/raid1/www/Hosts/bankrupt/TCREUR_Public/250423.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, April 23, 2025, Vol. 26, No. 81
Headlines
F R A N C E
SEQUANS COMMUNICATIONS: Regains NYSE Listing Compliance
I R E L A N D
ADAGIO IX: Fitch Affirms B-sf Rating on Cl. F Notes
AQUEDUCT EUROPEAN 11: S&P Assigns Prelim B- (sf) Rating to F Notes
BAIN CAPITAL 2025-1: Fitch Assigns B-sf Final Rating on Cl. F Notes
BAIN CAPITAL 2025-1: S&P Assigns B- (sf) Rating to Class F Notes
CONTEGO CLO III: Fitch Alters Outlook on 'B+sf' Rating to Stable
ROCKFORD TOWER 2025-1: Fitch Assigns 'B-sf' Final Rating to F Notes
ROCKFORD TOWER 2025-1: S&P Assigns B- (sf) Rating to Class F Notes
M A L T A
ENEMALTA PLC: S&P Affirms 'BB-' ICR, Outlook Stable
N E T H E R L A N D S
AMG CRITICAL: Fitch Assigns First Time 'BB-' LT IDR, Outlook Stable
FBN FINANCE: Fitch Hikes Rating on Sr. Unsecured Notes to 'B'
VDK GROEP: S&P Assigns 'B+' Long-Term ICR, Outlook Stable
VODAFONEZIGGO GROUP: S&P Affirms 'B+' ICR on Steady Credit Metrics
R O M A N I A
LIBRA INTERNET: Fitch Affirms 'BB-' Long-Term IDR, Outlook Stable
R U S S I A
UZAUTO MOTORS: S&P Affirms 'B+/B' ICRs, Alters Outlook to Dev.
S W E D E N
TRANSCOM TOPCO: S&P Downgrades LT ICR to 'B-' on Refinancing Risk
T U R K E Y
ALJ FINANSMAN: Fitch Lowers Then Withdraws Nat'l Rating to BB(tur)
[] Fitch Affirms 'BB-' LT IDRs on 3 Turkish NBFIs, Outlook Stable
U N I T E D K I N G D O M
ENTAIN PLC: Fitch Affirms 'BB' Long-Term IDR, Outlook Stable
MITCHELLS & BUTLERS: Fitch Affirms 'B+' Rating on Class D1 Notes
SEPLAT ENERGY: Fitch Hikes Long-Term IDR to 'B', Outlook Stable
THAMES WATER: Fitch Affirms & Withdraws 'C' Rating on Sr. Sec. Debt
TULLOW OIL: S&P Lowers ICR to 'CCC+' Due to May 2026 Debt Maturity
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F R A N C E
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SEQUANS COMMUNICATIONS: Regains NYSE Listing Compliance
-------------------------------------------------------
Sequans Communications S.A. has regained compliance with the New
York Stock Exchange (NYSE) continued listing standards.
"We are pleased to regain full compliance with the NYSE standards
and appreciate the continued support of our investors and
stakeholders as we focus on delivering value and strengthening our
position as a technology leader," said Georges Karam, CEO of
Sequans Communications. "We remain fully committed to executing our
long-term strategy of driving innovation in the cellular IoT space
and accelerating business growth."
On April 9, 2024, the NYSE notified Sequans of its non-compliance
due to the Company's average global market capitalization falling
below $50 million over a consecutive 30-trading-day period, while
at the same time, its stockholders' equity was below $50 million.
Additionally, the average closing price of the Company's American
Depositary Shares (ADSs) was below $1.00 per share over a
consecutive 30-trading-day period.
To address these deficiencies and restore compliance, Sequans took
corrective actions, including adjusting the ratio of its ordinary
shares represented by ADSs, effective October 9, 2024, and
increasing its stockholders' equity and market capitalization
following the $200 million strategic transaction that closed
September 30, 2024. The change in exchange ratio had the same
effect as a 1-for-2.5 reverse stock split of the ADSs, effectively
increasing the trading price of the ADSs to meet NYSE listing
requirements. The gains from the strategic transactions resulted in
a significant increase in stockholders' equity.
Following these measures, the NYSE has confirmed that Sequans is
now fully compliant with all applicable listing requirements.
About Sequans Communications
Colombes, France-based Sequans Communications S.A. is a fabless
semiconductor company that designs, develops, and markets
integrated circuits and modules for 4G and 5G cellular IoT
devices.
Paris-La Defense, France-based Ernst & Young Audit, the Company's
auditor since 2008, issued a "going concern" qualification in its
report dated May 15, 2024, citing that the Company has suffered
recurring losses from operations, has a working capital deficiency,
and has stated that substantial doubt exists about the Company's
ability to continue as a going concern.
Sequans Communications incurred net losses of $9 million and $41
million in 2022 and 2023, respectively. As of December 31, 2023,
the Company had $109.2 million in total assets, $115.2 million in
total liabilities, and $6.1 million in total deficit.
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I R E L A N D
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ADAGIO IX: Fitch Affirms B-sf Rating on Cl. F Notes
---------------------------------------------------
Fitch Ratings has upgraded Adagio IX EUR CLO DAC's class C and D
notes and affirmed the others.
Entity/Debt Rating Prior
----------- ------ -----
Adagio IX EUR CLO DAC
A XS2369313072 LT AAAsf Affirmed AAAsf
B-1 XS2369313668 LT AAsf Affirmed AAsf
B-2 XS2369314476 LT AAsf Affirmed AAsf
C XS2369315010 LT A+sf Upgrade Asf
D XS2369315796 LT BBBsf Upgrade BBB-sf
E XS2369316331 LT BB-sf Affirmed BB-sf
F XS2369316414 LT B-sf Affirmed B-sf
Transaction Summary
Adagio IX EUR CLO DAC is a cash flow CLO comprising mostly senior
secured obligations. The transaction closed in September 2021 and
is actively managed by AXA Investment Managers, Inc. The
transaction is currently within its reinvestment period, which is
set to end in March 2026.
KEY RATING DRIVERS
Stable Asset Performance Drives Upgrades: The transaction has
exhibited stable performance since closing, driving the upgrades of
the class C and D notes. According to the latest trustee report
dated 5 March 2025, the transaction was passing all its collateral
quality and portfolio profile tests. Exposure to assets with a
Fitch-derived rating of 'CCC+' and below is 6.0%, within the
transaction's 7.5% limit, according to the trustee. The portfolio
has about EUR3.4 million reported defaulted assets. The transaction
is currently 1.5% below par (calculated as the current par
difference over the original target par). The loss is below its
rating case assumption.
Limited Refinancing Risk: The transaction has manageable near- and
medium-term refinancing risk, in view of the large default-rate
cushions for each class of notes. No portfolio assets mature in
2025, and 5.4% mature in 2026, as calculated by Fitch.
'B'/'B-' Portfolio: Fitch assesses the average credit quality of
the underlying obligors at 'B'/'B-'. The weighted average rating
factor of the current portfolio is 24.5 as calculated by Fitch
under its latest criteria. About 16% of the portfolio is currently
on Negative Outlook.
High Recovery Expectations: Senior secured obligations comprise
96.8% of the portfolio. Fitch views the recovery prospects for
these assets as more favourable than for second-lien, unsecured and
mezzanine assets. The Fitch-calculated weighted average recovery
rate of the current portfolio is 63%.
Diversified Portfolio: The portfolio is well-diversified across
obligors, countries and industries. The top 10 obligor
concentration, as calculated by Fitch, is 10.3%, and no obligor
represents more than 1.3% of the portfolio balance. Exposure to the
three largest Fitch-defined industries is 35.6% as calculated by
the trustee. Fixed-rate assets as reported by the trustee are at
7.47%, currently complying with the limit of 10%.
Cash Flow Analysis: Since the transaction is within the
reinvestment period, Fitch's analysis is based on a stressed
portfolio using the agency's matrix specified in the transaction
documentation.
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
Adagio IX EUR CLO 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 Adagio IX EUR CLO
DAC.
In cases where Fitch does not provide ESG relevance scores in
connection with the credit rating of a transaction, programme,
instrument or issuer, Fitch will disclose any ESG factor that is a
key rating driver in the key rating drivers section of the relevant
rating action commentary.
AQUEDUCT EUROPEAN 11: S&P Assigns Prelim B- (sf) Rating to F Notes
------------------------------------------------------------------
S&P Global Ratings assigned its preliminary credit ratings to
Aqueduct European CLO 11 DAC's class A, B, C, D, E, and F notes. At
closing, the issuer will also issue class Z1, Z2, and Z3, and
unrated subordinated notes.
This is a European cash flow CLO transaction, securitizing a pool
of primarily syndicated senior secured loans and bonds. The
portfolio's reinvestment period will end approximately 4.56 years
after closing. Under the transaction documents, the rated notes pay
quarterly interest unless there is a frequency switch event.
Following this, the notes will switch to semiannual payments.
The preliminary ratings assigned to Aqueduct European CLO 11 DAC's
notes reflect our assessment of:
-- The diversified collateral pool, which primarily comprises
broadly syndicated speculative-grade senior secured term loans and
bonds that are governed by collateral quality tests.
-- The credit enhancement provided through the subordination of
cash flows, excess spread, and overcollateralization.
-- The collateral manager's experienced team, which can affect the
performance of the rated notes through collateral selection,
ongoing portfolio management, and trading.
-- The transaction's legal structure, which S&P expects to be
bankruptcy remote.
-- The transaction's counterparty risks, which S&P expects to be
in line with S&P's counterparty rating framework.
Portfolio benchmarks
S&P Global Ratings' weighted-average rating factor 2,847.96
Default rate dispersion 427.19
Weighted-average life (years) 4.61
Obligor diversity measure 138.90
Industry diversity measure 22.23
Regional diversity measure 1.23
Transaction key metrics
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.50
Target 'AAA' weighted-average recovery (%) 37.13
Target weighted-average spread (net of floors; %) 3.88
Target weighted-average coupon (%) 6.11
Rationale
S&P said, "At closing, we expect the portfolio to be
well-diversified, primarily comprising broadly syndicated
speculative-grade senior secured term loans and senior secured
bonds. Therefore, we have conducted our credit and cash flow
analysis by applying our criteria for corporate cash flow CDOs.
"In our cash flow analysis, we used the EUR400 million target par
amount, the target weighted-average spread (3.88%), the target
weighted-average coupon (6.11%), and the target weighted-average
recovery rates calculated in line with our CLO criteria for all
classes of notes. 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, 2030, the
collateral manager may substitute assets in the portfolio as long
as our CDO Monitor test is maintained or improved in relation to
the initial ratings on the notes. This test looks at the total
amount of losses that the transaction can sustain--as established
by the initial cash flows for each rating--and compares that with
the current portfolio's default potential plus par losses to date.
As a result, until the end of the reinvestment period, the
collateral manager may through trading deteriorate the
transaction's current risk profile, if the initial ratings are
maintained.
"Under our structured finance sovereign risk criteria, we consider
that the transaction's exposure to country risk sufficiently
mitigated at the assigned preliminary ratings.
"At closing, we expect that the transaction's documented
counterparty replacement and remedy mechanisms will adequately
mitigate its exposure to counterparty risk under our counterparty
criteria.
"We expect the transaction's legal structure and framework to be
bankruptcy remote, in line with our legal criteria.
"The CLO will be managed by HPS Investment Partners CLO (UK) LLP,
and the maximum potential rating on the liabilities is 'AAA' under
our operational risk criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe the preliminary ratings
are commensurate with the available credit enhancement for the
class A to F notes. Our credit and cash flow analysis indicates
that the available credit enhancement for the class B to E notes
could withstand stresses commensurate with higher ratings than
those assigned. However, as the CLO will be in its reinvestment
phase--during which the transaction's credit risk profile could
deteriorate--we have capped our assigned preliminary ratings on the
notes.
"Given our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our preliminary ratings
are commensurate with the available credit enhancement for all the
rated classes of notes.
"In addition to our standard analysis, to indicate how rising
pressures among speculative-grade corporates could affect our
ratings on European CLO transactions, we also included the
sensitivity of the ratings on the class A to E notes based on four
hypothetical scenarios.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
Environmental, social, and governance
S&P said, "We regard the transaction's exposure to environmental,
social, and governance (ESG) credit factors as broadly in line with
our benchmark for the sector. Primarily due to the diversity of the
assets within CLOs, the exposure to environmental and social credit
factors is viewed as below average, while governance credit factors
are average. For this transaction, the documents prohibit or limit
assets from being related to certain industries. 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."
Aqueduct European CLO 11 DAC is a European cash flow CLO
securitization of a revolving pool, comprising mainly
euro-denominated leveraged loans and bonds. It is managed by HPS
Investment Partners CLO (UK) LLP.
Ratings list
Prelim Prelim Amount Credit
Class Rating* (mil. EUR) Interest rate§** enhancement (%)
A AAA (sf) 244.00 Three/six-month EURIBOR 39.00
plus 1.40%
B AA (sf) 48.00 Three/six-month EURIBOR 27.00
plus 2.25%
C A (sf) 24.00 Three/six-month EURIBOR 21.00
plus 3.00%
D BBB- (sf) 28.00 Three/six-month EURIBOR 14.00
plus 4.15%
E BB- (sf) 18.00 Three/six-month EURIBOR 9.50
plus 6.75%
F B- (sf) 12.00 Three/six-month EURIBOR 6.50
plus 9.10%
Z1 NR 0.10 N/A N/A
Z2 NR 0.10 N/A N/A
Z3 NR 0.10 N/A N/A
Sub notes NR 30.90 N/A N/A
*The preliminary ratings assigned to the class A and B notes
address timely interest and ultimate principal payments. The
preliminary ratings assigned to the class C, D, E, and F notes
address ultimate interest and principal payments.
§The payment frequency switches to semiannual and the index
switches to six-month EURIBOR when a frequency switch event occurs.
**Solely for modeling purposes as the actual spreads may vary at
pricing
EURIBOR--Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
BAIN CAPITAL 2025-1: Fitch Assigns B-sf Final Rating on Cl. F Notes
-------------------------------------------------------------------
Fitch Ratings has assigned Bain Capital Euro CLO 2025-1 DAC final
ratings, as detailed below.
Entity/Debt Rating Prior
----------- ------ -----
Bain Capital Euro
CLO 2025-1 DAC
A XS3006152105 LT AAAsf New Rating AAA(EXP)sf
B XS3006152360 LT AAsf New Rating AA(EXP)sf
C XS3006152956 LT Asf New Rating A(EXP)sf
D XS3006153095 LT BBB-sf New Rating BBB-(EXP)sf
E XS3006152873 LT BB-sf New Rating BB-(EXP)sf
F XS3006153509 LT B-sf New Rating B-(EXP)sf
M XS3006153681 LT NRsf New Rating NR(EXP)sf
Subordinated Notes
XS3006152287 LT NRsf New Rating NR(EXP)sf
Transaction Summary
Bain Capital Euro CLO 2025-1 DAC is a securitisation of mainly
senior secured loans and secured senior bonds (at least 90%) with a
component of senior unsecured, mezzanine, and second-lien loans.
Note proceeds have been used to fund a portfolio with a target par
of EUR400 million. The portfolio is actively managed by Bain
Capital Credit U.S. CLO Manager II, LP. The CLO has an
approximately 4.6-year reinvestment period and an 8.5-year weighted
average life (WAL).
