/raid1/www/Hosts/bankrupt/TCREUR_Public/110408.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
Friday, April 8, 2011, Vol. 12, No. 70
Headlines
B U L G A R I A
KREMIKOVTZI AD: Fourth Auction Scheduled for April 12
C Z E C H R E P U B L I C
SAZKA AS: CEO Can't Take Measures Without Board Approval
SAZKA AS: Creditors to Focus on Securing Operations
F R A N C E
FRENCH CHEMICAL: S&P Places 'BB/B' Ratings on CreditWatch Positive
NOVASEP HOLDING: S&P Lowers Corporate Credit Rating to 'CCC+'
G E R M A N Y
COMMERZBANK AG: Plans to Repay EUR14.3-Bil. in State Aid by June
CONTINENTAL AG: Moody's Upgrades Corporate Family Rating to 'Ba3'
KION GROUP: S&P Assigns 'B' Corporate Credit Rating
TUI AG: In Talks with Hapag-Lloyd's Potential Buyers
H U N G A R Y
BUDAPEST BANK: Moody's Cuts Bank Financial Strength Rating to 'D-'
I R E L A N D
BANK OF IRELAND: To Sell Burdale Financial & UK Finance Units
IRISH LIFE: S&P Assigns 'BB' Rating to Junior Subordinated Notes
K A Z A K H S T A N
BANK OF KAZAN: Fitch Withdraws 'E' Individual Rating
L U X E M B O U R G
APERAM SA: S&P Assigns 'BB' Long-Term Corporate Credit Rating
P O R T U G A L
BANCO COMERCIAL: Fitch Cuts Lower Tier 2 Debt Rating to 'BB+'
R U S S I A
OTP BANK: Fitch Rates RUB2.5-Bil. Bond Series-02 at 'BB'
RENAISSANCE FINANCIAL: S&P Affirms 'B+' LT Counterparty Rating
S P A I N
CAMPOFRIO FOOD: Moody's Upgrades Corporate Family Rating to 'Ba3'
OBRASCON HUARTE LAIN: Moody's Assigns Definitive 'Ba2' Rating
U N I T E D K I N G D O M
EXPRO HOLDINGS: S&P Downgrades Corp. Credit Rating to 'CCC+'
HIHO: Poor Trading Prompts Administration
LEAMINGTON DESSERTS: Country Style Buys Residual Assets
MILLSHOMES: Goes Into Administration
PUNCH TAVERNS: Moody's Cuts Ratings on Two Classes of Notes to B3
REGENCY PARK: Manor of Groves to Take Over on April 29
TAYLOR WIMPEY: S&P Affirms 'B+' Long-Term Corporate Credit Rating
THAMES WATER: Moody's Assigns 'B1' Rating to Finance Notes
X X X X X X X X
* BOOK REVIEW: Corporate Turnaround
*********
===============
B U L G A R I A
===============
KREMIKOVTZI AD: Fourth Auction Scheduled for April 12
-----------------------------------------------------
Novinite.com reports that Kremikovtzi AD's receiver confirmed that
the fourth auction of the company will take place on April 12.
According to Novinite.com, the starting price will be BGN316
million, down by 10% over the tag in the previous tender. A 10%
deposit is to be paid in advance, Novinie.com discloses. The
bidder with the highest offer will be selected for buyer. The
tender will be with open bidding as required by the country's
trade law, the report notes.
The third tender for the mill's production capacities was held in
February 2011, but fell through after the sole prospective bidder
failed to submit a deposit, Novinite.com relates.
The site and assets of the struggling company, built in the 1960s,
were offered for sale four months after the plant was sent into
liquidation, Novinite.com recounts.
The total debts of Bulgaria's former largest steel-maker amount to
BGN1.9 billion, whereas the market value of all of its assets has
been estimated at BGN837 million, Novinite.com notes.
About Kremikovtzi
Kremikovtzi AD Sofia -- http://www.kremikovtzi.com/-- is a
Bulgaria-based company principally engaged in the steel industry.
Its production capacity includes a complete steel production
cycle, from ore mining to finished products, such as hot rolled
and cold rolled products (coils, slabs, plates, blooms and
billets), different thickness wire rods and tubes. The Company's
product range also includes coke and chemical products, flat
products, ferro-alloys and metallurgical lime, and other products.
The Company operates through a number of subsidiaries, including
Ferosplaven zavod EOOD, NLA 2000 EOOD, Kremikovtzi Rudodobiv AD,
Metalresource OOD and others. The Company is 71%-owned by
Finmetals Holding AD.
===========================
C Z E C H R E P U B L I C
===========================
SAZKA AS: CEO Can't Take Measures Without Board Approval
--------------------------------------------------------
According to Bloomberg News' Krystof Chamonikolas, Hospodarske
Noviny, citing board member Roman Jecminek, reported that
Sazka AS's board of directors barred Chief Executive Officer Ales
Husak from taking any measures during the company's bankruptcy
without the board's approval.
As reported by the Troubled Company Reporter-Europe on March 31,
2011, CTK, citing information made public in the insolvency
register, said that the Prague City Court declared Sazka insolvent
on March 29 and named Josef Cupka as insolvency administrator.
CTK disclosed that the court also decided on calling a meeting of
creditors for May 26. It has not determined the way how the
insolvency will be solved, CTK noted. The court has three months
from the decision on insolvency for this, after the meeting of
creditors at the earliest, according to CTK.
Sazka AS is a provider of lotteries and sport betting games in the
Czech Republic.
SAZKA AS: Creditors to Focus on Securing Operations
---------------------------------------------------
CTK reports that Dan Plovajko, spokesman of the KKCG group, said
creditors of Sazka AS consider maintenance of the firm's operation
and regular activities as well as winning back the trust of
bettors as their main goals.
CTK relates that Mr. Plovajko said that the creditor committee on
Wednesday discussed with Sazka receiver Josef Cupka the
possibility of providing finances to secure Sazka's operation.
According to CTK, the PPF and KKCG groups reiterated that they are
ready to grant the needed cash to Sazka immediately. The other
members of the creditor committee will say later whether they will
join PPF and KKCG, CTK notes.
The creditor committee is made up of Sazka's largest creditors,
which include KKCG, Moranda, Siderius, GTECH Corporation and Ceska
sporitelna, CTK discloses.
As reported by the Troubled Company Reporter-Europe on March 31,
2011, CTK, citing information made public in the insolvency
register, said that the Prague City Court declared Sazka insolvent
on March 29 and named Josef Cupka insolvency administrator. CTK
disclosed that the court also decided on calling a meeting of
creditors for May 26. It has not determined the way how the
insolvency will be solved, CTK noted. The court has three months
from the decision on insolvency for this, after the meeting of
creditors at the earliest, according to CTK. Sazka has been in
insolvency proceedings since January, CTK related. Data from the
insolvency register show that Sazka owed CZK1.37 billion to 26
creditors in overdue debts as of March 10, CTK noted.
Sazka AS is a provider of lotteries and sport betting games in the
Czech Republic.
===========
F R A N C E
===========
FRENCH CHEMICAL: S&P Places 'BB/B' Ratings on CreditWatch Positive
------------------------------------------------------------------
Standard & Poor's Ratings Services said it placed its 'BB/B' long-
and short-term corporate credit ratings on French chemical company
Rhodia on CreditWatch with positive implications.
"Our positive CreditWatch follows Belgian chemical company
Solvay's announced friendly 100% cash take-over bid on Rhodia for
an enterprise value of EUR6.6 billion," said Standard & Poor's
credit analyst Karl Nietvelt. The transaction price represents a
50% premium on Rhodia's share price close on April 1, 2011. The
CreditWatch status reflects our current preliminary view that,
post transaction, we could rate the newly combined entity 'BBB+',
subject to further meetings planned with management. We could
consequently align Rhodia's ratings closer to the combined
entity's or equalize them in case of 100% future ownership," S&P
said.
"In our view, the combined entity's business risk profile will
likely be positioned in the high end of our "satisfactory"
classification, somewhat held back by more cyclical activities
such as poly-amides, polyvinyl chloride (PVC), and plastics. That
said, we think Solvay and Rhodia combined would benefit from the
entity's increased size and sales of over EUR12 billion, its
broader product and end-market diversity, as well as greater
growth potential in emerging markets," S&P noted.
"We are likely to qualify the combined entity's financial risk
profile as 'intermediate,' as Solvay's EUR5.7 billion cash
balances will decline significantly, given the cash portion of the
acquisition at EUR4.1 billion. In light of the significant market
premium paid, value creation will depend, in our opinion, on a
continued supportive chemical environment over the medium term, as
well as management's success in achieving EUR250 million of
targeted cost synergies. We estimate the combined entity's
adjusted debt at about EUR4.2 billion, compared with EBITDA of
over EUR1.8 billion. On a preliminary basis, we forecast adjusted
funds from operations to debt of over 35% in 2012," S&P said.
"We intend to meet with management in the coming months to resolve
the CreditWatch placement in July-August 2011, once regulatory
approvals have been obtained and assuming the friendly take-over
offer is completed. On the basis of our preliminary analysis, at
this stage, we could rate the newly combined entity 'BBB+'," S&P
added.
NOVASEP HOLDING: S&P Lowers Corporate Credit Rating to 'CCC+'
-------------------------------------------------------------
Standard & Poor's Ratings Services said it had lowered its
corporate credit rating on France-based pharmaceutical services
company Novasep Holding S.A.S. (Novasep) to 'CCC+' from 'B'. "In
addition, we placed the company on CreditWatch with developing
implications. At the same time, we lowered our issue-level rating
on the company's EUR270 million and $150 million senior secured
bonds to 'CCC+' from 'B'. The recovery rating remains unchanged
at '4', indicating our expectation of 30% to 50% recovery in the
event of default," S&P stated.
"The downgrade and CreditWatch listing follow the company's
announcement of potential restructuring plans as a consequence of
Novasep's inability to decrease leverage over the last two years,"
said Standard & Poor's credit analyst Olaf Toelke.
The downgrade reflects Standard & Poor's assessment of
management's significantly more negative financial policy, as one
of the proposed measures is a potential debt exchange offer, which
could be viewed as a distressed exchange under S&P's criteria.
"The CreditWatch listing with developing implications reflects a
potential default on the issue, and selective default on the
corporate credit rating, according to our criteria, should the
final decision involve an exchange offer. On the other hand, it
reflects the potential for a positive rating action, as the
restructuring measures include new equity, partial divestitures,
or a buyback of bonds on the open market, which would not have
the same negative consequences as an outright exchange offer," S&P
noted.
"We expect to resolve the CreditWatch within three months assuming
the company provides further clarity about the proposals it
intends to implement," said Mr. Toelke.
"The developing implications reflect our view on the one hand that
there is a chance for a default scenario, if management opts for
the exchange offer as a strategic alternative. On the other hand,
it indicates potential ratings upside if the more credit-
supportive options are considered, such as an equity issuance or
the exercise of divestitures," S&P added.
=============
G E R M A N Y
=============
COMMERZBANK AG: Plans to Repay EUR14.3-Bil. in State Aid by June
----------------------------------------------------------------
Aaron Kirchfeld and Oliver Suess at Bloomberg News report that
Commerzbank AG plans to repay about EUR14.3 billion (US$20.4
billion) in state aid by June by selling new shares and using
excess capital.
According to Bloomberg, Commerzbank said in a statement on
Wednesday that it seeks to raise EUR8.25 billion from investors
and Germany's bank-rescue fund, Soffin, will convert silent
participations into EUR2.75 billion of shares. The bank also said
it will also redeem silent participations of EUR3.27 billion with
excess regulatory capital, Bloomberg notes.
The bank said in February that it wants to repay this year a
"significant" portion of the EUR16.2 billion it received in silent
participations from Soffin, which also bought a stake of 25% plus
one share in the company, Bloomberg recounts. The lender needed
the aid after agreeing to buy Dresdner Bank amid the global
financial crisis, Bloomberg discloses.
Headquartered in Frankfurt am Main, Germany, Commerzbank AG --
http://www.commerzbank.com/-- is the parent company of a
financial services group active around the world. The group's
operating business is organized into six segments providing each
other with mutually beneficial synergies: Private and Business
Customers, Mittelstandsbank, Central and Eastern Europe,
Corporates & Markets, Commercial Real Estate and Public Finance
and Treasury.
CONTINENTAL AG: Moody's Upgrades Corporate Family Rating to 'Ba3'
-----------------------------------------------------------------
Moody's Investors Service has upgraded Continental AG's corporate
family rating (CFR) to Ba3 and instrument ratings to Ba3 with an
LGD 4, 51%. The outlook on the ratings is stable.
