed portfolio would lead to downgrades of up to four notches for the notes. Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade A 25% reduction of the mean RDR across all ratings and a 25% increase in the RRR across all ratings of the Fitch-stressed portfolio would lead to upgrades of up to five notches, except for the 'AAAsf' notes. During the reinvestment period, based on the Fitch-stressed portfolio, upgrades may occur on better-than-expected portfolio credit quality and a shorter remaining WAL test, meaning the notes are able to withstand larger-than-expected losses for the transaction's remaining life. 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 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 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 Providus CLO X 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. ========= I T A L Y ========= FIBER BIDCO: Fitch Affirms 'B+' LongTerm IDR, Outlook Stable ------------------------------------------------------------ Fitch Ratings has assigned Fiber Bidco S.p.A. 's (Fedrigoni) EUR430 million planned senior secured fixed-rate notes an expected rating of 'BB-(EXP)' with a Recovery Rating of 'RR3' following the company's announced upcoming partial refinancing of its capital structure. The senior secured rating is predicated on full repayment of its existing about EUR365 million senior secured fixed-rate notes. The new notes will rank equally with its existing about EUR665 million senior secured floating-rate notes (FRNs) and its EUR180 million revolving credit facility (RCF). The assignment of the final rating is contingent on completing the transaction in line with the terms already presented. Fedrigoni's 'B+' Long-Term Issuer Default Rating (IDR), which has been affirmed today, balances the group's solid business profile and sound profitability with high leverage, which limits rating headroom. The Stable Outlook on its IDR mainly reflects expected improving operating profitability, which will support its leverage profile and interest coverage in the medium term. KEY RATING DRIVERS Leverage Limits Rating Headroom: The high leverage provides no rating headroom, however the current rating is supported by deleveraging expectations over the next 12-18 months. Fitch estimates temporarily high EBITDA gross leverage at around 6.9x in 2024 due to subdued operating profitability and increase in Fitch-defined debt due to the proposed partial refinancing, which limits rating headroom. Fitch expects deleveraging towards around 6.1x in 2025 and 5.4x by end-2027, mainly on solid revenue growth and improving margins. Fitch expects the proposed partial refinancing to extend the group's maturity profile and lower the cost of financing, but Fitch expects increase in the Fitch-defined total debt quantum mainly due to the proposed EUR300 million senior holdco 'pay if you can' toggle notes (PIK toggle notes) issued by Fiber Midco S.p.A. Fitch expects total debt to increase to about EUR1.9 billion-EUR2.1 billion in 2024-2027 from about EUR1.5 billion in 2023. Strong EBITDA Growth: Fitch expects over 10% CAGR in nominal Fitch-defined EBITDA in 2023-2027 on strong revenue growth and increasing operating margins. Fitch forecasts s revenue to grow in the mid-teens in 2024-2025 and in high single digits in 2026-2027 p.a. on organic growth and revenue contribution from assumed bolt-on acquisitions. Fitch forecasts EBITDA margin in 2024-2027 to improve by about 80bp due to a gradual shift in the business mix towards more profitable niches (eg premium fillers, luxury packaging, wine labels) and further savings from procurement and manufacturing initiatives. In 2023, the group's revenue and Fitch-defined absolute EBITDA were constrained by general destocking across the entire value chain, leading to declining sales volumes. Fitch expects mid-single digit growth in absolute EBITDA in 2024 as the assumed revenue growth driven by volume recovery and further progress in cost efficiencies will be partly offset by about a 1pp adverse impact from a sale and leaseback (S&L) transaction on Fitch-defined EBITDA margins. Weak but Improving Interest Coverage: Fitch expects EBITDA interest coverage to gradually improve to 3.1x by 2027 from 2.1x in 2024 on the lower average cost of financing due to partial refinancing and moderating interest rates, as well as projected strong EBITDA growth. In 2023, the group recorded temporarily weak EBITDA interest coverage of about 1.8x due to subdued operating profitability and higher interest rates. Solid Business Profile: Fedrigoni's business profile is underpinned by its strong positions in growing premium niche markets. This is complemented by both sound end-market and customer diversification with significant exposure to fairly resilient end-markets in food and beverage, household goods, pharma and personal care. Other strengths are the breadth and quality of its product range, well-established relations with leading luxury brands, sound record of cost pass-through, a high share of tailor-made products and an efficient distribution network. Strong Market Position: Fedrigoni is one of the market leaders in growing premium niches. Within the self-adhesives segment, it is the third-largest manufacturer of pressure-sensitive labels globally, and in particular a leader in the wine end-market. In luxury packaging, Fedrigoni is the global market leader in rigid cartons and shopping bags with a growing foothold in the folding boxes segment. However, the group's key target markets are fragmented and competitive with moderate barriers to entry. Highly Acquisitive Growth Strategy: Fitch expects the group to continue to pursue an M&A-driven growth strategy, which bears execution risks. Fitch expects an accelerated pace of new acquisitions, aided by the group's strong liquidity. In 2024-2025, Fitch assumes around EUR350 million of total net M&As, before it normalises at around EUR100 million annually from 2026. Execution risk is mitigated by the group's successful integration record and prudent policy of acquiring high-quality companies with a strong return on capital and at sensible valuations. Its M&A pipeline, deal parameters and post-merger integration are important rating drivers. DERIVATION SUMMARY Fedrigoni is a specialty paper and packaging producer, which is smaller in scale than Fitch-rated peers such as Stora Enso Oyj (BBB-/Stable) and Smurfit Kappa Group plc (BBB-/RWP). Fitch views Fedrigoni's business profile as modestly stronger than that of recycled paperboard producer, Reno de Medici S.p.A. (RDM; B+/Stable), mainly due to stronger product and geographic diversification. Fitch views Fedrigoni's financial profile as weaker than RDM's due to its higher expected leverage and weaker coverage. Both companies have sound profitability with expected positive free cash flow (FCF) generation and moderate operating profitability. KEY ASSUMPTIONS Fitch's Key Assumptions Within Its Rating Case for the Issuer: - Revenue of around EUR2.0 billion in 2024. Organic revenue to grow by mid-single digits annually in 2025-2027 - Net M&A spend of around EUR350 million in 2024-2025, and EUR100 million annually in 2026-2027 (no guidance from the group) - Fitch-defined EBITDA margin of 13.5% in 2024 (including about 1pp adverse impact of the S&L transaction), and then gradually increasing to 14.3% by 2027 - Working-capital inflow of about 1% of revenue in 2024 and about 0.5% working-capital outflow in 2025-2027 - Capex at 3.5% of revenue in 2024-2027 - Proportionate consolidation (Fitch's adjustment) of Tageos, reflecting Fedrigoni's long-term strategic interest in the company - No dividends to 2027 RECOVERY ANALYSIS The recovery analysis assumes that Fedrigoni would be considered a going-concern (GC) in bankruptcy, and that it would be reorganised rather than liquidated, given its strong market position and customer relationships. Fitch has assumed a 10% administrative claim. The group's GC EBITDA estimate of EUR220 million reflects Fitch's view of a sustainable, post-reorganisation EBITDA level on which Fitch bases the group's enterprise valuation (EV). The GC EBITDA reflects intense market competition resulting in subdued operating profitability. Fitch used a 5.5x EBITDA multiple, reflecting the group's strong position in growing premium niche markets, established customer relationships and a well-developed own distribution network. Its multiple is in line with those of RDM, Titan Holding II B.V. and Ardagh Group S.A. Fitch assumed that the group's post-refinancing debt structure comprises its EUR665 million FRNs, new EUR430 million fixed-rate notes, EUR180 million RCF (assumed fully drawn), about EUR320 million factoring (mostly non-recourse), around EUR72 million other debt (including modest debt at Tageos on proportionate consolidation), an EUR75 million unsecured government loan (assumed EUR15 million repayment) and EUR300 million PIK toggle notes. Based on the partial refinancing, its waterfall analysis generates a ranked recovery for the senior secured noteholders in the 'RR3' category, leading to a 'BB-(EXP)' rating for the proposed EUR430 million new senior notes. The waterfall-generated recovery computation output percentage is 60%. Under the current capital structure prior to the partial refinancing, the debt structure comprises its EUR665 million FRNs, EUR365 million existing fixed-rate notes, EUR180 million RCF (assumed fully drawn), about EUR320 million factoring, around EUR72 million other debt and an EUR90 million unsecured government loan. Based on the existing capital structure, its waterfall analysis generates a ranked recovery for the senior secured noteholders in the 'RR3' category, leading to a 'BB-' instrument rating. The waterfall-generated recovery computation output percentage is 63%. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: - EBITDA gross leverage below 4.5x on a sustained basis - FCF margins above 3% on a sustained basis Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: - EBITDA gross leverage above 6.0x on a sustained basis - EBITDA interest coverage below 2.0x on a sustained basis - Inability to generate positive FCF on a sustained basis - Problems with integration of acquisitions or increased debt funding LIQUIDITY AND DEBT STRUCTURE Sufficient Liquidity: Fitch estimates Fedrigoni's liquidity post- partial refinancing to mainly consist of about EUR0.2 billion of readily available cash and with access to an upsized about EUR180 million undrawn RCF due 2027. Fitch expects positive FCF generation over the next four years. The partial refinancing will improve the group's liquidity profile by extending its debt maturity profile and reducing the average cost of financing. No Material Maturities Near Term: The group has no significant short-term debt maturities (apart from an overdraft and non-recourse factoring) as the debt structure is dominated by long-dated senior secured notes and the government loan. Fitch assumes full repayment of its existing about EUR365 million fixed-rate notes due 2027 with the proceeds of the new EUR430 million fixed-rate notes due 2031. The group's about EUR665 million FRNs are due in 2030 and EUR300 million PIK toggle notes are due in 2029. ISSUER PROFILE Fedrigoni is an Italian leading producer of specialty paper and self-adhesive labels operating in over 130 countries. ESG CONSIDERATIONS Fedrigoni has an ESG Relevance Score of '4[+]' for Exposure to Social Impacts due to consumer preference shift to more sustainable packaging solutions such as paper packaging, which has a positive impact on the credit profile, and is relevant to the ratings in conjunction with other factors. The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- Fiber Bidco S.p.A. LT IDR B+ Affirmed B+ senior secured LT BB-(EXP)Expected Rating RR3 senior secured LT BB- Affirmed RR3 BB- LA DORIA: Fitch Assigns 'B' Final LongTerm IDR, Outlook Positive ---------------------------------------------------------------- Fitch Ratings has assigned La Doria S.p.A. a final Long-Term Issuer Default Rating (IDR) of 'B' with a Positive Outlook. Fitch has also assigned the EUR525 million senior secured notes (SSN) a final instrument rating of 'B+' with a Recovery Rating of 'RR3'. The rating actions follow the placement of La Doria's SSN issuance. The final terms include an additional EUR25 million SSN issued, with the main terms conforming to the draft terms. La Doria's ratings primarily reflect its niche scale and concentrated retail customer base, which is somewhat mitigated by its long-standing customer relationships and adequate operating profitability for a private-label food-processing company. The IDR is also anchored by La Doria's moderate leverage metrics and sustained positive free cash flow (FCF). Fitch projects La Doria will be able to generate modest EBITDA growth, supporting low single-digit FCF margins and leading to adequate leverage headroom. Organic revenue expansion and EBITDA margin improvements, including through internal efficiencies and product mix upgrades, will firmly place La Doria within its sensitivities for a 'B+' upgrade over the next 12 to 18 months, which is reflected in the Positive Outlook. KEY RATING DRIVERS Niche Product, Concentrated Customers: La Doria's ratings are driven by its niche in the food processing sector, corresponding to the 'B' rating category based on its scale. It has a highly concentrated customer base, with its top 10 clients representing about 75% of revenues. However, this is mitigated by La Doria's long-standing customer relationships and no contract cancellations, backed by its logistic and production capabilities. While La Doria's customers have stronger bargaining power, its margins of above 10% are high for the rating, which underscore its attractive product offering. Sustainability of EBITDA Margins Critical: La Doria's ability to sustain its EBITDA margins at around 11% following an exceptionally strong performance in 2023 is key to its rating. Inflation-driven price increases and personnel cost reduction resulted in a Fitch-calculated EBITDA margin of 11.8% in 2023, versus under 10% three years ago. Fitch sees limited scope for further profitability improvement based on La Doria's organic contract base and low emphasis on product innovation. However, Fitch has factored in some leeway in the EBITDA margins to accommodate potential volatility, given La Doria's exposure to harvest yields and input commodity prices. Full delivery of management's planned initiatives may lead to margins stabilising at around 12%. Slow Cost Pass-Through: La Doria benefits from its costs mainly being variable. Key cost items are raw materials, packaging and sourcing of trading products. The supplier base is moderately diversified, with the top five suppliers accounting for around 25% of cost of goods sold. La Doria's tomato sourcing is strong due to framework agreements with several producers, while pulses suppliers are more concentrated. However, La Doria remains exposed to fluctuations in pricing and yield of tomato and other commodities, with slow pass-through mechanisms of up to a year. This may affect its profitability in low-yielding seasons or geopolitical tensions, as in 2022. Modest EBITDA Growth: Fitch projects modest EBITDA CAGR of around 1.5% for 2023-2027. Adjusted for the low input costs in 2023, the modelled CAGR is over 4.0%. Adjusted costs involved glass, tinplate and energy as an effect of governmental measures. For 2024, Fitch estimates EBITDA margin contraction and a slower expansion towards 11.5% in 2027. This is due to cost efficiencies, operating leverage effects and a change in product mix as La Doria plans to focus more on higher-margin ready-made sauces. All these measures will be critical to driving profitability to or above 12%, which is its upgrade trigger. The inability to sustain current profitability will put pressure on ratings. Currency Exchange Risk: La Doria's operations are exposed to foreign-exchange (FX) risks. The company's financial liabilities are euro-denominated, as are most of its expenses, while sourcing costs are in euros and US dollars, and about two-thirds of its turnover is in foreign currencies, mainly sterling. This increases the company's risk to FX-related profitability volatility. It has a hedging policy in place based on forward-rate agreements. However, this leaves room for FX-driven earnings and cash flow volatility. Positive FCF: Fitch estimates La Doria will generate positive FCF during 2024-2027, which together with stable EBITDA margins, is critical to the 'B' IDR. Fitch expects positive FCF to be supported by moderate capex requirements and limited working-capital outflows. La Doria has factoring facilities in place to maximise liquidity and improve cash conversion. Fitch expects factoring utilisation to rise in line with revenue growth. Challenges in maintaining operating profitability, or supply irregularities leading to higher working-capital requirements, would put the ratings under pressure. Moderate Gross Leverage: Fitch projects La Doria's Fitch-calculated EBITDA gross leverage at 4.7x in 2024, which is low for the sector, but adequate for La Doria's business model. Sustained moderate leverage may support an upgrade over 12-18 months, which is reflected in the Positive Outlook. Fitch forecasts leverage to slowly strengthen to 4.2x by 2027. La Doria's ability to deleverage is contingent on its ability to grow EBITDA. Although the current leverage is strong for the sector, La Doria's input cost and FX volatility and lengthy pass-through mechanisms leave current leverage only adequate for the 'B' rating. Net Leverage Headroom: Fitch estimates the refinancing to provide around EUR110 million cash on balance sheet at end-2024, which Fitch expects to grow thereafter. This leads to contained net leverage at 3.9x, set to improve below 3.0x by 2026 and offers headroom for bolt-on acquisitions, potentially contributing to faster deleveraging. However, Fitch does not assume this liquidity will be used to prepay debt and consequently use gross leverage in its analysis. Additional Dividends Possible: Acquisitions and dividend distributions may be an option, although these are not included in its base case. Fitch views the approach to acquisitions as opportunistic as viable targets become available. Large cash balances may be used for additional shareholder distributions, as allowed by the financial documentation. La Doria has a put/call agreement with certain minority shareholders, but Fitch does not expect it to be exercised in the medium term. DERIVATION SUMMARY La Doria is active in tomato and vegetable processing, and in the distribution of its products via private-label agreements to large-scale retailers, mainly in the UK. It is involved in resilient consumer staples, its client base is concentrated and a limited share of branded production generates moderate pricing power. Fitch rates the company under its Packaged Food Navigator. It compares well with a number of consumers, food and beverage leveraged buyouts in Fitch's public and private ratings coverage. La Doria compares well with Sigma Holdco BV (B/Positive). Sigma has materially larger scale, greater geographic diversification and higher margins, due to its branded portfolio and a different cost base. Although Sigma's product range is mainly focused on a single offering that is experiencing secular difficulties, Fitch allows it higher debt capacity. Nomad Foods Limited (BB/stable), strong in branded and private-label frozen food, has a stronger business profile both in scale and profitability. Nomad's leverage is also lower, justifying its larger debt capacity and higher rating. Flamingo Group International Limited (B-/Stable) operates in a highly fragmented agriculture-like floriculture market with a concentrated customer base and limited expected FCF generation. Compared with La Doria it has smaller scale with limited diversification across geographical locations and its product portfolio. It also faces significant seasonality and is vulnerable to weather conditions. KEY ASSUMPTIONS - Revenues to decrease 1.5% in 2024 due mainly to normalising prices followed by growth in the low single digits over the rating horizon - EBITDA margin in the range of 10.8% an 11.4% over the rating horizon - Capex of EUR30 million in 2024 before normalising at around EUR20 million in the following four years - FCF margins in the low single digits over 2024-2027 - Dividends of EUR125 million in 2024 and none thereafter - No M&A RECOVERY ANALYSIS Its recovery analysis assumes that La Doria will be considered a going concern (GC) in bankruptcy, and that it would be reorganised rather than liquidated. This is because most of its value lies within its client-and-supplier relationships, as well as production and logistic capabilities. Fitch assumes a 10% administrative claim. Fitch assesses GC EBITDA at EUR100 million, after corrective measures and a restructuring of its capital structure would allow La Doria to retain a viable business model. Financial distress leading to a restructuring may be driven by La Doria losing some of its customer contracts, materials-sourcing challenges and difficulties in passing on its input costs, in which case its capital structure may become untenable. Fitch applies a recovery multiple of 5.0x, which is in the mid-multiple range for packaged food companies in EMEA. After deducting 10% for administrative claims, this generates a ranked recovery in the 'RR3' band, leading to a 'B+' instrument rating for the new SSN. This results in a waterfall-generated recovery computation output percentage of 68%. Its estimates of creditor claims include a fully drawn EUR85 million super-senior revolving credit facility (RCF), and about EUR9 million of bilateral facilities, both of which rank ahead of the SSNs. Fitch expects La Doria's existing receivables factoring facilities to remain in place during and post distress and not requiring an alternative funding solution, albeit being available at a reduced amount. This assumption is driven by the strong credit quality of the company's client base. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: - EBITDA gross leverage remaining below 5.0x, through organic growth, integration of non-debt funded bolt-on targets or gross debt prepayment - EBITDA interest coverage remaining above 3.0x - Evidence of EBITDA margin expansion to above 12% by 2025, sustaining FCF margin above 3% Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: - Increase in EBITDA gross leverage to above 6.5x, through lower profitability or debt-funded acquisitions - EBITDA margin below 9%, resulting in volatile FCF margins - EBITDA interest coverage weakening towards 2.0x or below - Reducing liquidity headroom - Failure of the EBITDA margin to effectively recover after the 2024 expected decline, together with a lack of deleveraging by 2025, which would lead to a revision of the Outlook to Stable LIQUIDITY AND DEBT STRUCTURE Comfortable Liquidity: Fitch estimates La Doria's cash balance at around EUR110 million at end-2024. Stable operating performance with minimal to neutral working-capital outflows and limited capex should support positive FCF of about EUR30 million to EUR50 million a year to 2027. La Doria also has access to a fully undrawn committed RCF of EUR85 million with no significant debt maturing before 2029. ISSUER PROFILE La Doria is an Italy-based manufacturer of private label tomato, vegetable and fruit derivatives including sauces, soups, dressings, purees and juices. 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 ----------- ------ -------- ----- La Doria S.p.A. LT IDR B New Rating B(EXP) senior secured LT B+ New Rating RR3 B+(EXP) =================== L U X E M B O U R G =================== ARDAGH GROUP: Fitch Lowers LongTerm IDR to 'CCC' ------------------------------------------------ Fitch Ratings has downgraded Ardagh Group S.A.'s (Ardagh) Long-Term Issuer Default Rating (IDR) to 'CCC' from 'B-'. The downgrade reflects continued underperformance of Ardagh compared with its expectations and the announcement on 15 April 2024 that Ardagh's unrestricted subsidiary, Ardagh Investments Holdings Sarl (AIHS), had agreed a new senior secured credit facility due 2029 with Apollo Capital Management, L.P. (Apollo). Part of the facility is an initial term loan, which is to be used to refinance Ardagh's existing USD700 million 2025 senior secured notes (SSNs). Despite the ability to now address its 2025 debt repayment, Fitch views the current capital structure of the group as unsustainable given its ongoing weak operating performance and upcoming August 2026 debt maturities of about USD2.6 billion accompanied by negative free cash flows (FCF) and poor liquidity. KEY RATING DRIVERS Excessive Refinancing Risk: Refinancing risk has risen considerably due to a limited recovery in EBITDA, increased leverage, a material interest burden, and a complex capital structure that limits financial headroom and flexibility. While the Apollo deal addresses the 2025 SSN maturity, Fitch views refinancing risk as excessive with material debt maturities in August 2026. Unsustainable Debt Structure: Fitch's rating case does not include the sale of Ardagh's stake in Trivium Packaging B.V. or shares in Ardagh Metal Packaging S.A (AMP). Consequently, reduction in leverage will predominantly hinge on EBITDA growth and a normalisation of capex. Ardagh's Fitch-defined EBITDA leverage (including toggle notes at ARD Finance S.A. level) increased to 12.3x at end-2023, slightly above its prior expectation, due to lower EBITDA generation. Fitch forecasts leverage to remain high at above 10x during 2024-2025. Announcement not a DDE: Fitch does not view the announced steps as a distressed debt exchange (DDE) under its criteria. Fitch will review any possible steps to address refinancing where, for example, tender offers and exchanges of existing debt, including a material reduction in creditor terms, taken to avoid a probable default of the issuer, would constitute a DDE and drive further ratings downgrade. Weaker Performance: Factors such as significant glass packaging inventory adjustments, lower beer sales volumes in North America, curtailments to production, and slower-than-anticipated ramp-up of new production lines by AMP are expected to dampen both EBITDA and margins over the next two years. Margins to Recover Gradually: In 1Q24 Ardagh's EBITDA margins for the glass business fell to 11.7% (management data), from 18.6% in 1Q23, although Fitch expects it to improve in 2H24 on expected demand recovery. Nevertheless, Fitch has revised down its expectations of Ardagh's Fitch-adjusted EBITDA margin to 11.2% in 2024 versus 12.5% previously and 10.5% in 2023. Fitch expects a gradual margin recovery to 12.5% by 2025 and to 13.4% in 2026. Delayed Cash Flow Recovery: Due to expected lower EBITDA generation Fitch forecasts that FCF will continue to be negative in 2024 and to turn marginally positive in 2025. This is despite projected capex reduction and limiting dividends distributions to only its non-controlling interests in its subsidiary AMP. The new debt provided by Apollo will restrict Ardagh's ability to pay dividends after 30 June 2024. Its rating case assumes payment-in kind (PIK) interest on toggle notes from 2H24. Solid Business Profile: Ardagh maintains a strong business profile, with large scale and a focus on the comparatively predictable beverage sector that generates approximately 85% of its revenue, and the remainder from food packaging. The group also enjoys substantial geographic diversification, with operations in the mature markets of EMEA and North America and presence in Brazil. A diverse customer base, with no single client accounting for more than 10% of revenue, further underpins its business profile. DERIVATION SUMMARY Fitch views Ardagh's business profile as strong and similar to that of peers, such as Ball Corporation, Smurfit Kappa Group plc (BBB-/RWP) and CANPACK Group, Inc. (BB-/Stable). Ardagh is comparable with the majority of its higher-rated peers in size, geographical and customer diversification, and end-market exposure, with limited sensitivity to economic cycles. Like most of its investment-grade peers, the group benefits from long-term contracts and a cost pass-through mechanism with its customers. Ardagh's multi-tiered capital structure is highly leveraged, with EBITDA gross leverage above 12x at end-2023 and forecast at above 11x at end-2024, far higher than that of a majority of packaging companies in the speculative grade, such as Titan Holdings II B.V. (B/Positive) and Fiber Bidco S.p.A. (Fedrigoni, B+/Stable). Fitch-forecast EBITDA margins (11%-12.5% in 2024-2025) for Ardagh are comparable with higher-rated CANPACK's (10%-11%), but slightly weaker than Reno de Medici S.p.A.'s (B+/Stable, 11%-13%) and Fiber Bidco S.p.A.'s (12%-13%). As with CANPACK, Ardagh's FCF generation has been under pressure from its material capex programme in 2021-2023, which is largely completed. KEY ASSUMPTIONS - Revenue to rise about 2.5% on average during 2024-2027, supported by volume growth, in particular, recovery in glass packaging demand and metal can production ramp-up - Constrained EBITDA margin recovery in 2024 to 11.2% followed by a recovery to 12.5% in 2025, 13.4% in 2026 and 14.5% in 2027 on better production capacity utilisation - No cash interest paid on the PIK notes at ARD Finance (distributed as dividends) after 30 June 2024 - Dividends paid by AMP to its minority shareholders of around USD58 million p.a. - Capex as a share of revenue at around 6.0% in 2024 followed by a reduction to 5.7%-5.8% in 2025-2027 - AMP's EUR250 million preference shares issued to Ardagh netted in consolidated accounts - Refinancing of USD700 million SSNs in 2Q24 with new term loan issued in the amount of EUR790 million RECOVERY ANALYSIS - The recovery analysis assumes that Ardagh would be reorganised as a going concern (GC) in bankruptcy rather than liquidated - A 10% administrative claim - Recoveries for debt at Ardagh exclude debt that is issued by AMP, which are under separate agreements (restricted group) and ring-fenced from Ardagh - Fitch estimates the GC EBITDA of the glass business at USD630 million. The GC EBITDA reflects its view of a sustainable, post-reorganisation EBITDA on which Fitch bases the valuation of the group - An enterprise value (EV) multiple of 5.5x is applied to GC EBITDA to