/raid1/www/Hosts/bankrupt/TCREUR_Public/131122.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, November 22, 2013, Vol. 14, No. 232
Headlines
G E O R G I A
GEORGIA: Fitch Affirms 'BB-' IDRs & Currency Bond Ratings
G E R M A N Y
PRAKTIKER AG: MPF Holding Makes Bid for Stores in Hungary
H U N G A R Y
E-STAR ALTERNATIVE: Transfers Shares to Corporate Bondholders
I R E L A N D
ALLIED IRISH: Launches First Senior Unsecured Bond Since Bailout
ALLIED IRISH: Trading Performance Improved in 3rd Quarter
ARNOTTS: Gets "Credible" Financial Backer for IBRC Loans
CUSTOM HOUSE: Court to Hear Client Fee Matters on Nov. 25
I T A L Y
BANCA CARIGE: S&P Cuts Long-Term Counterparty Ratings to 'B-/C'
GALLERIE 2013: Fitch Expects 'CCC' Sensitivity Rating on C Notes
K A Z A K H S T A N
ALFA BANK: Fitch Rates Series 3 Sr. Unsec. Bonds 'B+(EXP)'
L A T V I A
LIEPAJAS METALURGS: Secured Creditors Ready to Fund Maintenance
N E T H E R L A N D S
JUBILEE CDO VII: S&P Lowers Rating on Class E Notes to 'B-'
LEOPARD CLO II: S&P Lowers Rating on Class D Notes to 'CCC-'
TELEFONICA EUROPE: Moody's Assigns Ba1 Long-Term Debt Rating
UCL RAIL: Fitch Affirms BB+ IDR & Revises Outlook to Stable
P O L A N D
CYFROWY POLSAT: Moody's Places Ba2 CFR on Review for Downgrade
OLSZTYN CITY: Fitch Affirms 'BB+' Long-Term Currency Ratings
POLKOMTEL SP: Moody's Places B1 CFR Under Review for Upgrade
SVYAZNOY BANK: Moody's Withdraws Ba3 Nat'l Scale Deposit Rating
SVYAZNOY BANK: Moody's Withdraws Caa1 Currency Deposit Ratings
R O M A N I A
PLAZA CENTERS: Enters Judicial Reorganization Under Dutch Law
R U S S I A
MTS BANK: Fitch Affirms 'B+' Long-Term IDR; Outlook Stable
REGION INVESTMENT: S&P Assigns 'B-/C' Counterparty Ratings
S L O V E N I A
SLOVENIA: Needs to Plug Banking Hole to Avert Int'l Bailout
U K R A I N E
UKRAINIAN ECOLOGICAL: Court Begins Liquidation Process
U N I T E D K I N G D O M
BARCLAYS PLC: Fitch Rates US$2-Bil. Convertible Securities 'BB+'
CUCINA ACQUISITION: Moody's Assigns (P)Caa1 Corp. Family Rating
ELMFIELD TRAINING: CareTech Buys Training Firm Out of Insolvency
GREENWICH CITY: Fitch Affirms 'BB+' Rating on GBP165MM Bonds
MARRACHE LAW: Liquidation Costs Topped GBP4 Million
MG ROVER: Deloitte Obtains Leave to Appeal GBP14-Mil. Fine
OSPREY ACQUISITIONS: Fitch Affirms 'BB' IDR; Outlook Stable
SMITH & JONES: Set to Go Into Liquidation
UKRAINE MORTGAGE: Fitch Cuts Rating on Class B Notes to 'B-sf'
UNITE II: Fitch Expects 'BBsf' Rating Deterioration on Notes
UNITED KINGDOM: Fitch Keeps Stable Outlook for Insurance Sector
WELLINGTON PUB: Fitch Affirms 'B-' Rating on Class B Notes
X X X X X X X X
* BOOK REVIEW: Jacob Fugger the Rich
*********
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G E O R G I A
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GEORGIA: Fitch Affirms 'BB-' IDRs & Currency Bond Ratings
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Fitch Ratings has affirmed Georgia's Long-term foreign and local
currency Issuer Default Ratings (IDR) at 'BB-'. The issue ratings
on Georgia's senior unsecured foreign and local currency bonds
have also been affirmed at 'BB-'. The Outlooks on the Long-term
IDRs are Stable. The Country Ceiling has been affirmed at 'BB'
and the Short-term foreign currency IDR at 'B'.
Key Rating Drivers:
Georgia's 'BB-' foreign and local currency IDRs reflects the
following key rating drivers:
Institutional progress but political risks remain
The completion of the electoral cycle has demonstrated that
Georgia's institutions can channel political change. However, the
political scene is still relatively fragmented and the current
coalition's cohesion will be tested following the resignation of
Mr. Ivanishvili from the post of prime minister. Judicial
proceedings against members of the previous administration could
sour the political climate.
Lower growth but macro fundamentals intact:
GDP growth fell to 1.7% in 9M13, due to the steep reduction in
public investment as the government was reviewing some of its
public contracts. Electoral and policy uncertainty was also a
hindrance to investment and weak domestic demand acted as a drag
on GDP growth and further dampened inflation. However, a pick-up
in public and private investment is expected in 2014, supporting
an acceleration of GDP growth to 5%, closer to the average for
2010-12.
External financing vulnerabilities:
Georgia's current account deficit (CAD) nearly halved in 2013,
reflecting a fall in imports and continued export growth, but
remained high relative to 'BB' peers at an estimated 6.3% of GDP.
Fitch expects the CAD to rise in 2014-15. Relatively stable
foreign direct investment (FDI) has enabled a significant
increase in foreign exchange reserves, which reduces external
vulnerability. Net external debt remains among the highest in the
'BB' category at 59% of GDP.
Manageable debt dynamics:
As a result of lower investment expenditure, the fiscal deficit
is estimated to have shrunk to 2.4% of GDP in 2013. The
government expects to catch-up on postponed investment over the
coming three years, pushing the deficit to 3.9% of GDP in 2014
before gradually falling thereafter. Provided growth resumes, the
debt-to-GDP ratio should remain broadly stable in the coming
years at about 35% of GDP, in line with the 'BB' median. However,
increases in social transfers in 2013 will result in greater
rigidity of spending.
Improving relations with Russia:
The new government has significantly improved bilateral relations
with Russia and allowed for the opening of the Russian market
after a ban was imposed in 2006. As a result, exports to Russia
increased from 2Q13. Fitch expects exports to Russia to continue
to grow in 2014-15.
Rating Sensitivities:
The Stable Outlook reflects Fitch's assessment that upside and
downside risks to the rating are currently well balanced. The
main risk factors that, individually or collectively, could
trigger a negative rating action are:
-- A renewed widening in the CAD combined with a fall in
capital inflows could lead to a weakening in the exchange
rate or pressure on reserves. If severe enough, this could
present a risk to the rating.
-- A departure from prudent fiscal and monetary policymaking.
-- A souring of the domestic political climate. An increase in
domestic political instability could affect policy-making,
for example a collapse of the governing coalition or
turbulence resulting from judicial investigations of former
officials.
The main risk factors that, individually or collectively, could
trigger a positive rating action are:
-- A revival of strong and sustainable GDP growth combined
with
fiscal discipline.
-- A moderation of external imbalances, underpinned by
continuous export growth.
-- Further evidence of improvements in governance and
political
stability.
Key Assumptions:
Fitch assumes that the government will respect the provisions of
the Economic Freedom Act and avoid significant fiscal slippage by
following its longer-term commitment to keeping the deficit below
3% of GDP, so that the gross general government debt ratio will
stabilize at about 35% of GDP.
Fitch assumes that Georgia maintains access to IMF precautionary
funding by keeping to agreed targets. A departure from these
targets could expose external finances to greater risks.
Fitch expects bilateral relations with Russia to continue
improving and the lifting of trade barriers to be maintained.
Fitch does not expect a deterioration of domestic political
stability and expects risks from territorial disputes to be
contained.
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G E R M A N Y
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PRAKTIKER AG: MPF Holding Makes Bid for Stores in Hungary
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Portfolio.hu reports that having teamed up with a Chinese
investor, Singaporean-owned MPF Holding has made a bid for the
stores of Praktiker AG in Hungary.
MPF Press Officer Andras Ambrus said MPF is planning to draw on
its own cash vault in a bid to buy and consolidate the Hungarian
operation of Praktiker, which consists of 2 small and 19 big box
stores, Portfolio.hu relates. The press officer said that MPF is
expecting a response from Praktiker's liquidator in Germany in a
few weeks, Portfolio.hu notes.
Baumarkt Praktiker International GmbH, the German parent of the
Praktiker chain in Hungary, went into liquidation in mid-October,
Portfolio.hu recounts.
Publicly traded Praktiker AG, which employs 20,000 in various
countries, became insolvent in early July 2013, Portfolio.hu
discloses. Two months later, Praktiker's bankruptcy
administrator said a market exit was inevitable for the brand as
it was unable to find an investor to continue operation of the
group's 130 stores in Germany, Portfolio.hu relays.
Praktiker AG is a German home-improvement retailer.
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H U N G A R Y
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E-STAR ALTERNATIVE: Transfers Shares to Corporate Bondholders
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MTI-Econews reports that E-Star Alternative has transferred
shares to the company's corporate-bond holders pursuant to a
September 2013 agreement, E-Star reported on Wednesday.
E-Star, which filed for bankruptcy protection in December 2012,
transferred 48,354,167 of 49,891,445 transferable shares to 508
of 551 corporate-bond holders, MTI-Econews relates.
E-Star Alternative is a Hungarian energy services company.
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I R E L A N D
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ALLIED IRISH: Launches First Senior Unsecured Bond Since Bailout
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Christopher Thompson and Jamie Smyth at The Financial Times
report that Allied Irish Banks has launched its first senior
unsecured bond since being bailed out by Ireland's government,
underlining investors' appetite for risk in the hunt for yield.
The Irish lender, which required a EUR20 billion state rescue
during the financial crisis, raised EUR500 million from the
three-year bond, which carries a 2.8% coupon, the FT relates. It
is the bank's first senior unsecured deal since 2008, the FT
notes.
Cecile Houlot, managing director at Morgan Stanley, who helped
manage the bond, said the deal pointed to a thaw in investor
sentiment towards banks once regarded as troubled, the FT relays.
Locked out from issuing senior unsecured debt since the financial
crisis, many of the eurozone's weaker banks have issued covered
bonds, which are seen as a safer form of lending than unsecured
credit because they require collateral to be posted, the FT
says.
Allied Irish is widely regarded as the weaker of Ireland's two
national champion banks, the FT notes.
AIB, which is in the middle of a turnaround strategy designed to
return the bank to profit next year, cut its pre-tax losses by
27% to EUR838 million in the first six months of 2013, compared
with the same period in 2012, the FT discloses.
About Allied Irish Banks
Allied Irish Banks, p.l.c. -- http://www.aibgroup.com/-- is a
major commercial bank based in Ireland. It has an extensive
branch network across the country, a head office in Dublin and a
capital markets operation based in the International Financial
Services Centre in Dublin. AIB also has retail and corporate
businesses in the UK, offices in Europe and a subsidiary company
in the Isle of Man and Jersey (Channel Islands).
ALLIED IRISH: Trading Performance Improved in 3rd Quarter
---------------------------------------------------------
Allied Irish Banks, p.l.c., issued an Interim Management
Statement on Nov. 14, 2013.
Trading & Funding Update
The bank's trading performance in Quarter 3 to end September 2013
continued to improve in line with expectations with ongoing
progress made in implementing the bank's strategic objectives and
continued momentum in the bank's operating profile. Overall
operating income benefited from positive expansion in Net
Interest Margin (NIM) due to ongoing strategic actions to re-
price assets and liabilities and the reduction in Eligible
Liabilities Guarantee (ELG) costs. Excluding ELG costs, average
NIM for Quarter 3 2013 was in excess of 1.4 percent and in excess
of 1.6 percent excluding ELG and NAMA Senior bonds. Operating
expenses, including staff costs, have reduced due to management's
focus on and control of the cost agenda. The bank's voluntary
severance programme is ongoing.
Growth in customer account balances to September 30, 2013 coupled
with a reduction in gross and net loans resulted in a loan to
deposit ratio of c.104 percent at end September 2013 (106 percent
at June 30, 2013). Additionally, on September 24, AIB announced
the completion of its EUR20.5 billion non-core deleveraging plan
ahead of schedule and with a positive capital variance versus
original capital loss assumptions. AIB remains committed to
supporting the Irish economy through lending to personal,
business and corporate customers and the bank will continue to
seek opportunities to use available capital to increase lending
activity. While the rate of loan redemptions continues to exceed
new lending drawdowns, the Bank notes increasing levels of
activity in respect of new credit demand.
Overall levels of wholesale funding have reduced from June 30,
2013 and reliance on funding from Monetary Authorities decreased
to c. EUR16 billion at end September 2013 (EUR18bn at June 30,
2013). AIB has continued its balanced and structured approach to
engagement with wholesale funding markets in 2013 and has
successfully completed three issuances in the year to date
including a EUR500 million 5-year Asset Covered Security issuance
in September 2013 and a EUR500 million 2-year Credit Card
securitisation in October 2013.
Asset Quality
There are signs of stabilisation in the credit quality of the
bank's loan portfolios with the pace of new impairments slowing
significantly year on year. The pace of new impairments in the
mortgage portfolios slowed in Quarter 3 2013 and the rate of
increase in total mortgage arrears was down significantly versus
the first six months of 2013. Overall impairment charges on the
bank's loan portfolios are trending lower in line with
expectations.
AIB continues to meet its targets in relation to the resolution
of both SME and mortgage customers in arrears which is a key
immediate priority for the bank and ongoing progress has been
made in relation to offering solutions to customers in financial
difficulty who are engaging with the bank.
The Central Bank of Ireland is currently conducting an Asset
Quality Review and Balance Sheet Assessment of the credit
institutions covered under the ELG, including AIB. This review
comprises an assessment of impairment provisions, credit
modelling including forbearance treatment and a review of Risk
Weighted Assets. It is expected that this exercise will continue
during the fourth quarter of 2013.
Capital
AIB's capital ratios remain broadly in line with June 30, 2013
levels, significantly above the minimum regulatory requirements.