Ratings Rationale
"The rating action reflects both a stronger than expected recovery
in Conti's operating performance for the fiscal year 2010 as well
as a significant improvement of Conti's liquidity profile
following the successful refinancing of its credit lines leading
to a well balanced maturity profile of its overall debt
outstanding," said Falk Frey, Senior Vice President and lead
analyst at Moody's for Continental.
"Despite the solid recovery in Conti's operating performance,
Moody's considers the CFR burdened by the uncertainty associated
with the possible form and pace of a potential combination of
Continental AG and its major shareholder Schaeffler, which
reportedly has a high debt level following its investment in
Conti," added Mr. Frey. "At this time we see the risk to
noteholders mitigated primarily by financial covenants in the bond
and loan documentation that restrict Conti's ability to (i)
dispose of the rubber group, or (ii) merge with entities of the
Schaeffler group, unless certain interest coverage and leverage
tests are met with regard to metrics pro-forma for the respective
transactions." On a standalone basis Conti's credit profile would
be in the mid- to high "Ba-category."
In addition, the recent announcement of a successful refinancing
of Schaeffler's debt structure, including the reduction of its
stakeholding in Conti from 75% (directly and indirectly via 2
banks) to 60% might lengthen the timeframe for a combination with
Conti. Schaeffler's strong improvement in operating performance
reported for FY2010 and the expectation that this development
would be sustained going forward should also lead to an
improvement of Schaeffler's credit profile over time.
Nevertheless, Moody's would expect to re-assess the position of
all lenders if and when major corporate transactions are agreed
upon.
The stable outlook incorporates the expectation that (i) Conti
will continue to generate positive free cash flows in the coming
years which would be applied to debt reduction and (ii) the
operating performance and cash flow generation will sustainably
improve further mainly driven by a material turnaround in the
powertrain division. Overall this should lead to further
improvements to the leverage ratio.
Upgrades:
Issuer: Conti-Gummi Finance BV
-- Senior Secured Regular Bond/Debenture, Upgraded to Ba3 from
B1
-- Senior Secured Regular Bond/Debenture, Upgraded to Ba3 from
B1
Issuer: Continental AG
-- Probability of Default Rating, Upgraded to Ba3 from B1
-- Corporate Family Rating, Upgraded to Ba3 from B1
On March 14, Conti published its 2010 annual results, with
revenues increased by 30% compared to FY2009 from EUR20.1 billion
to EUR26 billion. Adjusted EBIT amounted to EUR2.5 billion equal
to an adjusted EBIT margin of 9.7%, exceeding Moody's
expectations. Reported Free Cash Flow generated in 2010 was EUR567
million and, in addition to the cash inflow from the capital
increase in January 2010, was used to reduce Conti's reported net
financial debt to EUR7.3 billion from EUR8.9 billion at year end
2009. For the current fiscal year Continental expects a further
increase in revenues by 10% to more than EUR28.5 billion and to
sustain the adjusted EBIT margin level of 9.7% achieved in FY2010
despite an anticipated gross impact of EUR750 million from higher
raw material prices in the current year compared to last year.
Free cash flow is expected to be around EUR500 million despite
rising capital expenditures, an increase in working capital and a
remaining EUR300 million cash outflow for the restructuring
implemented in 2009.
Conti's ratings could be upgraded over the medium term should (i)
Conti be able to further reduce its leverage, exemplified by
Debt/EBITDA as adjusted by Moody's to around 2.5x (2010: 3.0x) in
the current fiscal year with visibility of a further reduction
towards 2.0x in the following year; (ii) free cash flow generation
of EUR500 million as defined by Moody's materialize in the current
year; (iii) interest coverage improve to above 3.0x as well as
(iv) RCF/Net Debt exceed 25% in the current fiscal year. Moody's
would also expect an improvement in Schaeffler's overall debt
burden to contribute to a reduced combined leverage ratio.
A downgrade of Conti's ratings could be envisaged should operating
performance and leverage deteriorate materially below 2010 levels
exemplified by (i) Debt/EBITDA as adjusted by Moody's approaching
4.0x; (ii) a free cash flow generation below EUR200 million; (iii)
a decline in the reported adjusted EBIT margin below 7% as well as
in case of any re-leverage resulting from a combination with
Schaeffler.
Conti's liquidity needs for the next 12 months resulting from debt
maturities as well as cash outflows for capital expenditure,
working capital and day to day needs would be covered by a sizable
cash position (close to EUR1.5 billion as of December 31, 2010)
and its revolving credit facility with conditionality language and
covenants with sufficient headroom.
The principal methodologies used in this rating were Global
Automotive Supplier Industry published in January 2009, and Loss
Given Default for Speculative-Grade Non-Financial Companies in the
U.S., Canada and EMEA published in June 2009.
Headquartered in Hanover, Germany, Continental AG is one of the
top automotive suppliers worldwide in the areas of brake systems,
systems and components for powertrains and chassis,
instrumentation, infotainment solutions, vehicle electronics,
technical elastomers as well as the world's fourth-largest
manufacturer of passenger and commercial vehicle tires. In 2010,
Continental generated consolidated sales of approx. EUR26 billion.
KION GROUP: S&P Assigns 'B' Corporate Credit Rating
---------------------------------------------------
Standard & Poor's Ratings Services said it assigned its 'B' long-
term corporate credit rating to Germany-based material-handling
equipment manufacturer KION GROUP GmbH. The outlook is stable.
"In addition, we assigned a 'B' issue rating to the proposed
EUR400 million notes due 2018, to be issued by KION Finance S.A. a
special-purpose vehicle (SPV) incorporated in Luxembourg. We also
assigned a recovery rating of '4' to the notes, indicating our
expectation of average (30%-50%) recovery in the event of a
payment default," S&P said.
"The rating on KION reflects our view of the group's highly
leveraged financial risk profile and satisfactory business risk
profile," said Standard & Poor's credit analyst Anna Stegert.
"In our opinion, the rating is constrained by KION's very high
financial leverage, limited ability to reduce leverage through
free operating cash flows in the near to medium term, exposure to
cyclical demand for new material-handling equipment, and operating
profitability that is relatively weak in a broader capital goods
industry comparison," S&P stated.
These constraints are partly offset by the group's very strong
market position in Europe, where it generates a meaningful
proportion of sales and earnings in less cyclical aftersales
activities; good end-market and customer-base diversity; and
adequate liquidity profile.
"According to our calculations, KION's total debt after our
adjustments was about EUR3.7 billion as of Dec. 31, 2010. This
translates into a very high debt-to-EBITDA ratio of 15x; we have
adjusted the reported figures according to our captive finance
criteria. KION operates a leasing business that leases
trucks to its customers to support material-handling equipment
sales. With our adjustments, we attempt to separate in our ratio
calculations debt, earnings, and cash flow stemming from these
captive finance activities from KION's industrial activities. We
also treat the group's shareholder loan of EUR615 million at year-
end 2010 as debt in our ratio calculations because of its debt-
like features, such as maturity in 2016. If we exclude the
shareholder loan from the debt calculation, KION's adjusted debt-
to-EBITDA ratio for 2010 is still at a very high 12.5x," S&P said.
KION has been significantly hit by the global economic and
financial downturn. In 2009, the material-handling market
declined 37% by units globally and by about 40% in Western Europe
where KION generates about three-quarters of its overall revenues.
As a result, KION's reported revenues declined by 32% in
2009 year on year, which in turn significantly impeded capacity
utilization rates and profitability.
"In the future, however, we expect KION's profitability to benefit
from extensive restructuring over the past two years, including
significant headcount reductions and three plant closures. We
also expect the group to benefit from recovering demand in
material-handling markets. Under our base case, we assume the
group's EBIT margin to approach the 6%-8% achieved in 2005-2008,"
S&P noted.
"The stable outlook reflects our view that KION will be able to
return to its historical profitability level, with an EBIT margin
in the range of 6%-8% in the coming years, which should enable the
group to generate positive, albeit low, free operating cash flow
in 2011," said Ms. Stegert.
"We also believe the group should be able to reduce its currently
very high debt-to-EBITDA financial leverage ratio of 15x for 2010
to less than 11x in 2011, mainly owing to an expansion in
earnings. At the current rating level, we also assume KION can
maintain an adequate liquidity profile, including adequate
headroom under financial covenants," Ms. Stegert added.
TUI AG: In Talks with Hapag-Lloyd's Potential Buyers
----------------------------------------------------
Robert Wright at The Financial Times reports that TUI AG has
confirmed it is in talks with potential investors about selling
its stake in Hapag-Lloyd, one of the world's largest container
shipping lines.
However, TUI, whose main business is tourism, refused to confirm
the names of the investors, identified in media reports as Onyx
Investments, an offshoot of Oman's sovereign wealth fund, and HNA,
the Chinese airline and logistics group, the FT notes.
As reported by the Troubled Company Reporter-Europe on March 8,
2011, the FT said that TUI's board approved plans for an initial
public offering of Hapag-Lloyd. The plans value the company at
least EUR3 billion (US$4.2 billion), according to the FT.
The listing of the container shipping business is expected to take
place as early as mid-April this year, the FT disclosed. As well
as approving the IPO plans, the board meeting on March 3 agreed to
sell an 11.33% stake in Hapag-Lloyd to the Albert Ballin
consortium -- a group including Hamburg's state government and
local businesses -- that controls the company, the FT related.
The stake, the FT said, is being sold for EUR315 million and a
further EUR35 million if performance is strong. At the price
agreed for the stake sale, the group's shares would be worth
EUR3.09 billion in a listing, the FT stated. TUI is expected to
try to sell all the 38.4% stake it will retain after the sale of
the stake to the Albert Ballin group, although TUI may retain some
if it believes a future sale may obtain a better price, the FT
noted.
About TUI
TUI AG -- http://www.tui-group.com/en/-- is a Germany-based
company mainly engaged in the tourism sector, focusing on the
markets of Central, Northern and Western Europe. TUI owns a
network of travel agencies and tour operators, including air
tours, Thomson, First Choice and TUI Deutschland. It also
operates several airlines, including Corsairfly, Thomsonfly and
First Choice Airways, among others. The Company is structured
into three segments: TUI Travel, TUI Hotels and Resorts, and
Cruises. TUI Travel comprises the Company's distribution, tour
operating, airline and incoming activities and services over 30
million customers in 180 countries. The TUI Hotels and Resorts
division offers a portfolio of 238 hotels, located in Spain,
Greece, Egypt, France, Turkey, Tunisia, the Balearics and the
Caribbean, among others. The Cruises sector comprises Hapag-Lloyd
Kreuzfahrten GmbH and TUI Cruises which provide luxury cruises,
and cruises within the German-speaking countries, respectively.
* * *
As reported by the Troubled Company Reporter-Europe on Jan. 19,
2011, Moody's Investors Service raised the Corporate Family Rating
and Probability of Default Rating of TUI AG to B3 from Caa1; the
unsecured rating and the subordinated ratings are also raised to
Caa1 and Caa2, respectively. Moody's said the outlook is stable.
The rating action reflects Moody's view that the incremental
proceeds that have been received from Hapag-Lloyd following its
refinancing have improved the financial profile of TUI AG.
=============
H U N G A R Y
=============
BUDAPEST BANK: Moody's Cuts Bank Financial Strength Rating to 'D-'
------------------------------------------------------------------
Moody's Investors Service has downgraded the standalone bank
financial strength ratings (BFSRs) of five Hungarian banks, which
has resulted in the downgrade of those banks' deposit and debt
ratings. These banks are: K&H Bank, Budapest Bank, FHB Mortgage
Bank, Erste Bank Hungary and MKB Bank.
For two other banks -- OTP Bank and OTP Mortgage Bank -- Moody's
has downgraded the local-currency deposit ratings, and downgraded
the foreign-currency debt ratings for OTP Bank. Full details of
the rating actions for each bank and their rationale are provided
below.
The rating actions reflect the impact of the challenging operating
environment on the banks' financial fundamentals.
Ratings Rationale
Moody's says that overall, the rating actions reflect two major
concerns for the Hungarian banking system, namely (i) sustained
deterioration in asset quality, driven by the foreign-currency
exposures in retail mortgage and commercial real-estate
portfolios; and (ii) declining net profits.
