/raid1/www/Hosts/bankrupt/TCREUR_Public/240523.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Thursday, May 23, 2024, Vol. 25, No. 104
Headlines
A L B A N I A
ALBANIAN PROCREDIT: Fitch Affirms 'BB' LongTerm IDR, Outlook Stable
B E L G I U M
ONTEX GROUP: Moody's Ups CFR & EUR580MM Sr. Unsecured Notes to B2
B O S N I A A N D H E R Z E G O V I N A
PROCREDIT BANK SARAJEVO: Fitch Affirms 'B+' LongTerm IDR
I R E L A N D
BARINGS EURO 2019-2: Moody's Cuts Rating on Class F Notes to Caa1
GROSVENOR PLACE 2022-1: Fitch Assigns B-sf Rating on Cl. F-R Notes
OCP EURO 2024-9: Fitch Assigns 'B-sf' Final Rating on Class F Notes
ST. PAUL VIII: Fitch Affirms 'BB-sf' Rating on Class F Notes
I T A L Y
UNIPOLSAI ASSICURAZIONI: Moody's Rates Subordinated Debt 'Ba1(hyb)'
K O S O V O
KOSOVO PROCREDIT: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable
L U X E M B O U R G
GARFUNKELUX HOLDCO 2: Fitch Lowers LongTerm IDR to 'B' on Watch Neg
N O R W A Y
AXACTOR ASA: Moody's Cuts CFR to B2, Under Review for Downgrade
NORDIC UNMANNED: Enters Into Debt-to-Equity Conversion Term Sheet
R U S S I A
AGROS HAYOT: Fitch Affirms & Withdraws 'BB-/Stable' IFS Rating
S P A I N
AYT COLATERALES I: Fitch Affirms 'BB+sf' Rating on Class D Notes
KUTXA HIPOTECARIO II: Fitch Affirms 'BB+sf' Rating on Class C Notes
S W E D E N
SBB - SAMHALLSBYGGNADSBOLAGET: Fitch Keeps CCC+ Rating on Watch Neg
U N I T E D K I N G D O M
CPUK FINANCE: Fitch Assigns 'B' Rating to New Class B7 Notes
ENVIRONMENTAL ROOFING: Enters Administration
FRIENDSHIP ADVENTURE: Goes Into Administration
HALSALL CONSTRUCTION: Goes Into Administration
HIGH WYCOMBE: Collapses Into Administration
LGC SCIENCE: Moody's Affirms 'B3' CFR, Outlook Remains Stable
PETROFAC LIMITED: Fitch Lowers Rating on LongTerm IDR to 'C'
R K N ALUMINIUM: Goes Into Administration
THAMES WATER: Omers Opts to Write Off Investment Amid Debt Woes
WEARSIDE CONTRACTORS: Lack of Orders Prompts Administration
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A L B A N I A
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ALBANIAN PROCREDIT: Fitch Affirms 'BB' LongTerm IDR, Outlook Stable
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Fitch Ratings has affirmed Albanian ProCredit Bank Sh.a.'s (PCBA)
Long-Term Issuer Default Rating (IDR) at 'BB' with a Stable
Outlook, Shareholder Support Rating (SSR) at 'bb' and Viability
Rating (VR) at 'b-'.
KEY RATING DRIVERS
Shareholder Support Drives IDRs: PCBA's IDRs are driven by its SSR,
which reflect Fitch's view of potential support from the bank's
sole shareholder, ProCredit Holding AG (PCH; BBB/Stable).
Country Risks Constrain Support: PCBA is strategically important to
PCH and an important part of its well-established presence in
south-east Europe. However, the extent to which potential support
can be factored into the bank's ratings is constrained by Fitch's
view of Albanian country risks, in particular transfer and
convertibility.
Small Bank; Weak Performance: PCBNA's VR is constrained by its
small scale and narrow franchise and is therefore one notch below
its implied VR. The VR also balances prudent risk management and
better-than-sector asset quality against weak profitability and a
challenging Albanian operating environment.
Improved but Challenging Operating Environment: Fitch has revised
the Albanian operating environment score to 'b+' from 'b' to
reflect reduced macroeconomic risks, resilience against economic
shocks and continued structural reforms in the banking sector.
Nevertheless, its assessment continues to capture Albania's small
economy and its dependence on cyclical sectors, such as tourism and
agricultural, which limit opportunities for banks. High exposure to
the sovereign, impaired loans ratios above regional peers and high
euroisation also remain key structural weaknesses for banks.
Cautious Risk-Management Framework: ProCredit Group deploys its
established risk governance at all subsidiaries, including PCBA,
which results in prudent underwriting standards and strict risk
controls. However, this should be viewed in the context of the
challenging Albanian operating environment.
Improving Asset Quality: The bank's impaired loan ratio (end-2023:
2.2%) compares well with the sector average (4.7%). Fitch expects
any impaired loan inflows to be offset by ongoing write-offs and
recoveries, and the impaired loans ratio to therefore remain stable
at about 2.0% by end-2025.
Profitability to Weaken: The bank's operating profit increased to
1.0% to risk-weighted assets (RWAs) in 2023 (2022: 0.5%) due to the
strong growth in net interest income, but also reversals in loan
impairment charges (LICs). However, Fitch expects profitability to
weaken in 2024-2025 due to rising LICs, as the bank increases
provisions against a growing loan book, and higher operating
expenses. Fitch forecasts the operating profit/RWAs ratio to remain
weak and between about 0%-0.5% in 2024-2025.
Ordinary Capital Support: PCBA's reported common equity Tier 1
(CET1) ratio of 17.8% at end-2023 remains adequate relative to the
small nominal size of the bank and considering country risks. The
bank's capitalisation has been supported by regular capital
injections from the parent (EUR19 million in the past five years)
to accommodate growth, while internal capital generation has been
modest. Fitch expects further capital support from the parent to be
made available in case of need.
Reasonable Funding Base: The funding mix is dominated by customer
deposits, with 82% of total funding at end-2023, and supported by
funding from PCH. Growing deposits accompanied by modest loan
growth resulted in a lower loans-to-deposits ratio at end-2023
(85%; end-2022: 107%). Granular retail deposits are an important
component, which account for 52% of customer deposits. Liquid
assets (22%) are adequate, mainly comprising central bank reserves,
government bonds and cash.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
PCBA's IDRs and SSR would be downgraded on adverse changes to
Fitch's perception of country risks in Albania. The ratings could
also be downgraded on a substantial decrease in the bank's
strategic importance to PCH, which is primarily based on PCH's
commitment to the country and the region.
Fitch would downgrade the VR if it expected the bank to record
sustained losses on a pre-impairment level, which in turn
materially weakens capitalisation. In particular, Fitch would
downgrade the bank's VR if the CET1 ratio falls below 10% on a
sustained basis.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
PCBA's IDRs and SSR could be upgraded as a result of diminished
country risks, which Fitch views as unlikely in the medium term.
The bank's VR could be upgraded on material improvements in its
franchise and resilience in the business model. The latter could be
reflected in a solid record of profitable operations over the
medium term, combined with stable asset-quality ratios and an
increase in capital and liquidity buffers.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
PCBA's Short-Term IDRs is the only option mapping to their
respective Long-Term IDRs. PCBA's Long-Term Foreign-Currency (FC)
IDR (xgs) is driven by support from PCH, and affirmed one notch
below PCH's Long-Term FC IDR (xgs). The Long-Term Local-Currency
IDR (xgs) is in line with PCBA's Long-Term FC IDR (xgs). The
Short-Term IDRs (xgs) are mapped to their respective Long-Term IDRs
(xgs).
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
PCBA's Short-Term IDRs are sensitive to changes in their respective
Long-Term IDRs. PCBA's Long-Term IDRs (xgs) are primarily sensitive
to changes to the parent bank's ability or propensity to provide
support (i.e. if the parent's Long-Term IDRs (xgs) changes). Its
Short-Term IDRs (xgs) are primarily sensitive to changes in their
respective Long-Term IDRs (xgs).
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
PCBA's IDRs, IDRs (xgs) and SSR are driven by support from PCH.
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
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ProCredit Bank
Sh.a. LT IDR BB Affirmed BB
ST IDR B Affirmed B
LC LT IDR BB Affirmed BB
LC ST IDR B Affirmed B
Viability b- Affirmed b-
LT IDR (xgs) BB-(xgs)Affirmed BB-(xgs)
Shareholder Support bb Affirmed bb
ST IDR (xgs) B(xgs) Affirmed B(xgs)
LC LT IDR (xgs) BB-(xgs)Affirmed BB-(xgs)
LC ST IDR (xgs) B(xgs) Affirmed B(xgs)
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B E L G I U M
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ONTEX GROUP: Moody's Ups CFR & EUR580MM Sr. Unsecured Notes to B2
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Moody's Ratings has upgraded Ontex Group NV's long-term corporate
family rating to B2 from B3 and its probability of default rating
to B2-PD from B3-PD. Concurrently, Moody's has upgraded to B2 from
B3 the rating on the EUR580 million senior unsecured notes due July
2026 issued by Ontex. The outlook on all ratings remains stable.
The ratings upgrade reflects Moody's expectation that Ontex will
maintain positive momentum in operating performance over the next
12-18 months, leading to improved credit metrics more commensurate
with a B2 rating. "The strong operating results in 2023 and the so
far successful implementation of its business transformation plan
have increased Ontex's financial flexibility to withstand the
intrinsic volatility of the markets where it operates and to
compensate for the smaller business perimeter, now focused on the
retail-branded disposable personal hygiene products in Europe and
North America", says Giuliana Cirrincione, Moody's lead analyst for
Ontex.
The rating agency now expects that the Moody's adjusted leverage
for Ontex, including the EBITDA contribution from non-core
operations yet to be divested, will range between 5x-5.5x by the
end of 2024, which is well below the 6.5x Moody's had previously
anticipated. Moody's-adjusted free cash flow will turn sustainably
positive from 2025, supported by business expansion in North
America, continued focus on cost-efficiencies and lower
restructuring charges.
RATINGS RATIONALE
Ontex's financial performance has improved significantly since Q3
2022, as the company has been able to restore its profitability
close to pre-pandemic levels and reduce financial leverage –
measured as Moody's adjusted gross debt to EBITDA – to below 6x
as of December 2023, which marks the lowest point ever achieved
since 2019.
While price increases in 2022 and 2023 were key to grow EBITDA and
improve margins in response to the high input cost inflation, the
company has also started to successfully execute on its business
transformation plan. This has resulted in large cost-savings and
close to neutral (on a Moody's adjusted basis) free cash flow in
the year, despite the restructuring costs incurred to improve
operational efficiency. Operating performance has also improved
within the group's held-for-sale subsidiaries in the emerging
markets, while at the same time Ontex has managed to divest a large
portion of its non-core assets and used the proceeds to repay
financial debt, further supporting leverage reduction. As of April
2024, held-for-sale operations in Pakistan, Brazil and Turkey have
not been divested yet and, according to the company's plans,
further progress will be made in 2024.
The rating agency now expects that the Moody's adjusted leverage
for Ontex – including both core and non-core operations yet to be
divested – will range between 5x-5.5x by the end of 2024, which
is well below the 6.5x Moody's had previously anticipated. Leverage
trajectory in 2024 will, to a degree, hinge on the timing of
planned business divestitures. It also reflects primarily Moody's
assumption that sales decline in Europe due to lower selling prices
will be modest and will be fully offset by sustained volume growth
in North America, where the private label segment for disposable
personal hygiene products is still underpenetrated.
Cost-savings will continue to support profit margin improvement,
more than offsetting the restructuring costs which will be
substantial in 2024 and will then reduce steadily from 2025.
Moody's also assumes a lower EBITDA contribution from non-core
operations as they progressively exit the group's perimeter over
the next 12-18 months.
According to Moody's forecasts, adjusted free cash flow will turn
positive in 2025 in the range of EUR15 million to EUR30 million, to
reflect continued volume gains in North America and profit margin
expansion driven by lower restructuring charges. This is despite
the company is increasing its capital spending to around 6% of its
core market sales (compared to minimum capex needs of around 3% of
core market sales) to support further business growth in North
America. Ontex's operations in the region are already up and
running and current trading conditions provide some comfort that
volume ramp-up will continue. However, Moody's cautions that
Ontex's expansion plan in North America carries some execution risk
due to its relatively small regional footprint and the competitive
industry landscape, which is also highly susceptible to changes in
raw materials prices.
Furthermore, upon refinancing of its EUR580 million 3.5% senior
unsecured fixed-rate bond due in July 2026, the company will likely
experience an uptick in the interest cash bill. This increase is
expected to constrain the improvement in free cash flow going
forward. Nonetheless, Moody's anticipates that the rise in interest
costs will be manageable, given the continued EBITDA growth in core
markets and adequate liquidity, including tight working capital
management and potential further divestments.
Ontex's B2 CFR reflects (1) its leading position in the disposable
personal hygiene products market in Europe, with good product
diversification; (2) the less cyclical nature of its products,
especially in the retailer-branded segment which is Ontex's core
business; (3) the organic growth prospects associated with the
expansion plan in North America; and (4) the financial flexibility
coming from the potential disposal of the remaining noncore assets
in its emerging markets, which partly mitigates the smaller
perimeter.
Ontex's CFR is constrained by (1) the exposure to significant raw
material price volatility and to foreign currency fluctuations,
which add pressure on profitability and cash flow generation; (2)
the price-competitive nature of the industry and the strong
bargaining power of large retailers; and (3) a degree of execution
risk on the company's expansion plan in North America and its
ongoing value-creation initiatives.
LIQUIDITY
Ontex's liquidity is adequate, backed by EUR180 million in cash as
of March 2024 (including cash from discontinuing operations), and
approximately EUR130 million available under its EUR242.5 million
revolving credit facility (RCF) due in December 2025. The adequate
liquidity assessment is also underpinned by Moody's assumption that
Ontex will address the refinancing of its 2026 notes in a timely
fashion, that is, at least a year before maturity.
According to Moody's forecasts, the available cash balance and the
progressively improving internal cash generation capacity will
abundantly cover all basic cash requirements, including ongoing
restructuring costs in 2024, modest working capital needs to
support growth (incl. the use of factoring), and both maintenance
and expansionary capital spending of around EUR140 million annually
(incl. the portion related to the lease repayment). While the exact
timeline for the divestiture of the company's operations in Brazil
and Turkey remains uncertain, the rating agency notes that Ontex
does not rely on these sale proceeds to finance any of its
mandatory cash needs.
Ontex's RCF is subject to a minimum liquidity covenant, and a net
leverage covenant tested semiannually with progressive step-downs
over time. Moody's anticipates the company will maintain adequate
capacity under these covenants.
STRUCTURAL CONSIDERATIONS
The B2 rating on the EUR580 million senior unsecured 3.5%
fixed-rate notes due July 2026 is in line with the CFR. All
liabilities within the capital structure rank pari passu among
themselves and the notes are guaranteed by material subsidiaries
representing a minimum of 70% of consolidated EBITDA.
Moody's assume the standard 50% family recovery rate to reflect the
presence of both notes and bank debt within the company's capital
structure.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's expectation that Ontex will
improve its Moody's adjusted leverage to 4.5x-5x over the next
12-18 months and its adjusted free cash flow to moderately positive
levels, on the back of stable operating performance in Europe,
business expansion in North America and continued focus on cost
controls. The stable outlook also assumes that Ontex will refinance
its 2026 bond in a timely fashion and with a manageable increase in
the cost of debt, as well as a moderately positive earnings
contribution from non-core operations until these are fully
divested.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Ontex's ratings could be upgraded if business expansion in North
America and the ongoing business transformation plan result in
materially higher-than-expected sales and EBITDA growth, leading to
a Moody's adjusted leverage sustainably below 5x, consistently
positive free cash flow, and Moody's adjusted EBITA margin
maintained in the mid-to-high single digit percentages. An upgrade
would also require that the company improves its liquidity,
including long-dated debt maturities and comfortable capacity under
financial covenants.
