/raid1/www/Hosts/bankrupt/TCREUR_Public/240626.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Wednesday, June 26, 2024, Vol. 25, No. 128
Headlines
A U S T R I A
SIGNA GROUP: Austrian Prosecutors Raid Founder's Home
F R A N C E
EDUCATION GROUP: Moody's Affirms 'B2' CFR, Outlook Remains Stable
HOMEVI SAS: Moody's Affirms B3 CFR & Rates New Extended Debt B3
SECHE ENVIRONNEMENT: Fitch Puts 'BB' LongTerm IDR on Watch Negative
G E O R G I A
GEORGIA: Fitch Alters Outlook on 'BB' Foreign Curr. IDR to Stable
G E R M A N Y
NIDDA HEALTHCARE: Moody's Rates New EUR500MM Secured Term Loan 'B3'
I R E L A N D
BARINGS EURO 2014-1: Fitch Affirms 'B+sf' Rating on Cl. F-RR Notes
MAN GLG I: Fitch Affirms B+sf Rating on Cl. F-R Notes, Outlook Neg.
MARGAY CLO II: S&P Assigns B-(sf) Rating on Class F Notes
PENTA CLO 17: S&P Assigns Prelim. B-(sf) Rating on Class F Notes
I T A L Y
BORMIOLI PHARMA: Fitch Puts 'B' LongTerm IDR on Watch Positive
QUARZO SRL 2024: Moody's Assigns Ba1 Rating to EUR22.8MM D Notes
L U X E M B O U R G
SAPHILUX SARL: Moody's Affirms B3 CFR & Alters Outlook to Positive
M A L T A
ESPORTS ENTERTAINMENT: Appoints TAAD LLP as New Auditor
N E T H E R L A N D S
IPD 3 BV: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
S P A I N
SANTANDER CONSUMO 5: Fitch Affirms 'BBsf' Rating on Class D Notes
U N I T E D K I N G D O M
ARJ CONSTRUCTION: Owed More Than GBP9MM to Subcontractors
CARTWRIGHT BROTHERS: Enters Administration, Halts Operations
FAIRHURSTS DESIGN: Bought Out of Administration
GO PLANT: 34 Jobs Saved Following Administration Deal
L1R HB FINANCE: EUR415.5MM Bank Debt Trades at 19% Discount
LAYBUY: Falls Into Administration
SHEPHERDS BUSH: Collapses Into Administration
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A U S T R I A
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SIGNA GROUP: Austrian Prosecutors Raid Founder's Home
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Marton Eder at Bloomberg News reports that Austrian prosecutors
raided the home of Signa founder Rene Benko and his insolvent
company's headquarters as part of a fraud investigation.
According to Bloomberg, a lawyer for Mr. Benko confirmed the search
of the residence on June 25 and said his client was cooperating
with authorities.
"A search is currently being carried out on site in order to seize
any documents relating to the allegations that have already been
reported," Norbert Wess, as cited by Bloomberg, said by email,
referring to suspicions in the wake of Signa's collapse.
Photos published by the Kronen Zeitung newspaper, which first
reported the raid, showed armed police officers at the villa in the
outskirts of Innsbruck, the capital of Tyrol province in western
Austria, Bloomberg relates.
Mr. Benko has come under legal scrutiny in several nations
following the financial meltdown of his real estate and retail
empire, Bloomberg notes.
Prosecutors in Austria have been investigating allegations of fraud
related to loans taken by Signa months before its insolvency,
Bloomberg discloses. Authorities in Germany and Liechtenstein are
also conducting separate probes into Signa and its founder,
Bloomberg states.
Signa's insolvency has become a matter of hot debate in Austria
before general elections at the end of September because of Benko's
ties to the country's political elite.
Signa's insolvency remains the focus of Austrian officials and
creditors, Bloomberg says. Wolfgang Peschorn, who acts as the
Austrian government's legal representative, has challenged a
restructuring agreement with creditors in court, saying a
bankruptcy process would shed more light on the full cause and
scope of the meltdown, Bloomberg recounts.
Abu Dhabi sovereign fund Mubadala Investment Co. and other Middle
Eastern investors are seeking more than a billion euros (US$1.07
billion) from Signa and Mr. Benko in arbitration, according to
Bloomberg.
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F R A N C E
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EDUCATION GROUP: Moody's Affirms 'B2' CFR, Outlook Remains Stable
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Moody's Ratings has affirmed the B2 long-term corporate family
rating and the B2-PD probability of default rating of The Education
Group SAS ("Grandir" or "the company"), a France-based
international provider of childcare and early education.
Concurrently, Moody's have affirmed the B2 ratings on the EUR475
million senior secured term loan B (TLB) due September 2028 and the
EUR90 million senior secured revolving credit facility (RCF) due
March 2028, both borrowed by The Education Group SAS. The outlook
remains stable.
"Grandir's B2 rating reflects its resilient business model,
favorable industry demand trends, consistent revenue increase
coupled with steady profit margins, and the favorable regulatory
landscape and tax system in France, which is its primary market,"
says Víctor García Capdevila, a Moody's Ratings Vice
President-Senior Analyst and lead analyst for Grandir.
"The rating also takes into account the company's high gross
adjusted leverage, as well as its limited free cash flow
generation," adds Mr. García.
RATINGS RATIONALE
Grandir's B2 CFR reflects the positive industry dynamics within the
childcare and early education segment; the company's solid business
model, supported by a degree of revenue visibility from long-term
contracts with companies and municipalities; a favorable regulatory
environment, particularly in France; the company's resilient
operating performance with good track record of strong growth; the
increased international diversification and its limited customer
concentration.
The rating is constrained by Grandir's high leverage; the risk of
adverse changes in the regulatory landscape, particularly in
France; its lower-than-peers profitability margin; pricing
pressures in the business-to-business (B2B) segment led by a highly
competitive environment; the execution risks associated with a
rapid, ambitious organic and inorganic growth strategy; and its
negative free cash flow (FCF) generation.
Despite facing operational challenges mainly related to
inflationary pressures and labour shortages leading to lower
occupancy rates and higher personnel expenses, Grandir has
demonstrated resilience in its operating performance over the past
four years. The company's revenue and EBITDA grew by a compound
annual growth rate (CAGR) of 29% and 24% respectively, from 2019 to
2023, to EUR778 million and EUR177 million.
Over the past four years, the company has demonstrated its ability
to successfully integrate newly acquired businesses, including
large transformational acquisitions such as Liveli, often realizing
synergies sooner than originally anticipated. The private early
education sector is experiencing notable expansion, driven by a
rise in women's workforce involvement, steady birth rates, a change
in parental attitudes favoring early education over simple
childcare, and a lack of availability in group childcare
facilities. In addition, more and more employers are incorporating
early education support for their staff's children into their
remuneration packages as a strategy to enhance employee retention,
recruitment, productivity, and work-life equilibrium.
These positive demand trends will continue to support Grandir's
operating performance. However, the group's commitment to an
ambitious growth strategy, encompassing both new greenfield
projects and takeovers, leads to a consistent high leverage level
and requires substantial capital outlays. This strategy is
contributing to the strain on the company's free cash generation
and interest coverage metrics.
In 2023, Moody's-adjusted gross leverage, pro forma for
acquisitions and before lease adjustments, decreased to 5.2x from
5.7x in 2022. Moody's base case scenario assumes that leverage will
remain broadly unchanged in 2024 at around 5.2x before reducing to
4.9x in 2025 driven by solid EBITDA growth and stable debt levels.
The interest coverage ratio, calculated as EBITA divided by
interest expense, decreased to 1.5x in 2023 from 2.0x in 2022. This
decrease was primarily driven by an incremental EUR125 million TLB
add-on raised in April 2023. Moody's base case scenario assumes
that interest coverage will remain largely unchanged in 2024 at
around 1.5x, improving to 1.7x in 2025.
LIQUIDITY
Grandir has adequate liquidity. As of March 2024, the company had a
cash balance of EUR37 million and EUR87 million available under its
EUR90 million committed RCF. The RCF is subject to a consolidated
senior secured net leverage springing covenant of 9.1x when
drawings exceed 40%. Moody's base case scenario assumes adequate
capacity under this covenant over the next 12-18 months. Moody's
also forecast breakeven free cash flow generation in 2024 and 2025.
The company maintains a prudent interest rate hedging policy, with
95% of the EUR475 million TLB locked at a 2.65% fixed rate until
December 2025. In April 2024, the interest rate hedging was
extended to December 2026 at a fixed blended rate of 2.4%.
The company has a long-dated debt maturity profile, with the RCF
maturing in March 2028 and the TLB in September 2028.
STRUCTURAL CONSIDERATIONS
Grandir's probability of default rating of B2-PD reflects the use
of an expected family recovery rate of 50%, as is consistent with
all first-lien covenant-lite capital structures.
The EUR475 million TLB and the EUR90 million RCF are rated B2, in
line with the company's CFR. All facilities are guaranteed by the
company's subsidiaries and benefit from a guarantor coverage of not
less than 80% of the group's consolidated EBITDA. The security
package includes shares, bank accounts and intercompany receivables
of material subsidiaries.
The shareholder loan provided by InfraVia and due six months after
the final debt maturity of the TLB has received equity credit under
Moody's Hybrid Equity Credit methodology.
RATIONALE FOR STABLE OUTLOOK
The stable outlook reflects the resiliency of Grandir's business
model, the positive industry dynamics and Moody's expectation of a
slight reduction in its leverage over the next 12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure on the rating could develop over time if Grandir's
Moody's-adjusted gross debt/EBITDA declines below 4.5x before lease
adjustments or 3.5x after lease adjustments, and the company
demonstrates a track record of generating significant positive FCF,
leading to FCF/debt of more than 10%.
Downward pressure on the rating could arise if Grandir's earnings
deteriorate or the company engages in debt-financed acquisitions,
causing Moody's-adjusted gross debt/EBITDA to remain above 6.0x on
a sustained basis before lease adjustments or 4.5x after lease
adjustments. Downward rating pressure could also arise if the
company's FCF turns negative on a sustained basis or its liquidity
deteriorates.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
The Education Group SAS (Grandir) is a leading international
provider of childcare and early education for infants and children
under the age of six years, with around 49,000 seats and 1,100
nurseries in six countries. In 2023, the group had operations in
France (61% of revenue), Canada (15%), the UK (12%), the US (6%),
Germany (5%) and Spain (1%). The business model is predominantly
focused on business-to-consumer (B2C) (39% of revenue in 2023), B2B
(39%) and B2G (22%). In 2023, the group reported revenue of EUR778
million and Moody's-adjusted EBITDA of EUR177 million (before lease
adjustments).
Grandir is owned by funds managed by InfraVia Capital Partners
(InfraVia, 61%), Sodexo SA (20%), the founder and CEO (18%), and
the management team (1%).
HOMEVI SAS: Moody's Affirms B3 CFR & Rates New Extended Debt B3
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Moody's Ratings has affirmed the B3 corporate family rating and
B3-PD probability of default rating of HomeVi S.a.S. (DomusVi or
the company). Concurrently, Moody's has assigned B3 instrument
ratings to the proposed amended and extended (A&E) debt facilities,
including the EUR1,970 million senior secured term loan B (TLB) and
the EUR190 million senior secured revolving credit facility (RCF),
both due in 2029. The current Caa1 instrument ratings of the senior
secured bank credit facilities due 2026 are unaffected by this
rating action and expected to be withdrawn at closing of the
transaction. The outlook remains stable.
The company is looking to extend the maturity of its current debt
facilities. The transaction also involves an equity injection from
DomusVi's shareholders of EUR100 million which will support
liquidity, repay some bilateral debt and cover transaction costs.
Shareholders have also committed to inject further equity of up to
EUR100 million over the next 12 months, if the company fails to
generate certain proceeds from assets sales by July 2025, to
support liquidity through repayment of the RCF. The transaction
highlights the continued support of DomusVi's shareholders, which
is positive.
RATINGS RATIONALE
The affirmation of the ratings and the stable outlook reflect
Moody's expectations that, over the next 12-18 months, DomusVi's
key credit metrics will continue to improve to levels more
commensurate with its B3 rating, which is currently weakly
positioned.
In particular, over the next 12-18 months, the rating agency
estimates that its Moody's-adjusted gross leverage will improve
towards 7x from 8.2x as of March 2024, and that its
Moody's-adjusted EBITA to interest expense coverage will trend
towards 1.2x pro forma the A&E transaction. The company continues
to have an interest rate hedging agreement until 2026, which will
support interest coverage.
The equity injection and successful extension of maturities are
governance considerations and were key drivers of rating action.
The company's current key credit metrics are weak for the rating
category, in particular cash generation and liquidity, despite the
planned equity injection and assets disposals planned over the next
12 months. Moody's estimates that the company's capital expenditure
will be at around 5-6% of revenue over the next 12-18 months, and
that its Moody's-adjusted FCF will remain negative over the same
period. Moody's anticipates the company will continue to rely on
external sources to fund its capital expenditure programme,
including capex financing and increase in share capital that the
company has usually raised in the recent past to fund capital
spending. Effective execution of price increases above cost
inflation, and adequate liquidity management will remain key for
the gradual improvement of the company on its rating category.
The rating action also takes into account the company's solid
operating track record as the second-largest elderly housing,
services and care operator in France and the largest elderly
housing, services and care operator and mental care facilities in
Spain, its improving geographic diversification following the entry
in Germany in 2021 where it provides senior residences and home
care services; high and growing demand for dependent care, driven
by an ageing population; and high barriers to entry and regulatory
limits on new care facilities.
