/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/130516.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Thursday, May 16, 2013, Vol. 14, No. 96 Headlines G E R M A N Y HYPO ALPE-ADRIA: May Avert Insolvency Amid EU Negotiations G R E E C E * GREECE: Fitch Upgrades LT Foreign & Local IDRs to 'B-' I T A L Y BANCA MONTE: Posts EUR100.7-Mil. Net Loss in First Quarter 2013 P O L A N D CENTRAL EUROPEAN: Bankruptcy Court Approves Reorganization Plan LOT POLISH: EU Commission Approves US$127-Mil. Rescue Loan R U S S I A ABSOLUT BANK: Moody's Extends Review for Downgrade on Ba3 Ratings ROSPROMBANK: Moody's Lowers National Scale Rating to 'B3.ru' ROSPROMBANK: Moody's Lowers Long-Term Deposit Ratings to 'Caa2' S L O V E N I A * SLOVENIA: Bailouts of Ailing Banks Set to Begin Next Month S P A I N FONDO DE TITULIZACION 5: Moody's Assigns Ca Rating on C Notes U K R A I N E UKRLANDFARMING: Tap Issue No Impact on Fitch's 'B' Notes Rating U N I T E D K I N G D O M ATMOSPHERE BARS: In Administration; Nearly 500 Jobs at Risk BOTANIC INNS: NAMA Deal Secures 300 Jobs After Administration MAN STRATEGIC: Fitch Affirms 'BB' Subordinated Debt Rating PENDRAGON PLC: Fitch Assigns 'B+' Rating to GBP175MM Bond TATA STEEL: $1.6-Bil. Write-Down No Impact on Moody's Ba3 Rating * UK: Moody's Looming Reforms Credit Negative for Water Sector * UK: Fitch Says BTL Mortgage Market Growth May Hit Performance X X X X X X X X * Fitch Says Stabilizing Rating Trends Support EMEA Corp. Bond * Tata Steel Charge Highlights Industry's European Troubles * Upcoming Meetings, Conferences and Seminars ********* ============= G E R M A N Y ============= HYPO ALPE-ADRIA: May Avert Insolvency Amid EU Negotiations ---------------------------------------------------------- Boris Groendahl at Bloomberg News reports that Austria's central bank said Hypo Alpe-Adria-Bank International AG will likely avoid a EUR16 billion (US$21 billion) insolvency as policy makers negotiate with the European Commission over the nationalized lender. "The government is on a very good path with the Commission, therefore I don't think that there is an immediate threat," Bloomberg quotes Andreas Ittner, a director at the nation's central bank, as saying in Vienna on Tuesday. According to Bloomberg, Mr. Ittner said a EUR16 billion loss was possible if Hypo Alpe was forced by the Commission into immediate repayment of government aid that would trigger insolvency, confirming a figure first published by Profil magazine last month. Hypo Alpe is the third-biggest lender in the nations of the former Yugoslavia, which have the potential to complicate the situation by seizing local assets, Bloomberg says, citing Austrian policy makers. Joaquin Almunia, the European Union's top antitrust official, told Austria in March that its restructuring plan for Hypo Alpe wasn't good enough to justify retaining about EUR2.2 billion of state aid the lender has received since 2008, and he may order Hypo Alpe to pay it back, Bloomberg recounts. A task force led by former central bank governor Klaus Liebscher is aiming to satisfy Mr. Almunia by drafting a new plan, Bloomberg discloses. Repaying the EUR2.2 billion right away could force Hypo Alpe into insolvency, according to a central bank document that was first reported by Profil and also obtained by Bloomberg News. The Balkan countries where Hypo Alpe is active may nationalize its local arms in the case of an insolvency, freezing as much as EUR10.4 billion the parent company lent to the units, Bloomberg says, citing the document. Hypo Alpe, Bloomberg says, is seeking buyers for its businesses in Austria, Italy and the former Yugoslavia, where it trails only Nova Ljubljanska Banka dd and UniCredit SpA (UCG) in terms of total assets. Another unit owns non-performing assets that will be wound down, including Croatian hotel loans, leasing deals across eastern Europe and assets seized as loan collateral, such as shopping malls, yachts and tractors, Bloomberg states. The sale of the Austrian unit, which had EUR4.1 billion of assets at the end of last year, is in the "final phase," Bloomberg quotes Hypo Alpe spokesman Nikola Donig as saying. Hypo Alpe originally proposed to sell the Austrian business next year and dispose of the ex-Yugoslav unit, with 10 billion euros of assets, by 2016, Bloomberg says, citing the central bank document. The document, as cited by Bloomberg, said that plan was rejected by Mr. Almunia, who wants all units to be sold this year. A quick sale of the Austrian unit may appease Mr. Almunia and gain more time to sell the Balkan lenders, Bloomberg notes. Mr. Donig said that Hypo Alpe has sent information memorandums to about 10 potential bidders for the ex-Yugoslavia unit, which comprises banks in Slovenia, Croatia, Serbia, Montenegro, and Bosnia and Herzegovina, Bloomberg relates. Austria is also revisiting plans to spin off the "bad bank" wind- down unit, which already is its biggest division, accounting for 11.7 billion euros of total assets, Bloomberg discloses. Hypo Alpe-Adria International AG is a subsidiary of BayernLB. It is active in banking and leasing. In banking, HGAA serves both corporate and retail customers and offers services ranging from traditional lending through savings and deposits to complex investment products and asset management services. =========== G R E E C E =========== * GREECE: Fitch Upgrades LT Foreign & Local IDRs to 'B-' -------------------------------------------------------- Fitch Ratings has upgraded Greece's Long-term foreign and local currency IDRs to 'B-' from 'CCC'. The Short-term foreign currency IDR has also been upgraded to 'B' from 'C' and the Country Ceiling upgraded to 'B' from 'B-'. The Outlook on the Long-term IDRs is Stable. KEY RATING DRIVERS The upgrade of Greece's sovereign ratings by one notch to 'B-' reflects the following factors: The Greek economy is rebalancing: clear progress has been made towards eliminating twin fiscal and current account deficits and 'internal devaluation' has at last begun to take hold. The price has been high in terms of lost output and rising unemployment and the capacity for recovery is still in doubt. Nonetheless, sovereign debt relief and an easing of fiscal targets have lifted Central Bank measures of economic sentiment to a three-year high and the risk of eurozone exit has receded. The Economic Adjustment Programme (EAP) is on track amid a semblance of political and social stability. The current administration has displayed much greater ownership of the EU-IMF funded EAP than its predecessors, committing to further upfront fiscal consolidation and a renewed push on structural reforms. Still, tangible economic recovery remains elusive, while resistance to reform is high, underlining the continuing risks to implementation. Greek primary fiscal adjustment of over 9% of GDP in 2009-12 (excluding one-off support to the financial sector), and around 16% in cyclically adjusted terms, ranks as the most ambitious instance of fiscal consolidation among advanced economies in recent times. The current account deficit has also shrunk from 10% of GDP in 2011 to 3% in 2012. The revised EU-IMF program gives Greece two additional years (2015-16) to attain a primary surplus of 4.5% of GDP. This relaxation is reflected in Fitch's expectation of a milder economic contraction of around 4.3% in 2013 (-6.4% in 2012) and a weak recovery in 2014. Structural reforms are progressing. The financial system has stabilized: EUR16 billion-EUR17 billion of time deposits have returned to the system since mid-2012 and bank recapitalization is well advanced. Meanwhile, a small, but significant milestone was passed earlier this month with the completion of the first major privatization since the EAP began. Considerable progress has also been made with labor market reforms and 80% of the earlier loss of competitiveness has been clawed back. However, product market reform remains a major challenge: progress in this area will be important to support a sustainable recovery and for the success of the EAP. Extensive private and public sovereign debt restructuring has put program funding on a more secure footing and should moderate the rise in the peak public debt/GDP ratio to around 180% in 2013-14. Notwithstanding this still extremely high headline public debt ratio, the significantly reduced interest cost and maturity extension provided by the debt restructuring and EAP financing means that sovereign debt service now appears more secure than the size of the debt stock would otherwise imply. Even so, public debt sustainability is still far from assured and will be dependent on economic recovery and a sustained primary fiscal surplus. The degree of default risk for