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors at 'B'/'B-'. The Fitch weighted
average rating factor of the identified portfolio is 24.3
High Recovery Expectations (Positive): At least 90% of the
portfolio comprises senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate of the identified portfolio is 62.3%.
Diversified Portfolio (Positive): The transaction includes six
Fitch matrices. Two matrices that are effective at closing and
corresponding to an 8.5-year WAL, two are effective 12 months
post-closing and correspond to a 7.5year WAL, and two are effective
18 months post-closing, correspond to a seven-year WAL and are
based on a reduced target par. All the matrices correspond to a top
10 obligor concentration limit at 20%, and for each WAL there can
be two different fixed-rate limits of 5% and 12.5%.
The transaction also has various concentration limits, including
maximum exposure to the three largest Fitch-defined industries in
the portfolio at 40%. These covenants ensure that the asset
portfolio will not be exposed to excessive concentration.
Portfolio Management (Neutral): The transaction will have an
approximately 4.6-year reinvestment period and it includes
reinvestment criteria similar to those of other European
transactions. Fitch's analysis is based on a stressed case
portfolio with the aim of testing the robustness of the transaction
structure against its covenants and portfolio guidelines.
Cash Flow Modelling (Positive): The WAL for the transaction's
stress portfolio analysis is 12 months less than the WAL covenant.
This is to account for the strict reinvestment conditions envisaged
by the transaction after its reinvestment period. These conditions
include passing the coverage tests and the Fitch 'CCC' bucket
limitation test after reinvestment, as well as a WAL covenant that
gradually steps down, before and after the end of the reinvestment
period. Fitch believes these conditions would reduce the effective
risk horizon of the portfolio during the stress period.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings of
the identified portfolio would have no impact on the class A notes,
would lead to downgrades of one notch for the class B to E notes,
and to below 'B-sf' for the class F notes.
Based on the identified portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of defaults and portfolio deterioration. Due to the
better metrics and shorter life of the identified portfolio than
the Fitch-stressed portfolio, the class B to F notes have cushions
of two notches. There is no cushion for the class A notes, as they
are at the highest achievable rating.
Should the cushion between the identified portfolio and the
Fitch-stressed portfolio be eroded either due to manager trading or
negative portfolio credit migration, a 25% increase of the mean RDR
and a 25% decrease of the RRR across all ratings of the
Fitch-stressed portfolio would lead to downgrades of up to four
notches.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings of the Fitch-stressed
portfolio would lead to upgrades of up to three notches for the
rated notes, except for the 'AAAsf' rated notes, which are at the
highest level on Fitch's scale and cannot be upgraded.
During the reinvestment period, based on the stressed-case
portfolio, upgrades may occur on better-than-expected portfolio
credit quality and a shorter remaining WAL test, leading to the
ability of the notes to withstand larger-than-expected losses for
the remaining life of the transaction.
After the end of the reinvestment period, upgrades may occur on
stable portfolio credit quality and deleveraging, leading to higher
credit enhancement and excess spread being available to cover
losses in the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
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 Bain Capital Euro
CLO 2025-1 DAC.
In cases where Fitch does not provide ESG relevance scores in
connection with the credit rating of a transaction, programme,
instrument or issuer, Fitch will disclose any ESG factor that is a
key rating driver in the key rating drivers section of the relevant
rating action commentary.
BAIN CAPITAL 2025-1: S&P Assigns B- (sf) Rating to Class F Notes
----------------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Bain Capital Euro
CLO 2025-1 DAC's class A to F European cash flow CLO notes. 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 will end 4.5 years after
closing, while the noncall period will end 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 2,785.10
Default rate dispersion 529.58
Weighted-average life (years) 4.92
Obligor diversity measure 148.8
Industry diversity measure 20.22
Regional diversity measure 1.16
Transaction key metrics
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.00
Actual target 'AAA' weighted-average recovery (%) 37.41
Actual target weighted-average coupon (%) 5.69
Actual target weighted-average spread (net of floors; %) 3.84
S&P said, "Our ratings reflect our assessment of the collateral
portfolio's credit quality, which has a weighted-average rating of
'B'. 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 actual weighted-average spread (3.84%), the actual
weighted-average coupon (5.69%), and the actual portfolio
weighted-average recovery rates for all rated notes. 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 Oct. 25, 2029, the
collateral manager may substitute assets in the portfolio for so
long as our CDO Monitor test is maintained or improved in relation
to the initial ratings on the notes. This test looks at the total
amount of losses that the transaction can sustain as established by
the initial cash flows for each rating and compares that with the
current portfolio's default potential plus par losses to date. As a
result, until the end of the reinvestment period, the collateral
manager may through trading deteriorate the transaction's current
risk profile, if the initial ratings are maintained.
"Under our structured finance sovereign risk criteria, 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.
"The transaction's legal structure and framework is bankruptcy
remote. The issuer is a special-purpose entity that meets our
criteria for bankruptcy remoteness.
"Our credit and cash flow analysis show that the class B to E notes
benefit from cushions between the break-even default rate (BDR) and
the scenario default rates that we would typically consider to be
in line with higher ratings than those assigned. However, as the
CLO is still in its reinvestment phase, during which the
transaction's credit risk profile could deteriorate, we have capped
our ratings on the notes. The class A notes can withstand stresses
commensurate with the assigned rating.
"For the class F notes, our credit and cash flow analysis indicate
that the available credit enhancement could withstand stresses
commensurate with a lower rating. However, we have applied our
'CCC' rating criteria, resulting in a 'B- (sf)' rating on this
class of notes.
The ratings uplift for the class F notes reflects several key
factors, including:
-- The class F notes' available credit enhancement, which is in
the same range as that of other CLOs we have rated and that have
recently been issued in Europe.
-- The portfolio's average credit quality, which is similar to
other recent CLOs.
-- S&P's model generated BDR at the 'B-' rating level of 26.30%
(for a portfolio with a weighted-average life of 4.92 years),
versus if we were to consider a long-term sustainable default rate
of 3.1% for 4.92 years, which would result in a target default rate
of 15.25%.
-- S&P does not believe that there is a one-in-two chance of this
note defaulting.
-- S&P does not envision this tranche defaulting in the next 12-18
months.
S&P said, "Following this analysis, we consider that the available
credit enhancement for the class F notes is commensurate with the
assigned 'B- (sf)' rating.
"Taking the above factors into account and following our analysis
of the credit, cash flow, counterparty, operational, and legal
risks, we believe that the assigned ratings are commensurate with
the available credit enhancement for all the rated classes of
notes.
"In addition to our standard analysis, to indicate how rising
pressures among speculative-grade corporates could affect our
ratings on European CLO transactions, we have also included the
sensitivity of the ratings on the class A to E notes based on four
hypothetical scenarios.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category--and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met--we have not included the above scenario analysis results
for the class F notes."
Environmental, social, and governance
S&P 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 or limit assets from being
related to certain industries. 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) enhancement (%) Interest rate§
A AAA (sf) 248.00 38.00 Three/six-month EURIBOR
plus 1.18%
B AA (sf) 46.00 26.50 Three/six-month EURIBOR
plus 1.70%
C A (sf) 24.00 20.50 Three/six-month EURIBOR
plus 2.10%
D BBB- (sf) 27.00 13.75 Three/six-month EURIBOR
plus 3.30%
E BB- (sf) 18.00 9.25 Three/six-month EURIBOR
plus 5.00%
F B- (sf) 11.00 6.50 Three/six-month EURIBOR
plus 8.09%
M NR 0.25 N/A Variable
Sub NR 31.50 N/A N/A
*The ratings assigned to the class A and B notes address timely
interest and ultimate principal payments. The 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.
CONTEGO CLO III: Fitch Alters Outlook on 'B+sf' Rating to Stable
----------------------------------------------------------------
Fitch Ratings has upgraded Contego CLO III DAC's Class B-R and C-R
notes and revised the Outlooks on the class E-R and F-R notes
Outlook to Stable from Negative.
Entity/Debt Rating Prior
----------- ------ -----
Contego CLO III DAC
A-R XS1785844215 LT AAAsf Affirmed AAAsf
B1-R XS1785845378 LT AAAsf Upgrade AA+sf
B2-R XS1785845964 LT AAAsf Upgrade AA+sf
C-R XS1785846772 LT AAsf Upgrade A+sf
D-R XS1785847317 LT BBB+sf Affirmed BBB+sf
E-R XS1785847580 LT BB+sf Affirmed BB+sf
F-R XS1785847747 LT B+sf Affirmed B+sf
Transaction Summary
Contego CLO III DAC is a cash flow CLO mostly comprising senior
secured obligations. The transaction is actively managed by Five
Arrows Managers LLP and exited its reinvestment period in July
2022.
KEY RATING DRIVERS
Transaction Deleveraging, Increasing Credit Enhancement: The
transaction has deleveraged since the last review, with the Class A
notes amortising to EUR 65.6 million in February 2025 from EUR 154
million in April 2024. The positive rating actions are driven by
strong credit enhancement (CE) accumulation, which has increased to
43.7% for Class B and 33.5% for Class C, up from 29.6% and 22.8%,
respectively. Additionally, CE has grown since the last review for
the Class E and F notes, leading to an Outlook revision to Stable
from Negative for both tranches.
Sufficient Cushion across the Structure: Although the par erosion
has reduced the default-rate cushion for all notes, the senior
class notes have retained sufficient buffer to support their
upgrade ratings and should be capable of withstanding further
defaults in the portfolio. This supports the Stable Outlooks on the
class A-R to F-R notes.
'B' Portfolio: Fitch assesses the average credit quality of the
obligors at 'B'. The weighted average rating factor (WARF) of the
current portfolio, as calculated by Fitch under its latest
criteria, is 26.3.
High Recovery Expectations: Senior secured obligations comprise
97.4% 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) of the
current portfolio as reported by the trustee was 64.1%, based on
outdated criteria. The Fitch-calculated WARR is 60.5% under the
current criteria.
Cash Flow Analysis: Fitch used a customised proprietary cash flow
model to replicate the principal and interest waterfalls and the
various structural features of the transaction, and to assess their
effectiveness, including the structural protection provided by
excess spread diverted through the par-value and interest-coverage
tests.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Downgrades may occur if the build-up of the notes' credit
enhancement following amortisation does not compensate for a larger
loss expectation than initially assumed, due to unexpectedly high
levels of defaults and portfolio deterioration.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Upgrades may occur if the portfolio quality remains stable and the
notes start amortising, leading to higher credit enhancement across
the structure.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
Recognized Statistical Rating Organizations and/or European
Securities and Markets Authority registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk presenting entities.
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action
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.
ROCKFORD TOWER 2025-1: Fitch Assigns 'B-sf' Final Rating to F Notes
-------------------------------------------------------------------
Fitch Ratings has assigned Rockford Tower Europe CLO 2025-1 DAC
final ratings, as detailed below.
Entity/Debt Rating
----------- ------
Rockford Tower Europe
CLO 2025-1 DAC
A XS3025432595 LT AAAsf New Rating
B XS3025432678 LT AAsf New Rating
C XS3025433130 LT Asf New Rating
D XS3025433304 LT BBB-sf New Rating
E XS3025433213 LT BB-sf New Rating
F XS3025433726 LT B-sf New Rating
Subordinated Notes
XS3025433999 LT NRsf New Rating
Transaction Summary
Rockford Tower Europe CLO 2025-1 DAC is a securitization of mainly
senior secured obligations (at least 90%) with a component of
senior unsecured, mezzanine, second-lien loans and high-yield
bonds. Note proceeds have been used to fund a portfolio with a
target par of EUR500 million that is actively managed by Rockford
Tower Capital Management L.L.C. The CLO has a 4.5-year reinvestment
period and a 7.5 year weighted average life (WAL).
There is a 4.5-year lag between the WAL date (7.5 years) and the
maturity date (12.5 years). If the WAL steps up by one year there
will be a four-year gap, which would mitigate the risk of maturity
clustering by the end of the transaction's life.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors at 'B'. The Fitch weighted
average rating factor (WARF) of the identified portfolio is 24.1.
High Recovery Expectations (Positive): At least 90% of the
portfolio comprises senior secured obligations. Fitch views the
recovery prospects for these assets as more favourable than for
second lien, unsecured and mezzanine assets. The Fitch weighted
average recovery rate of the identified portfolio is 62.6%.
Diversified Portfolio (Positive): The transaction includes two
matrices covenanted by a top 10 obligor concentration limit at 20%
and fixed-rate asset limit of 5.0% and 12.5%; both effective at
closing. It has various concentration limits, including the maximum
exposure to the three largest Fitch-defined industries in the
portfolio at 40%. These covenants ensure that the asset portfolio
will not be exposed to excessive concentration.
WAL Step-Up Feature (Neutral): The transaction can extend the WAL
by one year on the step-up date, which is one year after closing.
The WAL extension is at the option of the manager but subject to
conditions including passing the collateral-quality tests,
portfolio profile tests, coverage tests and the reinvestment target
par, with defaulted assets at their collateral value.
Portfolio Management (Neutral): The transaction has a reinvestment
period of about 4.5-years and includes reinvestment criteria
similar to those of other European transactions. Fitch's analysis
is based on a stressed case portfolio with the aim of testing the
robustness of the transaction structure against its covenants and
portfolio guidelines.
Cash Flow Modelling (Positive): The WAL for the transaction's
stress portfolio analysis is 12 months less than the WAL covenant.
This is to account for the strict reinvestment conditions envisaged
by the transaction after its reinvestment period, which include
passing the coverage tests, the Fitch WARF test and the Fitch 'CCC'
bucket limitation test after reinvestment as well as a WAL covenant
that progressively steps down, before and after the end of the
reinvestment period. Fitch believes these conditions would reduce
the effective risk horizon of the portfolio during the stress
period.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A 25% increase of the mean default rate (RDR) across all ratings
and a 25% decrease of the recovery rate (RRR) across all ratings of
the identified portfolio would have no impact on the class A to E
notes and lead to a downgrade to below 'B-sf' for the class F
notes.
Based on the identified portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration. Due to the
better metrics and shorter life of the identified portfolio, the
class C notes display a rating cushion of three notches, the class
B, D, E and F notes two notches and there is no rating cushion for
the class A notes.
Should the cushion between the identified portfolio and the stress
portfolio be eroded due to manager trading or negative portfolio
credit migration, a 25% increase of the mean RDR across all ratings
and a 25% decrease of the RRR across all ratings of the stressed
portfolio would lead to downgrades of up to four notches.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR across all ratings and a 25%
increase in the RRR across all ratings of Fitch's stress portfolio
would lead to upgrades of up to four notches, except for the
'AAAsf' rated notes, which are at the highest level on Fitch's
scale and cannot be upgraded.
During the reinvestment period, based on Fitch's stress portfolio,
upgrades may occur on better-than-expected portfolio credit quality
and a shorter remaining WAL test, meaning the notes are able to
withstand larger than expected losses for the transaction's
remaining life. After the end of the reinvestment period, upgrades
may occur in case of stable portfolio credit quality and
deleveraging, leading to higher credit enhancement and excess
spread available to cover losses on the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
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.
ROCKFORD TOWER 2025-1: S&P Assigns B- (sf) Rating to Class F Notes
------------------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Rockford Tower
Europe CLO 2025-1 DAC's class A, B, C, D, E, and F notes. At
closing, the issuer also issued subordinated notes.