Budget implications and EU restructuring plan
Following the recent announcements as part of the Irish budget in
October 2013, AIB initially estimates a charge of c. EUR60
million per annum will arise during 2014, 2015 and 2016 as a
result of the introduction of an annual banking levy. In
relation to the proposal to alter the tax provision which
currently restricts the use of Irish tax losses carried forward
by NAMA banks, the bank notes that this change will facilitate a
faster utilisation of current deferred tax levels.
Finally, discussions with the European Commission in relation to
the final approval of AIB's Restructuring Plan are now at an
advanced stage.
This release is available on the Company's Web site
http://www.aibgroup.com/investorrelations
About Allied Irish Banks
Allied Irish Banks, p.l.c. -- http://www.aibgroup.com/-- is a
major commercial bank based in Ireland. It has an extensive
branch network across the country, a head office in Dublin and a
capital markets operation based in the International Financial
Services Centre in Dublin. AIB also has retail and corporate
businesses in the UK, offices in Europe and a subsidiary company
in the Isle of Man and Jersey (Channel Islands).
Since the onset of the global and Irish financial crisis, AIB's
relationship with the Irish Government has changed significantly.
As at Dec. 31, 2010, the Government, through the National Pension
Reserve Fund Commission ("NPRFC"), held 49.9% of the ordinary
shares of the Company (the share of the voting rights at
shareholders' general meetings), 10,489,899,564 convertible non-
voting ("CNV") shares and 3.5 billion 2009 Preference Shares. On
April 8, 2011, the NPRFC converted the total outstanding amount
of
CNV shares into 10,489,899,564 ordinary shares of AIB, thereby
increasing its holding to 92.8% of the ordinary share capital.
In addition to its shareholders' interests, the Government's
relationship with AIB is reflected through formal and informal
oversight by the Minister and the Department of Finance and the
Central Bank of Ireland, representation on the Board of Directors
(three non-executive directors are Government nominees),
participation in NAMA, and otherwise.
The Company reported a loss of EUR2.29 billion in 2011, a loss of
EUR10.16 billion in 2010, and a loss of EUR2.33 billion in 2009.
Allied Irish's consolidated statement of financial position for
the year ended Dec. 31, 2011, showed EUR136.65 billion in total
assets, EUR122.18 billion in total liabilities and EUR14.46
billion in shareholders' equity.
Allied Irish's balance sheet at June 30, 2012, showed EUR129.85
billion in total assets, EUR116.59 billion in total liabilities
and EUR13.26 billion in total shareholders' equity.
ARNOTTS: Gets "Credible" Financial Backer for IBRC Loans
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Ciaran Hancock at The Irish Times reports that the board of
Arnotts Chairman Nigel Blow said the company has secured a
"credible", London-based financial backer with retail interests
around Europe to help it bid for its loans held by Irish Bank
Resolution Corporation.
Mr. Blow declined to identify the backer but said its support had
been secured following a long process to find a suitable partner
to bid for the loans, which are being sold by IBRC's special
liquidators, The Irish Times relates. This process was led by
corporate financiers at Investec, The Irish Times notes.
Arnotts loans to IBRC amount to about EUR230 million in two
tranches comprising retail and property close to its Henry Street
store, The Irish Times discloses. Mr. Blow, as cited by The
Irish Times, said it was bidding for all of the loans.
Mr. Blow said its backer was prepared to support the growth of
Arnotts through the addition of between four and six new outlets,
The Irish Times relays.
Arnotts is not the only bidder for its IBRC loans, The Irish
Times states. Three or four groups are believed to have made the
shortlist for the final round of bidding in early December,
including UK retailer Selfridges, which is owned by Canadian
businessman Galen Weston, who also owns Irish retailer Brown
Thomas, The Irish Times discloses.
According to The Irish Times, in addition to the IBRC loans,
Arnotts also owes about EUR140 million to Ulster Bank. The banks
took control of the business in 2010 after Arnotts' proposed
Northern Quarter commercial development bit the dust, The Irish
Times recounts.
Arnotts is an Irish retailer.
CUSTOM HOUSE: Court to Hear Client Fee Matters on Nov. 25
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The Official Liquidator of Custom House Capital Limited will
attend the Examiners Court in relation to the issue of fees
payable by clients on Nov. 25, 2013.
On Jan. 27, 2014, the Official Liquidator of Custom House Capital
Limited will attend the Examiners Court in relation to the
ongoing liquidation process and reconciliation of individual
client positions.
As reported in the Troubled Company Reporter-Europe on Oct. 25,
2011, The Irish Times said the High Court has appointed a
liquidator to Custom House Capital after Central Bank inspectors
found "systemic and deliberate misuse" of more than EUR56 million
of client funds. A 198-page report by two inspectors into the
company described "a sort of Irish Ponzi scheme", Mr. Justice
Gerard Hogan, as cited by The Irish Times, said.
Independent.ie related that the Garda Fraud Squad is now
investigating CHC and, within the next few months, expects to
question those who ran some of the investment products where this
misuse occurred, according to a source close to the garda
investigation.
Custom House Capital is a Dublin investment firm.
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I T A L Y
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BANCA CARIGE: S&P Cuts Long-Term Counterparty Ratings to 'B-/C'
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Standard & Poor's Ratings Services lowered its long- and short-
term counterparty credit ratings on Italy-based Banca Carige SpA
(Carige or the bank) to 'B-/C' from 'B+/B'. The long-term rating
remains on CreditWatch with negative implications, where S&P
placed it on March 22, 2013.
On Nov. 11, 2013, Carige announced its third-quarter results. It
reported a net loss of EUR1.3 billion, mainly as a result of an
impairment of the bank's goodwill by EUR1.65 billion. Carige
also reported that nonperforming assets (NPAs) had increased
sharply, by EUR865 million or 3.3% of reported gross loans in the
third quarter. Most of the increase stems from the
reclassification of about EUR600 million performing loans to
"nonperforming," in addition to those already recognized in the
bank's second-quarter results. In Bank of Italy's regulatory
inspection concluding in June 2013, it had identified the need
for Carige to reclassify a total of EUR1.2 billion in loans as
nonperforming.
In S&P's view, the amount of the reclassification, combined with
the timing of its recognition relative to the regulator's
inspection, reflects the significant weaknesses S&P sees in
Carige's risk management and internal controls. S&P also notes
that Carige was fairly aggressive in its accounting practices.
Specifically, it was significantly less conservative than many of
its Italian peers, which had already undertaken similar goodwill
amortization exercises in the past.
The deterioration of Carige's business and financial profile and
the weaknesses in risk management and internal controls are
likely, in S&P's view, to make it more difficult for it to
implement the EUR800 million capital strengthening required by
the Bank of Italy. Despite this, and contrary to S&P's previous
expectations, there has been no public communication on either a
market-based solution or a regulatory intervention to allow
Carige to strengthen its capital position. As a result, S&P has
removed one notch of the short-term support it previously
incorporated into its ratings on Carige to reflect its
expectation that it was likely to strengthen its capital in the
short term, either by raising capital on its own or through an
alternative recapitalization solution.
S&P also thinks Carige is likely to find it increasing difficult
to implement a credible plan to rebalance its funding profile and
achieve an "adequate" liquidity position. Among other things,
S&P expects Carige may not benefit from ongoing affordable access
to wholesale funding and may therefore face the challenge of
significantly reducing the gap between loans and deposits.
S&P no longer expect Carige to redress its funding imbalances--
specifically, its reliance on central bank funding--before the
European Central Bank's (ECB) long-term refinancing operations
(LTROs) expire. As a consequence, S&P has removed the short-term
support it previously incorporating in its ratings on Carige
based its expectation that it would use its ongoing access to ECB
funding facilities, particularly the LTROs, to rebalance its
liquidity profile to a more sustainable position.
As a result of S&P's change in expectations for capital and
liquidity strengthening in the short-term, S&P has lowered its
long and short-term ratings on Carige to 'B-/C' from 'B+/B'.
S&P's ratings continue to incorporate a one-notch uplift to
reflect its view of the likelihood that Carige would receive
extraordinary financial support from the Italian government if
needed. This view is based on S&P's assessment of Carige's
"moderate" systemic importance and Italy's "supportive" stance
toward its banking system.
The CreditWatch reflects S&P's view of the likely implications of
Carige's deteriorating business and financial profile.
In particular, S&P could lower the long-term rating on Carige if
it was to consider that:
-- The ongoing deterioration of the bank's financial profile
weakens its franchise and undermines its business
stability.
-- Carige's asset quality could deteriorate fast enough to
further weaken its solvency position, which could result in
the bank needing to strengthen its capital by more than the
EUR800 million currently required by the Bank of Italy, and
no alternative recapitalization solution is likely to
materialize.
-- As a consequence of what S&P sees as a deteriorating
business and financial position, Carige faced heightened
pressure on its liquidity profile, particularly if it was
likely to further increase its reliance on funding from the
ECB.
S&P could affirm its long-term rating on Carige if it expected an
easing of the pressure on both its business and financial
profile.
If there were to be steps toward setting a plan for a
strengthening of Carige's solvency thorough either a market-based
solution or regulatory actions, S&P would consider the potential
impact on its assessment of Carige's capital and the extent to
which this could have a positive impact on its long-term rating.
GALLERIE 2013: Fitch Expects 'CCC' Sensitivity Rating on C Notes
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Fitch Ratings has assigned Gallerie 2013 S.r.l. expected ratings.
The transaction is a securitization of a EUR363 million
commercial mortgage loan previously granted by Goldman Sachs
International Bank (GS) to an Italian closed-ended real estate
fund (Krypton) to enable it to acquire 13 shopping centers and
one retail park located across Italy.
EUR271m class A due November 2025 (ISIN TBC): 'A(EXP)sf';
Outlook Stable
EUR50m class B due November 2025 (ISIN TBC): 'A-(EXP)sf';
Outlook Stable
EUR42m class C due November 2025 (ISIN TBC): 'BBB-(EXP)sf';
Outlook Stable
The final ratings are contingent upon the receipt of final
documents and legal opinions conforming to the information
already received, and selection of issuer account bank and other
transaction parties.
Key Rating Drivers:
The expected ratings are based on Fitch's assessment of the
underlying collateral, available credit enhancement and the
transaction's sound legal structure.
The property portfolio comprises 624 retail units and therefore
benefits from a granular and diverse income profile, with the top
10 tenants providing around a quarter of total passing rent.
While the weighted average lease length to first break for the
portfolio is short at 3.2 years, the occupancy ratio of 94%
indicates the portfolio's appeal to retailers. All the shopping
centers benefit from an adjoining hypermarket area owned and
operated by Auchan, a fully-owned Italian subsidiary of the
French conglomerate Auchan SA. While these grocery areas are not
part of the collateral securing the loan, they nevertheless
anchor footfall.
GCI is an investor in Krypton (along with Morgan Stanley Real
Estate Fund VII) and provides integrated property management
services for the combined estate. Along with a 10-year Auchan-
underwritten rental guarantee provided to Krypton to mitigate
occupational market risks, and the co-dependence between the
grocery and non-grocery components, the arrangement provides for
an alignment of interests between Auchan and Krypton which is
relevant to an analysis of the property risks.
Fitch has analyzed the last seven years of operating performance
at the relevant Auchan's hypermarkets, which reported a decline
in sales that was reflective of wider stress in the Italian
retail sector. Nevertheless, the hypermarkets still report strong
turnover per unit and sound profitability levels.
Despite an alignment of interests, there is no guarantee that
Auchan will continue to operate out of each of the stores.
However, should Auchan dispose any of the stores there would be a
step-up in the payment liability it has assumed for the related
collateral under the rental guarantee.
The portfolio purchase was financed by a five-year senior
securitized loan, a EUR107 million unsecured subordinated junior
loan and by an equity investment made by the fund's unit holders
(aprox. EUR98 million contributed by Morgan Stanley Real Estate
Fund VII and aprox. EUR92 million by GCI). The closing reported
loan-to-value ratio (LTV) is 58%, which is scheduled to reduce by
loan maturity to 55% following annual amortization of 1% of the
starting loan balance. Semi-annual re-valuations and strong
interest coverage ratio (ICR) and LTV trap covenants (at 1.6x and
65%, respectively) should enable performance deterioration to be
detected well before loan default.
The transaction features a seven-year tail period between loan
scheduled maturity (2018) and legal final maturity of the notes
(2025). This length of time reduces the risk of an uncompleted
workout by bond maturity, particularly given the uncertainty over
liquidation timing for a distressed real estate fund. While the
structure envisages a "mandate to sell" upon loan default
(whereby a sales agent is responsible for out-of-court
liquidation within certain covenants), residual risk over its
enforceability in case of fund insolvency has not been eliminated
to Fitch's satisfaction. Therefore, Fitch has assumed a forced
liquidation of the fund, which typically entails additional work-
out costs and a prolonged resolution.
While the borrower-level interest rate cap expires at the loan's
scheduled maturity in 2018, Euribor on the notes thereafter will
be capped at 7%, partially mitigating interest rate risk during
the tail. Sales of property by the borrower presuppose repayment
of the allocated loan amount and 15% release premium. Since the
latter flows to noteholders sequentially, it mitigates the
exposure of senior bondholders to potentially adversely selected
assets, while excess spread is sufficient to absorb attendant
increases in the average weighted margin on the notes.
Any excess spread (being the difference between interest
available funds received under the loan and the sum of ordinary
issuer expenses including notes interest payments) is enjoyed by
the holder of the unrated class X notes. This instrument ranks
pari-passu with class A interest until the earlier of loan
default or maturity, when it would become subordinated to all
rated notes' payments. Another material feature in the structure
is that the issuer waterfall changes after loan maturity, so that
issuer available funds will be allocated on an interest
principal-interest principal basis, ensuring that the class A
notes would have to be redeemed before the class B notes receive
further distributions, and the same is true for class B and C
notes. This reduces the "leakage" of cash flow to junior
stakeholders of the issuer, including the class X note holder.
The transaction documents include counterparty triggers
supporting up to 'Asf' ratings for the notes. Together with the
design of the liquidity facility, this is unlikely to allow for
upgrades of the notes above this level regardless of leverage and
asset performance.