private creditors, encapsulated in the previous 'CCC' rating, has subsided. In Fitch's view, sovereign debt restructuring and debt buy-backs have reduced private creditors' share of general government debt to the point (15%, excluding T-bills), where there would be little to be gained financially from any further restructuring. Barring Greek exit from the euro, Fitch could envisage official creditors bearing the brunt of any future default, albeit the political considerations of any such move may not be straightforward. Greece's sovereign ratings are underpinned by its still high income per capita, which far exceeds 'B' and 'BB' medians, its superior measures of governance on most counts and membership of the eurozone, which shields it from balance of payments and exchange rate risks and has facilitated access to unprecedented financial assistance. RATING SENSITIVITIES The Stable Outlook reflects Fitch's assessment that upside and downside risks to the rating are more broadly balanced than in the recent past. Nonetheless, the following risk factors individually, or collectively, could trigger a rating action: Sustained economic recovery founded on solid implementation of the EU-IMF program, including broad structural reforms, would be grounds for an upgrade. Conversely, failure of the economy to recover, leading to the re- emergence of renewed funding gaps could trigger a negative rating action. Likewise, renewed political and social instability, leading to an unravelling of the EU-IMF program, would intensify the risks of Greek exit from the euro zone and widespread default -- sovereign and private sector -- leading to a downgrade. Macroeconomic imbalances have generated high public and external debt and left Greece acutely vulnerable to domestic and external shocks, such as developments in Cyprus. Fitch does not interpret the Troika's (EU/IMF/ECB) treatment of Cyprus as implying any diminution of support for Greece. However, the agency considers that developments in Cyprus could have a knock-on effect to Greece, were the EAP to go off track again, leading to speculation among Greek businesses and depositors about how larger financing gaps might be filled. KEY ASSUMPTIONS The ratings and Outlooks are sensitive to a number of assumptions: -- Political and social stability are maintained and the current administration remains in place. -- Continued broad adherence to the EU-IMF EAP. The sustainability of Greece's public finances and its continued membership of the eurozone depend upon the implementation of structural and fiscal reforms and their effectiveness in laying the foundations for a sustained economic recovery. Outright rejection of the EAP, or material slippage against targets, would trigger a downgrade. -- Fitch assumes that the EUR50bn allocated to recapitalisation of Greek banks is sufficient and that the financial sector makes no further material demands on the sovereign balance sheet. -- Public debt outcomes are sensitive to assumptions about growth, the primary balance and interest rates. -- Greece remains a member of the eurozone and does not seek to impose capital controls in the face of renewed strains on sovereign creditworthiness. In the event of a Greek exit from EMU, Fitch would treat the forcible redenomination of sovereign and private sector debt as a default event in line with its Distressed Debt Exchange rating criteria. -- The eurozone remains intact and that there is no materialisation of severe tail risks to global financial stability and investor confidence. ========= I T A L Y ========= BANCA MONTE: Posts EUR100.7-Mil. Net Loss in First Quarter 2013 --------------------------------------------------------------- Sonia Sirletti and Francesca Cinelli at Bloomberg News report that Banca Monte dei Paschi di Siena SpA, the bailed-out Italian bank embroiled in a fraud probe, reported a smaller first-quarter loss than analysts estimated as revenue exceeded forecasts. Monte Paschi reported a net loss of EUR100.7 million (US$130 million), less than the EUR154 million average loss estimate of nine analysts surveyed by Bloomberg. Chief Executive Officer Fabrizio Viola must return Monte Paschi to profit this year under its EUR4.1 billion rescue plan to avoid handing over a stake to the government, Bloomberg notes. He's putting assets up for sale and cutting the workforce after losses totaling EUR7.9 billion in the past two years, Bloomberg discloses. According to Bloomberg, revenue dropped 22% to EUR1.17 billion in the first quarter from a year earlier, compared with EUR1.02 billion estimated by analysts. Net interest income fell to EUR597 million from EUR883 million, Bloomberg says. Loan-loss provisions grew to EUR484.2 million from EUR430.3 million a year before, Bloomberg states. Banca Monte dei Paschi di Siena SpA -- http://www.mps.it/-- is an Italy-based company engaged in the banking sector. It provides traditional banking services, asset management and private banking, including life insurance, pension funds and investment trusts. In addition, it offers investment banking, including project finance, merchant banking and financial advisory services. The Company comprises more than 3,000 branches, and a structure of channels of distribution. Banca Monte dei Paschi di Siena Group has subsidiaries located throughout Italy, Europe, America, Asia and North Africa. It has numerous subsidiaries, including Mps Sim SpA, MPS Capital Services Banca per le Imprese SpA, MPS Banca Personale SpA, Banca Toscana SpA, Monte Paschi Ireland Ltd. and Banca MP Belgio SpA. * * * As reported by the Troubled Company Reporter-Europe on Feb. 4, 2013, Standard & Poor's Ratings Services said that it lowered its long-term counterparty credit rating on Italy-based Banca Monte dei Paschi di Siena SpA (MPS) to 'BB' from 'BB+'. S&P also lowered its rating on MPS' Lower Tier 2 subordinated notes to 'CCC+' from 'B-'. These ratings remain on CreditWatch, where S&P originally placed them with negative implications on Dec. 5, 2012. S&P lowered the ratings on MPS' junior subordinated debt to 'CCC' from 'CCC+' and on its preferred stock to 'CCC-' from 'CCC'. S&P also placed these ratings on CreditWatch with negative implications. S&P affirmed its 'B' short-term counterparty credit rating on the bank. The downgrade follows MPS' recent announcement related to the investigation of potential losses on three structured transactions. =========== P O L A N D =========== CENTRAL EUROPEAN: Bankruptcy Court Approves Reorganization Plan --------------------------------------------------------------- Central European Distribution Corporation and Roust Trading Ltd. on May 13 disclosed that CEDC's Prepackaged Plan of Reorganization (the Plan) on May 13 won approval from the U.S. Bankruptcy Court for the District of Delaware, clearing the way for CEDC to emerge from the restructuring process as a financially stronger company. The approval means that the Court has confirmed the Plan submitted to the Court by CEDC and that the company may proceed with the closing of the restructuring transactions contemplated by the Plan, which, assuming all conditions are met, is expected on or about May 31. "The Court's approval of our financial restructuring is a very positive step forward for the Company," said Roustam Tariko, CEDC Chairman. "The Company's world-class brands are now able to continue to build on their success locally and globally and perform as category leaders." Required competition authority approvals already have been granted by regulatory authorities in the Company's key markets of Poland, Russia and Ukraine. At the closing of the transaction, which eliminates approximately US$665.2 million of debt from the balance sheets of CEDC and its U.S. subsidiaries, the Company will make a cash payment to holders of its 2013 Convertible Notes and certain of its 2016 Senior Secured Notes and issue new notes to holders of its 2016 Senior Secured Notes and new shares to RTL, cancelling all previously issued 2013 Convertible Notes and 2016 Senior Secured Notes and shares of outstanding CEDC common stock. As a result of the cancellation of CEDC's common stock, as of the day of closing of the transaction CEDC will cease to be a public company in the U.S. and in Poland and anticipates that its common stock will no longer be subject to listing and trading on the Warsaw Stock Exchange. RTL, owned by Mr. Tariko, will receive 100% of the outstanding stock of the reorganized Company in exchange for funding CEDC's cash payments under the Plan and the cancellation of CEDC's existing debt obligations to RTL. The approval of the Plan marks the culmination of more than a year's worth of work to bolster the Company's financial