/raid1/www/Hosts/bankrupt/TCREUR_Public/250429.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
Tuesday, April 29, 2025, Vol. 26, No. 85
Headlines
C Z E C H R E P U B L I C
ENERGO-PRO: Fitch Affirms 'BB-' LT IDR, Alters Outlook to Negative
E S T O N I A
AS LHV GROUP: Moody's Rates AT1 Notes 'Ba3(hyb)'
I R E L A N D
AVOCA CLO XXXII: Fitch Assigns 'B-sf' Final Rating to Class F Notes
AVOCA CLO XXXII: S&P Assigns B- (sf) Rating to Class F Notes
BRIDGEPOINT CLO VIII: S&P Assigns B- (sf) to Class F Notes
BRIDGEPOINT VIII: Fitch Assigns 'B-sf' Final Rating to Cl. F Notes
CARLYLE GLOBAL 2014-2: Moody's Cuts Rating on Cl. E-R Notes to B3
DRYDEN 111 2022: S&P Assigns B- (sf) Rating to Class F Notes
DRYDEN 111: Fitch Assigns 'B-sf' Final Rating to Class F Notes
LOGICLANE II: Fitch Assigns 'B-sf' Final Rating to Class F Notes
LOGICLANE II: S&P Assigns B- (sf) Rating to Class F Notes
I T A L Y
LOTTOMATICA GROUP: Moody's Ups CFR to Ba2, Rates EUR600M Notes Ba2
L U X E M B O U R G
KLEOPATRA HOLDINGS: Moody's Appends 'LD' Designation to PDR
R U S S I A
AIYL BANK OJSC: S&P Assigns 'B+/B' ICRs, Outlook Stable
TASHKENT CITY: Fitch Assigns 'BB-' Long-Term IDR, Outlook Stable
T U R K E Y
TURKIYE: S&P Affirms 'BB-/B' Sovereign Credit Ratings
U K R A I N E
DTEK OIL: Fitch Affirms 'CC' Long-Term IDR
U N I T E D K I N G D O M
ATOM MORTGAGE: Moody's Cuts Rating on GBP52.7MM E Notes to B3
EUROSAIL-UK 07-3: Fitch Affirms 'B+sf' Rating on Class D1a Notes
HELIOS TOWERS: Fitch Hikes Long-Term IDR to 'BB-', Outlook Stable
- - - - -
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C Z E C H R E P U B L I C
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ENERGO-PRO: Fitch Affirms 'BB-' LT IDR, Alters Outlook to Negative
------------------------------------------------------------------
Fitch Ratings has revised ENERGO-PRO a.s.'s (EPas) Outlook to
Negative from Stable. Fitch has also affirmed the Long-Term Issuer
Default Rating (IDR) at 'BB-'.
The Negative Outlook reflects its expectations of weaker cash flow
generation in 2025-2026, which together with the recently announced
largely debt-funded acquisition in Brazil will lead to net leverage
at or above its revised negative sensitivity, weak interest
coverage, and higher liquidity needs. Rating trends will depend on
EPas's ability to restore its credit ratios from 2027 and secure
its liquidity.
The rating is weakly positioned due to higher cash flow volatility
relative to other rated European utilities, an FX mismatch between
earnings and debt, and key-person risk from individual ownership.
Rating strengths include improved scale and geographical
diversification following acquisitions in 2023-2025, and a high
share of regulated and quasi-regulated activities.
Key Rating Drivers
Leverage Pressures and Improvement Expected: Fitch forecasts funds
from operations (FFO) net leverage at or above its negative
sensitivity in 2025-2026 (2025F: 5.5x, 2026F: 6.2x). This is due to
the debt-funded acquisition of Baixo Iguacu hydro power plant (HPP)
in Brazil, EBITDA declines in Bulgaria, due to lower grid loss
allowances, and Georgia, due to faster return of excess profits
from prior periods, and large capex, contributing to negative free
cash flow (FCF).
From 2027, Fitch expects FFO net leverage to improve to around 5x,
commensurate with the rating, once cash flows improve and capex
moderates. Failure to improve the financial profile by 2027 due to
regulatory developments or new debt-funded acquisitions will result
in a downgrade.
Interest Coverage and Liquidity Challenges: Fitch forecasts FFO
interest cover below the negative sensitivity of 2.6x for
2025-2027, due to higher interest rates on new debt and weaker cash
flows in 2025-2026. Significant liquidity risk exists, requiring
market access to fund the Brazilian HPP acquisition closing
expected in July 2025.
Improved Business Profile: Acquisitions in Spain, Turkiye and
Brazil (2023-2025) add around 1GW to EPas's installed capacity,
reaching 1.8GW primarily in clean energy (on closing of the
Brazilian HPP acquisition). Fitch views these acquisitions as
positive for the business profile due to increased scale and
geographical diversification, and increased share of cash flows in
hard currencies, despite higher exposure to Turkiye's and Brazil's
volatile operating environments. Fitch has therefore increased
EPas's debt capacity by 0.3x, with a new negative sensitivity for
the 'BB-' rating at 5.5x FFO net leverage.
Improved Geographic Mix: Fitch forecasts Bulgaria's and Georgia's
combined average EBITDA share to decrease to 57% in 2025-2028 from
90% in 2022, while Turkiye's share will increase to 24% from 9%.
Brazil and Spain contribute an additional 13% and 6%,
respectively.
Share of Regulated Businesses: Regulated and quasi-regulated
activities accounted for 49% of EPas's EBITDA in 2024, down from
56% in 2023. EPas expects this share to start improving from 2025
as merchant prices have stabilised across all markets, newly
acquired HPPs in Turkiye will sell at fixed US dollar-linked
tariffs until 2030, and 49%-60% of Brazilian installed capacity
(84%-93% of physical guarantee) is contracted. Georgian HPPs' shift
to merchant reduces the regulated earnings share but enhances cash
flow, with merchant prices around four times higher than regulated
ones.
Volatile Cash Flows: EPas is exposed to volatile electricity market
prices, variable hydro generation and inconsistent regulatory
frameworks in Georgia and Bulgaria, leading to tariff changes and
working-capital swings. These factors limit cash flow
predictability, which is only partially balanced by a flexible
capex and dividend policy.
FX Mismatch Improving: EPas's 2024 debt is primarily denominated in
euros and US dollars, but FX fluctuations affect cash flows in
Georgian lari, and Turkish lira earnings for the merchant business.
Fitch forecasts these earnings to decrease to around 40% of group
EBITDA in 2025-2028, from around 56% in 2023, following the
consolidation of assets in Spain and Turkiye with US dollar-linked
tariffs. Brazilian assets avoid FX mismatch via local currency
debt. The Bulgarian lev, which will affect 25% of group EBITDA over
2025-2028, is euro-pegged.
Increasing Capex: Fitch forecasts capex to increase to an annual
average EUR146 million during 2025-2028, compared with around
EUR114 million a year in 2021-2024. This is due to higher
maintenance capex for generation in Georgia and one-off projects in
Bulgaria and Turkiye.
Flexible Shareholder Distributions: Fitch forecasts shareholder
distributions at EUR40 million a year over 2025-2028, including
around EUR10 million a year to service the coupon on the parent
company DK Holding bonds. Distributions are flexible, constrained
only by a 4.5x net debt/EBITDA incurrence covenant.
Higher-than-expected distributions leading to an extended period of
high leverage could result in a downgrade.
Off-Balance-Sheet Obligations: Fitch treats DK Holding's bonds of
CZK3,500 million (EUR139 million) issued by EPas's sister company,
to partially finance the acquisition of seven HPPs in Brazil in
2024, as EPas's off-balance-sheet debt. This adds about 0.5x to FFO
net leverage over 2025-2028. EPas contributes over 95% of DK
Holding EBITDA, and EPas's cash flows will be used to service the
bond, subject to the incurrence covenant.
Peer Analysis
EPas has a comparable share of regulated and quasi-regulated EBITDA
to Bulgarian Energy Holding EAD (BEH, BB+/Stable; Standalone Credit
Profile (SCP) bb). EPas has stronger geographical diversification
and a better carbon footprint, which is close to zero, while BEH
has larger scale of operations and a lower exposure to FX. The
companies have similar debt capacity, and BEH's SCP is one notch
above EPas's due to lower forecast leverage. BEH's rating reflects
a one-notch uplift to reflect government support from Bulgaria.
Central European utilities like PGE Polska Grupa Energetyczna S.A.
(BBB/Stable), TAURON Polska Energia S.A. (BBB-/Stable), ENEA S.A.
(BBB/Stable) and MVM Zrt. (BBB/Stable) are larger and have stronger
market positions than EPas.
Another central European peer is Eastern European Electric Company
B.V. (EEEC, BB/Stable). EEEC is smaller and less diversified than
EPas but its rating is supported by its solid business profile,
focusing on regulated and predictable electricity distribution in
Bulgaria, along with a strong market position in supply and trade.
Both companies have comparable debt capacity.
EPas has a stronger business profile than Turkish power producers,
Zorlu Enerji Elektrik Uretim A.S. (B+/Stable), Aydem Yenilenebilir
Enerji Anonim Sirketi (B/Positive) and Limak Yenilenebilir Enerji
Anonim Sirketi (BB-/Stable), due to a better operating environment
and geographical diversification.
EPas has greater geographic diversification, more stable
regulation, and deeper integration into networks than
Uzbekhydroenergo JSC (BB-/Stable, SCP b+), a hydro producer with a
monopoly in Uzbekistan rated at the same level as the Republic of
Uzbekistan (BB-/Stable), reflecting its strong links with the
state.
Key Assumptions
Fitch's Key Assumptions Within Its Rating Case for the Issuer
Include
- Consolidation of Baixo Iguacu HPP in 2H25
- Successful refinancing of upcoming maturities and raising EUR250
million to fund the Brazilian HPP acquisition
- Electricity generation at about 5.5 terawatt hours (TWh) annually
in 2025-2028
- Electricity distribution at about 11TWh annually in 2025-2028
- Market prices for electricity at around EUR90/MWh in Bulgaria,
EUR67/MWh in Turkiye and EUR76/MWh in Spain on average during
2025-2028
- Average annual capex of around EUR146 million during 2025-2028
- Average annual distributions to shareholders of EUR40 million
during 2025-2028
- Euro to US dollar at EUR1.07, euro to Turkish lira at TRL41-63
and euro to Georgian lari at GEL3.0-3.4 during 2025-2028 on
average
- Around EUR139 million of bonds at DK Holding level included as
off-balance-sheet obligations
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- New debt-funded acquisitions, higher distributions to
shareholders and lower profitability and cash generation leading to
FFO net leverage above 5.5x, and FFO interest coverage below 2.6x
on a sustained basis
- Significant weakening of the business profile, with lower
predictability of cash flows
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- The rating may be affirmed with a Stable Outlook if the negative
sensitivities listed above are not breached
Liquidity and Debt Structure
At end-2024, EPas had cash and equivalents of EUR106 million and
undrawn committed bank overdrafts of EUR170 million, with EUR62
million maturing within a year. EPas will face high liquidity needs
in 2025-2027 to finance the acquisition in Brazil of EUR250
million, make repayments related to opcos debt in Turkiye, Bulgaria
and Brazil of EUR36 million-75 million annually 2025-2027 and
refinance its USD435 million bond due in February 2027. Fitch
expects average FCF during 2025-2027 to be moderately negative at
about EUR15 million a year.
Issuer Profile
EPas is a Czech Republic-based utility with operating companies in
Bulgaria, Georgia, Turkiye, Spain and Brazil. Core activities are
power distribution and electricity generation at HPPs and one
gas-fired plant, with total installed capacity of around 1.8GW
(after the recent acquisition).
Summary of Financial Adjustments
Bonds issued at DK Holding to fund the acquisition of Brazilian HPP
portfolio are treated as off-balance-sheet obligations and included
in debt ratios.
Net loans granted to the shareholder are reclassified as
dividends.
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
EPas has an ESG Relevance Score of '4' for Group Structure due to a
negative credit impact of bonds issued at EPas's sister company on
its credit metrics. Fitch treats those bonds as EPas's
off-balance-sheet debt, which adds around 0.5x to FFO net leverage
over 2025-2028, which has a negative impact on the credit profile,
and is relevant to the ratings in conjunction with other factors.
EPas has an ESG Relevance Score of '4' for Governance Structure due
to the company being part of DK Holding, which is ultimately owned
by one individual, 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
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ENERGO-PRO a.s. LT IDR BB- Affirmed BB-
ST IDR B Affirmed B
LC LT IDR BB- Affirmed BB-
LC ST IDR B Affirmed B
senior unsecured LT BB- Affirmed RR4 BB-
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E S T O N I A
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AS LHV GROUP: Moody's Rates AT1 Notes 'Ba3(hyb)'
------------------------------------------------
Moody's Ratings has assigned a Ba3(hyb) local-currency preferred
stock non-cumulative rating to the Additional Tier 1 (AT1) notes
being issued by AS LHV Group (LHV Group or LHV).
This rating action follows an announcement on April 23, 2025 that
LHV plans to issue AT1 notes.
RATINGS RATIONALE
The Ba3(hyb) preferred stock non-cumulative rating reflects LHV
Group's standalone creditworthiness, as expressed in a Baseline
Credit Assessment (BCA) of baa3 of AS LHV Pank (LHV Pank), LHV
Group's main operating subsidiary; high loss given failure of these
notes, given the relatively low cushion available for absorbing
losses, which results in a one-notch adjustment below the BCA; and
an additional two-notches adjustment reflecting coupon features.
Low probability of support coming from the Government of Estonia
(A1, outlook stable) does not result in any uplift to the rating.
In particular, in line with most AT1 notes issued by European
banks, the principal and any accrued but unpaid distributions on
these capital securities would be written down, partially or in
full, if at any time the Common Equity Tier 1 (CET1) ratio of the
bank is less than 5.125% or upon the occurrence of a non-viability
event. In addition, LHV Group, as a going concern, may choose not
to pay the interest on these securities on a non-cumulative basis.
As such, the interest payments on these capital securities are
fully discretionary. These securities are senior to common
shareholders but junior to all depositors, general creditors,
senior debt and subordinated debt holders.