calculate a post-reorganisation valuation. It reflects Ardagh's leading position in the glass beverage packaging industry, long-term relationship with clients and a diversified customer base. This is in line with that of other packaging peers rated by Fitch. - A GC EV includes the book value of USD217 million of a 42% shareholding in Trivium Packaging B.V. - Under the current capital structure prior to the refinancing at AIHS, its waterfall analysis generates a ranked recovery for Ardagh's SSNs in the 'RR2' category, leading to a 'B-' rating. The waterfall-generated recovery computation output score is 77%. For Ardagh's senior unsecured notes the score is at 0% leading to 'CC'/'RR6' and for ARD Finance SSNs also at 0% equivalent to 'C'/'RR6' - Assuming the new capital structure after the refinancing at AIHS, Ardagh's SSNs will have an estimated output score of 73%, equating to a 'B-'/'RR2' instrument rating; its senior unsecured notes at 0% equivalent to 'CC'/'RR6' and ARD Finance's SSNs also at 0%, equivalent to 'C'/ 'RR6' RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: - Material recovery in EBITDA generation leading to a reduction of EBITDA gross leverage - Progress in addressing upcoming maturities that does not constitute a DDE - EBITDA interest coverage above 1.5x Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: - Lack of progress in addressing upcoming maturities - Announcement of a debt exchange or other form of debt restructuring, which Fitch would view as a DDE - EBITDA interest coverage below 1.0x LIQUIDITY AND DEBT STRUCTURE Liquidity Still Weak: As at end-1Q24 Ardagh reported about USD509 million of Fitch-adjusted readily available cash. This was not fully sufficient to cover short-term debt maturities of USD533 million and forecast negative FCF of about USD100 million in the next 12 months. The group has global asset-based loan facilities of USD347 million due in March 2027 (available to Ardagh) and USD387 million (available to AMP) due in August 2026 with a total undrawn amount of USD247 million at end-1Q24. The proposed refinancing of the USD700 million SSNs improves its liquidity position only temporarily while Fitch expects only marginal FCF in 2025. Complex Debt Structure: Ardagh has a complex debt structure with a series of senior secured and unsecured notes with the nearest maturity in April 2025 to be refinanced in 2Q24, but a further USD2.6 billion is due in and August 2026. Ardagh also covers interest payments under the PIK notes issued by ARD Finance (treated as debt under the Fitch rating case). Following the proposed transaction at AIHS, Ardagh will stop paying dividends for the PIK notes debt service from 30 June 2024. This will preserve about USD100 million annually for Ardagh while it continues to receive dividends from AMP. ISSUER PROFILE Ardagh is one of the largest producers of metal beverage cans and glass containers primarily for the beverage and food markets. With production facilities across Europe, the US, Africa and Brazil, turnover reached USD9.4 billion and Fitch-adjusted EBITDA was USD1 billion in 2023. ESG CONSIDERATIONS Ardagh has an ESG Relevance Score of '4' for Management Strategy due to its complex funding strategy, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Ardagh has an ESG Relevance Score of '4' for Group Structure due to the complexity of ownership and funding structure, 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. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- Ardagh Holdings USA Inc. senior secured LT B- Downgrade RR2 B+ Ardagh Group S.A. LT IDR CCC Downgrade B- ARD Finance S.A. senior secured LT C Downgrade RR6 CCC- Ardagh Packaging Finance plc senior unsecured LT CC Downgrade RR6 CCC senior secured LT B- Downgrade RR2 B+ ARDAGH METAL: Fitch Lowers LongTerm IDR to 'B-', Outlook Negative ----------------------------------------------------------------- Fitch Ratings has downgraded Ardagh Metal Packaging S.A.'s (AMP) Long-Term Issuer Default Rating (IDR) to 'B-' from 'B'. The Outlook is Negative. The downgrade of AMP follows the downgrade of its parent Ardagh Group S.A. (Ardagh; CCC). The IDR reflects Fitch's view that AMP's rating can be up two notches above that of Ardagh, reflecting AMP's higher standalone credit quality and the 'porous' ring-fencing of AMP's capital structure as well as 'porous' access & control linkages under Fitch's Parent and Subsidiary Linkage Rating Criteria (PSL Criteria). Fitch has also revised AMP's Standalone Credit Profile (SCP) to 'b' from 'b+' which is still stronger than Ardagh's IDR of 'CCC'. The SCP revision is driven by further delay in deleveraging due to weaker free cash flow (FCF) generation. The SCP also reflects a leading market position in metal beverage packaging, long-term partnerships with customers, geographical diversification, and historically good profitability. The Negative Outlook reflects AMP's link to under-performing Ardagh as well as possible deterioration in AMP's SCP. KEY RATING DRIVERS Weaker Performance: AMP's operating performance in 2023 was weaker than Fitch expected with EBITDA leverage at 8.0x (versus its 7.5x forecast) as a result of lower EBITDA generation and higher utilisation of factoring, which Fitch incorporates into the debt quantum. Its updated rating case incorporates significantly lower Fitch-defined EBITDA in 2024 versus its previous forecast, resulting in delayed deleveraging with EBITDA leverage expected at 7.8x at end-2024 and 6.7x at end-2025. This is above that of many peers in the 'B' rating category and further deleveraging delay could result in a downgrade. Profitability to Improve in 2025: While Fitch does not expect material recovery in EBITDA margin in 2024 Fitch still anticipates a rebound in profitability from 2025. Fitch forecasts EBITDA margin to reach 11.3% in 2025 and about 12.5% in 2026. The improvement is expected to stem from better cost management following substantial capex and from savings accrued from shutting down an older inefficient Ohio plant in the US, as well as steel lines at a German site. AMP's ability to transfer a majority of costs to its customers contractually will also bolster margins. FCF Still Negative: Lower-than-expected EBITDA will erode AMP's FCF generation. Fitch continues to forecast significant reduction in total capex in 2024 to about USD230 million from USD379 million in 2023. However, this will not offset weaker EBITDA generation. Fitch conservatively forecasts capex at around USD210 million-USD220 million per year during 2025-2027. Together with expected dividend payments of about USD240 million per year and annual dividends on preferred shares of USD24 million, Fitch expects FCF to turn marginally positive only in 2027. SCP Still Stronger than Parent's: Fitch continues to view AMP's SCP as stronger than Ardagh's. However, Fitch has revised AMP's SCP down to 'b' from 'b+' due to increased leverage and a prolonged stretch of negative FCF. Despite this revision, AMP's SCP continues to be underpinned by its market leadership, extensive geographic spread, exposure to stable, non-cyclical markets, sustainable demand, longstanding customer relationships, and contractual cost pass-through provisions. Ardagh Controls Stronger AMP: Using its PSL Criteria, Fitch has taken the stronger subsidiary-weaker parent approach to assess AMP. Ardagh, as AMP's majority (76%) shareholder, controls AMP's strategic decisions, with significant governance overlap in the board of directors. Ardagh also provides AMP with services including IT, financial reporting, insurance and risk management, and financing and treasury management via long-term service agreements. Fitch now views access and control links as 'porous' (previously 'open'), reflecting the presence of minority shareholders in AMP (24% stake is free-float) and their potential influence on strategic decisions. Constrained Two Notches Above Ardagh's: AMP's debt financing is separate from Ardagh's, with no cross-guarantees or cross-default provisions and with separate security and documentation ring-fence packages. However, Fitch views AMP's financing documentation as providing only limited efficacy caps on cash outflows, which may be further tested by Ardagh's increasing refinancing risk. Fitch continues to view AMP's legal ring-fencing as 'porous'. This, in combination with 'porous' access and control, enables AMP's IDR to be two notches above that of Ardagh. Solid Global Market Position: AMP is among the largest global metal beverage can producers with exposure to stable end-markets. It benefits from high operational flexibility through its global network of manufacturing facilities that are located close to its customers. Its market position, long-term partnership with customers, and capital-intensive business act as moderate-to-high entry barriers. The non-cyclical beverage end-market provides AMP with sustainable revenue over the long term, with increased environmental awareness supporting demand for metal beverage cans. Preferred Shares Equity Treatment: AMP's Fitch-defined debt includes a perpetual instrument, with an ability to defer its 9% annual preferred dividend. Fitch has assigned 50% equity credit to the instrument using its Corporate Hybrids Treatment and Notching Criteria, as deferred dividends are still payable on redemption. In its view the common dividend stopper is a strong incentive not to defer, as this would prevent Ardagh from extracting dividends from AMP. The preferred shares represent a limited part of AMP's overall capital structure. A change in structure, including materiality, could lead to a reassessment and, ultimately, a different treatment. DERIVATION SUMMARY AMP is one of the leading metal beverage can producers globally. Its business profile is weaker than that of higher-rated peers such as Berry Global Group, Inc. (BB+/Stable) and Silgan Holdings Inc. (BB+/Stable). AMP has smaller-scale operations and lower customer diversification, but this is offset by its leading position in the beverage can sector and long-term relationship with customers. AMP compares favourably with CANPACK Group, Inc. (BB-/Stable) and Titan Holdings II