Asset Quality Declines, Due to Foreign-Currency Exposures,
Mortgage Moratorium, and Macroeconomic Challenges
The rating agency noted that a key driver of the rating actions is
the banks' high level of foreign-currency lending -- 70% of total
loans are foreign-currency denominated -- especially loans
originated in Swiss francs. "Many borrowers, particularly in the
retail sector, are unhedged with regards to the currency risk on
these loans. As a result, there is significant vulnerability to
either a depreciation of the Hungarian Forint, or an increase in
interest rates linked to these foreign currencies," said
Simone Zampa, a Moody's Vice President and senior analyst.
Moody's notes that the Hungarian Government introduced a ban on
foreign-currency lending in 2010. However, in Moody's view, the
event risks imbedded in the system that stem from the foreign-
currency exposures will remain for several years, given the long-
dated maturity of the existing mortgage portfolios of the banks.
In addition, the moratorium on evictions relating to home-
collateralized loans contributes to a further weakening of the
banks' debtors payment discipline. The government introduced the
moratorium in August 2010 on a temporary basis, aimed at
protecting delinquent payers from being evicted. Moody's notes
that the government recently extended the moratorium to July 2011
for home mortgages, although it was removed for home-equity loans.
These loans represent about one-third of the home-collateralized
loans within the system.
"The residential Hungarian real-estate market remains under
pressure, with prices declining since 2008 and low liquidity in
the secondary market. However, Moody's acknowledges that the
gross debt-to-income ratio of households still remains below the
EU average, which mitigates repayment pressures for borrowers,"
adds Mr. Zampa.
Net Profits Under Pressure From Diminishing Business Volumes,
Heightened Risk Costs, and New Banking Tax
In 2010, the Hungarian banking system recorded a significantly
lower level of profitability compared with 2009, with several
banks reporting losses. Margins are maintained at solid levels
compared with international peers, also due to the high interest-
rate environment. However, the internal capital generation of the
system has been significantly eroded by (i) the rapidly growing
cost of risk; (ii) shrinking business volumes; (iii) more modest
efficiency for some banks; and (iv) the tax on banks' assets. This
extraordinary banking tax was introduced in 2010, accounted for
about 25% of the pre-provision income of the system and will
remain in place at least until 2012.
"These credit negative factors are affecting the ability of the
less well-capitalized banks to maintain a sufficient capital
buffer in the current uncertain macroeconomic environment. This
may lead to further shrinking of risk-weighted assets and require
retrenchment by some of the weaker entities," explains Mr. Zampa.
Moody's acknowledges that in this environment, it is becoming more
challenging for the Hungarian banks to sustain profitability and
support economic growth. The economic outlook for 2011 is more
promising, with Moody's forecasting GDP growth of about 3% and a
decline in unemployment. However, the rating agency maintains the
view that macroeconomic challenges will persist for the medium
term.
Moody's believes that a major stabilizing factor for the banking
system has been its high level of foreign ownership, representing
about 80% of capital at year-end 2010. Financially stronger
parents have so far provided support in terms of capital and
liquidity throughout the recent financial crisis. Moody's
believes that this support is likely to continue, also considering
the wider CEE strategy of the Western European parent banks. Of
the seven banks included in this rating action, four are foreign-
owned (K&H Bank, Budapest Bank, Erste Bank Hungary and MKB Bank),
Moody's has taken these rating actions:
OTP Bank
Moody's has affirmed OTP Bank's standalone BFSR at D+ (mapping to
Baa3 on the long-term scale) given that the bank has proved itself
resilient in the face of the crisis and showed the benefits of the
diversification.
However, Moody's has lowered the bank's local currency long-term
and short-term deposit ratings to Baa3/Prime-3 from Baa2/Prime-2,
mainly reflecting the fact that Moody's views OTP's operations as
predominantly in Hungary, which represents its core market, and
its risk profile and access to funding as closely interlinked with
the Hungarian government. As such, Moody's also lowered OTP's
foreign currency senior debt rating to Baa3 from Baa2, its
subordinated debt rating to Ba1 from Baa3 and its junior
subordinated debt rating to Ba2 (hyb) from Ba1 (hyb). The bank's
foreign-currency deposit ratings were affirmed at Baa3/Prime-3
given that they were already constrained by the foreign-currency
deposit ceiling for the country.
OTP's liquidity and funding strategy have been cautious and the
bank has progressively reduced its leverage and increased its
capital ratios, with a Tier 1 ratio at 14% at year-end 2010. Non-
performing loans increased substantially in 2010; however, there
is a very high provisioning coverage and the bank benefits from a
high margin income in Hungary and other selected countries
(Russia, Bulgaria, Ukraine). OTP also has exposure to foreign-
currency mortgages, although this is lower compared with its peer
group in Hungary.
Overall, Moody's said that the negative outlook on the ratings --
except the BFSR which carries a stable outlook -- reflects (i) the
pressures in the Hungarian economic environment; and (ii) the fact
that increased non-performing loans and provisioning needs may
exert further pressure on the group's medium-term profitability.
While the outlook on the BFSR is stable, the bank could become
more weakly positioned in this category, resulting in its BFSR
being mapped to Ba1 rather than Baa3 on the long-term scale.
OTP Mortgage Bank
Moody's has affirmed OTP Mortgage Bank's standalone BFSR at D+
(mapping to Baa3 on the long-term scale) and its foreign-currency
deposit ratings at Baa3/Prime-3. The bank's ratings are the same
as its parent's ratings, given that the bank is 100% owned and
fully guaranteed by OTP Bank and it is an integral part of OTP
Bank's franchise, and operates as the mortgage division of OTP
Bank.
In addition, Moody's lowered the local-currency deposit ratings of
the bank to Baa3/Prime-3 from Baa2/Prime-2, which are at the same
level of its parent. The outlook on the ratings is negative,
except the BFSR which carries a stable outlook.
Moody's expects that OTP Mortgage Bank's ratings will continue to
follow the movement of its parent's ratings.
K&H Bank
Moody's downgraded K&H Bank's standalone BFSR to D (mapping to Ba2
on the long-term scale) from D+ (mapping to Baa3 on the long-term
scale) and its local-currency long-term and short-term deposit
ratings to Baa3/Prime-3 from Baa2/Prime-2. Moody's says that the
downgrades reflect the rapid deterioration in non-performing loans
and the potential pressure on the profitability of the bank from
increasing provisioning needs. In addition, Moody's considers the
bank's current capital buffer -- with a preliminary Tier1 ratio of
8.6% under IRB foundation at year-end 2010 -- as just adequate in
the currently difficult operating environment. Furthermore, the
rating agency says that it considers that the significant exposure
of the bank to Hungarian government securities, especially in the
trading book, makes it more vulnerable in an adverse economic
scenario for the country. The bank's foreign-currency long-term
and short-term ratings were affirmed at Baa3/Prime-3. The outlook
on the ratings remains negative.
Moody's also acknowledges that (i) K&H Bank has a strong position
in the Hungarian market in both corporate and retail businesses;
(ii) its liquidity profile is better than most of its rated peers
in the country; (iii) it has a less prominent position in lending
to the problematic commercial real estate; and (iv) in 2010, the
bank recorded a satisfactory level of profitability.
Budapest Bank
Moody's downgraded Budapest Bank's standalone BFSR to D- (mapping
to Ba3 one the long-term scale) from D (mapping to Ba2 on the
long-term scale) and its local-currency long-term and short-term
deposit ratings to Baa3/Prime-3 from Baa2/Prime-2. Moody's says
that the downgrades reflect the rapid deterioration in non-
performing loans and the potential pressure on the profitability
of the bank from increased provisioning needs. Although Moody's
notes that so far the bank has managed to sustain its financial
performance, due to the difficult operating conditions Moody's
believes that Budapest Bank's BFSR is better positioned at D-.
Moody's adds that the bank's high level of capitalization, with a
Tier 1 ratio of 12.8%, gives more comfort that it would be able to
withstand a more adverse scenario, which is reflected by the
stable outlook on the BFSR and the long-term local-currency
deposit rating. However, the long-term foreign-currency deposit
rating carries a negative outlook, in line with the foreign-
currency deposit ceiling for the country.
FHB Mortgage Bank
Moody's downgraded FHB Mortgage Bank's standalone BFSR to D
(mapping to Ba2 on the long-term scale) from D+ (mapping to Ba1 on
the long-term scale) and its local-currency and foreign-currency
long-term and short-term deposit ratings to Ba1/Not Prime from
Baa3/Prime-3. Moody's says that the downgrades reflect the
deterioration in non-performing loans, the bank's main focus on
the difficult mortgage market and its significant exposure to
wholesale funding. The capital buffer is satisfactory, with a
Tier1 ratio at 11.3%. However, Moody's considers that the bank
faces significant challenges (as discussed above), and as such,
the outlook on the ratings remains negative.
FHB is among the three mortgage banks in Hungary with a license to
issue covered bonds and has a robust market position in mortgage-
loan refinancing, to other banks. Profitability in 2010 -- when
excluding one off items -- was lower than in 2009. The bank has
managed to maintain relatively good margins, due to (i) its
capacity to pass higher funding costs to clients; and (ii) the
high interest-rate environment. However, its non-performing loans
and exposure to foreign-currency lending are substantial. The
bank's market-fund ratio is high (although improving), following
the increases in the deposit base over the past one and a half
years.
Erste Bank Hungary
Moody's downgraded Erste Bank Hungary's standalone BFSR to D-
(mapping to Ba3 on the long-term scale) from D (mapping to Ba2 on
the long-term scale) and its local-currency and foreign-currency
long-term and short-term deposit ratings to Ba1/Not Prime from
Baa3/Prime-3. Moody's says that the downgrades reflect the rapid
deterioration in non-performing loans and the significant pressure
on the profitability of the bank from increased provisioning needs
and the additional government tax, which accounted for about 17%
of the bank's pre-provision income. Given the difficult operating
environment and the just adequate capitalization of the bank (with
a Tier1 ratio at 7.6%), Moody's maintains a negative outlook on
the BFSR. The outlook on the long-term local-currency and
foreign-currency ratings is stable and reflects Moody's
expectations of external support, especially from its parent,
Erste Group Bank (A1/P-1/C- (BCA of Baa1), stable outlook).
Erste Bank Hungary has one of the largest retail franchises in
Hungary. The bank recorded poor results in 2010, with margins
remaining fairly good, while the much higher cost of risk and the
bank levy have eroded the bank's profitability over the past year.
The significant level of foreign-currency lending, especially in
Swiss francs, has contributed to higher problem loans for the
bank. The loan-to-deposit ratio is high, although most of the
wholesale funding is covered by the parent. The bank also has
some concentrations in the problematic commercial real-estate
sector, with particularly high levels of non-performing loans.
MKB Bank
Moody's downgraded MKB Bank's standalone BFSR to E+ (mapping to B1
on the long-term scale) from D (mapping to Ba2 on the long-term)
and its local-currency and foreign-currency long-term and short-
term deposit ratings to Ba2/Not Prime from Baa3/Prime-3. As such,
Moody's also lowered MKB's foreign currency senior debt rating to
Ba2 from Baa3 and its foreign-currency subordinated debt rating to
B1 from Ba1. Moody's says that the downgrades reflect the rapid
deterioration in non-performing loans, the significant challenges
the business model is facing also reflecting the high
concentration in the problematic commercial real estate and the
significant losses posted in 2010. The losses reflected the more
than doubled provisioning needs, lower operating income and higher
costs, which entailed capital injections from the parent banks.
Given the difficult operating environment, the modest
capitalization (with a Tier1 at 7.5%) and the high sector
concentration, Moody's views MKB Bank as being more vulnerable in
an adverse scenario, reflected by the negative outlook on the
bank's debt and deposit ratings. This stems from the fact that the
bank could become more weakly positioned within the E+ BFSR
category, leading to a lower mapping on the long-term scale.
MKB is among the largest banks in Hungary with a relatively good
corporate franchise and with subsidiaries operating in difficult
markets, such as Romania and Bulgaria. The bank has significant
problematic commercial real-estate exposures within its loan book.
The loan-to-deposit ratio is high, with funding support by the
parent BayernLB (A1/P-1/D- (BCA of Ba3), on review for possible
downgrade on the A1 rating) having increased over recent years.
The bank also had a modest cost-to-income ratio in 2010.
The specific rating changes implemented are:
OTP Bank
-- Local-currency deposit ratings downgraded to Baa3/Prime-3
from Baa2/Prime-2
-- Foreign-currency senior unsecured debt rating downgraded to
Baa3 from Baa2
-- Foreign-currency subordinated debt rating (Lower Tier 2)
downgraded to Ba1 from Baa3
-- Foreign-currency junior subordinated debt rating (Upper Tier
2) downgraded to Ba2 (hyb) from Ba1 (hyb)
-- Foreign-currency deposit ratings affirmed at Baa3/Prime-3
-- BFSR affirmed at D+, mapping to a BCA of Baa3
The BFSR carries a stable outlook, whilst all the other ratings --
including the BCA -- carry a negative outlook.