LHV Pank's baa3 BCA reflects the bank's strong solvency,
demonstrated through a low share of problem loans, as well as
strong capitalisation and profitability, balanced against its high
growth and UK expansion.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The AT1 securities rating could be upgraded if LHV Pank's BCA is
upgraded, which could occur if the low level of problem loans is
maintained combined with strong core capitalisation and
profitability, and more balanced growth of deposits related to
financial intermediaries.
The AT1 securities rating could be downgraded if LHV Pank's BCA is
downgraded. While unlikely given the positive outlook on LHV Pank's
long-term deposit ratings, the ratings could be downgraded in case
of a significant deterioration in the BCA as a result of lower
solvency ratios, or if operational risk relating to its services to
financial intermediaries increases substantially, for example
because of materialising weaknesses in anti-money laundering
monitoring; or lower volumes of liquid resources, leading to
reduced liquidity buffers compared with the increasing volume of
more volatile funding sources such as senior debt.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks published
in November 2024.
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I R E L A N D
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AVOCA CLO XXXII: Fitch Assigns 'B-sf' Final Rating to Class F Notes
-------------------------------------------------------------------
Fitch Ratings has assigned Avoca CLO XXXII DAC final ratings, as
detailed below.
Entity/Debt Rating
----------- ------
Avoca CLO XXXII DAC
Class A-1 XS3011738492 LT AAAsf New Rating
Class A-2 XS3011738658 LT AAAsf New Rating
Class B XS3011738815 LT AAsf New Rating
Class C XS3011739037 LT Asf New Rating
Class D XS3011739201 LT BBB-sf New Rating
Class E XS3011739466 LT BB-sf New Rating
Class F XS3011739623 LT B-sf New Rating
Subordinated Notes
XS3011739979 LT NRsf New Rating
Transaction Summary
Avoca XXXII DAC is a securitisation of mainly senior secured
obligations (at least 90%) with a component of senior unsecured,
mezzanine, second-lien loans and high-yield bonds. Note proceeds
are used to purchase a portfolio with a target par of EUR500
million. The portfolio is actively managed by KKR Credit Advisors
(Ireland) Unlimited Company, which is part of the Carlyle Group.
The collateralised loan obligation (CLO) has a 4.6-year
reinvestment period and a 7.5-year weighted average life (WAL)
test.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors at 'B'/ 'B-'. The Fitch-weighted
average rating factor (WARF) of the identified portfolio is 25.1.
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 61.1.
Diversified Portfolio (Positive): The transaction includes four
Fitch test matrices, of which two are effective at closing. The
closing matrices correspond to a 7.5-year WAL, top 10 obligor
concentration limit at 20% and fixed-rate obligation limits at 5%
and 12.5%. It has two forward matrices with the same top 10
obligors and fixed-rate asset limits and a WAL of 6.5 years, which
will be effective 12 months after closing, provided that the
collateral principal amount (defaults at Fitch-calculated
collateral value) is at least at the target par. However, if the
step-up condition is satisfied the matrix switch date will be two
years from closing.
The transaction also includes other concentration limits, including
a maximum exposure to the three-largest Fitch-defined industries at
40%. These covenants ensure the asset portfolio will not be exposed
to excessive concentration.
WAL Step-Up Feature (Neutral): The transaction can extend the WAL
by one year on the step-up date, which is almost one year after
closing. The WAL extension is subject to conditions, including
passing the collateral quality and coverage tests, as well as the
aggregate collateral balance being at least equal to the
reinvestment target par balance.
Portfolio Management (Neutral): The transaction also has a 4.6-year
reinvestment period and includes reinvestment criteria similar to
those of other European transactions. Fitch's analysis is based on
a stressed-case portfolio with the aim of testing the robustness of
the transaction structure against its covenants and portfolio
guidelines.
Cash Flow Modelling (Positive): The WAL Fitch modelled is 12 months
less than the WAL covenant. This is to account for the strict
reinvestment conditions envisaged after the reinvestment period.
These include, passing both the coverage tests and the Fitch 'CCC'
limit post reinvestment, as well as a WAL covenant that
progressively steps down over time, both before and after the end
of the reinvestment period. Fitch believes these conditions would
reduce the effective risk horizon of the portfolio during stress
periods.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
Based on the identified portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration. Due to the
better metrics and shorter life of the identified portfolio than
the Fitch-stressed portfolio, the class B to F notes each show a
rating cushion of up to two notches. The class A-1 and A-2 notes
have no rating cushion as they are at the highest achievable rating
of 'AAAsf'.
Should the cushion between the identified portfolio and the
Fitch-stressed portfolio be eroded due to manager trading or
negative portfolio credit migration, a 25% increase of the mean
default rate (RDR) and a 25% decrease of the recovery rate (RRR)
across all ratings of the Fitch-stressed portfolio would lead to
downgrades of up to three notches each for the notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR and a 25% increase in the RRR
across all ratings of the Fitch-stressed portfolio would lead to
upgrades of up to six notches for the notes, except for the 'AAAsf'
rated notes.
During the reinvestment period, upgrades, based on the
Fitch-stressed portfolio, may occur on better-than-expected
portfolio credit quality and a shorter remaining WAL test, allowing
the notes to withstand larger-than-expected losses for the
remaining life of the transaction. After the end of the
reinvestment period, upgrades may result from stable portfolio
credit quality and deleveraging, leading to higher credit
enhancement and excess spread to cover losses in the remaining
portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority- registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG Considerations
Fitch does not provide ESG relevance scores for AVOCA CLO XXXII
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.
AVOCA CLO XXXII: S&P Assigns B- (sf) Rating to Class F Notes
------------------------------------------------------------
S&P Global Ratings assigned ratings to Avoca CLO XXXII DAC's class
A-1, A-2, B, C, D, E, and F notes. At closing, the issuer also
issued unrated subordinated notes.
The ratings assigned to Avoca CLO XXXII's notes 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 is in line with
S&P's counterparty rating framework.
Portfolio benchmarks
Current
S&P Global Ratings weighted-average rating factor 2,829.79
Default rate dispersion 436.30
Weighted-average life (years) 4.63
Obligor diversity measure 187.12
Industry diversity measure 21.05
Regional diversity measure 1.19
Transaction key metrics
Current
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 1.40
Actual 'AAA' weighted-average recovery (%) 37.18
Actual weighted-average spread (net of floors; %) 3.73
Actual weighted-average coupon (%) 3.96
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 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 its criteria for corporate cash flow
CDOs.
S&P said, "In our cash flow analysis, we used the EUR500 million
target par amount, the covenanted weighted-average spread (3.60%),
the covenanted weighted-average coupon (4.00%), the covenanted
weighted-average recovery rate at the 'AAA' rating level (36.18),
and the actual weighted-average recovery rates calculated in line
with our CLO criteria for all other 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 Oct. 15, 2029, 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
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.
KKR Credit Advisors (Ireland) Unlimited Co. manages the CLO. The
maximum potential rating on the liabilities is 'AAA' under S&P's
operational risk criteria.
S&P said, "Our credit and cash flow analysis indicates that the
ratings are commensurate with the available credit enhancement for
the class A-1, A-2, and F notes. 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 starting from closing--during which
the transaction's credit risk profile could deteriorate--we have
capped our ratings on the notes.
"Given our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our 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-1 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 list
Amount
Class Rating* (mil. EUR) Interest rate§ Sub (%)
A-1 AAA (sf) 310.00 Three/six-month EURIBOR plus
1.17% 38.00
A-2 AAA (sf) 7.50 Three/six-month EURIBOR plus
1.50% 36.50
B AA (sf) 47.50 Three/six-month EURIBOR plus
1.65% 27.00
C A (sf) 30.00 Three/six-month EURIBOR plus
2.00% 21.00
D BBB- (sf) 35.00 Three/six-month EURIBOR plus
2.80% 14.00
E BB- (sf) 23.80 Three/six-month EURIBOR plus
4.75% 9.24
F B- (sf) 15.00 Three/six-month EURIBOR plus
8.19% 6.24
Sub notes NR 41.00 N/A N/A
*The ratings assigned to the class A-1, A-2, 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.
BRIDGEPOINT CLO VIII: S&P Assigns B- (sf) to Class F Notes
----------------------------------------------------------
S&P Global Ratings assigned credit ratings to Bridgepoint CLO VIII
DAC's class A to F European cash flow CLO notes. 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 switch to semiannual payments. The portfolio's
reinvestment period will end approximately 4.5 years after closing,
while the non-call 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 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 2,890.10
Default rate dispersion 356.52
Weighted-average life (years) 5.08
Obligor diversity measure 121.25
Industry diversity measure 19.28
Regional diversity measure 1.15
Transaction key metrics
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 0.00
Actual 'AAA' weighted-average recovery (%) 35.85
Actual weighted-average spread (%) 3.81
Actual weighted-average coupon (%) 6.15
Rating rationale
At 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 its criteria for corporate cash flow
CDOs.
S&P said, "In our cash flow analysis, we used the EUR400 million
target par amount, the actual weighted-average spread (3.81%), the
actual weighted-average coupon (6.15%), and the actual
weighted-average recovery rates for all rating levels. We applied
various cash flow stress scenarios, using four different default
patterns, in conjunction with different interest rate stress
scenarios for each liability rating category.
"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.
"Our credit and cash flow analysis indicate that the available
credit enhancement for the class B to E 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 assigned ratings on
the notes. The class A and F notes can withstand stresses
commensurate with the assigned ratings.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our ratings are
commensurate with the available credit enhancement for the class A
to F notes.
"In addition to our standard analysis, to provide an indication of
how rising pressures among speculative-grade corporates could
affect our ratings on European CLO transactions, we have also
included the sensitivity of the ratings on the class A to E notes
based on four hypothetical scenarios.
"As our ratings analysis makes additional considerations before
assigning ratings in the 'CCC' category, and we would assign a 'B-'
rating if the criteria for assigning a 'CCC' category rating are
not met, we have not included the above scenario analysis results
for the class F notes."
The transaction securitizes a portfolio of primarily senior secured
leveraged loans and bonds. Bridgepoint Credit Management Ltd.
manages the transaction.
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 list
Amount Credit
Class Rating* (mil. EUR) Interest rate (%)§ enhancement
(%)
A AAA (sf) 248.00 3mE + 1.20 38.00
B AA (sf) 44.00 3mE + 1.70 27.00
C A (sf) 24.00 3mE + 2.15 21.00
D BBB- (sf) 28.00 3mE + 2.95 14.00
E BB- (sf) 19.00 3mE + 4.75 9.25
F B- (sf) 11.00 3mE + 7.54 6.50
Sub NR 30.70 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.
3mE--Three-month Euro Interbank Offered Rate.
NR--Not rated.
N/A--Not applicable.
BRIDGEPOINT VIII: Fitch Assigns 'B-sf' Final Rating to Cl. F Notes
------------------------------------------------------------------
Fitch Ratings has assigned Bridgepoint CLO VIII DAC final ratings,
as detailed below.
Entity/Debt Rating
----------- ------
Bridgepoint CLO VIII DAC
Class A XS3006432994 LT AAAsf New Rating
Class B XS3006433299 LT AAsf New Rating
Class C XS3006433455 LT Asf New Rating
Class D XS3006433612 LT BBB-sf New Rating
Class E XS3006433885 LT BB-sf New Rating
Class F XS3006434008 LT B-sf New Rating
Subordinated Notes
XS3006434263 LT NRsf New Rating
Transaction Summary
Bridgepoint CLO VIII DAC is a securitisation of mainly senior
secured obligations (at least 90%) with a component of senior
unsecured, mezzanine, second-lien loans and high-yield bonds. Note
proceeds were used to fund a portfolio with a target par of EUR400
million that is actively managed by Bridgepoint Credit Management
Limited. The collateralised loan obligation (CLO) has a 4.5-year
reinvestment period and an 8.5-year weighted average life (WAL)
test at closing.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors at 'B'/'B-'. The
Fitch-calculated weighted average rating factor (WARF) of the
identified portfolio is 24.7.
Strong Recovery Expectation (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-calculated
weighted average recovery rate (WARR) of the identified portfolio
is 60.5%.
Diversified Asset Portfolio (Positive): The transaction has a
concentration limit for the 10 largest obligors at 20%. The
transaction also includes various concentration limits, including a
maximum exposure to the three-largest Fitch-defined industries in
the portfolio at 40%. These covenants ensure the asset portfolio
will not be exposed to excessive concentration.
Portfolio Management (Neutral): The transaction includes one matrix
set at closing and two forward matrix sets that are effective 12
months and 18 months after closing, respectively, provided the
aggregate collateral balance (defaults at Fitch-calculated
collateral value) is at least at the reinvestment target par
balance, among other conditions. Each matrix set comprises two
matrices with fixed-rate asset limits of 5% and 12.5%,
respectively.
The transaction has a 4.5-year reinvestment period and includes
reinvestment criteria similar to those of other European
transactions. Fitch's analysis is based on a stressed-case
portfolio with the aim of testing the robustness of the transaction
structure against its covenants and portfolio guidelines.
Cash-flow Modelling (Neutral): The WAL used for the transaction's
Fitch-stressed portfolio analysis is 12 months less than the WAL
covenant at the issue date, to account for the strict reinvestment
conditions envisaged by the transaction after its reinvestment
period. These include passing the coverage tests, and the Fitch
'CCC' bucket limitation test post reinvestment, as well as a WAL
covenants that progressively steps down over time. Fitch believes
these conditions would reduce the effective risk horizon of the
portfolio during stress periods.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A 25% increase of the mean default rate (RDR) and a 25% decrease of
the recovery rate (RRR) across all ratings of the identified
portfolio would lead to downgrades of one notch each for the class
A, D and E notes, two notches each for the class B and C notes, and
to below 'B-sf' for the class F notes.
Based on the identified portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration. Due to the
better metrics and shorter life of the identified portfolio than
the Fitch-stressed portfolio, all notes, except for the 'AAAsf'
rated notes, each display a rating cushion of at least one notch.
Should the cushion between the identified portfolio and the
Fitch-stressed portfolio be eroded either due to manager trading or
negative portfolio credit migration, a 25% increase of the mean RDR
and a 25% decrease of the RRR across all ratings of the
Fitch-stressed portfolio would lead to downgrades of up to four
notches for the rated notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR s and a 25% increase in the RRR
across all ratings of the Fitch-stressed portfolio would lead to an
upgrade of two notches each for the class B, C and D notes, and
three notches for the class E notes.