Ontex's ratings could be downgraded if operating performance
weakens significantly as a result of fierce competition in core
markets or poor execution of the company's transformation plan.
Quantitatively, this would require a Moody's adjusted leverage
sustained above 6x, consistently negative free cash flow,
Moody's-adjusted EBITA/interest expense declining below 1.5x and
Moody's adjusted EBITA margins declining in the low-single digit
percentage for a prolonged period. A deterioration in liquidity due
to reduced capacity under financial covenants could also lead to a
downgrade.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Consumer
Packaged Goods published in June 2022.
COMPANY PROFILE
Ontex Group NV, headquartered in Aalst-Erembodegem, Belgium, is a
leading manufacturer of mainly retailer-branded hygienic disposable
products with operations across Europe, in North America, Brazil
and Turkey. Ontex operates in three product categories: baby care,
adult incontinence and feminine care. In 2023 Ontex generated net
sales of around EUR1.8 billion and company-reported EBITDA (i.e.
before restructuring costs) of EUR174 million. Including non-core
operations in emerging markets still to be divested, sales and
company-reported EBITDA in 2023 were EUR2.3 billion and EUR223
million, respectively. Ontex is a public company listed on the
Euronext Brussels stock exchange.
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B O S N I A A N D H E R Z E G O V I N A
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PROCREDIT BANK SARAJEVO: Fitch Affirms 'B+' LongTerm IDR
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Fitch Ratings has affirmed ProCredit Bank d.d. Sarajevo's (PCBBiH)
Long-Term Issuer Default Ratings (IDR) at 'B+' with a Stable
Outlook, Shareholder Support Rating (SSR) at 'b+' and Viability
Rating (VR) at 'b-'.
KEY RATING DRIVERS
Shareholder Support Drives IDRs: PCBBiH's IDRs are driven by its
SSR, which reflects Fitch's view of potential support from the
bank's sole shareholder, ProCredit Holding AG (PCH; BBB/Stable).
Country Risks Constrain Support: PCBBiH is strategically important
to PCH and an important part of its well-established presence in
south-east Europe. However, the extent to which potential support
can be factored into the bank's ratings is constrained by Fitch's
view of Bosnian country risks, in particular transfer and
convertibility. PCBBiH's Long-Term Local-Currency (LC) IDR is one
notch above its Long-Term Foreign-Currency IDR, reflecting lower
risk of restrictions on servicing LC obligations in case of
systemic stress.
Small Bank, Improved Performance: PCBBiH's VR is constrained by its
small scale and narrow franchise and is therefore one notch below
its implied VR. The VR also balances reasonable credit metrics,
prudent risk management and resilient asset quality with an only
moderate record of profitable operations and high operating
environment risks.
Developing Economy; Structural Issues: PCBBiH's operations are
concentrated in the small Bosnian market, which is characterised by
low GDP per capita, a multi-layered institutional and regulatory
framework, large informal economy and high unemployment. The
highly-fragmented banking sector and low lending growth translate
into limited opportunities for banks to be consistently
profitable.
Niche Franchise: PCBBiH has a small 2% market share and is mainly
focused on servicing established small and medium enterprises
(SMEs) in its domestic market. The bank's limited scale and
concentration on the SME segment weigh on its business model.
Prudent Risk-Management Framework: ProCredit Group deploys its
established risk governance at all subsidiaries, including PCBBiH,
which results in prudent underwriting standards and strict risk
controls. However, as PCBBiH's operations are solely in Bosnia and
Herzegovina, the bank cannot be fully insulated from operating
environment risks.
Resilient Credit Quality: PCBBiH's asset quality metrics have
consistently compared well with domestic peers with its four-year
average impaired loans ratio at below 2.5%. Fitch expects the
impaired loans ratio to remain around 2% by end-2025, given the
bank's conservative lending practices. Its assessment also captures
high loan loss provisions, which serve as a cushion against
potential credit losses.
Reasonable Profitability: Operating profit/risk-weighted assets of
2.6% in 2023 was well above the historical average due to wider
margins, improved funding profile and loan growth. Fitch expects
the bank will sustain good revenue generation but that the ratio
will moderate to about 2% over the next two years due to cost
pressures and higher loan impairment charges), particularly given
the shift towards smaller SME and micro lending.
Moderate Capital Buffers: Fitch views the bank's common equity Tier
1 (CET1) ratio of 16% at end-2023 as only moderate, in view of the
small nominal size of its capital base and risks of the domestic
operating environment. Fitch expects PCBBiH to be less reliant on
ordinary capital support from its shareholder to sustain business
growth, given reasonable profitability, while it should maintain
reasonable capital buffers in the medium term, with a CET1 ratio of
16%-17%.
Enhanced Funding Structure: The bank's loans/deposits ratio dropped
to a healthy 80% at end-2023, reflecting deposit growth following
initiatives to strengthen the franchise and reduce parent funding.
Long-term loans from international financial institutions earmarked
for SME development projects supplement the funding mix. The bank's
liquid assets (20% of deposits) comprise mainly cash placements
held at the local central bank and small portfolio of treasury
bills.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The bank's IDRs and SSR are sensitive to adverse changes in Fitch's
perception of country risks, in particular an increase in transfer
and convertibility risks in Bosnia and Herzegovina. PCBBiH would
also be downgraded on a substantial weakening of its assessment of
PCH's propensity to provide support, in case of need, including in
the subsidiary's strategic importance for PCH, which is primarily
based on the group's commitment to the country and the region.
PCBBiH's LC IDRs could also be downgraded if risk of intervention
in the banking sector by authorities increased relative to the
bank's ability to service its LC obligations.
Fitch would downgrade the VR if the bank's capitalisation
materially weakens due to weaker profitability, with limited
prospects for improvement.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
PCBBiH's Long-Term IDRs and SSR could be upgraded on diminished
country risks, which Fitch views as unlikely in the medium term.
The bank's VR could be upgraded on evidence of a material
strengthening of the bank's domestic franchise and an increase in
its size, accompanied by a record of a resilient business model and
performance, with sustained stronger profitability over the medium
term.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
PCBBiH's Short-Term IDRs of 'B' is the only option mapping to their
respective Long-Term IDRs. The bank's IDRs (xgs) are driven by the
parent's IDRs (xgs), which exclude assumptions of extraordinary
government support available to the parent company. However, the
bank's Long-Term Foreign-Currency IDR (xgs) remains constrained by
country risks, at one notch below its parent's, limiting the extent
to which shareholder support can be factored into PCBBiH's rating.
The Short-Term IDRs (xgs) are mapped to the respective Long-Term
IDRs (xgs).
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
PCBBiH's Long-Term Foreign-Currency IDR (xgs) is sensitive to
changes in Fitch's perception of country risks, while its Long-Term
LC IDR (xgs) remains sensitive to the support ability and
propensity of PCH, in particular to changes in the parent's
Long-Term IDRs (xgs).
PCBBiH's Short-Term IDRs (xgs) are primarily sensitive to changes
in the respective Long-Term IDRs (xgs).
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
PCBBiH's IDRs, IDRs (xgs) and SSR are driven by support from PCH.
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
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ProCredit Bank
d.d. Sarajevo LT IDR B+ Affirmed B+
ST IDR B Affirmed B
LC LT IDR BB- Affirmed BB-
LC ST IDR B Affirmed B
Viability b- Affirmed b-
LT IDR (xgs) B+(xgs)Affirmed B+(xgs)
Shareholder Support b+ Affirmed b+
ST IDR (xgs) B(xgs) Affirmed B(xgs)
LC LT IDR (xgs) BB-(xgs)Affirmed BB-(xgs)
LC ST IDR (xgs) B(xgs) Affirmed B(xgs)
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I R E L A N D
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BARINGS EURO 2019-2: Moody's Cuts Rating on Class F Notes to Caa1
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Moody's Ratings has taken a variety of rating actions on the
following notes issued by Barings Euro CLO 2019-2 Designated
Activity Company:
EUR18,000,000 Class B-1-R Senior Secured Floating Rate Notes due
2032, Upgraded to Aa1 (sf); previously on Sep 22, 2023 Affirmed Aa2
(sf)
EUR20,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2032,
Upgraded to Aa1 (sf); previously on Sep 22, 2023 Affirmed Aa2 (sf)
EUR10,500,000 Class F Senior Secured Deferrable Floating Rate
Notes due 2032, Downgraded to Caa1 (sf); previously on Sep 22, 2023
Downgraded to B3 (sf)
Moody's has also affirmed the ratings on the following notes:
EUR240,000,000 Class A-1-R Senior Secured Floating Rate Notes due
2032, Affirmed Aaa (sf); previously on Sep 22, 2023 Affirmed Aaa
(sf)
EUR10,000,000 Class A-2-R Senior Secured Floating Rate Notes due
2032, Affirmed Aaa (sf); previously on Sep 22, 2023 Affirmed Aaa
(sf)
EUR25,200,000 Class C-R Senior Secured Deferrable Floating Rate
Notes due 2032, Affirmed A2 (sf); previously on Sep 22, 2023
Affirmed A2 (sf)
EUR25,500,000 Class D-R Senior Secured Deferrable Floating Rate
Notes due 2032, Affirmed Baa3 (sf); previously on Sep 22, 2023
Affirmed Baa3 (sf)
EUR20,500,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2032, Affirmed Ba2 (sf); previously on Sep 22, 2023
Affirmed Ba2 (sf)
Barings Euro CLO 2019-2 Designated Activity Company, issued in
January 2020 and partially refinanced in February 2022, is a
collateralised loan obligation (CLO) backed by a portfolio of
mostly high-yield senior secured European loans. The portfolio is
managed by Barings (U.K.) Limited. The transaction's reinvestment
period will end in July 2024.
RATINGS RATIONALE
The rating upgrades on the Class B-1-R and Class B-2 notes are
primarily a result of the benefit of the shorter period of time
remaining before the end of the reinvestment period in July 2024.
The downgrade on the rating on the Class F notes is primarily a
result of deterioration in over-collateralisation ratios since the
last rating action in September 2023.
The affirmations on the ratings on the Class A-1-R, Class A-2-R,
Class C-R, Class D-R and Class E notes are primarily a result of
the expected losses on the notes remaining consistent with their
current rating levels, after taking into account the CLO's latest
portfolio, its relevant structural features and its actual
over-collateralisation ratios.
The over-collateralisation ratios of the rated notes have
deteriorated since the rating action in September 2023. According
to the trustee report dated April 2024 [1] the Class A/B, Class C,
Class D Class E and Class F OC ratios are reported at 133.84%,
123.07%, 113.80%, 107.31% and 104.26% compared to September 2023
[2] levels of 136.35%, 125.38%, 115.94%, 109.32% and 106.22%,
respectively.
In light of reinvestment restrictions during the amortisation
period, and therefore the limited ability to effect significant
changes to the current collateral pool, Moody's analysed the deal
assuming a higher likelihood that the collateral pool
characteristics would maintain an adequate buffer relative to
certain covenant requirements.
The key model inputs Moody's uses in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers.
In its base case, Moody's used the following assumptions:
Performing par and principal proceeds balance: EUR383.8m
Defaulted Securities: EUR9.6m
Diversity Score: 60
Weighted Average Rating Factor (WARF): 2912
Weighted Average Life (WAL): 4.22 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.96%
Weighted Average Coupon (WAC): 3.91%
Weighted Average Recovery Rate (WARR): 43.30%
The default probability derives from the credit quality of the
collateral pool and Moody's expectation of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into its cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
May 2024.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties, such as account bank, using the
methodology "Moody's Approach to Assessing Counterparty Risks in
Structured Finance methodology" published in October 2023. Moody's
concluded the ratings of the notes are not constrained by these
risks.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'/debt's
performance.
Additional uncertainty about performance is due to the following:
-- Portfolio amortisation: Once reaching the end of the
reinvestment period in July 2024, the main source of uncertainty in
this transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales by the collateral manager or
be delayed by an increase in loan amend-and-extend restructurings.
Fast amortisation would usually benefit the ratings of the notes
beginning with the notes having the highest prepayment priority.
-- Weighted average life: The notes' ratings are sensitive to the
weighted average life assumption of the portfolio, which could
lengthen as a result of the manager's decision to reinvest in new
issue loans or other loans with longer maturities, or participate
in amend-to-extend offerings. The effect on the ratings of
extending the portfolio's weighted average life can be positive or
negative depending on the notes' seniority.
-- Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Recoveries higher
than Moody's expectations would have a positive impact on the
notes' ratings.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available to
rating committees, including macroeconomic forecasts, input from
other Moody's analytical groups, market factors, and judgments
regarding the nature and severity of credit stress on the
transactions, can influence the final rating decision.
GROSVENOR PLACE 2022-1: Fitch Assigns B-sf Rating on Cl. F-R Notes
------------------------------------------------------------------
Fitch Ratings has assigned Grosvenor Place CLO 2022-1 DAC's Reset
final ratings.
Entity/Debt Rating Prior
----------- ------ -----
Grosvenor Place
CLO 2022-1 DAC
A XS2551763407 LT PIFsf Paid In Full AAAsf
A-R XS2790864149 LT AAAsf New Rating
B XS2551763589 LT PIFsf Paid In Full AAsf
B-R XS2790864495 LT AAsf New Rating
C XS2551764041 LT PIFsf Paid In Full Asf
C-R XS2790864818 LT Asf New Rating
D XS2551764124 LT PIFsf Paid In Full BBB-sf
D-R XS2790865039 LT BBB-sf New Rating
E XS2551764397 LT PIFsf Paid In Full BB-sf
E-R XS2790864909 LT BB-sf New Rating
F XS2551764637 LT PIFsf Paid In Full B-sf
F-R XS2790865468 LT B-sf New Rating
TRANSACTION SUMMARY
Grosvenor Place CLO 2022-1 is a securitisation of mainly senior
secured loans and secured senior bonds (at least 96%) with a
component of senior unsecured, mezzanine and second-lien loans.
Note proceeds have been used to redeem the existing notes except
the subordinated notes and to fund the existing portfolio with a
target par of EUR400 million. The portfolio is actively managed by
CQS (UK) LLP. The CLO has an approximately 4.5-year reinvestment
period and an approximately 7.5-year weighted average life (WAL)
test.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch Ratings assesses
the average credit quality of obligors at 'B'/'B-'. The
Fitch-weighted average rating factor (WARF) of the identified
portfolio is 24.5.
High Recovery Expectations (Positive): At least 90% of the
portfolio will comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch-weighted
average recovery rate (WARR) of the identified portfolio is 64.0%.
Diversified Portfolio (Positive): The transaction includes various
concentration limits, including a maximum exposure to the
three-largest Fitch-defined industries in the portfolio at 40%.
These covenants ensure that the asset portfolio will not be exposed
to excessive concentration.
Portfolio Management (Neutral): The transaction has two matrices
effective at closing corresponding to two fixed-rate asset limits
at 1% and 10%, and a 10-largest obligors covenant at 20%. It has
also two matrices with an extended WAL of 8.5 years and
corresponding to the same top 10 obligors and fixed-rate asset
limits, which can be elected by the manager subject to the
satisfaction of the collateral quality tests and that the
collateral principal amount (defaults at Fitch collateral value)
will be at least at the reinvestment target par balance.