OTP Mortgage Bank
-- Local-currency deposit rating downgraded to Baa3/Prime-3
from Baa2/Prime-2
-- Foreign-currency deposit ratings affirmed at Baa3/Prime-3
-- BFSR affirmed at D+, mapping to a BCA of Baa3
The BFSR carries a stable outlook, whilst all the other ratings --
including the BCA -- carry negative outlook.
K&H Bank
-- Local-currency long-term deposit rating downgraded to
Baa3/Prime-3 from Baa2/Prime-2
-- BFSR downgraded to D from D+. The D BFSR maps to a BCA of
Ba2
-- Foreign-currency long-term deposit ratings affirmed at
Baa3/Prime-3
All the ratings carry a negative outlook.
Budapest Bank
-- Local-currency deposit rating downgraded to Baa3/Prime-3
from Baa2/Prime-2
-- Foreign-currency long-term deposit ratings affirmed at
Baa3/Prime-3
-- BFSR downgraded to D- from D. The D- BFSR maps to a BCA of
Ba3.
The foreign-currency long-term deposit rating carries a negative
outlook, whilst all the other ratings carry a stable outlook.
FHB Mortgage Bank
-- Local and foreign-currency deposit ratings downgraded to
Ba1/Not Prime from Baa3/Prime-3
-- BFSR downgraded to D from D+. The D BFSR maps to a BCA of
Ba2.
All the ratings carry a negative outlook.
Erste Bank Hungary
-- Local and foreign-currency deposit ratings downgraded to
Ba1/Not Prime from Baa3/Prime-3
-- BFSR downgraded to D- from D. The D- BFSR maps to a BCA of
Ba3.
The BFSR carries a negative outlook, whilst all the other ratings
carry a stable outlook.
MKB Bank
-- Local and foreign-currency deposit ratings downgraded to
Ba2/Not Prime from Baa3/Prime-3
-- Foreign-currency senior unsecured debt rating downgraded to
Ba2 from Baa3
-- Foreign-currency subordinated debt rating (Lower Tier 2)
downgraded to B1 from Ba1
-- BFSR downgraded to E+ from D. The E+ BFSR maps to a BCA of
B1
The BFSR carries a stable outlook, whilst all the other ratings --
including the BCA -- carry a negative outlook.
Previous Rating Actions & Methodology Used
Moody's most recent rating action on OTP Bank was on December 7,
2010, when the local-currency deposit ratings and foreign-currency
debt ratings were downgraded to Baa2 from Baa1. The foreign-
currency long and short-term deposit ratings were downgraded to
Baa3/Prime-3 from Baa1/Prime-2. The foreign-currency subordinated
debt rating (Lower Tier 2) was downgraded to Baa3 from Baa2.
Moody's most recent rating action on OTP Mortgage Bank was on
December 7, 2010, when the long-term local-currency deposit rating
was downgraded to Baa2 from Baa1 and the foreign-currency debt
ratings were downgraded to Baa3/Prime-3 from Baa1/Prime-2.
Moody's most recent rating action on K&H Bank was on December 7,
2010, when the long-term local-currency deposit rating was
downgraded to Baa2 from A3 and the foreign-currency debt ratings
were downgraded to Baa3/Prime-3 from Baa1/Prime-2.
Moody's most recent rating action on Budapest Bank was on December
7, 2010, when the foreign-currency deposit ratings were downgraded
to Baa3/Prime-3 from Baa2/Prime2. The local currency deposit
ratings were confirmed at Baa2/Prime-2.
Moody's most recent rating action on FHB Bank was on December 7,
2010, when the local and foreign-currency long and short-term
deposit ratings were confirmed at Baa3/Prime-3.
Moody's most recent rating action on Erste Bank Hungary was on
December 7, 2010, when the local and foreign-currency long and
short-term deposit ratings were downgraded to Baa3/Prime-3 from
Baa2/Prime-2.
Moody's most recent rating action on MKB Bank was on December 7,
2010, when the local and foreign-currency long and short-term
deposit ratings were downgraded to Baa3/Prime-3 from Baa2/Prime-2.
The foreign-currency senior unsecured rating was downgraded to
Baa3 from Baa2 and the foreign-currency subordinated debt rating
(Lower Tier 2) was downgraded to Ba1 from Baa3.
The principal methodologies used in rating this rating were "Bank
Financial Strength Ratings: Global Methodology" published in
February 2007, and "Incorporation of Joint-Default Analysis into
Moody's Bank Ratings: A Refined Methodology" published in March
2007, and "Moody's Guidelines for Rating Bank Hybrid Securities
and Subordinated Debt" published in November 2009.
Headquartered in Budapest, Hungary, OTP Bank reported consolidated
total assets of HUF9,781 billion (EUR35.04 billion) as of 31
December 2010.
Headquartered in Budapest, Hungary, OTP Mortgage Bank reported
consolidated total assets of HUF1,681 billion (EUR6.02 billion) as
of 31 December 2010.
Headquartered in Budapest, Hungary, K&H Bank reported consolidated
total assets of HUF3,223 billion (EUR11.54 billion) as of 31
December 2010.
Headquartered in Budapest, Hungary, Budapest Bank reported
consolidated total assets of HUF911 billion (EUR3.26 billion) as
of 31 December 2010.
Headquartered in Budapest, Hungary, FHB Mortgage Bank reported
consolidated total assets of HUF873.3billion (EUR3.13 billion) as
of 31 December 2010.
Headquartered in Budapest, Hungary, Erste Bank Hungary reported
consolidated total assets of HUF2,984 billion (EUR10.7 billion) as
of 31 December 2010.
Headquartered in Budapest, Hungary, MKB Bank reported consolidated
total assets of HUF2,939 billion (EUR10.53 billion) as of 31
December 2010.
=============
I R E L A N D
=============
BANK OF IRELAND: To Sell Burdale Financial & UK Finance Units
-------------------------------------------------------------
Simon Carswell at The Irish Times reports that Bank of Ireland
plans to sell its UK asset-based lender Burdale Financial and its
global project finance units in the UK and internationally, to
help raise capital as it tries to avoid Government control.
According to The Irish Times, financial adviser Hawkpoint has been
appointed to sell Burdale, while Deutsche Bank will sell the UK
and international global project finance units.
The Irish Times relates that Bank of Ireland was told to raise
EUR4.2 billion and an additional buffer of EUR1 billion in
contingency capital last week following stress tests by the
Central Bank.
The Government has given the bank until June to secure private
investment and further gains by repaying subordinated bondholders
at a discount or else face majority Government control, The Irish
Times notes.
The Irish Times says the bank, which is 36% state-owned, believes
it can avoid majority State ownership.
The bank is expected to announce a capital-raising plan, including
proposals to raise cash from existing shareholders, when it
releases its 2010 financial results on April 14, The Irish Times
discloses.
Headquartered in Dublin, Bank of Ireland --
http://www.bankofireland.com/-- provides a range of banking and
other financial services. These include checking and deposit
services, overdrafts, term loans, mortgages, business and
corporate lending, international asset financing, leasing,
installment credit, debt factoring, foreign exchange facilities,
interest and exchange rate hedging instruments, executor, trustee,
life assurance and pension and investment fund management, fund
administration and custodial services and financial advisory
services, including mergers and acquisitions and underwriting.
The Company organizes its businesses into Retail Republic of
Ireland, Bank of Ireland Life, Capital Markets, UK Financial
Services and Group Centre. It has operations throughout Ireland,
the United Kingdom, Europe and the United States.
IRISH LIFE: S&P Assigns 'BB' Rating to Junior Subordinated Notes
----------------------------------------------------------------
Standard & Poor's Ratings Services said it revised the CreditWatch
implications on its 'BBB-' long-term counterparty credit and
insurer financial strength ratings on Irish-based insurer Irish
Life Assurance PLC (ILA) to developing from negative. "We also
revised to developing the CreditWatch placement on the 'BB' rating
on the EUR200 million junior subordinated notes. The ratings were
originally placed on CreditWatch with negative implications on
Nov. 26, 2010. The ratings were lowered to 'BBB-' from 'BBB' on
Feb. 2, 2011, and kept on CreditWatch negative," S&P stated.
"We revised the CreditWatch implications following the
announcement on March 31, 2011 of the results of the Central Bank
of Ireland stress tests for the Irish banking sector. These
stress tests identified a gross capital requirement for ILA's
banking parent, Irish Life & Permanent (ILP; BB+/Watch Neg/B), of
EUR4 billion. To help meet these increased capital requirements,
ILP announced that it plans to sell certain subsidiaries,
including ILA," according to S&P.
"In our opinion, a successful separation of ILA from ILP is likely
to significantly reduce ILA's risks and exposures relating to its
weaker banking parent," said Standard & Poor's credit analyst
Sanjay Joshi. "The 'BBB-' long-term rating on ILA is two notches
below its 'bbb+' stand-alone credit profile, reflecting risks
relating to its parent bank, whose stand-alone credit profile is
'bb-'. At this stage, there is still considerable uncertainty
over the details of the separation. As a result, we have kept the
ratings on ILA on CreditWatch."
ILP has indicated that it plans to deliver its planned separation
by an IPO of ILA in the middle of 2011. At year-end 2010, the
embedded value of ILP's life and fund management business was
EUR1.7 billion. "We aim to provide an update before the end of
June 2011, or as further details emerge about the separation,
including the timing. We do not expect to resolve the CreditWatch
placement until ILA has separated from its parent," S&P said.
"At this stage, we have limited information about the details of
the planned separation, for example, any financial transactions
between ILA and ILP ahead of the planned IPO, the capital
structure of the life company after separation, and continuing
business and financial transactions between ILA and ILP after
separation. In particular, at year-end 2010, ILA had significant
deposits with ILP and the bank is an important distributor for the
life company. We expect to be able to resolve the CreditWatch
once we have full information about the nature of the separation
and its implications," S&P stated.
"If ILA successfully separates from ILP, and has limited to no
financial exposure to its former parent and a financial profile
consistent with its current stand-alone credit profile, we would
anticipate raising the ratings on ILA by two notches to 'BBB+',"
S&P said.
"However, if the separation takes a different path, for example,
ILA is sold to another company or continues to be exposed to the
weaker ILP (either following a sale or through failure to complete
the planned separation), then we may downgrade ILA to speculative
grade. Based on current information, the extent of downside risk
is likely to be limited to one or two notches," S&P noted.
===================
K A Z A K H S T A N
===================
BANK OF KAZAN: Fitch Withdraws 'E' Individual Rating
----------------------------------------------------
Fitch Ratings has affirmed and simultaneously withdrawn Russia-
based LLC CBED Bank of Kazan's (BoK) ratings, including its Long-
term Issuer Default Rating (IDR) of 'B-' with a Stable Outlook.
Fitch has withdrawn the ratings as BoK has chosen to stop
participating in the rating process. Fitch will no longer have
sufficient information to maintain the ratings. Accordingly,
Fitch will no longer provide ratings or analytical coverage for
BoK.
BoK's IDRs are driven by the potential for support from the Kazan
City ('B+'/Negative) administration, which directly controls 81%
of BoK. The Individual Rating reflects BoK's small size, narrow
franchise, concentrated balance sheet and relatively low level of
loss absorption capacity.
BoK operates in Kazan, the capital of the Republic of Tatarstan.
It focuses mainly on servicing municipally-owned companies and
local businesses.
The rating actions are:
-- Long-term foreign currency IDR: affirmed at 'B-'; Outlook
Stable; withdrawn
-- Short-term foreign currency IDR: affirmed at 'B' and
withdrawn
-- Individual Rating: affirmed at 'E' and withdrawn
-- Support Rating: affirmed at '5' and withdrawn
-- National Long-term rating: affirmed at 'BB(rus)'; Outlook
Stable; withdrawn
===================
L U X E M B O U R G
===================
APERAM SA: S&P Assigns 'BB' Long-Term Corporate Credit Rating
-------------------------------------------------------------
Standard & Poor's Ratings Services said it has assigned its 'BB'
long-term corporate credit rating to Aperam S.A., the global
stainless and specialty steel producer that has been spun off from
ArcelorMittal (BBB-/Stable/A-3). This rating is in line with 'BB'
preliminary rating assigned Feb. 3, 2011. The outlook is stable.