Key Property Assumptions:
'Bsf' LTV: 75%
'Bsf' weighted average capitalization rate: 8%
'Bsf' weighted average structural vacancy: 18%
'Bsf' weighted average rental value decline: 4%
Rating Sensitivities:
Fitch tested the rating sensitivity of the class A to C notes to
various scenarios, including an increase in rental value
declines, capitalization rates and structural vacancy. The
expected impact on the notes' ratings is as follows (class
A/class B/class C):
Current Rating: 'Asf'/'A-sf'/'BBB-sf'
Deterioration in all factors by 1.1x: 'Asf'/'BBBsf'/'B+sf'
Deterioration in all factors by 1.2x: 'BBB+sf'/BBsf/'CCCsf'
===================
K A Z A K H S T A N
===================
ALFA BANK: Fitch Rates Series 3 Sr. Unsec. Bonds 'B+(EXP)'
-----------------------------------------------------------
Fitch Ratings has assigned JSC SB Alfa Bank Kazakhstan's (ABK)
upcoming issue of KZT4.5 billion Series 3 senior unsecured bonds
an expected Long-term local currency rating of 'B+(EXP)' and an
expected National Long-term rating of 'BBB(kaz)(EXP)'. The
Recovery Rating is 'RR4'.
The Series 3 bonds will be issued under ABK's second KZT12
billion bond program, likely in 1Q14. The bonds will carry a
fixed semi-annual coupon of 7% with no step-up and will have a
maturity date in five years from the issue date. No put or call
option is envisaged.
According to Kazakhstan's legislation, the bonds will rank pari
passu with other senior unsecured obligations of the bank except
for retail deposits (KZT20 billion or 14% of total liabilities at
end-3Q13).
The final ratings are contingent on the receipt of final
documents conforming to information already received.
Key Rating Drivers:
The issue ratings are aligned with the bank's Local currency IDR
and National Long-term rating, which in turn are driven by the
bank's Viability Rating (VR) of 'b+'.
The VR reflects ABK's small franchise, high single-name
concentrations, significant growth in a moderately high risk
environment and some uncertainty due to potential new bank
acquisitions in Kazakhstan by ABK's shareholders. It also
reflects ABK's solid performance helped by low average funding
costs, reasonably strong reported asset quality metrics,
currently sound liquidity and funding position, and solid
capitalization.
Rating Sensitivities:
The bank's and issue ratings could be downgraded following a
material deterioration in asset quality, capitalization or the
funding profile. An upgrade could result from an improvement of
the operating environment, a longer track record of sustainable
performance, and a more developed franchise.
===========
L A T V I A
===========
LIEPAJAS METALURGS: Secured Creditors Ready to Fund Maintenance
---------------------------------------------------------------
The Baltic Times, citing LETA, reports that secured creditors of
Liepajas Metalurgs are prepared to further invest in the
company's maintenance during the insolvency process.
According to The Baltic Times, although no agreements have been
signed as of yet, the creditors are ready in principle to provide
the necessary funding. The Baltic Times relates that the State
Treasury's head, Kaspars Abolins, said the creditors have also
confirmed that they are prepared to make advance payments for the
company's maintenance during the winter period.
Mr. Abolins added that secured creditors are prepared to cover
the cost of Liepajas Metalurgs' sale process, The Baltic Times
relays. Prime Minister Valdis Dombrovskis said after the
government's meeting on Tuesday that state entities that had
loaned money to Liepajas Metalurgs were recommended not to sell
the company's assets, but assist in the sale of the company so it
could find an investor and resume operations, The Baltic Times
discloses.
The Baltic Times relates that Haralds Velmers, Liepajas
Metalurgs' insolvency administrator, said that the company's
maintenance cost, which amount to an estimated 500,000 lats
(EUR714,280) a month in electricity and gas bills, plus
approximately 200,000 lats a month to pay wages to the remaining
staff are necessary to continue the company's technological
processes.
Mr. Velmers, as cited by The Baltic Times, said he had not yet
been able to meet with representatives of Latvijas Gaze gas
supply company, an unsecured creditor of Liepajas Metalurgs.
"Continuous gas supply for the company is very important, but I
hope that Latvijas Gaze, seeing that the secured creditors are
involved in maintenance of the company, will also be
forthcoming," The Baltic Times quotes Mr. Velmers as saying.
Liepaja Court commenced Liepajas Metalurgs insolvency process on
Nov.12, The Baltic Times discloses. During the next two months,
stock-taking will take place and an assessment of the company
will be performed, based on the results of which a sales plan for
the company will be drawn up, The Baltic Times states.
According to The Baltic Times, asked to comment on the price of
the company, Mr. Velmers said he could not name one yet. The
company's value will be determined after the assessment, he said,
adding that LVL30 million should be invested in the company's
current assets so it could resume production. The company's
creditors are expected to submit their claims within one month,
which is when the company's total amount of liabilities will be
clear, The Baltic Times relates. Mr. Velmers said that from what
information is available, the company's debts could be around
LVL130 million, The Baltic Times notes.
He also said he did not yet know at the moment how exactly the
company would be sold, at auction or otherwise, The Baltic Times
relays.
Liepajas Metalurgs is a Latvian metallurgical company.
As reported by the Troubled Company Reporter-Europe on Nov. 15,
2013, The Baltic Times related that the Liepaja Court launched
insolvency process against the financially-troubled Liepajas
Metalurgs. The court has decided to halt the companies legal
protection process and launch an insolvency process against it,
The Baltic Times disclosed. Liepajas Metalurgs legal protection
administrator, Haralds Velmers, has been appointed the company's
insolvency administrator, The Baltic Times said. Mr. Velmers'
insolvency petition was submitted to the court on Nov. 4, The
Baltic Times recounted.
=====================
N E T H E R L A N D S
=====================
JUBILEE CDO VII: S&P Lowers Rating on Class E Notes to 'B-'
-----------------------------------------------------------
Standard & Poor's Ratings Services lowered its credit ratings on
Jubilee CDO VII B.V.'s class D and E notes. At the same time,
S&P has affirmed its ratings on the class A-R, A-T, B, and C
notes.
The rating actions follow S&P's credit and cash flow analysis of
Jubilee CDO VII by applying its 2009 corporate collateralized
debt obligation (CDO) criteria.
CAPITAL STRUCTURE
Notional OC
Current as of as of
Rating Rating notional Apr.2012 Current Apr.2012
Class to from (mil.EUR) (mil.EUR) OC (%) (%)
A-R AA+ (sf) AA+ (sf) 65.65 85.27 40.9 36.9
A-T AA+ (sf) AA+ (sf) 168.40 215.30 40.9 36.9
B AA- (sf) AA- (sf) 50.00 50.00 27.7 26.4
C A (sf) A (sf) 30.00 30.00 19.8 20.1
D BB+ (sf) BBB- (sf) 31.00 31.00 11.7 13.6
E B- (sf) BB- (sf) 20.00 20.00 6.4 9.4
Sub. NR NR 51.00 51.00 0.0 0.0
OC -- Overcollateralization = (total collateral amount - tranche
notional [including notional of all senior
tranches])/total collateral amount.
Sub. -- Subordinated notes.
NR -- Not rated.
Note: S&P converted British pound sterling amounts to euro at the
prevailing spot rates.
S&P has performed a cash flow analysis, using a total collateral
size of EUR421.44 million equivalent, a weighted-average spread
of 4.38%, and weighted-average recovery rates at each rating
level as calculated under S&P's criteria for rating cash flow and
synthetic CDO transactions backed by corporate debt.
Of the transaction's collateral, 2% is exposed to country risk
through Ireland (BBB+/Positive/A-2), 4% through Italy
(BBB/Negative/A-2, unsolicited ratings), and 6% through Spain
(BBB-/Negative/A-3). Under S&P's nonsovereign ratings criteria,
it limits the credit given to assets in countries with a
sovereign rating of more than six notches below the liabilities'
rating to 10% of the total collateral. Therefore, in S&P's 'AAA'
and 'AA' cash flow scenarios, it applied a EUR13.05 million and a
EUR2.76 million haircut (discount), respectively, to the
collateral.
Following S&P's credit and cash flow analysis, it believes that
the available credit enhancement for the class A-R, A-T, B, and C
notes is commensurate with its currently assigned ratings. S&P
has therefore affirmed its ratings on these classes of notes.
Since S&P's previous review in April 2012, the number of assets
decreased to 59 from 67. Due to the increased asset
concentration and decreased overcollateralization, the
application of S&P's largest obligor test constrains its ratings
on the class D and E notes.
Following the application of S&P's largest obligor test, it has
lowered its ratings on the class D and E notes to 'BB+ (sf)' from
'BBB- (sf)' and to 'B- (sf)' from 'BB- (sf)', respectively.
Jubilee CDO VII is a cash flow collateralized loan obligation
(CLO) transaction managed by Alcentra Ltd., which is backed by a
portfolio of loans to speculative-grade corporate firms. The
transaction closed in November 2006 and entered its amortization
period in November 2012.
RATINGS LIST
Class Rating
To From
Jubilee CDO VII B.V.
EUR500 Million Secured Floating-Rate Notes
Ratings Lowered
D BB+ (sf) BBB- (sf)
E B- (sf) BB- (sf)
Ratings Affirmed
A-R AA+ (sf)
A-T AA+ (sf)
B AA- (sf)
C A (sf)
LEOPARD CLO II: S&P Lowers Rating on Class D Notes to 'CCC-'
------------------------------------------------------------
Standard & Poor's Ratings Services lowered its credit ratings on
Leopard CLO II B.V.'s class B, C, and D notes. At the same time,
S&P has affirmed its rating on the class A-2 notes.
The rating actions follow S&P's review of the transaction's
performance. S&P performed a credit and cash flow analysis and
has applied its relevant criteria. In S&P's analysis, it used
data from the Sept. 27, 2013 trustee report.
S&P subjected the capital structure to a cash flow analysis to
determine the break-even default rates for each rated class of
notes. In S&P's analysis, it used the reported portfolio balance
that it considered to be performing (EUR81,545,287), the current
and covenanted weighted-average spread (3.58% and 2.75%,
respectively), and the weighted-average recovery rates that S&P
considered to be appropriate. S&P applied various cash flow
stress scenarios, using four different default patterns, in
conjunction with different interest rate stress scenarios for
each liability rating category.
Leopard CLO II has been amortizing since the end of its
reinvestment period in April 2009. Since S&P's Aug. 7, 2012
review, the aggregate collateral balance has decreased by 48.23%
to EUR81.55 million from EUR157.53 million. Of this decrease,
EUR54.5 million is due to the full paydown of the class A-1 notes
and the partial paydown of the class A-2 notes. The remaining
decrease (EUR16.15 million) relates to losses from asset
restructurings and defaults. In S&P's view, the reduced
aggregate collateral balance has increased the available credit
enhancement for the class A-2 and B notes and has decreased it
for the class C and D notes.
Leopard CLO II's portfolio is concentrated and comprises 28
performing obligors, compared with 46 at S&P's previous review.
The largest obligor's assets represent more than 7% of the
aggregate collateral balance and the largest 10 obligors comprise
63% of the total pool of performing assets.
S&P has also observed that non-euro-denominated assets comprise
17.23% of the aggregate collateral balance. A cross-currency
swap agreement hedges these assets. In S&P's cash flow analysis,
it considered scenarios where the hedging counterparty does not
perform and where the transaction is therefore exposed to
currency rate changes.
"Our rating actions on the class A-2, B, and C notes follow the
application of the largest obligor default test, a supplemental
stress test that we introduced in our 2009 criteria update for
corporate collateralized debt obligations (CDOs). Our ratings on
these classes of notes are constrained by the results of the
test, which showed that the available credit enhancement for
these notes would be limited if the largest obligor were to
default, assuming a 5% recovery rate. Consequently, we have
affirmed our 'AA+ (sf)' rating on the class A-2 notes and have
lowered to 'BB+ (sf)' from 'BBB+ (sf)' and to 'CCC (sf)' from 'B+
(sf)', respectively, our ratings on the class B and C notes," S&P
added.
S&P has lowered to 'CCC- (sf)' from 'CCC (sf)' its rating on the
class D notes. In line with S&P's criteria for assigning 'CCC+',
'CCC', 'CCC-', and 'CC' ratings, its credit and cash flow
analysis indicates that the available credit enhancement for this
class of notes is commensurate with a 'CCC- (sf)' rating.
Leopard CLO II is a managed cash flow collateralized loan
obligation (CLO) transaction that securitizes loans to primarily
European speculative-grade corporate firms. The transaction
closed in April 2004 and is managed by M&G Investment Management
Ltd.
RATINGS LIST
Class Rating
To From
Leopard CLO II B.V.
EUR400 Million Floating-Rate Notes
Ratings Lowered
B BB+ (sf) BBB+ (sf)
C CCC (sf) B+ (sf)
D CCC-(sf) CCC (sf)
Rating Affirmed
A-2 AA+ (sf)
TELEFONICA EUROPE: Moody's Assigns Ba1 Long-Term Debt Rating
------------------------------------------------------------
Moody's Investors Service has assigned a Ba1 long-term rating to
Telefonica Europe B.V.'s proposed issuance of "Undated Deeply
Subordinated Reset Rate Guaranteed Securities in GBP", which are
fully and unconditionally guaranteed by Telefonica S.A. on a
subordinated basis. The outlook on the rating is negative. The
size of the hybrid debt remains subject to market conditions. All
other ratings of Telefonica and its guaranteed subsidiaries, as
well as the negative outlook on those ratings, remain unchanged.
"The Ba1 rating we have assigned to the hybrid debt is two
notches below Telefonica's senior unsecured rating of Baa2,
primarily because the instrument is deeply subordinated to other
debt in the company's capital structure," says Carlos Winzer, a
Moody's Senior Vice President and lead analyst for Telefonica.
Ratings Rationale:
The Ba1 rating assigned to the hybrid debt is two notches below
the group's senior unsecured rating of Baa2. The two-notch rating
differential reflects the deeply subordinated nature of the
hybrid debt. The instrument (1) is a perpetual instrument; (2) is
senior only to common equity; (3) provides Telefonica with the
option to defer coupons on a cumulative basis; and (4) has no
step-up prior to year 10 and only 100 basis points (bps)
thereafter.
In Moody's view, the notes have equity-like features that allow
them to receive basket "C" treatment, i.e., 50% equity and 50%
debt for financial leverage purposes (please refer to Moody's
Rating Implementation Guidance "Revisions to Moody's Hybrid Tool
Kit" of July 2010).