B.V. (B/Positive), which are similarly focused on beverage and food metal packaging. AMP has greater scale than both peers and is bigger than Reno de Medici S.p.A. (B+/Stable), but shares these entities' limited product diversification. AMP's direct metal can-producing peers are larger in revenue, such as Ball Corporation at USD14 billion (2023) and Crown Holdings at USD12 billion (2023), but AMP has similar market positions. Ball Corporation and Crown Holdings reported a decline of revenue in 2023 while AMP's revenue saw low single-digit growth. Similar to Ball Corporation, Crown Holdings and CANPACK, AMP reduced its growth capex for 2023 and 2024. AMP's EBITDA margin was under pressure during 2022-2023 before Fitch forecasts it to gradually recover towards 12.5% by 2026. It compares well with Reno de Medici's and CANPACK's profitability. AMP's EBITDA margin is below Berry Global Group's and Silgan Holdings' 14%-15%. AMP's FCF is comparable with CANPACK's but weaker than that of Berry Global and Silgan Holdings, which both have sustained positive FCF. AMP's leverage remains weaker than higher-rated peers', with forecast EBITDA gross leverage at about 7.8x at end-2024. This is higher than EBITDA leverage reported by Berry Global, Silgan Holdings, CANPACK and Sappi Limited (BB+/Stable). This is reflected in its SCP differentials with the higher-rated peers'. KEY ASSUMPTIONS - Revenue to grown on average 3.3% during 2024-2027 - EBITDA margin of about 10.0% in 2024, before rising to about 13.8% by 2027, driven by better cost absorption after the completion of large capex and costs savings related to permanent closures of less efficient plants - Annual preferred dividend payments of about USD24 million a year to 2027 - Dividend payments of about USD240 million a year to 2027 - Capex of about USD230 million in 2024, and USD215 million-USD220 million in 2025-2027 - No debt issuance during 2024-2026 - No share buybacks during 2024-2027 - No M&As to 2027 RECOVERY ANALYSIS The recovery analysis assumes that AMP would be reorganised as a going-concern (GC) in bankruptcy rather than liquidated. Its GC value estimate available for creditor claims is about USD2.5 billion, assuming GC EBITDA of USD550 million. The GC EBITDA reflects distressed EBITDA, which incorporates the loss of a major customer, secular decline or ESG-related adverse regulatory changes related to AMP's operations or the packaging industry in general. The GC EBITDA also reflects corrective measures taken in a reorganisation to offset the adverse conditions that trigger a default. Fitch assumes a 10% administrative claim. Fitch uses an enterprise value (EV) multiple of 5.5x EBITDA to calculate a post-reorganisation valuation. The multiple is based on AMP's global market leading position in an attractive sustainable niche with resilient end-market demand. The multiple is constrained by a less diversified product offering and some commoditisation within packaging. Fitch deducts about USD200 million from the EV, relating to AMP's highest usage of its factoring facility, in line with its criteria. Fitch estimates the total amount of senior debt claims at USD3.6 billion, which includes senior secured notes of USD1.7 billion (equivalent) and senior unsecured notes of USD1.6 billion (equivalent). The waterfall analysis, after deducting priority claims, generates a ranked recovery for AMP's senior secured notes in the 'RR1' category, leading to a 'BB-' rating. The waterfall-generated recovery computation output score is 100%. For AMP's senior unsecured notes the score is 30%, leading to 'RR5' and 'CCC+' rating. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: - An upgrade of Ardagh's IDR from an improved consolidated credit profile or weaker ties between AMP and Ardagh Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: - A downgrade of Ardagh's IDR or tighter links between AMP and Ardagh - Weakening of AMP's SCP as underscored by sustained negative FCF margins and EBITDA leverage sustained above 8.0x LIQUIDITY AND DEBT STRUCTURE Satisfactory Liquidity: At end-March 2024, AMP reported Fitch-defined readily available cash of USD59 million, after restricting USD96 million to cover intra-year working capital needs. AMP has no material scheduled debt repayments until 2027. Liquidity is supported by an available undrawn part of an asset-based loan due in August 2026 in the amount of USD174 million. Available liquidity is sufficient to cover negative FCF of about USD180 million in the next 12 months stemming from capex and dividends payments. Fitch-adjusted short-term debt is represented by a drawn factoring facility of about USD223 million. This debt self-liquidates with factored receivables. ISSUER PROFILE AMP is one of the largest producers of metal beverage cans globally with a current production capacity of over 45 billion cans a year. ESG CONSIDERATIONS Ardagh Metal Packaging S.A. has an ESG Relevance Score of '4' for Management Strategy due to a complex funding strategy, which has a negative impact on the credit profile, and is relevant to the ratings in conjunction with other factors. Ardagh Metal Packaging S.A. has an ESG Relevance Score of '4' for Group Structure due to complexity of ownership and funding structure reducing transparency, 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. Entity/Debt Rating Recovery Prior ----------- ------ -------- ----- Ardagh Metal Packaging Finance USA LLC senior unsecured LT CCC+ Downgrade RR5 B senior secured LT BB- Downgrade RR1 BB Ardagh Metal Packaging S.A. LT IDR B- Downgrade B Ardagh Metal Packaging Finance plc senior unsecured LT CCC+ Downgrade RR5 B senior secured LT BB- Downgrade RR1 BB =========== S W E D E N =========== AINAVDA PARENTCO: Fitch Assigns First Time 'B(EXP)' Long-Term IDR ----------------------------------------------------------------- Fitch Ratings has assigned Ainavda Parentco AB (trading as Advania) a first-time expected Long-Term Issuer Default Rating (IDR) of 'B(EXP)' with a Stable Outlook. Fitch has also assigned Ainavda Bidco AB's senior secured debt, including its seven-year term loans and a revolving credit facility (RCF), an expected instrument rating of 'B+(EXP)' with a Recovery Rating of 'RR3'. The assignment of final ratings is contingent on the receipt of information conforming to the documentation already reviewed. The group will use the new term loans to refinance existing debt and pay related fees and expenses. The 'B(EXP)' IDR reflects Advania's high leverage, balanced by improving free cash flow (FCF) and a sustainable business model with a significant portion of predictable revenues with low customer churn in the group's managed IT services operations. This, together with the group's geographic and customer diversification, provides resilience against the higher end-market cyclicality in the group's professional services. The Stable Outlook reflects expectation of deleveraging, with Fitch-defined EBITDA leverage declining to around 6.0x by 2025 and FCF turning positive on a sustained basis from 2025, supported by strong organic growth, reduced interest costs and acquisition-and-integration related expenses post the transformative acquisitions of Visolit in 2021 and Valtti in 2022. Weaker-than-expected growth or material debt-funded acquisitions affecting the deleveraging profile could put pressure on the rating. KEY RATING DRIVERS High Leverage: Fitch expects Advania's gross EBITDA leverage to remain high at 6.6x at end-2024, after a spike to 6.9x at end-2023 from debt-funded acquisitions over the past three years. Fitch forecasts it will deleverage to 6.1x in 2025, mainly on revenue growth, small bolt-on acquisitions funded by cash, and on moderately improving operating margins. Fitch believes any large transformational acquisitions would trigger draws under the RCF, which may constrain deleveraging. Assuming a successful refinancing, Advania would have no near-term maturities. Improving FCF: Fitch expects FCF to remain neutral to negative in 2024 before it turns positive from 2025 onwards, supported by continuing reduction in interest expenses following the refinancing. However, the costs associated with integrating large acquisitions will continue through 2024, preventing FCF from turning positive this year. A decline in non-recurring expenses is should help improve liquidity and financial flexibility from 2025. Fitch anticipates a gradual improvement in net working capital from 2024 due to enhanced inventory management and an increasing share of managed services with advance payments, yet outflows will persist in 2024-2027. Fitch projects FCF margins at low single digits in 2025-2027. Low Interest Coverage: Advania refinances its debt at floating rates with around half of it being hedged. Fitch expects EBITDA interest coverage to remain below its negative sensitivity of 2.0x until 2026 as a result of exposure to high interest rates. However, Fitch anticipates interest coverage to trend towards 2.0x by 2026 on increasing EBITDA. Acquisitive Growth Strategy: Advania aims to grow its revenue and EBITDA organically but also by continuing bolt-on acquisitions, which, so far, have been effectively integrated, resulting in Fitch viewing its strategy and execution risks as moderate. These acquisitions, mainly focused on small, similar-profile companies in its service areas, have enhanced Advania's market presence. A few large-scale acquisitions in the past three years have improved its geographic reach, including entry into the UK market. Future transformational acquisitions could present greater integration challenges and may lead to higher financial leverage. Minimal Customer Churn: Advania's customer net retention rates across all business lines remained above 100% in 2023. Its exposure to the public sector benefits its operating profile, offering long term contracts and securing stable, predictable revenue streams. Increasing public-sector exposure can also reinforce Advania's reputation as a trusted provider and open up further cross-selling opportunities; however, Fitch expects Fitch-calculated EBITDA margin to remain at 9%-10%. Low Margins: Fitch conservatively projects