"At the same time we assigned our final 'BB' rating to the $500
million bond issued by Aperam, in line with the 'BB' preliminary
rating. In addition, we assigned the issue a recovery rating of
'4', indicating our expectation of average (30%-50%) recovery in
the event of a payment default," S&P said.
"Our assignment of ratings follows Aperam's refinancing of $400
million of its US$900 million bridge loan from ArcelorMittal
Finance with borrowings under the recently signed US$800 million
borrowing base facility and its successful placement of the US$500
million bond," said Standard & Poor's credit analyst
Andrey Nikolaev.
The rest should be shortly refinanced with the proceeds from the
recently issued US$500 million bond. The company's gross debt
also includes US$0.2 billion in bilateral bank loans. As
anticipated, Aperam currently has about US$400 million of long-
term committed lines to meet potential working capital outlays,
and no substantial maturities in the next three years.
"The 'BB' long-term rating reflects our view of Aperam's business
risk profile as 'fair' and financial risk profile as
'significant,'" S&P related.
"The stable outlook reflects our view that Aperam will maintain
its business position and demonstrate prudent financial
management," said Mr. Nikolaev.
"We further anticipate that the company will be able to achieve a
fully adjusted ratio of funds from operations to debt of above 20%
through the cycle," S&P noted.
"We might lower the rating if we see a significant weakening of
Aperam's performance in 2011, or if leverage were to exceed our
expectations because of an overly aggressive investment appetite,"
S&P said.
"We do not envisage an upgrade over the next 12 months because
that would require a sustainable improvement in industry
conditions, which we do not currently anticipate, as well as
Aperam's progress in rationalization of its capacities and
efficiency improvements," S&P added.
===============
P O R T U G A L
===============
BANCO COMERCIAL: Fitch Cuts Lower Tier 2 Debt Rating to 'BB+'
-------------------------------------------------------------
Fitch Ratings has downgraded six Portuguese banks' Long-term and
Short-term Issuer Default Ratings (IDR) and Individual Ratings
following the downgrade of Portugal's sovereign rating to 'BBB-'
from 'A-' with Rating Watch Negative (RWN). The agency has also
downgraded the IDRs of the banks' subsidiaries. Debt issues
guaranteed by the Republic of Portugal under its government-
guaranteed issuance scheme have also been downgraded to 'BBB-'
from 'A-' and maintained on RWN.
Fitch has downgraded the Long-term IDRs of Caixa Geral de
Depositos (CGD and its subsidiary Caixa-Banco de Investimento),
Banco Comercial Portugues (Millennium bcp), Banco BPI (and its
wholly-owned subsidiary, Banco Portugues de Investimento), to
'BBB-' and maintained them on RWN. At the same time, the agency
has downgraded the Long-term IDRs of Caixa Economica Montepio
Geral (Montepio Geral) and Banif -- Banco Internacional do Funchal
(Banif) to 'BB' from 'BBB+' and 'BBB-', respectively. The
Individual Ratings of Santander Totta SGPS and Banco Santander
Totta S.A. have also been downgraded to 'C' from 'B/C'.
Finibanco's ratings have been aligned with those of Montepio Geral
to reflect Fitch's views that it is very likely that both entities
will merge in the short-term.
The Long-term IDR of CGD, Millennium bcp and Banco BPI which are
based on Fitch's assessment of available sovereign support, are
now on their Support Rating Floor and on RWN. Consequently, any
further downgrade of Portugal's sovereign rating will lead to a
downgrade of the banks' IDRs. The outlook for Montepio Geral and
Banif's Long-term IDR is Stable and are on the Support Rating
Floor.
The downgrade of the banks' Individual Ratings and the RWN reflect
Fitch's view that pressure on Portuguese banks will continue, if
not intensify, in the near term as access to wholesale markets
could be further constrained or be fully closed for a prolonged
period of time following the latest sovereign rating action. This
may force banks to increase recourse to the ECB for funding to
meet short and medium-term refinancing needs. While exposure to
sovereign Portuguese debt on the bank's balance sheets has
remained limited to date, Fitch believes that it could increase
after recent sovereign developments. Also, banks will be faced
with the challenge to manage risk under a worse than expected
recession in Portugal, which could result in higher default rates
and loan impairment charges.
On a positive note, Portuguese banks retain good domestic lending
and deposit franchises, which have supported stable deposit bases,
some business and geographical diversification at the largest
banks and current adequate capital levels.
Fitch has also downgraded hybrid capital instruments issued by
CGD, and Banco BPI to 'BB-' and that of Millennium bcp and Banif
to 'B+' and maintained them on RWN to reflect the agency's opinion
of increased coupon deferral risk.
The ratings actions are:
CGD:
-- Long-term IDR: downgraded to 'BBB-' from 'BBB+'; maintained
on RWN
-- Short-term IDR: downgraded to 'F3' from 'F2', maintained on
RWN
-- Individual Rating: downgraded to 'C/D' from 'C', maintained
on RWN
-- Support Rating: '2', placed on RWN
-- Support Rating Floor: revised to 'BBB-' from 'BBB+',
maintained on RWN
-- Senior unsecured debt issues: downgraded to 'BBB-' from
'BBB+', maintained on RWN
-- Lower Tier 2 subordinated debt issues: downgraded to 'BB+'
from 'BBB', maintained on RWN
-- Commercial paper program: downgraded to 'F3' from 'F2',
maintained on RWN
-- Preference shares: downgraded to 'BB-' from 'BBB-',
maintained on RWN
-- Senior debt guaranteed by the Portuguese state: downgraded
to 'BBB-' from 'A-', maintained on RWN
Caixa -Banco de Investimento:
-- Long-term IDR: downgraded to 'BBB-' from 'BBB+'; maintained
on RWN
-- Short-term IDR: downgraded to 'F3' from 'F2', maintained on
RWN
-- Support Rating; '2', placed on RWN
Millennium bcp:
-- Long-term IDR: downgraded to 'BBB-' from 'BBB+', maintained
on RWN
-- Short-term IDR; downgraded to 'F3' from 'F2', maintained on
RWN
-- Individual Rating: downgraded to 'C/D' from 'C', maintained
on RWN
-- Support Rating: '2', placed on RWN
-- Support Rating Floor: revised to 'BBB-' from 'BBB',
maintained on RWN
-- Senior unsecured debt issues: downgraded to 'BBB-' from
'BBB+', maintained on RWN
-- Lower Tier 2 subordinated debt issues: downgraded to 'BB+'
from 'BBB', maintained on RWN
-- Commercial paper program: downgraded to 'F3' from 'F2',
maintained on RWN
-- Preference shares: downgraded to 'B+' from 'BBB-',
maintained on RWN
-- Senior debt guaranteed by the Portuguese state: downgraded
to 'BBB-' from 'A-', maintained on RWN
Banco BPI:
-- Long-term IDR: downgraded to 'BBB-' from 'A-', maintained on
RWN
-- Short-term IDR: downgrade to 'F3' from 'F2', maintained on
RWN
-- Individual Rating: downgraded to 'C/D' from 'B/C' ,
maintained on RWN
-- Support Rating: '2', placed on RWN
-- Support Rating Floor: 'BBB-', placed on RWN
Senior unsecured debt issues: downgraded to 'BBB-' from
'A-', maintained on RWN
-- Lower Tier 2 subordinated debt issues: downgraded to 'BB+'
from 'BBB+', maintained on RWN
-- Commercial paper program: downgraded to 'F3' From 'F2',
maintained on RWN
-- Preference shares: downgraded to 'BB-' from 'BBB',
maintained on RWN
-- Emr market linked securities: downgraded to 'BBB- from 'A-',
maintained on RWN
Banco Portugues de Investimento:
-- Long-term IDR: downgraded to 'BBB-' from 'A-', maintained on
RWN
-- Short-term IDR: downgraded to 'F3' from 'F2', maintained on
RWN
-- Support Rating: downgraded to '2' from '1', maintained on
RWN
Banif -- Banco Internacional do Funchal:
-- Long-term IDR: downgraded to 'BB' from 'BBB-', Stable
Outlook, removed from RWN
-- Short-term IDR: downgraded to 'B' from 'F3', removed from
RWN
-- Individual Rating: downgraded to 'C/D' from 'C', maintained
on RWN
-- Support Rating: affirmed at '3'
-- Support Rating Floor: affirmed at 'BB'
-- Senior unsecured debt issues: downgraded to 'BB' from
'BBB-', removed from RWN
-- Lower Tier 2 subordinated debt issues: downgraded to 'BB-'
from 'BB+', removed from RWN
-- Preference shares: downgraded to 'B+' from 'BB', maintained
on RWN
-- Senior debt guaranteed by the Portuguese state: downgraded
to 'BBB-' from 'A-', maintained on RWN
Montepio Geral:
-- Long-term IDR: downgraded to 'BB' from 'BBB+', Stable
Outlook, removed from RWN
-- Short-term IDR: downgraded to 'B' from 'F2', removed from
RWN
-- Individual Rating: downgraded to 'C/D' from 'C', maintained
on RWN
-- Support Rating: affirmed at '3'
-- Support Rating Floor: affirmed at 'BB'
-- Senior unsecured debt: downgraded to 'BB' from 'BBB+',
removed from RWN
-- Subordinated debt: downgraded to 'BB-' from 'BBB', removed
from RWN
Finibanco:
-- Long-term IDR: downgraded to 'BB' from 'BBB-', Outlook
stable; removed from Rating Watch Evolving (RWE)
--- Short-term IDR: downgraded to 'B' from 'F3', removed from
RWE
-- Individual Rating: 'C/D', maintained on RWN
-- Support Rating: upgraded to '3' from '5', removed from RWP
-- Support Rating Floor: 'No floor', withdrawn; removed from
RWP
Santander Totta SGPS:
-- Long-term IDR: unaffected at 'AA'; Outlook Stable,
-- Short-term IDR: unaffected at 'F1+'
-- Individual Rating: downgraded to 'C' from 'B/C', removed
from RWN
-- Support Rating: unaffected at '1'
Banco Santander Totta S.A.:
-- Long-term IDR: unaffected at 'AA'; Outlook Stable
-- Short-term IDR: unaffected at 'F1+'
-- Individual Rating: downgraded to 'C' from 'B/C'; removed
from RWN
-- Support Rating: unaffected at '1'
-- Senior debt: unaffected at 'AA'
-- Commercial paper program: unaffected at 'F1+'
-- Preference shares: unaffected at 'A+'
===========
R U S S I A
===========
OTP BANK: Fitch Rates RUB2.5-Bil. Bond Series-02 at 'BB'
--------------------------------------------------------
Fitch Ratings has assigned OJSC OTP Bank's RUB2.5 billion senior
unsecured bond issue series-02 a final Long-term rating of 'BB'
and National Long-term rating of 'AA-(rus)'.
The issue has a 8.25% coupon rate and matures in March 2014.
OJSC OTP Bank ('BB'/Negative) is a mid-sized Moscow-based retail
bank, ranked 39th by assets at end-2010. The bank is 95.8% owned
by OTP Plc (Hungary).
RENAISSANCE FINANCIAL: S&P Affirms 'B+' LT Counterparty Rating
-----------------------------------------------------------------
Standard & Poor's Ratings Services said it has revised its outlook
to stable from negative on Russia-based brokerage and investment
banking house Renaissance Financial Holdings Ltd. and affirmed its
'B+' long-term and 'B' short-term counterparty credit ratings.
"The 'B+' long-term rating reflects the risky operating
environment for investment banking in Russia, RFHL's weak
profitability, and its status as a non-operating holding company,"
said Standard & Poor's credit analyst Scott Bugie.
These credit weaknesses partly offset the group's strong franchise
in emerging-market equity research and investment banking as well
as its adequate liquidity and capital in light of its risk
profile.
RFHL, registered in Bermuda, is the 100% owner of several
companies that form the Renaissance Capital investment banking
group (RenCap). RFHL in turn is jointly owned by Renaissance
Capital Holdings Ltd. (RCHL) and Onexim Holdings Ltd. (not rated),
a Russian investment company. RCHL is part of Renaissance Group,
which also owns companies in wealth and asset management, consumer
finance (Commercial Bank Renaissance Capital) and merchant
banking.
RFHL is a non-operating holding company (NOHC) whose only source
of cash is dividends from operating subsidiaries. "According to
our criteria, we typically view the creditworthiness of an NOHC as
marginally weaker than that of its operating companies. We rate
RFHL one notch below the "notional" stand-alone credit profile of
'bb-' for the consolidated RenCap group," S&P said.
The 'B' long-term rating on RCHL also reflects its status as an
NOHC and its 50% plus one half of one share ownership of RFHL.