Moody's forecasts that DomusVi's revenue growth will be around the
mid-single digit in percentage terms over the next 12-18 months,
mainly driven by price increases, occupancy rates recovery, and
increased bed capacity through greenfield investments. The rating
agency does not expect the company to pursue material external
growth over the next 12-18 months, as DomusVi remains focused on
its organic and greenfield priorities.
RATING OUTLOOK
The stable outlook reflects Moody's expectation that DomusVi's
margins and earnings will continue to recover over the next 12-18
months. It also assumes that the company will continue to take
actions in a timely manner to support liquidity, if needed. The
outlook assumes Moody's-adjusted debt/EBITDA reducing towards 7.5x
and a Moody's-adjusted EBITA/interest of at least 1.2x.
LIQUIDITY
DomusVi has adequate but tight liquidity, supported by cash
balances of EUR81 million as of March 31, 2024, access to its
EUR190 million senior secured RCF, of which EUR132 million is drawn
as of the same date. The shareholders' EUR100 million equity
injection will support liquidity over the next 12 months, and will
be partly used to cover debt amortising in 2024 of about EUR57
million, and repay a portion of the EUR40 million bilateral RCF, of
which EUR35 million was drawn at the end of March 2024. The company
intends to dispose some assets over the next 12 months, which will
be used to repay the drawn portion of the senior secured RCF.
Shareholders have committed to further inject up to EUR100 million
if the company fails to generate sufficient proceeds by July 2025.
The senior secured RCF is subject to a springing maintenance
covenant, tested quarterly if the senior secured RCF is drawn by
40%, which limits senior secured net leverage to 9.75x. The ratio
was 5.8x as of March 2024. The company also owns real estate assets
worth up to EUR1.0 billion, of which around EUR600 million of
freehold properties, which could be sold and leased back to support
liquidity if needed.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if a recovery in margins and earnings
lead to Moody's-adjusted debt/EBITDA comfortably below 7.0x on a
sustained basis (based on the company's rent multiple of around
7x); Moody's-adjusted EBITA/interest rises towards 2.0x; and the
company maintain a solid liquidity profile including positive
Moody's-adjusted free cash flow.
The ratings could be downgraded if the company fails to recover its
margins and earnings over the next 12-18 months, so that the
capital structure becomes no longer sustainable, or liquidity
concerns emerge. Quantitatively, this could be evidenced by
Moody's-adjusted debt/EBITDA remaining above 8.0x on a sustained
basis; Moody's-adjusted EBITA/interest falling towards 1.0x; or
sustained negative Moody's-adjusted free cash flow.
STRUCTURAL CONSIDERATIONS
The B3 rating on the new A&E EUR1,970 million senior secured TLB
and the EUR190 million senior secured RCF, due in 2029, is in line
with the CFR and reflects their pari passu ranking in the capital
structure and the upstream guarantees from material subsidiaries of
the group. The B3-PD probability of default rating incorporates
Moody's assumption of a 50% recovery rate, typical for bank debt
structures with a loose set of financial covenants.
The Caa1 rating of the senior secured RCF and senior secured term
loans due in 2026, is one notch below the B3 CFR, reflecting
structural subordination to operating companies' liabilities,
because of the absence of guarantees from operating subsidiaries.
COVENANTS
Moody's has reviewed the marketing draft terms for the new credit
facilities. Notable terms include the following:
Guarantor coverage will be at least 80% of reported EBITDA and
include all companies representing 5% or more of reported EBITDA.
Companies incorporated in Argentina, Brazil, Chile, China,
Colombia, India, Indonesia, Malaysia and Mexico do not have to
grant security. Security will be granted over shares of the Company
and receivables.
Unlimited amounts of pari passu debt are permitted up to a senior
secured leverage ratio of 6.0x. Unlimited unsecured debt is
permitted subject to a 2.0x fixed charge coverage ratio. Unlimited
restricted payments are permitted if senior secured leverage is
4.0x or lower.
Adjustments to pro forma EBITDA include the full run rate of cost
savings and synergies, uncapped and believed to be realisable
within 24 months of the relevant event; or for care facilities: 36
months in Canada/EU (other than Greece, Italy, Spain and Portugal),
and 60 months for all other countries.
The proposed terms, and the final terms may be materially
different.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
DomusVi is the second-largest elderly housing, services and care
operator in France and the largest elderly housing, services and
care operator and mental care facilities in Spain. It also has a
presence in Portugal and, more recently, in Ireland, Germany and
The Netherlands. The company, which generated revenue of EUR2.46
billion and a company-adjusted EBITDA (excluding IFRS 16) of EUR271
million in 2023, is majority owned by funds advised by Intermediate
Capital Group plc alongside Sagesse Retraite Santé (SRS; the
investment vehicle of founder Yves Journel).
SECHE ENVIRONNEMENT: Fitch Puts 'BB' LongTerm IDR on Watch Negative
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Fitch Ratings has placed Seche Environnement S.A.'s Long-Term
Issuer Default Rating (IDR) and senior unsecured rating of 'BB' on
Rating Watch Negative (RWN). The Recovery Rating on the senior
unsecured notes is 'RR4'.
The RWN reflects the potential negative impact on Seche's financial
profile from its recently announced acquisition of the
Singaporean-based hazardous waste operator ECO Industrial
Environmental Engineering Pte Ltd (ECO).
ECO's enterprise value of around EUR440 million is sizeable for
Seche, and its final impact on Seche's rating will mainly depend on
the chosen long-term funding structure for the acquisition. Fitch
believes that a breach of its EBITDA net leverage negative
sensitivity of above 4.0x is highly likely, at least in 2024-2025.
The finalisation of the transaction, expected in July 2024, is
subject to a vote by Beijing Capital Eco-Environment Protection
Group Co., Ltd.'s extraordinary general meeting of shareholders.
Fitch will resolve the RWN once Fitch has visibility on the final
impact of the acquisition on Seche's credit profile. Visibility
over deleveraging towards 4.0x may lead to a rating affirmation,
while Fitch expects rating downside to be limited to one notch.
KEY RATING DRIVERS
Sharp Re-leveraging, Execution Risks: The acquisition of ECO
entails execution risk and would increase Fitch-defined EBITDA net
leverage (from 3.5x in 2023), although the extent of the increase
will largely depend on the chosen long-term funding structure for
the acquisition. Fitch expects management will work to restore its
leverage metrics over 2024-2026, by considering different funding
options, avoiding further M&A and remaining selective on capex.
However, Fitch has limited visibility on deleveraging within its
rating guidelines in a timely manner.
Seche remains committed to its financial policy of a
company-defined net debt/EBITDA of 3.0x in the medium term, which
is consistent with its rating sensitivities and a key consideration
for maintaining the 'BB' rating.
ECO´s HW Leadership: ECO is the leading hazardous waste (HW)
management operator in Singapore, benefiting from a strong market
share and a diversified customer base, including blue-chip clients
across different sectors (energy / pharma / chemicals /
semiconductors). The company provides a comprehensive offering to
its customers in toxic industrial waste management (including
collection, transportation, treatment, recovery and recycling
services). ECO´s revenues are expected to increase about 9% p.a.
in 2024-2026, following the ramp-up of its in operations in its
carbon soot Incineration plant.
Improving Business Profile: Fitch expects the ECO acquisition to
slightly improve Seche's business profile, as it increases its
geographic diversification in a developed market and igt could
represent a springboard for future growth in APAC. ECO´s business
has defensive characteristics mainly relate to regulatory
requirements and technical capabilities (to treat all hazardous
waste types - except radioactive ones). ECO is market leader in
Singapore for treatment and incineration capacity but Fitch expects
its contribution to Seche's consolidated EBITDA to be moderate at
around 12% in 2026. Fitch may slightly improves the company´s debt
capacity as a result of the transaction.
Strong 2023 Performance: Séché delivered strong Fitch-adjusted
EBITDA of EUR176 million, up 8% from a year ago. Strong operating
cash flow generation and lower-than-expected capex led to positive
free cash flow (FCF) of EUR25 million (versus its estimate of EUR3
million in October 2023). EBITDA net leverage was in line with its
expectation at 3.5x, comfortably within its guidelines for the 'BB'
rating. This also provides Seche with some headroom to absorb the
acquisition of ECO.
Medium-Sized Operator, Strong Capabilities: Seche's smaller size
than other Fitch-rated European waste operators' is offset by its
strong position as a HW specialist, allowing it to directly compete
in its home market with the two global leaders in the environmental
industry. Seche owns an extensive HW management infrastructure with
long-term permits and locations that offer cross-border
opportunities with neighbouring countries.
Its presence in niche markets, which are subject to strict
technical requirements, provides higher barriers to entry and
pricing power than those of commoditised non-HW operators. This has
allowed Seche to build a resilient customer base of blue-chip
companies and local authorities.
Merchant and Re-contracting Risks: Seche's activities with
industrial clients are either short-term contracted or merchant. As
a result, it faces re-contracting risk for existing contracts,
price and volume risk from renegotiation, and low revenue
predictability in new (or expanded) contracts and one-off services.
However, Seche has a strong record of customer retention,
reflecting scarcity in treatment- and storage capacities in its
primary waste markets, and stringent regulatory requirements.
Exposure to Industrial Output: The majority of Seche's business
(85% of revenues) relates to industrial waste, which translates
into revenue volatility. This is due to revenue being mostly set at
an agreed price per waste ton treated (or per TWh of energy
generated), while waste treatment is capital-intensive with large
fixed costs. Seche partially mitigates the structural risk by
diversifying its customer base to less cyclical industries. The
remaining 15% comes from its more stable business with
municipalities in France under longer-term contracts.
Healthy Sector Demand: The increasing focus of governments and
regulators in the EU on circular economy provides growth
opportunities for waste collection and treatment. As a result,
Fitch expects demand for Seche's materials recovery and
energy-from-waste services to remain healthy and for it to continue
to offset cost inflation. Political support and the pace of
regulatory developments, (particularly in emerging markets) is key
to Seche's business plan delivery.
DERIVATION SUMMARY
Fitch views Paprec Holding SA (BB/Stable) as Seche's closest peer,
since both companies are medium-sized waste treatment operators
primarily in France. Seche specialises in HW management, which is
subject to strict technical requirements that provide higher
barriers to entry and greater pricing power than Paprec's
lower-margin non-HW business.
While Paprec's counterparty risk is lower than Seche's (due to a
higher share of revenues from public entities) its recycling
business is exposed to primary commodity prices and demand for
manufactured goods for which Paprec is a price taker. Overall,
Seche has a slightly higher debt capacity than Paprec, given its
value and margin-added service offering, as well as a higher share
of fee-based revenues.
Spanish waste management operators Luna III S.a r.l. (BB/Stable,
Urbaser S.A.U.'s holding company) and FCC Servicios Medio Ambiente
Holding, S.A.U. (FCC MA; BBB/Stable) operate under long-terms
concession contracts with municipalities, and are largely shielded
from price risk, compared with Seche's significantly higher
merchant and re-contracting risk. Luna and FCC MA benefit from low
exposure to private industrial and commercial customers and sound
geographical diversification. The stronger business profiles of
Luna and FCC MA support a higher debt capacity than Seche.
KEY ASSUMPTIONS
- Acquisition of ECO to close in 3Q24
- Revenues to increase 6% per year over 2024-2026, including
organic growth of about 4% per year
- EBITDA margin (Fitch-defined) averaging 18% over 2024-2026
- Capex on average at EUR118 million a year during 2024-2026
- Net working capital at 15.5% of revenues during 2024-2026
- No additional M&A other than the ECO acquisition for 2024-2026
- Dividend distributions based on Seche's dividend per share
policy, with a slight annual increase (EUR0.1/share a year) until
2026
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to an
Affirmation:
- Clarity on the long-term funding structure of the acquisition and
visibility on deleveraging leading to EBITDA net leverage falling
below 4.0x on a sustained basis
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action:
Rating upside is limited by the incremental debt related to the
acquisition. However, Fitch could upgrade the rating if EBITDA net
leverage remains below 3.3x on a sustained basis, EBITDA interest
coverage remains above 5.3x on a sustained basis, and Fitch-defined
EBITDA margin is consistently at around 16%-17%
Factors that Could, Individually or Collectively, Lead to
Downgrade:
- EBITDA net leverage remaining above 4.0x on a sustained basis,
due to the completion of the acquisition
- EBITDA interest coverage below 4.3x
- Consistently negative FCF
- Increased earnings volatility within Seche's business portfolio,
to the extent the changes are not adequately offset by lower
financial risk. This could arise from less supportive regulations
or a material increase in exposure to cyclical sectors among its
industrial clients or to emerging countries
LIQUIDITY AND DEBT STRUCTURE
Sufficient Liquidity: Despite the sizeable ECO acquisition, Fitch
expects Seche to be able to raise the necessary financing required
to complete the acquisition in 2024. At end-2023 liquid sources
included EUR162 million of readily-available cash and EUR150
million available under an EUR200 million committed revolving
credit facility due in 2027 (with two one-year extension options),
which fully covered debt maturities in the next three years.
ISSUER PROFILE
Séché is engaged in the collection, treatment and storage of
waste, as well as the recovery of energy and materials.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
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Seche
Environnement S.A. LT IDR BB Rating Watch On BB
senior
unsecured LT BB Rating Watch On RR4 BB
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G E O R G I A
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GEORGIA: Fitch Alters Outlook on 'BB' Foreign Curr. IDR to Stable
-----------------------------------------------------------------
Fitch Ratings has revised the Outlook on Georgia's Long-Term
Foreign-Currency Issuer Default Rating (IDR) to Stable from
Positive, and affirmed the rating at 'BB'.