During the reinvestment period, upgrades, which are based on the
Fitch-stressed portfolio, may occur on better-than-expected
portfolio credit quality and a shorter remaining WAL test, allowing
the notes to withstand larger-than-expected losses for the
remaining life of the transaction. After the end of the
reinvestment period, upgrades may result from stable portfolio
credit quality and deleveraging, leading to higher credit
enhancement and excess spread available to cover losses in the
remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
The majority of the underlying assets or risk-presenting entities
have ratings or credit opinions from Fitch and/or other nationally
recognised statistical rating organisations and/or European
securities and markets authority-registered rating agencies. Fitch
has relied on the practices of the relevant groups within Fitch
and/or other rating agencies to assess the asset portfolio
information or information on the risk-presenting entities.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG Considerations
Fitch does not provide ESG relevance scores for Bridgepoint CLO
VIII DAC. In cases where Fitch does not provide ESG relevance
scores in connection with the credit rating of a transaction,
programme, instrument or issuer, Fitch will disclose any ESG factor
that is a key rating driver in the key rating drivers section of
the relevant rating action commentary.
CARLYLE GLOBAL 2014-2: Moody's Cuts Rating on Cl. E-R Notes to B3
-----------------------------------------------------------------
Moody's Ratings has taken a variety of rating actions on the
following notes of Carlyle Global Market Strategies Euro CLO 2014-2
Designated Activity Company:
EUR13,800,000 Class B-1-R Senior Secured Deferrable Floating Rate
Notes due 2031, Upgraded to Aa1 (sf); previously on Aug 23, 2024
Upgraded to Aa3 (sf)
EUR10,000,000 Class B-2-R Senior Secured Deferrable Floating Rate
Notes due 2031, Upgraded to Aa1 (sf); previously on Aug 23, 2024
Upgraded to Aa3 (sf)
EUR19,500,000 Class C-R Senior Secured Deferrable Floating Rate
Notes due 2031, Upgraded to A2 (sf); previously on Aug 23, 2024
Upgraded to Baa1 (sf)
EUR11,700,000 Class E-R Senior Secured Deferrable Floating Rate
Notes due 2031, Downgraded to B3 (sf); previously on Aug 23, 2024
Affirmed B2 (sf)
Moody's have also affirmed the ratings on the following notes:
EUR239,400,000 (Current outstanding amount EUR147,453,721) Class
A-1-R Senior Secured Floating Rate Notes due 2031, Affirmed Aaa
(sf); previously on Aug 23, 2024 Affirmed Aaa (sf)
EUR10,400,000 Class A-2A-R Senior Secured Floating Rate Notes due
2031, Affirmed Aaa (sf); previously on Aug 23, 2024 Upgraded to Aaa
(sf)
EUR26,400,000 Class A-2B-R Senior Secured Fixed Rate Notes due
2031, Affirmed Aaa (sf); previously on Aug 23, 2024 Upgraded to Aaa
(sf)
EUR29,000,000 Class D-R Senior Secured Deferrable Floating Rate
Notes due 2031, Affirmed Ba2 (sf); previously on Aug 23, 2024
Affirmed Ba2 (sf)
Carlyle Global Market Strategies Euro CLO 2014-2 Designated
Activity Company, originally issued in June 2014 and refinanced in
February 2017, November 2018 and most recently in May 2021, is a
collateralised loan obligation (CLO) backed by a portfolio of
mostly high-yield senior secured European loans. The portfolio is
managed by CELF Advisors LLP. The transaction's reinvestment period
ended in May 2023.
RATINGS RATIONALE
The upgrades on the ratings on the Class B-1-R, Class B-2-R and
Class C-R notes are primarily a result of the deleveraging of the
senior notes following amortisation of the underlying portfolio
since the last rating action in August 2024.
The downgrade to the rating on the Class E-R notes is due to the
deterioration in the credit quality of the underlying collateral
pool since the last rating action in August 2024.
The affirmations on the ratings on the Class A-1-R, Class A-2A-R,
Class A-2B-R and Class D-R notes are primarily a result of the
expected losses on the notes remaining consistent with their
current rating levels, after taking into account the CLO's latest
portfolio, its relevant structural features and its actual
over-collateralisation ratios.
The credit quality has deteriorated as reflected in the
deterioration in the average credit rating of the portfolio
(measured by the weighted average rating factor, or WARF) and an
increase in the proportion of securities from issuers with ratings
of Caa1 or lower. According to the trustee report dated March 2025
[1], the WARF was 3166, compared with 3078 in the August 2024
report [2] as of the last rating action. Securities with ratings of
Caa1 or lower currently make up approximately 7.3% of the
underlying portfolio, versus 5.7% in August 2024.
The Class A-1-R notes have paid down by approximately EUR91.4
million (38.2%) since the last rating action in August 2024 and
EUR92.0 million (38.4%) since closing. As a result of the
deleveraging, over-collateralisation (OC) has increased across the
capital structure. According to the trustee report dated March 2025
[1] the Class A, Class B and Class C, OC ratios are reported at
152.7%, 135.2% and 123.6% compared to August 2024 [2] levels of
138.7%, 127.0% and 118.8%, respectively. Moody's notes that the
August 2024 principal payments are not reflected in the reported OC
ratios.
The key model inputs Moody's uses in Moody's analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on Moody's published methodology
and could differ from the trustee's reported numbers.
In Moody's base case, Moody's used the following assumptions:
Performing par and principal proceeds balance: EUR281,292,480
Defaulted Securities: 581,697
Diversity Score: 43
Weighted Average Rating Factor (WARF): 3189
Weighted Average Life (WAL): 3.5 years
Weighted Average Spread (WAS) (before accounting for Euribor
floors): 3.73%
Weighted Average Coupon (WAC): 4.14%
Weighted Average Recovery Rate (WARR): 44.35%
Par haircut in OC tests and interest diversion test: none
The default probability derives from the credit quality of the
collateral pool and Moody's expectations of the remaining life of
the collateral pool. The estimated average recovery rate on future
defaults is based primarily on the seniority of the assets in the
collateral pool. In each case, historical and market performance
and a collateral manager's latitude to trade collateral are also
relevant factors. Moody's incorporates these default and recovery
characteristics of the collateral pool into Moody's cash flow model
analysis, subjecting them to stresses as a function of the target
rating of each CLO liability it is analysing.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
May 2024.
Counterparty Exposure:
The rating action took into consideration the notes' exposure to
relevant counterparties, such as account bank and swap provider,
using the methodology "Moody's Approach to Assessing Counterparty
Risks in Structured Finance" published in October 2024. Moody's
concluded the ratings of the notes are not constrained by these
risks.
Factors that would lead to an upgrade or downgrade of the ratings:
The rated notes' performance is subject to uncertainty. The notes'
performance is sensitive to the performance of the underlying
portfolio, which in turn depends on economic and credit conditions
that may change. The collateral manager's investment decisions and
management of the transaction will also affect the notes'
performance.
Additional uncertainty about performance is due to the following:
-- Portfolio amortisation: The main source of uncertainty in this
transaction is the pace of amortisation of the underlying
portfolio, which can vary significantly depending on market
conditions and have a significant impact on the notes' ratings.
Amortisation could accelerate as a consequence of high loan
prepayment levels or collateral sales by the collateral manager or
be delayed by an increase in loan amend-and-extend restructurings.
Fast amortisation would usually benefit the ratings of the notes
beginning with the notes having the highest prepayment priority.
-- Recovery of defaulted assets: Market value fluctuations in
trustee-reported defaulted assets and those Moody's assumes have
defaulted can result in volatility in the deal's
over-collateralisation levels. Further, the timing of recoveries
and the manager's decision whether to work out or sell defaulted
assets can also result in additional uncertainty. Moody's analysed
defaulted recoveries assuming the lower of the market price or the
recovery rate to account for potential volatility in market prices.
Recoveries higher than Moody's expectations would have a positive
impact on the notes' ratings.
In addition to the quantitative factors that Moody's explicitly
modelled, qualitative factors are part of the rating committee's
considerations. These qualitative factors include the structural
protections in the transaction, its recent performance given the
market environment, the legal environment, specific documentation
features, the collateral manager's track record and the potential
for selection bias in the portfolio. All information available to
rating committees, including macroeconomic forecasts, input from
Moody's other analytical groups, market factors, and judgments
regarding the nature and severity of credit stress on the
transactions, can influence the final rating decision.
DRYDEN 111 2022: S&P Assigns B- (sf) Rating to Class F Notes
------------------------------------------------------------
S&P Global Ratings assigned ratings to Dryden 111 Euro CLO 2022
DAC's class A-1, A-2, B-1, B-2, C, D, E, and F notes. The issuer
also issued EUR34.90 million of subordinated notes.
The ratings assigned to Dryden 111 Euro CLO 2022 DAC's notes
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 weighted-average rating factor 2,734.77
Default rate dispersion 575.35
Weighted-average life (years) 4.93
Weighted-average life (years) extended
to cover the length of the reinvestment period 4.93
Obligor diversity measure 105.68
Industry diversity measure 20.60
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
Target 'AAA' weighted-average recovery (%) 37.38
Target weighted-average spread (net of floors; %) 3.89
Target weighted-average coupon (%) 4.64
Rationale
Under the transaction documents, the rated notes pay quarterly
interest unless a frequency switch event occurs. Following this,
the notes switch to semiannual payments. The portfolio's
reinvestment period ends approximately 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 its criteria for corporate cash flow
CDOs.
S&P said, "In our cash flow analysis, we used the EUR400 million
target par amount, the covenanted weighted-average spread (3.80%),
the covenanted weighted-average coupon (3.50%), 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 Oct. 21, 2029, 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, 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 counterparty criteria.
"The transaction's legal structure and framework is bankruptcy
remote, in line with our legal criteria.
"The CLO is managed by PGIM Loan Originator Ltd. and PGIM Ltd. 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 ratings are
commensurate with the available credit enhancement for the class
A-1 to F notes. Our credit and cash flow analysis indicates that
the available credit enhancement for the class B-1 to F notes could
withstand stresses commensurate with higher ratings than those
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 on the
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-1 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
certain assets from being related to certain activities.
Accordingly, since the exclusion of assets from these activities
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."
Dryden 111 Euro CLO 2022 DAC is a European cash flow CLO
securitization of a revolving pool, comprising mainly
euro-denominated leveraged loans and bonds. The transaction is a
broadly syndicated CLO that is managed by PGIM Loan Originator
Manager Ltd. and PGIM Ltd.
Ratings list
Amount Credit
Class Rating* (mil.EUR) Interest rate§ enhancement (%)
A-1 AAA (sf) 244.00 Three/six-month EURIBOR 39.00
plus 1.22%
A-2 AAA (sf) 12.00 Three/six-month EURIBOR 36.00
plus 1.50%
B-1 AA (sf) 16.00 Three/six-month EURIBOR 27.00
plus 1.75%
B-2 AA (sf) 20.00 4.40% 27.00
C A (sf) 24.00 Three/six-month EURIBOR 21.00
plus 2.25%
D BBB- (sf) 28.00 Three/six-month EURIBOR 14.00
plus 3.35%
E BB- (sf) 18.00 Three/six-month EURIBOR 9.50
plus 5.00%
F B- (sf) 12.00 Three/six-month EURIBOR 6.50
plus 8.01%
Sub notes NR 34.90 N/A N/A
*The ratings assigned to the class A-1, A-2, B-1, and B-2 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.
DRYDEN 111: Fitch Assigns 'B-sf' Final Rating to Class F Notes
--------------------------------------------------------------
Fitch Ratings has assigned Dryden 111 Euro CLO 2022 DAC notes final
ratings, as detailed below.
Entity/Debt Rating Prior
----------- ------ -----
Dryden 111 Euro
CLO 2022 DAC
A-1 XS3008531884 LT AAAsf New Rating AAA(EXP)sf
A-2 XS3008532007 LT AAAsf New Rating AAA(EXP)sf
B-1 XS3008531967 LT AAsf New Rating AA(EXP)sf
B-2 XS3008532429 LT AAsf New Rating AA(EXP)sf
C XS3008532692 LT Asf New Rating A(EXP)sf
D XS3008532858 LT BBB-sf New Rating BBB-(EXP)sf
E XS3008533070 LT BB-sf New Rating BB-(EXP)sf
F XS3008533237 LT B-sf New Rating B-(EXP)sf
Subordinated Notes
XS3008536099 LT NRsf New Rating NR(EXP)sf
Transaction Summary
Dryden 111 Euro CLO 2022 is a securitisation of mainly senior
secured obligations (at least 96%) with a component of senior
unsecured, mezzanine, second-lien loans, first-lien last-out loans
and high-yield bonds. Note proceeds were used to fund a portfolio
with a target par of EUR400 million. The portfolio is managed by
PGIM Loan Originator Manager Limited and PGIM Limited. The CLO has
a 4.5-year reinvestment period and an 8.5-year weighted average
life (WAL) test.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors to be in the 'B' category. The
Fitch weighted average rating factor of the identified portfolio is
23.86.
High Recovery Expectations (Positive): At least 96% 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 62.5%.
Diversified Portfolio (Positive): The transaction includes four
Fitch test matrices, two of which are effective at closing. Closing
matrices correspond to a top 10 obligor concentration limit of 20%,
fixed-rate obligation limits at 0% and 12.5%, and an 8.5-year WAL
covenant. It has two forward matrices corresponding to the same top
10 obligors and fixed-rate asset limits, and a 7.5-year WAL
covenant.
The forward matrices will be effective one year after closing,
provided the aggregate collateral balance (defaults at
Fitch-calculated collateral value) is at least at the reinvestment
target par balance, among other things. The transaction also
includes 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 has an about
4.5-year reinvestment period and includes reinvestment criteria
similar to those of other European transactions. Fitch's analysis
is based on a stressed portfolio with the aim of testing the
robustness of the transaction structure against its covenants and
portfolio guidelines.
Cash Flow Modelling (Positive): The WAL used for the transaction's
stress portfolio and matrices analysis is 12 months less than the
WAL covenant. This is to account for structural and reinvestment
conditions after the reinvestment period, including the
over-collateralisation tests and the Fitch 'CCC' limitation test
passing after reinvestment. Fitch believes these conditions will
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) and a 25% decrease of
the recovery rate (RRR) across all ratings of the identified
portfolio would lead to one notch downgrades of the class B to D
notes, and have no impact on the class A-1, A-2, E and F notes.