structure and create a long-term business alliance with Mr. Tariko's Russian Standard Vodka. During that process, two entities shared responsibility for safeguarding the interest of all CEDC constituencies from a corporate governance standpoint: the Special Committee of independent directors, headed by CEDC Vice Chairman N. Scott Fine, and the Restructuring Committee, consisting of Mr. Tariko and Mr. Fine and his fellow independent Director Markus Sieger. These committees were assisted by the firm of Skadden, Arps, Slate, Meagher and Flom LLP as legal advisor, the firm of Houlihan Lokey Capital Inc. as financial advisor, and the firm of Alvarez & Marsal LLC as chief restructuring officer. CEDC and its U.S. subsidiaries, CEDC Finance Corporation International, Inc. and CEDC Finance Corporation LLC (collectively CEDC FinCo), on April 7, 2013, commenced voluntary proceedings under Chapter 11 of the U.S. Bankruptcy Code. The Chapter 11 filing did not involve the Company's operating subsidiaries in Poland, Russia, Ukraine or Hungary. Those operations, which are independently funded and generate their own revenues, have continued normally and without interruption during the U.S. restructuring process. The terms of the Plan were described in the Amended and Restated Offering Memorandum, Consent Solicitation Statement and Disclosure Statement, dated March 8, 2013 (the Offering Memorandum), filed as an exhibit to a tender offer statement on Schedule TO-I/A on March 8, 2013, as amended and supplemented by Supplement No. 1 to the Offering Memorandum, dated March 18, 2013 (the Supplement), filed as an exhibit to the Form 8-K filed on March 19, 2013. About CEDC Mt. Laurel, New Jersey-based Central European Distribution Corporation is one of the world's largest vodka producers and Central and Eastern Europe's largest integrated spirit beverages business with its primary operations in Poland, Russia and Hungary. On April 7, 2013, CEDC and two subsidiaries sought bankruptcy protection under Chapter 11 of the Bankruptcy Code (Bankr. D. Del. Lead Case No. 13-10738) with a prepackaged Chapter 11 plan that reduces debt by US$665.2 million. Attorneys at Skadden, Arps, Slate, Meagher & Flom LLP serve as legal counsel to the Debtor. Houlihan Lokey is the investment banker. Alvarez & Marsal will provide the chief restructuring officer. GCG Inc. is the claims and notice agent. LOT POLISH: EU Commission Approves US$127-Mil. Rescue Loan ---------------------------------------------------------- Marcin Sobczyk at The Wall Street Journal reports that the European Commission approved a rescue loan of about US$127 million the Polish government gave late last year to LOT Polish Airlines to save it from bankruptcy. The Commission said the loan was in line with European Union rules on state aid that are designed to prevent market distortions by national governments, the Journal relates. "The Commission found, in particular, that the aid was limited in time and scope," the Journal quotes the Commission as saying on Wednesday. "The Commission has approved the measure temporarily until it can take a position on the restructuring plan to be submitted by Poland by June 20, 2013." State-owned LOT has struggled for years in a highly competitive market, posting losses due to high costs and a lack of scale, the Journal notes. LOT, the Journal says, is likely to ask for more money from the Polish government to turn the company around. Poland wants to sell the airline later this year, the Journal states. According to the Journal, as part of the restructuring, LOT will shed workers and fleet. It now has about 2,200 employees and 47 aircraft, the Journal says. Headquartered in Warsaw, Poland, Polskie Linie Lotnicze LOT, or LOT Polish Airlines -- http://www.lot.com-- serves about a dozen cities in Poland and about 120 destinations across Europe and North America. Subsidiaries include regional carrier EuroLOT and charter operator Centralwings. Overall, LOT and its affiliates maintain a fleet of about 55 aircraft, consisting of Embraer regional jets, Boeing 767s and 737s, and ATR turboprops. The airline is a member of the Star Alliance marketing group, and LOT serves many of its North American destinations through code- sharing with Star partners United Airlines and Air Canada. (Code-sharing allows airlines to sell tickets on one another's flights and thus extend their networks.) The Polish government owns 68% of the company. =========== R U S S I A =========== ABSOLUT BANK: Moody's Extends Review for Downgrade on Ba3 Ratings ----------------------------------------------------------------- Moody's Investors Service is continuing its review of Ba3 long- term local- and foreign-currency deposit ratings of Absolut Bank for downgrade. The completion of the review is subject to the completion of the deal announced on December 24, 2012, whereby KBC Group NV (KBC), which currently owns 100% stake in Absolut Bank via its subsidiary KBC Bank NV (deposits A3 stable, BFSR D+ stable/BCA baa3), announced its intention to sell its stake in Absolut Bank to a group of Russian companies managing assets of Russia's Non- State Pension Fund "Blagosostoyanie" (NSPF Blagosostoyanie, not rated). As Moody's understands, the sale transaction is still under way, and the counterparties intend to complete the deal in the second quarter of 2013, in accordance with the previously announced timeframes. Moody's assessment is primarily based on the joint statement, published in December 2012, and Absolut Bank's audited financial statements for 2012 prepared under IFRS. Rating Rationale: Moody's notes that Absolut Bank's Ba3 long-term deposit ratings currently benefit from one notch of support uplift from the bank's b1 baseline credit assessment (BCA), which reflects the rating agency's assessment of a low probability of parental support from KBC. Moody's continues to incorporate a low probability of parental support to Absolut Bank's ratings because the rating agency expects KBC to maintain its support towards Absolut Bank until the aforementioned transaction is fully concluded. However, Moody's is likely to remove this one notch of uplift if and when KBC completes the transaction. Moody's further adds that Absolut Bank's strategic fit for the new shareholder (NSPF Blagosostoyanie and the companies managing its assets) is yet to be defined. Moreover, the new shareholder may need to replace some financial facilities that had been provided to Absolut Bank by KBC, although Moody's notes that the volume of such parental funding decreased significantly over the last several months: according to the bank's management, at April 30, 2012, funding from KBC stood at RUB6.7 billion (US$214 million), about 7% of Absolut Bank's total liabilities. Focus of The Review The extended review for downgrade of Absolut Bank's ratings will focus on: (1) the progress that KBC and NSPF Blagosostoyanie (including its management companies) make towards implementing the Absolut Bank transaction; (2) the strategy envisaged by NSPF Blagosostoyanie with regard to Absolut Bank when the former obtains control; and (3) NSPF Blagosostoyanie's willingness and ability to provide support to Absolut Bank in the event of need. What Could Move the Rating Down/Up The ratings review reflects the risk that parental support from KBC might discontinue on completion of the sale transaction, expected to be finalized by the end of the second quarter of 2013. Any expectations of subsequent weakening of Absolut Bank's financial fundamentals, which might include profitability, capital adequacy and/or asset quality, could exert negative pressure on the bank's standalone ratings. As indicated by the ratings review, there is little scope for upwards rating pressure. However, upwards pressure could develop over time, following improvement in Absolut Bank's franchise value accompanied by adequate profitability and good capital adequacy. Positive pressure could also be exerted on the rating as a consequence of notably improved asset quality following recent improvements in the bank's risk profile. Principal Methodology The principal methodology used in this rating was Moody's Consolidated Global Bank Rating Methodology published in June 2012. Headquartered in Moscow, Russia, Absolut Bank reported total audited IFRS assets of US$3.5 billion and total shareholder equity of US$584 million as at year-end 2012. ROSPROMBANK: Moody's Lowers National Scale Rating to 'B3.ru' ------------------------------------------------------------ Moody's Interfax Rating Agency downgraded the National Scale Rating (NSR) of Rosprombank to B3.ru from Baa2.ru. The NSR carries no specific outlook. Rating Rationale: Moody's downgrade of Rosprombank's