KEY RATING DRIVERS
The revision of the Outlook reflects the following key rating
drivers and their relative weights:
High
Increased Political Risk: The introduction and final passage of a
'foreign influence transparency' law in May 2024 has led to
increased political uncertainty, reflected in large-scale protests.
Political tensions could intensify further in the run-up to
parliamentary elections scheduled for October 2024. In Fitch's
view, growing polarisation in society and weakened trust in public
institutions will likely negatively affect Georgia's governance
indicators, a long-standing strength relative to peers. The passage
of the law has also sharply worsened relations with the EU and the
US and could delay the EU accession process.
Medium
Weaker External Finances: International reserves declined to USD4.6
billion as of end-May 2024 from a peak of USD5.4 billion in August
2023, despite a broadly favourable macroeconomic backdrop. In
Fitch's view, this reflects a wider current account deficit (CAD),
higher net sovereign debt repayments and National Bank of Georgia
(NBG) FX sales of USD168.7million to manage increased pressures on
the lari (which has depreciated by 7% vs the US dollar following
the foreign transparency law passage). Political uncertainty could
maintain pressure on the lari and reserves through the election
cycle.
Fitch expects FX coverage to average 2.6 months of current external
payments in 2024-26, well below the projected 'BB' median of 4.8
months. Fitch forecasts the CAD to widen to 5.1% of GDP in 2024 and
2025, from 4.3% in 2023 (current 'BB' median: 1.8%), as
extraordinary inflows of capital and migrants from Russia and
Ukraine have largely dried up, and imports increase amid robust
domestic consumption and investment demand. Fitch expects that
foreign direct investment will almost entirely finance the CAD over
the forecast horizon.
Weakening of Policy Framework: The precautionary IMF stand-by
arrangement remains off-track and is unlikely to resume before the
October elections. This is due to differences regarding reform of
state-owned enterprises and delays in reform to strengthen the
central bank's institutional independence. In Fitch's view,
perceived risks to the independence of the NBG could erode policy
credibility, potentially weakening the capacity of Georgia's small,
open and dollarised economy to respond to external shocks
effectively. Regulatory developments around sanctions
implementation have also raised uncertainty for Georgian banks.
Georgia's BB IDRs also reflect the following rating drivers:
Moderate Government Debt Levels: General government debt (GGD) was
39.1% of GDP at end-2023, well below the current 'BB' median of
54%. The proportion of domestic debt has been increasing steadily
to 28% of the total as of 1Q24 from 20% in 2021, in line with the
authorities' strategy to gradually raise this to 35%. Fitch
projects GGD/GDP to remain broadly stable at 41% of GDP in 2024-26
(well below the 60% debt ceiling), with exchange rate depreciation
the largest risk to debt dynamics. About 90% of external debt is
owed to bilateral and multilateral creditors on concessional
terms.
Solid Budget Performance Record: Georgia has a strong record of
overperforming versus budget targets, owing to stronger than
projected revenue collection as well as capex under-execution.
Fitch expects the general government deficit to narrow from 2.5% of
GDP in 2023 and 2024 to 2.1% in 2025, well below the 3% deficit
ceiling.
Strong GDP Growth: The large influx of Russian, Ukrainian and
Belarusian migrants has resulted in a lasting value addition to the
economy, including by boosting potential growth rates, notably in
the ICT, construction, and hospitality sectors. Fitch expects
growth to remain robust, at 5.8% in 2024 and an average of 5% in
2025-26, driven by domestic consumption and private and public
sector investment.
Low, But Rising Inflation: Fitch forecasts inflation to rise above
the NBG's 3% target, to 3.8% by end-2024 and 4.1% by end-2025,
partly reflecting the impact of lari depreciation in 2024. The NBG
has cut rates by a cumulative 150bp this year to 8% as of mid-June
2024, and Fitch expects monetary policy to be relatively tight
until end-2025. Monetary policy transmission is impeded by
relatively high levels of dollarisation.
Geopolitical Risks: Geopolitical risks related to Russia remain
high, in the context of international scrutiny with regard to
sanctions enforcement, and Georgia's stated aspirations to join
NATO and the EU. Fitch does not expect the long-standing unresolved
conflicts involving Russia in Abkhazia and South Ossetia to
escalate in the medium term.
Stable Banking Sector, High Dollarisation: The Georgian banking
sector is stable, with strong asset quality (non-performing loan
ratio of 1.6% as of April 2024), high profitability (April: return
on equity of 24%), and high capitalisation (Tier 1 capital ratio of
21.7% as of April). Dollarisation in deposits and lending remains
relatively high in Georgia, at 49.4% and 44.7% as of April,
respectively, although these levels are moderately declining.
Macroprudential measures introduced by the NBG are intended to
gradually reduce the level of FX lending growth, but this will take
time to achieve.
Georgia has an ESG Relevance Score of '5' for political stability
and rights, and '5[+]' for the rule of law, institutional and
regulatory quality, and control of corruption, respectively. These
scores reflect the high weight that the World Bank Governance
Indicators (WBGI) have in its proprietary Sovereign Rating Model
(SRM). Georgia has a medium WBGI ranking at the 60th percentile,
reflecting moderate institutional capacity, established rule of
law, a moderate level of corruption, and political risks associated
with the unresolved conflict with Russia.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Structural: Substantial worsening of domestic political or
geopolitical risks with adverse consequences for economic
performance or governance.
- Macro: A weakening of the macroeconomic policy framework that
undermines the monetary and/or fiscal policy anchors.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- External Finances: A reduction in external vulnerability, for
example, from a sizeable increase in international reserves and/or
narrowing in the current account deficit, potentially leading to
the removal of the -1 notch on external finances.
- Macro: Implementation of reforms that strengthen the policy
framework and reduce vulnerability to shocks over the medium term.
- Public Finances: A marked decrease in general government
debt/GDP, particularly if accompanied by a reduced share of
FX-denominated debt over the medium term.
SOVEREIGN RATING MODEL (SRM) AND QUALITATIVE OVERLAY (QO)
Fitch's proprietary SRM assigns Georgia a score equivalent to a
rating of 'BB+' on the Long-Term Foreign-Currency (LT FC) IDR
scale.
Fitch's sovereign rating committee adjusted the output from the SRM
to arrive at the final LT FC IDR by applying its QO, relative to
SRM data and output, as follows.
External Finances: -1 notch to reflect Georgia's high net external
debt and the country's vulnerability to external shocks as a small,
open and highly dollarised economy with relatively weak external
buffers.
Fitch's SRM is the agency's proprietary multiple regression rating
model that employs 18 variables based on three-year centred
averages, including one year of forecasts, to produce a score
equivalent to a LT FC IDR. Fitch's QO is a forward-looking
qualitative framework designed to allow for adjustment to the SRM
output to assign the final rating, reflecting factors within its
criteria that are not fully quantifiable and/or not fully reflected
in the SRM.
COUNTRY CEILING
The Country Ceiling for Georgia is 'BBB-', 2 notches above the LT
FC IDR. This reflects strong constraints and incentives, relative
to the IDR, against capital or exchange controls being imposed that
would prevent or significantly impede the private sector from
converting local currency into foreign currency and transferring
the proceeds to non-resident creditors to service debt payments.
Fitch's Country Ceiling Model produced a starting point uplift of
+2 notches above the IDR. Fitch's rating committee did not apply a
qualitative adjustment to the model result.
ESG CONSIDERATIONS
Georgia has an ESG Relevance Score of '5' for political stability
and rights as WBGI have the highest weight in Fitch's SRM and are
therefore highly relevant to the rating and a key rating driver
with a high weight. As Georgia has a percentile rank below 50 for
the respective governance indicator, this has a negative impact on
the credit profile.
Georgia has an ESG Relevance Score of '5[+]' for rule of law,
institutional, regulatory quality and control of corruption as WBGI
have the highest weight in Fitch's SRM and are therefore highly
relevant to the rating and are a key rating driver with a high
weight. As Georgia has a percentile rank above 50 for the
respective governance indicators, this has a positive impact on the
credit profile.
Georgia has an ESG Relevance Score of '4' for human rights and
political freedoms as the voice and accountability pillar of the
WBGI is relevant to the rating and a rating driver. As Georgia has
a percentile rank below 50 for the respective governance indicator,
this has a negative impact on the credit profile.
Georgia has an ESG Relevance Score of '4' for creditor rights as
willingness to service and repay debt is relevant to the rating and
is a rating driver for Georgia, as for all sovereigns. As Georgia
has a restructuring of public debt in 2004, this has a negative
impact on the credit profile.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Georgia LT IDR BB Affirmed BB
ST IDR B Affirmed B
LC LT IDR BB Affirmed BB
LC ST IDR B Affirmed B
Country Ceiling BBB- Affirmed BBB-
senior
unsecured LT BB Affirmed BB
Senior Unsecured
-Local currency LT BB Affirmed BB
Senior Unsecured
-Local currency ST B Affirmed B
=============
G E R M A N Y
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NIDDA HEALTHCARE: Moody's Rates New EUR500MM Secured Term Loan 'B3'
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Moody's Ratings has assigned a B3 rating to the proposed minimum
EUR500 million senior secured term loan B3 due in 2030, borrowed by
Nidda Healthcare Holding GMBH. The remaining instrument ratings,
including the backed senior secured notes due in 2026 and the
senior secured bank credit facilities due 2026 and 2028 issued by
Nidda Healthcare Holding GMBH, as well as the corporate family
rating of Nidda BondCo GmbH (STADA), are not affected by this
rating action and remain at B3. The outlook is positive.
Nidda BondCo GmbH (STADA or the company) announced it plans to
launch a minimum EUR500 million term loan which proceeds will be
used to refinance part of its existing debt. Moody's expect that
credit metrics will remain largely unchanged with the contemplated
refinancing transaction.
RATINGS RATIONALE
STADA's B3 rating reflects the company's good business profile with
a well-diversified small-molecule generics portfolio; its good
geographical diversification in both developed and emerging
European markets; its strong over-the-counter (OTC) portfolio of
consumer health products, with leading market positions across
various therapeutic areas, and increasing exposure to biosimilars.
The rating also takes into consideration STADA's highly leveraged
capital structure, with Moody's-adjusted gross leverage of 7.1x for
the 12 months to March 2024, although with good leverage reduction
prospects on an organic basis.
With the proposed refinancing, STADA is looking to repay the
remaining portion (i.e. EUR237 million) of its backed senior
secured second lien notes due in 2025 and reimburse the drawn
portion (i.e. EUR120 million) of its senior secured revolving
credit facility (RCF), and extend or refinance part of its EUR2,660
million senior secured term loans due in August 2026 and EUR250
million senior secured term loan due in May 2028, into a new
facility that would mature in 2030. Moody's view positively that
company continues to proactively address its debt maturities well
ahead of maturity.
RATING OUTLOOK
The positive outlook primarily reflects Moody's expectation that
STADA will maintain strong operating performance that will lead to
continued improvement in key credit metrics over the next 12
months, as well as the continued focus on deleveraging. Moody's
expect the company to continue to address its debt maturities
proactively well-ahead of their due date, including the remaining
portion of its debt due in 2026. More visibility on the potential
change in ownership and related governance considerations would
also be factored in any potential change of the ratings.
LIQUIDITY
STADA has adequate liquidity, supported by a cash balance of EUR214
million as of March 31, 2024 and access to its EUR365 million
revolving credit facility (RCF) due in May 2026, of which EUR120
million were drawn as of the end of March 2024. Liquidity is also
supported by Moody's expectation that its Moody's-adjusted FCF will
improve over the next 12-18 months, supported by strong earnings,
normalisation of inventory levels, which should reduce working
capital requirements, and capital spending that Moody's estimate at
about 7% of total revenue.
The RCF is subject to a total debt leverage covenant of 8.5x,
tested quarterly if more than 35% of the facility is drawn; Moody's
expect the company to have sufficient capacity for this covenant,
if tested.
STRUCTURAL CONSIDERATIONS
In light of the mixed capital structure, which includes both bank
debt and bonds, Moody's applied a recovery rate of 50% for the
corporate family. The security package is considered weak because
it consists of a pledge on the shares and not on the assets of the
operating subsidiaries.
The B3 ratings of the senior secured term loans, the senior secured
notes and the senior secured RCF reflect the creditors' first-lien
claim over a security package consisting of shares from operating
subsidiaries accounting for at least 80% of group EBITDA. The Caa2
rating of the backed senior secured second-lien notes reflects the
second-lien claim over the same security package. The latter
instruments will be repaid with the proposed refinancing.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Upward pressure could arise if STADA continues to deliver solid
operating performance, and maintains conservative and predictable
financial policies, including visibility into M&A strategy and
shareholder distributions, and a continued prudent approach in
managing debt maturities well-ahead of due date. Numerically, this
would translate into the company operating with Moody's-adjusted
gross debt/EBITDA below 6.5x and Moody's-adjusted EBITA/interest
expense above 2x, both on a sustained basis.
Conversely, downward pressure could develop if STADA's operating
performance deteriorates or its financial policy becomes more
aggressive than in the recent past, leading to its Moody's-adjusted
gross debt/EBITDA increasing above 7.5x on a sustained basis or its
Moody's-adjusted FCF turning negative. Downward pressure could also
develop if liquidity deteriorates, including if the company fails
to address its debt maturities at least 12 months before their due
date.
PRINCIPAL METHODOLOGY
The principal methodology used in this rating was Pharmaceuticals
published in November 2021.