Based on the identified portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of default and portfolio deterioration. Due to the
better metrics and shorter life of the identified portfolio than
the Fitch-stressed portfolio, the class B, D, E and F notes have
two-notch cushions, the class C one notch, and the class A notes
have no rating cushion.
Should the cushion between the identified portfolio and the
Fitch-stressed portfolio be eroded due to manager trading or
negative portfolio credit migration, a 25% increase of the mean RDR
and a 25% decrease of the RRR across all ratings of the
Fitch-stressed portfolio would lead to downgrades of up to three
notches for the class A-1 to D notes and to below 'B-sf' for the
class E and F notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the mean RDR and a 25% increase in the RRR
across all ratings of the Fitch-stressed portfolio would lead to
upgrades of up to five notches, except for the 'AAAsf' rated notes,
which are already at the highest level on Fitch's scale and cannot
be upgraded.
During the reinvestment period, based on the Fitch-stressed
portfolio, upgrades may occur on better-than-expected portfolio
credit quality and a shorter remaining WAL test, allowing the notes
to withstand larger-than-expected losses for the transaction's
remaining life. After the end of the reinvestment period, upgrades
may result from stable portfolio credit quality and deleveraging,
leading to higher credit enhancement and excess spread available to
cover losses in the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Dryden 111 Euro CLO 2022 DAC
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 Dryden 111 Euro CLO
2022 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.
LOGICLANE II: Fitch Assigns 'B-sf' Final Rating to Class F Notes
----------------------------------------------------------------
Fitch Ratings has assigned Logiclane II Euro CLO DAC final ratings,
as detailed below.
Entity/Debt Rating
----------- ------
Logiclane II Euro
CLO DAC
A XS3003307892 LT AAAsf New Rating
B-1 XS3003308197 LT AAsf New Rating
B-2 XS3010579384 LT AAsf New Rating
C XS3003308353 LT Asf New Rating
D XS3003308510 LT BBB-sf New Rating
E XS3003308783 LT BB-sf New Rating
F XS3003308940 LT B-sf New Rating
Subordinated Notes
XS3003309161 LT NRsf New Rating
Transaction Summary
Logiclane II Euro CLO DAC is a securitisation of mainly senior
secured obligations (at least 90%) with a component of senior
unsecured, mezzanine, second-lien loans, first-lien, last-out loans
and high-yield bonds. The portfolio is actively managed by Acer
Tree Investment Management Ltd. The transaction has a 4.5-year
reinvestment period and an 8.5-year weighted average life (WAL)
test. The note proceeds have been used to fund a portfolio with a
target par amount of EUR 400 million.
KEY RATING DRIVERS
Average Portfolio Credit Quality (Neutral): Fitch assesses the
average credit quality of obligors in the 'B' category. The Fitch
weighted average rating factor of the target portfolio is 24.2.
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 target portfolio is 62.5%.
Diversified Portfolio (Positive): The transaction includes two
matrices set at closing and two forward matrices set that are
effective 12 months after closing, provided the aggregate
collateral balance (defaults at Fitch-calculated collateral value)
is at least at the target par amount. Each matrix set comprises two
matrices with fixed-rate asset limits of 5% and 10%, respectively.
The transaction also features various portfolio concentration
limits, including a top 10 obligor concentration limit at 20% and a
maximum exposure to the largest Fitch-defined industry is 17.5% and
to the three largest Fitch-defined industries at 40%. These
covenants ensure the asset portfolio will not be exposed to
excessive concentration.
Portfolio Management (Positive): The transaction has a 4.5-year
reinvestment period and includes reinvestment criteria similar to
those of other European transactions. Fitch's analysis is based on
a stressed-case portfolio with the aim of testing the robustness of
the transaction structure against its covenants and portfolio
guidelines.
Cash Flow Modelling (Neutral): The WAL used for the transaction
stressed portfolio and matrices analysis is 12 months less than the
WAL covenant, to account for structural and reinvestment conditions
after the reinvestment period, including the OC tests and Fitch
'CCC' limitation test passing after reinvestment, among other
things. This reduces 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 current portfolio would have no impact on the class A, E and F
notes and lead to downgrades of one notch for the class B to D
notes.
Based on the current portfolio, downgrades may occur if the loss
expectation is larger than initially assumed, due to unexpectedly
high levels of defaults and portfolio deterioration. Due to the
better metrics and shorter life of the current portfolio than the
stressed-case portfolio, the class B to E notes display rating
cushions of two notches, the class F notes of three notches, and
the class A notes does not display any rating cushion as they are
already at the highest achievable rating.
Should the cushion between the current portfolio and the
stressed-case portfolio be eroded either due to manager trading or
negative portfolio credit migration, a 25% increase of the mean RDR
across all ratings and a 25% decrease of the RRR across all ratings
of the stressed-case portfolio would lead to downgrades of one
notch for the class A notes, four notches for the class B and C
notes, three notches for the class D notes and to below 'B-sf' for
the class E and F notes.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
A 25% reduction of the RDR across all ratings and a 25% increase in
the RRR across all ratings of the stressed-case portfolio would
lead to upgrades of up to four notches for the notes, except for
the 'AAAsf' rated notes, which are at the highest level on Fitch's
scale and cannot be upgraded.
During the reinvestment period, based on the 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 in
case of stable portfolio credit quality and deleveraging, leading
to higher credit enhancement and excess spread available to cover
losses in the remaining portfolio.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
The majority of the underlying assets or risk presenting entities
have ratings or credit opinions from Fitch and/or other Nationally
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 Logiclane II Euro
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.
LOGICLANE II: S&P Assigns B- (sf) Rating to Class F Notes
---------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Logiclane II Euro
CLO DAC's class A to F European cash flow CLO notes. The issuer has
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 approximately 4.47
years after closing, while the non-call 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 2,865.45
Default rate dispersion 417.12
Weighted-average life (years) 4.59
Obligor diversity measure 129.25
Industry diversity measure 24.14
Regional diversity measure 1.13
Transaction key metrics
Portfolio weighted-average rating
derived from S&P's CDO evaluator B
'CCC' category rated assets (%) 1.75
'AAA' weighted-average recovery (%) 37.50
Floating-rate assets (%) 95.29
Weighted-average spread (net of floors; %) 4.06
Weighted-average coupon 7.32
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 covenanted weighted-average spread (3.70%), the
covenanted weighted-average coupon (4.00%), the covenanted recovery
rate of 36.50% at the 'AAA' rating level, and identified portfolio
weighted-average recovery rates for all other rating categories. 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.
"Our credit and cash flow analysis show that the class B-1, B-2, C,
and D notes benefit from break-even default rate (BDR) and scenario
default rate cushions that we would typically consider to be in
line with higher ratings than those assigned. However, as the CLO
is still in its reinvestment phase, during which the transaction's
credit risk profile could deteriorate, we have capped our 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, S&P has applied its
'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 S&P has rated and that has
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 25.57%
(for a portfolio with a weighted-average life of 4.589 years),
versus if it was to consider a long-term sustainable default rate
of 3.1% for 4.589 years, which would result in a target default
rate of 14.225%.
-- S&P does not believe that there is a one-in-two chance of this
tranche defaulting.
-- S&P does not envision this tranche defaulting in the next 12-18
months.
-- Following this analysis, S&P considers that the available
credit enhancement for the class F notes is commensurate with the
assigned 'B- (sf)' rating.
Until the end of the reinvestment period on Oct. 15, 2029, the
collateral manager may substitute assets in the portfolio for so
long as our CDO Monitor test is maintained or improved in relation
to the initial ratings on the notes. This test looks at the total
amount of losses that the transaction can sustain as established by
the initial cash flows for each rating and 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.
S&P said, "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.
"Following our analysis of the credit, cash flow, counterparty,
operational, and legal risks, we believe our ratings are
commensurate with the available credit enhancement for the class A
to F notes.
"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."
Logiclane II Euro CLO DAC securitizes a portfolio of primarily
European senior secured leveraged loans and bonds. It is managed by
Acer Tree Investment Management LLP.
Ratings
Amount
Class Rating* (mil. EUR) Sub (%) Interest rate§
A AAA (sf) 240.00 40.00 Three/six-month EURIBOR
plus 1.27%
B-1 AA (sf) 27.00 27.00 Three/six-month EURIBOR
plus 1.90%
B-2 AA (sf) 25.00 27.00 4.75%
C A (sf) 22.00 21.50 Three/six-month EURIBOR
plus 2.50%
D BBB- (sf) 28.00 14.50 Three/six-month EURIBOR
plus 3.65%
E BB- (sf) 19.00 9.75 Three/six-month EURIBOR
plus 5.45%
F B- (sf) 12.00 6.75 Three/six-month EURIBOR
plus 8.06%
Sub. Notes NR 33.40 N/A N/A
*The ratings assigned to the class A, B-1, and B-2 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.
=========
I T A L Y
=========
LOTTOMATICA GROUP: Moody's Ups CFR to Ba2, Rates EUR600M Notes Ba2
------------------------------------------------------------------
Moody's Ratings assigned Ba2 ratings to the proposed EUR600 million
new senior secured notes to be issued by Lottomatica Group S.p.A.
("Lottomatica", or "the company"), the leading gaming company in
Italy. Concurrently, Moody's upgraded the company's corporate
family rating to Ba2 from Ba3 and its probability of default rating
to Ba2-PD from Ba3-PD. Moody's also upgraded to Ba2 from Ba3 the
ratings on Lottomatica's EUR565 million senior secured notes due
2028, the EUR500 million senior secured floating rate notes due
2030, the EUR500 million senior secured notes due 2030, and the
EUR400 million senior secured floating rate notes due 2031. The
outlook remains stable.
Proceeds from the proposed new notes will be used to refinance the
EUR565 million senior secured notes due 2028 and to pay fees and
expenses. Following the merger of Lottomatica S.p.A. into
Lottomatica Group S.p.A. on January 01, 2025, Lottomatica Group
S.p.A. is the issuer of all the company's debt and Lottomatica
S.p.A. has ceased to exist.
The upgrade was prompted by the reduction in private equity sponsor
Apollo Asset Management's stake in the company to 31.6%, and also
by the company's continued strong performance which has led to an
improvement in financials metrics.
"Moody's have upgraded Lottomatica's ratings to reflect the
reduction in sponsor influence on the company as well as the robust
results achieved in 2024 leading to an upward revision of Moody's
forecasts," says Kristin Yeatman, a Moody's Ratings Vice President
– Senior Analyst and lead analyst for Lottomatica. The company's
Moody's-adjusted gross debt/EBITDA is now expected to reduce
towards 2x in the next 12-24 months, compared with Moody's previous
forecast of 2.5x.
RATINGS RATIONALE
The Ba2 CFR reflects Lottomatica's (1) strong business profile with
a favourable position in the gaming value chain making it resilient
to downturns; (2) good product diversification and increasing
presence in the profitable and growing online segment; (3) good
liquidity, supported by consistent strong free cash flow (FCF)
generation; (4) proven ability to integrate large targets and
achieve synergies, and; (5) relatively conservative ownership
structure with a 68.4% public shareholder base.
The rating remains constrained by the company's: (1) geographical
concentration in Italy, which exposes the company to a single
regulatory and fiscal regime; (2) its exposure to concession
renewal risks and the related cash outflow which can be material,
and; (3) its presence in the mature retail gaming machine segment
with limited growth prospects; however this segment has reduced its
contribution to approximately 25% of the group's pro forma (PF)
adjusted EBITDA and provides a reliable steady cash flow.
The company performed well in 2024, reporting revenue of EUR2,005
million (EUR1,632 million in 2023) and EBITDA of EUR707 million
(EUR580 million in 2023). The continued strong organic growth in
revenues and adjusted EBITDA was driven mainly by online, which
continues to experience double-digit growth rates. Lottomatica
exceeded market growth rates in online by nearly 2x for the second
year (26% vs market growth of 14%). According to Prisma S.p.A.
(MAG), Italy will continue to experience significant growth rates
in online gambling until maturing in around 2032. It is estimated
that by then Italy's online penetration will reach around 62% which
is just under the penetration rate of online in the UK, Europe's
most mature online market.
The integration of PWO (previously SKS365) has been successful,
with EUR75 million in synergies to be achieved in 2026 (68%
secured), compared with the acquired EBITDA amount of EUR72
million.
ESG CONSIDERATIONS
Governance is considered material to this rating action because the
reduction in financial sponsor Apollo's shareholding in the company
to 31.6% has reduced the shareholder concentration risk. This
results in an improved assessment of the risk arising from Board
Structures, Policies, & Procedures. The company's net leverage
target of 2.0x-2.5x has not changed.
LIQUIDITY
Moody's expects the company's liquidity profile to be good over the
next 12-18 months supported by consolidated cash balances of around
EUR173 million as of December 31, 2024. Further liquidity is
provided by access to a fully undrawn revolving credit facility
("RCF") of EUR447.25 million (upsized to EUR447.25 million from
existing EUR400 million) and Moody's expects a healthy free cash
flow of more than EUR100 million in the next 12 months. The
company's liquidity sources can accommodate smaller bolt-on
acquisitions, and following the debt refinancing, there are no
significant debt maturities before 2030.
The super senior RCF documentation contains a springing financial
covenant based on senior secured net leverage set at 8.3x and
tested when the RCF is drawn by more than 40%. Moody's expects that
Lottomatica will maintain good headroom under this covenant if it
is tested.
STRUCTURAL CONSIDERATIONS
Lottomatica's Ba2-PD PDR is in line with the CFR, given the family
recovery rate assumption of 50%, which is consistent with Moody's
approach for capital structures that include a mix of bank debt and
bonds. Lottomatica's senior secured notes are rated Ba2, in line
with the CFR.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's expectations that the company
will continue to perform well in all of its segments, allowing the
company's gross debt/EBITDA (as adjusted by Moody's) to remain at
or below 2.5x over the next 12-18 months.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward pressure on the ratings could materialize if the company
continues to diversify and grow its product offering and
geographical footprint, establishes a longer track record of
following more conservative governance practices and financial
policy, demonstrates that it is able to maintain Moody's-adjusted
leverage below 2.5x on a sustainable basis, and continues to grow
its EBIT margin towards 25% while exhibiting good liquidity and
generating strong positive free cash flow.