ratings is prompted by the bank's weak standalone credit strength stemming from negative pressure on capital adequacy. This pressure arises from the bank's weak core profitability given the squeeze in net interest margin and an overall decline in recurring revenues as well as low operating efficiency. Under Moody's central scenario, Rosprombank capital level is very weak and insufficient to cover the credit and market losses anticipated by the rating agency. Moody's notes that Rosprombank's capital is mainly pressured by weak financial performance, as the bank's core profitability (net interest income and net fees) were insufficient to cover its operating costs in 2012 and in Q1 2013. The bank reported a regulatory capital adequacy ratio of 14.9% as at April 1, 2013, and this metric is likely to face sustained pressure. Rosprombank reported a net unaudited loss of RUB23.4 million ($800 thousand) in Q1 2013 (under Russian accounting standards), which was mainly driven by contraction of net interest margin to a low annualized 3% (adjusted for credit-linked fees) compared to 3.8% in 2012. Given the intense competition for creditworthy borrowers in Russia, Rosprombank's yield on assets decreased to annualized 8.3% in Q1 2013 (year-end 2012: 8.8%). However, this decrease was not followed by lower operating expenses, thereby putting pressure on the net interest margin. Moody's notes that Rosprombank had a very limited exposure to its parent Cyprus Popular Bank (deposits: C/Not-Prime no outlook, BFSR/BCA: E/c no outlook), and was not reliant on parental funding at Q1 2013. However, given the challenging credit conditions in Russia and uncertainties regarding Rosprombank's strategy resulting from the resolution of Cyprus Popular Bank, Moody's does not anticipate a recovery of the bank's financial performance over the next 12 to 18 months. Principal Methodologies The principal methodology used in this rating was Moody's Consolidated Global Bank Rating Methodology published in June 2012. Moody's Interfax Rating Agency's National Scale Ratings (NSRs) are intended as relative measures of creditworthiness among debt issues and issuers within a country, enabling market participants to better differentiate relative risks. NSRs differ from Moody's global scale ratings in that they are not globally comparable with the full universe of Moody's rated entities, but only with NSRs for other rated debt issues and issuers within the same country. NSRs are designated by a ".nn" country modifier signifying the relevant country, as in ".ru" for Russia. Headquartered in Moscow, Russia, Rosprombank reported total assets of RUB7.4 billion (around US$240 million) at Q1 2013 (under RAS, unaudited). About Moody's And Moody's Interfax Moody's Interfax Rating Agency (MIRA) specializes in credit risk analysis in Russia. MIRA is a joint-venture between Moody's Investors Service, a leading provider of credit ratings, research and analysis covering debt instruments and securities in the global capital markets, and the Interfax Information Services Group. Moody's Investors Service is a subsidiary of Moody's Corporation (NYSE: MCO). ROSPROMBANK: Moody's Lowers Long-Term Deposit Ratings to 'Caa2' --------------------------------------------------------------- Moody's Investors Service downgraded Rosprombank's long-term local and foreign-currency deposit ratings to Caa2 from B3, and lowered the standalone bank financial strength rating (BFSR) to E from E+, equivalent to a baseline credit assessment (BCA) of caa2 (formerly b3). Moody's says the downgrade is based on Rosprombank's weak standalone credit strength stemming from pressure on capital adequacy. The bank's deposit ratings carry a negative outlook and the rating action concludes the review initiated on January 23, 2013. Rating Rationale: Moody's downgrade of Rosprombank's ratings is prompted by the bank's weak standalone credit strength stemming from negative pressure on capital adequacy. This pressure arises from the bank's weak core profitability given the squeeze in net interest margin and an overall decline in recurring revenues as well as low operating efficiency. Under Moody's central scenario, Rosprombank capital level is very weak and insufficient to cover the credit and market losses anticipated by the rating agency. Moody's notes that Rosprombank's capital is mainly pressured by weak financial performance, as the bank's core profitability (net interest income and net fees) were insufficient to cover its operating costs in 2012 and in Q1 2013. The bank reported a regulatory capital adequacy ratio of 14.9% as at April 1, 2013, and this metric is likely to face sustained pressure. Rosprombank reported a net unaudited loss of RUB23.4 million (US$800 thousand) in Q1 2013 (under Russian accounting standards), which was mainly driven by contraction of net interest margin to a low annualized 3% (adjusted for credit- linked fees) compared to 3.8% in 2012. Given the intense competition for creditworthy borrowers in Russia, Rosprombank's yield on assets decreased to annualized 8.3% in Q1 2013 (year-end 2012: 8.8%). However, this decrease was not followed by lower operating expenses, thereby putting pressure on the net interest margin. Moody's notes that Rosprombank had a very limited exposure to its parent Cyprus Popular Bank (deposits: C/Not-Prime no outlook, BFSR/BCA: E/c no outlook), and was not reliant on parental funding at Q1 2013. However, given the challenging credit conditions in Russia and uncertainties regarding Rosprombank's strategy resulting from the resolution of Cyprus Popular Bank, Moody's does not anticipate a recovery of the bank's financial performance over the next 12 to 18 months. The principal methodology used in this rating was Moody's Consolidated Global Bank Rating Methodology published in June 2012. Headquartered in Moscow, Russia, Rosprombank reported total assets of RUB7.4 billion (around US$240 million) at Q1 2013 (under RAS, unaudited). =============== S L O V E N I A =============== * SLOVENIA: Bailouts of Ailing Banks Set to Begin Next Month ------------------------------------------------------------ Julia Chatterley at CNBC reports that Uros Cufer, country's finance minister, on Tuesday said the bailouts of the weakest banks in Slovenia should begin next month, but he insisted that he is not concerned with the time-frame of the process. Mr. Cufer said the first assets would be transferred to the nation's so-called bad bank by the end of June, with the exercise due to be completed by the third quarter, CNBC relates. Slovenia plans to move EUR3.3 billion of bad loans from its three largest banks, NLB, Nova KBM and Abanka Vipa, to the bad bank in return for state guaranteed bonds worth EUR1.1 billion, CNBC discloses. Mr. Cufer assured investors that Tuesday's successful bond auction would not delay the country's economic reforms, CNBC notes. The finance ministry raised almost EUR55 million in the sale, which followed a larger auction earlier in May -- just two days after Moody's downgraded the country's credit rating -- in which it raised EUR2.7 billion, according to CNBC. Mr. Cufer added that the state-owned companies Slovenia has pledged to sell in order to avoid an international bailout is the first of a number of measures, CNBC recounts. "We put the list of 15 companies to the parliament and this is just a first package so we will see how things proceed and see what else we can do," CNBC quotes Mr. Cufer as saying. The much-anticipated sell-off package includes the country's second largest bank, its biggest telecoms operator and the national airline, CNBC states. EU Economic and Monetary Affairs Commissioner Ollie Rehn said it was premature to decide on the credibility of Slovenia's reform plans on Monday, CNBC relates. ========= S P A I N ========= FONDO DE TITULIZACION 5: Moody's Assigns Ca Rating on C Notes ------------------------------------------------------------- Moody's Investors Service has assigned the following definitive ratings to the debt issued by Fondo de Titulizacion de Activos PYMES Santander 5: EUR1368M A Notes, Definitive Rating Assigned A3 (sf) EUR342M B Notes, Definitive Rating Assigned B1 (sf) EUR342M C Notes, Definitive Rating Assigned Ca (sf) Fondo de Titulizacion de Activos PYMES Santander 5 is a securitization of standard loans and credit lines granted by Banco Santander (Baa2/P-2; Negative Outlook) to small and medium- sized enterprises (SMEs) and self-employed individuals in Spain. At closing, the Fondo -- a newly formed limited-liability entity incorporated under the laws of Spain -- will issue three series of rated notes. Santander will act as servicer of the loans and credit lines for the