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 2,774.94
Default rate dispersion 538.79
Weighted-average life (years) 4.69
Obligor diversity measure 136.08
Industry diversity measure 24.79
Regional diversity measure 1.22
Transaction key metrics
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.40
Actual 'AAA' weighted-average recovery (%) 37.31
Actual weighted-average spread (%) 3.86
Actual weighted-average coupon (%) 7.12
Under the transaction documents, the rated notes will pay quarterly
interest unless a frequency switch event occurs. Following this,
the notes will switch to semiannual payments. The portfolio's
reinvestment period will end 4.5 years after closing.
The portfolio is well-diversified, primarily comprising broadly
syndicated speculative-grade senior secured term loans and senior
secured bonds. Therefore, S&P has conducted its credit and cash
flow analysis by applying our criteria for corporate cash flow
CDOs.
S&P said, "In our cash flow analysis, we used the EUR500 million
target par amount, and the portfolio's covenanted weighted-average
spread (3.75%), covenanted weighted-average coupon (3.90%),
covenanted weighted-average recovery rates at the 'AAA' rating
level, and actual weighted-average recovery rates at other rating
levels. We applied various cash flow stress scenarios, using four
different default patterns, in conjunction with different interest
rate stress scenarios for each liability rating category.
"Until the end of the reinvestment period on Oct. 25, 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, 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.
"The transaction's legal structure and framework is bankruptcy
remote, in line with our legal criteria.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe the rating is commensurate
with the available credit enhancement for the class A notes. Our
credit and cash flow analysis indicates that the available credit
enhancement for the class B, C, D, E, and F notes could withstand
stresses commensurate with higher ratings than those we have
assigned. However, as the CLO will be in its reinvestment phase
starting from closing, during which the transaction's credit risk
profile could deteriorate, we have capped our ratings assigned to
the notes.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe that the assigned ratings
are commensurate with the available credit enhancement for all the
rated classes of notes.
"In addition to our standard analysis, we have also included the
sensitivity of the ratings on the class A to E notes based on four
hypothetical scenarios.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
Rockford Tower Europe CLO 2025-1 DAC securitizes a portfolio of
primarily senior-secured leveraged loans and bonds. The transaction
is managed by Rockford Tower Capital Management LLC.
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. Accordingly, since the exclusion of assets
from these industries does not result in material differences
between the transaction and our ESG benchmark for the sector, no
specific adjustments have been made in our rating analysis to
account for any ESG-related risks or opportunities."
Ratings list
Amount Credit
Class Rating* (mil. EUR) Interest rate§ enhancement (%)
A AAA (sf) 310.00 3mE + 1.22% 38.00
B AA (sf) 57.50 3mE + 1.70% 26.50
C A (sf) 30.00 3mE + 2.20% 20.50
D BBB- (sf) 33.80 3mE + 3.00% 13.74
E BB- (sf) 22.50 3mE + 5.00% 9.24
F B- (sf) 15.00 3mE + 8.11% 6.24
Sub notes NR 42.80 N/A N/A
*The ratings assigned to the class A and B notes address timely
interest and ultimate principal payments. The 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 6mE when a frequency switch event occurs.
NR--Not rated.
N/A--Not applicable.
3mE--Three-month Euro Interbank Offered Rate.
=========
M A L T A
=========
ENEMALTA PLC: S&P Affirms 'BB-' ICR, Outlook Stable
---------------------------------------------------
S&P Global Ratings affirmed its 'BB-' issuer credit rating on power
distribution system operator Enemalta PLC.
S&P's stable outlook on Enemalta reflects its expectation that the
company's losses will be compensated by the government as long as
necessary.
S&P said, "We now see the Maltese regulatory framework for power
distribution operations as somewhat supportive. Since 2022,
Enemalta has been receiving ongoing compensation from the Maltese
government to offset losses arising from commodity prices exceeding
the tariff set by the Regulator for Energy and Water Services
(REWS). These payments have been incorporated into Malta's national
budget and are provided monthly, aligned with the costs incurred by
Enemalta, effectively enabling the company to break even." Over the
past three years, the government has provided the following
compensation to Enemalta each year:
-- 2022: EUR340 million;
-- 2023: EUR162 million;
-- 2024: EUR150 million; and
-- 2025 (included already in Malta's budget): EUR152 million.
The above compensation provides Enemalta financial stability. S&P
said, "These payments have been ongoing for four years, and we
understand that this arrangement is unlikely to change, with the
Maltese government committed to continuing these payments.
Financial stability is one of the four pillars we use when
assessing a regulated utility's regulatory advantage and we
therefore revised our assessment of Enemalta's regulatory advantage
to adequate/weak from weak. Moreover, we now reflect the improved
financial and operational environment for Enemalta in a fair
business risk assessment. At the same time, Enemalta's business
risk is weaker than its peers' because we view the role of REWS in
Malta as largely detached from Enemalta, reflecting a lack of
regulatory stability and transparency, the absence of tariff
revisions since 2014, and no apparent incentive or mechanism for
change."
S&P said, "We expect the on-going support from the government to
enable funds from operations (FFO)-to-debt to stabilize at about
7%-8% and adjusted debt to EBTIDA below 10x over 2025-2026. We
assume that the government of Malta will continue to fully and
promptly compensate Enemalta for its losses over the next two to
three years, or for as long as the company continues to incur
losses. As a result, we believe Enemalta will report EBITDA of
EUR55 million-EUR60 million for full-year 2024. For 2025 and 2026,
we expect a modest increase, with EBITDA remaining EUR60
million-EUR65 million. This compares against an estimated EUR60
million in 2023 and reflects a stable earnings profile. At the same
time, we forecast a gradual deleveraging trend, with S&P Global
Ratings-adjusted debt declining to approximately EUR450 million by
2026, down from around EUR600 million in 2023. With that, we
estimate the S&P Global Ratings-adjusted debt-to-EBITDA ratio will
decline to approximately 8.0x in 2024, down from around 9.5x in
2023. We anticipate a continued gradual improvement, with the ratio
approaching 7.0x by 2027. We expect the FFO-to-debt ratio to follow
a similar trajectory, improving to 7.0%-8.0%, from 6.1% in 2023.
This improvement reflects the absence of tax payments and
relatively stable interest expenses over the period."
The 'b-' SACP continues to be constrained by delayed reporting.
Enemalta generally publishes its audited financial statements 18-24
months after the end of the financial year. S&P said, "We
understand that this delay is primarily due to the extended audit
process for government-owned entities, which are subject to
stringent government procurement regulations. While not
attributable to the company itself, we consider this a governance
weakness for Enemalta. Until financial reporting timelines are
aligned with those of industry peers, we are unlikely to revise our
upward our assessment of the SACP."
The rating on Enemalta continues to be underpinned by the
extraordinary support from the Maltese government. S&P sad, "We
continue to assess Enemalta as a government-related entity. Our
credit rating analysis of Enemalta incorporates our opinion that
there is a high likelihood the government of Malta would provide
timely and extraordinary support to the company in the event of
financial distress. Our rating on Enemalta therefore includes three
notches of uplift from the 'b-' SACP. The government of Malta
(A-/Stable/A-2) has owned 67% of Enemalta since the sale of a 33%
stake to Shanghai Electric Power in 2014. Malta's government
retains the controlling stake in the company, and it elects six of
the nine members on Enemalta's board of directors. We think that
Enemalta's role is important to the government since it is the sole
operator of Malta's power distribution grid (in Malta there is no
transmission grid), which was connected to Europe in the second
quarter of 2015 through a cable linking the islands to Sicily.
Enemalta's activities have strong social and reputational
significance for the country." Malta is the guarantor of all
Enemalta's pre-2014 debt and the guarantee covers some uncommitted
lines, as well as some exposure to commercial agreements
(guaranteed debt is 95% of total debt). The government provided
significant funding to businesses and employees, thereby protecting
the purchasing power of Enemalta's customers and their ability to
service their electricity bills.
S&P said, "The stable outlook reflects our expectation that
Enemalta's losses will be compensated by the government as long as
necessary. We forecast gradual deleveraging, with debt to EBITDA
decreasing to 8x-9x by the end of 2026 from about 10x in 2024. It
also indicates that Enemalta will not experience any liquidity
pressure over this period."
S&P could downgrade Enemalta if:
-- S&P observed any pressure on its liquidity, for example, if
there were insufficient support from the Maltese government, which
it views as unlikely; or
-- Credit metrics were to deteriorate, with debt to EBITDA well
above 10x for a prolonged period, due to a lack of timely
government support.
A downgrade of Malta would have no impact on S&P's rating on
Enemalta at this point, all else remaining equal.
S&P could upgrade Enemalta if:
-- S&P revised the SACP to 'b', thanks to improved operating
performance and profitability and if Enemalta is no longer
experiencing delayed reporting; or
-- S&P revised the likelihood of government support to very high.
=====================
N E T H E R L A N D S
=====================
AMG CRITICAL: Fitch Assigns First Time 'BB-' LT IDR, Outlook Stable
-------------------------------------------------------------------
Fitch Ratings has assigned a first-time Long-Term Issuer Default
Rating (IDR) of 'BB-' to AMG Critical Materials N.V. (AMG) and AMG
Vanadium LLC. Fitch has also assigned a 'BB+' rating with a
Recovery Rating of 'RR2' to AMG Critical Material N.V.'s first-lien
revolver and term loan, and a 'BB-'/'RR4' to AMG Vanadium's
existing unsecured notes. The Rating Outlook is Stable.
The 'BB-' IDR reflects AMG's advantaged cost positions in vanadium
and lithium and its leading market position in advanced metallurgy
and engineering, offset by a heightened degree of cash flow risk
due to its commodity price exposure. The stable outlook reflects
Fitch's expectation that falling capex outlays will allow the
company to maintain comfortable liquidity while lithium and
vanadium prices remain pressured, before EBITDA leverage falls
below 3.5x in 2027.
Key Rating Drivers
Commodity Headwinds Pressure Credit Metrics: 2024 saw decreases in
lithium and ferrovanadium prices of 65% and 23%, respectively,
highlighting the cash flow risk inherent in the company's commodity
price exposure. In lithium, material slower demand growth coupled
with industry overcapacity has led to Fitch's expectation that spot
prices will remain below $15/kg in the near to medium term, though
long-term fundamentals for battery-grade lithium remain intact.
Demand for vanadium — used primarily as a steel alloy — is
driven by global steel infrastructure demand, as well as demand for
titanium alloys. However, Fitch notes that the company's vanadium
contract structure under which it takes a tipping fee and returns a
proportion of the sales price to suppliers partially mitigates cash
flow risk.
Measured Strategic Investment Policy: AMG has completed a period of
material growth spending, including Europe's first lithium
hydroxide refinery in Bitterfeld, Germany, which is in the process
of test sampling its products for customers. Moving forward, Fitch
believes the company will take a conservative approach to capital
allocation, particularly with further investment in lithium
unlikely in the near term due to durably low pricing.
Fitch expects AMG's capital allocation strategy over the medium to
longer term will be measured, focused on growth capex and
opportunistic bolt-on M&A which does not require a material amount
of additional debt. The completion of the company's Bitterfeld
plant and its lithium concentrate expansion in Brazil should lead
to improved FCF generation through the ratings horizon.
Leading U.S. Vanadium Producer: AMG is the sole ferrovanadium
producer and recycler in the U.S., which protects it from tariff
pressures. It recently completed its new ferrovanadium production
facility in Zanesville, Ohio, doubling its spent recycling capacity
to 60,000 tons annually. AMG processes spent catalyst from oil
refining into ferrovanadium and receives a tipping fee from oil
refiners for disposing of the hazardous waste materials. Steel
producers purchase the ferrovanadium to produce high-strength
steel. AMG primarily competes with imports, but its enhanced
processing capacity, low-cost operations and proximity to steel
producers strengthen its market position.
Long-Term Outlook Intact: Fitch favors AMG's strategy to become
Europe's top vertically integrated producer of battery-grade
lithium hydroxide. The lithium industry is consolidated with high
barriers to entry, including technical expertise and raw material
access. AMG plans to convert Brazilian spodumene into
technical-grade lithium hydroxide, ultimately producing
battery-grade quality through its Bitterfeld operations. However,
due to near-term cash flows and earnings pressured by a challenging
commodity price environment, Fitch does not anticipate a material
increase in organic or inorganic growth spending in the near term.
Peer Analysis
AMG's ratings reflect its advantaged cost positions in vanadium and
lithium and its leading market position in advanced metallurgy and
engineering, offset by a heightened degree of cash flow risk due to
its commodity price exposure.
The company is considerably smaller than H.B. Fuller Company
(BB/Stable), Kronos Worldwide, Inc. (B+/Stable), and market leading
lithium producer Albemarle Corporation (BBB-/Stable), though a
greater degree of diversification into businesses other than
lithium and battery storage leave it somewhat better equipped to
absorb the current period of trough lithium prices than Albemarle.
Kronos is similarly exposed to commodity pricing, given its
titanium dioxide (TiO2) production, but lacks the modest
diversification into other business lines and growth potential that
AMG enjoys.
W. R. Grace Holdings LLC (B/Negative) has used a similar operating
and capital deployment strategy, where it generates much of its
cash through its catalyst business and uses the proceeds to fund
the buildout of certain growth segments. However, AMG tends to
operate with much lower leverage. The company's lack of imminent
capex needs will bolster cash generation in the near term, but the
company will rely on strong continued growth in EV demand to return
to a position of strong FCF generation over the long term.
Key Assumptions
- Lithium prices flat in 2025-2026, with recovery in 2027 and
beyond as demand growth overtakes supply;
- Revenue growth in the near term driven by scaling of Bitterfeld
operations and recovery in vanadium pricing;
- Limited growth spending until lithium prices begin to materially
rebound in 2027;
- No material debt repayments shown, though the company maintains
the financial flexibility to do so.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- EBITDA leverage durably above 4.5x;
- Slower-than-expected growth in lithium demand related to a
secular shift in consumer preferences for electric vehicles;
- Durably negative FCF generation, potentially due to more
aggressive than anticipated growth spending.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- EBITDA leverage sustained below 3.5x;
- Increased vertical integration and overall improvement in cost
structure, leading to lower overall earnings volatility.
Liquidity and Debt Structure
As of Dec. 31, 2024, AMG had cash and cash equivalents of
approximately $294 million and full availability under its $200
million revolving credit facility. AMG's revolver has a net
debt/EBITDA covenant maximum of 3.5x.
Issuer Profile
AMG is a global company specializing in critical raw materials. It
processes specialty metals and mineral products for markets
including transportation, infrastructure, energy, and specialty
chemicals. AMG operates production facilities in North America,
EMEA, South America and Asia.
Date of Relevant Committee
09 April 2025
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
----------- ------ --------
AMG Critical
Materials N.V. LT IDR BB- New Rating
senior secured LT BB+ New Rating RR2
AMG Vanadium LLC LT IDR BB- New Rating
senior
unsecured LT BB- New Rating RR4
FBN FINANCE: Fitch Hikes Rating on Sr. Unsecured Notes to 'B'
-------------------------------------------------------------
Fitch Ratings has upgraded the Long-Term Issuer Default Ratings
(IDRs) of seven Nigerian banks and two bank holding companies to
'B' from 'B-'. The Outlooks are Stable. The affected issuers are
Access Bank Plc, Zenith Bank Plc, United Bank for Africa Plc (UBA),
Guaranty Trust Bank Limited (GTB), Guaranty Trust Holding Company
Plc (GTCO), First HoldCo Plc (FHC), First Bank of Nigeria Ltd
(FBN), Fidelity Bank PLC and Bank of Industry Limited (BOI).