The transaction has a four and a half-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.
WAL Step-Up Feature (Neutral): The transaction can extend the WAL
by one year on any date one year after closing. The WAL extension
is subject to the satisfaction of the collateral-quality tests, and
that the collateral principal amount (defaults at Fitch collateral
value) being at least equal to the reinvestment target par
balance.
Cash Flow Modelling (Positive): The WAL used for the transaction's
matrix and the Fitch-stressed portfolio analysis is 12 months less
than the WAL covenant at the issue date. This is to account for the
strict reinvestment conditions envisaged by the transaction after
its reinvestment period. These include, among others, passing both
the coverage tests, the WARF and the Fitch 'CCC' test post
reinvestment as well a WAL covenant that progressively steps down
over time, both before and after the end of the reinvestment
period. This ultimately reduces the maximum possible risk horizon
of the portfolio when combined with loan pre-payment expectations.
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 to the class A notes,
but would result in downgrades of two notches to the class B notes,
of one notch to the class C, D and E notes, and to 'below B-sf' for
the class F notes.
Downgrades, which are based on the identified portfolio, may occur
if the loss expectation is larger than initially assumed, due to
unexpectedly high levels of default and portfolio deterioration.
Due to the better metrics and shorter life of the identified
portfolio than the Fitch-stressed portfolio, the class B to E notes
display a rating cushion of up to two notches while the class F
notes display a cushion of three notches.
Should the cushion between the identified portfolio and the
Fitch-stressed portfolio be eroded either due to manager trading or
negative portfolio credit migration, a 25% increase of the mean RDR
across all ratings and a 25% decrease of the RRR across all ratings
of the Fitch-stressed portfolio would lead to a downgrade of up to
four notches for the class A to E and to below 'B-sf' for the class
F 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 for the
rated notes, except for the 'AAAsf' rated notes.
During the reinvestment period, upgrades, which are based on the
Fitch-stressed portfolio, may occur on better-than-expected
portfolio credit quality and a shorter remaining WAL test, leading
to the ability of the notes to withstand larger-than-expected
losses for the remaining life of the transaction. After the end of
the reinvestment period, upgrades may result from stable portfolio
credit quality and deleveraging, leading to higher credit
enhancement and excess spread available to cover losses in the
remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Fitch does not provide ESG relevance scores for Grosvenor Place CLO
2022-1 DAC. In cases where Fitch does not provide ESG relevance
scores in connection with the credit rating of a transaction,
programme, instrument or issuer, Fitch will disclose in the key
rating drivers any ESG factor which has a significant impact on the
rating on an individual basis.
OCP EURO 2024-9: Fitch Assigns 'B-sf' Final Rating on Class F Notes
-------------------------------------------------------------------
Fitch Ratings has assigned OCP Euro CLO 2024-9 DAC's final
ratings.
Entity/Debt Rating Prior
----------- ------ -----
OCP Euro CLO
2024-9 DAC
Class A Loan LT AAAsf New Rating AAA(EXP)sf
Class A Notes
XS2793125035 LT AAAsf New Rating AAA(EXP)sf
Class B-1 Notes
XS2793125209 LT AAsf New Rating AA(EXP)sf
Class B-2 Notes
XS2795694749 LT AAsf New Rating AA(EXP)sf
Class C Notes
XS2793125464 LT Asf New Rating A(EXP)sf
Class D Notes
XS2793125381 LT BBB-sf New Rating BBB-(EXP)sf
Class E Notes
XS2793125548 LT BB-sf New Rating BB-(EXP)sf
Class F Notes
XS2793125894 LT B-sf New Rating B-(EXP)sf
Class X Notes
XS2795694582 LT AAAsf New Rating AAA(EXP)sf
Subordinated
Notes XS2793126199 LT NRsf New Rating NR(EXP)sf
TRANSACTION SUMMARY
OCP CLO 2024-9 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
are being used to fund the portfolio with a target par of EUR500
million.
The portfolio is actively managed by Onex Credit Partners Europe
LLP. The collateralised loan obligation (CLO) has an approximately
4.4-year reinvestment period and a 7.5-year weighted average life
(WAL) test, which can step back up to 7.5 years one year after
closing.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors at 'B'/'B-'. The Fitch-weighted
average rating factor (WARF) of the identified portfolio is 24.6.
High Recovery Expectations (Positive): At least 90% of the
portfolio will comprise senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second-lien, unsecured and mezzanine assets. The Fitch-weighted
average recovery rate (WARR) of the identified portfolio is 62.2%.
WAL Step-Up Feature (Neutral): One year after closing, following
the step-up determination date, the transaction can extend the WAL
by one year. The WAL extension is at the option of the manager, but
is subject to conditions including fulfilling the
portfolio-profile, collateral-quality, coverage tests and meeting
the reinvestment target par, with defaulted assets at their
collateral value on the step-up determination date.
Diversified 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 at 20%
and fixed-rate obligation limits at 5% and 12.5%. It has two
forward matrices corresponding to the same top 10 obligors and
fixed-rate asset limits, which will be effective 18 months after
closing, provided that the aggregate collateral balance (defaults
at Fitch-calculated collateral value) is at least at the
reinvestment target par.
The transaction also includes various concentration limits,
including a maximum exposure to the three-largest Fitch-defined
industries at 40%. These covenants ensure the asset portfolio will
not be exposed to excessive concentration.
Portfolio Management (Neutral): The transaction has a 4.4-year
reinvestment period and includes reinvestment criteria similar to
those of other European transactions. Fitch's analysis is based on
a stressed-case portfolio with the aim of testing the robustness of
the transaction structure against its covenants and portfolio
guidelines.
Cash Flow Modelling (Positive): The WAL Fitch modelled is 12 months
less than the WAL covenant. This is to account for the strict
reinvestment conditions envisaged after the reinvestment period.
These include, among others, passing both the coverage tests and
the Fitch 'CCC' limit 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.
The Fitch 'CCC' test can be altered to a maintain-or-improve basis,
but only if the manager switches back to the closing matrix from
the forward matrix, effectively unwinding the benefit from the
one-year reduction in the Fitch-stressed portfolio WAL. If the
manager has not switched to the forward matrix, it will not be able
to switch back and move to a Fitch 'CCC' test maintain-or-improve
basis. Fitch believes strict satisfaction of the Fitch 'CCC' test
is more effective at preventing the manager from reinvesting and
extending the WAL, than maintaining and improving the Fitch 'CCC'
test.
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 X, A-N,
A-L, B-1, B-2 and C notes, but would lead to downgrades of no more
than one notch to the D and E notes and to below 'B-sf' for the
class F 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 F notes shows a rating
cushion of one notch, the class B-1, B-2, D and E notes two
notches, and the class C notes three notches. The class X and A
notes have no rating cushion as they are at the highest achievable
rating of 'AAAsf'.
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
two notches for the class A and D notes, three notches for the
class C and E notes, and to below 'B-sf' for the class F 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 three notches for the
notes, except for the 'AAAsf' rated notes.
During the reinvestment period, based on the Fitch-stressed
portfolio, upgrades except for the 'AAAsf; notes, 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 OCP Euro CLO 2024-9
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.
ST. PAUL VIII: Fitch Affirms 'BB-sf' Rating on Class F Notes
------------------------------------------------------------
Fitch Ratings has affirmed St. Paul's CLO VIII DAC's ratings. Fitch
has also resolved the Rating Watch Positive on the class C notes
(see Fitch Places 31 EMEA CLO Ratings on Rating Watch Positive on
FitchRatings.com). The Outlooks are Stable.
Entity/Debt Rating Prior
----------- ------ -----
St. Paul's
CLO VIII DAC
A XS1718482703 LT AAAsf Affirmed AAAsf
B-1 XS1718483008 LT AA+sf Affirmed AA+sf
B-2 XS1718483347 LT AA+sf Affirmed AA+sf
C XS1718483776 LT A+sf Affirmed A+sf
D XS1718483933 LT BBB+sf Affirmed BBB+sf
E XS1718484238 LT BB+sf Affirmed BB+sf
F XS1718484584 LT BB-sf Affirmed BB-sf
TRANSACTION SUMMARY
St. Paul's CLO VIII DAC is a cash flow CLO comprising mostly senior
secured obligations. The transaction is actively managed by
Intermediate Capital Managers Limited and exited its reinvestment
period in January 2022.
KEY RATING DRIVERS
Performance Better Than Expected Case: Since Fitch's last rating
action in January 2024, the portfolio's performance has been
stable. Based on the last trustee report dated 5 April 2024, the
transaction is failing its weighted average life (WAL) test, the
Fitch minimum weighted average recovery rate (WARR) test, the
weighted average rating factor (WARF) test from another agency, as
well as the fixed -rate collateral obligations test. The
transaction is currently 1.6% below par.
However, exposure to assets with a Fitch-derived rating of 'CCC+'
and below is 4.1%, according to the trustee report, versus a limit
of 7.5%. The transaction has EUR12.6 million of defaulted assets in
the portfolio but total par loss is well below its rating case
assumptions.
Manageable Refinancing Risk: The transaction has manageable
exposure to near- and medium-term refinancing risk, with 2.6% of
the assets in the portfolio maturing before 2024 and 8.7% in 2025,
as calculated by Fitch, in view of large default-rate cushions for
each class of notes. The transaction's performance has resulted in
limited impact on the break-even default-rate cushions versus the
last review.
High Recovery Expectations: Senior secured obligations comprise
98.3% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets. The Fitch-calculated WARR of the current
portfolio is 61.2%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration, as calculated by Fitch, is 19.5%, and no obligor
represents more than 2.2% of the portfolio balance. Exposure to the
three-largest Fitch-defined industries is 29.6% as calculated by
the trustee. Fixed-rate assets currently are reported by the
trustee at 10.7% of the portfolio balance, which is above the
maximum covenant of 10%.
Transaction Outside Reinvestment Period: The transaction exited its
reinvestment period in January 2022, and the most senior notes are
deleveraging. As a result, credit enhancement for the senior class
notes has increased from closing, despite the portfolio erosion.
The manager can reinvest unscheduled principal proceeds and sale
proceeds from credit improved/impaired obligations after the
reinvestment period, subject to compliance with the reinvestment
criteria. Although it is failing certain tests, the manager will
still be able to reinvest proceeds on a maintain-or-improve basis.
Given the manager's ability to reinvest, Fitch's analysis is based
on a stressed portfolio using the agency's collateral quality
matrix specified in the transaction documentation, comprising. a
top-10 obligor limit at 20% and the largest and third-largest
Fitch-defined industries at 17.5% and 40%, respectively. Fitch also
applied a haircut of 1.5% to the WARR as the calculation of the
WARR in the transaction documentation is not in line with the
agency's latest CLO Criteria.
Cash Flow Analysis: Fitch used a customised proprietary cash flow
model to replicate the principal and interest waterfalls and the
various structural features of the transaction, and to assess their
effectiveness, including the structural protection provided by
excess spread diverted through the par-value and interest-coverage
tests.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Based on the current portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrades may result from stable portfolio credit quality and
deleveraging, leading to higher credit enhancement and excess
spread available to cover losses in the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Fitch does not provide ESG relevance scores for St. Paul's CLO VIII
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
=========
UNIPOLSAI ASSICURAZIONI: Moody's Rates Subordinated Debt 'Ba1(hyb)'
-------------------------------------------------------------------
Moody's Ratings has assigned a Ba1(hyb) rating to the subordinated
debt due 2034 to be issued by UnipolSai Assicurazioni S.p.A.
("UnipolSai", rated Baa2 for insurance financial strength, stable
outlook) under its EUR3 billion EMTN programme.
RATINGS RATIONALE
The Ba1(hyb) rating is consistent with Moody's standard notching
practices for debts issued by insurance operating companies, and
reflects (i) the subordination of the bond, (ii) the mandatory
(based on breach of regulatory capital requirements) coupon skip
mechanism and (iii) the cumulative nature of deferred coupons.
The debt contains a mandatory interest deferral trigger based upon
breach of regulatory capital requirements on an unconsolidated
and/or on a consolidated basis. However, any deferred interest
payment will remain due by UnipolSai at a future date (cumulative
coupon skip mechanism).
The notes are intended to qualify as Tier 2 capital under Solvency
II and proceeds will be used for general corporate purposes. The
issuance will increase the company's financial leverage.
Nonetheless, UnipolSai also announced that it may exercise the
early redemption option on its EUR750 million junior subordinated
perpetual instrument (XS1078235733) in the future to contribute to
limit the financial leverage of the company.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
The rating of UnipolSai's debt could be upgraded in case of an
improvement in Italy's credit quality, as evidenced by an upgrade
of Italy's sovereign rating (Baa3 stable).
Conversely, a downgrade could occur in case of a deterioration in
the credit quality of Italy, as evidenced by a downgrade of Italy's
sovereign rating. Downward pressure could also result from (1) a
significant weakening of the group's market position, (2) a
materially and sustained lower earnings, in particular if this
should be driven by lower property and casualty underwriting
performance, or (3) lower capital adequacy.
PRINCIPAL METHODOLOGIES
The methodologies used in this rating were Life Insurers published
in April 2024.
===========
K O S O V O
===========
KOSOVO PROCREDIT: Fitch Affirms 'BB+' LongTerm IDR, Outlook Stable
------------------------------------------------------------------
Fitch Rating has affirmed Kosovo's ProCredit Bank Sh.a.'s (PCBK)
Long-Term Issuer Default Rating (IDR) at 'BB+' with a Stable
Outlook, Shareholder Support Rating (SSR) at 'bb+' and Viability
Rating (VR) at 'b+'.
KEY RATING DRIVERS
Shareholder Support Drives IDRs: PCBK's IDRs and SSR reflect
Fitch's view of potential support from its sole shareholder,
ProCredit Holding AG (PCH; BBB/Stable). Support considerations
include the strategic importance of south-eastern Europe to PCH,
PCBK's strong integration within the group and the parent's proven
record of providing liquidity and support to its subsidiary.
Country Risks Constrain Support: The extent to which potential
support can be factored into the bank's ratings is constrained by
Fitch's view of Kosovo country risks. Nevertheless, Fitch believes
the owner's commitment to the subsidiary is sufficiently strong
enough for us to rate it two notches above Kosovo's sovereign
Long-Term IDR of 'BB-'.
Good Performance, High-Risk Market: PCBK's VR reflects its strong
domestic franchise, expertise in SME banking and prudent risk
management, as reflected in better-than-sector asset quality, and
good profitability, notwithstanding high operating environment
risks.
Emerging, High-Risk Economy: Its assessment of Kosovo's operating
environment reflects the small size of the economy, low GDP per
capita, and less developed regulatory and legal frameworks compared
to regional peers. At the same time, the banking sector
demonstrates reasonable asset quality, high returns and adequate
capital buffers.
Prudent Risk Framework: The ProCredit group deploys its established
risk governance at all subsidiaries, including PCBK, which results
in prudent underwriting standards and strict risk controls. This
should be seen in the context of the challenging operating
environment, which could weigh on banks' opportunities to be
consistently profitable.
Asset Quality to Deteriorate Moderately: PCBK's impaired loans
ratio improved to 1.3% at end-2023 (end-2022: 2%) and compares well
with the 2% sector average. Fitch expects the ratio to deteriorate
to about 2% by end-2025, as the bank's prudent underwriting
mitigates pressure on borrowers from higher interest rates. The
bank's loan loss allowance coverage of impaired loans is relatively
high, providing headroom to absorb credit losses in the near term.