COMPANY PROFILE
STADA is a Germany-based pharmaceutical company specialised in the
production and marketing of small-molecule generics, OTC
pharmaceutical products and specialties such as biosimilars. During
the 12 months that ended March 2024, STADA generated revenue of
EUR3,852 million and company-adjusted pro forma EBITDA of EUR913
million. The company is fully owned by funds managed by Bain
Capital Private Equity (Europe), LLP and Cinven Partners LLP.
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I R E L A N D
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BARINGS EURO 2014-1: Fitch Affirms 'B+sf' Rating on Cl. F-RR Notes
------------------------------------------------------------------
Fitch Ratings has upgraded Barings Euro CLO 2014-1 DAC's class
B-1-RR, B-2-RR, C-RR and D-RR notes and affirmed the others. The
class E-RR notes Rating Outlook has been revised to Negative from
Stable.
Entity/Debt Rating Prior
----------- ------ -----
Barings Euro
CLO 2014-1 DAC
A-RR XS1713462239 LT AAAsf Affirmed AAAsf
B-1-RR XS1713461421 LT AAAsf Upgrade AA+sf
B-2-RR XS1713460704 LT AAAsf Upgrade AA+sf
C-RR XS1713460027 LT AA+sf Upgrade A+sf
D-RR XS1713459441 LT A+sf Upgrade BBB+sf
E-RR XS1713458807 LT BB+sf Affirmed BB+sf
F-RR XS1713458633 LT B+sf Affirmed B+sf
TRANSACTION SUMMARY
Barings Euro CLO 2014-1 DAC is a cash flow collateralised loan
obligation (CLO). The underlying portfolio of assets mainly
consists of leveraged loans and is managed by Barings (U.K.)
Limited. The deal exited its reinvestment period in July 2022.
KEY RATING DRIVERS
Amortisation Increases Credit Enhancement: The transaction is
currently failing some of its tests, including the Fitch 'CCC'
bucket, the fixed-rate bucket, the weighted average life (WAL)
test, and the Fitch weighted average rating factor (WARF) test,
among others. As a result, the manager can no longer reinvest
principal proceeds in substitute collateral obligations and the
transaction has deleveraged with the class A-RR notes having been
paid down by about EUR115 million since its last review in July
2023. This amortisation resulted in a material increase in the
credit enhancement (CE) of senior and upper mezzanine notes,
leading to today's upgrade.
Par Erosion Hits Junior Notes: The transaction is currently about
4.7% below target par versus 2.7% as of its last review, and
exposure to assets with a Fitch-derived rating of 'CCC+' and below
is close to 11% according to the May trustee report, exceeding the
7.5% limit. Defaulted assets amount to EUR5.7 million and also
contribute to par erosion, so that the deleveraging impact on CE
for the class E-RR and F-RR notes is limited and their default-rate
cushion is moderate.
Both notes' ratings are sensitive to Fitch's stress on the most
vulnerable EMEA leveraged loan issuers, whereby Fitch's top and
Tier 2 market concern bonds (MCB) and market concerns loans (MCL)
are assumed to be facing imminent default, while Tier 3 MCB and MCL
and issuers with any assets that have maturities before June 2026
are assumed to be downgraded by two notches with a 'CCC-' floor. As
a result, the Outlooks on the class E-RR and F-RR notes are
Negative.
Deviation from Model-implied Ratings: The class C-RR notes rating
is one notch below their model-implied rating (MIR). The deviation
reflects limited default-rate cushions at their MIR, which would
expose it to the downside risk stemming from the most vulnerable
EMEA leveraged loan issuers under Fitch's stress.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the transaction's underlying obligors at 'B'/'B-'. The WARF, as
calculated by Fitch under its latest criteria, is 27.4.
High Recovery Expectations: Senior secured obligations comprise
95.5% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets. The weighted average recovery rate (WARR), as
calculated by Fitch, is 61.7%.
Diversified Portfolio: The portfolio remains diversified across
obligors, countries and industries. No single obligor represents
more than 3.1% of the portfolio balance, whereas the top 10 obligor
concentration is 21.2% and the exposure to the three-largest
Fitch-defined industries is 33.7% as calculated by Fitch.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Based on the current portfolio, downgrades may occur if the loss
expectation is larger than assumed, due to unexpectedly high levels
of default and portfolio deterioration.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrades may result from stable portfolio credit quality and
deleveraging, leading to higher CE 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 this transaction.
In cases where Fitch does not provide ESG relevance scores in
connection with the credit rating of a transaction, programme,
instrument or issuer, Fitch will disclose in the key rating drivers
any ESG factor which has a significant impact on the rating on an
individual basis.
MAN GLG I: Fitch Affirms B+sf Rating on Cl. F-R Notes, Outlook Neg.
-------------------------------------------------------------------
Fitch Ratings has upgraded Man GLG Euro CLO I DAC's class B-1R-R
and B-2R-R notes, affirmed the other notes and revised the Outlook
on the class E-R notes to Stable from Negative.
Entity/Debt Rating Prior
----------- ------ -----
Man GLG Euro CLO I DAC
A-1R-R XS1802407053 LT AAAsf Affirmed AAAsf
A-2R-R XS1807367278 LT AAAsf Affirmed AAAsf
B-1R-R XS1802407210 LT AAAsf Upgrade AA+sf
B-2R-R XS1802407640 LT AAAsf Upgrade AA+sf
C-R-R XS1802408028 LT A+sf Affirmed A+sf
D-R-R XS1802408457 LT BBB+sf Affirmed BBB+sf
E-R XS1802406675 LT BB+sf Affirmed BB+sf
F-R XS1802406592 LT B+sf Affirmed B+sf
TRANSACTION SUMMARY
Man GLG Euro CLO I DAC is a cash flow CLO. The underlying portfolio
of assets mainly consists of leveraged loans and is managed by GLG
Partners LP. The deal exited its reinvestment period in April
2022.
KEY RATING DRIVERS
Deleveraging Transaction: The transaction is out of its
reinvestment periods and not all proceeds have been reinvested, so
the deal has been deleveraging. As of the latest trustee report,
there was EUR36.6 million cash in the principal account. The class
A-1R-R and A-2R-R notes have paid down by around EUR75 million
since the last review in July 2023, leading to an increase in
credit enhancement (CE) across the structure. This has resulted in
the rating actions. The comfortable breakeven default rate cushion
displayed for each notes' rating supports the Stable Outlooks on
the class A-1R-R to E-R notes.
Losses Below Expected Case: The portfolio credit quality remains
largely stable. Exposure to assets with a Fitch-derived rating of
'CCC+' and below remains low at 2.99%, versus a limit of 7.5% per
the latest trustee report dated May 2024. Reported defaults
represent 0.6% of total collateral balance. The transaction is
below target par by 4.1%, but losses have been below its rating
case expectations. The transaction has manageable refinancing risk
with 19% of assets maturing in or before June 2026.
Junior Notes Sensitive to Deterioration: The CE increase for class
F-R notes has been limited. Given the limited default rate cushion
at the current rating, the notes are sensitive to further portfolio
deterioration. This results in their Negative Outlook.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the obligors at 'B'/'B-'. The Fitch-calculated weighted average
rating factor (WARF) of the current portfolio was 24.0. For the
portfolio for entities with Negative Outlooks, which Fitch stresses
by notching their ratings down one level, the WARF was 25.3.
High Recovery Expectations: Senior secured obligations comprise
98.5% of the portfolio. 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 current portfolio as reported by the trustee was 60.8%.
Diversified Portfolio: The top 10 obligor concentration as
calculated by the trustee is 14.7%, which is below the limit of
20%, and the largest obligor represents 1.7% of the portfolio
balance.
Reinvestment Criteria Met: The transaction exited its reinvestment
period in April 2022. However, 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. Since Fitch's last rating action in
July 2023, the transaction has cured the breach of the class F-R
par value test through deleveraging. Although the weighted average
life and weighted average coupon tests are failing, the manager is
still 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. 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.
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
Man GLG Euro CLO I DAC
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
Fitch does not provide ESG relevance scores for Man GLG Euro CLO I
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.
MARGAY CLO II: S&P Assigns B-(sf) Rating on Class F Notes
---------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Margay CLO II
DAC's class A to F European cash flow CLO notes and class A-1 Loan
and A-2 Loan. At closing, the issuer also issued unrated
subordinated notes.
Under the transaction documents, the rated notes will pay quarterly
interest unless a frequency switch event occurs. Following this,
the notes will permanently switch to semiannual payments.
The portfolio's reinvestment period ends approximately 4.57 years
after closing, and its non-call period ends 1.5 years after
closing.
The ratings reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which is bankruptcy remote.
-- The transaction's counterparty risks, which are in line with
S&P's counterparty rating framework.
Portfolio benchmarks
S&P Global Ratings' weighted-average rating factor 2,659.47
Default rate dispersion 524.19
Weighted-average life (years) 4.71
Obligor diversity measure 127.02
Industry diversity measure 19.96
Regional diversity measure 1.20
Transaction key metrics
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.03
Target actual 'AAA' weighted-average recovery (%) 36.70
Target actual weighted-average spread (net of floors; %) 4.06
Target actual weighted-average coupon (%) 3.97
Rationale
S&P said, "At closing, the portfolio is well-diversified, primarily
comprising broadly syndicated speculative-grade senior secured term
loans and senior secured bonds. Therefore, we have conducted our
credit and cash flow analysis by applying our criteria for
corporate cash flow CDOs.
"In our cash flow analysis, we used the EUR400 million target par
amount, the covenanted weighted-average spread (4.06%), the
covenanted weighted-average coupon (3.60%), and the covenanted
weighted-average recovery rates at all rating levels, as indicated
by the collateral manager. We applied various cash flow stress
scenarios, using four different default patterns, in conjunction
with different interest rate stress scenarios for each liability
rating category.
"Until the end of the reinvestment period on Jan. 15, 2029, the
collateral manager may substitute assets in the portfolio for so
long as our CDO Monitor test is maintained or improved in relation
to the initial ratings on the notes. This test looks at the total
amount of losses that the transaction can sustain as established by
the initial cash flows for each rating, and it compares that with
the current portfolio's default potential plus par losses to date.
As a result, until the end of the reinvestment period, the
collateral manager may through trading deteriorate the
transaction's current risk profile, as long as the initial ratings
are maintained.
"Under our structured finance sovereign risk criteria, we consider
that the transaction's exposure to country risk is sufficiently
mitigated at the assigned ratings.
"The transaction's documented counterparty replacement and remedy
mechanisms adequately mitigate its exposure to counterparty risk
under our current counterparty criteria.
"We also considered the legal structure of the issuer, which is
established as a special-purpose entity, to meet our criteria for
bankruptcy remoteness.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our ratings are
commensurate with the available credit enhancement for the class A
to F notes and class A-1 Loan and A-2 Loan.
"Our credit and cash flow analysis indicates that the available
credit enhancement for the class B to F notes benefits from
break-even default rate and scenario default rate cushions that we
would typically consider commensurate with higher ratings than
those assigned. However, as the CLO is still in its reinvestment
phase, during which the transaction's credit risk profile could
deteriorate, we have capped our ratings assigned to these notes.
"In addition to our standard analysis, we have also included the
sensitivity of the ratings on the class A to E notes and class A-1
Loan and A-2 Loan based on four hypothetical scenarios.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
The transaction securitizes a portfolio of primarily senior-secured
leveraged loans and bonds, and it will be managed by M&G Investment
Management Ltd.
Environmental, social, and governance
S&P said, "We regard the exposure to environmental, social, and
governance (ESG) credit factors in the transaction as being broadly
in line with our benchmark for the sector. Primarily due to the
diversity of the assets within CLOs, the exposure to environmental
credit factors is viewed as below average, social credit factors
are below average, and governance credit factors are average. For
this transaction, the documents prohibit assets from being related
to certain activities, including but not limited to, the following:
company or corporation in breach of UN Global Compact principles;
controversial weapons, tobacco, palm oil, or speculative
transactions of agricultural or marine commodities; Accordingly,
since the exclusion of assets from these industries does not result
in material differences between the transaction and our ESG
benchmark for the sector, no specific adjustments have been made in
our rating analysis to account for any ESG-related risks or
opportunities."
Ratings
AMOUNT CREDIT
CLASS RATING* (MIL. EUR) INTEREST RATE§ ENHANCEMENT (%)
A AAA (sf) 130.80 3mE +1.46% 38.00
A-1 Loan AAA (sf) 67.20 3mE +1.46% 38.00
A-2 Loan AAA (sf) 50.00 3mE +1.46% 38.00
B AA (sf) 44.00 3mE +2.15% 27.00
C A (sf) 22.00 3mE +2.75% 21.50
D BBB- (sf) 29.00 3mE +3.95% 14.25
E BB- (sf) 18.00 3mE +6.49% 9.75
F B- (sf) 12.00 3mE +8.46% 6.75
Sub NR 32.40 N/A N/A
*The ratings assigned to the A and B notes and class A-1 Loan and
A-2 Loan address timely interest and ultimate principal payments.
The ratings assigned to the class C to F notes address ultimate
interest and principal payments.
§The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
NR--Not rated.
N/A--Not applicable.
3mE--Three-month Euro Interbank Offered Rate.
PENTA CLO 17: S&P Assigns Prelim. B-(sf) Rating on Class F Notes
----------------------------------------------------------------
S&P Global Ratings assigned its preliminary credit ratings to Penta
CLO 17 DAC's class X, A, B-1, B-2, C, D, E, and F notes and the
delayed draw class A Loan. At closing, the issuer will also issue
unrated subordinated notes.
Under the transaction documents, the rated notes will pay quarterly
interest unless there is a frequency switch event, upon which the
notes will pay semiannually.