The upgrades of the Long-Term IDRs of Access Bank, Zenith Bank,
UBA, FHC, FBN, GTB, GTCO and Fidelity Bank follow the recent
sovereign upgrade and reflect Fitch's view that Nigeria's sovereign
credit profile has become less of a constraint on the issuers'
standalone creditworthiness. The issuers' Viability Ratings (VRs)
have therefore also been upgraded to 'b' from 'b-'. The upgrade of
Fidelity Bank's Long-Term IDR and VR also reflects the improvement
in the bank's capitalisation due to capital raisings and stronger
internal capital generation.
The upgrade of BOI's Long-Term IDR reflects its view that the
government's ability to provide support has improved, while
propensity to support BOI as a policy bank remains strong.
Fitch upgraded Nigeria's Long-Term IDRs to 'B' from 'B-' on 11
April 2025 (see Fitch Upgrades Nigeria to 'B'; Outlook Stable').
The upgrade reflected increased confidence in the government's
broad commitment to policy reforms implemented since its move to
orthodox economic policies in June 2023, including exchange rate
liberalisation, monetary policy tightening and steps to end deficit
monetisation and remove fuel subsidies. These have improved policy
coherence and credibility and reduced economic distortions and
near-term risks to macroeconomic stability, enhancing resilience in
the context of persistent domestic challenges and heightened
external risks.
The issuers' National Ratings are unaffected. As a policy bank,
BOI's Government Support Rating (GSR) has also been upgraded to 'b'
from 'b-'. The GSRs of the other issuers are 'no support' and were
unaffected by the sovereign upgrade, reflecting the authorities'
uncertain propensity to provide timely support to commercial
banks.
Key Rating Drivers
The Long-Term IDRs of Access Bank, Zenith Bank, UBA, GTB, GTCO,
FHC, FBN and Fidelity Bank are driven by their standalone
creditworthiness, as expressed by their VRs. The VRs are heavily
influenced by Nigeria's Long-Term IDRs due to high sovereign
exposure in the form of fixed-income securities and cash reserves
with the CBN relative to equity (ranging from 1.9x to 4.6x).
The VRs also capture the issuers' strong business profiles,
characterised by sizeable market shares as the largest Nigerian
banks, and revenue diversification, in addition to strong
profitability and large capital and foreign-currency (FC) liquidity
buffers. The VRs of the two bank holding companies (GTCO and FHC)
are equalised with their respective group VRs, derived from the
consolidated risk assessment of the groups, due to the absence of
common equity double leverage and high fungibility of capital and
liquidity.
Nigerian banks continue to contend with a challenging operating
environment. The Central Bank of Nigeria has tightened monetary
conditions through a combination of monetary policy rate (MPR)
hikes to 27.5% (up 875bp since February 2024) and use of prudential
and operational tools such as open market operations (at rates
closely aligned with the MPR) to strengthen monetary policy
transmission after years of financial repression. However,
inflation is forecast to remain high, averaging 22% in 2025 and 20%
in 2026, and Fitch expects monetary policy conditions to remain
tight for longer, which will exert pressure on the banking sector's
loan quality.
The banking sector performance also continues to be affected by
significant intervention by the authorities, including a very high
cash reserve ratio requirement (50%), a minimum loans-to-deposits
ratio of 50% to compel banks to extend credit, the prohibition of
net long FC positions, and a 70% windfall tax on realised gains on
FX transactions announced in 2024.
Fitch believes that the six commercial banks can tolerate the
credit, market and intervention risks emanating from the
challenging operating environment due to their strong
pre-impairment operating profits, which provide significant
headroom to absorb loan impairment charges, and large capital
buffers, which Fitch expects to strengthen in the near-term as some
banks raise capital to comply with higher minimum paid-in capital
requirements effective end-1Q26. FC liquidity buffers are expected
to remain large due to increased FX market turnover and maturing FX
swaps with the CBN.
BOI's Long-Term IDR is driven by its GSR, which reflects potential
support from the Nigerian government, if required. Fitch considers
the government has a high propensity to support BOI given its 99.9%
state ownership, well-established and clearly defined policy role,
and significant share of government-guaranteed funding (end-2023:
75% of borrowings). However, the government's ability to provide
support is limited by its own creditworthiness, as indicated by its
Long-Term IDR of 'B'. The Stable Outlook on BOI's Long-Term IDR
mirrors that on the sovereign.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The Long-Term IDRs of Access Bank, Zenith Bank, UBA, FHC, FBN,
GTCO, GTB and Fidelity Bank would be downgraded if their VRs were
downgraded.
The VRs would be downgraded in case of a sovereign downgrade, as
none of the issuers meets Fitch's Criteria to be rated above the
sovereign. Absent a sovereign downgrade, the VRs could be
downgraded in case of the erosion of their capital buffers either
due to very fast growth of risk-weighted assets or a material
increase in problem loans and associated high loan impairment
charges. The VRs could also be downgraded due to a severe
tightening of FC liquidity.
GTCO's and FHC's VRs could be notched off the group VR if the BHCs'
double leverage increases above 120% for a sustained period without
clear prospects for a moderation.
BOI's Long-Term IDR and GSR would be downgraded if Nigeria's
sovereign rating is downgraded. The ratings are also sensitive to a
reduced propensity of the authorities to support the bank. This
could arise from a change in BOI's policy role, such as an
increasing shift towards commercial activities, or a material
reduction in government ownership. However, Fitch views this as
unlikely.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
The Long-Term IDRs of Access Bank, Zenith Bank, UBA, FHC, FBN,
GTCO, GTB and Fidelity Bank would be upgraded if their VRs were
upgraded.
An upgrade of the VRs would require a sovereign upgrade, coupled
with a material improvement in the operating environment, which
could be evident from more stable macroeconomic conditions and
lower intervention risk, along with the banks maintaining strong
financial profile metrics.
An upgrade of BOI's Long-Term IDR and GSR would require an upgrade
of the Nigerian sovereign rating.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Access Bank's, BOI Finance's (BOI's debt issuing special purpose
vehicle), FBN Finance Company's (FHC's special purpose vehicle),
Fidelity's and UBA's senior unsecured debt is rated in line with
the entities' respective IDRs as a default on these obligations
would be considered as a default of the respective entity according
to Fitch's rating definitions. The Recovery Rating is 'RR4',
reflecting average recovery prospects in the event of default.
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Senior unsecured debt ratings would move in tandem with the
entities' respective Long-Term IDRs.
VR ADJUSTMENTS
The business profile score of Access and Zenith of 'b' are below
the 'bb' category implied scores due to the following adjustment
reason: business model (negative).
The earnings and profitability scores of Zenith, GTCO, GTB and UBA
of 'b+' and of Fidelity of 'b' are below the 'bb' category implied
scores due to the following adjustment reason: earnings stability
(negative).
The capitalisation and leverage scores of Access, Zenith, FHC, FBN,
GTCO, GTB, UBA and Fidelity of 'b' are below the 'bb' category
implied scores due to the following adjustment reason: risk profile
and business model (negative).
The funding and liquidity scores of UBA, GTCO and GTB of 'b' are
below the 'bb' category implied score due to the following
adjustment reason: liquidity coverage (negative).
Public Ratings with Credit Linkage to other ratings
BOI's Long-Term IDR is equalised with Nigeria's sovereign ratings.
ESG Considerations
Bank of Industry Limited has an ESG Relevance Score of '4' [+] for
Human Rights, Community Relations, Access & Affordability due to
its policy role, which promotes financing to underbanked and
underserved communities. This has a positive impact on the
government's propensity to support and is therefore relevant to
BOI's ratings in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Zenith Bank Plc LT IDR B Upgrade B-
ST IDR B Affirmed B
Viability b Upgrade b-
United Bank for
Africa Plc LT IDR B Upgrade B-
ST IDR B Affirmed B
Viability b Upgrade b-
senior
unsecured LT B Upgrade RR4 B-
senior
unsecured ST B Affirmed B
BOI Finance B.V.
senior
unsecured LT B Upgrade RR4 B-
FBN Finance
Company B.V
senior
unsecured LT B Upgrade RR4 B-
Guaranty Trust
Holding Company
Plc LT IDR B Upgrade B-
ST IDR B Affirmed B
Viability b Upgrade b-
First Bank of
Nigeria Ltd LT IDR B Upgrade B-
ST IDR B Affirmed B
Viability b Upgrade b-
Access Bank Plc LT IDR B Upgrade B-
ST IDR B Affirmed B
Viability b Upgrade b-
senior
unsecured LT B Upgrade RR4 B-
senior
unsecured ST B Affirmed B
Bank of
Industry Limited LT IDR B Upgrade B-
ST IDR B Affirmed B
Government Support b Upgrade b-
Guaranty Trust
Bank Limited LT IDR B Upgrade B-
ST IDR B Affirmed B
Viability b Upgrade b-
Fidelity
Bank PLC LT IDR B Upgrade B-
ST IDR B Affirmed B
Viability b Upgrade b-
senior
unsecured LT B Upgrade RR4 B-
First HoldCo Plc LT IDR B Upgrade B-
ST IDR B Affirmed B
Viability b Upgrade b-
VDK GROEP: S&P Assigns 'B+' Long-Term ICR, Outlook Stable
---------------------------------------------------------
S&P Global Ratings assigned a 'B+' long-term issuer credit rating
to VDK Groep B.V. and its 'B+' issue rating and '3' recovery rating
to the company's proposed EUR635 million TLB (including EUR125
million fungible DDTL).
The stable outlook reflects S&P's view that VDK Groep will see
strong revenue and EBITDA growth on the back of sound market
conditions in the Netherlands led by energy efficiency in
buildings, alongside further bolt-on M&A activity and full-year
contributions from its previous acquisitions. This will support
strong FOCF, while leverage is expected to stay below 4.5x because
material deleveraging will be offset by a financial policy that
tolerates debt-funded acquisitions.
VDK Groep has refinanced its existing capital structure. The group
issued a EUR510 million seven-year TLB, the proceeds of which were
used to refinance the existing EUR425 million debt. This
accompanies the issuance of a new 6.5-year EUR155 million senior
secured RCF and a fungible EUR125 million DDTL, all of which
remains undrawn at the close of the transaction. EMK Capital
retains its controlling stake with no change to the equity
component. The existing equity also contains preference shares,
which S&P treats as equity and exclude from its leverage and
coverage calculations because S&P sees an alignment of interest
between noncommon and common equity holders.
VDK Groep's revenue stability and good profitability, coupled with
an asset-light business model, support cash generation and interest
coverage. S&P's forecasts for organic growth are supported by high
capacity use in the group's order book and significant recurring
revenue, which contributes roughly two-thirds of total revenue.
This has supported management's focus on smaller contracts that
have greater profitability. The average contract size in 2023 was
just EUR200,000 with over 50% of the group's revenue coming from
short-term projects lasting three to six months. The business has
focused on lower scale projects avoiding open tenders, which
accounted for just 14% of 2023 revenue due to less competitive
pricing dynamics. Privately negotiated contracts are priced on a
cost-plus basis that supports margin stability while existing
maintenance and framework agreements (roughly 40% pro-forma 2023
revenue) allow for cost inflation pass through. The strict
management focus on higher margin projects over the last three
years, coupled with improving scale that supports procurement
gains, as well as margin accretive small bolt-on acquisitions, led
to an S&P Global Ratings-adjusted EBITDA margin of around 14% at
year-end 2024, up from 9.2% in 2022 and 11.7% in 2023. This
compares with other rated industry peers, such as Assemblin
Caverion Group AB, Apleona Group GmbH, and Spie S.A., with forecast
levels of 7.9%, 8.1%, and 8.8%, respectively. Strong profitability,
paired with low capital expenditure (capex) and working capital
requirements, resulted in a strong cash flow profile with FOCF of
EUR27.1 million in 2022 and EUR59.2 million in 2023. As such, S&P
forecasts positive FOCF generation of EUR79 million-EUR121 million
annually in 2025 and 2026, while funds from operations (FFO) cash
interest coverage will remain comfortably around 3.5x-3.8x over the
next three years.
Attractive and expanding markets, backed by regulatory and
environmental considerations, support revenue growth. VDK Groep is
a provider of multi technical installation services that support
the energy transition through greater electrification and more
efficient climate technology in buildings. S&P said, "Throughout
our forecast we see organic growth maintaining its previous level
of 5% compound annual growth rate. Government regulation attempting
to decarbonize Dutch real estate and reduce the national housing
shortage supports our forecast." The bulk of this growth is
expected in the residential sector, with new build properties
expected to rebound from a higher interest rate environment, during
which building permit applications decreased, significantly
increasing the national housing shortage. This recovery is already
presenting itself with residential permits up in first- and
second-quarter 2024 by 15% and 19%, respectively. The business is
further supported by rental regulation, which allows the
liberalization of chargeable rent, removing caps if properties are
kept to the highest energy efficiency standards, providing
incentives for landlords to continue renovation work. Supportive
market dynamics in the technical installation space with reductions
in funding for new builds typically leading to higher renovation
demand support VDK Groep's revenue stability, which roughly
generated two-thirds of pro forma 2023 revenue through renovation
and maintenance work, with the remainder being new build activity.
S&P said, "VDK Groep operates in a very fragmented and competitive
market with modest barriers to entry, in our view. The group has
built a solid reputation in recent years, becoming the
second-largest provider by revenue in the Netherlands. The growing
scale of geographic coverage and deepening of services capabilities
have allowed the group to capture a larger market share in recent
years. We recognize the group's ability to increase both scale and
capacity through bolt-on acquisitions and investments to increase
full-time employees as a strength. However, the top 10 players
account for just 36% of the market, leaving risks that larger scale
competitors could capture substantial volumes of market share.
"We believe the company's M&A track record and disciplined
integration processes should sustain its growth. As of the end of
2024, the group had acquired 73 companies since its inception, with
60 of these companies being acquired in 2020-2024 following EMK
Capital's investment. VDK Groep focuses its M&A efforts on
profitable companies with strong recurring business lines and has
demonstrated its ability to successfully integrate these
acquisitions. Integration has been supported by the former owners'
reinvestment in the group and maintaining an element of control
over their company, ensuring maintenance of performance standards.
The group achieves this through a decentralized model, which gives
acquired businesses certain autonomy to run their businesses within
the group, while allowing greater profitability performance through
centralized support functions and realizing procurement benefits.
This has supported the business' growth from a base of just EUR7
million in revenue in 2013 to pro forma company-reported 2024
revenue of about EUR1.1 billion. If executed with the same
discipline, including limited spend for integration costs, we
believe that future M&A integrations will support further strong
revenue growth without damaging the business' profitability.