Negative pressure on the rating could occur if Lottomatica's
operating performance weakens or is hurt by a changing regulatory
and fiscal regime, including the terms of a concession renewal, or
if the company's financial profile weakens such that
Moody's-adjusted leverage increases sustainably to above 3.5x, free
cash flow deteriorates and liquidity weakens, or the company
engages in large transformative acquisitions that could lead to
integration risk and a material increase in leverage.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Gaming
published in June 2021.
COMPANY PROFILE
Founded in 2006 and headquartered in Rome (Italy), Lottomatica is
the leader in the Italian gaming market. Lottomatica is the
publicly listed entity, consolidating entity for audited
financials.
The company operates in three operating segments: (1) Online:
online iSports and iGaming through a wide range of online products
including games such as poker, casino games, bingo, horse racing
and other sports betting; (2) Sports Franchise: games and
horse-race betting through the retail network; and (3) Gaming
Franchise: concessionary activities relating to the product lines:
amusement with prize machines ("AWP"), video lottery terminals
("VLT") and management of owned gaming halls and AWPs ("Retail &
Street Operations"). Lottomatica reported net revenue of EUR2,005
million and adjusted EBITDA of EUR707 million in 2024.
===================
L U X E M B O U R G
===================
KLEOPATRA HOLDINGS: Moody's Appends 'LD' Designation to PDR
-----------------------------------------------------------
Moody's Ratings has appended a limited default (LD) designation to
global plastic packaging manufacturer Kleopatra Holdings 2 S.C.A
(Klockner Pentaplast, KP or the company) probability of default
rating, revising it to Caa3-PD/LD from Caa3-PD. The LD designation
will be for three business days as of the date of this release.
There is no change to the company's Caa1 long term corporate family
rating or the ratings on its debt instruments or subsidiaries. The
outlook is negative.
On April 22, KP closed the first stage in addressing their capital
restricting. The company has agreed to exchange its existing EUR300
million 6.5% guaranteed senior unsecured notes due September 2026,
rated Caa3, with new second lien notes due 2029. Existing
noteholders are being offered a price of 100% for the new notes
with a 6.5% cash interest plus 2.5% PIK interest. Moody's considers
this exchange as a distressed exchange per Moody's definitions and
the appended LD reflects this.
Moody's understands that this is the first step in the company
addressing its 2026 maturity wall, when the majority of its debt
comes due. The second stage will focus on the first lien debt.
Kleopatra Holdings 2 S.C.A, a plastic packaging manufacturer,
produces both flexible and rigid plastic films and trays for
pharmaceutical, health and food sectors. In the 12 months ending
September 30, 2024, the firm reported revenues of EUR1.8 billion
and a Moody's adjusted EBITDA of EUR214 million. Since a
restructuring and recapitalisation in June 2012, Strategic Value
Partners (SVP) has been the principal investor.
===========
R U S S I A
===========
AIYL BANK OJSC: S&P Assigns 'B+/B' ICRs, Outlook Stable
-------------------------------------------------------
S&P Global Ratings assigned its 'B+/B' long- and short-term issuer
credit ratings on Kyrgyzstan-based open joint stock commercial
(OJSC) bank Aiyl Bank OJSC. The outlook is stable.
S&P said, "We expect Aiyl Bank to maintain its established market
positions and continue to focus on the agribusiness sector. Aiyl
Bank has established itself as a pivotal player in Kyrgyzstan's
banking sector, characterized by a strong business franchise, and
robust brand recognition. As of end-2024, Aiyl Bank had total
assets of approximately Kyrgyzstani som (KGS) 158 billion (about
$1.8 billion), making it the largest bank in the country. The
bank's market share is notable, with estimates indicating that it
accounts for about 20% of the system-wide deposits in Kyrgyzstan.
The bank's lending portfolio is particularly focused on
agricultural financing, which is crucial in a country where
agriculture plays a vital role in the economy. As of end-2024, Aiyl
Bank has disbursed about 34% of its loan book in agricultural
loans, supporting local farmers and agribusinesses.
Aiyl Bank's capitalization will remain solid. S&P said, "We expect
Aiyl Bank's risk-adjusted capital ratio to remain well above 7%
during the next two years. Aiyl Bank distributed KGS5.4 billion
dividends in 2024 (which equals to about 74% of net profit for that
period), while at the same time the bank received a new capital
injection of KGS4.1 billion. In 2022-2024, the bank's earnings
capacity was significantly boosted by exceptionally strong income
related to currency exchange and transfers adding up to about 35%
of operating revenues. We anticipate a gradual normalization of
noninterest income in 2025 and onward due to a more stringent risk
of potential secondary sanctions and domestic compliance
requirements."
S&P said, "We expect that Aiyl Bank's profitability will remain
stable in the next two years, with domination of interest income in
operating revenues. In 2023-2024, the bank posted average return on
average common equity (ROAE) of approximately 35%. We forecast the
bank to retain robust earnings generation over 2025 with normalized
ROAE at about 20%-25%, remaining solid compared with some local and
global peers.
"We note the bank's progress in improving its asset quality. Share
of loans classified as Stage 3 have marginally decreased to
approximately 5.7% as of end-2024 from about 19% as of end-2020. We
consider the bank's loan loss provisioning rate one of the highest
among regional peers. We anticipate that credit costs will be in
line with our expectations on the sector at the level of 1.3% in
the outlook horizon as the recently increased loan book starts
seasoning, while macroeconomic conditions remain quite favorable.
"We expect Aiyl Bank to hold ample liquidity buffers. We
anticipate that the increase of its funding base will continue to
exceed the growth of its loan book. The bank does not have any
wholesale repayments. Under our estimates, cash and equivalents
account for about 46% of the bank's total assets as of end-2024 and
are not likely to fall during the outlook horizon of 12-18 months.
The prevalence of cash and liquid instruments in assets balance the
risk related to high deposit concentration. We consider Aiyl Bank's
funding and liquidity profiles to be well positioned compared with
its regional peers, reflecting its solid liquidity buffers and
diversified deposit franchise with a market share of about 21% (the
highest in Kyrgyzstan). Good deposit growth over 2022-2024 (5.3x
overall), after record-high 250% growth in 2022, took the bank's
net loans-to-deposits ratio to an all-time low of 40% at end-2024
(end-2021: 100%) despite the rapid loan growth, which is better
than the indicators reported by most local and international
peers.
"We view Aiyl Bank as a government-related entity (GRE) with high
systemic importance in the Kyrgyz banking sector. We consider Aiyl
Bank a GRE with a moderately high likelihood of receiving timely
and sufficient extraordinary government support, reflecting the
important role it plays for the government and the strong link the
bank has with the government. Being the largest bank in Kyrgyzstan,
we expect that it will maintain its historical mandate providing
financing under various government-led programs aimed at developing
the agribusiness sector, encouraging entrepreneurship, and
supporting farmers. We think the link between the government and
Aiyl Bank is strong because the government directly controls it
through the State Agency for State Property Management. Therefore,
our assessment of Aiyl Bank incorporates the government's material
ongoing support.
"No rating uplift for extraordinary government support. We
consider Aiyl Bank of high systemic importance and a GRE with a
moderately high likelihood of support from the Kyrgyzstan
government. However, we do not incorporate any notches of support
in our ratings, because the bank's stand-alone credit profile
(SACP) is one notch higher than the sovereign rating. Our
assessment of the SACP incorporates the government's ongoing
support in terms of funding and capital.
"Our rating on the bank is constrained at the level of the foreign
currency sovereign credit rating. This is because of Aiyl Bank's
predominant exposure to economic risks in Kyrgyzstan and the
government's creditworthiness. We typically do not rate banks above
the sovereign credit rating because of the likely direct and
indirect influence of sovereign distress on their operations,
including their ability to service foreign currency obligations.
"The stable outlook on Aiyl Bank mirrors that on the sovereign and
reflects our view that adequate capital buffers and strong links
with the government will help the bank maintain its
creditworthiness over the next 12 months.
"We could lower the ratings on Aiyl Bank in the next 12 months if
we were to lower our sovereign credit ratings on Kyrgyzstan.
"Although we currently expect the possibility of lowering the
ratings to be remote, we may consider a negative rating action if
asset quality problems increased materially. We could also take a
negative rating action if nonfinancial risks unexpectedly
materialized, i.e., if the bank faces material sanction allegations
or regulatory intervention, which is not our base-case
assumption."
A positive rating action over the next 12 months would hinge on a
similar rating action on the sovereign.
Environmental, Social, And Governance
S&P said, "Environmental, social, and governance factors have no
material influence on our credit rating analysis on Aiyl Bank. We
consider governance and transparency in Kyrgyzstan's banking sector
as relatively weak in a global context. As a GRE, Aiyl Bank is
exposed to government influence, which could diminish its ability
to manage its strategy in a purely business-oriented manner.
Nevertheless, we do not expect government influence to be such that
it would result in a material deterioration of the bank's credit
quality. We also note the bank's role in financial inclusion
through the largest branch coverage across the country including
remote areas as positive. Environment-led legislation and other
considerations are less developed in Kyrgyzstan than in Europe or
the U.S., which means transition risks for banks, although real,
are more long term."
TASHKENT CITY: Fitch Assigns 'BB-' Long-Term IDR, Outlook Stable
----------------------------------------------------------------
Fitch Ratings has assigned Tashkent City Long-Term Foreign- and
Local-Currency Issuer Default Ratings (IDRs) of 'BB-' with Stable
Outlook.
The ratings reflect its expectation that the city's financial
metrics will remain in line with its ratings, with a debt payback
below 9x in 2028 under its rating case. The IDRs are on a par with
the city's Standalone Credit Profile (SCP) of 'bb-'.
Tashkent's SCP reflects the combination of a 'Weaker' risk profile
and 'aa' financial profile, while also factoring in a comparison
with international peers. Fitch notches down once the city's SCP to
account for a potential increase in contingent risk and asymmetric
risk arising from inconsistent disclosure and financial reporting
practices related to government-related entities (GRE) debt.
KEY RATING DRIVERS
Risk Profile: 'Weaker'
The assessment reflects Fitch's view of a high risk, relative to
international peers, that Tashkent may experience a weakening of
its ability to cover debt service by its operating balance
unexpectedly over 2024-2028. This may be due to lower-than-forecast
revenue, higher-than-expected expenditure or an unanticipated rise
in liabilities or debt-service requirements.
Revenue Robustness: 'Weaker'
Tashkent's revenue sources remain volatile due to continued tax and
budgetary reform. The composition of taxes collected by the city
and their allocation between tiers of government are subject to
frequent change at the central government's discretion. Taxes made
up 50% of the city's revenue in 2023, followed by transfers, which
comprised another 33%. The city's dependence on a weak central
government for much of its revenue, along with changes to national
fiscal regulation resulting in low predictability, drives the
'Weaker' revenue robustness assessment.
Revenue Adjustability: 'Weaker'
Fitch assesses Tashkent's ability to generate additional revenue in
response to possible economic downturns as limited. Its fiscal
autonomy is controlled by the central government, which sets all
tax rates and determines the tax revenue allocated between
government tiers.
The city collects income and property taxes, which represented 22%
of its 2023 operating revenue, and fees and charges that accounted
for 13% of operating revenue in 2023, part of which the city can
adjust. Most of these sources of revenue are at their maximum
capacity, meaning that any increase in these revenues would cover
less than 50% of the expected revenue decline in an economic
downturn.
Expenditure Sustainability: 'Weaker'
Expenditure sustainability is fragile due to the changing
composition of the city's responsibilities, which limits
expenditure predictability. Spending has historically been volatile
because of the reallocation of spending responsibilities and high
inflation, which averaged 12% in 2019-2023.
Expenditure Adjustability: 'Weaker'
Tashkent's ability to curb expenditure in response to shrinking
revenue is low as most of its spending responsibilities are
mandatory. Consequently, the city's budget is dominated by
inflexible spending items, which exceeded 80% of expenditure in
2023-2024. About 19% of its 2023 operating spending was allocated
to salaries and wages, which are the most rigid items and are
indexed to inflation.
Liabilities & Liquidity Robustness: 'Weaker'
This assessment reflects the overall weak national framework for
debt and liquidity management and under-developed capital markets
in Uzbekistan. Unlike other sub-nationals, which are not allowed to
incur debt, except inter-governmental budget loans, and cannot
issue guarantees, the city has a limited right to borrow
domestically through its GREs. Subsequently, Tashkent supports
these entities in debt servicing with transfers from its budget.
In 2019-2023, Tashkent serviced several GREs and also long-term
public-private partnership (PPP) obligations from concessions on
utility renovation projects. GRE debt and PPP obligations are
included in the city's adjusted debt calculation. Much of the GRE
debt is foreign currency-denominated, exposing the city to FX risk,
due to a volatile local currency.
Liabilities & Liquidity Flexibility: 'Weaker'
Tashkent's liquidity is limited to its cash balance, which totalled
UZS822.5 billion at end-2023, supported by sound revenue
performance. Access to debt capital markets is constrained by
national regulation. Most of this cash is restricted as it is
earmarked for specific expenditures. The city is also supported by
a central government liquidity mechanism, which includes short-term
budget loans to cover intra-year cash gaps. The sovereign's 'BB-'
rating, as a provider of additional liquidity, contributes to the
'Weaker' assessment of this rating factor.
Financial Profile: 'aa category'
Tashkent's financial profile reflects sound primary (payback below
9x) and secondary metrics (fiscal debt burden below 70%), which
Fitch assesses at 'aa', under its rating case for 2024-2028.
Fitch anticipates the city's operating balance will average
UZS1,376 billion over 2024-2028, down from UZS2,233 billion in
2023, under its rating case. Its operating balance is primarily
supported by revenue from taxes, which is projected to rise to
UZS12,182 billion by 2028, driven by an expected expansion of the
local economy. This is counterbalanced by a projected increase in
opex, due to continued high inflation.
Fitch expects the city to continue implementing its capex,
averaging UZS2,642 billion a year over 2024-2028, to support the
development of its infrastructure.
Derivation Summary
Tashkent's 'BB-' Long-Term IDR is based on its 'bb-' SCP, which is
on par with Uzbekistan's sovereign ratings, as Uzbek local and
regional governments (LRGs) cannot be rated above the sovereign,
reflecting high influence the state has on its LRGs'
responsibilities and finances.
Tashkent's 'bb-' SCP is above that of the City of Buenos Aires and
the same as that of the State of Sao Paolo. It is below those of
Ankara Metropolitan Municipality, Istanbul Metropolitan
Municipality, the City of Almaty and the City of Yerevan, which all
have stronger, 'aaa' financial profiles.