Recurring Reasonable Profitability: PCBK's profitability benefits
from a net interest margin that is wider than peers. PCBK's
operating profit/risk-weighted assets was flat in 2023 at a high
3.2%, supported by high interest rates and continued loan
impairment charge (LIC) reversals. Fitch expects the ratio to
moderate, but remain reasonable, toward 2.5% by 2025 with lower
interest rates and higher LICs.
CET1 Ratio to Weaken: The bank's common equity Tier 1 (CET1) ratio
strengthened to 14.6% at end-2023, from 13.2% at end-2022,
reflecting strong profit retention. Fitch expects the CET1 ratio to
reduce towards 12% by end-2025, due to high dividend payouts and
with lending growth, a level which Fitch considers only modest for
the bank's risk profile and small nominal capital base.
Strong Deposit Franchise: The bank's funding and liquidity profile
is supported by its consistently reasonable loans/deposits ratio at
about 75%-80%. Fitch expects PCBK to maintain its high market share
in deposits in the medium term, while competitive pressures and
migration towards interest-bearing term deposits will raise funding
costs. Liquid assets (23% of assets at end-2023) is adequate
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
PCBK's Long-Term IDR and SSR would be downgraded on adverse changes
to Fitch's perception of country risks in Kosovo, including a
downgrade of the sovereign rating. The ratings could also be
downgraded following a substantial decrease in the bank's strategic
importance to PCH, which is primarily based on PCH's commitment to
the country and the region.
A sustained deterioration in PCBK's financial profiles could lead
to a downgrade of its VR. PCBK's VR could be downgraded on a marked
weakening in asset-quality metrics, in particular if Fitch expected
its impaired loan ratio to increase above 5%, accompanied by a
sustained weakening of core profitability and the CET1 ratio to
below 12%, without prospects for a swift recovery.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
PCBK's Long-Term IDR and SSR could be upgraded as a result of an
upgrade of Kosovo's sovereign rating.
A VR upgrade is unlikely in the near term. Over the medium term, a
material improvement in the operating environment accompanied by a
strengthening of PCBK's business profile and CET1 ratio could bring
upside, assuming other financial profiles do not deteriorate
materially.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
PCBK's Short-Term IDR is the only option mapping to its Long-Term
IDR. PCBK's Long-Term Foreign-Currency (FC) IDR (xgs) is driven by
support from PCH and has been affirmed at one notch below PCH's
Long-Term FC IDR (xgs) of 'BB (xgs)'. The bank's Short-Term FC IDR
(xgs) is in accordance with its Long-Term FC IDR (xgs) and Fitch's
short-term rating mapping.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
PCBK's Short-Term IDR is sensitive to changes in the Long-Term IDR.
PCBK's LT IDRs (xgs) are primarily sensitive to changes to the
parent bank's ability or propensity to provide support (i.e. if the
parent's LT IDRs (xgs) changes) and Kosovo's country risks, in
particular transfer and convertibility risks.
Its ST Foreign-Currency IDR (xgs) is primarily sensitive to changes
in the LT Foreign-Currency IDR (xgs).
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
PCBK's IDRs, IDRs(xgs) and SSR are driven by support from PCH. The
bank's Long-Term IDR is also linked to Kosovo's sovereign rating
given country risk considerations.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
ProCredit Bank
Sh.a. LT IDR BB+ Affirmed BB+
ST IDR B Affirmed B
Viability b+ Affirmed b+
LT IDR (xgs) BB-(xgs)Affirmed BB-(xgs)
Shareholder Support bb+ Affirmed bb+
ST IDR (xgs) B(xgs) Affirmed B(xgs)
===================
L U X E M B O U R G
===================
GARFUNKELUX HOLDCO 2: Fitch Lowers LongTerm IDR to 'B' on Watch Neg
-------------------------------------------------------------------
Fitch Ratings has downgraded Garfunkelux Holdco 2 S.A.'s (Lowell)
Long-Term Issuer Default Rating (IDR) to 'B' from 'B+'. Fitch has
also downgraded Garfunkelux Holdco 3 S.A.'s (GH3) senior secured
debt rating to 'B' from 'B+'. Both the Long-Term IDR and debt
rating have been placed on Rating Watch Negative (RWN). The
Recovery Rating is 'RR4'.
KEY RATING DRIVERS
The rating action reflects Lowell's concentrated funding profile
has increased its sensitivity to refinancing risk in what continues
to be a challenging capital market environment for European debt
purchasers. Fitch expects Lowell to try to refinance the bulk of
its outstanding debt in the near term, which will likely result in
securing new debt at materially higher cost. While Lowell should be
partly able to reflect higher funding costs in the adjusted pricing
of portfolio purchases, increased funding costs will nonetheless
put pressure on financial metrics, notably profitability and
interest coverage.
The RWN reflects material execution risk related to the upcoming
refinancing plans, while Lowell's ability to proactively address
maturities or have a credible plan in place at least 12 months
ahead of its senior secured notes maturity is key for the rating.
Lowell's well-established franchise as on the largest debt
collectors in Europe and resilient collection performance support
its Long-Term IDR.
Increased Refinancing Risk: Fitch sees increased refinancing risk
due to Lowell's concentrated maturities in late 2025 and the
challenging refinancing market for high-yield debt collectors.
Lowell's EUR455 million revolving credit facility (RCF; GBP378
million drawn at end-2023) matures in August 2025, its two senior
secured notes (GBP1.1 billion of outstanding amount combined) in
November 2025, while its third issue of senior secured notes
(GBP545 million outstanding) is due in May 2026.
Moderate Liquidity Buffer: Lowell's liquidity buffer, consisting of
unrestricted cash, securitisation availability and undrawn RCF
capacity, was acceptable at GBP340 million at end-2023 (pro-forma
for portfolio sales in 1Q24) but insufficient to cover 2025
refinancing needs, in particular if its non-performing loan (NPL)
portfolio purchases are maintained at the estimated remaining
collection (ERC) replacement rate (about GBP300 million).
Lowell's proven ability to sell and securitise portfolios can help
to further moderately reduce outstanding debt and manage liquidity.
At the same time, a sale of a large part of the portfolio could
undermine Lowell's cash-generating ability and be negative for the
ratings.
Focus on Deleveraging: Lowell's recent portfolio sales and
securitisations helped to improve net debt/EBITDA in line with its
target (including cash proceeds from assets sales and
securitisations) of below 3.0x by end-1H24. Since not all cash
proceeds from portfolio sales and securitisations are likely to be
recurring, Lowell's ability to generate recurring EBITDA is key to
Fitch's assessment of capitalisation and leverage.
Lowell's tangible equity is negative due to sizeable acquisitions
and pre-tax losses, even when shareholder loans (treated as equity
by Fitch) are included, and does not provide support for its
capitalisation and leverage assessment.
Weak Profitability, Healthy Cash Income: Lowell's profitability
remains weak with a 3% and 4% negative return on average assets in
9M23 and 2022, respectively, including a GBP100 million goodwill
impairment from a cyber-attack in DACH in 2022. Despite
cost-efficiency measures having been put in place, profitability
has been undermined by increased funding and collection costs.
Lowell's EBITDA margin has remained resilient, reflecting healthy
cash-generating capacity, as it is not affected by higher funding
costs and one-off non-cash losses.
Strong Franchise, UK Focus: Lowell is a leading European debt
purchaser focused on unsecured consumer portfolios. The acquisition
of the UK business of Hoist AB and recent securitisations and
portfolio sales in Europe have increased its focus on the UK
market, which accounted for 65% of 120-month ERC at end-2023.
Lowell focuses on debt purchasing (about 90% of cash income), which
results in a capital-intensive business model, although recent
portfolio sales and securitisations have helped to reduce reliance
on attracting new debt to fund portfolio purchases.
Resilient Collections, Moderated Deployment: Collection performance
remained strong at 101% of Lowell's projections in 2023 (2022: 93%
due to operational disruption from the cyber-attack). Portfolio
purchases were GBP319 million in 2023, broadly in line with the ERC
replacement rate. Lowell's 120-month ERC was GBP3.8 billion at
end-2023, moderately down from GBP4.2 billion at end-2022, due to a
few portfolio sales and securitisation transactions to deleverage
and increase liquidity.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Inability to proactively address upcoming debt maturities in a
timely manner, increasing the likelihood of a refinancing at a
later date that Fitch would classify as a distressed debt exchange
(DDE) would lead to a rating downgrade by multiple notches.
Refinancing at a cost materially higher than expected by Fitch
and/or inability to adjust the pricing of future portfolio
purchases to meet higher funding costs would lead to a downgrade.
Significantly deteriorated leverage and interest coverage metrics,
particularly without prospects of a short-term recovery, would also
be negative for the ratings.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Successful proactive refinancing of upcoming debt maturities at a
cost that would support recovery of Lowell's operational
profitability, could result in affirmation of the rating and
further positive rating action in the medium term.
An upgrade would also require an improvement in profitability
metrics while maintaining leverage in line with stated objectives.
DEBT AND OTHER INSTRUMENT RATINGS: KEY RATING DRIVERS
The 'B' rating of GH3's senior secured debt, junior to Lowell's
sizeable RCF, reflects Fitch's view of average recoveries of this
debt class.
DEBT AND OTHER INSTRUMENT RATINGS: RATING SENSITIVITIES
The secured notes' rating is sensitive to changes in Lowell's
Long-Term IDR. Improved recovery expectations, for instance, as a
result of a thinner layer of debt senior to the notes, could be
positive for the notes' rating.
ADJUSTMENTS
The 'b' Standalone Credit Profile is below the 'b+' category
implied Standalone Credit Profile due to the following adjustment
reason: weakest link - funding, liquidity & coverage (negative).
The 'bb-' business profile score is below the 'bbb' category
implied score due to the following adjustment reason: business
model (negative).
The 'b' earnings & profitability score is below the 'bb' category
implied score due to the following adjustment reason: earnings
stability (negative).
ESG CONSIDERATIONS
Lowell has an ESG Relevance Score of '4' for Customer Welfare -
Fair Messaging, Privacy & Data Security due to the importance of
fair collection practices and consumer interactions and the
regulatory focus on them, which has a negative impact on the credit
profile, and is relevant to the rating[s] in conjunction with other
factors.
Lowell has an ESG Relevance Score of '4' for Financial Transparency
due to the significance of internal modelling to portfolio
valuations and to associated metrics such as ERC, which has a
negative impact on the credit profile, and is relevant to the
rating[s] 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
----------- ------ -------- -----
Garfunkelux
Holdco 3 S.A.
senior secured LT B Downgrade RR4 B+
Garfunkelux
Holdco 2 S.A. LT IDR B Downgrade B+
===========
N O R W A Y
===========
AXACTOR ASA: Moody's Cuts CFR to B2, Under Review for Downgrade
---------------------------------------------------------------
Moody's Ratings has downgraded Axactor ASA's Corporate Family
Rating to B2 from B1 and its senior unsecured ratings to Caa1 from
B3 and placed the ratings on review for downgrade. Previously, the
issuer outlook was positive.
RATINGS RATIONALE
The downgrade reflects Axactor's weakened financial performance in
the currently challenging macroeconomic environment for debt
purchasers, characterized by reduced collections in certain regions
and further exacerbated by the increased cost of funding. Contrary
to the rating agency's expectations, the firm's gross debt/EBITDA
metric has deteriorated as a result of lower-than-expected
recoveries and higher funding cost. The decline in EBITDA in 1Q
2024 has put Axactor at the risk of the covenant breach for
leverage and interest coverage for next quarter, which would result
in the event of default under its bond loan agreements and
cross-default with its revolving credit facility, unless the
company obtains an amendment of its financial covenant thresholds
from the bondholders in advance of a potential breach or requests a
waiver following the breach.
By the end of 1Q 2024, Axactor's leverage ratio, calculated as net
Debt/EBITDA on the last twelve-month basis, was approximately 4x,
right below the covenant threshold of 4.0x, as defined in the bond
loan agreements. In addition, the company's interest coverage
declined to 3.2x in the same period, leaving little headroom
relative to the covenant level of 3.0x.
Moody's deems Axactor's lack of proactive measures taken to
minimize the risk of the event of default by addressing the
proximity of its covenant metrics to their thresholds as a risk
management weakness, reflecting it in a lowering of the governance
issuer profile score (IPS) to G-4 from G-3 under the rating
agency's environmental, social and governance (ESG) framework. As
such, Moody's viqews Axactor's exposure to governance risk as high,
which is now also reflected in a one-notch negative adjustment for
corporate behaviour and risk management included in the B2 CFR.
Consequently, Axactor's Credit Impact Score was lowered to CIS-4
from CIS-3, indicating that the company's risk management
weaknesses have a material impact on the ratings.
During the review, Moody's will assess Axactor's strategy for
addressing the risk of the covenant violation in the next quarter
and beyond, in light of the company's weakened financial
performance.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
A rating upgrade is unlikely given that Axactor's ratings are on
review for downgrade. Axactor's ratings could be confirmed if
Moody's concludes that the risk of default stemming from a
potential covenant breach in the coming quarter and beyond will
likely to be successfully addressed by the company, and if the
rating agency comes to believe that there will be no further
deterioration in the company's financial performance, including
cash collections, leverage, interest coverage and liquidity.
Axactor's ratings will be downgraded if Moody's concludes that
there is a high risk of default associated with a potential
covenant breach. Axactor's ratings could also be downgraded if
Moody's concludes that company will be likely to operate with
higher leverage (above 4x gross Debt/EBITDA) and reduced interest
coverage (EBITDA/Interest Expense below 3x) for an extended period
of time, even if the covenant levels are successfully amended.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Finance
Companies Methodology published in November 2019.
NORDIC UNMANNED: Enters Into Debt-to-Equity Conversion Term Sheet
-----------------------------------------------------------------
Nordic Unmanned ASA ("Nordic Unmanned" or the "Company") on
May 14 disclosed that it has entered into a term sheet with its
secured bank lenders (the "Lenders") and its main shareholder
(50.24% of the Company's outstanding shares) Tjelta Eiendom AS
("Tjelta Eiendom"), on a partial conversion to equity of its
existing secured debt obligations, revised terms for the remaining
secured debt obligations, new short-term liquidity and a capital
raise structured as a private placement with an underwritten
subsequent repair offering. The parties have entered into a term
sheet setting out the main terms of the solution, subject to
certain conditions, including final documentation and agreements
with certain third parties as further described below, and approval
by a general meeting of the Company (the "General Meeting"). The
Company will in the near future issue a notice for such General
Meeting. Tjelta Eiendom has undertaken to vote in favour of the
Private Placement and the Subsequent Offering at the General
Meeting.
In order to facilitate an agreement with the Lenders, Tjelta
Eiendom has agreed to provide NOK23,500,000 in a private placement
of 470,000,000 new shares in the Company at a subscription price of
NOK 0.05 per share (the "Private
Placement"), and to guarantee the full subscription of a
NOK23,500,000 subsequent repair offering of 470,000,000 new shares
in the Company at the same subscription price as in the Private
Placement with pro rata preferential subscription rights for
eligible shareholders in the Company other than Tjelta
Eiendom, as further described below (the "Subsequent Offering").