"Despite rapid growth and ongoing expansion, we see VDK Groep's
small scale and geographic concentration as a key constraint to its
business risk profile. Its reported revenue of EUR792.9 million and
EBITDA of less than EUR100 million in 2023 places the group at the
low end of the broader rated peer group in the business services
industry. We forecast significant growth for the business to EUR1.9
billion revenue in 2027 due to the combination of bolt-on
acquisitions and strong organic growth, and we acknowledge that the
company is already considerably larger than numerous local
competitors in the Netherlands where small and midsize enterprises
account for 64% of the market. Furthermore, low customer
concentration is a key strength, with the group's top 10 customers
accounting for less than 15% of 2023 revenue. The group further
benefits from long-term relationships (the top 10 customers
maintain an average relationship length of 15 years), high
recurring business (accounting for about two-thirds of revenue) and
diversification across multiple end markets. Looking at 2023
results, residential work had the largest share of revenue with
29%, retail contributed 18%, and education 9%. However, the
business is still heavily concentrated geographically with 92 of 93
locations operating in the Netherlands, which we currently see as a
fundamental constraint to the businesses risk profile.
"The rating is constrained by VDK Groep's financial sponsor
ownership and leverage tolerance. We forecast adjusted debt to
EBITDA at 4.3x for 2025 before falling to 4.1x in 2026 with the
business continuing to deleverage. However, our assessment of the
company's financial risk profile as aggressive reflects its
commitment to external growth, the pipeline of M&A opportunities in
a fragmented market, and the financial sponsors' leverage
tolerance. In addition, we expect ample liquidity over the forecast
period thanks to its asset-light business model, a pro forma cash
balance of EUR114 million post refinancing, a fully undrawn RCF of
EUR155 million, and a EUR125 million DDTL that is expected to
provide sufficient liquidity for its acquisition activity in the
near term. We do, however, acknowledge EMK Capital's commitment to
a moderate financial policy and to following an M&A strategy
aligned with the assigned rating.
"The stable outlook reflects our view that VDK Groep will see
strong revenue and EBITDA growth on the back of sound market
conditions in the Netherlands led by energy efficiency in
buildings, alongside further bolt-on M&A activity and full-year
contributions from its previous acquisitions. This will support
strong FOCF, while leverage is expected to stay below 4.5x as
material deleveraging will be offset by a financial policy that
tolerates debt-funded acquisitions."
S&P could lower the rating on VDK Groep in the next 12 months if it
expects its S&P Global Ratings-adjusted leverage to rise and remain
above 5x or its FOCF to weaken, likely because of:
-- A more aggressive financial policy through shareholder returns
or significant debt-funded acquisitions that increases leverage
beyond our projections; or
-- Weaker operating performance due to a slowdown of the Dutch
installation market and higher exceptional costs to integrate
bolt-on acquisitions.
Although unlikely, S&P could consider taking a positive rating
action if the financial sponsor commits to a clear financial policy
that targets maintaining leverage below 4.5x, and the company
enhances its scale and geographical diversification, while
maintaining its strong cash flow generation.
VODAFONEZIGGO GROUP: S&P Affirms 'B+' ICR on Steady Credit Metrics
------------------------------------------------------------------
S&P Global Ratings affirmed its 'B+' long-term credit rating on
VodafoneZiggo Group B.V.
S&P said, "The stable outlook reflects our expectation of stable
EBITDA beyond 2025, driven by continued growth in the consumer
mobile and business-to-business (B2B) segments, offset by a decline
in the consumer fixed segment. We expect adjusted leverage to
increase to about 6x and free operating cash flow (FOCF) to debt
(adjusted for vendor financing) of about 4%-6% in 2025 and 2026.
"We think VodafoneZiggo Group B.V. will show flat sales growth in
2025 but that squeezed EBITDA margins will weigh on its leverage
headroom. VodafoneZiggo's declining fixed consumer base and market
share, due to intense competition, will likely impact its operating
performance in 2025. We expect this to be offset by modest growth
of about 2%-4% in the mobile business, supported by average revenue
per unit (ARPU) growth and stable mobile subscribers. However, we
believe increased operating costs will reduce the margin to about
45%-46% from 47.3% in 2024. We therefore anticipate the group will
reach our downside trigger, with S&P Global Ratings-adjusted debt
to EBITDA moving toward 6.0x in 2025 from 5.6x in 2024. We
anticipate stable EBITDA going forward and excess free cash flow to
be paid as dividends in line with VodafoneZiggo's dividend policy.
We expect adjusted leverage will remain at about 6x over the next
few years, leaving no headroom for underperformance in the
stand-alone rating.
"VodafoneZiggo has become more important to Liberty Global's
strategy and operations following the spin-off of Sunrise, which
provides a cushion for VodafoneZiggo's issuer credit rating. We
revised our assessment of VodafoneZiggo to highly strategic from
moderately strategic, reflecting our view that Liberty Global will
retain its ownership and our view that VodafoneZiggo became more
important to Liberty's operations and strategy following the
spin-off of Sunrise. While neither Liberty Global nor Vodafone is a
controlling owner of the joint venture, we believe Liberty Global
will offer support to VodafoneZiggo during times of distress. We
therefore think Liberty Global's 'BB-' rating offers downside
protection to VodafoneZiggo's rating. That said, we do not
incorporate any uplift from our rating on Vodafone Group PLC
(BBB/Stable/A-2) for VodafoneZiggo, as we assess that Vodafone's
inclination to provide independent support to VodafoneZiggo is
limited (without corresponding support from Liberty Global), if
needed.
"We project the group's fixed segment will remain subdued over the
next few years, due to market share erosion and competitors'
targeted promotional activities over our forecast period . In 2024,
expansion through the B2B fixed segment, driven by growth from SOHO
and small business segments, was more than offset by the consumer
fixed segment's underperformance, with revenues declining by 2.5%
to EUR1.95 billion. This was mainly due to a sizable investment in
the fiber optic network and aggressive promotions by competitors
such as KPN, which led to loss of market share for VodafoneZiggo.
Organic broadband net losses stood at 115,500. We expect the
consumer fixed segment to underperform given the reduction in the
speed advantage, compounded by significant promotional activity by
and strong competition from peers.
"We expect the consumer mobile segment will demonstrate resilient
growth over our forecast period. While results for the full-year
2024 declined and were below our expectations, the consumer mobile
segment delivered robust growth due to positive pricing and
postpaid subscriber additions. Net mobile postpaid additions
consequently increased to 26,700 at year-end. Robust performance in
the consumer mobile segment--underpinned by further price hikes,
net additions to postpaid subscribers, investment in network
upgrades, and minor increases in ARPU--should help partially
mitigate tapering fixed revenues. We expect this trend to persist,
buoyed by low customer churn, high customer satisfaction, and the
group's continued investment in content, as well as network
enhancements and promotional spend.
"The stable outlook reflects our expectation of steady growth in
earnings, driven by continued growth in the consumer mobile and B2B
segments and offset by a decline in the consumer fixed segment. We
expect adjusted leverage to increase to about 6x and FOCF to debt
(adjusted for vendor financing) to be about 4%-6% in 2025 and
2026.
"We could lower the stand-alone credit profile if VodafoneZiggo's
adjusted leverage increases above 6x on a sustained basis, or its
FOCF to debt (adjusted for vendor financing) falls to a
low-single-digit percentage; for example, because of tough
competition from KPN and Odido, elevated capital expenditure
(capex) needs, or aggressive shareholder returns. We could lower
the rating if we lowered the stand-alone rating and revised down
our view of the strategic importance of VodafoneZiggo to Liberty
Global.
"Although unlikely in the next 12 months, we could raise the rating
if VodafoneZiggo reduces its adjusted leverage to about 5x while
maintaining FOCF to debt (adjusted for vendor financing) above 5%.
This would likely require a more conservative financial policy and,
potentially, a partial IPO.
"We could also raise the rating on VodafoneZiggo if we raised our
rating on Liberty Global."
=============
R O M A N I A
=============
LIBRA INTERNET: Fitch Affirms 'BB-' Long-Term IDR, Outlook Stable
-----------------------------------------------------------------
Fitch Ratings has affirmed Romania-based Libra Internet Bank S.A.'s
(Libra) Long-Term Issuer Default Rating (IDR) at 'BB-' with a
Stable Outlook, and its Viability Rating (VR) at 'bb-'.
Key Rating Drivers
Small Bank, Reasonable Performance: Libra Internet Bank S.A.'s
ratings reflect its small size and narrow franchise in Romania
(BBB-/Negative). The ratings also reflect a business model that has
delivered high returns and asset quality that is reasonable for the
rating level, counterbalanced by high obligor and sector credit
concentrations relative to its small nominal capital base, and
higher risk appetite than domestic peers'.
Operating Environment on Negative Outlook: The strength of the
Romanian economic environment is moving towards that of central and
eastern European (CEE), improving Romanian banks' moderate
opportunities to consistently do profitable business. However, the
negative outlook on the operating environment for Romanian banks
(bbb-) mirrors that on the Romanian sovereign rating
(BBB-/Negative).
Niche Franchise: Libra has a narrow footprint in the competitive
Romanian banking sector, with less than 2% of sector assets. The
bank's business concentrations by obligor and industry reflect its
focus on servicing real estate developers, agribusiness and
professional individuals, but also reflect its limited scale.
High Credit Concentrations: Libra's risk appetite is higher than
the industry average, due to the significant proportion of lending
in real estate and agriculture, as well as relatively large
single-name exposures. The bank's higher-risk exposures yield
higher returns, while its disciplined underwriting supports a
moderate share of impaired loans and good recoveries on problematic
exposures.
Reasonable, but Deteriorating, Asset Quality: Libra's impaired
loans ratio deteriorated to 3.4% at end-1H24 on the recognition of
a few larger problem loans. Fitch expects the ratio to hover around
3% over the next couple of years, supported by a moderate growth
strategy and sustained by effective risk controls, though some
periodic volatility may occur. Coverage of impaired loans by all
loan loss allowances at over 100% is adequate, particularly in
light of the bank's conservative collateral requirements and
valuations.
Profitability at Cyclical High: Fitch expects the operating
profit/risk-weighted assets (RWAs) ratio to reduce to near 4% in
2025 from its recent peak of 5.7% in 2023 due to gradually
decreasing margins and higher loan impairment charges. Net interest
income accounts for the vast majority of Libra's earnings, and
profitability benefits from the net interest margin being wider
than that of domestic peers.
Moderate Capitalisation: Fitch views the bank's common equity Tier
1 (CET1) ratio (end-1H24: 19.1%) as only moderate, in view of high
credit concentrations, its risk appetite and small absolute size of
capital. Fitch expects the CET1 ratio to be overall stable in 2025
and 2026.
Mainly Deposit-Funded: The bank is mainly customer deposit-funded,
but with weaker customer relationships and more price-sensitive
deposit base than at larger peers. Liquidity has been supported by
a comfortable loans/deposits ratio of about 70% over the past four
years. Refinancing risks related to third-party funding are limited
and liquidity needs are well-covered by available buffers largely
held at the central bank or invested in Romanian government bonds.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Libra's ratings could be downgraded if Fitch expects a sustained
deterioration in its impaired loans ratio to close to 5%,
particularly given loan concentrations, and if this was accompanied
by a material weakening in the bank's operating profitability or in
the CET1 ratio toward 14%.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
There is limited positive rating potential in the short term, given
the bank's small size, narrow franchise, and risk profile. Over the
medium to long term, an upgrade of Libra's ratings would require a
material improvement in its business and risk profile,
predominantly through a material strengthening of franchise and
scale, and a significant reduction in concentrations to higher-risk
sectors, while maintaining financial metrics well within the 'bb'
thresholds.
Libra's Government Support Rating (GSR) of 'no support' primarily
considers the Romanian resolution legislation, which requires
senior creditors to participate in losses, if necessary, instead or
ahead of a bank receiving sovereign support. Libra's ratings also
do not factor in any support from its ultimate owner, private
equity investor New Century Holdings, as, although still possible,
this support cannot be relied upon, according to Fitch's
assessment.
An upgrade of the GSR would require a higher propensity of
sovereign support. While not impossible, this is highly unlikely,
in Fitch's view.
VR ADJUSTMENTS
The asset quality score of 'bb-' has been assigned below the 'bbb'
category implied score because of the following adjustment reason:
concentrations (negative).
The earnings & profitability score of 'bb' has been assigned below
the 'a' category implied score because of the following adjustment
reason: revenue diversification (negative).
The capitalisation & leverage score of 'bb-' has been assigned
below the 'a' category implied score because of the following
adjustment reason: risk profile and business model (negative) and
size of capital base (negative).
The funding & liquidity score of 'bb-' has been assigned below the
'bbb' category implied score because of the following adjustment
reason: deposit structure (negative).
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Libra Internet
Bank S.A. LT IDR BB- Affirmed BB-
ST IDR B Affirmed B
Viability bb- Affirmed bb-
Government Support ns Affirmed ns
===========
R U S S I A
===========
UZAUTO MOTORS: S&P Affirms 'B+/B' ICRs, Alters Outlook to Dev.
--------------------------------------------------------------
S&P Global Ratings revised its outlook on Uzbekistan-based
automotive manufacturer UzAuto Motors JSC (UAM) to developing from
positive and affirmed its 'B+' long-term issuer and issue credit
ratings and 'B' short-term issuer credit rating.
The developing outlook indicates that S&P could affirm, lower, or
raise its ratings on UAM in the next 12 months, depending on
successful and timely refinancing.
S&P Global Ratings expects continued solid operating performance by
UAM over the next two years due to solid demand for Chevrolet cars,
supporting strengthening credit metrics, with funds from operations
(FFO) to debt comfortably above 45%.
S&P said, "However, we see elevated refinancing risk in potentially
volatile market conditions, because UAM's $300 million senior
unsecured notes (Eurobond) mature in May 2026, and UAM is planning
to refinance the notes in six months at the earliest.
"In addition, we expect free operating cash flow (FOCF) to remain
volatile, with estimated cash burn of about $150 million in 2024,
followed by positive FOCF of about $180 million in 2025."
The $300 million Eurobond will become current in May 2025,
increasing refinancing risk. UAM's capital structure comprises:
senior unsecured notes of $300 million, maturing on May 4, 2026, a
$48 million facility from Export Credit Agency which is due in
2031, and a syndicated unsecured term loan of $100 million, out of
which $80 million was outstanding as of January 2025 and which is
amortizing with repayments of $50 million in 2025 and $30 million
in 2026. UAM intends to address the Eurobond refinancing in the
next six to nine months. S&P said, "In our view, this may lead to a
refinancing close to maturity and increases refinancing risk, in
particular in current market conditions. For the 12 months started
Jan. 1, 2025, we expect the company to have sufficient resources to
cover its cash needs, including $148 million of unrestricted cash
and cash equivalents, and about $400 million of cash FFO. This
compares with principal uses of $56 million of debt amortization,
about $245 million of working capital requirements, $10 million of
maintenance capital expenditure (capex), and an $85 million
shareholder distribution. However, from May 2025, when the $300
million notes become a current liability, we expect our ratio of
liquidity sources to uses will fall to about 1.0x. This offers
scant protection if refinancing conditions remain difficult for an
extended period. We understand the company could cut shareholder
distributions and delay some of its capex to cover potential
liquidity needs. We deem the company's relationship with both local
and international banks as sound."