This transaction has a 1.5-year non-call period and the portfolio's
reinvestment period will end approximately 4.5 years after
closing.
The preliminary ratings reflect S&P's assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans that
are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization (OC).
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading. This is assessed under
our operational risk framework.
-- The transaction's legal structure, which we expect to be
bankruptcy remote.
-- The transaction's counterparty risks, which we expect to be in
line with S&P's counterparty rating framework.
Portfolio benchmarks
S&P Global Ratings' weighted-average rating factor 2,894.35
Default rate dispersion 400.04
Weighted-average life (years) 4.86
Obligor diversity measure 134.63
Industry diversity measure 22.29
Regional diversity measure 1.21
Weighted-average life (years) extended to
cover the length of the reinvestment period 4.86
Transaction key metrics (modeled assumptions)
Total par amount (mil. EUR) 425.00
Identified assets (%)* 87.06
Ramp-up at closing (%)* 90.00
Defaulted assets (mil. EUR) 0
Number of performing obligors 150
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.59
Actual 'AAA' weighted-average recovery (%) 35.82
Weighted-average spread covenanted(%)* 3.90
Weighted-average coupon covenanted(%)* 4.60
*As a percentage of target par.
§As a percentage of identified assets.
Rating rationale
S&P said, "Our preliminary ratings reflect our assessment of the
collateral portfolio's credit quality, which has a weighted-average
rating of 'B'. The portfolio primarily comprises broadly syndicated
speculative-grade senior secured term loans and senior secured
bonds. Therefore, we conducted our credit and cash flow analysis by
applying our criteria for corporate cash flow CDOs.
"In our cash flow analysis, we modelled the EUR425 million par
amount, the covenanted weighted-average spread of 3.90%, the
covenanted weighted-average coupon of 4.60%, and the actual
weighted-average recovery rates. We applied various cash flow
stress scenarios, using four different default patterns, in
conjunction with different interest rate stress scenarios for each
liability rating category.
"At closing, we expect the transaction's documented counterparty
replacement and remedy mechanisms to adequately mitigate its
exposure to counterparty risk under our counterparty criteria.
"Following the application of our structured finance sovereign risk
criteria, we expect the transaction's exposure to country risk to
be limited at the assigned preliminary ratings, as the exposure to
individual sovereigns does not exceed the diversification
thresholds outlined in our criteria.
"We expect the transaction's legal structure to be bankruptcy
remote, in line with our legal criteria.
"Our credit and cash flow analysis indicates that the available
credit enhancement for the class B-1 to E notes could withstand
stresses commensurate with higher preliminary ratings than those we
have assigned. However, as the CLO is still in its reinvestment
phase, during which the transaction's credit risk profile could
deteriorate, we have capped our preliminary on these notes. The
class X, A, and F notes, and the delayed draw class A Loan can
withstand stresses commensurate with the assigned preliminary
ratings.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe that our preliminary
ratings are commensurate with the available credit enhancement for
the class X to F notes.
"In addition to our standard analysis, to provide an indication of
how rising pressures among speculative-grade corporates could
affect our ratings on European CLO transactions, we have also
included the sensitivity of the ratings on the class A Loan and
class X to E notes, based on four hypothetical scenarios.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
Environmental, social, and governance
S&P said, "We regard the exposure to environmental, social, and
governance (ESG) credit factors in the transaction as being broadly
in line with our benchmark for the sector. Primarily due to the
diversity of the assets within CLOs, the exposure to environmental
credit factors is viewed as below average, social credit factors
are below average, and governance credit factors are average. For
this transaction, the documents prohibit assets from being related
to certain activities, including, but not limited to the following:
the production or trade of illegal drugs or narcotics; the
development, production, maintenance of weapons of mass
destruction, including biological and chemical weapons; the trade
in ozone depleting substances; manufacture or trade in pornography
or prostitution materials; payday lending; gambling; and more than
5% of revenues derived from tobacco distribution manufacture or
sale.
"Accordingly, since the exclusion of assets from these industries
does not result in material differences between the transaction and
our ESG benchmark for the sector, we have not made any specific
adjustments in our rating analysis to account for any ESG-related
risks or opportunities."
Ratings
PRELIM PRELIM AMOUNT
CLASS RATING* (MIL. EUR) SUB (%) INTEREST RATE§
X AA (sf) 2.125 N/A Three/six-month EURIBOR
plus 0.48%
A AAA (sf) 213.50 38.00 Three/six-month EURIBOR
plus 1.36%
A Loan AAA (sf) 50.00 38.00 Three/six-month EURIBOR
plus 1.36%
B-1 AA (sf) 42.80 26.75 Three/six-month EURIBOR
plus 1.90%
B-2 AA (sf) 5.00 26.75 5.40%
C A (sf) 24.55 20.98 Three/six-month EURIBOR
plus 2.25%
D BBB- (sf) 30.80 13.73 Three/six-month EURIBOR
plus 3.25%
E BB- (sf) 17.95 9.51 Three/six-month EURIBOR
plus 5.96%
F B- (sf) 12.75 6.51 Three/six-month EURIBOR
plus 8.25%
Sub NR 37.40 N/A N/A
*The preliminary ratings assigned to the class X, A, B-1, and B-2
notes, and the delayed draw class A Loan address timely interest
and ultimate principal payments. The preliminary ratings assigned
to the class C, D, E, and F notes address ultimate interest and
principal payments.
§The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
=========
I T A L Y
=========
BORMIOLI PHARMA: Fitch Puts 'B' LongTerm IDR on Watch Positive
--------------------------------------------------------------
Fitch Ratings has placed Bormioli Pharma S.p.A.'s (Bormioli) 'B'
Long-Term Issuer Default Rating (IDR) and senior secured rating on
Rating Watch Positive (RWP).
Bormioli announced on 23 May that its main shareholder, Triton
Investments Advisers LLP, has agreed to sell the issuer to
Gerresheimer Glas GmbH, a subsidiary of Gerresheimer AG. The deal
will be completed by the end-2024 subject to regulatory approvals.
As part of the transaction, the new owner will provide Bormioli
with funds necessary for the redemption of the notes and prepay and
cancel the notes.
The RWP reflects Fitch's expectations that the transaction will be
rating positive, given that it will strengthen Bormioli's financial
profile, and make it part of a group with a stronger credit
profile. Gerresheimer AG has a stronger business profile, in its
view, reflecting its larger scale and better geographical
diversification and stronger financial metrics with lower target
leverage than Bormioli.
Bormioli's IDR is underpinned by its leading market position in
pharma packaging, long-term partnerships with customers, resilient
profitability through the cycle, supported by exposure to
non-cyclical pharmaceutical industry and expected improvement in
leverage and free cash flow (FCF) generation. Limited geographical
diversification and expected marginally negative FCF generation in
2024-2025 are rating constraints. Nevertheless, stable long-term
demand for Bormioli's products and a favourable market environment
are key mitigating factors.
Fitch expects to resolve the RWP upon the completion of the
announced transaction, which may take longer than six months.
KEY RATING DRIVERS
Financial Profile After Acquisition: Following the change in the
ownership, Fitch will review Bormioli's updated financial policy
and capital structure, which could lead to positive rating action.
Bormioli's business profile will complement Gerresheimer's pharma
and cosmetic and food & beverage exposure. The prospective owner
has presented mid-term deleveraging guidance and Fitch believes it
will run a more prudent financial policy, which could also support
positive rating action.
Healthy EBITDA Margins: Bormioli's 2023 EBITDA generation slightly
exceeded its previous expectations and Fitch expects the group will
be able to further improve its EBITDA margins in the medium term.
Fitch forecasts EBITDA margins will reach about 21% by 2026-2027
from about 19% in 2023 and an expected 19.5% in 2024, supported by
successful price settlements amid normalisation of raw material
prices. Sustainability of profitability is underpinned by the
group's ability to pass on cost increases to customers.
FCF Under Pressure: Fitch has postponed its expectation that the
group's FCF margin returns to a positive level to 2026 from 2025.
Fitch continues to expect a marginally negative FCF margin in 2024
and now forecast it remains negative in 2025, unlike its previous
forecast. This is due to the planned higher expansionary capex for
the glass division to address strong market demand. Its current
rating case incorporates FCF improvement from 2026 and Fitch
forecasts FCF margins to be above 2%.
Capex Volatility: Due to the nature of the business, the group's
capex fluctuates as its glass furnaces require regular
refurbishment every three to four or eight years depending on their
type and utilisation. Fitch does not forecast any further
substantial increase in capex until 2028 when the next investment
cycle will start and Fitch expects higher spending on
refurbishment.
Deleveraging Capacity: The group's EBITDA leverage improved in 2023
due to better EBITDA generation, reaching 5.8x at end-2023 from
6.8x at end-2022. With expected further EBITDA generation
improvement, Fitch forecasts leverage continuing to fall through
the rating horizon and EBITDA leverage to improve to 5.5x by
end-2024 and 5.1x by end-2025 (not assuming the combination with
Gerresheimer). In the absence of any EBITDA fluctuation and no new
debt, Fitch forecasts EBITDA leverage to be below 5.0x from 2026.
Resilient End Markets: Bormioli's strong presence in the
non-cyclical pharmaceutical sector, accounting for approximately
95% of its revenue, underpins the group's steady revenue streams,
supported by consistent demand for its products. In 2023, the group
benefited from several waves of price increases in 2022 and
reported better EBITDA generation and EBITDA margin improvement.
Fitch projects that the group's revenues will stay above EUR300
million, driving EBITDA higher than the EUR50 million recorded from
2019 to 2022.
Constrained Business Profile: Compared with its industry peers,
Fitch considers Bormioli's business profile limited due to its
relatively small size. While its end-market concentration in the
pharmaceutical industry provides resilience, its geographic focus,
chiefly within Europe (79% of 2023 revenue), limits its profile.
Nonetheless, the constant demand for its products and a diversified
customer base, with no single client making up more than 5% of
revenue, act as significant mitigating factors.
Strong Market Position: Bormioli is the leading pharma packaging
producer in Italy and has a good market position in the rest of
Europe. The company benefits from long-term relationships with
large pharmaceutical companies and the relatively low cost of
packaging for pharmaceutical producers. This allows Bormioli to
revise prices and pass on rising costs, supporting its healthy
profitability margins.
The group benefits from moderate to high barriers to entry,
including a strict regulatory environment, technical expertise,
long-term relationships with key customers and high switching costs
for customers.
DERIVATION SUMMARY
Bormioli is smaller than other 'B' category peers such as Ardagh
Metal Packaging S.A. (AMP; B-/Negative), Titan Holdings II B.V.
(B+/Stable), Fiber Bidco S.p.A. (B+/Stable) and Reno de Medici
S.p.A. (B+/Stable). The company's business profile is also weaker
than higher-rated peers due to its less diversified geographical
presence and more limited end-market, albeit characterised by
resilience.
Bormioli's EBITDA margins are solid and healthy and higher than
some Fitch-rated peers. Its Fitch-defined EBITDA margin was in the
range of 17.5% to 19% in 2021-2023, while most Fitch-rated peers in
the 'B' category reported profitability in the range of 10% to 15%
on average. Fitch forecasts Bormioli's EBITDA profitability will
remain healthy with an EBITDA margin of about 19%-20% in
2024-2025.
Bormioli's FCF generation is weaker than peers and reflects its
dependence on the investment cycle. Fitch forecasts FCF will turn
positive in 2026 with a margin of over 2.0%, which is comparable
with Fiber BidCo, Rimini Bidco and Titan Holdings.
Bormioli's leverage improved in 2023 and reached 5.8x, which is
comparable with Titan Holdings and Reno de Medici. AMP's leverage
of 8.0x at end-2023 is higher than Bormioli, but its business
profile is stronger with higher geographical diversification.
Expected further EBITDA generation improvement should allow
Bormioli to reduce EBITDA leverage below 5.0x from 2026.
KEY ASSUMPTIONS
- Proposed acquisition of the issuer by Gerrescheimer Glas GmbH is
not incorporated into the rating case
- Low single-digit rise in revenue during 2024-2027
- EBITDA margin of 19.5% in 2024, 20.5% in 2025 and about 21.2% on
average in 2026-2027, driven by growth in revenues and ongoing cost
control initiatives
- No material working capital fluctuation over the rating horizon
- Capex at about EUR27 million in 2024, EUR32 million in 2025,
EUR24 million in 2026 and EUR22 million in 2027
- No dividend payments
- No M&A to 2027 or refinancing
RECOVERY ANALYSIS
- The recovery analysis assumes that Bormioli would be deemed a
going concern (GC) in bankruptcy and that it would be reorganised
rather than liquidated
- Fitch assumes GC EBITDA of EUR50 million. GC EBITDA incorporates
a loss of a major customer and a failure to broadly pass on raw
material cost inflation to customers. The assumption also reflects
corrective measures taken in reorganisation to offset the adverse
conditions that trigger its default
- Fitch assumes a 10% administrative claim
- Fitch uses an enterprise value (EV) multiple of 5.0x EBITDA to
calculate a post-reorganisation EV. The multiple is based on
Bormioli's strong market position in Europe with resilient
end-market, good customer diversification with a long-term
relationship. At the same time, the EV multiple reflects the
group's concentrated geographical diversification, fluctuating FCF
generation and small scale in comparison with peers.