Background
Reference is made to the CEO letter in the Q4 2023 report, where
2024 is defined as a bridge year with a board approved turnaround
plan, supported by a capital plan. Despite the strengths, efforts,
and historic achievements of Nordic Unmanned, there is an ongoing
focus on improvements to ensure a lighter balance
sheet and profitability as well as addressing the seasonal,
asymmetric, negative cashflow and lack of sufficient volume. The
Company started the turnaround in Q3 2023, improving operational
efficiency, further developing the business models and market
approach, optimizing partnering models and reducing future capital
expenditures.
The Company has since late last autumn been subject to delays and
timing differences in operations and deliveries and consequent
impact on cash flows in the Flight Services and AirRobot segments.
Such delays have led to an instant liquidity squeeze. The AirRobot
segment has also recently seen a delay in the
deliveries to a UK client, and the Company's current assessment is
that this postponement may lead to some additional temporary
payment delays. The balance sheet is also overleveraged and
undercapitalized compared to the underlying business model and
cashflow.
On the other hand, there are multiple opportunities for tendering
for all business segments. AirRobot is expected to gain the
certification of the AR-100H from the German Military Aviation
Authority and start delivering the AR-100H to Bundeswehr in Q2
2024. DroneMatrix is further pursuing defense and security
contracts with its Drone in a Box system.
The use of drones and related services as an enabling technology
for actionable data gathering for a safer future. In order to
benefit from that, the Company will build on the strengths of
Nordic Unmanned and ensure control, have the right position and
focus, make the right priorities and consequently take the
right actions to be better placed for the future. The Company does,
however, need time, room and financial flexibility to execute on
activities identified in the turnaround plan, while simultaneously
working on the capital plan and ensuring safe and efficient
operations.
The combination of additional capital and less debt leads to a
stronger balance sheet and somewhat better flexibility to support
the Company through the seasonality and lumpiness of the activity
in the industry and thus the transition.
With reference to the above, the turnaround and capital plan, the
Company believes that the agreed term sheet with the Lenders and
Tjelta Eiendom represents the best available solution for the
Company under the circumstances.
The key terms of the terms agreed with the Lenders and Tjelta
Eiendom are as follows:
* The Company shall raise new equity through share issues with
aggregate gross proceeds of at least NOK47,000,000. The Company
will in this respect propose to the General Meeting that the
Company raises NOK23,500,000 from Tjelta Eiendom in the Private
Placement and NOK 23,500,000 in the Subsequent Offering, fully
underwritten by Tjelta Eiendom, in both cases at a subscription
price of NOK0.05 per share.
* Of the EUR12,269,613 current outstanding principal of the
Company's term loan facility with the Lenders (the "Term Loan
Facility"), an amount of EUR5,172,414 (being the approximate
EUR equivalent of NOK60 million as of the date hereof) shall be
converted to shares in the Company at a conversion price of
NOK0.10 per share. The outstanding principal of the Term Loan
Facility following the conversion will amount to EUR7,097,199.
* The first interest payment of the Term Loan Facility is
postponed until June 30, 2025, with quarterly interest payments
following first interest payment.
* The existing bridge loan of EUR 2,000,000 with the Lenders
(the "Bridge Loan") shall remain in force until the end of August
2024, and Tjelta Eiendom's guarantee towards the Lenders shall be
extended beyond August 2024 until the Bridge Loan have been paid,
if not paid in August 2024.
* Pre-agreed sharing of net proceeds with the Lenders in case of
sale of assets.
Conditionality
The transactions and amendments described above, will be subject to
various conditions outside the Company's control, including but not
limited to:
* Approval by the General Meeting; and
* Certain consents and concessions from contractual parties and
lenders of the Company.
As the subscription and conversion prices set out above are lower
than the Company's current par value per share of NOK 0.35, the
Private Placement, the Subsequent Offering and thereby the
transactions and amendments set out above, will also be conditional
upon the General Meeting resolving to reduce the par
value of the shares in the Company to a level equal to or lower
than NOK0.05 per shares, and the subsequent completion of such
share capital reduction following a six-week creditor notice period
after the General Meeting. Such proposal will be included in the
notice of the General Meeting.
New immediate liquidity
The Company has been granted and paid a new liquidity loan by the
Lenders (the "Liquidity Loan") of EUR2 million, backed by a cash
deposit from Tjelta Eiendom. In addition, Tjelta Eiendom has
granted the Company an additional liquidity loan (the "Additional
Liquidity Loan") of EUR 1 million if and when needed. To the extent
the Additional Liquidity Loan is not repaid by the
Company, Tjelta Eiendom shall have the right to require a
conversion of the outstanding amount to shares in the Company at a
conversion price of NOK0.05 per share. Correspondingly, Tjelta
Eiendom's recourse claims against the Company in the event of
default of the Bridge Loan or the Liquidity Loan and exercise of
Tjelta Eiendom's guarantee shall be made convertible to shares in
the Company at a subscription price of NOK0.05 per share. The
Company expects to repay these liquidity loans in accordance with
their terms, so that these default provisions will not take
effect.
Lock-ups
The shares held by Tjelta Eiendom following the Private Placement,
the Subsequent Offering, and any subsequent conversions into
shares, shall be subject to a lock-up period of six months
following the completion of the Lenders' conversion, during which
Tjelta Eiendom shall not sell its shares
without the prior written approval of the Company and the Lenders.
The shares held by the Lenders following the conversion of parts of
the Term Loan Facility shall be subject to a lock-up period of six
months following the completion of the conversion, during which the
Lenders shall not sell its shares without the prior written
approval of the Company and Tjelta Eiendom.
Subsequent Offering and equal treatment considerations
The Company has considered the Private Placement in light of the
equal treatment obligations under the Norwegian Securities Trading
Act, the Euronext Growth Rule Book Part II and Oslo Børs' circular
no. 2/2014, and the board of directors is of the opinion that the
waiver of the preferential rights inherent in a private
placement, taking into consideration the time, costs and risk of
alternative methods of securing the desired funding, is in the
common interest of the shareholders of the Company.
The Company will, subject to completion of the Private Placement
and certain other conditions, carry out the Subsequent Offering
with gross proceeds of up to NOK23,500,000, which is equivalent to
470,000,000 new shares, at a subscription price of NOK0.05 per
share, which is equal to the subscription price in the
Private Placement. The Subsequent Offering will be fully
underwritten by Tjelta Eiendom, securing the Company's receipt of
the full amount of the Subsequent Offering. Tjelta Eiendom has not
demanded an underwriting commission for such underwriting.
The Subsequent Offering will primarily, subject to applicable
securities law, be directed towards existing shareholders in the
Company as of May 14, 2024 (as registered in the VPS two trading
days thereafter), who (i) were not allocated Offer Shares in the
Private Placement, and (ii) are not resident in a jurisdiction
where such offering would be unlawful or would (in jurisdictions
other than Norway) require any prospectus, filing, registration or
similar action (the "Eligible Shareholders"). These Eligible
Shareholders will receive non-transferable subscription rights in
the Subsequent Offering. Oversubscription with subscription rights
will be allowed. Subscription without subscription rights from
investors other than the Eligible Shareholders will
also be allowed.
The allocation hierarchy in the Subsequent Offering will be as
follows:
a) Shares shall be allocated to Eligible Shareholders who have
subscribed with subscription rights.
b) Unallocated shares following a) shall be allocated to Eligible
Shareholders who have over-subscribed with subscription rights (on
a pro rata basis).
c) Unallocated shares following b) shall be allocated to investors
other than the Eligible Shareholders who have subscribed without
subscription rights (the board reserves the right to allocate c) at
their sole discretion (in
consultation with the Manager)).
d) Unallocated shares following c) shall be allocated to Tjelta
Eiendom as underwriter of the Subsequent Offering.
The Subsequent Offering is subject to approval by the General
Meeting. Launch of a Subsequent Offering will also be contingent on
publishing a prospectus. Completion of the Subsequent Offering will
be conditional upon the completion of the Private Placement and the
share capital reduction mentioned above.
Advisors
Pareto Securities AS is acting as financial advisor to the Company
as well as sole manager and sole bookrunner in the Private
Placement and the Subsequent Offering (the "Manager").
Advokatfirmaet Schjødt AS is acting as legal counsel to the
Company.
===========
R U S S I A
===========
AGROS HAYOT: Fitch Affirms & Withdraws 'BB-/Stable' IFS Rating
--------------------------------------------------------------
Fitch Ratings has affirmed Agros Hayot Joint-Stock Insurance
Company's (Agros Hayot) Insurer Financial Strength (IFS) Rating at
'BB-' with Stable Outlook and simultaneously withdrawn it.
The rating of its 100% state-owned parent Uzagrosugurta Joint-Stock
Company (IFS: BB-/Stable) is unaffected.
Fitch has withdrawn Agros Hayot's rating for commercial reasons and
will no longer provide ratings or analytical coverage for this
entity.
KEY RATING DRIVERS
Fitch views Agros Hayot as a 'Core' subsidiary of its 100% parent,
based on its brand sharing, strong history of support, synergies
through the offer of a full range of non-life and life products to
the same franchise base and its unlikely divesture.
On a standalone basis, Agros Hayot has a record of weak operating
performance and is exposed to heightened business profile risks
posed by cancelled tax incentives for policyholders on savings
products. The cancelled tax incentives triggered a 64% drop in
gross written premiums in 2023 and a net loss of UZS19.6 billion in
2023 and a further UZS4.7 billion loss in 1Q24.
The key rating drivers are the same as those outlined in the rating
action commentary "Fitch Affirms Uzagrosugurta at 'BB-'; Outlook
Stable'', published on 28 July 2023.
RATING SENSITIVITIES
Not applicable as the rating has been withdrawn.
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
----------- ------ -----
Agros Hayot
Joint-Stock
Insurance Company LT IFS BB- Affirmed BB-
LT IFS WD Withdrawn BB-
=========
S P A I N
=========
AYT COLATERALES I: Fitch Affirms 'BB+sf' Rating on Class D Notes
----------------------------------------------------------------
Fitch Ratings has upgraded three tranches of four Spanish AyT
Colaterales Global Hipotecario RMBS transactions and affirmed the
others.
Entity/Debt Rating Prior
----------- ------ -----
AyT Colaterales Global
Hipotecario, FTA
Serie BBK II
Class A ES0312273362 LT AAAsf Affirmed AAAsf
Class B ES0312273370 LT BBBsf Upgrade BB+sf
AyT Colaterales Global
Hipotecario, FTA
Serie BBK I
Class A ES0312273008 LT AAAsf Affirmed AAAsf
AyT Colaterales Global
Hipotecario, FTA Serie
Caja Cantabria I
Class A ES0312273446 LT AAAsf Affirmed AAAsf
Class B ES0312273453 LT AA+sf Upgrade A+sf
Class C ES0312273461 LT A+sf Affirmed A+sf
Class D ES0312273479 LT Asf Affirmed Asf
AyT Colaterales Global
Hipotecario, FTA
Serie Vital I
Class A ES0312273081 LT AAAsf Affirmed AAAsf
Class B ES0312273099 LT AA+sf Upgrade AAsf
Class C ES0312273107 LT A-sf Affirmed A-sf
Class D ES0312273115 LT BB+sf Affirmed BB+sf
TRANSACTION SUMMARY
The transactions are static securitisations of Spanish residential
mortgages serviced by Kutxabank S.A. (BBB+/Stable/F2) for AyT
Colaterales Global Hipotecario, FTA Serie BBK I, AyT Colaterales
Global Hipotecario, FTA Serie BBK II and AyT Colaterales Global
Hipotecario, FTA Serie Vital I, and Unicaja Banco S.A.
(BBB-/Positive/F3) for AyT Colaterales Global Hipotecario, FTA
Serie Caja Cantabria I.
KEY RATING DRIVERS
Updated Interest Deferability Rating Approach: The upgrade of
Cantabria I's class B notes reflects the update of Fitch's Global
Structured Finance Rating Criteria on 19 January 2024 in relation
to interest deferability, which previously capped the ratings at
'A+sf'.
The removal of the deferral cap under the new criteria reflects its
assessment that interest deferability is permitted under
transaction documentation for all rated notes, including a defined
mechanism for the repayment of deferred amounts, and does not
constitute an event of default. It also reflects its view that
interest deferrals will be fully recovered by the legal maturity
date and that deferrals are a common structural feature in Spanish
RMBS. Nevertheless, its analysis shows that Cantabria I's class B
notes could defer interests for around two years and be recovered
ahead of the notes' legal final maturity date.
Increasing Credit Enhancement: The notes are sufficiently protected
by credit enhancement (CE) to absorb projected losses at their
respective ratings. For Vital I and BBK I, Fitch expects structural
CE to continue increasing given the prevailing sequential
amortisation of the notes and, in the case of Vital I, the static
reserve fund (RF) as it is at its floor level supporting the
upgrade of the class B notes.
BBK I and BBK II are unhedged, with fixed-rate liabilities and
floating-rate portfolios mostly linked to 12-m Euribor index, but
current and projected CE protection for the rated notes is
sufficient to mitigate the associated cash flow risks. Under the
current stable rates environment, the difference between
floating-rate assets and fixed-rate liabilities is providing excess
spread to help gradually replenish their RFs and provide additional
CE. This is reflected in the upgrade of the class B notes of BBK
II.
Payment Interruption Risk Mitigated: Fitch views payment
interruption risk (PIR) all transactions as mitigated in a servicer
disruption. Fitch deems the available structural mitigating factor
of a cash RF sufficient to cover stressed senior fees and senior
notes interest while an alternative servicer arrangement is
implemented.
Excessive Counterparty Exposure: Cantabria I's class D notes'
rating is capped at the transaction account bank's (TAB) deposit
rating (Banco Santander S.A., A-/Stable/F2, deposit rating A/F1) as
the RF is the only source of CE for this tranche. Similarly, BBK
II´s class B notes rating upside may also be limited by the TAB´s
deposit rating as the RF represents a material share of its CE.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
For senior notes rated at 'AAA', a downgrade of Spain's Long-Term
Issuer Default Rating (IDR) that could decrease the maximum
achievable rating for Spanish structured finance transactions and a
downgrade of the notes. This is because these notes are rated at
the maximum achievable rating, six notches above the sovereign
IDR.
Long-term asset performance deterioration such as increased
delinquencies or larger defaults, which could be driven by adverse
changes to macroeconomic conditions, interest-rate increases or
borrower behavior. Higher inflation, larger unemployment and lower
economic growth could affect the borrowers' ability to pay its
mortgage debt. For instance, an increase of defaults and a decrease
of recoveries by 15% each could trigger a downgrade of two notches
for Vital I's class C notes and four notches for the class D
notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Notes rated at 'AAAsf' are at the highest level on Fitch's scale
and cannot be upgraded.
For mezzanine and junior notes, CE ratios increase as the
transactions deleverage, able to fully compensate the credit losses
and cash flow stresses commensurate with higher ratings, all else
being equal, will result in upgrades. Fitch found that a decrease
in the weighted average foreclosure frequencies of 15% and an
increase in the weighted average recovery rate of 15% would result
in an upgrade of three notches for Vital I's class D notes and up
to four notches for its class C notes.
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
pools and the transactions. 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.
Fitch did not undertake a review of the information provided about
the underlying asset pools ahead of the transactions' initial
closing. The subsequent performance of the transactions over the
years is consistent with the agency's expectations given the
operating environment and Fitch is therefore satisfied that the
asset pool information relied upon for its initial rating analysis
was adequately reliable.
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.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Cantabria I's class D notes are capped and linked to the TAB's
deposit rating as they are exposed to excessive counterparty risk.
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.