The change in the short-term rating on RCHL to 'C' from 'B'
reflects a realignment of the short-term rating with the 'B' long-
term rating of RCHL and RCHL's status as a NOHC.
"The stable outlook reflects our expectations that RenCap will
generate moderately positive pretax income in 2011 based on better
performance and trading volumes in Russian equities, sustained
deal flow in underwriting and mergers and acquisitions in Russia,
and the growing contribution from the brokerage business in Africa
and the Commonwealth of Independent States," Mr. Bugie said.
Developments that could lead to an upgrade include an improvement
in the Russian operating environment, a material increase in
capital via shareholder investments or retained earnings, and a
significant repayment of intragroup loans. Developments that
could lead to a downgrade are deterioration in the Russian
operating environment, a significant liquidating dividend paid to
shareholders, and an increase in intragroup loans.
=========
S P A I N
=========
CAMPOFRIO FOOD: Moody's Upgrades Corporate Family Rating to 'Ba3'
-----------------------------------------------------------------
Moody's Investors Service has upgraded the corporate family rating
(CFR) and probability-of-default rating of Campofrio Food Group to
Ba3 from B1. The rating of the EUR 500 million senior unsecured
bond due 2016 has also been upgraded to Ba3. The rating outlook
is stable.
Ratings Rationale
"Moody's decision to upgrade Campofrio's CFR to Ba3 with a stable
outlook reflects the company's improved operating performance,
despite higher input costs. This has led to a reduction in its
adjusted debt to EBITDA to 4.3x at December 31, 2010, down from
5.2x the previous year" said Tanya Savkin, Assistant Vice
President analyst at Moody's.
During 2010, its second year after the merger between Campofrio
Alimentacion and Groupe Smithfield, Campofrio continued to benefit
from restructuring initiatives. Its reported EBITDA margin rose
to 8.9% from 7.4% in 2009. The company is targeting a double-
digit reported EBITDA margin by 2012.
In Moody's view, the acquisition of Italian-based company Cesare
Fiorucci, completed on April 4, 2011, should further strengthen
Campofrio's market position in Europe. The acquisition will be
financed through a new EUR100 million unsecured term loan and
around EUR78 million in cash. Moody's believes that the
acquisition, although debt-financed, should have relatively
limited impact on Campofrio's otherwise improving credit metrics.
The company is targeting reported net leverage of about 2.5-3.0x,
which is equivalent to about 3.5-4.0x adjusted net leverage and
hence implies some further modest deleveraging. Moody's
anticipates that Campofrio may engage in further M&A similar to
Cesare Fiorucci as it seeks to broaden its scale and reach across
Europe.
The stable outlook reflects Moody's expectation that Campofrio's
large size and geographic diversification should help mitigate the
effect of continued difficult market conditions and input prices.
The ratings could come under downward pressure if the company's
operating performance deteriorates with an EBITA margin below
5.5%; adjusted leverage above 4.5x; or RCF/net debt falling to the
low teens. Conversely, upward pressure could occur if the company
increases its EBITA margin to around 8%; its RCF to net debt rises
above 20%, and its leverage falls to around 3.5x.
The last rating action on Campofrio was implemented in August 2010
when Moody's changed the outlook from stable to positive.
The principal methodologies used in this rating were Global
Packaged Goods Industry published in July 2009, and Loss Given
Default for Speculative-Grade Non-Financial Companies in the U.S.,
Canada and EMEA published in June 2009.
Headquartered in Madrid (Spain), Campofrio is the largest producer
of processed meat products in Europe. In 2010, the company
reported sales and EBITDA of approximately EUR1.8 billion and
EUR163 million, respectively.
OBRASCON HUARTE LAIN: Moody's Assigns Definitive 'Ba2' Rating
-------------------------------------------------------------
Moody's Investors Service has assigned a definitive Ba2 rating and
Loss Given Default (LGD) Assessment of LGD3 to the company's
EUR425 million worth of senior unsecured notes due in 2018. The
outlook on all Obrascon Huarte Lain S.A. (OHL) ratings remains
negative.
The final terms of the notes are in line with the drafts reviewed
for the provisional ratings assignments.
Ratings Rationale
The proceeds from the bond issuance will be used to refinance
OHL's EUR422 million bond due in 2012, thereby improving its debt
maturity profile.
The Ba2/LGD3 instrument ratings for the senior notes due in 2018
reflect their senior unsecured status and pari passu ranking with
a large majority of OHL's existing and future obligations.
Moody's recognizes that OHL has managed to address a number of
concerns embedded in the negative outlook, achieving sales of
EUR4.9 billion and EBITDA of EUR1 billion for 2010 and significant
year-on-year growth in operating margins, EBITDA and EBIT. The
main growth driver was the group's concession business, which at
EUR1.5 billion sales and EUR747 million EBITDA, reported growth of
32.1% and 71.3% over the prior year. International construction
activity became the leading segment in terms of sales, accounting
for 37% of the total.
However, OHL's recourse business has weakened and remains under
stress in the current economic environment. Domestic construction
activity saw a 23% reduction in sales and a 30% drop at the EBITDA
level, driven by lower activity levels due to the substantial cuts
in government spending, while international construction activity
remained flat in terms of revenues, in line with Moody's
expectations. Overall, the construction business showed a drop in
sales of 10.4%. Going forward, Moody's expects that the decline
in domestic construction will be offset by a growing international
recourse business, which presented a y-o-y increase of 24% in its
order book.
OHL reported higher than expected recourse debt of EUR1.17 billion
as at 31 December 2010 up from EUR731 million as at end-2009,
resulting in a reported recourse debt/recourse EBITDA ratio of
3.5x. The increase was due to (i) investments in concession
companies, (ii) working capital fluctuations due to the reduction
in commercial financing as a consequence of the drop of the
domestic construction activity and (iii) delayed payments by some
international customers. Nevertheless, the company expects to
reduce recourse debt in the coming months, through the sale of
non-core assets and an improvement in collections. Net reported
debt/EBITDA stood at 4.4x, improving from 4.6x reported last as of
end-2009.
The Ba2 CFR continues to take into account OHL's (i) portfolio of
businesses, through which it balances cyclical construction
activities with more predictable concession-generated revenues;
and (ii) its gradually decreasing exposure to the Spanish economy,
with its involvement in international construction projects and a
growing portfolio of Latin American infrastructure assets. At the
same time, the rating factors in: (i) the potential for volatility
in the cyclical construction industry; and (ii) the challenges OHL
faces in controlling its expanding international activities. The
outlook remains negative given the significant decline in domestic
construction activity during 2010 and higher than expected
recourse debt as at December.
Upward pressure on the rating could develop if net consolidated
debt/EBITDA (as adjusted by Moody's) falls well below 5x and gross
recourse debt/recourse EBITDA (as reported by OHL) moves to below
3.5x on a sustained basis.
The Ba2 rating could come under pressure if OHL's net consolidated
debt/EBITDA ratio (as adjusted by Moody's) increases above 5.5x
and the company's gross recourse debt/recourse EBITDA ratio (as
reported by OHL) rises above 4.0x on a sustained basis.
Moody's previous rating action on OHL was implemented on 10 March
2011, when the rating agency affirmed OHL's CFR and assigned a
provisional (P)Ba2 rating to the new senior notes.
The principal methodologies used in this rating were Global
Construction Methodology published in November 2010, and Loss
Given Default for Speculative-Grade Non-Financial Companies in the
U.S., Canada and EMEA published in June 2009.
Headquartered in Madrid, OHL is one of Spain's leading
construction and concession operators, involved in environmental,
development and industrial activities. For 2010, OHL reported
sales of EUR4.9 billion and EBITDA of EUR1 billion.
===========================
U N I T E D K I N G D O M
===========================
EXPRO HOLDINGS: S&P Downgrades Corp. Credit Rating to 'CCC+'
------------------------------------------------------------
Standard & Poor's Ratings Services said it lowered the long-term
corporate credit rating on oil field services company Expro
Holdings U.K. 3 (Expro) to 'CCC+' from 'B-'. The outlook remains
negative.
"At the same time, we lowered the issue rating on the US$1.4
billion senior secured notes to 'B-' from 'B', on the US$100
million secured revolver to 'B+' from 'BB-', and on the US$777
million mezzanine facility to 'CCC' from 'CCC+'. The recovery
ratings on these issues are '2', '1+', and '5', respectively," S&P
said.
"The downgrade follows Expro's flat operational performance in the
second and third quarters of its 2011 financial year (ended March
31, 2011), which was weaker than we had anticipated," said
Standard & Poor's credit analyst Paul Watters. "It also factors
in our growing concerns about Expro's financial condition and its
ability to fund future growth without significant further
shareholder support."
Expro's reported financial debt stood at US$2.24 billion on Dec.
31, 2010, excluding a US$3.07 billion shareholder loan.
"Given continued likely negative free operating cash flow (FOCF)
over the next two years -- as Expro implements its revised
enhanced growth strategy, establishes a new management team and
organizational structure, and faces a weak balance sheet
(including US$2.40 billion goodwill) -- we believe that Expro's
business and financial profiles will likely bear increased risks.
We also understand that the competitive pricing environment during
the recent downturn was more aggressive than we previously
expected and this has resulted in a 2-3 percentage point erosion
in average margins. In light of these developments, we have
revised down our classification of Expro's business risk profile
to weak from fair," according to S&P.
"In our view, Expro faces specific hurdles to overcome in cash
flow and balance sheet sustainability in coming years. These
include shoring up liquidity that we view as less than adequate.
The prospect of negative FOCF through to end-March 2013 will
require additional funding to facilitate planned growth, in our
view. While we understand that about 75% of budgeted growth
capital expenditure (capex) hinges on contract awards, lack of
available funding would restrict growth and the company's ability
to improve its financial risk profile," S&P said.
"We have heightened concern regarding Expro's ability to grow back
into its capital structure organically, and whether the necessary
shareholder funds will be provided on a timely basis to bolster
liquidity and finance the necessary growth capex and on what
terms," S&P noted.
"A further downward rating action would be possible if sufficient
shareholder support were not forthcoming to carry out the business
plan, if a substantial goodwill impairment charge were required,
or if we were to consider that Expro's weak financial position was
impairing operational performance, and in turn, threatening a
covenant breach," S&P stated.
"An upgrade would likely be based on adjusted debt to EBITDA
returning to 6.5x or below on a sustainable basis and liquidity
that we would qualify as adequate," S&P added.
HIHO: Poor Trading Prompts Administration
-----------------------------------------
Rachael Taylor at ProfessionalJeweller.com reports that Hiho has
gone into administration just two months after launching a
wholesale division.
ProfessionalJeweller.com relates that in a statement on its Web
site, Hiho said that the former management team has bought back
certain assets from the administrators and intends to continue to
run its Web site and mobile events.
According to ProfessionalJeweller.com, the statement from Hiho
managing director Andrew Ransford read: "Due to extremely
difficult trading conditions on the high street the company that
previously owned the shops has entered administration. The former
management team has purchased certain assets from the
administrators with a view to running this website and mobile
events."
It is unclear at present which company is handling the
administration, or what will happen to the 14 Hiho retail stores
and staff, ProfessionalJeweller.com notes.
Hiho was established in 1995, employed about 55 staff and in 2009
had a turnover of GBP3.5 million. The retailer specialized in
silver jewelry and co-designed collections with celebrity stylist
Nick Ede.
LEAMINGTON DESSERTS: Country Style Buys Residual Assets
-------------------------------------------------------
Graham Holter and Ben Bouckley at FoodManufacture.co.uk report
that Country Style Foods has bought the residual assets of
Leamington Desserts.
Leamington Desserts went into administration last November but
KPMG was unable to sell the business as a going concern,
FoodManufacture.co.uk recounts. The company folded in January
with the loss of more than 160 jobs, FoodManufacture.co.uk
discloses.
FoodManufacture.co.uk's sources said Country Style Foods, the
Leeds-based bakery product manufacturer with additional plants in
Grimsby, Stockton, Peterlee and Flint, tied up a deal for the
Leamington site on April 1.
The deal is understood to include all facilities at the 5,740m2
site in Leamington Spa, although not the Leamington Desserts name,
according to FoodManufacture.co.uk.
FoodManufacture.co.uk relates that Will Wright, joint
administrator at KPMG, said the identity of the buyer, and the
value of the deal, would be "a matter of public record within
months".
"We're pleased with the result," FoodManufacture.co.uk quotes
Mr. Wright as saying. "We traded the business in insolvency for
some time and tried to sell it as a going concern, but we had to
close the business in mid January and therefore we've been trying
to dispose of the assets."