- Fitch deducts about EUR39 million from the EV, due to Bormioli's
high usage of a factoring facility adjusted for a discount, in line
with Fitch's criteria
- Fitch estimates the total amount of senior debt claims at EUR430
million, which includes a EUR65 million super senior secured
revolving credit facility (RCF), EUR350 million senior secured
notes and EUR15 million of unsecured bank debt
- The allocation of value in the liability waterfall results in
recovery corresponding to 'RR4' for the senior secured notes. The
waterfall-generated recovery computation output percentage is 35%.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- Completion of Bormioli's acquisition by Gerresheimer AG would
likely lead to an upgrade, assuming that targeted consolidated
EBITDA net leverage of Gerresheimer AG, including Bormioli, is
below 3.0x, which Fitch views as achievable in the medium term.
Cancellation of the transaction would likely result in the
affirmation of Bormioli's ratings.
The following factors apply for standalone Bormioli:
- Clear deleveraging commitment with EBITDA leverage below 5.0x on
a sustained basis
- EBITDA interest coverage ratio above 3.0x
- FCF margin above 2% on a sustained basis
- Improvement in geographical diversification and scale of the
business
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- EBITDA leverage above 6.0x
- Marginal to negative FCF, which reduces financial flexibility
- EBITDA interest coverage below 2.0x
LIQUIDITY AND DEBT STRUCTURE
Satisfactory Liquidity: At end-1Q24, Bormioli reported
Fitch-defined readily available cash of EUR14.8 million, which
Fitch adjusted by EUR5.5 million to cover intra-year
working-capital needs. Bormioli has no material scheduled debt
repayments until 2028. Moreover, the group has access to an undrawn
EUR65 million RCF due October 2027. The available liquidity
position should be sufficient to cover marginally negative FCF
expected in 2024 and 2025.
Adequate Debt Structure: The group's debt is mainly represented by
senior secured notes of EUR350 million as well as the EUR65 million
RCF that Fitch expects to be undrawn over the rating horizon.
Fitch-adjusted short-term debt is represented by drawn factoring
facilities totaling EUR48 million at end-1Q24. This debt
self-liquidates with factored receivables.
ISSUER PROFILE
Bormioli is a leading European producer of plastic and glass pharma
packaging. Bormioli is 93.4% owned by Triton, a private investment
fund.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Bormioli Pharma
S.p.A. LT IDR B Rating Watch On B
senior secured LT B Rating Watch On RR4 B
QUARZO SRL 2024: Moody's Assigns Ba1 Rating to EUR22.8MM D Notes
----------------------------------------------------------------
Moody's Ratings has assigned the following definitive ratings to
Notes issued by Quarzo S.r.l., Series 2024:
EUR526.3M Series A1 Asset Backed Floating Rate Notes due June
2041, Definitive Rating Assigned Aa3 (sf)
EUR174.6M Series A2 Asset Backed Floating Rate Notes due June
2041, Definitive Rating Assigned Aa3 (sf)
EUR40.8M Series B Asset Backed Floating Rate Notes due June 2041,
Definitive Rating Assigned Baa1 (sf)
EUR28.5M Series C Asset Backed Floating Rate Notes due June 2041,
Definitive Rating Assigned Baa3 (sf)
EUR22.8M Series D Asset Backed Floating Rate Notes due June 2041,
Definitive Rating Assigned Ba1 (sf)
Moody's has not assigned a rating to the subordinated EUR22M Series
J Asset Backed Fixed Rate Notes due June 2041 and EUR0.1M Series R
Asset Backed Variable Return Note due June 2041.
RATINGS RATIONALE
The Notes are backed by a 6-month revolving pool of unsecured
consumer loans extended to obligors located in Italy by Compass
Banca S.p.A. ("Compass", unrated), a company fully owned by
Mediobanca S.p.A. (Baa1/P-2 Bank Deposits; Baa2(cr)/P-2(cr)).
Compass is acting as originator and servicer of the loans. This
represents the fourteenth issuance out of the Quarzo program.
The portfolio consists of approximately EUR814.99 million of loans
as of May 27, 2024 pool cut-off date. The Reserve Fund will be
funded to 1.30% of the Series A1, A2, B, C and D Notes' balance at
closing and the total credit enhancement for the Series A1 and A2
Notes will be 15.27%.
The ratings are primarily based on the credit quality of the
portfolio, the structural features of the transaction and its legal
integrity.
According to Moody's, the transaction benefits from various credit
strengths such as: (i) a granular portfolio with good geographic
diversification; (ii) the fact that all loans are fully amortising
without any balloon payments; and (iii) extensive historical
performance data with regards to defaults and recoveries provided
by the originator.
In addition, the transaction contains structural features such as:
(i) an amortising liquidity reserve sized at 1.30% of Series A1,
A2, B, C and D Notes balance; (ii) principal to pay interest
mechanism for the Notes; (iii) a daily sweep of collections to the
Issuer account that partially mitigates the risk of commingling;
and (iv) a significant excess spread at closing.
Moody's notes that the transaction features some credit weaknesses
such as: (i) the fact that the pool is revolving for 6 months,
which could lead to an asset quality drift, although this is
mitigated to some extent by the portfolio concentration limits;
(ii) pro-rata payments on Classes A1/A2 - J Notes from the first
payment date; (iii) the weighted-average asset yield can decrease
to 10.5% during the revolving period, which has been considered in
the cash flow modelling of the transaction; (iv) 63% of the pool
comprises personal loans which historically exhibited higher
default rates than other consumer loan products; (v) an unrated
servicer; and (vi) an interest rate mismatch as all the loans are
fixed-rate, whereas the Notes are floating-rate (except for Classes
J and R Notes). Various mitigants have been included in the
transaction structure such as a back-up servicer facilitator which
is obliged to appoint a back-up servicer if certain triggers are
breached, as well as performance triggers which stop the revolving
period if breached. The interest rate mismatch is mitigated by a
fixed-to-floating balance guaranteed interest rate swap hedging the
Euribor component of the coupon payments for Classes A1/A2 to D
Notes. Pro-rata payment scheme will cease after the sequential
redemption events are triggered.
Moody's determined the portfolio lifetime expected defaults of
5.20%, expected recoveries of 15% and portfolio credit enhancement
("PCE") of 16% related to borrower receivables. The expected
defaults and recoveries capture Moody's expectations of performance
considering the current economic outlook, while the PCE captures
the loss Moody's expect the portfolio to suffer in the event of a
severe recession scenario. Expected defaults and PCE are parameters
used by Moody's to calibrate its lognormal portfolio loss
distribution curve and to associate a probability with each
potential future loss scenario in the ABSROM cash flow model to
rate Consumer ABS.
Portfolio expected defaults of 5.20% are lower than the EMEA
Consumer Loan ABS average and are based on Moody's assessment of
the lifetime expectation for the pool taking into account: (i)
historical performance of the loan book of the originator, split by
new and used vehicles, personal loans and other special purpose
loans; (ii) benchmarking with other similar transactions; and (iii)
other qualitative considerations, such as the 6-month revolving
period and the related portfolio concentration limits.
Portfolio expected recoveries of 15% are in line with the EMEA
Consumer Loan ABS average and are based on Moody's assessment of
the lifetime expectation for the pool taking into account: (i)
historical performance of the loan book of the originator, split by
new and used vehicles, personal loans and other special purpose
loans; (ii) the unsecured nature of the consumer loans in Italy;
and (iii) benchmarking with other similar transactions.
PCE of 16% is lower than the EMEA Consumer Loan ABS average and is
based on Moody's assessment of the pool which is mainly driven by:
(i) evaluation of the underlying portfolio, complemented by the
historical performance information as provided by the originator;
and (ii) the relative ranking to originator peers in the EMEA
Consumer loan market. The PCE level of 16% results in an implied
coefficient of variation ("CoV") of 54.6%.
The principal methodology used in these ratings was "Moody's
Approach to Rating Consumer Loan-Backed ABS" published in December
2022.
Factors that would lead to an upgrade or downgrade of the ratings:
Factors that could lead to an upgrade of the ratings include: (i)
an upgrade of Italy´s local country currency (LCC) rating.
Factors that could lead to a downgrade of the ratings include: (i)
an increase in Italian's sovereign risk; (ii) increased
counterparty risk leading to potential operational risk of (a)
servicing or cash management interruptions and (b) the risk of
increased swap linkage due to a downgrade of a swap counterparty
ratings; and (iii) performance of the pool being worse than Moody's
expectations.
===================
L U X E M B O U R G
===================
SAPHILUX SARL: Moody's Affirms B3 CFR & Alters Outlook to Positive
------------------------------------------------------------------
Moody's Ratings affirmed Saphilux S.a.r.l.'s (IQ-EQ) B3 long term
corporate family rating and B3-PD probability of default rating.
Concurrently, Moody's affirmed the B3 instrument ratings to the
senior secured first lien term loan B (TLB) and senior secured
first lien delayed drawn term loan (DDTL) due 2028 and to the
senior secured Revolving Credit Facility (RCF) due 2028, all issued
by Saphilux S.a.r.l. The outlook was changed to positive from
stable.
RATINGS RATIONALE
The change of IQ-EQ's outlook to positive from stable reflects
IQ-EQ's continued improved operating performance in 2023 as well as
Moody's expectation of considerable slowdown of M&A activity and
exceptional costs driving significant structural improvement in FCF
generation in the next 12-18 months.
IQ-EQ showed continued strong EBITDA generation in 2023 as
company-adjusted EBITDA increased to EUR219 million for the last
twelve months to March 2024 from EUR212 million in 2023 and EUR175
million in 2022. The solid operating performance was driven by
IQ-EQ's continued strong organic growth of 12% in 2023 and 13% in
Q1 2024 and successful wage inflation pass-through. Also,
profitability increase was supported by the scaling and near
completion of their offshoring program with around one third of
employees being in share-serviced locations in 2023 from 19% in
2020.
The operational performance was burdened by still high one-off
costs of more than EUR50 million in both 2022 and 2023, mainly for
M&A integration, restructuring and the above mentioned offshoring
program. This led to Moody's-adjusted gross leverage of around 7.1x
in 2023 as well as still negative FCF generation of around - EUR38
million, additionally burdened by above EUR100 million annual
interest cost.
Moody's understand that IQ-EQ has largely completed the offshoring
program and reached envisioned business scale and diversification.
IQ-EQ budgets EUR15 million of one-off costs in 2024 (prior to new
M&A), a significant decline from previous levels. The positive
outlook reflects the expectation that IQ-EQ will successfully build
track record of positive FCF generation on the back of continued
organic growth, strong profitability, slowdown in M&A activity and
exceptional expenses.
IQ-EQ's B3 CFR continues to reflect the company's resilient
business model, with long-standing customer relationships and high
switching costs, resulting in above 90% of recurring revenue;
significant exposure (2/3 of revenue) to the funds segment, which
has good mid-term growth prospects and supports IQ-EQ's track
record of solid organic growth; successful integration of
acquisitions and ability to pass through wage inflation.
At the same time, IQ-EQ's elevated leverage; historical slow pace
of leverage reduction given exceptional items and M&A activity in
the environment of relatively high valuation multiples; risk of
further debt-funded acquisitions; its exposure to legal and
regulatory risks inherent to the industry; and low historical FCF
generation, all constrain the B3.
LIQUIDITY
IQ-EQ's liquidity is good. It is supported by a cash balance of
around EUR81 million (net of restricted cash) and EUR152 million
RCF (EUR142 million available for corporate purposes as of March
2024) as well as Moody's expectation of positive FCF in the next
12-18 months. There are no major debt maturities until 2028, when
the RCF and first lien TLB mature.
The RCF is subject to a springing first lien net leverage ratio
covenant, tested when the facility is drawn by more than 40%, net
of cash balances. Moody's expects IQ-EQ to ensure consistent
compliance with this covenant at all times.
STRUCTURAL CONSIDERATIONS
The senior secured first lien term loan B (EUR1.1 billion
equivalent in total), senior secured first lien delayed draw term
loan ($26 million) and the RCF (EUR152 million) rank pari passu and
share the same security interest, including mainly share pledges
and intercompany receivables. These instruments are rated B3, in
line with the CFR because they account for most of the debt. First
lien lenders rank senior to the EUR116 million equivalent
guaranteed senior secured second lien facility, which is secured by
the same collateral and shares the same guarantors as the senior
secured credit facilities on a subordinated basis. The second lien
debt is not sizeable enough to justify an instrument rating on the
senior secured first lien bank credit facility above the B3 CFR.
OUTLOOK
The positive outlook reflects Moody's expectations of IQ-EQ
building a track record of positive FCF generation on the back of
continued organic topline growth and profitability improvement due
to completed offshoring platform, slower M&A activity and lower
one-off expenses. This would lead to metrics in line with a B2
rating level in the next 12-18 months including Moody's-adjusted
Debt/EBITDA sustainably below 6.5x as well as sustainable positive
FCF generation.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The ratings could be upgraded if earnings growth, combined with a
commitment to leverage reduction and a prudent approach towards
future M&A activity, results in adjusted debt/EBITDA sustainably
below 6.5x, Moody's-adjusted EBITA/interest towards 2.0x and
positive FCF generation, while the company maintains good
liquidity. Moreover, an upgrade would require the absence of any
adverse changes in regulation.
Moody's would consider a rating downgrade with expectations of
Moody's-adjusted debt/EBITDA sustaining above 8.0x,
Moody's-adjusted EBITA/interest declining below 1.5x or sustained
negative FCF. The ratings could also be downgraded if the company's
liquidity deteriorates to weak levels.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and
Consumer Services published in November 2021.