KUTXA HIPOTECARIO II: Fitch Affirms 'BB+sf' Rating on Class C Notes
-------------------------------------------------------------------
Fitch Ratings has upgraded three tranches of AyT Kutxa Hipotecario
I, FTA (Kutxa I) and AyT Kutxa Hipotecario II, FTA RMBS (Kutxa II)
and affirmed the rest. The Rating Watch Positive (RWP) on Kutxa II
class C notes has been resolved and all Outlooks are Stable.
Entity/Debt Rating Prior
----------- ------ -----
AyT Kutxa
Hipotecario I, FTA
Class A ES0370153001 LT AA+sf Affirmed AA+sf
Class B ES0370153019 LT AA-sf Upgrade A+sf
Class C ES0370153027 LT Asf Upgrade BBB+sf
AyT Kutxa
Hipotecario II, FTA
Class A ES0370154009 LT AAAsf Affirmed AAAsf
Class B ES0370154017 LT AA+sf Upgrade A+sf
Class C ES0370154025 LT BB+sf Affirmed BB+sf
TRANSACTION SUMMARY
The transactions are static securitisations of Spanish residential
mortgages originated and serviced by Kutxabank,S.A.
(BBB+/Stable/F2).
KEY RATING DRIVERS
Updated Interest Deferability Rating Approach: The upgrade of Kutxa
II class B notes reflects the updated Fitch's Global Structured
Finance Rating Criteria on 19 January 2024, under which the
interest deferability cap has been raised to 'AA+sf' from 'A+sf'.
The new cap reflects its assessment that interest deferability is
permitted under transaction documentation for all rated notes and
does not constitute an event of default, that any interest
deferrals will be fully recovered - including a defined mechanism
for the repayment of deferred amounts - by the legal maturity date.
It also reflects deferrals as a common structural feature in
Spanish RMBS. Nevertheless, its analysis shows that Kutxa II´s
class B notes could defer interests for around two years at its
'AA+sf' rating.
Sufficient Credit Enhancement (CE): Fitch deems the notes
sufficiently protected by CE against projected losses at their
respective ratings. Fitch expects CE ratios to remain broadly
stable for Kutxa I, reflecting its pro-rata note amortisation and
its tranche thickness target, until the current portfolio balance
reaches 10% of its initial balance. Fitch expects CE to keep on
increasing for Kutxa II on the notes' sequential amortisation due
to a breach of a trigger based on the share of late-stage arrears
and outstanding defaults in the portfolio. These CE trends explain
the upgrades of both Kutxa I class B and C notes; for example,
Kutxa I class C note CE has increased to 5.7% from 4.8% between
April 2024 and April 2023
Neutral Asset Performance Outlook: The rating actions reflect its
broadly stable asset performance expectations for the transactions,
in line with the neutral asset outlook for Eurozone RMBS
transactions and Fitch's view on the Spanish housing sector (see
"Iberian Mortgage Market Index - April 2024", as of April 2024).
Moreover, the transactions have a low share of loans in arrears
over 90 days (less than 1% according to the last trustee´s
investor reports) and are protected by the substantial seasoning of
the portfolios (more than 18 years). However, Fitch expects some
volatility in asset performance, especially for Kutxa II, due to
weaker affordability and higher gross cumulative defaults than
Kutxa I.
Concentration Risk: The securitised portfolios are exposed to the
Basque region in Spain, where approximately 49.4% and 45.4% of
Kutxa I and Kutxa II current portfolio balances are located. To
address regional concentration risk, Fitch applied higher rating
multiples to the base foreclosure frequency assumption to the
portion of the portfolios that exceeds 2.5x the population within
this region, in line with Fitch´s European RMBS Rating Criteria.
Additionally, the transactions could be exposed to tail risk as the
portfolio balances stood below 20% of the initial balance as of
April 2024.
On the other hand, to avoid rating volatility, and taking into
account that recovery rates may be more volatile and lower than
suggested by the seasoning as the portfolio enters its tail and
because of the regional concentration, Fitch has either affirmed or
upgraded the tranches below their model-implied ratings (MIR).
Excessive Counterparty Exposure: The upgrade of Kutxa I´s class C
notes to 'Asf' with Stable Outlook reflects sound credit
performance of the transaction but its rating is capped by the
transaction account bank Banco Santander, S.A.'s (TAB) 'A'
long-term deposit rating. This is due to excessive counterparty
dependency on the TAB holding the cash reserves, as CE held at the
TAB represents more than half of the total CE available to the
notes, and the sudden loss of these funds would imply a downgrade
of 10 or more notches in accordance with Fitch's criteria.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
For Kutxa II class A notes, a downgrade to Spain's Long-Term Issuer
Default Rating (IDR) that could decrease the maximum achievable
rating for Spanish structured finance transactions would result in
a downgrade. This is because these notes are rated at the maximum
achievable rating, six notches above the sovereign IDR.
Long-term asset performance deterioration such as increased
delinquencies or larger defaults, which could be driven by changes
to macroeconomic conditions, interest-rate increases or borrower
behavior could also lead to a downgrade.
For Kutxa I class C notes, a downgrade of the SPV TAB's long-term
deposit rating could trigger a corresponding downgrade of the
notes. This is because the notes' ratings are capped at the TAB
rating.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Kutxa II Class A notes are rated at the highest level on Fitch's
scale and cannot be upgraded.
For note ratings below 'AAAsf', CE ratios increase as the
transactions deleverage, able to fully compensate the credit losses
and cash flow stresses commensurate with higher ratings, all else
being equal, would lead to upgrades.
For Kutxa I class C notes, an upgrade of the SPV TAB's long-term DR
could trigger a corresponding upgrade of the notes.
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
pools and the transactions. 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.
Fitch did not undertake a review of the information provided about
the underlying asset pools ahead of the transactions' initial
closing. The subsequent performance of the transactions over the
years is consistent with the agency's expectations given the
operating environment and Fitch is therefore satisfied that the
asset pool information relied upon for its initial rating analysis
was adequately reliable.
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.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
Kutxa I class C notes' ratings are directly linked to their TABs'
long-term deposit ratings due to excessive counterparty
dependency.
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.
===========
S W E D E N
===========
SBB - SAMHALLSBYGGNADSBOLAGET: Fitch Keeps CCC+ Rating on Watch Neg
-------------------------------------------------------------------
Fitch Ratings is maintaining Swedish property company SBB -
Samhällsbyggnadsbolaget i Norden AB's (SBB) Long-Term Issuer
Default Rating (IDR) and its senior unsecured debt rating - both
'CCC+' on Rating Watch Negative (RWN).
Liquidity risks dominate SBB's ratings. Fitch calculates that SBB,
assuming its existing secured bank debt is rolled over, has
liquidity until 4Q24, after which it has significant scheduled
unsecured bond maturities in January 2025. Alternatively, without
refinancing most of its near-term secured debt, Fitch calculates
that SBB will run out of liquidity after June 2024.
SBB does not have capital market access to refinance its unsecured
bonds, leaving it with disposal of performing assets or procurement
of further external private capital as options to meet near-term
bond maturities. Fitch expects SBB to monetise part of its
residential portfolio (Sveavastigheter) to provide its next main
source of liquidity.
Throughout all this period of financing issues the directly-held
and consolidated community service (SEK44.1 billion, as at
end-2023) and residential-for-rent (SEK28.5 billion) portfolios'
rents, occupancy and continued high rent collection have remained
stable, as have its SEK40.4 billion education division's properties
supporting SBB's equity participation in Nordiqus.
KEY RATING DRIVERS
Liquidity Constraints: Fitch calculates that SBB has liquidity
either (i) until end-June 2024 when the postponed 2022 dividend and
related hybrids' deferred interest are paid, or (ii) until end-4Q24
after which SEK5.2 billion of unsecured bonds mature, depending on
whether it refinances its secured bank debt. Under Swedish law, SBB
has to pay the 2022 postponed dividend of SEK2.1 billion in June
2024 ahead of its 2024 AGM, following which it must pay its 1H24
deferred hybrid interest under notes documentation. Fitch expects
SBB to notify hybrid bondholders that, post-1H24, interest will be
deferred again.
Overhang of EofD Claim: The SBB-contested formal claim in February
2024 by a sole bondholder of an interest coverage covenant breach
tested in 2023 which, if proven to be correct, would be an event of
default (EofD), is being assessed by the UK courts and may take
until 2026 to conclude. Meanwhile, SBB continues to pay interest
(except recently hybrids) and principal when due, and take
advantage of the negative news from the EofD claim through
voluntary tender offers to buy back debt and hybrids at a
discount.
Planned Sveafastigheter Monetisation: SBB's planned "broadening of
the shareholder base" of the pooled residential-for-rent assets
could be a public IPO, or sale to private equity or other owners,
in full or more than 50% ownership, for mid-2024. Fitch calculates
that, after taking the end-2023 on-balance sheet properties
totaling SEK28.5 billion, less an assumed 50% secured debt/asset
value, the remaining equity value (at 100%) of these assets could
be around SEK14 billion. Other residential assets (such as
100%-owned SBB Residential Property AB and the group's
building-rights assets) may be included in Sveafastigheter which,
at more than 50% of net asset value sold, would result in
Fitch-estimated net proceeds of SEK6 billion-SEK7 billion.
Resi Portfolio's Strong Fundamentals: SBB's Swedish residential
portfolio shares the typical traits of below-market rents which,
upon tenant association negotiations, are allowed to catch up with
inflation increases, over time. End-2023 values per square metre
and rents were below new-build equivalents, while SBB's occupancy
rate is 94% versus a sector norm of 97%-98%. Average rents can be
increased on re-letting (on tenant churn and unit
improvement/capex) and a management team dedicated to improving
occupancy. The latest stabilising valuation yields are respectively
3.8% and 3.4% for SBB and Heimstaden Bostad's Swedish portfolios.
Potential to Monetise Nordiqus Stake: SBB's 49.84% equity stake in
Nordiqus had a book value of SEK10.3 billion at end-1Q24. SBB also
has a SEK5.3 billion vendor loan to Nordiqus. The equity value
could be adversely affected by it being a part-ownership (JV
partner is Brookfield) rather than reflecting the quality of
Nordiqus' investment properties. Meanwhile, SBB accrues and
receives interest income on its vendor loan.
Stable Nordiqus Portfolio: SBB's Nordiqus portfolio consists of
over 600 Nordic education institutions, including universities and
various-level schools. Leases are long-dated with CPI escalators
and stable rental income is mainly derived from state-funded
entities.
Core Community Service Portfolio: SBB's remaining unsecured debt of
SEK43.5 billion (1Q24: SEK40.2 billion) is mainly supported by its
core SEK44.1 billion (SEK38.8 billion) non-associate portfolio.
This debt may be reduced by other monetisations elsewhere in the
group. The 1Q24-announced Castlelake SEK5.2 billion secured
financing has SEK9.4 billion pledged assets from this on-balance
sheet portfolio. Its 45%-owned Public Property Invest AS has SEK8.2
billion of Nordic community service investment properties
supporting SBB's attributable equity stake of SEK1.7 billion.
Stable Community Service Assets: SBB's elderly care and LSS
(disabled) properties - almost half of the portfolio - and
government buildings including public offices and town halls -
cover regional locations where lack of tenant churn extends their
contractual 6.7-year average lease length. Rents have annual
indexation, and building expansion or capex has fixed-return
increases in rent and resultant property value for SBB. This
portfolio is fairly stable with 94% occupancy and an initial direct
yield of 5.3% at end-2023 (2022: above 5%).
SBB Group Financial Profile: The Fitch-calculated loan-to-value
(LTV) of around 92% at end-2023 uses on-balance sheet investment
properties, whereas other approaches may use SBB's equity
investments as value. Net debt/EBITDA was around 24x at end-2023,
which, despite the 70% weighting in community service assets and
only 30% EBITDA-weighted residential-for-rent assets, remains high.
Fitch expects interest coverage to improve from 2023's
Fitch-calculated 1.0x. This ratio benefits from a headline 2.2%
average cost of debt (end-1Q24).
DERIVATION SUMMARY
Fitch views SBB's Nordic property portfolio as stable, due to the
strength of Swedish residential-for-rent properties with
long-tenor, low churn, low vacancy, high rent collection, and
regulated below-open market rents. It is also supported by the
education and community service properties' stable tenant base with
long term indexed leases. This is tempered by the regional location
of some assets within SBB's portfolio.
SBB's and peers' Swedish (Heimstaden Bostad AB, rated
BBB-/Negative) residential-for-rent portfolios benefit from
inherent undersupply against current or long-term demand. Community
service properties benefit from state-related entities' paying or
funding the rent, whether judicial buildings or town halls/office,
elderly care or LSS bespoke accommodation within this sub-segment.
Both these portfolios' fundamentals are less sensitive to economic
cycles than commercial office property companies that are reliant
on open market conditions with multiple participants affecting
market fundamentals. Similar stability is evident in SBB's
off-balance sheet education portfolio.
Within the community service portfolio, Assura plc (A-/Stable)
builds and owns modern general practitioners' (doctors') facilities
in the UK, with approved rents indirectly paid by the state
National Health Service and a similar 11.2 years weighted average
unexpired lease term (WAULT). Its portfolio is much smaller than
SBB's at GBP2.7 billion (EUR3.2 billion). Reflecting Assura's
community service activities, a September 2023 5.0% net initial
yield (SBB end-2023: 5.3% for its Nordic community service assets),
99% occupancy rate, and specific-use assets, Assura's downgrade
rating sensitivity to 'BBB+' includes net debt/EBITDA greater than
9x.
The smaller, but community service-akin Civitas Social Housing
Limited and Triple Point Social Housing REIT PLC (both A-/Stable)
have the same 'BBB+' leverage downgrade rating sensitivity as
Assura for their long WAULT, low vacancy rate, and special needs
accommodation that also has a government rental income covenant
(sourcing housing benefit).
Using Fitch's EMEA real estate navigator, many of SBB's
portfolio-focused factors are investment-grade.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer:
- Moderate rental growth of 4% per year, driven by CPI-indexation
and rental uplifts
- Stable net rental income margins
- No dividends from SBB's many joint ventures, but cash shareholder
loan interest from Nordiqus has been included
- Completion of existing development projects and modest spend
thereafter. Total capex to average around SEK600 million per year
- Castlelake financing fully completed in 2Q24
- Payment of SEK2.1 billion postponed dividend in 2Q24 and hybrid
interest deferred up until the dividend payment
RECOVERY ANALYSIS
Its recovery analysis assumes that SBB would be liquidated rather
than restructured as a going-concern (GC) in a default.
Recoveries are based on the end-March 2024 independent valuation of
the investment property portfolio. Fitch has deducted disclosed
encumbered assets to arrive at around SEK28.0 billion, less the
remaining SEK3.7 billion pledged assets for the Castlelake
financing, plus reconsolidating SEK6 billion wholly-owned
unencumbered SBB Residential Property AB within the total SEK30.3
billion unencumbered investment property assets. Fitch applies a
standard 20% discount to these values.
Fitch assumes no cash is available for recoveries. This analysis
attributes zero value to various investments in equity stakes,
including the SEK10.2 billion Nordiqus equity investment and SEK5.3
billion vendor loan.
After deducting a standard 10% for administrative claims, the total
amount of unencumbered investment property assets Fitch assumes
available to unsecured creditors is around SEK21.8 billion. In the
debt hierarchy Fitch deducted the SEK2.3 billion SBB Residential
Property AB preference shares, which rank ahead of SBB's unsecured
creditors. The outstanding unsecured debt includes the benefit of
the March 2024 tender offer.