Greater scale, and enhanced production localization will bolster
UAM's credit metrics in 2025 and 2026. S&P said, "We expect the
group will maintain FFO to debt of more than 45% over the next two
years thanks to improved operating performance. By the end of 2024,
UAM had enlarged its production capacity to 450,000 vehicles from
360,000 vehicle as of 2022. We note that additional capacity
creates room for future growth thanks to solid demand for Chevrolet
cars in Uzbekistan. We believe modest revenue growth and stable to
increasing margins per vehicle will help UAM to maintain an S&P
Global Ratings-adjusted EBITDA margin at about 10% in 2025-2026,
similar to 2024's level. Following the launch of two new models in
2023, Chevrolet Tracker and Onix, UAM ceased the production of old,
less profitable models, which positively contributed to margin per
unit sold. We estimate S&P Global Ratings-adjusted EBITDA for 2024
should come out about $100 million higher than we envisaged in our
previous base case, thanks to greater contribution of more
profitable models and lower logistics costs also driven by a higher
number of components sourced locally."
S&P said, "We expect UAM to maintain a strong market position, with
a market share of more than 70%. UAM's market share amounted to 88%
in 2024, with about 353,000 vehicles sold in the local market.
UAM's main competitors, ADM Jizzakh and BYD Uzbekistan, sold about
30,000 and 17,000 vehicles, respectively. We believe the holding
company UzAuto Sanoat will continue to play a quasi-governmental
role for the automotive industry in Uzbekistan and define policies
that allow for some additional competition while protecting UAM's
market position. Following record imports of electric vehicles in
2024, which amounted to about 25,000 vehicles, Uzbekistan raised
four-fold the recycling fee for electric cars, effective from May
1, 2025. We note that UzAuto Sanoat's joint venture with BYD (BYD
Uzbekistan) started local production of hybrid cars in June 2024.
The holding company has a target to develop the automotive industry
locally, creating about 1 million jobs by 2030. While we believe
UAM's market share may decrease with some new competitors,
population growth and increasing motorization rates should leave
enough room for the company to achieve stable to moderately growing
sales volumes. Last year, Uzbekistan overtook Brazil as the country
with the second-highest sales of Chevrolet cars. We believe General
Motors will continue its partnership with UAM beyond 2027.
"Working capital swings and volatile FOCF constrain our rating on
UAM. The company's cash conversion potential has improved thanks to
sharp revenue and earnings growth in the past few years, but FOCF
remains prone to unexpected and large working capital swings. We
estimate that a working capital-related cash outflow of about $470
million in 2024 resulted in negative FOCF of about $150 million,
after a cash burn of $324 million in 2023, mainly due to the
expanded offers of instalment sales and a reduction in customer
prepayments. Generally speaking, the company, in close consultation
with the government, sets prepayment terms with its customers and
decides on the extent to which it offers instalment sales. Sudden
changes to these terms and conditions can drive volatility in
working capital. We expect the company will generate positive FOCF
of at least $100 million per year over 2025-2026.
"The developing outlook indicates that we could affirm, lower, or
raise our ratings on UAM, depending on the successful and timely
refinancing of its Eurobond. The rating trajectory will also depend
on UAM's ability to maintain solid profitability and manage working
capital to limit volatility of its FOCF."
S&P could lower its rating on UAM if:
-- It fails to refinance its Eurobond due May 2026 in a timely
manner, leading to a material deterioration of its liquidity
position.
-- S&P observes a prolonged material cash burn driven by sustained
higher working capital requirements than it envisages in its base
case.
-- Although unlikely, demand declines unexpectedly, leading to a
leverage buildup at UAM or the holding level, leading to FFO to
debt below 30% for the consolidated group.
S&P could raise its rating in the next 12 months if:
-- The company refinances its Eurobond in a timely manner and
takes measures to ensure a solid liquidity position even during
times of large working capital fluctuations.
-- S&P expects demand for its Chevrolet models to remain resilient
despite increasing competition in the country, supporting stable to
modestly growing volumes.
-- FFO to debt remains consistently above 45%.
-- FOCF, excluding working capital swings related to changes in
the payment terms for its customers, is consistently above $100
million, and UAM displays good working capital management.
-- The credit quality of parent UzAutoSanoat would also need to
develop in line with that of UAM to support an upgrade, with the
group's credit metrics similar to those of UAM. S&P expects the
group to produce annual reports under International Financial
Reporting Standards (IFRS) on a timely basis.
===========
S W E D E N
===========
TRANSCOM TOPCO: S&P Downgrades LT ICR to 'B-' on Refinancing Risk
-----------------------------------------------------------------
S&P Global Ratings lowered its long-term issuer credit ratings on
Sweden-based customer relationship management (CRM) services
company Transcom Holding AB (publ) and Transcom Topco AB, as well
as its issue rating on the group's EUR380 million senior secured
notes due 2026, to 'B-' from 'B'.
S&P said, "The rating action reflects the refinancing risk
associated with Transcom's senior secured notes maturity in
December 2026. While we understand that Transcom could initiate a
refinancing process in the second half of 2025, its liquidity could
deteriorate if it is not completed before the notes become current.
Furthermore, unpredictable credit market conditions and difficult
trading environment could challenge its refinancing efforts.
Transcom's standing in credit markets has weakened in the past
year, as indicated by the significant discount at which its notes
have been trading, reflecting Transcom's operating underperformance
and the emergence of Gen AI as a secular threat for the CRM
industry. We also see some event risk associated with the exit
plans of financial sponsor Altor, that has been a majority owner of
Transcom since 2017, as they could delay the refinancing process.
"We forecast a gradual improvement in EBITDA and cash flow
generation in 2025-2026, but we think that the trading environment
is very uncertain. In 2024, Transcom's operating performance was
broadly in line with our forecast with almost flat EBITDA compared
to 2023 due to weak revenue growth, mostly inorganic, and
investments in sales and marketing. For 2025, we forecast revenue
growth of 2.7% fueled by bolt-on acquisitions while organic revenue
remains flat as we expect to see slow decision-making and hampered
demand from clients in an uncertain macroeconomic environment, and
negative price effect from continued offshoring. Transcom will also
incur the full year effect of contracts that were ended in 2024,
for price reasons or inadequate footprint, and of the closure of
its German business. For 2026, we forecast 2%-3% volume-driven
organic growth. We forecast S&P Global Ratings-adjusted EBITDA
improvement of 10 basis points (bps)-30 bps in 2025 (compared to
10.4% in 2024) driven by relatively lower nonrecurring items of
about EUR10 million (compared to EUR14.5 million in 2024). Our
expectation of margin expansion of 140 bps-160 bps in 2026 reflects
growth in higher-margin offshore volumes, cost reduction
initiatives, and improved digital capabilities.
"In our forecast, we assume that the adoption of Gen AI will be
gradual in the sector, with the potential for productivity gains
and development of higher value services to offset some risks
related to the decrease of human-based interaction volumes.
Transcom is making progress on the integration of advanced digital
solutions in its service offering, as clients using solutions such
as real-time translation, voice chatbots, or advanced analytics,
contribute more than 40% of its revenue, compared with 30% a year
ago. However, investment expenses are necessary to develop AI
capabilities and retain some revenue-generating business related to
interactions automated through Gen AI technology. Transcom invests
7.5% of its revenues annually in IT, half of which (corresponding
to about EUR28 million in 2024) being for client-facing products
and technologies, including AI-based solutions. Transcom remains
exposed to risks associated with acceleration in AI led automation
and potential loss of competitive standing if it does not keep up
with the pace of investment of its larger competitors
Teleperformance SE and Concentrix Corp.
"We also note that there is a high degree of unpredictability
around policy implementation by the U.S. administration and
responses--specifically with regard to tariffs--and the potential
effect on economies, supply chains, and credit conditions around
the world. As a result, our baseline forecasts carry a significant
amount of uncertainty. As situations evolve, we will gauge the
macro and credit materiality of potential shifts and reassess our
guidance accordingly.
"A higher cost of debt would limit improvement in cash flow
generation and interest coverage ratios in the next two years. In
our base case, we assume that Transcom will conclude the
refinancing of its capital structure in a timely fashion, but at a
higher cost of debt. We forecast funds from operations (FFO) cash
interest coverage to remain at about 1.5x in 2025, improving to
1.8x in 2026, while free operating cash flow will approach
breakeven in 2026, after negative EUR5 million-EUR6 million in
2025, on the back of EBITDA expansion. We also assume that Transcom
will not give up its acquisitive strategy to grow its offshore
capabilities. We have factored in about EUR35 million in
acquisition payments each year, including earn-outs. We forecast
leverage to remain between 5.5x and 6.2x over the period.
"The negative outlook reflects that we could lower the ratings if
Transcom is unable to address the maturity of its notes in a timely
manner, and the company faces increasing refinancing risk.
"We could lower the rating if Transcom does not make tangible
progress toward refinancing in the next six to nine months or if we
see an increased likelihood of distressed debt restructuring,
including a repurchase of bonds below par. We could also lower the
ratings if its operating performance deteriorates, and its
liquidity tightens.
"We could revise our outlook to stable if Transcom successfully
refinances the notes in a manner we view as consistent with the
debt's original terms. An outlook stabilization would also hinge on
improving EBITDA and cash flow generation, and our confidence that
Transcom's investments in Gen AI solutions will allow it to
preserve its margins and maintain its competitive standing, so that
we do not foresee a risk of its capital structure becoming
unsustainable."
===========
T U R K E Y
===========
ALJ FINANSMAN: Fitch Lowers Then Withdraws Nat'l Rating to BB(tur)
------------------------------------------------------------------
Fitch Ratings has downgraded ALJ Finansman's (ALJF) National Rating
to 'BB(tur)' from 'BB+(tur)'. The Outlook is Negative. Fitch has
simultaneously withdrawn the rating.
National-scale ratings are an opinion of creditworthiness relative
to issuers and issues within a single country.
Fitch has chosen to withdraw ALJF's rating for commercial reasons.
Fitch will no longer provide ratings or analytical coverage of the
company.
Key Rating Drivers
National Rating Downgrade: The downgrade reflects the rapid
deterioration in ALJF's asset quality in 2024, which resulted in
net losses. ALJF's rating is negatively affected by the
deteriorating outlook for the auto financing market in Turkiye and
ALJF's high leverage even after a capital injection. The rating
also reflects ALJF's secured and relatively granular local-currency
denominated asset base, low residual value risk and tested access
to funding via Turkiye's largest private banks. The Negative
Outlook reflects spillover risks from high leverage and negative
profitability to the viability of ALJF's business profile.
Standalone Rating: ALJF is part of a diverse group of companies
owned by the Saudi Arabia-domiciled Jameel family. The group has a
well-established car dealership network offering Toyota vehicles in
the Gulf Cooperation Council region and is also Toyota's exclusive
distributor in Turkiye. ALJF's franchise has non-exclusive access
to a wide network of Toyota dealerships in Turkiye, supporting
sales and the disposal of repossessed cars. ALJF's rating does not
incorporate any support from its shareholders as Fitch is not able
to assess the shareholder's ability to provide support.
Resuming Business Growth in 2024: Challenging market conditions in
Turkiye's auto financing market persisted in 2024 but the company
managed to increase the total number of cars financed by 10%. The
shift in ALJF's customer base from private individuals to SMEs
continued, as the share of retail clients further decreased to 28%
in 2024 from 39% in 2023. Its average loan-to-value ratio was
relatively low and stable at 60% in 2024 (2023: 60%), providing
some buffer against residual value and delinquency risks.
Very High Leverage: Despite a cash capital injection in 4Q24,
ALJF's gross debt/tangible equity ratio was still very high at
11.8x at end-2024 (2023: 13.0x), driven by net losses in 2024 and
asset growth under high inflation. The improvement was enabled by
the cash capital injection of TRY324 million in 4Q24, almost
doubling equity. However, the company significantly expanded its
balance sheet by 78% in 2024, offsetting the positive impact of the
cash capital injection. Fitch views leverage as a key constraint on
ALJF's credit profile (along with earnings), and believes that
lower leverage is required to maintain a long-term viable business
profile.
Low Core Profitability: ALJF's key earnings and profitability ratio
(pre-tax income/average assets) was negative 1.3% in 2024 (1.0% in
2023), driven by a rapid rise in loan impairment charges. Core
margins slightly improved in 2024 but remained below historical
averages.
ALJF's core profitability is under pressure from changing business
dynamics and regulatory headwinds. The shift of client portfolio
from retail to SME's structurally lowers margins as commercial
subsector is usually less profitable. Fitch believes that risks to
profitability are mainly driven by further impairment costs and low
business generation given the uncertain prospects for the auto
financing sector. Fitch believes that a recovery is contingent on
improved penetration into Toyota brand, reversal of regulatory
pressure and continued economic growth.
Deterioration in Asset Quality: ALJF's impaired receivables
increased substantially to 3.2% at end 2024 (2023: 0.9%). As a
result, new non-performing loan (NPL) generation (4.3%) and cost of
risk (3.9%) were substantially above historical averages in 2024.
Asset quality deteriorated across the sector in 2024, but ALJF's
NPL's increased more quickly. The deterioration in asset quality,
in its view, is driven more by the challenging market conditions
than higher risk appetite or low standards in credit underwriting
and risk controls.
Moderate Refinancing Risk: ALJF's funding profile is underpinned by
tested access to unsecured funding from large domestic banks.
Funding conditions improved in Turkiye in 2024 with an improvement
in the operating environment and maturities started to extend; from
an average 12 months in 2023 to 18 months at end-2024. This has
reduced ALJF's refinancing risks originating from balance-sheet
maturity mismatches.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Not applicable as the ratings have been withdrawn.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Not applicable as the ratings have been withdrawn.
ADJUSTMENTS
The sector risk operating environment score has been assigned below
the implied score due to the following adjustment reason(s):
sovereign rating (negative), macroeconomic stability (negative).
The capitalisation and leverage score has been assigned below the
implied score due to the following adjustment reason(s): historical
and future metrics (negative).
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
ALJ Finansman A.S. Natl LT BB(tur) Downgrade BB+(tur)
Natl LT WD(tur) Withdrawn
[] Fitch Affirms 'BB-' LT IDRs on 3 Turkish NBFIs, Outlook Stable
-----------------------------------------------------------------
Fitch Ratings has affirmed the Long-Term Issuer Default Ratings
(IDRs) of three Turkish non-bank financial institutions (NBFIs) -
Volkswagen Dogus Finansman A.S. (VDF Finans), VDF Filo Kiralama
A.S. (VDF Filo) and VDF Faktoring A.S. - at 'BB-'. Their
Shareholder Support Ratings (SSR) have also been affirmed at 'bb-'.
The Outlook on the IDRs are Stable.
Key Rating Drivers
IDRS, SSR AND NATIONAL RATINGS
Support-Driven Ratings: VDF Finans', VDF Faktoring's and VDF Filo's
ratings are driven by support from their controlling shareholder,
Volkswagen Financial Services Overseas AG (VWFSO, A-/Negative) as
expressed by their SSR of 'bb-'. Fitch views these subsidiaries as
strategically important, given their mandate to complement and
support Volkswagen's (VW) operations in Turkiye.
Constrained by Country Ceiling: The three companies' Long-Term IDR
and SSR are capped by Turkiye's 'BB-' Country Ceiling. The Country
Ceiling captures transfer and convertibility risks and limits the
extent to which support from VWFSO or VW can be factored into the
Long-Term Foreign-Currency IDRs.
Joint Venture: All companies are fully owned by VDF Servis ve
Ticaret, which is in turn owned by VWFSO (51%) and Dogus Group
(49%), a large Turkish conglomerate with diverse operations, and
the sole importer of VW vehicles in Turkiye. VWFSO exercises
operational control over VDF entities, but Dogus retains a
significant role in running the companies.