Fondo, while Santander de Titulizacion S.G.F.T., S.A. will be the management company (Gestora) of the Fondo. Rating Rationale: As of April 2013, the audited provisional asset pool of underlying assets was composed of a portfolio of 23,219 contracts granted to SMEs and self-employed individuals located in Spain. In terms of outstanding amounts, around 71.6% corresponds to standard loans and 28.4% to credit lines. The assets were originated mainly between 2010 and 2012 and have a weighted average seasoning of 1.4 years and a weighted average remaining term of 3.9 years. Around 10.8% of the portfolio is secured by first-lien mortgage guarantees. Geographically, the pool is concentrated mostly in Catalonia (20.3%), Madrid (19%) and Andalusia (13.1%). At closing, any loans in arrears will be excluded from the final pool. In Moody's view, the strong credit positive features of this deal include, among others: (i) a relatively short weighted average life of 2.3 years; (ii) a granular pool (the effective number of obligors is near 1,000); and (iii) a geographically well- diversified portfolio. However, the transaction has several challenging features: (i) a strong linkage to Santander related to its originator, servicer, accounts holder and liquidity line provider roles; (ii) a relatively high exposure to the construction and building industry sector (25.5% according to Moody's industry classification); (iii) no interest rate hedge mechanism in place; and (iv) a complex mechanism that allows the Fondo to compensate (daily) the increase on the disposed amount of certain credit lines with the decrease of the disposed amount from other lines, and/or the amortization of the standard loans. These characteristics were reflected in Moody's analysis and provisional ratings, where several simulations tested the available credit enhancement and 20% reserve fund to cover potential shortfalls in interest or principal envisioned in the transaction structure. The ratings are primarily based on the credit quality of the portfolio, its diversity, the structural features of the transaction and its legal integrity. In its quantitative assessment, Moody's assumed a mean default rate of 16.46%, with a coefficient of variation of 39.85% and a recovery rate of 37.5%. Moody's also tested other set of assumptions under its Parameter Sensitivities analysis. For instance, if the assumed default probability of 16.46% used in determining the initial rating was changed to 17.46% and the recovery rate of 37.5% was changed to 35%, the model-indicated rating for Serie A, Serie B and Serie C would change from A3(sf), Ba3(sf) and Ca(sf) to Baa1(sf), B1(sf) and Ca(sf) respectively. Given that, over time, riskier loans may represent a larger share of the portfolio hence causing higher volatility in its mean default rate, Moody's decided to assign Serie B notes a lower rating than that indicated by the cashflow model output as the smaller size of this tranche makes it more vulnerable to higher default scenarios. The global V-Score for this transaction is Medium/High, which is in line with the score assigned for the Spanish SME sector and representative of the volatility and uncertainty in the Spanish SME sector. V-Scores are a relative assessment of the quality of available credit information and of the degree of dependence on various assumptions used in determining the rating. The main source of uncertainty in the analysis relate to the Transaction Complexity. This element has been assigned a Medium/High V-Score, as opposed to Medium assignment for the sector V-Score. For more information, the V-Score has been assigned accordingly to the report " V-Scores and Parameter Sensitivities in the EMEA Small- to-Medium Enterprise ABS Sector " published in June 2009. The methodologies used in this rating were "Moody's Approach to Rating CDOs of SMEs in Europe" published in February 2007, "Refining the ABS SME Approach: Moody's Probability of Default assumptions in the rating analysis of granular Small and Mid- sized Enterprise portfolios in EMEA", published in March 2009 and "Moody's Approach to Rating Granular SME Transactions in Europe, Middle East and Africa", published in June 2007. In rating this transaction, Moody's used ABSROM to model the cash flows and determine the loss for each tranche. The cash flow model evaluates all default scenarios that are then weighted considering the probabilities of the Inverse Normal distribution assumed for the portfolio default rate. On the recovery side Moody's assumes a stochastic (normal) recovery distribution which is correlated to the default distribution. In each default scenario, the corresponding loss for each class of notes is calculated given the incoming cash flows from the assets and the outgoing payments to third parties and noteholders. Therefore, the expected loss or EL for each tranche is the sum product of (i) the probability of occurrence of each default scenario; and (ii) the loss derived from the cash flow model in each default scenario for each tranche. Therefore, Moody's analysis encompasses the assessment of stress scenarios. ============= U K R A I N E ============= UKRLANDFARMING: Tap Issue No Impact on Fitch's 'B' Notes Rating --------------------------------------------------------------- Fitch Ratings says that UkrLandFarming's (ULF) planned US$150 million 10.875% tap issue to its recently priced EUR275 million 10.875% notes due 2018 does not affect the 'B' rating assigned to this instrument on March 26, 2013, nor the group's foreign and local currency Issuer Default Rating (IDR) of 'B' and 'B+' respectively with Stable Outlook. The additional notes will have the same terms and conditions as well as the same ranking and substantially similar covenants as the existing senior notes. The add-on notes will be senior unsecured obligations of ULF and benefit from upstream guarantees (which are suretyships under Ukrainian law) from several operating subsidiaries, including Avangardco's main subsidiaries. Fitch understands that these guarantors accounted for approximately 84% of net assets and 85% of consolidated EBITDA for 2012. Avangardco, the largest egg producer in Ukraine and Eurasia, is rated 'B' by Fitch. "The proceeds from the latest bond issuance, including the proposed tap issue, will be used for general corporate purposes including the refinancing of existing debt and funding of bolt-on acquisitions, especially the purchase of land lease rights. This added debt issue does not increase the net debt of the group while gross leverage would increase by 0.2x EBITDA, therefore not affecting the group's credit ratios in any meaningful way. We expect funds from operations (FFO) gross leverage of around 2x in FY13 and FFO margin above 25%; these metrics are commensurate with the assigned ratings in the sector," Fitch says. "We note an improvement in ULF's liquidity position, with bond placement proceeds used to repay part of shorter term debt. We expect ULF's cash flow from operations less maintenance capex in 2013 to cover US$193 million of 2013 maturities left post- placement of the tap issue by a factor of 2.2x. Additional liquidity comfort is provided by US$58 million of available undrawn committed bank lines, 60% of which now are represented by lines of third-party banks." ULF's key rating drivers and sensitivities are explained in our press release "Fitch Publishes UkrLandFarming 'B' Foreign Currency IDR; Outlook Stable" dated March 7, 2013 available at www.fitchratings.com. =========================== U N I T E D K I N G D O M =========================== ATMOSPHERE BARS: In Administration; Nearly 500 Jobs at Risk ----------------------------------------------------------- Duncan Robinson at The Financial Times reports that Atmosphere Bars and Clubs has gone into administration, putting nearly 500 jobs at risk. Atmosphere, which tends to operate in northern satellite towns such as Wigan, had struggled in the economic downturn and had been lossmaking for some time, the FT discloses. According to the FT, the group posted an annual pre-tax loss of GBP4.1 million for the year to February 26, 2012, with management blaming "unsustainable" discounting by rivals for the loss. This came after a pre-tax loss of GBP5.2 million the year before, the FT notes. Daniel Butters, joint administrator at Deloitte, said that atmosphere was put into administration by its directors "as a consequence of cash flow problems", the FT relates. Mr. Butters, as cited by the FT, said that the business would continue to trade and that all venues will remain open while the group searches for a buyer. Atmosphere Bars and Clubs is the late-night bar operator behind the Chicago's Bars chain. BOTANIC INNS: NAMA Deal Secures 300 Jobs After Administration ------------------------------------------------------------- Kevin Magee at BBC News reports that a deal involving the Irish Republic's assets recovery agency, National Asset Management Agency, has safeguarded 300 jobs in Botanic Inns. But the future of another 300 staff is undecided as other bars in a sister company are to be put up for sale, BBC notes. The Ulster Bank moved against the Botanic Inns Group and called in the administrators last week, BBC relates. But the deal means the man who ran all the bars, will remain in charge of five of them and one hotel, BBC states. Steven Magorrian will continue to run six licensed premises after the leases on those properties were successfully re-negotiated with NAMA on Monday night, BBC discloses. The bars he has retained are the Botanic Inn, Madisons Hotel, the King's Head, the Northern Whig, the Elms and the Fly, BBC says. However, a handful of other bars -- the Apartment, the Kitchen Bar, Ryans, McHughs, The Parador, Molly Browns and Denvir's Hotel in Downpatrick -- which were in a different company called Kurkova, remain in administration while a new owner is sought, according to BBC. It is understood that PWC was involved in negotiations with the Ulster Bank and NAMA for all the pubs to remain under the same management, but the Ulster Bank put both companies, containing all the bars, into administration, BBC notes. It is believed the Ulster Bank was owed in the region of GBP6.5 million, BBC says. NAMA, which owned the bars in the Botanic Inns Group part of the company, agreed to draw up new leasing arrangements to allow Mr. Magorrian to continue to run them, BBC relates. The appointment of an administrator by the Ulster Bank means the other pubs in the group, contained in the company Kurkova, are currently being run by the administrator KPMG, BBC discloses. Botanic Inns is one of Belfast's best known pubs. MAN STRATEGIC: Fitch Affirms 'BB' Subordinated Debt Rating ---------------------------------------------------------- Fitch Ratings has affirmed Man Strategic Holdings Ltd.'s (formerly Man Group PLC) Long-term Issuer Default Rating (IDR) at 'BBB' and revised its Outlook to Stable from Negative. The 'BBB' rating on its senior unsecured debt, 'BBB-' rating on its subordinated debt and 'BB' rating on its hybrid capital notes were also affirmed. Rating Action Rationale The rating action reflects the recently announced measures to redeem or buy-back all of Man's outstanding debt instruments. On a pro forma basis, these measures will generate an annual US$78 million of interest/coupon savings and result in a modest (around US$180 million) reduction in net cash, as calculated by Fitch, primarily due to the 50% equity credit assigned to the hybrid capital notes. In the absence of gross debt, the downside risks to the credit profile previously cited in Fitch's comment of 26 September 2012, which included declining funds under management (FUM), earnings pressure and a high payout policy, are more contained. KEY RATING DRIVERS AND SENSITIVITIES - IDRS AND SENIOR DEBT Man's IDR reflects its sound franchise in alternative investment fund management, strong liquidity, and moderate credit, liquidity and market risks arising from the use of its balance sheet to support its franchise. FUM have been on a declining trend for some time and net outflows persisted in Q113. Stemming outflows remains an important challenge for management: persistent outflows are likely to constrain ratings and a material deterioration in flows could again introduce downwards pressure on the credit rating, albeit the ratings sensitivity to flows is reduced by imminent debt reductions. Conversely, a sustained stabilization or improvement in FUM and, by extension, underlying earnings, could lead to positive ratings pressure. Management fee margins are strong relative to long-only managers and EBITDA margins are still quite healthy, however declining FUM and a shift towards less structured FUM have led to pressure on the blended margin, necessitating cost cutting initiatives to help mitigate the pressure on earnings. Performance fees are inevitably volatile but can provide material upside when triggered and Fitch notes an increased proportion of FUM above or close to high water marks as a result of solid year-to-date performance. Downward pressure could also arise from a material reduction in net cash or increase in gross leverage as a result, for example, of an acquisition. SUBORDINATED AND HYBRID DEBT Man's subordinated notes are rated one notch below its IDR, reflecting their subordination. Man's hybrid bond is rated three notches below its IDR, reflecting its deep subordination (two notches) and incremental non-performance risk characteristics (one notch). The ratings are broadly sensitive to the same considerations that might affect Man's IDR. The rating actions are as follows: Long-term IDR: 'BBB'; Outlook revised to Stable from Negative Senior unsecured debt: affirmed at 'BBB' Dated subordinated debt: affirmed at 'BBB-' Hybrid debt: affirmed at 'BB' PENDRAGON PLC: Fitch Assigns 'B+' Rating to GBP175MM Bond --------------------------------------------------------- Fitch Ratings has assigned Pendragon plc's GBP175 million 6.875% seven-year bond a final 'B+' rating. The rating is in line with Pendragon's 'B+' Senior Secured Rating. The bond's final rating follows a review of the final terms and conditions conforming to information already received when Fitch assigned the expected rating on April 23, 2013. The proceeds of the notes will be used for refinancing existing debt, most of which matures in June 2014 and for general corporate purposes. The notes will constitute direct, secured and unconditional obligations of the issuer, Pendragon, and its guarantor subsidiaries. The 'B+' senior secured rating applied to the bond is one notch above Pendragon's Issuer Default Rating (IDR). The rating differential reflects Fitch's recovery analysis of the company on a going concern basis, using an industry consistent multiple applied to an appropriately stressed EBITDA level, which derived a recovery band of 50% to 70% and a Recovery Rating of RR3 and lead to a one notch uplift from the IDR. KEY RATING DRIVERS: Relationships with Auto OEMs A significant driver of Pendragon's operations and financial performance is driven by its relationships with the various auto OEMs from which it sources vehicles. While its franchise agreements with the OEMs give Pendragon territorial sales rights and provides it a relatively stable gross margin, Pendragon is also vulnerable to the financial health and / or strategy of the OEMs. Highly Leveraged Capital Structure Fitch adjusts Pendragon's on-balance sheet reported debt and off- balance sheet operating lease obligations by adding the stock financing provided by third party finance providers not supplied by the financing arms of the auto OEMs. As such, the company's reported gross and net funds from operations (FFO) adjusted leverage at end-2012 was 4.8x and 4.5x, respectively. Fitch expects these ratios to remain stable in the short to medium term. Cost Structure Flexibility Given the low operating margins inherent in the vehicle sales business model, the structure and flexibility of Pendragon's operating cost structure is important to offset the possibly volatile demand dynamics. Pendragon has relatively mid-ranging EBITDA margins exhibited in the sector, and since the downturn of 2008 and 2009, has improved its cost flexibility. Nevertheless, another sharp downturn in market demand could stress Pendragon's financial profile. UK Auto Market Following the sharp market downturn in 2008 and 2009 in the UK, auto sales have stabilized in the past three years, but still remain a considerable amount below their 2008 peak. Given the sensitivity of earnings to volume movements, the outlook for auto sales remains a key indicator of future performance. A mitigating factor for Pendragon is its aftersales business, which is not highly cyclical and contributes close to 40% of the company's gross profit. RATING SENSITIVITIES: Positive: Future developments that could lead to positive rating actions include: -- FFO adjusted leverage below 3x -- FFO fixed charge cover above 2.5x -- Free cash flow (FCF) margin above 1% Negative: Future developments that could lead to negative rating action include: -- FFO adjusted leverage above 6x -- FFO fixed charge cover below 1.5x -- Negative FCF TATA STEEL: $1.6-Bil. Write-Down No Impact on Moody's Ba3 Rating --------------------------------------------------------------- Moody's Investors Service says that the decision by Tata Steel (Ba3 negative) to write off $1.6 billion