COMPANY PROFILE
Saphilux S.a.r.l. (IQ-EQ) is one of the largest independent fund
and corporate services providers globally. It is headquartered in
Luxembourg and has also developed a strong market presence in North
America, the Netherlands, Mauritius, France, the UK, the Crown
Dependencies, Belgium, Singapore and Hong Kong. IQ-EQ provides a
comprehensive range of value-added services and tailored solutions
for funds, companies and private clients with revenue of EUR0.7
billion and company-adjusted EBITDA of EUR212 million (based on
IFRS) in 2023. The company is majority-owned by the private-equity
firm Astorg Partners. In January 2022, Astorg Partners transferred
IQ-EQ to a newly established Continuation Fund, which closed at
EUR1.3 billion.
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M A L T A
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ESPORTS ENTERTAINMENT: Appoints TAAD LLP as New Auditor
-------------------------------------------------------
Esports Entertainment Group, Inc. disclosed in Form 8-K Report
filed with the U.S. Securities and Exchange Commission that on June
13, 2024, the company dismissed Marcum LLP as the Company's
independent registered public accounting firm, effective as of the
same date. The decision to dismiss the auditor was recommended and
approved by the Company's Board of Directors and Audit Committee.
The reports of Marcum LLP for the past two fiscal years ended June
30, 2023, did not contain any adverse opinion or disclaimer of
opinion and were not qualified or modified as to any uncertainty,
audit scope or accounting principle except with respect to an
explanatory paragraph indicating that there was substantial doubt
about the Company's ability to continue as a going concern, as
disclosed in the Company's Annual Report on Form 10-K for the year
ended June 30, 2023. During the Company's two most recent fiscal
years and any subsequent interim period up to and including the
date of the Company's dismissal of Marcum LLP, there have been no
(i) disagreements with Marcum LLP on any matter of accounting
principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Marcum LLP, would have caused them to make
reference thereto in their reports on the financial statements for
such periods; or (ii) reportable events within the meaning of Item
304(a)(1)(v) of Regulation S-K and the related instructions
thereto, except for the material weaknesses described in Item 9A of
the Company's Annual Report on Form 10-K for the year ended June
30, 2023, and as discussed with the management of the Company and
the Audit Committee. The Company has authorized Marcum to respond
fully to the inquires of any successor auditor on the Company's
ability to continue as a going concern, as disclosed in the
Company's Annual Report on Form 10-K for the year ended June 30,
2023, and the material weaknesses described in Item 9A of the
Company's Annual Report on Form 10-K for the year ended June 30,
2023.
On June 20, 2024, the Company's Board of Directors and Audit
Committee appointed the firm of TAAD LLP, as the Company's
independent registered public accounting firm for the fiscal year
ending June 30, 2024, effective as of the same date.
During the two most recent fiscal years and any subsequent interim
period, neither the Company, nor anyone on its behalf, consulted
with TAAD LLP regarding the application of accounting principles to
a specific transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's financial
statements, nor did TAAD LLP provide advice to the Company, either
written or oral, that was an important factor considered by the
Company in reaching a decision as to the accounting, auditing or
financial reporting issue. Further, during the Company's two most
recent fiscal years and subsequent interim period, the Company has
not consulted TAAD LLP on any matter that was the subject of a
disagreement or a reportable event.
About Esports Entertainment Group
St. Julians, Malta-based Esports Entertainment Group, Inc. is a
diversified operator of iGaming, traditional sports betting and
esports businesses with a global footprint. The Company's strategy
is to build and acquire iGaming and traditional sports betting
platforms and use them to grow the esports business.
As of March 31, 2024, the Company has $4.6 million in total assets,
$12.2 million in total liabilities, and total stockholders' deficit
of $19.6 million.
The Company previously cautioned in its Quarterly Report for the
period ended December 31, 2024, that substantial doubt exists about
its ability to continue as a going concern for the next 12 months.
For the quarterly period ended March 31, 2024, that Company had an
accumulated deficit of $206.1 million as of March 31, 2024 and that
it has had a history of recurring losses from operations and
recurring negative cash flows from operations as it has prepared to
grow its esports business through acquisition and new venture
opportunities. At March 31, 2024, the Company had $1 million of
available cash on-hand and net current liabilities of $7.8 million.
Net cash used in operating activities for the nine months ended
March 31, 2024 was $5.6 million, which includes a net loss of $24.7
million.
In determining whether the Company can overcome the presumption of
substantial doubt about its ability to continue as a going concern,
the Company may consider the effects of any mitigating plans for
additional sources of financing. The Company identified additional
financing sources it believes, depending on market conditions, may
be available to fund its operations and drive future growth, which
includes: (i) the potential expected proceeds from future
offerings, where the amount of the offering has not yet been
determined; and (ii) the ability to raise additional financing from
other sources. However, these plans were determined not to be
sufficient to overcome the presumption of substantial doubt about
the Company's ability to continue as a going concern.
=====================
N E T H E R L A N D S
=====================
IPD 3 BV: Fitch Affirms 'B' LongTerm IDR, Outlook Stable
--------------------------------------------------------
Fitch Ratings has assigned IPD 3 B.V.'s (InfoproDigital) new EUR520
million notes due in 2031 a final 'B+' senior secured rating. The
Recovery Rating is 'RR3'. Simultaneously, Fitch has affirmed IPD's
Long-Term Issuer Default Rating (IDR) at 'B' with a Stable
Outlook.
The notes are rated a notch above the IDR to reflect their senior
secured status in its capital structure and above-average recovery
prospects. The proceeds have been used primarily to refinance IPD's
EUR475 million floating-rate notes due in June 2028. The remainder
will be used to repay drawings under a revolving credit facility
(RCF) and with the rest retained as cash on its balance sheet.
Despite a slightly higher debt quantum post-refinancing, Fitch
expects EBITDA growth to help reduce EBITDA gross leverage to
around 5.6x at end-2024 from 5.7x at end-2023, fully in line with
its sensitivities for the rating. The Stable Outlook reflects
Fitch's expectations of IPD's continued ability to improve margins
through a well-managed cost structure, while delivering organic
revenue growth, supported by improving macro-economic conditions.
Fitch has withdrawn the 'B+' instrument rating on the EUR475
million senior secured floating-rate notes, as the notes have been
redeemed.
KEY RATING DRIVERS
Leverage to Gradually Decrease: Fitch views the new EUR520 million
notes as broadly neutral to leverage, resulting in up to 0.1x
increase in the company-defined EBITDA gross leverage. Fitch
assumes that the contribution of bolt-on acquisitions and organic
growth across business lines will help reduce Fitch-defined EBITDA
leverage to 5.6x at end-2024 from 5.7x at end-2023, with further
deleveraging towards 4.7x at end-2027. Deleveraging may be slower
if the company decides to pursue bolt-on acquisitions using its
RCF, as demonstrated in early 2024.
Organic Growth: IPD reported strong organic revenue growth of 7.3%
in 2023 and about 7% in 1Q24. This was driven by expansion of
subscription-based technology solutions, especially for automotive
and environmental health and safety services, supported by increase
in prices and its tradeshows business recovery.
Firm Margins: Margins are resilient, as IPD is able to pass on cost
inflation to customers, particularly wages, which represent 55%-60%
of IPD's operating expenditure. IPD is focused on cost control and
higher-margin business lines. Fitch expects sluggish economic
growth in Europe to reduce opportunities for margin expansion and
will slow organic revenue growth to mid-single digits. However, its
base case still assumes IPD will achieve a 30% EBITDA margin in
2025-2026, driven by cost restraint.
Interest Cover Reduced: Fitch expects EBITDA interest coverage to
remain below its sensitivity of 2.8x until 2026, as IPD's
fixed-rate notes' coupon remains high and total debt quantum
increases. This will be offset by a lower margin on the new
floating-rate notes. The EUR520 million notes remain exposed to
interest-rate risk, but Fitch assumes this would be mitigated by
partial hedging through interest-rate swaps.
Fitch expects that gradual growth in EBITDA and base rate cuts to
return interest coverage above its negative sensitivity in 2027. In
its view, weaker interest cover is offset by its assumption that
IPD will maintain adequate liquidity.
Bolt-on Acquisitions to Remain: IPD's strategy assumes both organic
growth and M&A. Fitch estimates bolt-on acquisitions of around
EUR25 million-EUR30 million per year as higher leverage after the
2023 debt refinancing has reduced headroom for more meaningful
debt-funded expansion. IPD has sufficient liquidity as Fitch
assumes that, post the latest notes issue, the EUR130 million RCF
will be fully undrawn, to pursue larger debt-financed transactions,
but this could negatively affect leverage and interest coverage
metrics. Takeover of a larger target could also expose IPD to
integration risks and short-term margin pressure from restructuring
costs.
Exposure to Cyclical End-Markets: In 2023, about 70% of IPD's
revenue came from more cyclical end-markets such as construction
(30%-35% excluding public sector), auto aftermarket (21%), and
diversified industrials (20%). IPD's customer base comprises
predominately SMEs, which may be more vulnerable to recession than
larger companies. The customer base remained resilient during the
pandemic, due partially to government and EU support.
High Proportion of Subscription Revenue: Contracted sales are the
backbone of IPD's business. The data and information segment, which
is mainly subscription revenue, makes up about two-thirds of
revenue. Customer contracts with typical durations of one to three
years provide some profit and cash flow generation visibility. IPD
benefits from strong customer retention rates, even for services
that are non-subscription based. IPD's services are also often an
essential part of its customers' business and account for a low
proportion of their operating costs, making them less likely to be
scaled back.
Established Position in Niches: IPD offers a wide range of
platforms and services but two-thirds of its revenue is generated
from 15 key brands, which are strongly positioned within their
respective niche markets. Broad data sets and experience in
tailoring information towards customers' needs, combined with
reliable services, also increase the loyalty of IPD customers and
create barrier of entry for potential competitors.
DERIVATION SUMMARY
IPD is a leading European business services provider focused on six
core sub-segments including automotive aftermarket, construction
and industrials. High leverage and smaller scale are the key
differentiating factors compared with larger peers such as RELX PLC
(BBB+/Stable), Thomson Reuters Corporation (BBB+/Stable) and Daily
Mail and General Trust Plc (BB+/Negative).
IPD benefits from a strong share of subscription revenues and has a
well-established position in its core segments, but is more exposed
to more cyclical end-markets and less diversified globally. Its
modest scale also makes it more vulnerable in recession, and its
face-to-face business is exposed to event risks as seen during the
pandemic.
KEY ASSUMPTIONS
Fitch's Key Assumptions within Its Rating Case for the Issuer:
- Revenue growth of about 6.0% in 2024, 5.2% in 2025, 5.4% in 2026,
and 4.8% in 2027
- Fitch-defined EBITDA margin of 29.7% in 2024, and exceeding 30%
from 2025
- Capex at 9% of revenue in 2024-2027
- Bolt-on acquisitions of EUR25 million-EUR30 million a year in
2024-2027
RECOVERY ANALYSIS
Key Recovery Rating Assumptions
- Fitch assumes that IPD would be considered a going concern (GC)
in bankruptcy and reorganised rather than liquidated
- A 10% administrative claim
- Fitch estimates a post-restructuring GC EBITDA of EUR140 million,
after corrective measures and a restructuring of its capital
structure. This figure is around 21% lower than LTM1Q24 EBITDA
(Fitch-defined).
- Fitch continues to apply an enterprise value (EV) multiple of
5.5x to estimate a post-reorganisation value
- After deducting 10% for administrative claims, Fitch calculates
recovery prospects for the senior secured instruments at 55%,
assuming IPD's super senior secured RCF of EUR130 million is fully
drawn in a default. This results in a one-notch uplift to the
ratings relative to the IDR leading to a senior secured debt rating
of 'B+'/'RR3' for the company's new EUR520 million senior secured
debt and its existing EUR500 million senior secured notes.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- Fitch-defined EBITDA leverage below 4.5x on a sustained basis
- Fitch-defined EBITDA interest coverage above 3.3x on a sustained
basis
- Free cash flow (FCF) margin above 8% on a sustained basis
- Improved visibility on EBITDA and cash flow generation, with
reduced exposure to the face-to-face business
- Stronger-than-expected rebound in the trade shows and information
and insights segments
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- Fitch-defined EBITDA leverage above 6.0x on a sustained basis
- Fitch-defined EBITDA interest coverage failing to improve to
2.8x
- EBITDA margin deterioration towards 20%
- FCF margin below 3% on a sustained basis
- Sizeable, fully debt-funded acquisitions
- Material loss of subscription contracts and decline in the trade
shows and information and insights businesses
LIQUIDITY AND DEBT STRUCTURE
Adequate Liquidity: As of end-March 2024, IPD had adequate
liquidity comprising an EUR105 million availability under its
EUR130 million RCF due 2028 and a cash balance of EUR82.1 million.
IPD has modest working-capital swings and no material debt
maturities until 2028 when its EUR500 million fixed-rate notes are
due. Its new EUR520 million floating-rate notes mature in June
2031.
ISSUER PROFILE
IPD is a leading European business information services provider
located in France.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
ESG CONSIDERATIONS
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
IPD 3 B.V. LT IDR B Affirmed B
senior secured LT B+ New Rating RR3 B+(EXP)
senior secured LT WD Withdrawn B+
senior secured LT B+ Affirmed RR3 B+
=========
S P A I N
=========
SANTANDER CONSUMO 5: Fitch Affirms 'BBsf' Rating on Class D Notes
-----------------------------------------------------------------
Fitch Ratings has affirmed Santander Consumo 5, F.T.'s notes with
Stable Outlooks.
Entity/Debt Rating Prior
----------- ------ -----
Santander Consumo 5, F.T.