Reliance on VW Group, Proven Parental Support: All three companies
rely heavily on VW activity in Turkiye as they conduct most of
their business activities within the group or with VW group car
dealers. Historically, VWFSO has provided significant funding
support when needed by extending loans at arm's length. VWFSO has
also provided ordinary capital support, via fresh injections in
2H22 and 1H23, to improve capitalisation of the entities. Fitch
believes VWFSO would continue to provide financial support to VDF
entities, if needed.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- The Long-Term IDRs and SSRs would likely be downgraded on a
downward revision of Turkiye's Country Ceiling
- Changes in the propensity of support from VWFSO, for example, as
a result of dilution of ownership, a loss of operational control or
diminishing importance of the Turkish market, could also trigger a
downgrade of the IDRs and SSRs
- Deterioration of the companies' creditworthiness relative to
other Turkish issuers would likely trigger a downgrade of the
National Ratings
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
An upward revision of Turkiye's Country Ceiling as a result of a
sovereign upgrade would be likely to be reflected in the NBFIs'
Long-Term IDRs.
Public Ratings with Credit Linkage to other ratings
The ratings are driven by VWFSO's support and constrained by
Turkiye's Country Ceiling.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Prior
----------- ------ -----
Volkswagen Dogus
Finansman A.S. LT IDR BB- Affirmed BB-
ST IDR B Affirmed B
Natl LT AAA(tur) Affirmed AAA(tur)
Shareholder Support bb- Affirmed bb-
VDF Filo
Kiralama A.S. LT IDR BB- Affirmed BB-
ST IDR B Affirmed B
Natl LT AAA(tur) Affirmed AAA(tur)
Shareholder Support bb- Affirmed bb-
VDF Faktoring
A.S. LT IDR BB- Affirmed BB-
ST IDR B Affirmed B
Natl LT AAA(tur) Affirmed AAA(tur)
Shareholder Support bb- Affirmed bb-
===========================
U N I T E D K I N G D O M
===========================
ENTAIN PLC: Fitch Affirms 'BB' Long-Term IDR, Outlook Stable
------------------------------------------------------------
Fitch Ratings has affirmed Entain plc's Long-Term Issuer Default
Rating (IDR) at 'BB' with Stable Outlook. Fitch has also affirmed
the senior secured debt issued by Entain and its subsidiary Entain
Holdings (Gibraltar) Limited at 'BB+' with a Recovery Rating of
'RR2'.
The Stable Outlook reflects its expectation that leverage will
increase above its negative rating sensitivity in 2026, but this
will be temporary, while underlying business performance will
remain steady, with good prospects of free cash flow (FCF) turning
positive from 2028 as pending legal claims are settled.
Nevertheless, Fitch acknowledges low rating headroom and any
underperformance against its projections (including lower dividends
from BetMGM), M&A activity or higher legal claims may lead to
negative rating action.
Entain's 'BB' rating remains supported by its business profile,
characterised by solid market positions and strong brands across
its core markets and continuously improving geographic
diversification and scale.
Key Rating Drivers
Leverage Headroom to be Exhausted: Its forecast continues to assume
a breach of negative leverage sensitivities by Entain in 2026, with
EBITDAR leverage forecast at 4.9x (2024: 3.6x), above Fitch's
negative sensitivity of 4.5x. This is due to its assumption that
the company completes the acquisition of the remaining minority
stake in Entain Central and Eastern Europe (CEE). Fitch forecasts
deleveraging below the negative sensitivity in 2027, driven by its
assumption of dividend contributions from BetMGM and continuous
growth of the core business, but this leaves no headroom for
underperformance, regulatory headwinds, M&A activity or increased
shareholder distributions.
Emerging Markets Drive Growth: Fitch forecasts Entain's net gaming
revenues (NGR) to grow by 3%-4% over 2025-2028, primarily driven by
the online segment. Its forecast assumes that the international
segment will grow 100bp more than UK & Ireland, with recently
regulated Brazil delivering the highest growth, despite taxation
coming into effect from 2025. Fitch forecasts that Entain CEE will
grow 300bp faster than UK & Ireland, with Croatia and Poland
remaining less saturated than mature European markets.
US Contribution to Deleveraging Delayed: BetMGM, a 50/50 joint
venture between Entain and MGM Resorts International (BB-/Stable),
invested heavily to reinvigorate growth and recapture market share
in the US throughout 2024, generating negative EBITDA of USD244
million. Fitch expects neutral EBITDA in 2025 and do not anticipate
additional equity injections from Entain, which views the JV
operations as self-funded. Its updated forecast assumes positive
net income for the JV from 2026, with dividend inflow sufficient to
support deleveraging for Entain only from 2027. Its previous
forecast included 2026 as the first year of dividends.
Legal Settlements Weigh on FCF: A deferred prosecution agreement in
the UK will continue to negatively affect Entain's cash flows until
2027 by around GBP150 million, and a compliance failure claim by
Australian regulator AUSTRAC could result in additional
settlement-related cash outflows in 2025 or 2026. There is no
certainty in the financial outcome of the AUSTRAC case, but Fitch
incorporates a GBP100 million cash outflow in its rating case in
2025. Materially higher legal settlement payment would affect
deleveraging, potentially affecting Entain's IDR.
Geographic Diversification Adds Resilience: Entain's geographical
diversification is continuously improving. UK & Ireland's share in
total revenues declined to 40% in 2024 from 47% in 2020. Every
other country contributes less than 10% to NGR, allowing Entain to
sustain consolidated growth in case of regulatory or fiscal
pressure in markets outside the UK, reducing profitability
volatility. UK exposure remains significant, and regulatory or
fiscal pressure on cash flows could affect the consolidated
performance and deleveraging. Fitch incorporates only limited
regulatory pressure in the UK in its current rating case, due to
the delay in the introduction of limits on online slots to 2025.
Entain CEE Options Approaching: From late 2025, a 32.5% minority
stake in Entain CEE will become puttable, potentially requiring an
additional GBP700 million funding for Entain to acquire it. Given
the strong performance of Entain CEE, Fitch does not assume
imminent exercise of the option by the minority shareholder, but
Fitch incorporates in its forecast an exercise of the call option
by Entain itself, in 2H26. With no leverage headroom, if stake
acquisition is accompanied by underperformance compared with
Fitch's forecast or incurrence of higher cash outflows than
currently incorporated in its forecast, negative rating action
would be likely.
Peer Analysis
Entain's business profile is solid for its rating, supported by its
sound profitability and large scale. Its close peer Flutter is
larger and better diversified than Entain, with a leading position
in the US, lower exposure to the UK and wider business and customer
segment diversification via higher exposure to peer-to-peer
platforms, including poker and betting exchanges, as well as the
lottery. Its peer evoke plc (B+/Negative) also has strong brands
and retail presence in the UK via acquired William Hill operations,
but has smaller scale, higher leverage and weaker diversification
than Entain.
Entain's expected EBITDAR margin at about 19%-20% over the next
four years is solid against the 'BBB' midpoint. It is above evoke's
and broadly in line with Flutter's, the latter due partially to
residual ramp-up of Flutter's US profitability that diluted
group-level margins in 2024. Entain has weaker profitability than
Allwyn International AG (BB-/Positive) and is more exposed to the
increasingly stringent regulation of sports betting and online
betting, but has better diversification and a more conservative
financial policy record.
Fitch expects Entain's EBITDAR net leverage to remain higher, at
about 4.5x, than that of Flutter. Entain's leverage in 2025 is
expected to be lower than evoke's 6.4x, as deleveraging after
acquisition has slowed under pressure on EBITDA in the UK and
Middle East markets.
Key Assumptions
Low-to-mid-single-digit UK NGR growth in online in 2025-2028, with
low-single-digit decline in retail
Organic mid-single-digit growth in the international segment, and
high single-digit NGR growth for Entain CEE in 2025-2028
EBITDAR margin of 19% in 2025 (after Tab New Zealand (NZ) gross
profit share payment), a 120bp decline from 2025, before gradually
improving to about 20% by 2028
US operations contributing to cash inflow from 2027, with dividends
of GBP50 million up-streamed to Entain in 2027 and GBP100 million
in 2028
Working capital outflows of GBP70 million in 2025, followed by
neutral working capital in 2026-2028
Capex at about 6% of revenue to 2028
Dividend payments of GBP122 million in 2025, increasing by 5% a
year in 2026-2028
Legal settlement-related payments of around GBP150 million a year
in 2025-2027 related to deferred prosecution agreement settlement,
and around GBP100 million in 2025 related to the AUSTRAC claim
settlement.
Acquisition of a minority stake in Entain CEE in 2026 for roughly
GBP700 million debt-funded disbursement
RATING SENSITIVITIES
Factors That Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Weaker-than-forecast profitability due to increased competition
or more material impact from regulation leading to an EBITDAR
margin at or below 18%
- EBITDAR net leverage above 4.5x
- EBITDAR fixed-charge coverage below 3.0x along with a reducing
liquidity buffer
- Negative FCF, adjusted for non-recurring and extraordinary items
- Maintaining shareholder-friendly financial policies that limit
deleveraging prospects
Factors That Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Continued strong profitability with diversification offsetting
tighter gaming regulation, and realisation of planned synergies
resulting in an EBITDAR margin above 22%
- EBITDAR net leverage trending towards 3.5x on a sustained basis
- EBITDAR fixed-charge coverage above 3.5x
- Consistently positive FCF
Liquidity and Debt Structure
At end-2024, Entain's liquidity remained solid with around GBP360
million Fitch-calculated available cash and GBP570 million of
undrawn revolving credit facility (RCF), and very limited debt
principal repayments of GBP27 million a year due in 2025-2026.
BetMGM JV has access to a separate USD150 million RCF that will
support its operations as profitability stabilises over 2025. The
main debt maturities are well spread over 2027-2029, but based on
its forecast of negative FCF in 2025-2027 Fitch expects Entain will
have to refinance the entirety of its debt portfolio.
The current revolving credit facility matures in December 2026
unless Entain refinances or pays down at least 75% of the existing
term loans due in 2027-2029, Consequently, addressing existing
maturities well in advance will be crucial for Entain's credit
profile.
Issuer Profile
Entain is one of the world's largest online gaming operators with
licenses in 34 markets and 26 US states, but its largest market
remains UK (40% of revenues in 2024) and it is mainly present in
Europe.
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
Entain plc has an ESG Relevance Score of '4' for Customer Welfare -
Fair Messaging, Privacy & Data Security due to o increasing
regulatory scrutiny on the sector amid greater awareness around the
social implications of gaming addiction and increasing focus on
responsible gaming which has a negative impact on the credit
profile, and is relevant to the rating[s] in conjunction with other
factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Entain plc LT IDR BB Affirmed BB
senior secured LT BB+ Affirmed RR2 BB+
Entain Holdings
(Gibraltar) Limited
senior secured LT BB+ Affirmed RR2 BB+
MITCHELLS & BUTLERS: Fitch Affirms 'B+' Rating on Class D1 Notes
----------------------------------------------------------------
Fitch Ratings has affirmed Mitchells & Butlers Finance Plc's (M&B)
Class A notes and interest-rate and cross-currency swaps, Class AB,
Class B, Class C and Class D notes at 'A+', 'A-', 'BB+', 'BB' and
'B+', respectively. The Outlooks on all the notes and swaps are
Stable.
Entity/Debt Rating Prior
----------- ------ -----
Mitchells & Butlers
Finance Plc
Mitchells & Butlers
Finance Plc/Project
Revenues - Third
Lien/3 LT LT
Class B2 Secured
6.013% Notes
XS0179137194 LT BB+ Affirmed BB+
Mitchells & Butlers
Finance Plc/Project
Revenues - First
Lien/1 LT LT
Class A2 Secured
5.574% Notes (LTCR)
XS0179133953 LT A+ Affirmed A+
Class A1N XS0267227212 LT A+ Affirmed A+
Class A3N XS0267229267 LT A+ Affirmed A+
Class A4 XS0267230943 LT A+ Affirmed A+
Interest Rate Swap LT A+ Affirmed A+
Cross Currency Swap LT A+ Affirmed A+
Mitchells & Butlers
Finance Plc/Project
Revenues - Fifth
Lien/5 LT LT
Class D1 XS0267233889 LT B+ Affirmed B+
Mitchells & Butlers
Finance Plc/Project
Revenues - Fourth
Lien/4 LT LT
Class C1 Secured
6.469% Notes
XS0179137947 LT BB Affirmed BB
Class C2 XS0267233020 LT BB Affirmed BB
Mitchells & Butlers
Finance Plc/Project
Revenues - Second
Lien/2 LT LT
Class AB XS0267232485 LT A- Affirmed A-
RATING RATIONALE
The rating affirmation reflects its expectation of continued
performance stabilisation and M&B's high-quality estate. The
managed business model helps the group adapt to the dynamic and
competitive eating-and-drinking out market in the UK. Apart from
the rise of National Living Wage and National Insurance
contributions, the pub sector's cost challenges are easing. The
ratings of the Class A notes and the swaps reflect strong free cash
flow (FCF) DSCR metrics with sufficient rating headroom to absorb
material EBITDA deterioration in a downturn. The ratings are
constrained at 'A+' by its overall 'Midrange' industry profile
assessment for the pub sector.
The Stable Outlooks reflect the reducing cost pressure and its
expectations of EBITDA returning to pre-pandemic levels by 2026 on
a per pub basis.
KEY RATING DRIVERS
Industry Profile - Midrange
Sector Structural Decline, Recovery Continues
The UK pub sector has a long history and is deeply rooted in the
country's culture. However, the sector has been in structural
decline for the past three decades due to demographic shifts,
greater health awareness and the increasing presence of competing
offerings. The sector is highly exposed to discretionary spending,
strong competition (including from the off-license trade), and
other macro factors, such as inflation reducing disposable income
and pushing up utility, wages and food and drink costs.
In terms of barriers to entry, licensing laws and regulations are
moderately stringent, and managed pubs are fairly capital
intensive. However, switching costs are generally viewed as low,
even though there may be some positive brand and captive market
effects. In terms of sustainability, Fitch expects the strong pub
culture in the UK to persist, leading people back to pubs, despite
the potentially unfavourable economy.
Operating environment - Weaker; Barriers to entry - Midrange;
Sustainability - Midrange
Company Profile - Stronger
Managed Estate, Better Profitability Visibility
M&B is a large operator of restaurants, pubs and bars in the UK,
including a range of well-known brands aimed at both the more
expensive and value-end of the market. The company's trading
history (2006-2019 CAGR per pub of 2.9%) has shown resilience to
the declining UK pub industry. The securitised portfolio includes
1,314 outlets as of September 2024. Almost all of M&B's estates are
managed pubs, leading to better visibility of underlying
profitability. The pubs are well-maintained and feature a high
minimum maintenance covenant. The company has a long record of
spending maintenance capex in excess of the required level, even
during the pandemic.
Financial performance - Stronger; Company operations - Stronger;
Transparency - Stronger; Dependence on operator - Midrange; Asset
quality - Stronger
Debt Structure - 1 - Stronger; Debt Structure - 2 - Midrange
Standard Fully Amortising WBS Structure - Debt Structure: Stronger
(Class A and Swaps); Midrange (Class AB, B, C and D)
The debt is fully amortising with some concurrent amortisation of
junior tranches. The notes are a combination of fixed-rate and
fully hedged floating-rate debt. The security package is strong,
with comprehensive first-ranking fixed and floating charges over
borrower assets. Class A notes are senior ranking to the junior
Class AB, B, C and D notes. A liquidity facility covering 18 months
debt service is full accessible to Class A, AB, and B notes but in
limited amounts for the Class C and D notes. The structure also
includes debt service covenants and restricted payment conditions,
which are tested quarterly.