in goodwill related largely to its investment in Tata Steel UK Holdings (TSUKH, B3 negative) has no immediate impact on its ratings. However, the announcement highlights the structural challenges in the European steel market, and the continued poor performance at TSUKH, which are incorporated in both entities' negative rating outlooks. Indeed, failure to stem the losses at TSUKH could lead to sustained rating pressures that could ultimately result in a downgrade. "As TSUKH continues to struggle with overcapacity and sluggish demand from Europe, and with FYE March 2013 likely to reflect the nadir of Tata Steel's credit metrics, the write-down does not come as a surprise", says Alan Greene, Vice President -- Senior Credit Officer at Moody's. "TSUKH generated negative EBITDA per tonne of $26 in the third quarter ending December 2012 and we expect it to barely break even over the full year", adds Greene, who is also lead analyst for Tata Steel and TSUKH. In stark contrast, Tata Steel India's EBITDA per tonne was $243 in the same period, a recent low point, on the back of a slower Indian economy, though still amongst the highest of all Moody's rated steel companies. Moody's notes that steel prices in India remain depressed and with producers still adding capacity it believes the return of Tata Steel's Indian business towards a sustained EBITDA of USD300/tonne or more, may take some quarters to emerge. "Nevertheless, with no letup in the weak demand and overcapacity seen in Europe, there is a risk that the weakening of Tata Steel's credit metrics continues into FY2014. Moody's expects consolidated adjusted debt/EBITDA to have been around 5.8x for FY13 and are looking for an improvement to 5.5x in FY14. However, further erosion of credit metrics could precipitate a rating downgrade," says Greene. TSUKH's burgeoning debt level remains a challenge for the group. The rate of amortization of the EUR2.2 billion tranche of its senior facility agreement (SFA) accelerates in FY14 and FY15 with some EUR570 million due over this period. At the same time, capital expenditure to renew plant and improve efficiency is still needed and at a rate of GBP350 million to 400 million, is close to matching the depreciation charge. TSUKH's B3 rating factors in two notches of support from Tata Steel, reflecting TSUKH's strategic importance within the group and expectations of continued support. Tata Steel's incremental investments in Tata Steel Holdings Pte Ltd., which is the link with the procurement entities and non-Indian operations, are ultimately the mechanism for providing the support to TSUKH. Moody's will be looking to the upcoming full-year results announcement and subsequent quarters to ascertain whether a gradual turn-around of TSUKH's performance can be achieved. This would include in particular its ability to generate positive free cash flow and EBITDA. Negative rating pressure could develop in the event of a worsening in the operating environment beyond Moody's expectations over the next 6 months. "The emergence of funding constraints affecting the expansion of the profitable parts of Tata Steel, due to TSUKH's losses, suggests that further action, along the lines of the disposal of Teeside Cast Products in 2011 is needed in order to reverse TSUKH's cash outflow," adds Greene. The principal methodology used in these ratings was Global Steel Industry Methodology published in October 2012. Tata Steel UK Holdings is the 100%-owned subsidiary of Tata Steel Ltd and is the holding company for the European steel operations that principally comprise the former Corus Group. Tata Steel Ltd, is an integrated steel company headquartered in Mumbai, India. The Tata Steel Group is the world's 12th largest steelmaker producing 24.03 million tons of crude steel in FY2012 * UK: Moody's Looming Reforms Credit Negative for Water Sector -------------------------------------------------------------- Moody's Investors Service said that it views as credit negative for the existing UK vertically integrated monopoly water and sewerage companies the inclusion of the draft Water Bill in the Queen's Speech on May 8, 2013, which shows that the government's plans for changes to the water sector in England and Wales remain on track. In particular, Moody's views as credit negative for these companies one of the main elements of the bill, namely proposed reforms to support competition in the retail and upstream segments. However, the rating agency notes that the impact of increased competition may be limited over the medium term. According to a government briefing note, the purpose of the draft Water Bill is to make the water sector more resilient, increase customer choice and support growth by encouraging investment and innovation. The main benefits of the bill, according to the note, would include (1) making water supplies more resilient, including by encouraging development of new water sources or innovative treatment schemes and making it easier for water companies to sell water to each other; (2) increasing choice for business customers; and (3) supporting growth by encouraging new investment and making it easy for new companies to enter the sector. A revised draft of the bill is likely to be published in the coming weeks and is expected to be broadly aligned with the first draft published in July 2012. This initial draft focused largely on increasing opportunities for competition that the government and the Water Services Regulation Authority, Ofwat, the economic regulator for water companies in England and Wales, believe will bring improvements for customers. Moody's notes that the government is now placing greater emphasis on increasing resilience, although it is unclear whether this signals substantive changes in the proposals. Retail competition for non-household customers is expected to begin in 2017, but could be delayed, and will likely be credit neutral for the sector as a whole, although particular companies could suffer as a result of the way in which price limits are set. It is unclear what model of upstream reform may be taken forward and what its consequences will be, however, the introduction of meaningful upstream competition appears unlikely before 2019 at the earliest. It is not known what, if any, changes will be made in the proposed legislation following the February 2013 report by the House of Commons Environment, Food and Rural Affairs (EFRA) Committee on the draft bill. The report by Members of Parliament (MPs) found that further analysis of the likely impact was needed before upstream reforms are introduced. According to the report, which welcomed plans to increase competition in the sector, the case for upstream reform had not yet been fully made out. Given the potentially serious implications, the report said that further work was required to establish how upstream reform might be introduced in a way that will preserve investor confidence. The MPs highlighted that the draft bill provided only a broad framework and left too much detail to be decided by Ofwat, or to be introduced through secondary legislation that receives less parliamentary scrutiny. The report recommended that the government include key principles for upstream reform within the draft bill and publish statutory guidance for Ofwat in order to provide greater certainty as to the potential scale and impact of future changes. The government has not yet responded to the Committee report and it seems that it may not now do so before publishing a revised draft of the bill. In February 2013, Ofwat published its draft methodology on the framework and approach of setting price limits for the next five- year regulatory period commencing April 1, 2015 (AMP6). The proposals include (1) separate price controls for retail and wholesale services, to facilitate competition; (2) increased customer involvement in companies' business planning and focus on long-term outcomes rather than short-term outputs; (3) more tailored incentives, in particular on water trading and abstraction; and (4) a total expenditure (totex) assessment. Moody's considers the draft methodology credit neutral for the sector as a whole as price limits for the wholesale segment, which account for approximately 90% of water and sewerage companies' revenues, retain key aspects of the existing regime, including an allowed return on the regulated asset base. The Queen's Speech, delivered at the State Opening of the UK Parliament, sets out the government's proposed legislative programme for the coming session. The draft Water Bill may have its first reading in the House of Lords, the upper chamber of the UK Parliament. It would then be passed to the House of Commons and, subject to its