Fitch-defined EBITDA margin to increase to 10% in 2027 from 9.6% in 2023. Advania's profitability has been constrained by a high 42%-45% share of low-margin hardware sales in overall revenue, supported by increased demand from the public sector. In managed and professional services, personnel costs constitute the majority of the cost base, which restricts operating leverage and caps margins relative to those of peers in software development Profitability improvement is supported by the strategic relocation of some labour functions to lower-cost regions such as South Africa and Serbia, coupled with an emphasis on optimising staff utilisation rates. Healthy Organic Growth: Advania maintained robust organic revenue growth of 9.3% in 2023, building on a 15.2% rise in 2022, despite economic downturn leading to slower spending in the IT sector. Fitch anticipates the sector to gain momentum from the ongoing trend of IT service outsourcing, as businesses increase IT investments to match the speed of digital transformation. Fitch projects 5.6% organic revenue CAGR for 2024-2027, largely attributed to the group's strength in managed services supported by its historical success in upselling to its existing customer base, alongside moderate professional services revenue growth. DERIVATION SUMMARY Fitch compares Advania with service peers with a significant portion of recurring revenue, including Sportradar Management Ltd (Sportradar; BB-/Stable) and Apex Structured Intermediate Holdings Limited (Apex; B/Stable). Fitch also compares Advania with IT services and consulting peers like Engineering Ingegneria Informatica S.p.A (EII, B/Stable), Clara.net Holdings Limited's (Claranet, B/Stable), Cedacri S.p.A. (B/Negative), and AlmavivA S.p.A. (BB/ Stable). Advania and Claranet have comparable business and financial profiles as managed services providers pursuing growth via acquisitions. This strategy has led to high leverage and modest interest coverage for both, though Advania benefits from a larger scale. Advania's market position is not as strong as some of its peers like Centurion, Almaviva or Cedacri, but it has greater diversification, having expanded its operations across six countries, in contrast to these peers' single-market focus. Low customer concentration shields Advania from sector-specific cyclicality or regulatory pressures that constrain the likes of Sportradar and Cedacri, which cater to more specialised markets. Advania's profit margins are behind those of its wider group of peers which, in turn, limit its capacity for FCF generation and result in relatively higher leverage with slower deleveraging. This is primarily attributed to the substantial portion of hardware distribution sales within Advania's total revenue stream. Advania, like Apex, is highly acquisitive and pursues an M&A-led growth strategy. However, Apex's larger scale and significantly stronger margins and deleveraging profile result in a higher leverage capacity than Advania. Almaviva is rated higher due to its significantly lower leverage and stronger domestic market share. KEY ASSUMPTIONS - Organic revenue growth of 7.1% in 2024 with managed services being the biggest contributor. This is followed by an average organic revenue growth of 5.6% in the following three years. Projected revenue is supported by cash-funded bolt-on M&As increasing overall revenue CAGR to 6.6% in 2024-2027 - Fitch-defined EBITDA margin to stabilise at 9.7% in 2024 and to improve to 10% by 2027, reflecting the reduced impact of inflationary pressures, improvement of staff utilisation rates and focus on post-integrations commercial initiatives - Capex at 1.1% of revenue in 2024, followed by 1% to 2027 - Improving working capital outflows between 2024 and 2027. Fitch projects a slight improvement from 1.8% of revenue outflow in 2023 to 1.5% outflow by 2025 and 1.2% to 2027, reflecting a focus on inventory management and an increasing share of managed services supporting the reduction of the receivables in the balance-sheet structure - Bolt-on M&As at a 5.5x valuation totaling to SEK187 million in 2024, followed by SEK280 million-SEK340 million per year to 2027 - Refinancing costs of SEK235 million in 2024, followed by SEK5 million per year to 2027 - No dividends or other shareholder payments between 2024 and 2027 RECOVERY ANALYSIS - Fitch estimates post-restructuring going-concern (GC) EBITDA would be about SEK1.3 billion, which may be due to distressed EBITDA from reputational damage and a loss of public-sector contracts in some markets or significant reduction in consultancy/professional services driven by a weak economic or highly competitive environment. - An enterprise value (EV) multiple of 5.5x is applied to the GC EBITDA to calculate a post-reorganisation EV. The multiple is in line with that of close sector peers'. - Administrative claims of 10% are deducted from the EV to account for bankruptcy and associated costs - The total amount of senior secured debt for claims includes SEK9.5 billion senior secured first-lien term loans (split between pound sterling, Swedish krona, Norwegian krona and euro facilities) and an equally ranking SEK2.5 billion (current equivalent of EUR210 million) RCF that Fitch assumes to be fully drawn in distress. - The debt waterfall analysis results in expected recoveries of 52%, resulting in a 'RR3' Recovery Rating and a 'B+(EXP)' instrument rating for the senior secured first-lien debt. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: - FCF margins sustained above 5% - Fitch-defined EBITDA leverage below 5.0x on a sustained basis - EBITDA interest coverage sustained above 3.0x Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: - Material slowdown in organic growth due to market downturn or intensified competition, resulting in lower Fitch-defined EBITDA margins consistently below 9% and negative FCF - Debt-funded acquisitions preventing deleveraging, resulting in Fitch-defined EBITDA leverage above 6.0x - EBITDA interest coverage consistently below 2.0x LIQUIDITY AND DEBT STRUCTURE Satisfactory Liquidity: Advania had unrestricted cash of SEK260 million at end-2023. Its liquidity profile is underpinned by a multi-currency EUR210 million (currently SEK2.5 billion) RCF, which Fitch expects to be undrawn at end-2024, by positive expected FCF generation from 2025 and no near-term debt maturities. Refinancing risk is deemed manageable, assuming Advania would deleverage ahead of maturities. ISSUER PROFILE Headquartered in Stockholm, Advania offers a wide array of IT services, including custom software and cloud solutions, and hardware for mid-sized to large companies and government entities across six Nordic countries. DATE OF RELEVANT COMMITTEE 08 May 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 ----------- ------ -------- Ainavda Bidco AB senior secured LT B+(EXP)Expected Rating RR3 Ainavda Parentco AB LT IDR B(EXP) Expected Rating =========== T U R K E Y =========== TURK P VE I: Fitch Affirms 'B+' IFS Rating, Outlook Positive ------------------------------------------------------------ Fitch Ratings has affirmed Turk P ve I Sigorta A.S.'s (Turk P&I) Insurer Financial Strength (IFS) Rating at 'B+'. The Outlook is Positive. At the same time Fitch has revised Turk P&I's National IFS Rating to 'AA-(tur)' from 'A+(tur)', following a national ratings recalibration triggered by its upgrade of the sovereign ratings in March 2024. The Outlook on the National Rating is Stable. The IFS Rating reflects Turk P&I's 'Moderate' company profile compared with other Turkish insurers', investment risks skewed towards the Turkish banking sector, and exposure to the Turkish economy, in line with the rest of the market. The rating also reflects Turk P&I's strong earnings and weakened capitalisation. The Positive Outlook reflects that on the sovereign ratings. Given that the majority of Turk P&I's liabilities are in foreign currencies, its IFS Rating is capped by Turkiye's 'B+' Country Ceiling to account for transfer and convertibility risk. The National IFS Rating reflects Turk P&I's strong earnings, moderate business profile that reflects its small size and scale compared with peers' but also its 50% state ownership and shareholders support and its strategic role in developing the P&I insurance market in Turkiye. KEY RATING DRIVERS Turkish Marine Specialist: Fitch assesses Turk P&I based on the insurer's standalone credit quality, but also considers its ownership structure, which is equally divided between public and private interests. Fitch believes the company's ownership and its strategic role in the Turkish economy are supportive of its credit profile. Turk P&I, Turkiye's first protection and indemnity (P&I) insurance provider, also underwrites hull and machinery (H&M) insurance, which accounted for around 70% of net premiums in 2023. 