Short-Term Ratings
Tashkent's 'BB-' Long-Term IDRs correspond to a Short-Term IDR of
'B'.
National Ratings
n/a
Debt Ratings
n/a
Key Assumptions
Qualitative assumptions:
Risk Profile: 'Weaker'
Revenue Robustness: 'Weaker'
Revenue Adjustability: 'Weaker'
Expenditure Sustainability: 'Weaker'
Expenditure Adjustability: 'Weaker'
Liabilities and Liquidity Robustness: 'Weaker'
Liabilities and Liquidity Flexibility: 'Weaker'
Financial Profile: 'aa'
Asymmetric Risk: '-1'
Support (Budget Loans): 'N/A'
Support (Ad Hoc): 'N/A'
Rating Cap (LT IDR): 'N/A'
Rating Cap (LT LC IDR) 'N/A'
Rating Floor: 'N/A'
Quantitative assumptions - Issuer Specific
Fitch's through-the-cycle rating case incorporates a combination of
revenue, cost and financial risk stresses. It is based on 2019-2023
published figures and its expectations for 2024-2028:
- Operating revenue growth on average at 10.9% a year, markedly
below the increase of 20.7% a year in 2019-2023, due to added
stress;
- Operating spending growth on average at 13.6% a year, due to
moderation in inflation;
- Negative net capital balance on average at UZS2,185 billion a
year, due to the city's capex programme; and
- Average 9.1% cost of debt.
Quantitative assumptions - Sovereign Related
n/a
Issuer Profile
Tashkent is the capital of Uzbekistan, and its political and
financial centre. It is the country's largest city, accounting for
8% of the country's population. Tashkent's 2023 GDP per capita was
1.6x higher than the national figure of UZS 28,7 million
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
A downgrade of Uzbekistan's IDRs, or a revision of the SCP to below
'bb-' due to the deterioration of the debt payback above 9x under
Fitch's rating case, would lead to a downgrade of Tashkent's IDRs.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
An upward revision of the SCP to above 'bb-', underpinned by
improved predictability of the city's budgetary policy and a debt
payback below 9x could on a sustained basis may lead to an upgrade
if the sovereign rating is also upgraded.
ESG Considerations
Tashkent has an ESG Relevance Score of '4' for Data Quality and
Transparency due to exposure to limitations on the quality and
timeliness of financial data, including the transparency of public
debt and contingent liabilities that lags international standards.
This has a negative impact on the credit profile, is relevant to
the rating 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 Prior
----------- ------ -----
Tashkent City LT IDR BB- New Rating WD
ST IDR B New Rating WD
LC LT IDR BB- New Rating WD
===========
T U R K E Y
===========
TURKIYE: S&P Affirms 'BB-/B' Sovereign Credit Ratings
-----------------------------------------------------
On April 25, 2025, S&P Global Ratings affirmed its unsolicited
'BB-/B' foreign and local currency long- and short-term sovereign
credit ratings on Turkiye. The outlook is stable.
At the same time, S&P affirmed its unsolicited 'trAA+/trA-1+' long-
and short-term national scale ratings.
Outlook
The stable outlook reflects S&P's view that the current economic
team will persevere with tight monetary policy, thereby balancing
implementation risks associated with the government's medium-term
program in the face of domestic and external tensions.
Downside scenario
S&P could lower the rating if pressures on Turkiye's financial
stability or wider public finances were to intensify, potentially
in connection with unabated currency depreciation, alongside a
reversal of anti-inflationary policies and declines in net foreign
currency reserves.
Upside scenario
S&P could raise the rating should there be further progress on
bringing the inflation rate closer to single digits and restoring
long-term confidence in the Turkish lira, and, more broadly, in
domestic capital markets. Evidence of this would include further
de-dollarization of foreign currency deposits in Turkiye's banking
system, and increased liquidity and depth of domestic capital
markets, particularly for foreign currency operations.
Rationale
The affirmation reflects S&P's view that, despite the recent
increase in currency volatility and decline in foreign currency
reserves, Turkiye's authorities continue to pursue policies to
bring down high inflation and reduce the dollarization of the
economy.
Recent protests against the March 23 incarcerations of opposition
leaders could prove to be a long-term impediment to investor and
household confidence, as well as currency stability and growth. S&P
sees that Turkish firms have increased their demand for foreign
currency ahead of upcoming foreign currency debt maturities. In
addition, monetary authorities have reacted to recent pressures on
the exchange rate both by intervening in currency markets and by
raising interest rates, including a 350 basis points (bps) increase
in the one-week repurchase (repo) rate on April 17, 2025.
These actions have tightened liquidity and raised refinancing costs
for Turkish companies, weighing on prospects for companies'
profitability, investment, and growth. On top of this, the recent
appreciation of the real exchange rate could impinge on export
activity. For this reason, our 2.7% GDP growth forecast is subject
to risks, since investment spending is expected to fall and
unemployment to rise.
High dollarization, especially in the corporate sector, and
still-elevated inflation constrain the economy's flexibility,
despite progress on both fronts since midyear 2023. Despite these
factors, our rating on Turkiye benefits from several underlying
strengths. These include the resilient private sector, a
diversified export base, and the country's favorable demographics.
S&P's rating on Turkiye is also supported by the government's low
debt burden, albeit the cost of debt servicing is on the rise.
Institutional and economic profile: Once again in flux
-- Support within the governing AKP party to revise the 2017
constitution could eventually bring general elections forward, but
not before 2026, in our view.
-- Key economic factors to watch include household savings and
hedging behavior, as well as the external environment.
-- U.S. trade tariffs will impinge on the economy both directly
and indirectly, though lower energy prices could bring some
relief.
S&P considers Turkiye's institutional settings to be weak. Under
the 2017 constitution, the executive branch has considerable
powers, including the ability to appoint and dismiss cabinet
ministers and the leadership of the central bank, and to issue
decrees. In S&P's view, decision-making is highly centralized, with
limited parliamentary and judicial oversight of the executive. The
state has passed legislation to censor free speech online and in
print. It has also imprisoned members of the opposition and
journalists.
No elections are scheduled until 2028. Nevertheless, some deputies
within the senior party of the current AKP-MHP governing coalition
are calling for President Erdogan to serve a fourth term. Under the
2017 constitution, the president, who is both the head of state and
the head of government, cannot serve more than two consecutive
five-year terms in full. By cutting short his current term, S&P
understands that President Erdogan would be eligible to run for a
third term. To do so, however, would require the support of 360 of
the 600 members of parliament, which is 40 more than the number of
governing coalition's members of parliament.
S&P factors its expectation of ongoing domestic political
volatility into its rating. To the extent that domestic tensions
also raise questions about property rights, foreign direct
investment's role in financing Turkiye's current account deficit is
likely to remain well below the high of 3.5% of GDP in 2006,
reached during the ruling AKP party's first term in office.
One of the implicit pillars of the government's disinflation plan
is a stable trade-weighted nominal exchange rate. Already this
year, the appreciation of the real exchange rate, alongside
still-high labor costs and tight domestic credit conditions, has
squeezed corporate profit margins, particularly for exporters.
Waning corporate profitability has, in turn, made companies
hesitant to invest. It is this slowdown in investment (rather than
consumption) that is behind the expected slowdown in GDP in 2025.
S&P said, "Our headline GDP growth projections are 2.7% for 2025
and 2.9% for 2026. Understanding Turkiye's national accounts is
difficult, in light of large recurrently negative contributions to
GDP from inventories. These negative figures may reflect the
over-estimation of real consumption due to what appear to be
consumption deflators underestimating actual inflation. In any
case, we expect less than 1% investment spending in real terms for
the next two years, although with some underlying resilience in
consumption. Services sectors, particularly construction, continue
to outpace industrial sectors." For example, manufacturing, which
makes up 16% of Turkiye's GDP, has expanded by just 2.3% during the
two years to year-end 2024, whereas construction and real
estate--together equivalent to 13% of GDP--were up 10.5% over the
same period. Given the services sector's heightened sensitivity to
interest rates, there are still risks to the economy.
Despite long-standing volatility of the exchange rate, elevated
inflation, and domestic tensions, Turkiye's private sector has
historically demonstrated resilience to a series of external and
domestic shocks. The most recent one is the U.S. administration's
decision to impose 10% tariffs on most of its trading partners, as
well as 25% on steel exports. The impact of this on net exports
will subtract an estimated 0.7 percentage points (ppts) from GDP
growth this year, implying headline GDP growth of just 2.7%.
At the same time, recent appreciation of the euro versus the dollar
could benefit Turkish exporters. This is because many key commodity
inputs are priced in dollars, whereas close to half of exports go
to the euro area and are priced in euros, benefiting Turkiye's
terms of trade. Moreover, lower energy prices, if sustained, will
benefit consumption in Turkiye and the country's
balance-of-payments outcomes.
Flexibility and performance profile: Still-elevated inflation
complicates fiscal and monetary assessments
-- The surge in the local-currency value of the Turkish economy
masks underlying trends in fiscal and monetary metrics.
-- For 2025, we project an accruals-based general government
deficit of about 4% of GDP though a higher figure in cash terms.
-- Short-term external debt, including trade financing and
deposits, remains elevated, but Turkiye's net external financing
needs have subsided notably since year-end 2023.
S&P said, "Given modest debt to GDP (estimated at 26% of GDP in
gross terms at year-end 2024) and a manageable, albeit rising,
average cost of debt, we do not consider the somewhat relaxed
fiscal stance as a risk to public finances. We also consider that
the growth of government consumption, in real terms, as recorded in
Turkiye's national accounts, appears to have decelerated during
2024 to just over 1% compared to 2023."
Nonetheless, budgetary performance remains difficult to disentangle
from still-rapid nominal GDP growth, which surged by 63.5% in 2024
and is projected to expand a further 36% during 2025. During 2024,
central government interest expenditure alone increased 53% year on
year in nominal terms. Overall, fiscal policy--partly reflecting
earthquake spending--remains accommodative. For 2025, probably the
key fiscal risk is on the revenue side, given Turkiye's high
reliance on indirect, consumption-sensitive tax receipts, and the
risks to revenue from a relatively stable exchange rate and
declining inflation.
Recent currency pressure stemming from nonresident capital
outflows, and an increase in corporate foreign currency demand,
have elicited a forceful response from the central bank, which has
intervened in the spot market and implemented an emergency 3.5 ppts
increase in the key one-week repo rate to 46% as of April 17. As a
consequence, domestic liquidity conditions have tightened
considerably, with the real ex-ante interest rate at about 20%.
Positively, despite the increase in foreign currency hedging from
corporates, the overall dollarization rate of the deposit base has
remained fairly stable at 42% of the total so far as of April 10.
Nevertheless, domestic political tensions and external market
volatility could change this.
At an estimated $224.3 billion as of Jan. 31, 2025, on a remaining
maturity basis, including deposits and trade financing, short-term
external debt remains higher than in June 2023, when authorities
reintroduced orthodox monetary policies by raising real ex-ante
rates to positive levels and relaxing banking sector regulations.
At the beginning of 2025, gross reserve coverage of short-term
external debt (by remaining maturity) was 74% versus 53% in the
third quarter of 2023. S&P said, "However, since the incarceration
of opposition politicians on March 23, we estimate this figure has
declined below 70%. Our definition of net reserves (useable
reserves) excludes foreign currency borrowed from residents from
gross reserves. Over the last month, useable reserves have declined
by an estimated $24.4 billion (or $35.2 billion excluding gold
revaluation effects). Over the same period, the central bank's net
foreign asset position declined to $32.8 billion as of April 17,
2025, from $61.7 billion."
S&P said, "We consider the shift to tighter monetary policy will
likely weigh on asset quality in Turkiye's financial system. Our
Banking Industry Country Risk Assessment places Turkiye's banking
sector in group '9', where '10' denotes the highest risk and '1'
the lowest risk. We note that state-owned banks are relatively
large, representing about one-third of total banking system assets.
Loan book quality risks are particularly pertinent for
public-sector banks, in our view. This is because they have been
heavily involved in episodes of rapid credit expansion at low
rates, as well as lending to state agencies and enterprises for
quasi-fiscal purposes, raising questions about borrowers' ability
to repay these lines.
"In accordance with our relevant policies and procedures, the
Rating Committee was composed of analysts that are qualified to
vote in the committee, with sufficient experience to convey the
appropriate level of knowledge and understanding of the methodology
applicable." At the onset of the committee, the chair confirmed
that the information provided to the Rating Committee by the
primary analyst had been distributed in a timely manner and was
sufficient for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The chair ensured every voting member was given the opportunity to
articulate his/her opinion. The chair or designee reviewed the
draft report to ensure consistency with the Committee decision. The
views and the decision of the rating committee are summarized in
the above rationale and outlook. The weighting of all rating
factors is described in the methodology used in this rating
action.
Ratings List
Ratings Affirmed
Turkiye
Sovereign Credit Rating |U^ BB-/Stable/B
Turkey National Scale |U^ trAA+/--/trA-1+
Transfer & Convertibility Assessment |U^ BB
|U^ Unsolicited ratings with issuer participation, access to
internal documents and access to management.
=============
U K R A I N E
=============
DTEK OIL: Fitch Affirms 'CC' Long-Term IDR
------------------------------------------
Fitch Ratings has affirmed DTEK OIL & GAS PRODUCTION B.V.'s (DOG)
Long-Term Issuer Default Rating (IDR) at 'CC'. Fitch also affirmed
the senior unsecured rating on the notes issued by NGD Holdings
B.V. and guaranteed by DOG at 'CC' with a Recovery Rating of
'RR4'.
The IDR reflects DOG's high operational risks stemming from its
operations in Ukraine, weak and uncertain liquidity, elevated
refinancing risk, and a currency mismatch between its U.S.
dollar-denominated Eurobond obligations and its Ukrainian
hryvnia-denominated domestic sales. Meanwhile, Fitch expects DOG
will continue to generate positive free cash flow and its EBITDA
gross leverage to remain below 2x in 2025.
Although DOG has continued to meet its Eurobond payments with
support from affiliated companies to acquire foreign currency,
there is uncertainty on DOG's ability to service upcoming bond
principal amortisation due to the National Bank of Ukraine's (NBU)
moratorium on cross-border FC payments.