progress in the context of other priorities, could become law over the coming 12 months. * UK: Fitch Says BTL Mortgage Market Growth May Hit Performance --------------------------------------------------------------- The continued growth of the UK buy-to-let (BTL) market could lead to weaker future performance of the sector, especially where lenders are targeting amateur and first-time landlords rather than professional investors, Fitch Ratings says. The latest quarterly figures from the Council of Mortgage Lenders show BTL mortgages increased to 13.4% of total outstanding mortgage lending in the UK at end-March, up from 13% the previous quarter and 12.9% at the end of Q112. At the peak of the housing market, BTL represented around 10% of total lending. "The attractive returns on rental investments available today provides an opportunity for investors to beat the low returns from savings and other investments. However, we believe that reversion rates in the market, which are now typically over 4% above the base rate, will make many investments unsustainable once interest rates return to more normal levels. Pre-crisis reversion rates tended to typically range between 0.5% and 2% above the base rate, enabling investments to provide a positive return at higher interest rates. Under today's typical reversion rates, returns may significantly diminish in the long-term, leading to poor performance, particularly amongst those with little experience of managing an investment property in a stressed environment," Fitch says. "In the financial crisis, we observed that while the professional landlord sector of the market performed relatively well, the performance of the amateur landlord sector was much less impressive. The performance of typical transactions made up of pre-crisis BTL lending to amateur landlords saw three months plus arrears rates rise above 4% in some instances, whereas similarly seasoned transactions that were more representative of the professional BTL sector saw arrears rates of less than 2%, according to our data. "Although BTL mortgage arrears have been low and repossessions subdued over the last couple of years, supported by a buoyant rental market and low interest rates, conditions are unlikely to remain so favorable for BTL in the longer term. When BTL cases are repossessed, losses against the property value can be substantially more than for owner-occupied property. In our recent study of UK repossessions, we saw that the typical discount on sale for BTL cases was around 50% higher than that suffered on owner-occupied property." =============== X X X X X X X X =============== * Fitch Says Stabilizing Rating Trends Support EMEA Corp. Bond -------------------------------------------------------------- Fitch Ratings says that Q113 rating migrations remained negative but improved to the best level since Q211 after the volume of downgraded bonds from eurozone-domiciled non-financial issuers declined. Downgrades fell for the third consecutive quarter to 1.1% of outstanding volume from 1.7% at the end of 2012, while the upgrade rate remained relatively unchanged. Firms in the eurozone accounted for three-quarters of downgrade volume -- a marked decline on the 91% level set in the prior quarter. Most of the activity related to Italian and French financials. Financial downgrade volume continued to fall in Q113, extending the easing trend that has developed over the past two quarters. The downgrade rate of 1.3% is far below the 5% average recorded in 2012. First quarter upgrades were broadly in-line with the positive activity in the second half of 2012, but half the average 2012 average rate. New issuance in the first quarter declined by 41% year-on-year, driven by a 70% drop in covered bonds as corporates resumed regular volumes of issuance following prior-year pre-funding for 2013. Financials issued at a 33% lower rate compared to the prior quarter and non-financials receded 13%. High yield marked a record quarter with EUR28 billion in new bonds by developed-market non-financials. Issuance from corporates in the eurozone was stagnant despite the overall improvement in market conditions. Superior returns from high yield continued to attract investor funds, with the asset class seeing net inflows totalling EUR2.9 billion in the first quarter. Lagging investment-grade returns explain the EUR3 billion of net outflows for this segment over the same period. New issue coupons touched fresh lows across the credit spectrum in Q113 as investors continued to drive down risk-premia. Firms took the opportunity to extend yield curves, with 30% of new issuance in the quarter possessing a tenor greater than or equal to 10 years, compared to 18% in 2008. Fitch's quarterly EMEA corporate bond market report provides detailed analysis and data on rating and issuance trends. The full report, entitled "EMEA Corporate Bonds: Rating and Issuance Trends" is available at www.fitchratings.com. * Tata Steel Charge Highlights Industry's European Troubles ----------------------------------------------------------- Tata Steel's USD1.6bn write-down on its European operations highlights the weak medium-term growth prospects for all steel producers in the region and the difficulty producers have in adjusting to changes in demand, Fitch Ratings says. Tata attributed the write-down to a prolonged fall in demand, which the company said was down nearly 8% in FY13 and almost 30% since 2007. For the sector as a whole, we expect growth in the major Western European markets to remain anaemic over the medium term, even as the eurozone recovers from its current weakness. Demand from emerging European markets will be stronger, driven by faster economic growth and higher investment. "The three largest steel-consuming sectors in Western Europe are construction, automotive and mechanical engineering. For 2013, we expect construction volumes to fall a further 5%-10%, while automotive demand is likely to fall marginally. Mechanical engineering has been a bright-spot due to emerging-market export orders, but growth started to slow in early 2012 and is likely to be marginal in 2013," Fitch says. "The weak demand outlook for European steel-makers has driven some producers to idle or retire higher-cost facilities. However, longer-term adjustments are typically slow and costly. The sector has high exit costs, given significant capital investment levels, high decommissioning costs and labour notice periods. Recently, steel producers have also faced increased government opposition to plans that would lead to large-scale job cuts. "We set out our assessment of the world's main steel producing markets and our expectations for the sector in the "Global Steel Handbook," published in March and available at www.fitchratings.com." * Upcoming Meetings, Conferences and Seminars --------------------------------------------- June 13-16, 2013 AMERICAN BANKRUPTCY INSTITUTE Central States Bankruptcy Workshop Grand Traverse Resort, Traverse City, Mich. Contact: 1-703-739-0800; http://www.abiworld.org/ July 11-13, 2013 AMERICAN BANKRUPTCY INSTITUTE Northeast Bankruptcy Conference Hyatt Regency Newport, Newport, R.I. Contact: 1-703-739-0800; http://www.abiworld.org/ July 18-21, 2013 AMERICAN BANKRUPTCY INSTITUTE Southeast Bankruptcy Workshop The Ritz-Carlton Amelia Island, Amelia Island, Fla. Contact: 1-703-739-0800; http://www.abiworld.org/ Aug. 8-10, 2013 AMERICAN BANKRUPTCY INSTITUTE Mid-Atlantic Bankruptcy Workshop Hotel Hershey, Hershey, Pa. Contact: 1-703-739-0800; http://www.abiworld.org/ Aug. 22-24, 2013 AMERICAN BANKRUPTCY INSTITUTE Southwest Bankruptcy Conference Hyatt Regency Lake Tahoe, Incline Village, Nev. Contact: 1-703-739-0800; http://www.abiworld.org/ Oct. 3-5, 2013 TURNAROUND MANAGEMENT ASSOCIATION TMA Annual Convention Marriott Wardman Park, Washington, D.C. Contact: http://www.turnaround.org/ Nov. 1, 2013 AMERICAN BANKRUPTCY INSTITUTE NCBJ/ABI Educational Program Atlanta Marriott Marquis, Atlanta, Ga. Contact: 1-703-739-0800; http://www.abiworld.org/ Dec. 2, 2013 BEARD GROUP, INC. 19th Annual Distressed Investing Conference The Helmsley Park Lane Hotel, New York, N.Y. Contact: 240-629-3300 or http://bankrupt.com/ Dec. 5-7, 2013 AMERICAN BANKRUPTCY INSTITUTE Winter Leadership Conference Terranea Resort, Rancho Palos Verdes, Calif. Contact: 1-703-739-0800; http://www.abiworld.org/ ********* 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., Washington, D.C., USA. Valerie U. Pascual, Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Ivy B. Magdadaro, Frauline S. Abangan and Peter A. Chapman, Editors. Copyright 2013. 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. 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