'Moderate' Business Profile Turk P&I's 'Moderate' business profile, despite its small size, limited history and less established business lines, is underpinned by increasing international diversification, in addition to its ownership and strategic role in Turkiye. Turk P&I's business volumes grew strongly in 2023, supported by local laws as well as strong development of its international business. Weakened Capitalisation: Turk P&I's regulatory solvency ratio weakened to 65% at end-2023 from 90% at end-2022. This was driven by large claims due to storms in Marmara and the Black Sea regions, which significantly reduced current year profit and equity, as well as a strong increase in net premiums. Turk P&I implemented a planned increase in paid-in capital in 2H23 and expects to receive a further capital injection from shareholders in 1H24, which would restore the regulatory solvency ratio to over 100%. High Exposure to Banking System: Turk P&I's balance sheet comprises deposits in Turkish banks, with some concentration on a single state-owned bank as well as bonds issued by the government and domestic banks. This indicates a high exposure to the banking sector in Turkiye, in line with the rest of the Turkish insurance market. Large Claim Erodes Strong Earnings: Turk P&I's earnings have been strong over the past five years and Fitch views its financial performance and earnings as a rating strength. However, in 2H23 earnings were reduced by large claims as a result of storms in Marmara and the Black Sea region. For 2023, Turk P&I reported a net income of TRY62 million (2022: TRY42 million), equivalent to a net income return on equity of 37% (2022: 35%). Its profitability was highly influenced by higher investment income due to sharply higher interest rates in 2H23 and foreign-exchange (FX) gains. Turk P&I receives most of its premium income and pays most of its claims in foreign currencies. Country Ceiling Caps Rating: Turk P&I's IFS Rating is capped at Turkiye's Country Ceiling of 'B+' because the company predominantly settles its liabilities in foreign currencies. This exposes the company to restrictions the Turkish government may place on its ability to obtain foreign currencies, resulting in transfer and convertibility risk. RATING SENSITIVITIES Factors That Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: International and National IFS Ratings - A downgrade of Turkiye's Country Ceiling - Business risk profile deterioration due, for example, to a sharp deterioration in the maritime trade environment Factors That Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: - An upgrade of Turkiye's Country Ceiling 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 ----------- ------ ----- Turk P ve I Sigorta A.S. LT IFS B+ Affirmed B+ Natl LT IFS AA-(tur)Revision Rating A+(tur) =========================== U N I T E D K I N G D O M =========================== BENCHMARK LEISURE: Council Set to Announce New Operator ------------------------------------------------------- Nathan Turvey at BBC News reports that a new operator for Scarborough's Alpamare Waterpark is expected to be announced later this month, ahead of plans to reopen the attraction this summer. According to BBC, North Yorkshire Council's executive will meet on May 21 to choose a preferred bidder following the outcome of a three-week tender process. The park was taken over by the authority in December 2023 after previous owners Benchmark Leisure Ltd went into administration, BBC recounts. The council said it hoped to work with the new operator to reopen the park in time for the school summer holidays. Deputy leader Gareth Dadd, said: "We will now work with the preferred bidder who has experience of operating facilities of this nature and will continue to work towards opening in time for the summer season as we promised when we took this site on." In 2022, figures showed Benchmark still owed GBP7.8 million of public money. CHAMBERLAIN: Commences Liquidation Process ------------------------------------------ Tamlyn Jones at BusinessLive reports that a Black Country engineering group has commenced a liquidation process which could threaten around 160 jobs. Walsall-based specialist castings and machining group Chamberlain said the move had come following a winding-up notice being issued by the company's main power supplier, BusinessLive relates. According to BusinessLive, in a statement to the stock exchange, the listed company said discussions had been ongoing with its creditors and major shareholders about its plight. It said: "Despite the cost-reduction actions and wholesale customer price increases implemented across the group, the group is under increased pressure from other creditors and its bank, has lost further sales revenue and is unable to secure additional funding of the scale and form required. "The board of directors has therefore regrettably resolved to commence an insolvency process. Further announcements will be made in due course as appropriate." This latest development follows the announcement on May 7 that Chamberlin was suspending trading its shares on the AIM exchange, BusinessLive notes. "Following the company's announcement on May 7 and the subsequent discussions with creditors, customers and shareholders, we do not have a funding solution that provides the necessary liquidity in the time we have available," BusinessLive quotes Chief executive Kevin Price as saying. "On behalf of the board, I express to our staff, shareholders and all other affected stakeholders our deepest regret that we are having to take the very difficult decision to commence an insolvency process." DIMITRIJE TUCOVIC: Serbia to Auction Off Assets on June 11 ---------------------------------------------------------- Djordje Jajcanin at SeeNews reports that Serbia's Bankruptcy Supervision Agency said it is auctioning off the assets of local bankrupt sugar mill Dimitrije Tucovic 1898 at a starting price of RSD680.7 million (US$6.3 million/EUR5.8 million). The company will be put up for sale at a public auction on June 11, the agency said in a statement last week, SeeNews relates. According to SeeNews, interested buyers should pay a RSD272.3 million deposit and submit the necessary documents to participate in the auction by June 4. LEWTRENCHARD MANOR: Enters Voluntary Liquidation ------------------------------------------------ Boutique Hotelier reports that the company behind family-run country house hotel Lewtrenchard Manor, which closed permanently in February, has gone bust. According to Boutique Hotelier, Lewtrenchard Manor Ltd has entered voluntary liquidation, leaving debts of more than GBP400,000 which are unlikely to be paid. Documents filed at Companies House show the company, owned by three members of the Murray family, has left GBP23,700 in cash, but it is unlikely any other assets will be realised, Boutique Hotelier relates. Suspicions about the closure were first raised in February when the hotel's website appeared to no longer be taking bookings, Boutique Hotelier discloses. A spokesperson for Lewtrenchard Manor later confirmed the hotel's permanent closure, citing "difficult trading conditions", Boutique Hotelier notes. LGC SCIENCE: Fitch Lowers LongTerm IDR to 'B', Outlook Stable ------------------------------------------------------------- Fitch Ratings has downgraded UK-based global life science tools and services provider LGC Science Group Holdings Limited's (LGC) Long-Term Issuer Default Rating (IDR) to 'B' from 'B+' with a Stable Outlook. Fitch has also downgraded the senior secured term loans issued by LGC's subsidiaries to 'B' from 'B+' with a Recovery Rating of 'RR4'. The downgrade reflects LGC's lower projected profitability and weaker leverage metrics over the next three years, with the latter commensurate with the low end of the 'B' rating category. This is balanced by LGC's robust and resilient business model, albeit modest in scale, which is currently exiting the post-pandemic rebase phase. Fitch estimates that LGC's proven innovation capabilities will continue supporting its organic growth and strengthening scientific barriers to entry. This will gradually improve profitability and free cash flow generation (FCF) to closer to pre-pandemic levels once investments in additional production capacity have ramped-up by 2026 and cost savings have been realised. The Stable Outlook reflects structural organic growth prospects for the life science and healthcare testing industries, although Fitch currently expects recovery at a more moderate pace in the short to medium term. The rating assumes that LGC will focus on organic investment and growth strategy, reducing acquisitive growth and focusing on gradual deleveraging within the 'B' range over the next three years KEY RATING DRIVERS Performance Sustainably Below Expectations: The downgrade reflects LGC's trading underperformance in the financial year ending March 2024 (FY24) and its revised medium-term operating assumptions of the underlying business (excluding Covid-19 and M&A contributions) versus its previous forecasts and the company's growth guidance. The underperformance is mainly driven by destocking industry trends and limited bio-tech funding post-pandemic materially affecting LGC's genomic business. From FY25, Fitch projects a gradual restoration of LGC's revenue growth, albeit at a slower pace than previously estimated. Reduced EBITDA Expectations: The downgrade reflects its reduced EBITDA expectations of around 25% below its previous forecasts, which included some inorganic growth, with EBITDA margins estimated to stay below its negative sensitivity threshold of 30% in FY25. This follows LGC's reported Fitch-defined EBITDA of GBP204 million, corresponding to a 28% EBITDA margin. It reflects the impact of inflation and industry trends in the genomics market, and lower economies of scale due to negligible Covid-19 business and the absence of inorganic activity, which Fitch previously assumed to contribute around 10% of its revenue forecasts. Fitch expects a gradual improvement in EBITDA to above GBP300 million by FY27 and a corresponding margin recovery to above 30%. This will be driven by the industry recovery and materialisation of cost savings from outsourcing of central functions and other related cost-efficiency measures that aim to protect margins. However, despite the projected recovery, considerably lower revised EBITDA growth will lead to weaker FCF generation and credit metrics through FY27, which led to the downgrade to 'B'. Volatile FCF Until 2027: Fitch estimates negative FCF until end-FY26, based on lowered EBITDA forecasts combined with significant growth capex to support organic business growth. Excluding the growth capex, Fitch projects the underlying FCF margins to turn positive in FY26 and remain above mid-single digits thereafter. LGC's ability to return to positive FCF upon completion of the large expansion investment programme is a material driver of the 'B' IDR. A lack of visibility of FCF turning positive by then will put its ratings under pressure. Increased Leverage: The downgrade also reflects its weakened leverage expectations for LGC with EBITDA leverage projected to peak at around 8.0x in FY24-FY25, which in its view is more in line with the low end of the 'b' rating category. Fitch projects EBITDA-driven gradual organic deleveraging towards 6.5x by FY26 and 5.5x by FY27, which supports the Stable Outlook and will be critical to addressing LGC's refinancing. Deleveraging