Moody's notes that Telefonica plans to use the hybrid debt for
general corporate purposes and to partially fund the group's
recently announced acquisition of a controlling equity stake in
E-Plus, the German subsidiary of Koninklijke KPN N.V. (Baa2
negative), for a total consideration of EUR8.5 billion.
The transaction is subject to obtaining all regulatory and
shareholder approvals and is not expected to close before the end
of Q2 2014. Moody's expects the deal to be subject to a high
degree of scrutiny by regulators, since previous precedents of
mobile market consolidation in Europe have required substantial
remedies to be approved.
Moody's notes that the transaction is structured in such a way
that it avoids a meaningful deterioration in Telefonica's credit
metrics. In fact, Moody's expects the transaction itself to have
a neutral effect on the company's credit metrics in 2014. The
EUR5.0 billion cash payment to KPN will be funded as follows: (1)
EUR900 million in cash from Telefonica Deutschland Holding AG's
minority shareholders via a rights issue; (2) 50%-60% through the
hybrid debt with a substantial equity component; (3) 20%-30%
through a mandatory convertible; and (4) the remainder with debt.
As a result, Telefonica's financial ratios will be only
marginally affected after globally consolidating E-Plus.
Telefonica's Baa2 rating primarily reflects (1) the group's large
size and scale; (2) the diversification benefits associated with
its strong positions in many different markets; (3) management's
track record and ability in terms of executing a well-defined and
concise business strategy; and (4) its operating cash flow
generation and management's stated commitment to maintain its
reported net debt/EBITDA ratio below 2.35x.
Telefonica's Baa2 rating also continues to reflect the following
assumptions: (1) management will continue to execute a strategy
that offsets Spain's challenging macroeconomic environment and
contraction in consumer spending, which will continue to affect
Telefonica's domestic revenues and exert pressure on credit
metrics; (2) the group will deliver the financial policy
(including cash preservation measures and a non-core assets
disposal programme) that management has publicly committed to,
which supports its deleveraging and strategy to strengthen its
finances; and (3) Telefonica will maintain its access to the debt
capital markets and as such retain adequate liquidity, supported
by recent bond issuances and asset sales. Telefonica does not
have the undisputed domestic strength or the geographic diversity
to isolate itself completely from the current and future credit
environment implied by the sovereign rating (Baa3 negative).
Rationale for Negative Outlook:
The negative outlook on the ratings reflects Moody's expectation
that Telefonica will continue to operate in a challenging
domestic market (Spain). Despite the fact that Telefonica's
international diversification enhances its credit profile, the
group's exposure to the Spanish market puts it at risk given the
weak macroeconomic conditions in Spain, exacerbated by the
contraction in consumer spending resulting from austerity
measures.
What Could Change the Rating Up/Down:
As the hybrid debt rating is positioned relative to another
rating of Telefonica, either (1) a change in Telefonica's senior
unsecured rating or (2) a re-evaluation of its relative notching
could affect the hybrid debt rating.
Although not currently expected in light of the negative outlook,
the weak macroeconomic conditions in Spain and constraints
related to the sovereign rating, Moody's could consider an
upgrade of Telefonica's senior unsecured rating to Baa1 if the
company's credit metrics were to strengthen significantly as a
result of improvements in its operational cash flows and a
further reduction in debt. Provided sovereign-related concerns
were to abate, the rating could benefit from positive pressure if
it became clear that the group would achieve sustainable
improvements in its debt ratios, such as an adjusted retained
cash flow (RCF)/net debt ratio above the mid-twenties in
percentage terms and adjusted net debt/EBITDA comfortably below
2.5x.
Conversely, a rating downgrade could result if (1) Telefonica
deviates from its financial-strengthening plan, as a result of
weaker cash flow generation or the incurrence or assumption of
further substantial debt in conjunction with the pursuit of
acquisitions or more aggressive shareholder distribution
policies; and/or (2) the group's operating performance in Spain
and other key markets continues to deteriorate and there is no
likelihood of an improvement in underlying trends in the short
term. Resulting metrics would include an RCF/net adjusted debt
ratio of less than 18% or a net adjusted debt/EBITDA ratio
trending towards 3.0x. In addition, a rating downgrade could
result if Moody's were to downgrade the sovereign rating.
Telefonica S.A. is the leading integrated telecommunications
provider in Spain, delivering a full range of services and
products including telephony, data exchange, interactive content
and information and communications technology solutions.
Telefonica is also one of the world's leading telecommunications
carriers, with some 320 million customers worldwide.
Approximately 77.1% of group revenues (total reported revenues
amounted to EUR58.4 billion for the last-12-months period ending
September 2013) and 67.0% of group EBITDA (total reported EBITDA
amounted to EUR19.5 billion for the last-12-months period ending
September 2013) were generated outside Spain for the last-12-
months period ending June 2013.
UCL RAIL: Fitch Affirms BB+ IDR & Revises Outlook to Stable
-----------------------------------------------------------
Fitch Ratings has affirmed UCL Rail B.V.'s (UCLR) Long-term
foreign currency Issuer Default Rating (IDR) at 'BB+'. The
Outlook has been revised to Stable from Positive. Fitch has also
assigned JSC Freight One, UCLR's key 100% subsidiary, a Long-term
foreign currency IDR of 'BB+' with a Stable Outlook and its
proposed domestic bonds an expected local currency senior
unsecured rating of 'BB+(EXP)' and an expected National rating of
'AA(rus)(EXP)'. The final ratings are contingent on documentation
conforming with the information already received.
The affirmation reflects UCLR's position as the leading rolling
stock owner and operator in Russia's rail freight market. The
sizeable asset base provides UCLR with a strong ability to
execute customer demand and a diversified fleet and customer
base. This supports its robust profitability and operating cash
flows. However, UCLR's business is exposed to volatile economic
drivers affecting both transported volumes and freight rates.
The Outlook revision reflects a weaker than expected market
environment in 2013 and 2014 resulting in weaker cash flow and
higher leverage. Fitch expects UCLR to report leverage around
2.6x (net adjusted debt to funds from operations; FFO) at YE13,
up on 2.1x at YE12. We expect leverage to reduce from 2014,
helped by debt repayment, low capex (focused on maintenance and
asset life extension) and zero dividend policy.
Freight One's ratings are in line with these of UCLR, reflecting
its key contribution to the group -- it represents bulk of
revenues, earnings and debt.
Key Rating Drivers:
Slower Deleveraging:
Although UCLR reduced its debt by RUB39 billion at end-September
2013 compared with end-2012, FFO net adjusted leverage at YE13 is
likely to be significantly weaker (2.6x) than our previous
expectations (1.7x). This is due to weaker cash flows as a result
of lower freight rates. As debt continues to be repaid (possibly
at a slower pace), we expect leverage to gradually decrease to
around 2x in 2014 and below, assuming only a modest improvement
in market conditions. The revised Outlook reflects our
expectation that leverage may not be comfortably below upgrade
guidance before YE15.
Weak Market Conditions:
Freight rail volumes and prices have declined in 2013, mostly due
to intensifying competition from smaller players and overall
stagnation of the economy and especially industrial production.
We believe that some consolidation in the sector will take place,
but we do not expect any major growth in freight volumes
(demand). We therefore expect freight rates to grow slowly at
around the inflation level in short to medium term.
Strong Competitive Position:
UCLR is the leading nationwide commercial rolling stock operator
in Russia by fleet size (around 18% of the market),
transportation volumes (around 20%), and turnover (20%). The
company has a diversified fleet and customer base, which along
with a broad network of regional branches secure its competitive
advantage and efficiency over smaller market players. Long-term
contracts with industrial customers are becoming a feature of the
market, but it remains to be seen if this will translate into a
significant improvement in cash flow visibility.
Elevated Volume Risks:
UCLR's strengths are partially offset by the company's exposure
to cyclical commodity industries (coal, oil and building
materials account for approximately three-quarters of total
volume transported) and above-average exposure to lower tariff
cargoes (e.g. coal). Fitch assesses UCLR's volume risk as
elevated, although this is mitigated by a comparatively low share
of fixed costs in the company's cost structure. In addition,
regulatory changes or higher tariffs for empty runs may affect
cash flows.
Freight One Core to the Group:
We view Freight One and UCL Rail as having the same credit
profile due to their strong links, with structural subordination
of UCL's creditors mitigated by the level of upstream guarantees
from Freight One. Fitch believes that the relationship will be
strengthened by the planned consolidation of all operating
companies into one legal entity in 2014.
Proposed Domestic Bonds:
Freight One intends to refinance part of the existing debt by a
domestic senior unsecured bond. Although all debt within UCLR is
formally secured, only around 6% of total wagon fleet is
encumbered, leaving significant asset value for the senior
unsecured creditors. In addition, we expect net debt to EBITDA to
be below 2x from 2014. As a result, the expected bond rating is
aligned with Freight One's IDR.
Rating Sensitivities:
Positive: Future developments that could lead to positive rating
action include:
-- FFO adjusted net leverage falling below 2.0x and FFO fixed
charge coverage rising above 4.5x on a sustained basis.
Negative: Future developments that could lead to negative rating
action include:
-- FFO adjusted net leverage rising above 2.5x and FFO fixed
charge coverage falling below 3.0x on a sustained basis due
to weaker-than-expected operating results, larger capex or
dividend payments.
The rating actions are as follows:
UCLR
Long-term foreign currency IDR affirmed at: 'BB+', Outlook
revised to Stable from Positive
Short-term foreign currency IDR affirmed at: 'B'
Senior unsecured rating affirmed at: 'BB+'
Long-term local currency IDR affirmed at: 'BB+', Outlook revised
to Stable from Positive
Short-term local currency IDR affirmed at: 'B'
Local currency senior unsecured rating affirmed at: 'BB+'
National Long-term rating affirmed at: 'AA(rus)', Outlook
revised to Stable from Positive
Freight One:
Long-term foreign currency IDR assigned at: 'BB+', Stable
Outlook
Short-term foreign currency IDR assigned at: 'B'
Senior unsecured rating assigned at: 'BB+'
Long-term local currency IDR assigned at: 'BB+', Stable Outlook
Short-term local currency IDR assigned at: 'B'
Proposed local currency senior unsecured bond rating assigned
at: 'BB+(EXP)'
National Long-term rating assigned at: 'AA(rus)', Stable Outlook
Proposed National local currency senior unsecured bond rating
assigned at: 'AA(rus) (EXP)'
===========
P O L A N D
===========
CYFROWY POLSAT: Moody's Places Ba2 CFR on Review for Downgrade
--------------------------------------------------------------
Moody's placed the ratings of Cyfrowy Polsat S.A.'s CFR at Ba2,
PDR at Ba2-PD and the Ba2 ratings of the senior secured notes due
2018 (issued by Cyfrowy Polsat Finance AB) under review for
downgrade. The rating action follows the announcement that Polsat
has entered into a conditional investment agreement to
essentially acquire at least 83.8% of Metelem Holding Company
Limited, which owns 100% of Polish mobile operator Polkomtel Sp.
Zo.o. (B1 CFR under review for upgrade).
Ratings Rationale:
While the consideration for the acquisition of Polkomtel's equity
is planned to be made entirely through the transfer of shares,
Polsat's consolidated leverage will be negatively affected as
Polkomtel's leverage is materially higher (adjusted debt/EBITDA
of 4.6x for Polkomtel vs. 2.6x for Polsat at Q2 2013).
On a pro-forma basis with the consolidation of Polkomtel, Moody's
estimates that consolidated leverage (as adjusted by Moody's)
could be around 3.9x at year end 2013 against Moody's downward
rating guidance of negative pressure being exerted should the
company's leverage trend above 3.5x as a result of negative
operating performance or aggressive acquisitive behavior. Should
the transaction be concluded as presented, Moody's currently does
not expect a downgrade of Polsat's CFR to exceed one notch.
As a first step to the acquisition, Polsat will seek to refinance
all of its outstanding bank debt and senior notes to allow for an
increase in share capital. As part of this process, Polsat will
also raise additional funding of around PLN1 billion to pay down
Polkomtel's outstanding PIK notes.
Aside from the PIK notes, the group will not seek to refinance
any other Polkomtel debt until 2016 as the non-call periods of
the mobile operator's notes would make any early refinancing
uneconomical. In the near term, Polsat will not benefit from
Polkomtel's cash flows which remain ring-fenced.
The review will evaluate the weakening of Polsat's leverage
against the transaction's potential benefits for the company's
business profile including (i) further diversification away from
cyclical advertising revenues, (ii) increased scale and (iii)
product-suite expansion.
The review process will likely conclude when the first step of
the acquisition closes, after Polsat's debt refinancing and the
repayment of the outstanding Polkomtel's PIK notes. Both are
scheduled to take place by May 2014.
Polsat's current Ba2 CFR reflects Polsat's strong operating
performance following the integration of TV Polsat and the
synergies derived from the merger leading to a substantial
improvement in the company's financial profile. In addition, the
Ba2 CFR remains supported by (i) the company's leadership
position in the pay-TV DTH market with over 3.5 million
subscribers (c. 32% of the total Polish pay-TV market), combined
with TV Polsat's position as the number two TV group in Poland by
audience share; (iii) the group's well balanced revenues with
more than two thirds of revenues generated from subscription
fees, mitigating the cyclicality trends inherent to the
advertising market; and (iii) Polsat's solid liquidity profile
and cash flow generation supported by a strong focus on cost
control.
The Ba2 rating also recognizes the risks associated with (i) the
highly competitive nature of the Polish Pay-TV DTH market, with 2
major players competing for subscribers in a near saturated
market; (ii) the uncertain trajectory of the Polish advertising
market in 2013 and 2014, prone to ripples from the wider European
macroeconomic crisis; (iii) some degree of business and execution
risk embedded in the company's strategy to diversify into online,
broadband and mobile services, notably given the need for
substantial subscriber gains to compensate for associated costs;
and (iv) the group's exposure to FX risk.
Polsat is a leading media company in Poland. The group combines
Cyfrowy Polsat, the largest pay TV direct-to-home (DTH) provider,
with TV Polsat, the third-largest free-to-air TV broadcaster.
Cyfrowy Polsat offers access to more than 130 Polish-language TV
channels including all of Poland's terrestrial channels, 37 HD
channels and Video-on-Demand services on its DTH platform and
generates revenue via pay TV subscriptions, related service
revenues as well as from the provision of mobile internet. TV
Polsat generates broadcasting advertising revenue from its free-
to-air channel POLSAT, its DTT general channel TV4 and 20
thematic channels.