Key Rating Drivers
Elevated Refinancing Risk, Uncertain Liquidity: DOG faces
refinancing risk as its USD325 million dollar-denominated Eurobond
matures in December 2026, with high operational risks severely
limiting its refinancing options. Although DOG continued to service
the Eurobond in 2024 (around USD70 million per year for coupon and
principal), there is limited visibility on DOG's ability to make
such payments in the future due to NBU restrictions, and
availability of FC. In addition, Fitch does not have sufficient
information to assess the likelihood of continuing support from
affiliated companies.
Amended Moratorium On Cross-Border Payments: The NBU has relaxed
the moratorium on cross-border FC payments in 2024, under certain
conditions, allowing companies to purchase FC and send cash abroad
by means of dividends to service coupon payment of bonds issued
abroad, but not principal repayments. Despite this relief,
executing FC transfers to cover principal payments remains
challenging under the NBU restriction along with the limited supply
of FC in the domestic market. DOG has previously obtained a one-off
permit from NBU for its 1H22 coupon; however, none has been granted
afterwards.
Operations Continue Amid Disruptions: One of DOG's production
assets in the Poltava region was damaged by a Russian attack in
early 2025 and is currently operating at slightly decreased
capacity. DOG has reduced its drilling activity amid the
uncertainty, resulting in a 15% decline in 2024 production compared
to 2023. Fitch expects DOG's production to decline to 11.3 thousand
barrels of oil equivalent per day (kboepd) in 2025, resulting in
EBITDA of EUR170 million. In 2026-2028, Fitch assumes production to
remain at about 12 kboepd, leading to EBITDA further decreasing to
EUR110 million under Fitch's gas price assumption. However, Fitch
expects DOG would still generate positive free cash flow.
Complex Group Structure: DOG is part of a larger group, DTEK GROUP
B.V., which is a private energy corporation in Ukraine with main
subsidiaries including DTEK Energy B.V. (CC), DTEK Renewables B.V.
(CC), D. Trading B.V. and other companies. DTEK GROUP B.V. is
ultimately owned by SCM. Fitch rates DOG on a standalone basis and
assess that SCM has overall weak incentives to support DOG.
Transactions with Related Parties: While Fitch recognises that
support provided by affiliated companies has enabled DOG to make
its Eurobond payments, significant transactions with related
parties and working-capital volatility also make its cash flow
profile less predictable. DOG sells gas domestically through an
affiliated trader, and its working-capital movements were deeply
negative in 2021-2024.
Peer Analysis
DOG operates three gas fields in the east of Ukraine in the Poltava
region. DOG's Ukrainian peers include Ferrexpo plc (CCC+),
Metinvest B.V. (CCC) and Interpipe Holdings Plc (CCC-), which are
rated higher due to better access to FC because of exports (all
three companies) and/or producing assets abroad (Metinvest) and no
financial debt at Ferrexpo. Its affiliated companies, DTEK Energy
B.V. and DTEK Renewables B.V. (both rated CC), share tight
liquidity and high operational risks.
Key Assumptions
- Natural gas sold domestically at a discount to Fitch's TTF (Title
Transfer Facility) gas price assumptions
- Natural gas production of 11.3 kboepd in 2025, then averaging 12
kboepd in 2026-2028
- Capex remaining subdued at about UAH1.4 billion per annum to
2027
- No dividends to ordinary shareholders paid in 2025-2027
Recovery Analysis
- The recovery analysis assumes that DOG would be reorganised as a
going concern (GC) in bankruptcy rather than liquidated
- The GC EBITDA of UAH3 billion reflects Fitch's view of a
sustainable, post-reorganisation EBITDA level based on normalised
domestic prices and, potentially, lower production.
- Fitch uses an enterprise value/EBITDA multiple of 3x to calculate
a post-reorganisation valuation, reflecting high operational risks
due to the company's focus on Ukraine
- Fitch assumes that the senior unsecured Eurobond ranks equally
with the company's deferred consideration for the acquisition of
PrJSC Naftogazvydobuvannya
- After deducting 10% for administrative claims, its analysis
generated a waterfall-generated recovery computation (WGRC) in the
'RR4' band, indicating a 'CC' rating for the senior unsecured
notes
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade:
- Evidence that a default or default-like process has begun,
including (i) DOG entering a grace or cure period following
non-payment of a material financial obligation, or (ii) formal
announcement of a distressed debt exchange (DDE), could lead to a
downgrade to 'C'
- An uncured payment default or a DDE could lead to a downgrade to
'RD' (Restricted Default)
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade:
- An upgrade is unlikely at present unless DOG experiences reduced
operational risks, improved liquidity, and better access to
external financing, along with relaxation of the restrictions on
cross-border FC payments on a consistent basis
Liquidity and Debt Structure
DOG's liquidity position is uncertain, given its constrained access
to FC. At end-2024 its cash balance, according to Fitch's
estimates, would not be sufficient to make the Eurobond coupon and
amortisation payments in 2025 (around USD70 million in total).
While DOG's FCF generation is supported by high natural gas prices
and could be sufficient to service its debt, the company's ability
to use its cash flows for debt repayments remains subject to FC
payment restrictions.
As at end-2024, DOG's debt was dominated by a USD325 million
Eurobond (UAH13.7 billion) due in 2026. The bond was issued through
its wholly owned FinCo, NGD Holdings B.V. at a 6.75% coupon rate to
be paid semi-annually in cash with USD50 million annual
amortisation from December 2023 onwards, and a bullet payment of
USD275 million at maturity in December 2026.
Issuer Profile
DOG is a privately owned natural gas producer in Ukraine ultimately
controlled by Rinat Akhmetov's SCM. In 2024, DOG produced 1 billion
cubic meters of gas, almost 5% of the country's total gas
consumption.
Summary of Financial Adjustments
(i) Fitch reclassified DOG's deferred consideration as debt; (ii)
Fitch reclassified a part of working-capital outflow as interest,
given such repayments were executed by affiliated companies and
involved a non-cash set-off with DOG's intra-group receivables.
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
DTEK OIL & GAS PRODUCTION B.V. has an ESG Relevance Score of '4'
for Group Structure due to a large number of complex related-party
transactions and a complex group structure, which has a negative
impact on the credit profile and is relevant to the rating in
conjunction with other factors.
DTEK OIL & GAS PRODUCTION B.V. has an ESG Relevance Score of '4'
for Governance Structure due to influence of the key shareholder,
which has a negative impact on the credit profile and is relevant
to the rating 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
----------- ------ -------- -----
NGD Holdings B.V.
senior unsecured LT CC Affirmed RR4 CC
DTEK OIL & GAS
PRODUCTION B.V. LT IDR CC Affirmed CC
===========================
U N I T E D K I N G D O M
===========================
ATOM MORTGAGE: Moody's Cuts Rating on GBP52.7MM E Notes to B3
-------------------------------------------------------------
Moody's Ratings has downgraded the ratings of four classes of notes
and affirmed the rating of one class of notes issued by Atom
Mortgage Securities DAC:
GBP193.4M (Current outstanding amount GBP152.1M) Class A Notes,
Affirmed Aaa (sf); previously on Mar 14, 2023 Affirmed Aaa (sf)
GBP42M (Current outstanding amount GBP33M) Class B Notes,
Downgraded to A2 (sf); previously on Mar 14, 2023 Downgraded to A1
(sf)
GBP37.2M (Current outstanding amount GBP29.3M) Class C Notes,
Downgraded to Baa3 (sf); previously on Mar 14, 2023 Downgraded to
Baa2 (sf)
GBP57.6M (Current outstanding amount GBP45.3M) Class D Notes,
Downgraded to Ba3 (sf); previously on Mar 14, 2023 Downgraded to
Ba1 (sf)
GBP52.7M (Current outstanding amount GBP41.5M) Class E Notes,
Downgraded to B3 (sf); previously on Mar 14, 2023 Downgraded to B1
(sf)
Moody's did not rate the Class X Notes.
RATINGS RATIONALE
The main driver for the downgrades of the ratings on Class B, C, D
and E notes is an increase in expected loss of the securitised loan
because of a lower Moody's property value and an increased
refinancing risk due to a higher assumed leverage at loan
maturity.
The vacancy rate for the three underlying properties remains high
at 19.1% and is poised to increase to about 28.0% when accounting
for anticipated lease expirations and executed break options.
Moody's value for the properties is 5.7% lower compared to when
Moody's last took rating action in March 2023, mainly due to
persistent underperformance in the portfolio as well as weaker
market conditions stemming from a combination of subdued demand and
new supply resulting in higher yields and vacancy rates as well as
lower effective rental levels in some markets.
The rating on the Class A Notes was affirmed because this tranche
has sufficient subordination to absorb the higher expected loss on
the securitized loan.
Moody's LTV is 84.7% compared to a reported LTV of 76.2%.
Moody's rating action reflects an expected loss of 1.8% of the
current balance, compared with 1.2% at the last rating action.
Moody's derives this loss expectation from the analysis of the
default probability of the securitised loan (both during the term
and at maturity) and Moody's values assessment of the collateral.
METHODOLOGY UNDERLYING THE RATING ACTION:
The principal methodology used in these ratings was "EMEA
Commercial Mortgage-backed Securitisations" published in January
2025.
FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS:
Main factors or circumstances that could lead to a downgrade of the
ratings are (i) a further decline in the property values backing
the underlying loan or (ii) an increase in default risk
assessment.
Main factors or circumstances that could lead to an upgrade of the
rating are (i) an increase in the property values backing the
underlying loan or (ii) a decrease in default risk assessment.
PERFORMANCE SUMMARY
Atom Mortgage Securities DAC is a true sale transaction backed by a
senior loan and a senior capex facility (senior loan) in the total
current amount of GBP307.8 million. Outside the securitisation
there is a GBP77.2 million mezzanine loan that is contractually and
structurally subordinated to the senior loan and secured by a lien
on the subject properties.
The senior loan pays a floating interest of SONIA plus a margin of
1.85%. The senior loan has one, 1-year extension option remaining
after its next maturity date on July 20, 2025. The extension
options are subject to the satisfaction of certain conditions which
include the requirement that the loan is 100% hedged against
interest rate risk by a cap with a strike rate that is the higher
of (i) 2.0% and (ii) a strike rate that ensures an ICR of 1.50x.
The current interest rate cap has a strike rate of 2.0%. The senior
loan does not have a scheduled amortisation before a change of
control. There is a release price mechanism in place where 100% of
the allocated loan amount is repaid for the first 20% of the loan
notional and 115% thereafter, provided that the release price of
the Oxford property is 115% at all times.
The transaction was initially backed by six properties securing a
GBP391.2 million senior loan. Following the sale of three
properties, the senior loan is now GBP307.8 million secured by
three business parks which comprise 970,138 square feet. As per the
latest investor report as of January 2025 [1], the portfolio's
overall vacancy rate was 19.1%, which is better than when Moody's
last took rating action (22.8% as of January 2023). However, the
latest market valuation indicated a total portfolio value of
GBP403.98 million (including a portfolio premium for Oxford
Business Park), which is down 19% from the previous valuation. As
such, the market LTV increased from 66.5% to 76.2%.
The three properties exhibit the following performance trends and
market conditions:
-- Oxford Business Park's reported vacancy was 23.1% compared to
1.5% at closing. The park includes two vacant buildings (about
63,000 square feet) that are either functionally obsolete or overly
specialized. Several tenants have recently given notice to execute
break options or to vacate upon an upcoming lease expiry date, and
thus, Moody's estimates that vacancy will increase to around 30% in
the near term. Performance in the submarket is being weighed down
by new supply, including speculative developments tailored to
attract life sciences tenants; this has pushed vacancy up, while
rental growth has plateaued.
-- Hammersmith-Waterfront reported a vacancy of 15.3%; however,
Betfair (43.2% of the building's rentable area) is vacating at the
end of its lease in July 2025, which will push the property's
vacancy up to about 59%. According to the valuation report, the
Hammersmith office submarket vacancy has increased above 18% due to
the delivery of large developments that have struggled to let.
Nonetheless, the subject remains attractive as a cluster for life
science innovation thanks to its fully-serviced lab space known as
"Motherlabs." The sponsor's recently completed Refinery building,
located adjacent to the subject, brings 150,000 square feet of lab
enabled space, along with a rich offering of amenities, which will
reportedly be available for tenants at the Waterfront property.
-- Uxbridge reported a vacancy of 14.3%, down from 42.0% at
issuance. If Moody's accounts for recently executed leases, vacancy
is expected to fall to around 11.0%. Offsetting these positive
trends are the leasing concessions which amount to GBP9.5 million
of free rent over a 30-month period. Thus, the free rent equals
about one full year of the property's current contractual rent.
Uxbridge is not likely to be viewed as a location to deliver a life
science campus, and demand for suburban offices remains weak. As
such, the market value of this asset has fallen by almost 43% since
issuance in 2021.
Moody's now expects vacancy levels to remain elevated going forward
due to weaker tenant demand coupled with additions to competitive
supply. Consequently, Moody's property value for the three
remaining properties has decreased by about 5.7% since Moody's last
rating action to GBP363.2 million, and it is down 11% versus GBP407
million at closing. Moody's LTV has thus increased to 84.7% from
75.0% at closing.
EUROSAIL-UK 07-3: Fitch Affirms 'B+sf' Rating on Class D1a Notes
----------------------------------------------------------------
Fitch Ratings has affirmed Eurosail-UK 07-3 BL Plc (ES07-3) and
Eurosail-UK 07-4 BL Plc (ES07-4).
Entity/Debt Rating Prior
----------- ------ -----
Eurosail-UK 07-3 BL Plc
Class A3a 29880YAG4 LT AAAsf Affirmed AAAsf
Class A3c 29880YAJ8 LT AAAsf Affirmed AAAsf
Class B1a 29880YAK5 LT AAAsf Affirmed AAAsf
Class B1c 29880YAM1 LT AAAsf Affirmed AAAsf
Class C1a 29880YAN9 LT A-sf Affirmed A-sf
Class C1c 29880YAQ2 LT A-sf Affirmed A-sf
Class D1a 29880YAR0 LT B+sf Affirmed B+sf
Class E1c XS0308725844 LT CCCsf Affirmed CCCsf
Eurosail-UK 07-4 BL Plc
Class A3 XS1150797600 LT AAAsf Affirmed AAAsf
Class A4 XS1150799481 LT AAAsf Affirmed AAAsf
Class A5 XS1150799721 LT AAAsf Affirmed AAAsf
Class B1a 29881BAK4 LT AAsf Affirmed AAsf
Class C1a 29881BAN8 LT BB+sf Affirmed BB+sf
Class D1a 29881BAR9 LT CCCsf Affirmed CCCsf
Class E1c XS0311717416 LT CCsf Affirmed CCsf
Transaction Summary
The transactions comprise UK non-conforming mortgage loans
originated by Southern Pacific Mortgage Limited, Preferred
Mortgages Limited (both formerly wholly-owned subsidiaries of
Lehman Brothers), London Mortgage Company and Alliance and
Leicester Plc.