has been slower than anticipated, but Fitch expects a gradual increase in the rating headroom at this lower level once biotech funding has resumed and ramp-ups of the new investment capacity have materialised. This will support higher profitability and overall improvement in credit metrics. Core Business Matures: As recent acquisitions mature, Fitch expects LGC's underlying business to continue delivering defensive organic growth, with its genomics and quality assurance business experiencing mid-single digit to low double-digit organic growth on a constant currency basis, driven by structural growth in end-market demand in the US and EMEA. The rating reflects the fact that LGC's strategy has become less acquisitive in 2024 in favour of continued investments into production capacity (that Fitch expects to continue until completion in 2025/2026). Fitch assumes LGC will maintain its near-term focus on organic investment and growth strategy to address growing demand in specialist testing niches such as pharma and biotech as well as clinical diagnostics. Its rating case therefore assumes revenue to grow at a CAGR of 9.1% over FY24-FY27. Defensive Underlying Business Risks: The rating reflects LGC's strong position in the structurally growing routine and specialist life-science and healthcare-testing markets, which are characterised by longstanding customer relationships supporting high recurring revenue streams. Fitch views these strong and diverse customer relationships, the critical contribution of LGC's products to its clients' workflow, and the group's focus on and reputation for quality as significant barriers to entry that underpin its robust business model. DERIVATION SUMMARY Fitch rates LGC using its Medical Devices Navigator Framework. LGC's rating is constrained by its modest size and significant financial leverage, particularly relative to that of larger US peers in the life science and diagnostics sectors. Close peers are generally rated within the 'BBB' rating category, including Bio-Rad Laboratories Inc. (BBB/Stable), Thermo Fisher Scientific Inc. (A-/Stable), Revvity, Inc. (BBB/Stable), Eurofins Scientific S.E. (BBB-/Stable) and Agilent Technologies, Inc. (BBB+/Stable). In its peer analysis, LGC demonstrates a similar EBITDAR margin (around 30%), reflecting its strong business model rooted in niche positions that are underpinned by scientific excellence. In addition, LGC shows good organic growth, supplemented by consolidation opportunities in the fragmented global life-science tools market. LGC's defensive business risk attributes are offset by its smaller scale and higher leverage compared with investment-grade peers, which places the group's rating firmly in the highly speculative 'B' category. Its financial risk profile is more comparable with that of European healthcare leveraged finance issuers such as Curium Bidco S.a r.l. (B/Stable), Inovie Group (B/Negative) and Ephios Subco 3 S.a.r.l. (B/Positive). All three speculative-grade issuers have defensive business risk profiles and deploy financial leverage to accelerate growth in a consolidating European market. KEY ASSUMPTIONS Fitch's Rating Case Assumptions: - Revenue CAGR of 9.1% over FY24-FY27, driven by organic growth benefiting from recovery trend fueled by industry restocking - Gross margin gradually recovering from lowest 61% reported in FY24 towards historical levels of around 62% by FY25 - Fitch-defined EBITDA margin gradually increasing from 29% in FY25 to 33% over the rating horizon - Working capital to sales at 2% from FY24 to support business growth - Overall capex expected to remain high at around 14% of sales in FY25-FY26 to allow expansion of innovation capability and other strategic projects to support growth. Growth capex expected to subdue by FY27, with overall capex to sales to normalise at 7% from FY27 onwards. - No acquisitive capex over the next three years RECOVERY ANALYSIS - The recovery analysis assumes that LGC would remain a going concern (GC) in the event of restructuring and that it would be reorganised rather than liquidated. Fitch has assumed a 10% administrative claim in the recovery analysis. - Fitch assumes a post-restructuring GC EBITDA of GBP150 million, on which Fitch bases the enterprise value (EV). This reflects LGC's niche but maturing business model with highly-specialised operational competencies and strong and diverse client base with high share of recurring revenues. - Fitch assumes a distressed multiple of 6.5x, reflecting the group's global presence in attractive high-growth sectors and strong underlying profitability. - Its waterfall analysis generates a ranked recovery for senior creditors in the 'RR4' band, indicating a 'B' instrument rating for the group's senior secured facilities, in line with the IDR. The waterfall analysis output percentage on current metrics and assumptions is 47% for the senior secured loans. - Fitch assumes LGC's multi-currency revolving credit facility (RCF) would be fully drawn in a restructuring, ranking pari passu with the rest of the senior secured debt. Fitch also views the US dollar-denominated payment in kind (PIK) as an equity instrument, sitting outside the restricted group. RATING SENSITIVITIES Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade: - EBITDA leverage below 5.5x on a sustained basis - EBITDA interest coverage above 2.5x on a sustained basis - Superior profitability with EBITDA margin remaining above 30% and successful integration of accretive M&A - FCF margin sustained above mid-single digits Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade: - EBITDA leverage above 7.5x on a sustained basis - EBITDA interest coverage sustained below 2.0x - Lower organic growth due to market deterioration or reputational issues, resulting in market share loss or EBITDA margins sustained below 28% - FCF margin to remain negative after completion of production capacity by 2026, or deterioration in trading materially reducing cash generation and liquidity profile beyond expectations. - Aggressive financial policy hampering profitability and deleveraging prospects LIQUIDITY AND DEBT STRUCTURE Satisfactory Liquidity: LGC has adequate liquidity, with available cash on balance sheet of around GBP60 million at end-FY24 and a GBP265million RCF, partially drawn by GBP35 million. Fitch restricts GBP10 million of the balance sheet cash as per de minimis cash needed to run the business. Liquidity is expected to be reduced as per the negative FCF generation expected until end-FY26, driven by the additional capex deployment on new labs and production sites that are expected to be completed by FY25/26. Fitch expects RCF will remain undrawn at least by GBP150 million at capex peaks, providing an adequate liquidity buffer over the next three years as closing cash balances are expected of within GBP30 million to GBP60 million. Fitch believes LGC has an adequate liquidity buffer over the next three years to fund its business operations, including intra-year working-capital swings of around GBP20 million. ISSUER PROFILE LGC is a UK-based leading global life science tools company, providing mission-critical components and solutions into high-growth application areas across the human healthcare and applied market segments. 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 ----------- ------ -------- ----- Loire US Holdco 1, Inc. senior secured LT B Downgrade RR4 B+ LGC Science Group Holdings Limited LT IDR B Downgrade B+ senior secured LT B Downgrade RR4 B+ Loire Finco Luxembourg S.a r.l. senior secured LT B Downgrade RR4 B+ Loire US Holdco 2, Inc. senior secured LT B Downgrade RR4 B+ PHOELEX LIMITED: Goes Into Administration ----------------------------------------- Business Sale reports that Phoelex Limited, an IT services firm based in London, fell into administration at the beginning of May, with Richard Bloomfield and Geoffrey Rowley of FRP Advisory appointed as joint administrators. According to Business Sale, in the period from November 1 2022 to July 31, 2023, the company reported an operating loss of GBP3.1 million. At the time, its assets were valued at close to GBP1.1 million, but its net liabilities amounted to GBP122,222, Business Sale discloses. YORKSHIRE DALES: Enters Liquidation, Ceases Trading --------------------------------------------------- BBC News reports that a North Yorkshire food and drink festival is set to be axed unless a new operator can be found. The Yorkshire Dales Food and Drink Festival in Settle was set to take place from July 19 t 21 and attracts thousands of visitors each year. Events By B3 Ltd, which runs the event, announced it had ceased trading with immediate effect and would enter liquidation, BBC relates. According to BBC, citing "unsustainable financial problems" as the reason for the decision, liquidators said the festival would not go ahead unless an interested party came forward. Founded in 2015, the three-day festival at Funkirk Farm attracts about 30,000 visitors and 200 exhibitors annually, organisers said. The event offers pop-up restaurants, workshops, street food and food tasting and had previously hosted masterclasses from celebrity chefs such as James Martin and Hairy Bikers Si King and the late Dave Myers. In 2023, organisers said flooding had impacted cash flow in the company, BBC recounts. Paired with a decline in ticket sales for the 2024 event, the decision was taken to cease trading, BBC relays. "The Yorkshire Dales Food and Drink Festival is the largest event of its kind in the UK and regarded for the contribution it makes to the local economy," BBC quotes proposed joint liquidator Jonathan Amor as saying. "Unfortunately, the business has been suffering from unsustainable financial problems and the directors decided that it would be in the best interests for all creditors for the company to cease trading and be placed into liquidation." ********* 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, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. 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. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. 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