Fitch's principal waterfall analysis generates a ranked recovery
for senior unsecured debt of 'RR4' (a waterfall generated recovery
computation output percentage of 49% based on current metrics and
assumptions). The 'RR4' indicates a 'CCC+' unsecured debt
instrument rating.
Given the structural subordination of SBB's hybrids, Fitch
estimates a ranked recovery of 'RR6' with 0% expected recoveries.
The 'RR6' band indicates a 'CCC-' instrument rating, two notches
below SBB's IDR.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- Evidence that refinancing risk has eased, including improved
capital markets receptivity to SBB
- Successful disposal proceeds used to prepay bulk 2025 and 2026
debt maturities, and increasing liquidity
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- Lack of progress in refinancing secured bank funding
- Actions pointing to a widespread potential renegotiation of
debt's terms and conditions, including any material reduction in
lenders' terms sought to avoid a default
- Further shrinking of the unencumbered investment property
portfolio relative to unsecured debt would lead to a change in the
Recovery Rating and further downgrade of the senior unsecured
rating
LIQUIDITY AND DEBT STRUCTURE
Tight Liquidity: SBB's available liquidity at end-March 2024 was
SEK3.0 billion (end-2023: SEK4.1 billion). It has no revolving
credit facilities available for drawdown. Of the SEK2.1 billion of
secured bank debt matured in 1Q24, SEK1.4 billion was extended.
During 1Q24, the Castlelake SEK5.2 billion financing was announced
but not fully drawn down by end-1Q24.
Cash proceeds were used for the March 2024 bond and hybrid tender
offer, using EUR162.7 million (equivalent SEK1.9 billion). The next
main cash outflow will be the likely payment of the postponed
SEK2.1 billion shareholder dividend and as a consequence the
Fitch-estimated SEK0.45 billion deferred hybrid interest, in June
2024. The remaining Castlelake funding would help cover this cash
outflow.
Assuming its remaining senior secured debt is rolled over, or
migrates with the Sveafastigheter assets in a possible IPO, SBB's
main unsecured maturities total SEK5.2 billion January 2025 bonds,
and a SEK5.7 billion September 2026 bonds.
Options for further liquidity include, in order of Fitch's view of
likelihood, refinancing of existing near-term secured funding; the
Sveafastigheter monetisation (followed by a tender offer to use
these proceeds, focusing on the SEK0.5 billion 4Q24 and SEK5.2
billion 1Q25 unsecured bond maturities); further asset sales
including external capital (including secured debt) for existing
portfolios; and possibly including monetisations of equity stakes.
Once the potential covenant breach overhang is clarified by the
courts, additional equity may be meaningfully investigated. SBB's
investment properties remain performing assets with stabilising
capital values.
Existing Debt Stack: SBB's 1Q24 average cost of debt at 2.2%
excluded hybrids (averaging 3.3%), higher-coupon Morgan Stanley
preference shares (13%) in SBB Residential Property AB and the debt
raised in the non-consolidated Castlelake-funded SBB Infrastructure
AB. Derivatives, together with fixed-rate debt, afford SBB coverage
of all debt for an average 3.4 years. On-balance sheet end-2023
debt was a mix of secured (32%) and unsecured (68%) funding.
Tender Offers not DDEs: Fitch has not treated the November 2023 and
March 2024 voluntary tender offers as distressed debt exchanges,
due to a lack of both material change in terms and conditions, and
a threat of default or other forms of insolvency. Further, bonds
submitted have been voluntary offers, no covenant changes were
proposed and no 'priming' (creditors stayed with existing
recourse). SBB has liquidity options, which it is pursuing.
ESG CONSIDERATIONS
SBB has an ESG Relevance Score of '4' for Governance Structure to
reflect previous key person risk (the previous CEO) and continuing
different voting rights among shareholders affording greater voting
rights to the key person. SBB has an ESG Relevance Score '4' for
Financial Transparency, reflecting an ongoing investigation by the
Swedish authorities into application of accounting standards and
disclosures. Both these considerations have a negative impact on
the credit profile, and are relevant to the ratings in conjunction
with other factors. These factors are improving under new SBB
management.
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
----------- ------ -------- -----
SBB –
Samhallsbygg-
nadsbolaget
i Norden AB LT IDR CCC+ Rating Watch Maintained CCC+
ST IDR C Rating Watch Maintained C
Subordinated LT CCC- Rating Watch Maintained RR6 CCC-
senior
unsecured LT CCC+ Rating Watch Maintained RR4 CCC+
senior
unsecured ST C Rating Watch Maintained C
SBB Treasury
Oyj
senior
unsecured LT CCC+ Rating Watch Maintained RR4 CCC+
===========================
U N I T E D K I N G D O M
===========================
CPUK FINANCE: Fitch Assigns 'B' Rating to New Class B7 Notes
------------------------------------------------------------
Fitch Ratings has assigned CPUK Finance Limited's (CPUK) new class
B7 notes a 'B' rating. The Outlook is Stable. Fitch has also
affirmed the class A notes at 'BBB' and the other class B notes at
'B', with Stable Outlooks.
The new GBP330 million class B7 notes were issued to refinance the
existing GBP250 million class B4 notes and finance general
corporate purposes, including payment of distributions. The class
B4 notes have now been paid in full.
Entity/Debt Rating Prior
----------- ------ -----
CPUK Finance
Limited
CPUK Finance
Limited/Project
Revenues - Second
Lien/2 LT LT WD Withdrawn B
CPUK Finance
Limited/Project
Revenues - Second
Lien/2 LT LT B Affirmed B
CPUK Finance
Limited/Project
Revenues - Second
Lien/2 LT LT B New Rating B(EXP)
CPUK Finance
Limited/Project
Revenues - First
Lien/1 LT LT BBB Affirmed BBB
RATING RATIONALE
The ratings reflect CPUK's demonstrated ability to maintain high
and stable occupancy rates, increase prices above inflation, and
ultimately deliver a solid financial performance. At the same time,
the ratings factor in CPUK's exposure to the UK holiday and leisure
industry, which is highly exposed to discretionary spending.
Overall, Fitch expects CPUK's proactive and experienced management
to continue leveraging on the company's good-quality estate and
deliver steady financial performance over the medium term, despite
pressures on real disposable income in the UK.
The 'B' rating also reflects the deep subordination of the class B
to the class A notes. The class B7 notes benefit from similarly
protective features as the other class B notes, which supports the
rating. The Stable Outlook reflects its expectation that CPUK will
be able to continue to pass through cost increases into prices to a
large extent and maintain high occupancy rates
The class B4 notes have now been paid in full and their rating
withdrawn.
KEY RATING DRIVERS
Industry Profile - Weaker - Operating Environment Drives
Assessment
The UK holiday park sector faces both price and volume risks, which
makes the projection of long-term cash flows challenging. It is
highly exposed to discretionary spending and to some extent,
commodity and food prices. Events and weather risks are also
significant, with Center Parcs having been affected by fire, minor
flooding and the pandemic.
Fitch views the operating environment as a key driver of the
industry profile, resulting in its overall 'Weaker' assessment. In
terms of barriers to entry, the scarcity of suitable, large sites
near major conurbations is credit-positive for CPUK. The company's
offering is also exposed to changing consumer behaviour (e.g.
holidaying abroad or in alternative UK sites).
Sub-KRDs: Operating Environment: 'Weaker'; Barriers to Entry:
''Midrange; Sustainability: 'Midrange'
Industry Profile - Weaker
Company Profile - Stronger - Strong Performing Market Leader
CPUK has no direct competitors and the uniqueness of its offer
differentiates the company from camping and caravan options or
overseas weekend breaks. Growth has been driven by villa price
increases and CPUK's large repeat customer base helps revenue
stability. CPUK also benefits from a high level of advanced
bookings. An increasing portion of food and beverage revenue is
derived from concession agreements, but these are fully
turnover-linked, giving some visibility of underlying performance.
The CPUK brand is fairly strong and the company benefits from other
brands operated on a concession basis at its sites. The company is
well into its current eight-year lodge refurbishment programme and
makes further capex projections that should maintain the estate and
offering's quality.
Sub-KRDS: Financial Performance: 'Stronger'; Company Operations:
'Stronger'; Transparency: 'Stronger'; Dependence on Operator:
'Midrange'; Asset Quality: 'Stronger'
Operating environment - Weaker; Barriers to entry - Midrange;
Sustainability - Midrange
Company Profile - Stronger
Debt Structure - Class A Stronger; Class B Weaker - Cash Sweep
Drives Amortisation
The class A notes have an interest-only period and also benefit
from the payment deferability of the class B notes. The notes are
all fixed-rate. Fitch views the covenant package as slightly weaker
than other typical WBS deals, with covenants based on free cash
flow (FCF) debt service coverage ratios (DSCR), which are
effectively interest coverage ratios. However, this is compensated
by the cash sweep feature that kicks in at the expected maturity
date of the class A notes.
The transaction benefits from a comprehensive whole business
securitisation (WBS) security package. Security is granted by way
of fully fixed and qualifying floating security under an
issuer-borrower loan structure. As long as the class A notes are
outstanding, only the class A noteholders can direct the trustee to
enforce any security. The class B noteholders benefit from a Topco
share pledge structurally subordinated to the borrower group, and
as such would be able to sell the shares upon a class B default
event (e.g. non-payment, failure to refinance or class B FCF DSCR
under 1.0x).
Sub-KRDs: Debt Profile: Class A - 'Stronger', Class B - 'Weaker';
Security Package: Class A - 'Stronger', Class B - 'Weaker';
Structural Features: Class A - 'Stronger', Class B - 'Weaker'.
Financial performance - Stronger; Company operations - Stronger;
Transparency - Stronger; Dependence on operator - Midrange; Asset
quality - Stronger
Debt Structure - 1 - Stronger; Debt Structure - 2 - Weaker; Debt
Structure - 3 - Weaker
Debt profile - Stronger; Security package - Stronger; Structural
features - Stronger
Debt profile - Weaker; Security package - Weaker; Structural
features - Weaker
Financial Profile
Financial Profile
Under the Fitch rating case, CPUK's leverage stands at 4.9x and
7.9x net debt-to-EBITDA in the financial year ending April 2025
(FY25) for the class A and B notes, respectively and then
progressively deleverages to well below 5.0x and 8.0x by FY26, on
the back of solid operational performance, which Fitch expects to
continue despite higher inflation and pressure on discretionary
spending.
The projected deleveraging profile under the FRC envisages the
class A notes' full repayment in FY32 and class B notes' full
repayment by FY39.
PEER GROUP
Operationally, the most suitable WBS comparisons are WBS pubs, as
they share exposure to discretionary consumer spending. CPUK has
proven less cyclical than leased pubs with strong performance
during previous major economic downturns. The pandemic also
demonstrated that CPUK has more control over its costs.
Due to the similarity in debt structure, the transaction can also
be compared with Arqiva. Arqiva's WBS notes are also rated 'BBB'
and envisage full repayment via cash sweep in 2032, similar to
CPUK's expected full class A repayment. Industry risk for Arqiva is
assessed as 'Stronger' as it benefits from long-term contractual
revenue with strong counterparties, versus the 'Weaker' assessment
for CPUK. However, Arqiva's prepayment timing is somewhat
restricted by the expiry of these long-term contracts.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Class A notes:
- Deterioration of the expected leverage profile with net
debt-to-EBITDA above 5.0x by FY25
- Substantial repayment of the class A notes is not expected to be
achieved by FY33 under the FRC
Class B notes:
- Deterioration of the expected leverage profile with net
debt-to-EBITDA above 8.0x by FY25
- Substantial repayment of the class B notes is not expected to be
achieved by FY41 under the FRC
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Class A notes:
- A significant improvement in performance above the FRC, with a
resultant improvement in the projected deleveraging profile with
net debt-to-EBITDA below 4.0x in FY25 combined with the management
commitment not to re-leverage the structure as they have done in
the past
- Full repayment of the class A notes expected to occur well before
FY32 under the FRC.
Class B notes:
- An upgrade is precluded under the WBS criteria given the current
tap language, which requires the ratings post-tap to be the lower
of the ratings of the class B notes at close and the then current
ratings pre-tap (i.e. potentially 'B' or lower). This means an
upgrade could result in unwanted rating volatility if the
transaction taps the class B notes. Even without this provision,
given the sensitivity of the class B notes to variations in
performance due to their deferability, they are unlikely to be
upgraded above the 'B' category.
TRANSACTION SUMMARY
The transaction is secured by CP's holiday villages: Sherwood
Forest in Nottinghamshire, Longleat Forest in Wiltshire, Elveden
Forest in Suffolk, Whinfell Forest in Cumbria and Woburn Forest in
Bedfordshire. Each site has an average of 867 villas and is set in
a forest environment with extensive central leisure facilities.
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.
ENVIRONMENTAL ROOFING: Enters Administration
--------------------------------------------
Business Sale reports that Environmental Roofing Services Limited,
a Manchester-based roofing and renewables company, fell into
administration this month, with Claire Middlebrook of Middlebrooks
Business Recovery & Advice and Stuart Rathmell of Stuart Rathmell
Insolvency appointed as administrators.
According to Business Sale, in the company's accounts for the year
to November 30, 2022, its fixed assets were valued at GBP656,484
and current assets at GBP1.4 million, with net assets amounting to
GBP218,809.
FRIENDSHIP ADVENTURE: Goes Into Administration
----------------------------------------------
Business Sale reports that Friendship Adventure Limited, a craft
beer microbrewery and taproom based in Brixton, South London, fell
into administration earlier this month, appointing Allister Manson
and Trevor Binyon of Opus Restructuring as joint administrators.
In the company's accounts for the year to May 31, 2022, its fixed
assets were valued at GBP184,666, Business Sale discloses.
However, at the time, its net current liabilities stood at
GBP212,339, with net liabilities totalling just under GBP101,000,
Business Sale notes.
HALSALL CONSTRUCTION: Goes Into Administration
----------------------------------------------
Business Sale reports that Halsall Construction Limited, a
construction contractor based in Bath, fell into administration
last week, with Andrew Hook and Julie Palmer of Begbies Traynor
appointed as joint administrators.
The company, which forms part of Shepperton Group, was founded in
1974 and specialises in new build and refurbishment projects of up
to GBP25 million in the residential, health, commercial, education
and care and retirement sectors.
In its accounts for the year to September 30, 2022, the company saw
its turnover fall from GBP41 million to GBP28.8 million, while it
went from a profit of GBP351,370 to a loss of GBP2.26 million,
Business Sale discloses. At the time, its fixed assets were valued
at close to GBP1.2 million and current assets at GBP10.2 million,
with net assets amounting to GBP35,718, Business Sale notes.
HIGH WYCOMBE: Collapses Into Administration
-------------------------------------------
Business Sale reports that High Wycombe Developments Limited, a
property development firm based in Beaconsfield, fell into
administration in early May, with Sean Bucknall and Simon Campbell
of Quantuma Advisory appointed as joint administrators.
According to Business Sale, in the company's accounts for the year
to September 30, 2021, its turnover was GBP18.2 million, down from
close to GBP40.7 million a year earlier, and it reported a pre-tax
loss of GBP29,000, compared to a GBP346,000 profit in 2020.
At the time, the company's current assets were valued at close to
GBP5 million, but its net liabilities amounted to over GBP1.1
million, Business Sale discloses.
LGC SCIENCE: Moody's Affirms 'B3' CFR, Outlook Remains Stable
-------------------------------------------------------------
Moody's Ratings has affirmed the ratings of life science and
testing materials company LGC Science Group Holdings Limited (LGC
or the company), including its long-term corporate family rating of
B3 and its probability of default rating of B3-PD. Concurrently,
the rating agency has affirmed the existing B3 ratings on the
backed senior secured bank credit facilities of Loire Finco
Luxembourg S.a.r.l. The outlook on both entities remains stable.