Fitch views the creditworthiness of the issuer's obligations under
the interest rate and cross currency swaps as consistent with the
long-term ratings of the Class A notes, as the swaps are expected
to default with the notes under certain scenarios.
Debt profile - Stronger (Class A and Swaps), Midrange (Class AB, B,
C and D); Security package - Stronger (Class A and Swaps), Midrange
(Class AB, B, C and D); Structural features - Stronger (Class A and
Swaps, Class AB, B, C and D)
Financial Profile
Its 2025 Fitch rating case assumes an EBITDA recovery to
pre-pandemic levels by 2026 on a per pub basis. Over the long-term
(2026-2036), Fitch assumes EBITDA marginally rises (CAGR of +1.1%)
with mildly falling FCF (CAGR of -0.1%), reflecting cost pressures
and changing consumer habits affecting turnover in the mature pub
industry.
The projected metrics FCF DSCR (minimum of average and median
between 2025 and 2028) under its rating case for the class A, AB,
B, C and D notes are 2.4x, 1.8x, 1.2x, 1.1x and 1.1x,
respectively.
PEER GROUP
M&B's closest peers are hybrid pub company securitisations, such as
Greene King Finance Plc and Marston's Issuer Plc, although Fitch
considers M&B to have a more reactive and transparent business
model as the only fully managed estate among Fitch-rated peers.
M&B's class A notes are rated at the pub sector rating cap category
and higher than other senior debt tranches in Fitch's whole
business securitisation pub portfolio due to its comparatively
strong financial metrics. However, Fitch views the junior notes as
well-aligned with its pub peers.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Projected FCF DSCRs below 2.2x, 1.8x, 1.2x, 1.1x and 1.0x for the
class A, AB, B, C and D notes, respectively, could lead to a
downgrade.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- The class A notes' ratings are constrained by the industry cap
applicable to WBS pub transactions.
- Projected FCF DSCRs above 1.9x, 1.4x, 1.3x and 1.2x for the class
AB, B, C and D notes, respectively, could lead to an upgrade.
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.
SEPLAT ENERGY: Fitch Hikes Long-Term IDR to 'B', Outlook Stable
---------------------------------------------------------------
Fitch Ratings has upgraded Seplat Energy Plc's Long-Term Issuer
Default Rating (IDR) to 'B' from 'B-'. The Outlook is Stable. Fitch
has also assigned Seplat's notes a final senior unsecured rating of
'B' with a Recovery Rating of 'RR4'.
The upgrade reflects the upgrade of Nigeria's rating (B/Stable) and
upward revision of its Country Ceiling to 'B'. Seplat's rating
remains constrained by Nigeria's Country Ceiling and the weak
operating environment.
The rating reflects Seplat's stable credit metrics and stronger
business profile following its acquisition of Mobil Producing
Nigeria Unlimited (MPNU) for around USD1.3 billion. The
acquisition, which completed on 12 December 2024, materially
increased Seplat's scale in terms of production and 2P hydrocarbon
reserves, diversified its business into offshore operations in
Nigeria and increased exports as a share of revenues. Fitch expects
Seplat's EBITDA net leverage to be below 1.0x over 2025-2027,
despite the mix of debt and cash funding for the acquisition.
Key Rating Drivers
Country Risk Drives Rating: Seplat continues to source all its
production from Nigeria. Under the Central Bank of Nigeria's
regulation, export revenues must be transferred to domestic
accounts within 90 days of receipt. The company sends export
proceeds to domestic accounts before they are repatriated to
offshore accounts, typically after 24 hours. Combined with its
exposure to the operating environment in Nigeria, this continues to
constrain the company's rating at Nigeria's Country Ceiling of
'B'.
Increased Scale: The acquisition of MPNU has strengthened Seplat's
business profile due to diversification into offshore operations,
the addition of 69,000 barrels of oil equivalent a day (boed) in
hydrocarbons production, and 395 million barrels of oil equivalent
(mmboe) of 2P reserves, of which 80% are oil reserves. Combined
production in 2024 on a pro-forma basis totalled around 118,000
boed, and 2P reserves reached 886 mmboe, indicating a 2P reserve
life of around 20 years pro forma as of December 2024.
Moderate Leverage: The material EBITDA contribution from the
acquired assets means Fitch forecasts EBITDA net leverage below
1.0x in 2025-2027. Its assumption captures potential contingent
payments by Seplat of up to USD300 million by 2026, of which USD43
million has already been settled. Further payments are subject to a
minimum oil price threshold of USD70/bbl, which is currently above
Fitch's oil price deck for 2025 and 2026. Fitch expects cash
contribution from new assets to more than offset incremental capex
and its expectations of higher dividend payments. Fitch expects
Seplat to provide more detailed guidance for its business plan in
3Q25.
Improved Liquidity: Refinancing of the USD650 million bond in April
2024 with new notes due in 2030 automatically extended the maturity
of the USD350 million revolving credit facility (RCF) to December
2026 from June 2025. The facility was fully drawn as of December
2024, but Fitch expects drawdown to reduce during 2025. Fitch also
assumes its re-financing by the end of the year.
Gas Business Bolsters Stability: Seplat's gas production was around
18,621boed in 2024, or 36.8% of its total hydrocarbon volumes. The
regulated gas price under the domestic supply obligation for power
generation, which accounts for around 30% of Seplat's gas volumes,
has been revised to USD2.42 per thousand cubic feet (mcf), from
USD2.18/mcf. Seplat sells the rest of its gas to commercial
companies at higher contract prices, which offset fluctuations in
regulated prices and resulted in stable realised prices of above
USD2.9/mcf in 2023 and USD3.06/mcf in 2024.
ANOH JV: Seplat is progressing with the delayed start of ANOH gas
plant, its 50:50 joint venture with Nigerian Gas Company Limited:
these operations involve the development and production of natural
gas and associated products from the ANOH field in Nigeria. The
plant is operationally ready but awaits completion of
Obiafu-Obrikom-Oben (OB3) pipeline in order to commence sales.
Seplat plans to sell gas to alternative third party off-takers
while OB3 is being completed. The facility has a capacity of
300mmcf/d and is planned to start in 2025. Fitch expects Seplat to
benefit from sales of wet gas and dividends from ANOH based on its
net 40% working interest share.
Moderate Size Nigerian Independent Producer: Prior to the
acquisition Seplat's operations were concentrated onshore around
the Niger Delta region of Nigeria and new assets diversified its
portfolio into shallow water offshore operations with associated
three export terminals. The Nigerian oil and gas sector faces high
operational risks and regulatory uncertainty. Fitch expects that
addition of offshore assets will help mitigate risks with oil
shipment disruptions, which historically reduced deliveries from
onshore assets.
Peer Analysis
Seplat's post-acquisition production is lower than Energean plc's
(BB-/Stable) (2024: 153,000boe/d) while its 2P reserve life is
higher compared with about 17 years for Energean. However, the
company will have higher production costs at USD15/boe compared
with Energean's USD9.5/boe. Fitch anticipates it will maintain
lower leverage than Energean in 2025-2026.
Seplat's production is larger than Kosmos Energy Ltd.'s (B+/Stable)
(2024: 65,700boe/d) even after the latter ramps up production
towards 80,000boe/d at end-2024. Kosmos's 2P reserves of
approximately 528 mmboe and reserve life of 22 years are comparable
with Seplat's. Seplat's costs remain lower than Kosmos Energy's
USD22/boe. Kosmos has a more diversified asset base and operates in
a more stable environment than Seplat, which faces high exposure
and concentration in areas characterised by geopolitical and
security risks.
Key Assumptions
- Brent oil price in line with Fitch's price deck.
- Average realised gas price of USD2.95/mcf in 2025-2026 and
USD2.8/mcf in 2027-2028.
- Upstream production ramping up to 136 kboed in 2026 from around
52.9 kboed in 2024.
- Dividends of about USD115 million in 2025 and USD200 million in
2026-2028.
Recovery Analysis
- The recovery analysis assumes that Seplat would be restructured
as a going concern (GC) rather than liquidated in bankruptcy.
- Seplat's post-reorganisation GC EBITDA is estimated at USD625
million, based on its post-acquisition asset base, which assumes a
decline in EBITDA, due to risks associated with hydrocarbon-price
volatility, unplanned downtime or other adverse factors, followed
by a modest recovery including corrective actions.
- Fitch has applied a 4x multiple to GC EBITDA to calculate its
enterprise value (EV), reflecting the risks associated with the
operating environment in the Niger Delta region.
- Its waterfall analysis assumes Seplat's USD350 million senior
secured RCF, USD300 million offtake facility, USD49.5 million
Westport reserve-based lending facility, and USD40 million Westport
offtake facility are fully drawn and rank senior to Seplat's USD650
million senior unsecured notes.
- After deducting 10% for administrative claims and taking into
account Country-Specific Treatment of Recovery Ratings Criteria,
Fitch's analysis resulted in a waterfall- generated recovery
computation for the senior unsecured notes in the 'RR4' band,
indicating a final 'B' instrument rating.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- A downgrade of Nigeria's rating and downward revision of the
Country Ceiling.
- EBITDA net leverage sustained above 3.0x.
- Longer-than-forecast downtime as a result of unforeseen events,
resulting in a material loss of production.
- Failure to maintain sufficient liquidity to absorb potential
pipeline downtime shocks.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- An upgrade of Nigeria' s sovereign rating and upward revision of
the Country Ceiling or consistent record of Seplat's offshore
structural enhancements.
- A broad diversification of operations to countries with a more
favourable operating environment than Nigeria while maintaining
strong credit metrics.
- EBITDA net leverage consistently below 2.0x.
Liquidity and Debt Structure
Seplat had USD469.9 million of unrestricted cash at end-2024, of
which USD309 million was held in offshore accounts. Its USD350
million committed RCF was fully drawn. The RCF's maturity
automatically extended to December 2026 when the company refinanced
its USD650 million senior notes in March 2025. The new USD650
million senior notes mature in 2030.
Issuer Profile
Seplat is a medium-sized independent oil and gas exploration and
production company located in Nigeria. Its pro-forma hydrocarbons
production as of December 2024 reached 118,000 boed.
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
Seplat Energy Plc has an ESG Relevance Score of '4' for Human
Rights, Community Relations, Access and Affordability due to its
focus on upstream operations in the troubled Niger Delta region,
which has a negative impact on the credit profile, and is relevant
to the ratings in conjunction with other factors.
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit-neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Seplat Energy Plc LT IDR B Upgrade B-
senior unsecured LT B New Rating RR4 B-(EXP)
THAMES WATER: Fitch Affirms & Withdraws 'C' Rating on Sr. Sec. Debt
-------------------------------------------------------------------
Fitch Ratings has affirmed Kemble Water Finance Limited's (holding
company of Thames Water Utilities Limited (TWUL); not rated)
Long-Term Issuer Default Rating (IDR) at 'Restricted Default' (RD).
The senior secured debt rating has been affirmed at 'C' and the
Recovery Rating at 'RR6'. All the ratings have simultaneously been
withdrawn.
The 'RD' rating indicates that Kemble continues to face an uncured
payment default and has not completed an amend and extend or
approved exchange for its senior secured notes. Kemble has not
initiated bankruptcy filings, administration, receivership,
liquidation, or other formal winding-up procedures.
The rating has been withdrawn for commercial reasons. Accordingly,
Fitch will no longer provide rating or analytical coverage of
Kemble.
Key Rating Drivers
Financial Distress: Kemble's rating reflects its failure to service
scheduled amortisation and interest payments since April 2024, due
to a severely distressed liquidity position and a cash-lock up at
the opco, TWUL. No debt restructuring at the Kemble level has been
completed since then. Fitch understands that Kemble's secured
creditors have not taken any enforcement actions regarding their
security over the shares in Thames Water Limited and are expected
to maintain this stance until there is clarity regarding TWUL's
financial stability.
RATING SENSITIVITIES
Not applicable as the ratings have been withdrawn.
Issuer Profile
Kemble is TWUL's holding company.
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
Following the withdrawal of the ratings for Kemble, Fitch will no
longer provide the associated ESG scores.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Thames Water (Kemble)
Finance Plc
senior secured LT C Affirmed RR6 C
senior secured LT WD Withdrawn
Kemble Water
Finance Limited LT IDR RD Affirmed RD
LT IDR WD Withdrawn
senior secured LT C Affirmed RR6 C
senior secured LT WD Withdrawn
TULLOW OIL: S&P Lowers ICR to 'CCC+' Due to May 2026 Debt Maturity
------------------------------------------------------------------
S&P Global Ratings lowered its long-term issuer credit rating on
Tullow Oil PLC and its issue rating on the company's senior secured
notes to 'CCC+' from 'B-'.
The negative outlook indicates that S&P could lower the ratings in
the next six months if the group cannot refinance its capital
structure or liquidity deteriorates.
Tullow faces the maturity of its $250 million RCF (June 2025) and
repayment of $1.39 billion senior secured notes in May 2026. S&P
thinks current capital market conditions and oil prices pose a risk
to the group's refinancing plans.
S&P said, "We only expect Tullow to generate minimal FOCF under our
Brent pricing scenario of $65/bbl for 2025 and $70/bbl for 2026 and
2027. We think these limited FOCF prospects could dampen
refinancing discussions. We cannot rule out further decreases in
oil prices, further compounding this."
The group has agreed to sell its assets in Gabon and Kenya. Both
transactions are subject to regulatory approvals and expected to
complete later this year. Proceeds from the asset sale in Gabon are
estimated at about $300 million. The proceeds ($120 million) from
the Kenya asset sale will be spread over 2025 ($40 million), 2026
($40 million), and 2028-2033 ($40 million). S&P understands that
Tullow intends to apply all sale proceeds to debt reduction.
Capital market has been jittery due to weak economic growth
prospects and the uncertainty surrounding the U.S.'s trade
policies. S&P thinks that Tullow's ability to refinance its debt
relies on improved capital market conditions.
S&P said, "Given the imminence of the group's large debt
maturities, we revised our liquidity assessment on it to Weak. Our
assessment reflects the possibility of liquidity shortfall if
Tullow cannot refinance the senior secured notes before their May
2026 maturity.
"The negative outlook indicates that we could lower our ratings in
the next six months if Tullow is unable to refinance its capital
structure or liquidity deteriorates."
S&P could lower its rating on Tullow if:
-- It is unable to refinance its upcoming debt maturities in the
next six months;
-- Its operating performance or liquidity to weaken beyond our
expectations; or
-- It pursues transactions (for example, a distressed exchange or
distressed debt buybacks) that we view as distressed.
S&P could revise the outlook to stable if Tullow refinances its
capital structure and it no longer think there is risk of a
default.
*********
S U B S C R I P T I O N I N F O R M A T I O N
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be reliable, but is not guaranteed.
The TCR Europe subscription rate is US$775 per half-year,
delivered via e-mail. Additional e-mail subscriptions for
members of the same firm for the term of the initial subscription
or balance thereof are US$25 each. For subscription information,
contact Peter Chapman at 215-945-7000.
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