As of December 2012, the group revenue was approximately PLN2.8
billion with 62% of sales generated from retail subscription
fees, 31% in the form of TV advertising revenues and 7% from
other sources.
The Cyfrowy Polsat Group is listed on the Warsaw stock exchange
and controlled by Mr. Zygmunt Solorz-Zak and Mr. Heronim Ruta.
OLSZTYN CITY: Fitch Affirms 'BB+' Long-Term Currency Ratings
------------------------------------------------------------
Fitch Ratings has affirmed the Polish City of Olsztyn's Long-term
foreign and local currency ratings at 'BB+' and its Long-term
National Rating at 'BBB+(pol)'. The Outlooks on the ratings are
Stable. Fitch has simultaneously withdrawn the city's ratings.
Fitch has withdrawn the ratings as the city has chosen to stop
participating in the rating process. Therefore, the agency will
no longer have sufficient information to maintain the ratings.
Accordingly, Fitch will no longer provide ratings or analytical
coverage for the City of Olsztyn.
Key Rating Drivers:
The affirmation reflects Fitch's expectation that the city's
operating performance will stabilize, with an operating balance
that may exceed debt service in 2013-2015. The ratings reflect
lower debt pressure due to EU co-financing its investments and
the city's management policy to limit debt growth. The ratings
also take into account expected growth in the debt of the city's
municipal companies.
POLKOMTEL SP: Moody's Places B1 CFR Under Review for Upgrade
------------------------------------------------------------
Moody's Investors Service has placed under review for upgrade the
B1 Corporate Family Rating (CFR) and the B1-PD Probability of
Default Rating (PDR) for Eileme 1 AB (publ), an intermediate
holding company that indirectly owns 100% of Polkomtel Sp z o.o.
Concurrently, Moody's has placed under review for upgrade the
Caa1 rating on Eileme 1 AB (publ)'s US$201 million worth of
payment-in-kind (PIK) notes due in 2020 and the B3 rating on the
EUR542.5 million and US$500 million worth of senior subordinated
notes due in 2020 and issued by its subsidiary Eileme 2 AB
(publ).
The review follows the company's announcement that Cyfrowy Polsat
S.A. ("Polsat") has entered into a conditional investment
agreement to acquire, in an all-share transaction, at least 83.8%
of Metelem Holding Company Limited, the ultimate parent of
Polkomtel.
The transaction is conditional on the fulfillment of certain
conditions, including shareholder approval and a refinancing of
Polsat's debt. As part of the refinancing, Polsat will raise
additional funding of around PLN1 billion to pay down the PIK
notes at Eileme 1 level. The transaction will not affect any debt
instruments of the Polkomtel restricted group except for the PIK
notes.
Ratings Rationale:
"Moody's has placed Polkomtel's ratings under review for upgrade
to reflect the expected improvement in the company's credit
profile as a result of this transaction," says Iv n Palacios, a
Moody's Vice President -- Senior Credit Officer.
The risk profile of the combined entity will be stronger than
that of Polkomtel alone, with exposure to two different business
segments (TV and mobile telephony), which are subject to
different dynamics. At the same time, the repayment of the PIK
notes will allow Polkomtel to accelerate reduction in group
leverage, which has already come down in 2013 after the PLN800
million voluntary prepayment of the senior facility on 18
November 2013.
Aside from the PIK notes, Polsat will not seek to refinance any
other Polkomtel debt until 2016 as the non-call periods of the
mobile operator's notes make early refinancing uneconomical.
Therefore, Moody's will continue to monitor the credit profile of
the Polkomtel ring-fenced group until the two companies are
eventually incorporated into the same financing structure.
The review process will evaluate 1) the improvement in Moody's-
adjusted credit metrics expected after repayment of the PIK
notes, the degree of which will depend on whether Polsat
downstreams proceeds from additional funding, either through
equity or intercompany debt; 2) the updated business plan that
includes planned synergies as well as the potential outcome of
the 800/2600MHz auction to take place in 2014; 3) the potential
for further consolidation within the group of entities owned by
Mr. Solorz-Zak; and 4) the updated financial policy for Polkomtel
and the combined entity.
The review process will likely conclude when the first step of
the acquisition closes, after Polsat's debt refinancing and the
repayment of the outstanding Polkomtel's PIK notes. Both are
scheduled to take place by May 2014. Moody's expects any upgrade
of Polkomtel's rating, if there is one, will be limited to one
notch.
The B1 rating reflects Polkomtel's leading position in the Polish
mobile market, its track record of generating solid
profitability, and the better growth prospects of the Polish
market within the broader European context. In addition, the B1
rating reflects 1) the potential market share gains derived from
the group's offering of 4G/LTE services ahead of its competition;
2) its good liquidity profile, with higher-than-expected cash
balances used to prepay debt; and 3) its relatively high
leverage.
The rating also reflects 1) Polkomtel's mobile-centric business
model; 2) the challenging competitive environment in Poland; 3)
the group's exposure to foreign currency fluctuations, as around
one-third of its debt is denominated in foreign currency while
most of its revenues are generated in the domestic currency; and
4) the complexity of the group's structure as a result of its
agreement with LTE Group to cooperate in the deployment of a
4G/LTE network.
Prior to the initiation of the review process, Moody's had
indicated that upward pressure could develop if the company
delivers on its business plan, such that its adjusted debt/EBITDA
ratio trends towards 4.0x and its RCF/adjusted debt ratio reaches
15% or higher. Conversely, downward pressure could be exerted on
the rating if Polkomtel's operating performance weakens such that
its adjusted debt/EBITDA does not trend to below 5.0x and the
group sustains an RCF/adjusted debt ratio of below 10%. A
weakening in the company's liquidity profile (including a
reduction in headroom under financial covenants) could also exert
downward pressure on the rating.
Polkomtel Sp. z o.o., headquartered in Warsaw, is one of the
largest mobile telecommunications operators in Poland. As of
December 2012, the company reported it was second in terms of
revenues (after Orange) and third in terms of reported customers
(after Orange and T-Mobile). In 2012, Polkomtel generated PLN7.1
billion in revenues and PLN2.8 billion of EBITDA.
SVYAZNOY BANK: Moody's Withdraws Ba3 Nat'l Scale Deposit Rating
---------------------------------------------------------------
Moody's Interfax Rating Agency has withdrawn Svyaznoy Bank Joint
Stock Company's Ba3.ru national scale deposit rating (NSR).
Ratings Rationale:
Moody's has withdrawn the rating for its own business reasons.
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. For
further information on Moody's approach to national scale
ratings, please refer to Moody's Rating Methodology published in
October 2012 entitled "Mapping Moody's National Scale Ratings to
Global Scale Ratings".
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).
SVYAZNOY BANK: Moody's Withdraws Caa1 Currency Deposit Ratings
--------------------------------------------------------------
Moody's Investors Service has withdrawn Svyaznoy Bank Joint Stock
Company's Caa1 long-term local and foreign-currency deposit
ratings, Not Prime short-term deposit ratings and E standalone
bank financial strength rating (BFSR), equivalent to a caa1
baseline credit assessment. At the time of the withdrawal all the
bank's long-term ratings carried a negative outlook, the outlook
on BFSR was stable.
Ratings Rationale:
Moody's has withdrawn the rating for its own business reasons.
Headquartered in Moscow, Russia, Svyaznoy Bank reported total
assets of RUB76.6 billion (US$2.5 billion) and net profit of
RUB143 million (US$4.6 million), according to audited IFRS for
2012.
=============
R O M A N I A
=============
PLAZA CENTERS: Enters Judicial Reorganization Under Dutch Law
-------------------------------------------------------------
Oana Gavrila at Ziarul Financiar reports that Plaza Centers has
entered judicial reorganization under Dutch bankruptcy law, to
solve its cash flow issues.
Plaza Centers is the developer of the Casa Radio project in
Bucharest.
===========
R U S S I A
===========
MTS BANK: Fitch Affirms 'B+' Long-Term IDR; Outlook Stable
----------------------------------------------------------
Fitch Ratings has affirmed OJSC MTS Bank's (MTSB) Long-term
Issuer Default Rating (IDR) at 'B+' with a Stable Outlook.
Key Rating Drivers - IDRs, National Long-Term Rating, Support
Rating:
MTSB's IDRs, and National Long-term and Support Ratings reflect
Fitch's view of the limited probability of support that the bank
may receive, if needed, from its parent, Sistema Joint Stock
Financial Corp. (Sistema; BB-/Stable) and/or its subsidiaries.
In assessing Sistema's propensity to provide support, Fitch
considers its full ownership, the track record of capital
support, including RUB5.1bn contributed in April 2013 by OJSC
Mobile TeleSystems (MTS, BB+), a major operating subsidiary of
Sistema, the brand association; and the significant risks of
reputational and market access damage for the group in case of
MTSB's default. Fitch also considers the cost of any potential
support as moderate relatively to the size and financial ability
of the broader group.
At the same time, Fitch views the probability of support from the
parent as only limited, given MTSB's weak performance to date and
the bank's limited strategic importance and synergy within the
group.
Key Rating Drivers - Viability Rating (VR):
MTSB's 'b-' VR reflects currently poor asset quality and further
risks stemming from rapid recent (and therefore unseasoned) and
planned growth of unsecured high margin retail lending, its
moderate, but vulnerable capitalization due to poor
profitability, and the low transparency and potential regulatory
risks related to subsidiary East-West United Bank (EWUB).
However, on the positive side the VR also considers MTSB's
reasonable liquidity position.
At end-1H13, MTSB on a standalone basis (excluding EWUB) reported
9.8% loans overdue by more than 90 days (non-performing loans,
NPLs) and a further 2.3% of rolled-over loans.
Corporate NPLs were a high 10.7% of the standalone loan book at
end-1H13, but were fully covered by reserves. However, Fitch's
review of the largest corporate exposures (accounting for roughly
33% of end-1H13 standalone corporate loans) revealed that many of
these, although not technically NPLs, are nevertheless risky as
they are extended to highly leveraged borrowers, which could be
particularly vulnerable to economic stresses.
Retail lending (49% of the standalone loan book) quality is
dragged down by the poor performance of unsecured loans (57% of
total retail loans), with respective NPL origination (calculated
as net increase in NPLs plus write-offs divided by average
performing loans) at a high 20.4% (annualized) in 1H13, which is
also above the sector average (see "Russian Consumer Finance
Sector. On a risk-return basis, Fitch estimates that the bank is
currently slightly above breaking even on its retail loans.
Although MTSB's capital position improved following the recent
equity injection (Basel 1 capital adequacy ratio of 21.5% at end-
1H13), it is potentially vulnerable due to planned 20% growth of
unsecured retail lending in 2014 and weak overall performance
(ROAE was moderately negative in 1H13) dampened by significant
loan impairment charges. The quality of capital could also be
weakened by two interbank placements (31% of end-1H13 Fitch core
capital), which in Fitch's view may be of a fiduciary nature.
MTSB's liquidity position is adequate with a solid level of
highly liquid assets (cash, non-restricted short-term bank
placements and repoable securities) sufficient to cover around
30% of MTSB's standalone customer deposits at end-3Q13.
Fitch also continues to have concerns about the low transparency
of the operations of Luxembourg-based EWUB, which accounted for
29% of total assets at end-1H13. EWUB is primarily engaged in
extending cash-backed loans to foreign-domiciled entities with
roots in CIS, which Fitch understands are mainly for regulatory
purposes or tax considerations. The bank should not be taking
significant financial risks on the loans, but reputational and
regulatory risks could be high, in the agency's view.
Rating Sensitivities - IDRs, National Long-Term Rating, Support
Rating:
Positive rating actions on MTSB's parent could create upside
potential for the bank's support-driven ratings, although if MTSB
fails to improve its performance and provide meaningful synergies
to the group, it may weaken Sistema's propensity to support it
and therefore constrain ratings upside.
Any clear indication that Sistema's commitment to MTSB had
weakened, or failure of the parent to provide timely support, if
needed, could result in the downgrade of the support-driven
ratings.
Rating Sensitivities - VR:
Downward pressure on MTSB's VR could arise from material asset
quality deterioration and/or capital pressure. The VR could
mainly benefit from improvements in assets quality, resulting in
stronger financial performance.
The rating actions are as follows:
Long-term IDR affirmed at 'B+'; Outlook Stable
Short-term IDR affirmed at 'B'
National Long-term Rating affirmed at 'A-(rus)'; Outlook Stable
Viability Rating affirmed at 'b-'
Support Rating affirmed at '4'
Senior unsecured debt affirmed: 'A-(rus)'
REGION INVESTMENT: S&P Assigns 'B-/C' Counterparty Ratings
----------------------------------------------------------
Standard & Poor's Ratings Services said that it assigned its
'B-/C' long- and short-term counterparty credit ratings and
'ruBBB' Russia national scale rating to Russia-based REGION
Investment Co. ZAO (REGION). The outlook is stable.
The ratings on REGION, a holding company, reflect S&P's
assessment of the creditworthiness of the wider REGION Group of
Companies (REGION group), which primarily focuses on brokerage
and flow-trading in fixed-income instruments, asset management,
and debt capital markets services.
S&P's ratings on REGION reflect the 'b-' group credit profile
(GCP), which reflects the creditworthiness of the consolidated
REGION group. S&P do not believe that there are any material
barriers to cash flows from the main operating subsidiaries to
the holding company. S&P therefore do not notch down the ratings
on REGION from its view of the GCP.
S&P's assessment of REGION's GCP balances its view of its well-
established position in its key markets with fairly high
operational risks that are inherent to the Russian financial
market. REGION is the largest dealer in the secondary bond
market in Russia and ranks seventh among asset managers. S&P
believes that REGION's close connections with its largest clients
lead to elevated single-name revenue concentrations.
S&P understands that the REGION group plans to focus on
institutional clients and does not seek to expand into less
familiar business lines. S&P do not expect any material changes
in the group's business operations following the change in the
regulator in September 2013.
S&P considers that the financial profile of REGION group reflects
relatively high leverage compared with peers, confidence-
sensitive funding--which in S&P's view is inherent to the broker
business model--high single-name concentrations on the balance
sheet, and exposures to less liquid assets. The group's fairly
stringent risk management system partly mitigates these
weaknesses, however.