The rating action reflects:
-- Macroeconomic headwinds negatively impacting financial year
(FY) 2024 performance, with gross leverage elevated at 9.1x on a
Moody's adjusted basis but remaining on path to fall well below
7.5x by FY2026.
-- Free cash flow generation will be materially negatively
impacted by the company's higher cash interest as well as
expansionary capital projects, which are expected to complete in
FY2026, after which free cash generation is likely to turn
positive.
-- LGC's liquidity position is adequate with no maturities coming
due before October 2026.
RATINGS RATIONALE
In FY2024, for the first time in several years, LGC no longer
benefited from contributions from the high margin COVID-19
solutions and its performance was further negatively impacted by
macroeconomic factors. This resulted in EBITDA declining by around
20% to GBP216 million on a company adjusted basis. The company was
mainly impacted in its Geonomics business by destocking of its
customers and reduced Biotech funding budgets. Recovery is expected
more towards the second half of the year, which has delayed the
company's deleveraging trajectory. On a Moody's adjusted basis the
rating agency expects gross leverage to remain elevated in FY2025
but to remain on path to decrease to well below 7.5x by FY2026 from
9.1x in FY2024. The company is expected to remain materially free
cash flow negative over the next 12 months because of its extensive
expansionary capex programme coupled with the higher interest cash
outflows. LGC's business profile and the strong market dynamics
support its rating, although given the stretched credit metrics the
rating remains weakly positioned.
LGC's CFR also considers: (1) the competitive and fragmented nature
of end markets; (2) a degree of customer concentration and a
shorter sales cycle in its Genomics division; (3) some exposure to
macroeconomic conditions in its Assurance division; and (4) the
presence of a large PIK debt balance outside the restricted group
and a debt-funded shareholder distribution in April 2021. LGC also
has a track record of acquisitive growth, which could keep leverage
elevated in case of large bolt-on deals requiring debt-funding.
Conversely, LGC's B3 CFR is supported by the company's: (1) strong
niche market positions benefiting from high barriers to entry and a
large proportion of recurring revenue; (2) large customer base with
an average relationship length of 10 years; (3) underlying revenue
growth in the high single-digit rate sustainably in most markets;
and (4) solid albeit reducing profitability, as measured by
Moody's-adjusted EBITDA margin of around 26%.
LIQUIDITY
LGC's liquidity is adequate. The company had GBP70 million of
unrestricted cash at the end FY 2024 and its backed senior secured
revolving credit facility (RCF) had GBP230 million available,
maturity to be extended to October 2026. Moody's expects the RCF
will be drawn further during the current year, mainly to fund the
company's expansionary capex. The agency expects ample headroom
under the RCF's springing covenant based on a consolidated senior
secured net leverage ratio not exceeding 11.5x.
STRUCTURAL CONSIDERATIONS
The B3 ratings on the backed senior secured facilities (term loan B
and RCF) borrowed by Loire Finco Luxembourg S.a.r.l., a wholly
owned subsidiary of LGC Science Group Holdings Limited, are in line
with the B3 CFR given the all-senior capital structure.
RATING OUTLOOK
The stable outlook assumes (1) organic revenue and EBITDA growth in
the base business; (2) leverage to trend visibly below 7.5x in
FY2026; (3) no debt-funded shareholder distributions or
acquisitions; and (4) at least adequate liquidity maintained.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure on the ratings could develop if leverage, as
measured by Moody's-adjusted debt/EBITDA, were to reduce and be
sustained below 6.5x and FCF/debt increased toward 5% sustainably.
An upgrade would also require the absence of any re-leveraging
transaction.
Downward pressure on the rating could occur if (1) there is a loss
of major accreditations or clients leading to revenue declines, (2)
Moody's-adjusted free cash flow remains meaningfully negative
beyond FY2025, or (3) Moody's-adjusted debt/EBITDA does not remain
on path to decrease to well below 7.5x by FY2026 or (4) if
liquidity deteriorates materially.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Medical
Products and Devices published in October 2023.
CORPORATE PROFILE
LGC, headquartered in Teddington, UK, provides analytical testing
products and services to a wide range of end markets including
molecular and clinical diagnostics, pharma and biotech, food,
agricultural biotech and environmental industries. LGC also fulfils
crucial roles for the UK government. LGC has operations globally,
with products and services sold in over 180 countries and generates
approximately 90% of revenue via its own channels, rather than
distributors.
LGC had revenue of GBP721 million and management adjusted EBITDA of
GBP216 million in fiscal 2024 (unaudited March yearend). LGC was
acquired by Astorg and Cinven in April 2020.
PETROFAC LIMITED: Fitch Lowers Rating on LongTerm IDR to 'C'
------------------------------------------------------------
Fitch Ratings has downgraded Petrofac Limited's Long-Term Issuer
Default Rating (IDR) and senior secured debt rating to 'C' from
'CC'. The Recovery Rating on the senior secured debt is 'RR4'.
The downgrade reflects Petrofac's missed interest payment on its
USD600 million senior secured notes that was due on 15 May 2024.
The group has entered a 30-day grace period to cure the payment as
provisioned in the debt documentation. This follows Petrofac's
announcement on 29 April of its intention to defer its 15 May
coupon payment.
Failure to cure the interest payment within the original 30-day
grace period, or failure to enter into a forbearance period in
relation to the missed interest payment, would lead to an event of
default. Alternatively, changes agreed to by bondholders resulting
in a distressed debt exchange (DDE) would result in a further
downgrade by Fitch to 'Restricted Default' ('RD') and subsequently
Fitch would re-rate the group based on the amended capital
structure.
KEY RATING DRIVERS
Coupon Payment Deferral: Petrofac has opted not to make a scheduled
15 May semi-annual interest payment on its USD600 million 9.75%
senior secured notes in an effort to enhance liquidity as it
engages with financial stakeholders to restructure its balance
sheet. The group has entered a contractual 30-day grace period to
cure the payment. Under Fitch's rating definitions, these
conditions are a 'Near Default' and are commensurate with a 'C'
IDR.
On 29 April, Petrofac announced that it entered into forbearance
agreement with an ad-hoc group of bondholders representing about
41% of the outstanding notes. It stipulates that those noteholders
will not take any action in respect of the non-payment of the
coupon until at least 30 June 2024. The group remains in discussion
with other bondholders and creditors.
Imminent Default: Petrofac has announced that ongoing discussions
with its lenders to restructure its debt would result in a
significant proportion of the debt being exchanged for equity in
the business. Fitch expects this proposed debt restructuring would
be implemented to avoid insolvency and would result in a material
reduction in terms for creditors, which it would view as a DDE
under Fitch's Corporate Rating Criteria.
Inevitable Balance-Sheet Restructuring: Fitch sees a balance-sheet
restructuring as inevitable before the group can secure performance
guarantees from banks. The group's limited liquidity and increasing
reliance on liquidity sources that are subject to execution risk,
such as non-core asset disposals, add to the difficulty of securing
bank guarantees, which is solely behind its deteriorating revenue
visibility. Petrofac's short-term maturities include USD90 million
term loans and a USD162 million fully drawn revolving credit
facility (RCF), both maturing by October 2024.
A performance guarantee is a standard contractual requirement in
engineering, procurement, and construction (EPC) contracts. It is
typically provided by banks as a financial back-stop to clients
that project delivery will be in line with the agreed terms, and if
not to provide financial remedy. A protracted inability to secure
guarantees could lead to a broader commercial fallout for Petrofac,
including potential cancellations of contracts and challenges in
obtaining new contracts.
Uncertain Measures to Support Liquidity: The execution risk of
Petrofac raising additional capital is exacerbated by the fairly
limited value of its non-core assets, low market capitalisation and
the resulting need to explore a debtor-unfriendly solution
including a debt-to-equity exchange.
DERIVATION SUMMARY
Petrofac's 'C' Long-Term IDR reflects its non-payment of the bond
interest and the 30-day grace period.
Petrofac has no close direct Fitch-rated peers. Fitch views
Petrofac's business profile as weaker than Saipem S.p.A.'s, due
mainly to the latter's significantly stronger revenue visibility
supported by its large order backlog. Fitch views Petrofac's
business profile as weaker than John Wood Group plc's due to
declining revenue visibility related to the group's inability to
secure performance guarantees. Both companies have a solid position
in their core markets and sound geographic diversification.
KEY ASSUMPTIONS
Key Assumptions Within Its Rating Case for the Issuer:
- Revenue of around USD3.0 billion in 2024, and gradually
increasing to USD4.1 billion in 2026
- EBITDA margin at about 1% in 2024 and 3%-5% in 2025-2026
- Working-capital inflows in 2024 and 2025
- Non-core assets disposal proceeds of about USD60 million in 2024
- No dividends and acquisitions in the next four years
RECOVERY ANALYSIS
- The recovery analysis assumes that Petrofac would be reorganised
as a going-concern (GC) in bankruptcy rather than liquidated. It
mainly reflects Petrofac's strong market position, engineering
capabilities, customer relationships and asset-light business
model, following disposals in the integrated energy services
division
- For the purpose of recovery analysis, Fitch assumes that the debt
comprises USD600 million senior secured notes, its USD162 million
revolving credit facility (RCF; full drawdown assumed) and USD90
million term loans. Fitch assumes that all debt instruments rank
equally among themselves
- The GC EBITDA estimate of USD107 million reflects Fitch's view of
a sustainable, post-reorganisation EBITDA level on which Fitch
bases the enterprise valuation (EV). Distressed EBITDA would most
likely result from severe operational challenges in lump-sum
projects
- Fitch applies a distressed EBITDA multiple of 4x to calculate a
GC EV. The choice of multiple mainly reflects Petrofac's strong
market position being offset by weak revenue visibility and demand
volatility in the oil and gas end-markets
- After deducting 10% for administrative claims, its waterfall
analysis generates a ranked recovery for the senior secured debt in
the Recovery Rating 'RR4' band, indicating a 'CC' instrument rating
for the group's USD600 million senior secured notes. The waterfall
analysis output percentage on current metrics and assumptions is
45%.
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- An upgrade is unlikely given the announced prospect of a debt
exchange and Fitch's view that an imminent balance-sheet
restructuring is required to avoid insolvency
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- The IDR would be downgraded to 'RD' in the event of an uncured
expiry of grace period, or absence of an agreement with lenders and
bondholders to secure a forbearance period in relation to the
missed interest payment
- The IDR would be downgraded to 'RD' after completion of the debt
restructuring, which Fitch will treat as a DDE, before being
subsequently re-rated under an amended capital structure
- The IDR could be downgraded to 'D' in the absence of an agreement
with lenders and bondholders, materially eroding liquidity leading
to bankruptcy filings or other formal insolvency procedures
LIQUIDITY AND DEBT STRUCTURE
Unfunded Liquidity: Petrofac's liquidity is insufficient to cover
its interest payments or repay debt as per its maturity schedule.
ISSUER PROFILE
Petrofac is an international engineering and construction services
provider to the energy industry. The group designs, builds,
operates and maintains oil and gas facilities, delivered through a
range of commercial models (lump-sum, reimbursable and flexible).
ESG CONSIDERATIONS
Petrofac Limited has an ESG Relevance Score of '4' for Financial
Transparency due to a delay in publication of annual audited
financial statements, 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
----------- ------ -------- -----
Petrofac Limited LT IDR C Downgrade CC
ST IDR C Affirmed C
senior secured LT C Downgrade RR4 CC
R K N ALUMINIUM: Goes Into Administration
-----------------------------------------
Business Sale reports that R K N Aluminium Limited, a manufacturer
of aluminium windows and doors, fell into administration in early
May, with Michael Solomons and
Andrew Pear of Moorfields appointed as administrators.
The company, which is based near Melton Mowbray, moved into a new
13,500 sq ft purpose-built headquarters last year as it sought to
continue its growth and profitability following major cost
increases during 2021/22, Business Sale discloses.
According to Business Sale, in its accounts to August 31 2022, its
fixed assets were valued at GBP85,699 and current assets at GBP1.8
million, with net assets amounting to GBP302,855.
THAMES WATER: Omers Opts to Write Off Investment Amid Debt Woes
---------------------------------------------------------------
Gill Plimmer and Josephine Cumbo at The Financial Times report that
Thames Water's biggest shareholder has written off its investment
in the utility in a sign of the escalating financial crisis at the
UK's largest water company.
A Singapore-registered subsidiary of Ontario Municipal Employees
Retirement System, which holds a 31% stake in Thames Water, said in
accounts filed on May 17 it would make "a full writedown of [its]
investment and loan receivable with accrued interest".
Thames Water has been struggling with rising interest rates on its
GBP18 billion of debt and needs a GBP750 million cash injection
from its owners by the end of this year to keep running and deliver
infrastructure improvements.
The UK's biggest utility, which serves 16 million customers, has
been embroiled in disputes with regulators over water bills, fines
and dividends and has failed to reach an agreement with them over
its business plan.
"With the major shareholder writing off their investment, it is
only a matter of time before the government has to take over," said
Tim Whittaker, research director at the EDHEC Infrastructure
Institute.
Omers, one of Canada's biggest public sector pension funds, holds
its stake in Thames Water through multiple investment vehicles
including its Singapore-registered entity.
Omers Farmoor Singapore PTE owns about a fifth of Thames Water in
addition to further stakes held by other Omers entities. The
writedown would apply to the overall 31% stake, Omers told the
Financial Times.
The Singapore entity filed its accounts a day after Omers withdrew
its representative, Michael McNicholas, from the utility's board
with immediate effect.
Omers' fund value at the end of 2023 stood at about GBP74.5
billion.
"Thames Water is a business with a regulatory capital value of
GBP19 billion, GBP2.4 billion of liquidity available, annual
regulated revenue of GBP2 billion and a new leadership team,"
Ofwat, the regulator, said in a statement on May 17. "They must
continue to pursue all options to seek further equity. Safeguards
are in place to ensure that services to customers are protected,
regardless of issues faced by the shareholders."
Omers' decision will compound concerns over the finances at Thames
Water. The government has already made contingency plans for the
utility's temporary renationalisation, dubbed Project Timber.
Omers and eight other shareholders decided in March not to inject
much-needed equity into the business after discussions with
regulator Ofwat, saying that the company was "uninvestable".
Thames Water had asked for a 56% increase in bills including
inflation, as well as limits to regulatory fines and leniency on
dividend rules. Ofwat is due to produce a draft ruling on June 12
but Thames Water's owners believe the regulator is unlikely to
agree to their demands.
WEARSIDE CONTRACTORS: Lack of Orders Prompts Administration
-----------------------------------------------------------
Business Sale reports that Wearside Contractors Limited, a
construction contractor based in Hartlepool, fell into
administration earlier this month, with Martyn Pullin and
David Willis of FRP Advisory appointed as joint administrators.
According to Business Sale, speaking to industry publication
Construction News, Wearside Contractors director Anthony Fallow
attributed the firm's collapse to a lack of orders, saying that the
firm had "tendered for a lot of work but it came crashing down in a
fortnight" and that it "couldn't sustain another month of
overheads."
Mr. Fallow added that the company had just one job in progress at
that time it filed for administration, which was at the practical
completion stage, Business Sale notes.
In the company's accounts for the year to March 31, 2023, its
assets were valued at around GBP474,000, but net assets amounted to
just under GBP5,500, Business Sale discloses.
*********
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.
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