Leamington Desserts Limited, formerly owned by Polestar Foods
Limited, manufactures frozen desserts for major supermarkets.
MILLSHOMES: Goes Into Administration
------------------------------------
Place North West reports that Millshomes has gone into
administration.
Place North West relates that Millshomes has appointed Paul
Stanley and Jason Greenhalgh, from Begbies Traynor's Manchester
office, as joint administrators.
According to Place North West, Mr. Stanley, a partner in the
insolvency firm, has decided to manage 40 of the apartments at
Millshomes' Victoria Mill development in Reddish as a going
concern instead of trying to sell the properties en-bloc in the
market.
Mr. Stanley, as cited by Place North West, said, "The slump in
mortgage lending and wider economic downturn was the downfall of
Millshomes and, as it stands, value is best realized by letting
out the completed units."
Mr. Stanley is currently weighing up the options for two other
Millshomes developments, which includes a part finished
residential scheme, Elizabeth Mill, and an industrial unit Eleanor
Mill, Place North West notes.
Millshomes is a developer of apartments within refurbished mills
in Reddish in Stockport.
PUNCH TAVERNS: Moody's Cuts Ratings on Two Classes of Notes to B3
-----------------------------------------------------------------
Moody's Investors Service has downgraded the ratings of notes
issued by Punch Taverns Finance plc and Punch Taverns Finance B
Limited.
The rating actions are:
Issuer: Punch Taverns Finance plc
-- GBP270M A1(R) Notes, Downgraded to Baa1 (sf); previously on
Mar 3, 2011 Downgraded to A1 (sf) and Remained On Review for
Possible Downgrade
-- GBP300M A2(R) Notes, Downgraded to Baa1 (sf); previously on
Mar 3, 2011 Downgraded to A1 (sf) and Remained On Review for
Possible Downgrade
-- GBP200M M1 Notes, Downgraded to Ba1 (sf); previously on
March 3, 2011 Downgraded to Baa1 (sf) and Remained On Review
for Possible Downgrade
-- GBP400M M2(N) Notes, Downgraded to Ba1 (sf); previously on
March 3, 2011 Downgraded to Baa1 (sf) and Remained On Review
for Possible Downgrade
-- GBP140M B1 Notes, Downgraded to Ba3 (sf); previously on
March 3, 2011 Downgraded to Ba1 (sf) and Remained On Review
for Possible Downgrade
-- GBP150M B2 Notes, Downgraded to Ba3 (sf); previously on
March 3, 2011 Downgraded to Ba1 (sf) and Remained On Review
for Possible Downgrade
-- GBP175M B3 Notes, Downgraded to Ba3 (sf); previously on
March 3, 2011 Downgraded to Ba1 (sf) and Remained On Review
for Possible Downgrade
-- GBP215M C(R) Notes, Downgraded to B3 (sf); previously on
March 3, 2011 Downgraded to Ba3 (sf) and Remained On Review
for Possible Downgrade
Issuer: Punch Taverns Finance B Limited
-- GBP201M A3 Notes, Downgraded to Baa3 (sf); previously on
March 3, 2011 Downgraded to Baa1 (sf) and Remained On Review
for Possible Downgrade
-- GBP220M A6 Notes, Downgraded to Baa3 (sf); previously on
March 3, 2011 Downgraded to Baa1 (sf) and Remained On Review
for Possible Downgrade
-- GBP250M A7 Notes, Downgraded to Baa3 (sf); previously on
March 3, 2011 Downgraded to Baa1 (sf) and Remained On Review
for Possible Downgrade
-- GBP250M A8 Notes, Downgraded to Baa3 (sf); previously on
March 3, 2011 Downgraded to Baa1 (sf) and Remained On Review
for Possible Downgrade
-- GBP77.5M B1 Notes, Downgraded to Ba3 (sf); previously on
March 3, 2011 Downgraded to Ba1 (sf) and Remained On Review
for Possible Downgrade
-- GBP125M B2 Notes, Downgraded to Ba3 (sf); previously on
March 3, 2011 Downgraded to Ba1 (sf) and Remained On Review
for Possible Downgrade
-- GBP125M C1 Notes, Downgraded to B3 (sf); previously on March
3, 2011 Downgraded to B1 (sf) and Remained On Review for
Possible Downgrade
Moody's does not rate the Class D1 Notes issued by Punch A. The
ratings of the Class A2(R) Notes, Class M2(N) Notes and Class B3
Notes of Punch A are based on the underlying rating of the notes
and are no longer based on the financial guarantee policy provided
by AMBAC Assurance UK Limited (Caa2). The ratings of the Class A7
and Class A8 Notes of Punch B are based on the underlying rating
of the notes and are no longer based on the financial guarantee
insurance policy issued by MBIA UK Insurance Limited (B3).
Punch A and Punch B represent whole-business securitizations (WBS)
of a portfolio of 3,147 and 2,178 leased pubs (as of Q4 2010)
respectively, located across the UK. Punch A closed in March 1998
and has been subject to tap issuances in October 2000, November
2003 and July 2007 whereas Punch B closed in November 2002 and was
restructured in August 2005.
Ratings Rationale
The rating actions are driven by a re-assessment of the operations
of the borrowers together with their ultimate parent company
(Punch Taverns plc) and lower values Moody's attributes to the
underlying pub portfolios which serve as security for the
noteholders. Moody's based its analysis on (i) its view of the
long-term sustainability of the borrowers' assets and the cash
flows generated from them which have been on a declining trend for
the past three years and (ii) the intrinsic credit quality of the
pub operator. Moody's previously downgraded all classes of notes
on March 3, 2011, and maintained the review of the notes for
possible downgrade pending the results of the strategic review
within the parent company. These rating actions conclude the
review of the ratings which was initiated in December 2010.
Primary sources of assumption uncertainty in relation to today's
rating actions are (a) the current stressed macro-economic
environment and (b) the viability of the UK pub industry which
drive the operations of the borrowers in both transactions.
Moody's assessment of these whole business securitizations relies
on the structural and legal integrity of the transactions; in
particular its assumption that the borrowers could be replaced by
alternative operators in case of insolvency or default under their
obligations. A deviation from this scenario whereby the assets
and businesses of the borrowers would be liquidated in a shorter
term or any other amendments to the current structures which would
result in a change of the economic benefit to the noteholders will
require Moody's to review its rating of the notes.
On March 22, 2011, the parent company announced the results of the
Punch Group's strategic review that started in October 2010. The
main conclusions of the operating performance and capital
structure review are as follows:
(i) The Punch Group's current strategy is not sustainable and
restructuring appears necessary;
(ii) The two main activities of the Punch Group, the leased
business and the managed business, are now presenting very
different investment prospects to shareholders. The managed
portfolio requires capital investment to sustain growth,
whereas the leased portfolio needs repositioning through
downsizing of more than 40% of the estate, in number of
units, and
(iii) There are limited synergies between the leased and managed
operations, and Punch Group's existing structure is a
barrier to realising value in the respective portfolios.
Consequently, the parent company announced the demerger of its
leased and managed businesses. Post the de-merger which is
expected to be completed in summer 2011, the securitization groups
of Punch A and Punch B should fall within a new independent
company that will focus on running the leased pubs. The new
company should also include the parent's joint venture interest in
Matthew Clark, a drinks wholesaling and distribution business.
The approximately GBP270 million cash resources of Punch Taverns
plc is proposed to be split roughly evenly between the managed and
leased business after covering for the de-merger costs estimated
at GBP30 million. The significant downsizing in respect of the
leased portfolio involves the disposal of approximately 2,200 pubs
across the Punch A and Punch B portfolios.
As highlighted in Moody's press releases from March 2011, during
the first three quarters of 2010, the parent company provided a
total of GBP9.4 million and GBP20.9 million EBITDA support to
Punch A and Punch B, respectively. According to the parent
company, the total cost of supporting the securitizations should
be approximately GBP45 million per annum. Without the support to
the portfolio EBITDA, the debt service coverage ratio (DSCR) for
the quarter ended in Q4 2010 would have been 1.38x and for the
rolling four quarters would have been 1.34x for Punch A whilst the
same ratios would have been 1.09x and 1.28x respectively for Punch
B. Therefore, in both transactions, the DSCRs have been above the
default covenant (1.25x) and the appointment of an independent
consultant to the borrower (1.35x).
Moody's expects that the cash flows from the portfolios will
decline further in 2011, by up to 10% from the trailing twelve
month (TTM) EBITDA as of Q4 2010 and stabilize only during the
course of 2012. As such, Moody's expects that an event of default
would materialize under the Issuer-Borrower loan agreement in each
of the transactions if the new parent company stopped its support.
In case of a breach of the financial covenants in the documents,
the borrowers would have 30 days to cure the breach which
essentially include the injection of some form of equity or
another remedial action which the Security Trustee determines will
not be materially prejudicial to the interests of the noteholders,
and in case of Punch A, the consent of Ambac is obtained. Breach
of the financial covenants which are not cured in the grace period
would result in an event of default, permitting the Security
Trustee to serve a borrower enforcement notice and enforce the
securitization groups' security in respect of any Obligor by the
appointment of an administrative receiver.
In both transactions, the borrowers can request a change to the
covenants including the financial covenants. According to the
transaction documents, the Security Trustee and Note Trustee may
agree to the modification, disapplication, amendment or waiver of
a covenant (if, in certain circumstances, for Punch A, the consent
of Ambac is obtained), and each of the Security Trustee and the
Note Trustee are of the opinion that the interests of the Issuer
Secured Creditors, including the noteholders, will not be
materially prejudiced. In light of the size of the future planned
disposals, Moody's understands that a change to the permitted
disposal covenants in the transactions may be necessary. In its
announcement on March 22, the parent company has stated that it
intends to continue supporting the securitizations until future
dialogue with bondholders take place; however, no indication on
timing was provided.
The current adverse cash flow profiles of the pub portfolios
combined with a fundamental assessment of the credit strength of
the pub operator, which Moody's believes will weaken after the de-
merger, has resulted in Moody's putting an increased weight on the
leverage of the notes when adjusting its ratings. In Moody's
opinion, the current value of the pub portfolio in Punch A is
approximately GBP1.6 billion and in Punch B is GBP998 million.
Moody's values are approximately 23% lower than the respective
book value of the portfolios (per Q4 2010) and take into account
the increased size of the non-core part of the estate. The
downward adjustment to the portfolio values reflects Moody's
expectation of further cash flows declines and the overall state
of the UK pub sector for which Moody's has a negative outlook.
The downgrade of all notes today takes into account the leverage
of the notes including the senior ranking swap mark-to-market
exposures associated with the floating rate notes in the
transactions. With respect to the senior notes in Punch A, the
rating incorporates the uncertainty over how the disposal proceeds
will be utilized as the borrower has the flexibility to prepay
debt or repurchase notes without any particular seniority across
the capital structure as long as the DSCR is above 1.35x. In its
analysis Moody's has not given benefit to effective deleveraging
of the portfolios from the planned disposals and will closely
monitor the progress on the disposals and any future amendments to
the transaction covenants.
Moody's notes that in both transactions, an external liquidity
facility is available to cover for shortfall on interest and
principal due under the notes, subject to specific limits on
different tranches. Thus, an imminent event of default caused by
a non-payment is currently not expected by Moody's. The liquidity
facilities would also be available to provide funds in a scenario
whereby an alternative operator would step in and there would be
temporary disruptions to operations and cash flows generated from
the portfolios. As per the latest interest payment date on the
notes, the available commitment under the liquidity facility in
Punch A was GBP294 million while it was GBP168 million in Punch B.
In a separate press release today, Moody's commented on its view
of the de-merger as it relates to Spirit Issuer plc, the
transaction which securitizes the managed pubs.
Rating Methodology
The principal methodology used in these ratings was "Moody's
Approach to UK Whole Business Securitisations" published in
October 2000. In this approach, a sustainable annual free cash
flow is derived over the medium to long term horizon of the
transaction, and then multipliers are applied to such cash flows
in order to reach the debt which could be issued at the targeted
long-term rating level for the Notes.
Moody's Investors Service did not receive or take into account a
third party due diligence report on the underlying assets or
financial instruments related to the monitoring of this
transaction in the past six months.
The Notes were placed on review for possible downgrade on
December 21, 2010, and were previously downgraded on March 3,
2011. The last Performance Overview for the transactions were
published on February 14, 2011.