REGION's ratio of adjusted total equity (reported equity adjusted
for goodwill and intangibles) to adjusted assets was a relatively
low 3.4% at year-end 2012. This compares with more than 10% for
the average of REGION's peers, according to S&P's calculations.
S&P notes, however, that the group's internal capital generation
is strong, with a return on equity of around 30% in the 2011-2012
period. Earnings retention has been moderate so far, however, as
about 30% of profits are distributed as bonuses or dividends.
S&P expects similar levels of internal revenue generation and
capitalization in the medium term.
S&P believes that high single-name concentrations on the group's
balance sheet, which result from client-tailored transactions,
are the major weakness for the group.
"We assess REGION's enterprise risk management framework as
adequate compared with local peers. The group's risk management
is centralized at the level of REGION Investment Co. ZAO.
Additional committees function at the level of asset management
companies.
The main risks to the group are market and liquidity risks, which
are controlled through a stringent system of limits. The group's
management of operational risk is still at an early stage,
however. S&P notes, however, that REGION has undertaken some
measures to address potential rogue trading. For example, it has
established a system that prevents trading that falls outside of
the pre-set limit for securities or counterparties. S&P
understands that the company has also set up tight control over
deal prices.
The short-term nature of the group's funding, which is inherent
to its business model, makes the continuity of operations
vulnerable to a downturn in the Russian money markets. S&P views
this as another weakness to the rating.
The management team owns the group. S&P do not take into account
extraordinary parental support in its assessment of REGION's
credit profile as it considers it to be uncertain. In addition,
S&P do not incorporate any uplift for extraordinary government
support into the GCP as S&P do not believe that the Russian
government, or the regulator, are likely to support even the
largest securities companies.
The stable outlook reflects S&P's view that REGION's fixed-income
franchise is gradually developing amid the competitive and high-
risk environment in Russia.
The outlook also reflects S&P's belief that the group will
continue to generate profits from its core institutional
brokerage in the medium term.
S&P could raise the ratings on REGION if it sees a substantial
and sustainable improvement in the group's capitalization and
funding profile. A sustainable improvement in the Russian
operating environment could also potentially result in a positive
rating action, provided that the group keeps its risk appetite
under control.
S&P could lower the ratings if it sees that the new regulatory
regime for nonbank financial institutions poses significant
restrictions to the group's operations or its key client segment
in the asset management market--non-state pension funds. S&P
could also lower the ratings if it sees the company exhibiting a
higher proprietary risk appetite or substantial disruption to
counterparty confidence, or if another prolonged market downturn
takes place.
===============
S L O V E N I A
===============
SLOVENIA: Needs to Plug Banking Hole to Avert Int'l Bailout
-----------------------------------------------------------
Alex Barker at The Financial Times reports that Slovenia's banks
are in such a dire state that Primoz Kozmus, a Slovenian national
hero lionized for tossing a hammer to double Olympic gold, is
almost certain to face a so-called haircut, which will slice
through the more than EUR100,000 of junior bank bonds he bought
during Slovenia's heady credit boom.
Junior creditors stand to lose about EUR500 million, the FT
discloses. But tiny Slovenia -- a tranquil, prosperous nation of
2m hemmed between the Alps and the Adriatic Sea -- will need to
plug a banking hole several times bigger to avoid becoming the
next eurozone country to seek an international bailout, the FT
says.
Over the coming months this place of hilltop castles and handsome
Habsburg architecture will become the laboratory for the latest
eurozone experiment in debt restructuring -- one that will be
heavily influenced by Germany's deep political resistance to
underwriting another rescue, the FT states. The question is
whether a blown-out eurozone economy can fix itself without
foreign funds for the repairs, the FT notes.
The statistics are striking: banks are nursing EUR7.8 billion of
bad loans, equivalent to almost a fifth of economic output, the
FT discloses.
For state-owned NLB, Slovenia's biggest bank, about four in
EUR10 lent to businesses went sour, the FT says, citing
Saso Stanovnik of Alta Invest.
All eyes are now focused on a long-delayed bank stress test,
which should conclude next month, and will determine the extent
of the damage, the FT states. Speculation is rife and credit
rating agency Fitch recently raised its estimate of the system's
capital shortfall to EUR4.6 billion, the FT says. According to
the FT, Slovenia has set aside EUR1.2 billion of public funds.
Bailing in Mr. Kozmus and other creditors will yield about
EUR500 million, the FT says. The government can also use some of
its EUR3.6 billion of cash deposits. But the margin for maneuver
is tight, the FT states.
Alenka Bratusek, Slovenia's prime minister and the leader of an
unwieldy four-party coalition, is standing firm, the FT relays.
"We don't need any outside help, we know how to solve the
problems and we are going to do it," Ms. Bratusek told the FT.
"We know best what is good for our country -- not somebody from
the outside. We are the ones that will have to carry out the
measures and we will have to live with our people."
=============
U K R A I N E
=============
UKRAINIAN ECOLOGICAL: Court Begins Liquidation Process
------------------------------------------------------
Interfax-Ukraine reports that the Kyiv Economic Court on
November 11 declared PJSC Ukrainian Ecological Insurance Company
bankrupt and initiated a liquidation procedure, which under the
law is 12 months, according to a posting on the Web site of the
Motor (Transport) Insurance Bureau of Ukraine (MTIBU).
===========================
U N I T E D K I N G D O M
===========================
BARCLAYS PLC: Fitch Rates US$2-Bil. Convertible Securities 'BB+'
----------------------------------------------------------------
Fitch Ratings has assigned Barclays plc's (A/Stable/F1/a) US$2
billion 8.25% fixed rate resetting perpetual subordinated
contingent convertible securities (CCS) a 'BB+' final rating. The
rating is in line with the expected rating assigned on
November 4, 2013.
Key Rating Drivers:
The CCS are additional Tier 1 (AT1) instruments with fully
discretionary interest payments and are subject to conversion
into Barclays plc ordinary shares on breach of a consolidated 7%
CRD IV common equity Tier 1 (CET1) ratio, which is calculated on
a 'fully loaded' basis.
The securities are rated five notches below Barclays plc's 'a'
Viability Rating (VR), in accordance with Fitch's criteria for
"Assessing and Rating Bank Subordinated and Hybrid Securities".
The CCS are notched twice for loss severity to reflect the
conversion into ordinary shares on breach of the trigger, and
three times for non-performance risk.
The notching for non-performance risk reflects the instruments'
fully discretionary interest payment, which Fitch considers the
most easily activated form of loss absorption. Under the terms of
the notes, the issuer shall not make an interest payment if it
has insufficient distributable items or if it is insolvent. The
issuer will also be subject to restrictions on interest payments
if it fails to meet the combined buffer capital requirements that
will be phased in at 25% per annum from 2016 under CRD IV.
Fitch has assigned 100% equity credit to the securities. This
reflects their full coupon flexibility, the ability to be
converted into common equity well before the bank would become
non-viable, the permanent nature and the subordination to all
senior creditors.
Rating Sensitivities:
As the securities are notched from Barclays plc's VR, their
rating is sensitive to any change in this rating, which itself is
currently in line with Barclays Bank plc's VR, as analyzed under
our 'Rating FI Subsidiaries and Holding Companies' criteria. The
securities' ratings are also sensitive to any change in their
notching, which could arise if Fitch changed its assessment of
the probability of their non-performance relative to the risk
captured in Barclays plc's VR. This could reflect a change in
capital management or flexibility or an unexpected shift in
regulatory buffers, for example.
CUCINA ACQUISITION: Moody's Assigns (P)Caa1 Corp. Family Rating
---------------------------------------------------------------
Moody's Investors Service has assigned a first-time corporate
family rating (CFR) of (P)Caa1 to Cucina Acquisition UK (or the
"Company"), the parent of Brakes Group. Concurrently, Moody's has
assigned a provisional (P)B3 rating to GBP200 million senior
secured notes due 2018 to be issued by Brakes Capital. The
outlook on all ratings is stable.
The proceeds from the notes will make up the Facility E1 Loan to
Cucina Acquisition UK, which in turn will partly refinance
existing senior bank debt of Cucina Acquisition UK. The Company
will also enter into a new GBP75 million Revolving Credit
Facility (the "New RCF"). Brakes was acquired by Bain Capital in
June 2007.
Moody's issues provisional ratings in advance of the final sale
of securities and these reflect Moody's credit opinion regarding
the transaction only. Upon a conclusive review of the final
documentation Moody's will endeavor to assign definitive ratings.
A definitive rating may differ from a provisional rating.
Ratings Rationale:
The CFR of (P)Caa1 reflects Brakes': (1) high pro-forma adjusted
leverage ratio, above 8x at year-end 2013; (2) relative lack of
scale in a low-margin industry; (3) high degree of customer
concentration, with the top 3 customers representing about 21% of
FY2012 revenues; (4) weak free cash flow generation for the
foreseeable future; (5) high competitive intensity in its core
markets, particularly in the UK; and (6) low geographic
diversification of revenues.
More positively, the rating also reflects Brakes': (1)
significant footprint in the foodservice distribution industry
(with the leading position in the UK); (2) initiatives
implemented to turnaround the business; (3) improved debt
maturity profile assuming a successful refinancing; and (4)
strong brand recognition and longstanding relationship with
customers.
Brakes operates in the UK, French, Swedish (through Menigo) and
Irish foodservice distribution markets, which supply food and
related products to a wide variety of customers including
independent restaurants and pubs, chain pubs and restaurants,
hotels, travel and leisure operators, schools, hospitals and
contract caterers. Brakes reported revenues of GBP 2.9 billion
and EBITDA after exceptional items of GBP 104.9 million for the
FYE December 2012 (GBP 3.0 billion and GBP 121.1 million revenues
and EBITDA after exceptional items respectively for the LTM to 30
September 2013, and an EBITDA margin of 4.1%).
Brakes has significant customer concentration in terms of
revenues, as the top 3 customers represented 21% of the company's
revenues in 2012. In addition, 67% of Brakes' revenues came from
the UK and Ireland. UK and Irish customers are independents,
corporate, public and, with respect to the UK, logistics. The
group provides bespoke logistics solutions to 9 customers in the
UK, which is a lower margin business. French and Swedish
customers are independents, corporates and public sector, with no
material single-customer concentration in either of those
countries. The loss of, or a significant reduction in business
with, the company's largest customers, including renewals on
weaker commercial terms could adversely affect its financial
position, as happened in 2011. Moody's does not expect that
customer diversification will increase as Moody's does not expect
the company to enter into commercial agreements with a new major
foodservice operator.
The foodservice distribution industry is characterized by low
margins and large volumes. Increases in raw material and oil
prices can in some cases be passed through to customers.
Successful operators have scale, a good customer mix, and a
diversified geographic footprint. A good customer mix entails a
large proportion of corporate clients, which by their size and
complex operations do not switch providers often, and sign
longer-term contracts. Moody's perceives it as a credit negative
that Brakes' customer base comprises only about 1/3 of corporate
clients.
The foodservice distribution market is fragmented and although
there has been considerable consolidation over the past decade,
the top four companies in the UK (Brakes, 3663, Booker and JJs)
still only hold an estimated 50% share of the market. Barriers to
entry are low, as e-commerce platforms allow smaller,
specialized, local or regional operators to better market their
service without the need for a large sales and telesales force.
Capital expenditures are focused on the rationalization of
distribution centers and cost savings are expected to be realised
through multi-temperature deliveries, underpinning the company's
expectations of EBITDA improvement. Investment Capex are expected
to reach about GBP 40 million in 2013.
Brakes' (P)Caa1 CFR also reflects the company's highly-leveraged
capital structure. Pro-forma for the transaction, Brakes'
adjusted debt to EBITDA ratio will exceed 8x (based on Moody's
adjustments for operating lease commitments, and pension
obligations) at fiscal year-end 2013. Moody's expects the
company's leverage to remain above 7x through 2015, with no
significant improvement in operating margins expected over this
period, though margin upside may be achieved should the current
business plan be successfully implemented. Additionally, Moody's
expects that free cash flow will be negative in 2013, and zero in
2014.
Liquidity is adequate assuming the bond issuance is successful.
Despite the lack of positive free cash flow, the company will
benefit from opening cash balance of GBP 96 million, the GBP75
million New RCF, and the lack of amortization in the following 24
months. In 2016, the Term Loan B and C mature, as well as the
GBP125 million (fully utilized) receivables securitization,
representing in aggregate GBP 506 million or 4.1x LTM Sep. 2013
EBITDA that will need to be refinanced. The senior facilities
benefit from Total Net Leverage covenant tested on a quarterly
basis expected to be set with 25 % headroom. The RCF benefits
from the same covenant package as the Senior Bank Facilities.
There is no covenant testing on the Second Lien Facilities.
The proposed capital structure includes GBP 200 million senior
secured notes and GBP75 million RCF, ranking pari passu with the
notes via the terms of the intercreditor agreement. The structure
also comprises GBP409 million 1st lien senior debt excluding
asset backed financing, GBP165 million of asset backed financing
(invoice financing and finance leases) and GBP336 million of
second lien debt. The Notes will be guaranteed on a senior
secured basis by a first priority pledge over all of the equity
of the Issuer, a 1st priority assignment of the Issuer's rights
under the Facility E1 Loan (including the Issuer's rights in
respect of the SF Guarantees and the SF Collateral). In the 12
months to September 30, 2013 the Obligors under the SFA generated
76% of adj. EBITDA and held 80% of consolidated Total Assets.
Brakes Capital will accede to the ICA as a secured creditor on
the Issue Date. Shareholder funding enters Cucina Acquisition UK
as common equity.
The (P)B3 rating of the notes incorporates the debt cushion
provided by the GBP336 million second-lien notes. The stable
rating outlook reflects Moody's expectation that the company will
maintain its market share in its core markets, as well as a
stable EBITDA margin.
What Could Change the Rating Up/Down:
There could be positive pressure if the company were to
significantly improve its EBITDA margin, leading to sustained
positive free cash flow generation, with leverage falling
materially below 7x.
A downgrade could occur should there be further business
weakening, potentially resulting in reductions in margins or free
cash flow, slower deleveraging than anticipated, or if liquidity
weakens.