KEY RATING DRIVERS
Increasing CE: ES07-3's sequential amortisation has resulted in
continued build-up of credit enhancement (CE) for all of its notes.
ES 07-4 continues to amortise sequentially following an arrears
trigger breach at the September 2023 IPD. Despite the deteriorating
asset performance of the pool, the continued material increase in
CE supports the affirmation of all notes.
ES07-4 envisages pro rata amortisation subject to multiple
sequential switch triggers. The arrears trigger breach is
reversible and amortisation could return to pro-rata if 90+ days
delinquencies (currently 30.51%) return below the 22.5% trigger
level. However, this is not its immediate expectation as Fitch
expects existing late-stage arrears levels to worsen as borrowers
fall deeper into arrears and the pool continues to lose
granularity.
Weak Revenue Collections: Fitch analysed the revenue collections
across both transactions over the past 12 months and identified
materially lower levels of cash collections than the weighted
average (WA) yield of the pools. This reflects the performance
deterioration of the assets, as evidenced by the continued arrears
accumulation over the last 12 months. Fitch estimates the yield of
the two pools to be 20%-30% below the WA yield implied by the
reported interest rates of the mortgage loans.
To account for the weaker revenue collections, Fitch considered
yield haircut sensitivities in its analysis, which implied
model-implied rating (MIR) downgrades and contributed to the
Negative Outlooks on ES07-3's class C1a, C1c and D1a notes and
ES07-4's class B1a and C1a notes.
Late Stage Arrears Accumulation: ES07-3's class C and D notes and
ES07-4's class B, C, D and E notes are up to four notches below
their MIRs. This reflects its view that an increase in arrears
could result in lower MIRs at future rating reviews. In particular,
Fitch believes late stage arrears accumulation will continue,
despite decreasing interest rates, given the limited repossession
activity. As at March 2025, three-month plus arrears were 29.8% and
29.4% for ES07-3 and ES07-4, respectively, increases of 6.3pp and
5.5pp from the last annual review. The continued performance
deterioration and build up in late stage arrears drives the
Negative Outlooks.
Senior Fees Remain Elevated: Both transactions continue to incur
higher than expected senior fee expenses with total non-servicing
fees in excess of GBP500,000 over the last 12 months across both
transactions. As previously disclosed, Fitch's ratings are
sensitive to the senior fee assumptions applied and any increase in
this assumption could lead to lower MIRs and downgrades at future
reviews.
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
The transactions' performance may be affected by adverse changes in
market conditions and economic environment. Weakening economic
performance is strongly correlated to increasing levels of
delinquencies and defaults and could reduce CE available to the
notes.
Fitch conducted sensitivity analyses by stressing each
transaction's base case weighted average foreclosure frequency
(WAFF) and weighted average recovery rate (WARR) assumptions, and
examining the rating implications on all classes of issued notes. A
15% increase in the WAFF and a 15% decrease in the WARR could lead
to downgrades of up to three notches for the mezzanine and junior
tranches in both transactions.
Elevated levels of senior fixed fees could also lead to downgrades
for ES07-3's classes D1a notes and B1a and ES07-4's class C1a notes
if they do not return to baseline levels in the medium term.
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
Stable to improved asset performance driven by stable delinquencies
and defaults would lead to increasing CE and potential upgrades.
Fitch tested an additional rating sensitivity scenario by applying
a decrease in the WAFF of 15% and an increase in the WARR of 15%.
The results indicate upgrades of up to eight notches for the
mezzanine and junior tranches in the two transactions.
USE OF THIRD PARTY DUE DILIGENCE PURSUANT TO SEC RULE 17G -10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset
pools and the transactions. Fitch has not reviewed the results of
any third party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
Fitch did not undertake a review of the information provided about
the underlying asset pools ahead of the transaction's initial
closing. The subsequent performance of the transactions over the
years is consistent with the agency's expectations given the
operating environment and Fitch is therefore satisfied that the
asset pool information relied upon for its initial rating analysis
was adequately reliable.
Overall, and together with any assumptions referred to above,
Fitch's assessment of the information relied upon for the agency's
rating analysis according to its applicable rating methodologies
indicates that it is adequately reliable.
ESG Considerations
ES07-3 and ES07-4 have an ESG Relevance Score of '4' for Customer
Welfare - Fair Messaging, Privacy & Data Security due to pools
exhibiting an interest only maturity concentration of legacy non
conforming owner-occupied loans of greater 20%, which has a
negative impact on the credit profile, and is relevant to the
ratings in conjunction with other factors.
ES07-3 and ES07-4 have an ESG Relevance Score of '4' for Human
Rights, Community Relations, Access & Affordability due to a
significant portion of the pools containing owner-occupied loans
advanced with limited affordability checks, 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.
HELIOS TOWERS: Fitch Hikes Long-Term IDR to 'BB-', Outlook Stable
-----------------------------------------------------------------
Fitch Ratings has upgraded the Helios Towers Plc's (HT) Long-Term
Issuer Default Ratings (IDR) to 'BB-' from 'B+'. The Outlook is
Stable. Fitch has also upgraded the senior unsecured rating of HT's
wholly owned subsidiary, HTA Group, to 'BB- with a Recovery Rating
of 'RR4' from 'B+/'RR4''.
The upgrade reflects HT's improved credit profile and Fitch's
expectation that the company is on track to deleverage to its net
EBITDA leverage target of 3.0x by 2026. Organic EBITDA growth aided
by high co-location rates and contractual escalators have supported
positive pre-dividend free cash flow (FCF) generation.
Rating strengths include HT's leading market share in seven of its
nine markets, long-term earnings and cash flow visibility
underpinned by long-term contracts, and strong tsmarket-growth
drivers. HT's rating is constrained by the weak operating
environment it operates in. The Stable Outlook underscores i
expectation of a rational capital allocation policy, promoting
sustainable growth and maintaining financial flexibility.
Key Rating Drivers
Deleveraging on Track: Company-defined net leverage declined to
4.0x in 2024, which corresponds to Fitch-calculated EBITDA net
leverage of 4.3x. HT intends to further deleverage towards 3.0x by
end-2026 through organic growth. Fitch expects HT to maintain
Fitch-defined EBITDA net leverage below 4.0x in 2025 and 2026 and
keep sufficient headroom to manage any FX fluctuation risk not
absorbed by contract escalators.
Co-location Drives Tenancy Growth: HT has guided to organic tenancy
additions in 2025 of 2,000-2,500. Revenues from new tenants on an
existing site are higher-margin than average, so given minimal
incremental expense an increased tenancy ratio will help improve
FCF margins and lower leverage. Fitch expects EBITDA margins to
increase to 48% by 2026 from 46% in 2024 driven by growth in
tenancy ratios. FCF turned positive in 2024 due to lower capex and
improvement in EBITDA, and Fitch expects pre-dividend FCF to
continue to increase to USD100 million by 2026 from XX in 2024.
Operating Environment Constraints: HT operates in countries with
fairly weak operating environments associated with 'B+' and below
sovereign ratings. Fitch considers the ratings of corporates
operating in these markets as partly anchored to the sovereign even
in the absence of transfer and convertibility risks. Fragile
economic structures and uncertain regulation may negatively affect
HT's business profile. Its rating thresholds for HT are
consequently tighter than for peers operating in developed markets.
Geographical diversification, manageable counterparty risk,
hard-currency contracts and access to international markets soften
the risk for HT compared with peers.
Highly Visible Cash Flows: HT's cash flows are underpinned by
long-term index-linked contracts with mobile network operators. At
end-2024, HT had USD5.1 billion of revenues secured by contracts
and an average remaining life on its contracts of 6.9 years. It
operates in emerging markets with sparser networks than Europe and
the US. In these regions, mobile penetration rates are lower, and
there is an ongoing migration to 4G and 5G networks.
Mitigated FX Risk: Fitch estimates 56% of 2024 revenues are from
dollarised countries or from countries where the currency is euro
or dollar pegged. Another 19% is contractually linked to hard
currencies. This substantially offsets the risk of adverse FX
movements. HT remains exposed to the risk of de-dollarising or
de-pegging of the local currencies. Exposure to multiple local
currencies, the strategy of keeping excess cash in US dollars and
using substitutes to dollars such as rand or euros helps mitigate
FX risk.
Supportive Contract Structures: HT has incorporated power
escalators into almost its customer contracts, with about half
having quarterly and half annual power escalators based on local
fuel and electricity pricing. HT applies annual CPI escalators,
although it absorbs the impact of FX increases on contracts not
denominated in or linked to hard currencies until these escalators
are activated. This contract structure helps limit the impact of
economic fluctuations on EBITDA. Failure to renew contracts at
similar terms and pricing pressures at renewals could pressure the
rating.
Applicable Tanzanian Country Ceiling: Fitch uses its Corporate
Rating Criteria and its guidance on exceeding the Country Ceiling
to assess the risk from the currency mismatch between cash flow and
debt (mostly in US dollars), and transfer and convertibility risk.
Fitch determines HT's effective Country Ceiling at 'B+'. Fitch
estimates that net cash flow (EBITDA used as proxy) generated by HT
in countries with a higher Country Ceiling than that of Tanzania
(B+) is insufficient to cover gross interest expense due in hard
currency. A positive change in this country mix could lead Fitch to
apply a higher applicable Country Ceiling.
Rating Above Country Ceiling: Fitch assesses HT's Foreign-Currency
IDR one notch higher than the Country Ceiling of 'B+'. Fitch
believes HT has structural enhancements allowing for at least a
one-notch IDR uplift above the Country Ceiling. This is based on
its expectation that any balance-of-payments crisis would be fairly
short, and during it hard currency-denominated debt could be
serviced with available and generated offshore liquidity resources.
Fitch expects cash flow generation and offshore readily available
cash and committed credit facilities to cover at least 12 months of
hard-currency debt servicing by over 1.5x.
Peer Analysis
HT's closest peer is IHS Holding Limited (IHS, B+/Stable), a tower
company focused on emerging markets with a significant African
presence and high exposure to a single market, Nigeria, with a
fairly weak operating environment.
Axian Telecom (B+/Stable), an integrated Africa-focused telecom
operator, is present in countries with a similarly weak operating
environment. HT has higher debt capacity at the 'B+' rating than
Axian due to lower business risk, given the infrastructure nature
of its business and less intense market competition.
Except for its weaker operating environment, HT shares some
operating and financial characteristics with investment-grade
international peers, such as American Tower Corporation
(BBB+/Stable), Cellnex Telecom S.A. (BBB-/Stable) or PT Profesional
Telekomunikasi Indonesia (BBB/Stable).
Key Assumptions
- Reported revenue to grow in mid-single digits in 2025-2028,
driven by organic growth from co-locations and new-site builds
- Fitch-defined EBITDA margin of 47%-48% in 2025-2028
- Working-capital outflows of around USD20 million a year in
2025-2027
- Capex at 21% of revenue in 2025, mostly driven by discretionary
site investments, declining to 16% from 2026
- EBITDA net leverage maintained near the company's target leverage
through shareholder return of excess FCF in 2026-2028.
- No debt-funded acquisitions between 2025 and 2028
RATING SENSITIVITIES
Factors that Could, Individually or Collectively, Lead to Negative
Rating Action/Downgrade
- Downward revisions of the sovereign Country Ceiling of the
countries HT operates in, which could lead us to revise its
applicable Country Ceiling.
- Material deterioration in the operating environments of the
countries in which HT operates or change in EBITDA mix with greater
contribution from countries with weaker operating environment
- EBITDA net leverage above 4.5x on a sustained basis or a pivot to
a more aggressive capital-allocation policy
- Competitive weaknesses, market share erosion, regulatory
pressures or shareholder distributions leading to sharp
deterioration in FCF generation
- Liquidity risks, including challenges in moving cash out of
operating companies to HT to service offshore debt
Factors that Could, Individually or Collectively, Lead to Positive
Rating Action/Upgrade
- Improvement in the operating environment of the countries in
which HT operates or favourable change in the geographical mix of
cash flows
Liquidity and Debt Structure
At end-2024 HT had USD161 million of cash and cash equivalents, of
which around half was at the holding company. HT also had access to
USD255 million of undrawn debt facilities, including a revolving
credit facility of USD90 million. The earliest maturity is in 2027,
when its USD300 million convertible notes come due, with the first
call in 2026.
Fitch assumes pre-dividend FCF will remain positive unless the
company pivots to an aggressive build-to-suit programme or major
acquisitions. High capex on a new site would remain discretionary
and would be accompanied by a contract featuring long-term income.
Issuer Profile
HT is an independent tower company with more than 14,000 towers in
nine high-growth markets in Africa and the Middle East, and a
leading position in seven of these.
MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS
Fitch's latest quarterly Global Corporates Macro and Sector
Forecasts data file which aggregates key data points used in its
credit analysis. Fitch's macroeconomic forecasts, commodity price
assumptions, default rate forecasts, sector key performance
indicators and sector-level forecasts are among the data items
included.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless
otherwise disclosed in this section. A score of '3' means ESG
issues are credit neutral or have only a minimal credit impact on
the entity, either due to their nature or the way in which they are
being managed by the entity. Fitch's ESG Relevance Scores are not
inputs in the rating process; they are an observation on the
relevance and materiality of ESG factors in the rating decision.
Entity/Debt Rating Recovery Prior
----------- ------ -------- -----
Helios Towers Plc LT IDR BB- Upgrade B+
senior unsecured LT BB- Upgrade RR4 B+
HTA Group, Ltd
senior unsecured LT BB- Upgrade RR4 B+
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
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Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2025. All rights reserved. ISSN 1529-2754.
This material is copyrighted and any commercial use, resale or
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Information contained herein is obtained from sources believed to
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