Class A ES0305715007 LT AA+sf Affirmed AA+sf
Class B ES0305715015 LT A+sf Affirmed A+sf
Class C ES0305715023 LT BBB+sf Affirmed BBB+sf
Class D ES0305715031 LT BBsf Affirmed BBsf
TRANSACTION SUMMARY
The transaction is a securitisation of fully amortising
general-purpose consumer loans originated by Banco Santander, S.A.
(A-/Stable/F2) to Spanish residents. Around 80% of the portfolio
balance is linked to pre-approved loans to existing customers, and
the current portfolio balance is 78% relative to the initial
portfolio balance as of the latest reporting date.
KEY RATING DRIVERS
Asset Assumptions Unchanged: Fitch has maintained all its asset
assumptions considering the broadly stable asset pool
characteristics since closing in July 2023 and its unchanged
performance expectations. The performance aligns with the base case
lifetime default and recovery rates of 3.75% and 20.0% for the
portfolio, with gross cumulative defaults (GCD) and arrears 90 days
past due on the portfolio at 0.7% and 0.8%, respectively, as of
March 2024.
The initial five-month revolving period terminated early on the
first payment date in December 2023 and no additional receivables
were acquired as the weighted average (WA) interest rate on the
portfolio of 6.6% was lower than the minimum 7.05% as per the
revolving period covenants. Fitch's cash flow analysis of the
transaction assumes the current WA coupon rate of 6.6% is payable
by the portfolio. The previously applied criteria variation has
been suspended, in accordance with Fitch's Consumer ABS Rating
Criteria.
Stable CE: The affirmations reflect Fitch's view that the notes are
sufficiently protected by credit enhancement (CE) to absorb the
projected losses commensurate with the rating scenarios. Fitch
expects CE ratios to remain broadly stable considering the pro-rata
amortisation of the class A to E notes unless a switch to
sequential amortisation trigger is activated. One of the main
triggers is linked to GCD exceeding certain thresholds or a
principal deficiency greater than EUR12 million, which are not
expected to be breached in the short to medium term under Fitch´s
central scenario.
Fitch considers the triggers adequately robust to prevent the pro
rata mechanism from continuing upon early signs of performance
deterioration, and the tail risk posed by the pro rata pay-down is
mitigated by the mandatory switch to sequential amortisation when
the outstanding collateral balance (inclusive of defaults) falls
below 10% of the initial balance.
Counterparty Arrangements Cap Ratings: The maximum achievable
rating for the transaction is 'AA+sf' in line with Fitch's
Counterparty Criteria, as the minimum eligibility rating thresholds
defined for the transaction account bank and the hedge provider of
'A-' or 'F1' are insufficient to support 'AAAsf' ratings. A
balanced guaranteed interest rate swap hedges the risk arising from
100% of the portfolio paying a fixed interest rate for life and the
floating-rate notes.
PIR Immaterial: Payment interruption risk (PIR) in the event of a
servicer disruption is assessed as immaterial up to 'AA+sf' in line
with Fitch's updated Global Structured Finance Rating Criteria as
interest deferability is permitted under transaction documents for
all rated notes and does not constitute an event of default. Other
mitigants against PIR include the transfer of direct debit
collections into the TAB within two business days, and the
availability of liquidity protection through the cash reserve.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Long-term asset performance deterioration, such as increased
delinquencies or reduced portfolio yield, which could be driven by
changes in portfolio characteristics, macroeconomic conditions,
business practices or the legislative landscape. For instance, an
increased loss rate on the portfolio by 25% could trigger
downgrades of up to five notches.
- For the class D notes in particular, the combination of
back-loaded timing of defaults and a late activation of junior
interest deferrals would erode cash flow and could lead to a
downgrade.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- For the senior notes rated 'AA+sf', modified transaction account
bank and derivative provider minimum eligibility rating thresholds
compatible with 'AAAsf' ratings under Fitch's Structured Finance
and Covered Bonds Counterparty Rating Criteria.
- Increasing CE ratios as the transaction deleverages to fully
compensate the credit losses and cash flow stresses commensurate
with higher rating scenarios may lead to upgrades. For instance, a
decreased loss rate on the portfolio by 25% could trigger upgrades
of up to three notches.
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
Santander Consumo 5, F.T.
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.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
Prior to the transaction closing, Fitch reviewed the results of a
third party assessment conducted on the asset portfolio information
and concluded that there were no findings that affected the rating
analysis.
Prior to the transaction closing, Fitch conducted a review of a
small targeted sample of the originator's origination files and
found the information contained in the reviewed files to be
adequately consistent with the originator's policies and practices
and the other information provided to the agency about the asset
portfolio.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG CONSIDERATIONS
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.
===========================
U N I T E D K I N G D O M
===========================
ARJ CONSTRUCTION: Owed More Than GBP9MM to Subcontractors
---------------------------------------------------------
Grant Prior at Construction Enquirer reports that Hertfordshire
based contractor ARJ Construction went into administration owing
more than GBP9 million to subcontractors and suppliers.
The scale of the Stevenage based firm's debts are revealed in an
update from administrators at FRP Advisory who took over the
business in April, Construction Enquirer notes.
ARJ had been in business since 1991 specialising in projects from
GBP10 million to GBP60 million across the South East in the
residential, healthcare, education and commercial sectors.
The company had 111 employees but delivered all projects via
subcontractors.
Latest results for the year to April 30, 2023, show a turnover of
GBP117 million generating a pre-tax profit of GBP2.8 million,
Construction Enquirer states.
According to Construction Enquirer, FRP said the firm ran into
trouble because of a number of loss-making contracts following
price rises in materials and labour.
The company had GBP7.3 million cash in the bank at the time of its
demise and unsecured creditors are expected to get some return on
their debts once the company is formally liquidated, Construction
Enquirer discloses.
CARTWRIGHT BROTHERS: Enters Administration, Halts Operations
------------------------------------------------------------
Business Sale reports that Cartwright Brothers (Haulage) Limited, a
haulage and storage business based in Lincoln, has fallen into
administration and ceased trading.
According to Business Sale, the family-owned company has suffered
as a result of rising prices, macroeconomic conditions and the
COVID-19 pandemic over recent years.
In the year to February 28, 2023, the company reported turnover of
GBP11.5 million, down only slightly from GBP11.6 million a year
earlier, Business Sale discloses. However, it fell from a GBP1.28
million post-tax profit in 2022 to a post-tax loss of GBP191,626,
Business Sale notes.
At the time, the company stated that it had been impacted by the
war in Ukraine and the subsequent impact of the crisis on fuel
prices, Business Sale recounts. However, it considered this a
"reasonable result in what remains a challenging economy" and said
that it had also seen the value of its freehold property increase
to "unprecedented levels" as a result of rising demand for
commercial warehousing, Business Sale relays.
Despite this relatively recent optimism, the company has continued
to face adverse factors and ultimately fell into administration
last week, appointing Elizabeth Welch and Matthew Ingram of Kroll
Advisory as joint administrators, Business Sale discloses.
The company was founded by four brothers in 1944 in order to meet
demand for road haulage services in the agricultural sector. The
firm has been run by directors, Jamie and John Cartwright (who are
cousins and sons of two of the original founders) for more than 30
years.
John Cartwright, as cited by Business Sale, said that the business
had been unable to continue as a result of "the number of
challenges thrown at us".
Jamie Cartwright added that running a haulage company has "come
with huge challenges" over the past decade, citing "rising diesel
prices, a difficult economy, along with huge constraints caused by
COVID-19", Business Sale relates.
In its 2023 accounts, the company's fixed assets were valued at
GBP8.5 million and current assets at GBP4.1 million, Business Sale
discloses. However, its debts at the time left it with net assets
totalling just over GBP3 million, according to Business Sale.
FAIRHURSTS DESIGN: Bought Out of Administration
-----------------------------------------------
Tom Lowe at Building Design reports that practice behind several of
city's most famous listed buildings went into administration this
week after succumbing to mounting debts and project delays.
According to Building Design, Historic Manchester-based practice
Fairhursts Design Group has been acquired by Bond Bryan after going
into administration.
Bond Bryan bought the practice behind some of Manchester's most
famous listed buildings for an undisclosed sum this week, Building
Design discloses.
The deal will see Bond Bryan, which currently has six studios,
expand its presence into Manchester, Cambridge and Southampton,
where Fairhursts' three studios are located, Building Design
states.
The acquisition creates a new group with a combined team of 180
professionals, including architects, technicians, interior
designers, laboratory designers, landscape architects and
strategists, Building Design notes.
The pair have been working towards a potential merger for the past
year but mounting debts and a series of project delays at
Fairhursts are said to have "accelerated" the discussions, Building
Design relays.
Fairhursts appointed Craig Johns and Jason Elliott at Cowgills as
administrators this week following 130 years of trading, Building
Design discloses.
According to Building Design, the firm's managing director Mark
Adey described the acquisition, which will save all 40 jobs at the
troubled practice, as an "excellent outcome for the futures of both
Fairhurst and Bond Bryan".
"Like many in the sector, we have faced extremely difficult trading
conditions of late, which ultimately meant that Fairhurst was not
able to continue in its previous form," he said.
"However, joining Bond Bryan will allow both firms to offer a
broader range of enhanced services and help take both businesses to
the next level."
Fairhursts was founded in Blackburn in 1896 by HS Fairhurst. Its
latest accounts, filed for the year to October 31, 2022 and signed
off at the end of last July, showed the firm owed creditors more
than GBP1.7 million, including GBP390,000 to trade creditors,
GBP416,000 to HMRC and GBP43,000 in bank loans, Building Design
states.
At the time it was owed nearly GBP990,000 from trade debtors and
had just GBP15,000 in the bank, although this had been a
significant improvement from the year before when it had just
GBP404 of cash at hand, Building Design notes.
The practice blamed turmoil in government and financial markets for
an "uncertain" start to 2023 but said its growing workload with
"previously quiet" clients and in the STEM sector gave it a
"cautious level of confidence for the future", Building Design
relates.
But it added that the cost-of-living crisis and the war in Ukraine
had led to delays in some project starts and longer delays in
schemes which had previously been deferred, meaning directors were
having to keep a "tight control on staff levels to maintain
profitability", according to Building Design.
GO PLANT: 34 Jobs Saved Following Administration Deal
-----------------------------------------------------
Neil Hodgson at TheBusinessDesk.com reports that more than 30 jobs
have been saved in Ellesmere Port following an eight-figure
investment by HSBC UK.
According to TheBusinessDesk.com, waste management services
provider, Sweeptech, has saved 34 jobs in the Cheshire town as part
of the acquisition of a business that fell into administration
earlier this year.
The West Sussex based business used GBP1.75 million of the funding
to acquire three depots from Go Plant, following its
administration, TheBusinessDesk.com states.
The 34 jobs saved include operations and commercial managers, along
with drivers and technicians that service the depot at Ellesmere
Port.
The acquisition is part of Sweeptech's business development
strategy, to deliver national 24-hour servicing for customers in
infrastructure and construction, as well as airports across the
country, TheBusinessDesk.com notes.
The wider funding from HSBC UK will support the business's working
capital requirements following the growth enabled by the
acquisition, TheBusinessDesk.com discloses.
L1R HB FINANCE: EUR415.5MM Bank Debt Trades at 19% Discount
-----------------------------------------------------------
Participations in a syndicated loan under which L1R HB Finance Ltd
is a borrower were trading in the secondary market around 80.9
cents-on-the-dollar during the week ended Friday, June 21, 2024,
according to Bloomberg's Evaluated Pricing service data.
The EUR415.5 millionTerm loan facility is scheduled to mature on
August 31, 2024. The amount is fully drawn and outstanding.
L1R HB Finance Limited was formed by LetterOne, a privately owned
investment vehicle set up by five Russian investors to acquire
U.K.-based Holland & Barrett Retail Limited, a health and well
being retailer specialist. L1R HB Finance is domiciled in Jersey.
LAYBUY: Falls Into Administration
---------------------------------
Levi Winchester at Mirror.co.uk reports that buy now, pay later
firm Laybuy has collapsed into administration but customers are
being urged to continue making payments.
Laybuy has around 300,000 users in the UK and it allowed customers
to spread payments over six weeks, without paying interest.
However, the firm charged a GBP6 fee if your payment is late, and a
further GBP6 if it's still unpaid seven days later. You can also
end up being referred to a debt collection agency if you're more
than 42 days in arrears. Laybuy also reported data to Experian so
if you missed a payment, it would show on your credit report.
Around 2,600 shops and businesses allow customers to pay with
Laybuy in the UK. Laybuy had already disabled its website in
mid-June, but now the news of its collapse has been confirmed, with
FTI Consulting handling its administration process. Mirror.co.uk
discloses. Laybuy customers have been told to continue to make
payments as normal if they took out credit with the firm before its
collapse, Mirror.co.uk states.
Laybuy is based in New Zealand and also has a large customer base
in Australia. It has around 500,000 customers globally.
According to Mirror.co.uk, Sam Ballinger, joint administrator at
FTI Consulting, said: "The joint administrators are currently
assessing the options available to the companies and supporting the
employees, merchants and other affected stakeholders through this
difficult period. Laybuy is not currently accepting new
transactions, however, customers should continue to make payments
as normal."
SHEPHERDS BUSH: Collapses Into Administration
---------------------------------------------
Business Sale reports that Shepherds Bush Developments Limited, a
London-based developer of building projects, fell into
administration last week, with James Saunders and Geoffrey Bouchier
of Kroll Advisory appointed as joint administrators.
According to Business Sale, in the company's accounts for the year
to December 31, 2022, its current assets were valued at GBP20.4
million and net liabilities at GBP402,555.
*********
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-
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Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
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