Founded in 1958 and headquartered in the UK, Brakes is
foodservice distribution operator which operates in the UK,
France and Sweden. Brakes generated GBP2.9 billion sales in 2012.
ELMFIELD TRAINING: CareTech Buys Training Firm Out of Insolvency
----------------------------------------------------------------
Samuel Agini at Alliance News reports that CareTech Holdings PLC
said it has acquired the majority of the business and assets of
Elmfield Training Ltd out of insolvency for GBP1.5 million in
cash, and expects the deal to boost earnings in the first full
year of ownership.
According to the report, CareTech bought the assets in a deal
known as a pre-pack, where the arrangements are done just before
or as a company enters insolvency.
Alliance News relates that CareTech said it would use its own
cash to fund Elmfield's working capital costs.
The deal will enable CareTech to provide apprenticeship and pre-
employment training under a rebranded business called EQL
Solutions, the report relays.
Under the terms of the acquisition, CareTech will take over the
responsibility for the operation of all of Elmfield's client
contracts apart from a high-profile contract with Morrisons, adds
Alliance News.
Daresbury Park-based Elmfield Training Ltd was a provider of
apprenticeship and vocational training.
GREENWICH CITY: Fitch Affirms 'BB+' Rating on GBP165MM Bonds
------------------------------------------------------------
Fitch Ratings has affirmed City Greenwich Lewisham Rail Link
plc's (CGLR) GBP165 million senior secured bonds due 2020 at
'BB+' with Positive Outlook.
The Positive Outlook reflects expected continued improvement in
CGLR's cash flows and cover ratios driven by modest patronage
growth, above-trend retail price index (RPI) inflation and a debt
service profile that will decline over the medium term.
The affirmation reflects that CGRL has performed in line with
Fitch's expectations over the past year. The key rating factors
are volume-linked patronage; weak debt structural features for a
project fully exposed to volume risk; and debt service cover
ratios that Fitch expects to increase over time.
Key Rating Drivers:
Revenue/Volume Risk - Midrange
The primary drivers for patronage remain employment and
development projects in and around Canary Wharf and City of
London. Other factors influencing growth in patronage numbers
include the development of the Stratford Regional Centre
(including the Olympic park and the Stratford International high
speed rail station) and tourism directed towards the Cutty Sark
and the Greenwich area. After a decline in 2008 -- due to
disruptions caused by the three-car project and job losses in the
City of London and Canary Wharf -- patronage has been growing
healthily (up year-on-year by 6.7% in 2012, 5.2% in 2011, 4.9% in
2010, and 3.2% in 2009). Fitch expects growth to continue,
although at a more modest pace: for the first six months of 2013,
growth was 3.4% compared with the same period a year ago. It
should be noted that the faster growth in 2012 incorporated a
temporary boost in patronage stemming from the 2012 London
Olympic Games.
Revenue/Price Risk - Midrange:
The indexation mechanism used to calculate the usage fee received
from the Docklands Light Railway (DLR) ensures that the project's
revenue is effectively linked to RPI. As such, high RPI-inflation
over recent years has supported project cash flows.
Infrastructure & Renewal Risk - Midrange:
Fitch does not consider heavy maintenance costs to be a main risk
factor for the project at the moment. CGRL's operational
obligations are deemed reasonably straightforward and therefore
fairly predictable. Fitch has analyzed certain cost exposures
through sensitivity analysis.
Debt Structure - Weaker:
Some of the transaction's structural features are relatively
weak, including a six-month interest-only debt service reserve
account and the lack of a maintenance reserve account. The cash
lock-up ratio - set at a minimum debt service cover ratio (DSCR)
(excluding cash balances) of 1.2x - was satisfied in June 2012,
allowing the project to release substantial sums of trapped cash
in December 2012 and in June 2013. This has not proved
detrimental to the transaction, given that patronage has
continued to grow, buoyed in 2012 by the Olympics.
Debt Service - Low; But Growing Coverage Ratios:
The DSCR (ex-cash) at end-June 2013 stood at 1.27x, slightly
above the agency's rating case forecasts of 1.25x. The Fitch
rating case assumes slightly more conservative patronage growth,
resulting in an average forecast DSCR of 1.74x and a minimum DSCR
of 1.22x from December 2013 until the end of the concession
period. The project's ability to service debt also benefits from
a modest reduction in scheduled debt service after 2014, with a
more material decline from 2016 onwards after which Fitch expects
DSCR to remain above 1.3x.
Fitch ran several sensitivities, including a break-even analysis
in reduction in patronage, 40% increase in heavy maintenance
costs and stressed patronage levels. Furthermore, a sensitivity
analysis assuming a flat inflation rate of 1.5% (rather than the
base case forecast range of 2.8% to 3.9%) was also performed. The
agency considers all results to be robust and consistent with the
project's current ratings.
Rating Sensitivities:
Actual and minimum DSCR in excess of 1.3x and forecast average
DSCR above 1.7x would be positive for the ratings. Patronage
below current assumptions, a prolonged period of low or negative
inflation, or a substantial increase in operating and heavy
maintenance costs could put the ratings under pressure.
Summary of Credit:
CGLR holds a 24-and-half-year concession until March 2021, under
a government private finance initiative, to build and maintain a
portion of the DLR network (Lewisham Extension), serving the
Greenwich and Canary Wharf areas.
MARRACHE LAW: Liquidation Costs Topped GBP4 Million
---------------------------------------------------
Peter Schirmer at Gibraltar Chronicle reports that the Supreme
Court was told on Nov. 19 the costs of liquidating the Marrache
law firm have already topped GBP4 million, and what is described
as "work in progress" in untangling a web of tens of thousands of
documents will boost that figure significantly.
However only some GBP2 million has been recovered by the joint
liquidators (whose own fee billings have been between GBP300,000
and GBP400,000 each) Adrian Hyde the UK solicitor -- who is joint
liquidator with Edgar Lavarello --
edgar.lavarello@gi.pwc.com -- of PwC in Gibraltar -- admitted in
court, Gibraltar Chronicle relates.
Mr. Hyde, who hesitated for almost a minute when asked how long
he had been a liquidator before replying that he had four years
in the role, faced a barrage of sharp cross-questioning by
defense counsel after giving extensive evidence for the
prosecution, Gibraltar Chronicle discloses.
In the case in which Isaac, Benjamin and Solomon Marrache, and a
former employee of their law firm, Leanne Turnbull are charged
with two counts of fraud, Gibraltar Chronicle says. All four
have pleaded not guilty, Gibraltar Chronicle notes.
The liquidator was closely quizzed about his legal right to
dispose of some of his client's assets by John Cooper, QC,
appearing for Isaac Marrache, Gibraltar Chronicle relays. He
admitted that Mr. Marrache's library -- claimed by local lawyers
to have been worth at least GBP150,000 -- for GBP5,000, an act
which Mr. Cooper implied had been contrary to proper legal
practice as the books were part of the lawyer's tools of trade .
. . which could not be disposed of to meet debts, Gibraltar
Chronicle recounts.
"We have been asking to see these for three or four years . . .
and so far have seen only these," Gibraltar Chronicle quotes
Dorian Lovell-Pank, QC, (who is appearing for Benjamin) holding
up a wodge of foolscap papers less than two inches thick, as
saying. In five years transactions in the Marrache accounts in
three Spanish banks -- Caja, Barclays, and the Bank of Andalusia
-- accounted for about GBP400 million.
"That is not a huge amount in a practice such as this."
Quizzed by Mr. Lovell-Pank about the current state of finances
involved in the liquidation, Mr. Hyde, as cited by Gibraltar
Chronicle, said that his fees billed so far amounted to between
GBP300,000 and GBP400,000 and that a similar sum had been
submitted by Mr. Lavarello of PwC. By the end of last year,
costs of liquidation had reached GBP3.8 million and that current
work in progress had pushed this figure to GBP4.3 million,
Gibraltar Chronicle discloses. At the close of the Nov. 19
hearing the judge, Sir Geoffrey Grigson, QC, said that he would
consider Mr. Lovell-Pank's application for his recusal overnight,
Gibraltar Chronicle relays.
MG ROVER: Deloitte Obtains Leave to Appeal GBP14-Mil. Fine
----------------------------------------------------------
Sam Fleming at The Financial Times reports that accountancy firm
Deloitte has been given leave to appeal part of a decision that
imposed a GBP14 million fine in relation to its role as an
adviser to failed carmaker MG Rover.
The independent tribunal granted leave to appeal in respect of
advice on one of two transactions connected to MG Rover, which
collapsed in 2005 with debts of about GBP1.3 billion, the FT
relates.
Deloitte was hit by the record fine in September by the Financial
Reporting Council, the accounting watchdog, the FT recounts. The
firm's corporate finance partner Maghsoud Einollahi was also
fined, the FT notes.
On Wednesday, the firm and Mr. Einollahi were given leave to
appeal by the independent tribunal against six findings in
respect of one transaction, dubbed "Project Aircraft", the FT
relays.
However, the independent tribunal refused leave to appeal in
relation to another transaction, "Platinum", in which Deloitte
was found to have failed to consider the public interest, the FT
states.
The case related to Deloitte's relationship with four
businessmen, dubbed the Phoenix Four, who led the purchase of
MG Rover from BMW in 2000 and became notorious after extracting
large financial rewards, the FT discloses. The manufacturer was
ultimately put into administration with the loss of 6,000 jobs,
the FT recounts.
Headquartered in Birmingham, United Kingdom, MG Rover Group
Limited -- http://www1.mg-rover.com/-- produced automobiles
under the Rover and MG brands, together with engine maker
Powertrain Ltd. Previously owned by Phoenix Venture Holdings,
the company faced huge losses in recent years, reaching GBP64.1
million in 2004, which were blamed on reduced sales.
OSPREY ACQUISITIONS: Fitch Affirms 'BB' IDR; Outlook Stable
-----------------------------------------------------------
Fitch Ratings has affirmed Osprey Acquisitions Limited's Long-
term Issuer Default Rating (IDR) at 'BB' and senior secured
rating at 'BB+'. The Outlook for the Long-term IDR is Stable.
Fitch has also affirmed the bond issued by Anglian Water (Osprey)
Financing Plc (AWOF) at senior secured 'BB+'. The bond is
guaranteed by Osprey, and is thus rated in line with Osprey's
senior secured rating of 'BB+'.
The ratings reflect the strong cash flow characteristics and
adequate financial flexibility of Anglian Water Services Limited
(Anglian Water, see "Fitch Affirms Anglian Water's Senior Secured
Debt at 'A'/'BBB+', the main operating subsidiary of the group,
as well as the structurally and contractually subordinated nature
of the holding company financing at Osprey level.
AWOF is the financing vehicle for Osprey, which is a holding
company for businesses focused on the water sector, including
ownership of Anglian Water -- a regulated water and wastewater
business.
Ofwat, the economic regulator of the water and sewerage sectors
in England and Wales, will modify the tariff-setting methodology
for the price control period from April 2015 to March 2020 (AMP6)
to focus more on customer service and sustainability. As the
water sector has been dragged into the political debate about
affordability, AMP6 can be expected to focus on essential
expenditure to keep bills down and to allow companies scope for
social tariffs for the poorest customers. Fitch notes that to
assess prospective earning dynamics of the sector one needs to
consider cost of capital and retail margins jointly.
Key Rating Drivers:
-- Dividend Receipts Support Debt Service
Fitch calculates Osprey's FY13 pension-adjusted net
debt/regulatory asset value (RAV) at 89.9%, dividend cover at 4x
and post-maintenance and post-tax interest cover (PMICR) at
around 1.17x. For the remainder of the price control period,
Fitch forecasts pension-adjusted net debt/RAV to be at or below
90%, dividend cover in the range of 3.0x-5.0x and PMICR around
1.2x. These forecast metrics remain in line with Osprey's Long-
term IDR of 'BB'. Dividend cover, the credit ratio which best
captures the ability of the group to service holding company
obligations, and calculated as upstream cash flow from the
operating company over the holding company's interest payments,
provides for a comfortable buffer relative to Fitch's ratio
guideline of 2.5x-3.0x.
Given Anglian Water's leading position in the sector and its
financial policies Fitch does not expect a negative rating impact
from the tariff settlement for AMP6 for the operating company.
However, the dividend stream from Anglian Water to Osprey
Acquisitions is an important driver for the rating of the holding
company. The tariff settlement will reset the efficiency
challenge for the sector and have a moderating impact on earnings
to shareholders. Hence, there is a possibility that Osprey
Acquisitions may not be able to maintain dividend cover above
2.5x post March 2015 and may face rating pressures.
Rating Sensitivities:
Negative: Future developments that could lead to negative rating
action include:
-- A sustainable drop of dividend cover below 2.5x
-- An increase in group gearing above 90% or a drop of PMICR
below 1.1x
-- A marked deterioration in operating and regulatory
performance of Anglian Water or adverse changes to the
regulatory framework in the UK water sector
Positive: The probability of a positive rating action is low
given that changes to be implemented in the next price control
are yet to be finalized and evaluated, and we do not expect the
company to significantly reduce its gearing on a sustained basis.
Liquidity and Debt Structure:
As of March 31, 2013, Osprey held GBP21.8 million in cash and
AWOF had available GBP25 million of undrawn, committed bank
facilities with a maturity in November 2015. This is sufficient
to bridge short-term liquidity needs. For debt service, Osprey
and AWOF effectively rely on upstream cash flows from their
operating subsidiaries, primarily Anglian Water.
SMITH & JONES: Set to Go Into Liquidation
-----------------------------------------
thisisthewestcounty.co.uk reports that Smith & Jones Joinery, a
company established in Chard 45 years ago, is set to be
liquidated.
It is believed Smith & Jones Joinery on Furnham Road Trading
Estate closed its doors for the final time on November 1, the
report says.
thisisthewestcounty.co.uk relates that managing director
Maurice Beviss declined to comment but Caroline Harris from
accountancy firm Albert Goodman, who is "overseeing the
situation", said: "A meeting of creditors has been called for
November 25 to put the company into liquidation."
Smith & Jones Joinery specialised in manufacturing bespoke,
architectural, traditional and contemporary joinery and was
founded by John Smith and John Jones in 1968, when they were
demobbed from the RAF.