REGENCY PARK: Manor of Groves to Take Over on April 29
------------------------------------------------------
Tanya Haji at Newbury Today reports that Manor of Groves Ltd. has
said it intends to take over the Regency Park Hotel in Thatcham on
April 29.
In July last year, the hotel went into administration and it was
put into the hands of administrator Grant Thornton, however,
residents and staff were assured that it would be business as
usual, Newbury Today recounts.
TAYLOR WIMPEY: S&P Affirms 'B+' Long-Term Corporate Credit Rating
-----------------------------------------------------------------
Standard & Poor's Ratings Services said it revised its outlook on
U.K.-based housebuilder Taylor Wimpey to stable from negative. At
the same time, the 'B+' long-term corporate credit rating and
issue ratings on Taylor Wimpey were affirmed. "The recovery
rating on the debt issue remains unchanged at '4', indicating our
expectation of average (30%-50%) recovery in the event of a
payment default," S&P said.
"The outlook revision reflects our view that the proceeds from the
planned disposal of Taylor Wimpey's North American assets are
credit positive," said Standard & Poor's credit analyst Maxime
Puget. "We base this view on the company's public announcement
that it intends to use most of the net proceeds from the
transaction to repay GBP473 million of borrowings (pro forma as of
Dec. 31, 2010)."
Taylor Wimpey is one of the largest housebuilders in the U.K.,
with annual revenues of GBP2.6 billion as of Dec. 31, 2010. On
March 31, 2011, the company announced that it had agreed to sell
its U.S. and Canadian operations to TMM Holdings Limited
Partnership, a private equity consortium, for US$955 million
(GBP595 million at current exchange rates). "In our view, these
operations suffered from relatively poor growth prospects overall
and low synergies with the company's U.K. business," S&P related.
"Following this transaction, we believe that management's sole
focus on U.K. operations will enable Taylor Wimpey to strengthen
its market position. At present, demand for new homes in the U.K.
is constrained by low consumer confidence and poor mortgage
availability. So we expect flat revenues at Taylor Wimpey for
2011 as a result of declining volumes offset by higher average
selling prices. However, we think that gross margins should
gradually improve due to the company being able to purchase land
at currently low prices and through its efforts to contain
building costs. Even so, higher commodity prices for building
products, stringent building regulations, and increased
competition for available land (especially in the south of
England) may start pressuring variable costs over the medium
term," according to S&P.
"In our view, Taylor Wimpey's financial position will improve
following the sale of its North American operations. This is
based on our understanding that cash proceeds from the transaction
will enable the company to deleverage its capital structure. We
also factor in an improvement in the company's financial
flexibility. Specifically, we anticipate that the company's
EBITDA-to-interest ratio should improve to around 2.0x in 2011
from 0.9x in 2010," S&P noted.
"We could raise the rating if we see continued improvement in
Taylor Wimpey's operating performance over the next 12 months. We
would also view positively clear evidence of a solid recovery in
the U.K. housing market," S&P said.
"Equally, we could lower the rating if Taylor Wimpey were to fail
to manage its liquidity carefully while acquiring new land; or if
adverse market conditions, notably in the U.K., were to affect
margins and cash flow generation by more than we anticipate," S&P
added.
THAMES WATER: Moody's Assigns 'B1' Rating to Finance Notes
----------------------------------------------------------
Moody's Investors Service has assigned a definitive B1 rating to
the GBP400 million, 7.75% notes due 2019, issued under the
GBP1 billion Guaranteed Secured Medium Term Note Programme of
Thames Water (Kemble) Finance PLC, a financing subsidiary of
Kemble Water Finance Limited. The outlook assigned to the rating
is stable.
Ratings Rationale
The rating of the Notes reflects (i) the low business risk profile
of Kemble's principal subsidiary, Thames Water Utilities Limited
("TWUL", Baa1 Corporate Family Rating, stable outlook), as the
monopoly provider of water and wastewater services in its area;
(ii) the stable and transparent regulatory framework for the water
sector in England and Wales; (iii) the high level of gearing at
TWUL and other debt in the group including the Notes; (iv) the
terms of the ring-fenced, highly-leveraged, financing structure
previously executed by TWUL; (v) the large capital investment
program planned by TWUL for the current regulatory period; and
(vi) the terms of the Kemble Programme including a cash trapping
provision.
The consolidated credit quality of the Kemble group is considered
to be consistent with a rating at the bottom of the Baa range. The
rating of the Notes is a function of (i) the overall credit
quality of the group and (ii) the deeply subordinated position of
the instrument and high expected loss given default. The capital
investment program, expected to increase TWUL's Regulatory Capital
Value by around 29% in real terms over the five-year regulatory
period ending in March 2015, will require significant equity
retention and so limit the operating company's ability to pay
dividends. This is a credit negative for lenders to the Issuer,
which will be reliant on such dividend payments to enable it to
service its debts. With regard to expected loss, Moody's notes
that lenders to TWUL have security over the shares in the water
company and, if this were enforced, then the security provided to
the holders of the Notes may have little or no value.
The Corporate Family Rating assigned to TWUL consolidates the
legal and financial obligations of TWUL, Thames Water Utilities
Finance Limited, Thames Water Utilities Cayman Finance Limited,
Thames Water Utilities Cayman Finance Holdings Limited and Thames
Water Utilities Holdings Limited, TWUL's immediate holding
company, which together constitute the ring-fenced Thames Water
Utilities Financing Group under the TWUL Programme. It also
factors in the terms and structural enhancements within the TWUL
Programme including the financial and other covenants, liquidity
and reserve facilities to enable TWUL to meet its operating and
debt service costs in a downside scenario, standstill provisions
to reduce the risk of special administration and security over the
shares in TWUL. There is also a distribution lock-up which would,
if tripped, prevent the payment of dividends by TWUL and, whilst
this would benefit creditors at TWUL, it would also deprive the
Issuer of income that would ordinarily be used to meet its debt
service obligations.
The proceeds of the Notes, together with GBP350 million of new
bank borrowings, will be used to re-finance existing bank
facilities at Kemble. These facilities were originally put in
place in 2006 to fund the acquisition of TWUL by a consortium led
by Macquarie's European Infrastructure Funds.
The structure of the Kemble Programme ring fences Kemble's credit
quality from other companies in the wider Thames Water group
although we note that other activities are limited. The terms do
not, however, achieve any ratings uplift for creditor protections.
Whilst, for example, it is the intention to maintain a facility
sufficient to cover 12 months debt service at the Issuer, there is
no requirement to do so.
The stable outlook reflects Moody's view that the proposed
transaction is reasonably resilient to downside sensitivities.
Given the high leverage at TWUL, the additional debt at the Issuer
and Moody's expectation that there will be only limited de-
leveraging over the life of the Notes, there will be little
potential for an upgrade. The rating could come under downward
pressure in the event of (i) serious underperformance in operating
or capital expenditure at TWUL; (ii) adverse macro-economic
developments including deflation; (iii) negative funding
conditions; or (iv) adverse changes in the regulatory framework or
structure of the water sector in England and Wales.
The principal methodology used in this rating was Global Regulated
Water Utilities published in December 2009.
Kemble, headquartered in Reading, is an intermediate holding
company for Thames Water Utilities Limited, the largest of the ten
water and sewerage companies in England and Wales by both
Regulatory Capital Value and number of customers served.
===============
X X X X X X X X
===============
* BOOK REVIEW: Corporate Turnaround
-----------------------------------
Author: Donald B. Bibeault
Publisher: Beard Books
Softcover: 424 pages
List Price: US$34.95
Corporate Turnaround offers, claims the author, a "four-pronged
approach" to taking the "mystery out of turnaround management."
One of the prongs -- Mr. Biebeault's personal experiences -- is
complemented with another prong -- interviews with sixteen top
turnaround specialists. Together, they bring forth the drama and
the stakes of turnarounds. The other two prongs -- surveys of
eighty-one corporate presidents and the author's exhaustive
research (400 references in all, taken from books, periodicals,
and scholarly writings) -- lend a great deal of substance and
authority to the book's subject matter. This variety of material
greatly enriches the book, which is perhaps more relevant today
than it was in 1982 when it was first published.
Identifying the underlying causes for failure can be a futile
chicken-and-egg pursuit. "Businesses decline for both
uncontrollable external reasons and for controllable internal
reasons," says Mr. Bibeault. Nonetheless, Mr. Bibeault adds that
"[i]n most cases . . . business problems are internally
generated." As one of his sources explains, managing a company is
like piloting a ship. "If the ship is in good condition and the
captain is competent, it is almost impossible for it to be sunk by
a wave or a succession of waves." A competent captain with a ship
in good condition can even bring it through a storm.
The manager of a company is different from the captain of a ship,
however, in that the manager not only has to pilot the company,
but is also responsible for its condition. The central challenge
for a manager is to ensure that the company is structurally solid,
operationally relevant, efficient, and adaptable to be able to
weather any conditions the company might encounter. Even though,
as Bibeault maintains, in practically all cases business problems
are internally generated, this does not rule out having to heed
external conditions. External economic, political, or market
conditions expose and exacerbate a company's internal weaknesses.
"Management is not always able to deal with outside forces, even
when they can see them gathering." A manager can be effective,
however, in "getting a company into a posture, both from a
marketing and financial point of view, where it can resist normal
business hazards and other more serious external challenges." In
such circumstances, a turnaround may be a company's only hope for
survival, and the abilities of a turnaround manager are required.
Bibeault describes such managers as "the George Pattons of the
business world." "They don't have a lot of friends, they're not
social successes, they're just known as blood-and-guts guys," is
the way one corporate executive puts it; a description repeated in
different words by other experienced businesspersons Bibeault
consulted.
In Corporate Turnaround, Bibeault explores every facet of a
turnaround. The causes of a company's decline are followed with a
thorough consideration of the management basics in effecting a
turnaround. The book also examines the attributes of the
turnaround manager and offers specific pragmatic steps for getting
on the path to recovery. Lastly, Corporate Turnaround offers an
overall strategy. The book is not only informative about the
crucial subject of corporate turnaround, but also a manual for
managing one.
Bibeault has worked on turnarounds of distressed companies for
over 25 years in addition to holding top executive positions in a
number of corporations. He also holds advisory or governing board
positions with different universities and business groups.
*********
Monday's edition of the TCR delivers a list of indicative prices
for bond issues that reportedly trade well below par. Prices are
obtained by TCR editors from a variety of outside sources during
the prior week we think are reliable. Those sources may not,
however, be complete or accurate. The Monday Bond Pricing table
is compiled on the Friday prior to publication. Prices reported
are not intended to reflect actual trades. Prices for actual
trades are probably different. Our objective is to share
information, not make markets in publicly traded securities.
Nothing in the TCR constitutes an offer or solicitation to buy or
sell any security of any kind. It is likely that some entity
affiliated with a TCR editor holds some position in the issuers'
public debt and equity securities about which we report.
Each Tuesday edition of the TCR contains a list of companies with
insolvent balance sheets whose shares trade higher than US$3 per
share in public markets. At first glance, this list may look like
the definitive compilation of stocks that are ideal to sell short.
Don't be fooled. Assets, for example, reported at historical cost
net of depreciation may understate the true value of a firm's
assets. A company may establish reserves on its balance sheet for
liabilities that may never materialize. The prices at which
equity securities trade in public market are determined by more
than a balance sheet solvency test.
A list of Meetings, Conferences and Seminars appears in each
Thursday's edition of the TCR. Submissions about insolvency-
related conferences are encouraged. Send announcements to
conferences@bankrupt.com
Each Friday's edition of the TCR includes a review about a book of
interest to troubled company professionals. All titles are
available at your local bookstore or through Amazon.com. Go to
http://www.bankrupt.com/booksto order any title today.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Frederick, Maryland USA.
Valerie U. Pascual, Marites O. Claro, Rousel Elaine T. Fernandez,
Joy A. Agravante, Psyche A. Castillon, Julie Anne G. Lopez,
Ivy B. Magdadaro, Frauline S. Abangan and Peter A. Chapman,
Editors.
Copyright 2011. All rights reserved. ISSN 1529-2754.
This material is copyrighted and any commercial use, resale or
publication in any form (including e-mail forwarding, electronic
re-mailing and photocopying) is strictly prohibited without prior
written permission of the publishers.
Information contained herein is obtained from sources believed to
be reliable, but is not guaranteed.
The TCR Europe subscription rate is US$625 per half-year,
delivered via e-mail. Additional e-mail subscriptions for members
of the same firm for the term of the initial subscription or
balance thereof are US$25 each. For subscription information,
contact Christopher Beard at 240/629-3300.
* * * End of Transmission * * *