UKRAINE MORTGAGE: Fitch Cuts Rating on Class B Notes to 'B-sf'
--------------------------------------------------------------
Fitch Ratings has downgraded Ukraine Mortgage Loan Finance No.1
plc, as follows:
Class B (ISIN: XS0285819123): downgraded to 'B-sf' from 'Bsf';
Outlook Negative
Key Rating Drivers:
The downgrade of class B notes follows the downgrade of Ukraine's
Long-term foreign currency Issuer Default Rating (IDR) to 'B-
'/Negative from B/Stable and the downgrade of Country Ceiling
from 'B' to 'B-'. (see 'Fitch Downgrades Ukraine to 'B-'; Outlook
Negative' dated 8 November 2013. As the class B notes do not
benefit from structural features that would mitigate transfer and
convertibility risks, the rating on the notes is capped at the
Country Ceiling of Ukraine. The Negative Outlook reflects the
Outlook on the sovereign IDR.
Despite a weakening economy, the underlying assets of this
transaction have continued to perform well with stable arrears
and limited defaults. As of October 2013, defaulted loans
(defined as loans in arrears by more than three months) stood at
4.6% of the initial pool balance compared with 4.1% a year ago.
Rating Sensitivities:
A further downgrade of Ukraine's IDR and Country Ceiling may
result in a revision of the highest achievable rating for the
class B notes.
Depreciation of local currency in relation to USD may put
pressure to the transaction as loans underlying the transaction
are denominated in USD while borrowers predominantly generate
income in local currency.
Because the level of credit support (80%) available to the class
B notes is high in comparison to that at transaction close (10%),
asset deterioration would have to be substantial before affecting
the ratings of the notes.
UNITE II: Fitch Expects 'BBsf' Rating Deterioration on Notes
------------------------------------------------------------
Fitch Ratings has assigned UNITE (USAF) II PLC's first new notes
final rating, and affirmed the rating of the initial notes, as
follows:
GBP380m initial notes due June 2028 (ISIN XS0942125963):
affirmed at 'Asf'; Outlook Stable
GBP185m first new notes due June 2030 (ISIN XS0991898197):
'Asf'; Outlook Stable
The transaction is a securitization arranged for the refinancing
of existing indebtedness of the UK Student Accommodation Fund
(USAF), which is the sponsor of the SPV borrower, USAF Finance II
Limited.
Key Rating Drivers:
The first new notes are Unite (USAF) II Plc's second bond issue
following and ranking pari passu with the GBP380m debt issue
(known as the initial notes). The simultaneous assignment of the
final rating to the first new notes with the affirmation of
initial notes rating is based on Fitch's assessment of the
underlying collateral, available credit enhancement and the
transaction's legal structure.
At the closing of each issue, the issuer advanced the proceeds to
the borrower, which in turn made certain intra-group loans to
property holding limited partnerships to complete the
refinancing. Each of the loans to the borrower accrues interest
at the same fixed rate as the respective note class, with the
borrowing group indemnifying the issuer for all incurred costs.
The transaction is able to accommodate the issue of the first new
notes as long as the borrower's debt profile remains within
certain covenanted levels, and is subject to a maximum loan-to-
value ratio (LTV) of 55%; an interest coverage ratio (ICR) no
lower than 2.0x; and certain portfolio-related criteria governing
disposals and acquisitions. In its analysis, Fitch assumes that
these covenants have reached their limits. Should performance
deteriorate beyond specified triggers, a partial or full cash
trap would hasten debt amortization unless cured within 18
months. After the issue of the first new notes the LTV will be
49.8% and ICR 3.1x, a slight improvement compared with a LTV of
49.9% previously, and well within their covenanted levels.
Following the issue of the first new notes, total borrower debt
increased to GBP590 million, comprising the two securitized loans
(a new GBP185 million loan maturing in June 2025 and the original
GBP380 million loan maturing in June 2023) and a GBP25 million
pari-passu-ranking revolving credit facility (RCF) held at the
level of the limited partnerships. All credit lines are governed
by shared transaction documentation to which any potential new
senior lender would have to sign up, thus preserving the
structural integrity underpinning the ratings.
As well as the additional debt issue, 14 student accommodation
properties have been introduced to the collateral pool,
increasing the total to 53 and providing almost 19,000 beds in
total. The portfolio is diverse, spread over 19 cities/towns,
with the top five geographical concentrations representing 57% by
market value and the largest single asset making up just 6%. Two-
thirds of rental income is derived from direct lets to students
with the remainder from both long- and short-term nomination
agreements with universities. The granularity of income stemming
from these assets, alongside a stable market outlook for student
accommodation, underpins the final rating.
HSBC Bank plc (AA-/Stable/F1+) is the issuer account bank and
liquidity facility provider to the issuer and the available
liquidity facility is increased in size to cater for the
additional debt. The liquidity line addresses payment
interruption risk that could arise from insolvency within the
obligor group while rental payments are diverted to issuer-
controlled accounts.
Rating Sensitivities:
Expected impact upon the notes rating of shift in vacancy and
rental value decline:
Current rating: 'Asf'
Increase of 10% in vacancy and rental value decline: 'Asf'
Increase of 20% in vacancy and rental value decline: 'BBBsf'
Expected impact upon the notes rating of shift in the
capitalization rate:
Current rating: ' Asf'
Increase of 10% of capitalization rate assumptions: 'Asf'
Increase of 20% of capitalization rate assumptions: 'BBBsf'
Expected impact upon the notes rating of shift in
capitalization rate, vacancy and rental value decline
assumptions:
Current rating: 'Asf'
Deterioration in all factors by 10%: 'BBBsf'
Deterioration in all factors by 20%: 'BBsf'
UNITED KINGDOM: Fitch Keeps Stable Outlook for Insurance Sector
---------------------------------------------------------------
Fitch Ratings says in a new report that its rating outlook for
the UK life insurance sector remains stable, indicating that the
vast majority of ratings are likely to be affirmed in the next
one to two years.
Fitch expects profitability to be constrained by low investment
yields and pricing competition, and sales to remain subdued as
low wage growth squeezes disposable incomes. However, negative
economic factors are balanced by insurers' more disciplined
management of costs, product mix and pricing.
UK life business does not generate significant interest-rate risk
for insurers. This is in contrast to some European markets,
notably Germany. Annuities are the only major UK life product
with onerous long-term investment guarantees. However, these are
typically single-premium contracts backed by duration-matched
assets, so there is minimal interest-rate risk related to the
investment of future premiums or reinvestment of maturing assets.
Solvency II, now postponed until 2016, is unlikely to have a
major impact on insurers' balance sheets or credit ratings in the
next few years, given the timescale involved in finalizing and
phasing in the new rules.
WELLINGTON PUB: Fitch Affirms 'B-' Rating on Class B Notes
----------------------------------------------------------
Fitch Ratings has affirmed Wellington Pub Company plc's fixed
rate notes and maintained the Negative Outlook.
Key Rating Drivers:
The rating actions mainly reflect the agency's view that
Wellington's performance remains challenged by macroeconomic
factors such as the uncertainty about the jobs' market, the on-
going change in consumer behavior, especially affecting wet-led
pubs (estimated at approximately 80% of the portfolio), further
exposure to alcohol taxation, the continued strength of the off-
trade, all coinciding with a large number of leases coming up for
renewal in 2013/2014. The prolonged deterioration in performance
of the estate in light of the difficult trading conditions is,
however, cushioned somewhat by higher cash reserves after recent
property disposals.
The agency's base case free cash flow (FCF) debt-service coverage
ratio (DSCR) (minimum of both the average and median DSCRs to the
notes' legal final maturity) for the class A and B notes is 1.23x
and just under 1.0x, respectively. The minimum FCF DSCR for class
A in Fitch's base case is 1.1x and is expected to occur towards
the end of the transaction's life.
Fitch's FCF forecasts only give credit to operating cash flows.
The agency's forecasted DSCRs will be constrained by modest
declines in EBITDA, mainly due to a portion of lease expiries
that are assumed not to be renewed immediately on long leases,
rental value declines and repossessions (including associated
void costs). FCF is forecast to decline more than EBITDA as Fitch
understands that Wellington is expected to resume corporate
income tax payments from FY14 onwards after group loss carry
forwards have been exhausted. However, the transaction benefits
from a flat, annuity debt profile for class A and even a downward
sloping profile for class B.
The lease renewal process remains an area of concern for Fitch as
a significant portion of the portfolio is due for renewal in the
coming years (about 10% by end of 2014; 17.5% over the next three
years). However, Fitch recognizes that the lease expiry profile
has improved compared to 2012 with the number of pubs being not
on substantive agreements down to 121 (as of September 2013)
compared to 159 pubs as of September 2012. 55 pubs are currently
vacant (same number as in September 2012) and the number of
repossessions has reduced. Nearly 40% of the portfolio (by number
of pubs) is currently (at least in parts) in arrears with its
rental payments by more than 180 days. While this is a slight
reduction compared to 2012, the total amount of rental arrears
(by more than 180 days) has kept growing to approximately GBP5.2m
(as of September 2012) with bad debt provisions also having
increased materially.
In June 2013 a new pub operator -- called Mornington Pub Company
Limited (Mornington) -- was set up by the sponsor group.
Mornington currently manages five pubs (all owned by Wellington)
let on short-term agreements. The issuer expects the number of
Wellington owned pubs operated by Mornington to grow to
approximately by April 20, 2014. While the ultimate goal remains
to find external tenants for Wellington pubs, having 'in-house'
capacity to take over the management of pubs is viewed as
positive as it adds operational flexibility and avoids the
respective pubs becoming vacant if a tenant cannot be replaced at
short notice.
While revenues declined only mildly by 1.1%, TTM EBITDA dropped
by 15% due to materially higher operating costs in Q4FY12/13
(March 2013). However, the issuer confirmed that the rise in
operating costs was attributable to higher bad debt write-offs
and provisions at financial year end when a detailed analysis of
the position of the debtors was undertaken. Despite a reported
EBITDA DSCR of 0.61x in March 2013 no cash reserves had to be
drawn down in that quarter given the non-cash nature of the bad
debt adjustments. Without that impact Fitch estimates that TTM
EBITDA would have declined by about 5% compared to the previous
12 months period.
Another area of concern is the state of repair of the portfolio.
All substantive agreements are on full repairing and insuring
(FRI) leases, placing the obligation to maintain the properties
on the tenant. However, with tenants struggling to pay their rent
(as indicated by the high delinquencies and bad debt provisions)
the asset manager estimates that about 60% of the portfolio is
suffering from noticeable deferred maintenance (at least GBP5,000
per pub) with more than 10% experiencing underinvestment of more
than GBP20,000 per pub. Wellington tends to spend comparatively
small amounts of capex on currently vacant properties.
However, recent property disposals resulted in an increase of the
reported cash deposits to approximately GBP15m which includes
approximately GBP10 million on the Permitted Release Account and
approximately GBP5 million on the Transaction Account.
As the landlord only receives a dry rent, there is limited
visibility of the pubs' trading performance. Consequently,
Wellington is less able to estimate the affordability of the
tenants' rental payment and has no influence in the publicans'
offering (e.g. encouraging stronger focus on food, etc.).
Unlike traditional whole business securitizations (WBS) featuring
an issuer-borrower loan structure, the transaction's pubs are
directly owned by the bond issuer. The operational risk is
mitigated to some extent by Wellington merely being a property
holding company with the actual management of the estate
outsourced to Criterion Asset Management Limited. However, in the
agency's view, the transaction's risk profile is negatively
impacted by the structure mainly due to a low liquidity support
(only a liquidity reserve account covering around four months of
debt service) and the lack of a financial covenant which in other
WBS transactions gives bondholders more control by being able to
appoint an administrative receiver well ahead of a payment
default. As the liquidity reserve is not tranched among the class
A and B notes, it could potentially be depleted by drawings to
support the subordinated class B notes with nothing left to
support the class A notes if needed. This makes the class A notes
more vulnerable than suggested by an average or median DSCR but
gives greater emphasis to minimum DSCR forecasts.
Rating Sensitivities:
A decline in Fitch's projected average / median base case FCF
DSCR metrics to anything substantially below 1.20x (or minimum
FCF DSCR below 1.1x which is expected to occur towards the end of
the transaction's life) for the class A notes and 0.95x for the
class B notes (caused by any significant and continued
deterioration in performance) could result in a downgrade of the
notes. A material reduction in cash reserves without
strengthening the income profile of the transaction (e.g. by
acquiring well performing pubs) could also lead to a downgrade of
the notes.
Summary of Credit:
Wellington is a securitization of rental income from 789 free-of-
tie pubs predominantly located in residential areas mainly in the
south-east of the UK.
The rating actions are as follows:
GBP123.9m class A fixed-rate notes due 2029: affirmed 'B+';
Outlook Negative
GBP31.6m class B fixed-rate notes due 2029: affirmed 'B-';
Outlook Negative
===============
X X X X X X X X
===============
* BOOK REVIEW: Jacob Fugger the Rich
------------------------------------
Author: Jacob Streider
Publisher: Beard Books
Hardcover: 227 pages
List Price: $34.95
Review by Gail Owens Hoelscher
Buy a copy for yourself and one for a colleague on-line at
http://is.gd/UAP0Zb
Quick, can you work out how much $75 million in sixteenth
century dollars would be worth today? Well, move over Croesus,
Gates, Rockefeller, and Getty, because that's what Jacob Fugger
was worth.
Jacob Fugger was the chief embodiment of early German
capitalistic enterprise and rose to a great position of power in
European economic life. Jacob Fugger the Rich is more than just
a fascinating biography of a powerful and successful
businessman, however. It is an economic history of a golden age
in German commercial history that began in the fifteenth
century. When the book was first published, in 1931, The Boston
Transcript said that the author "has not tried to make an
exhaustive biography of his subject but rather has aimed to let
the story of Jacob Fugger the Rich illustrate the early
sixteenth century development of economic history in which he
was a leader."
Jacob Fugger's family was one of the foremost family in Augsburg
when he was born in 1459. They got their start by importing raw
cotton, by mule, from Mediterranean ports. They later moved into
silk and herbs and, for a long while, controlled much of
Europe's pepper market.
Jacob Fugger diversified into copper mining in Hungary and
transported the product to English Channel and North Sea ports
in his own ships. A stroke of luck led to increased mining
opportunities. Fugger lent money to the Holy Roman Emperor
Maximilian I to help fund a war with France and Italy. Mining
concessions were put up as collateral. The war dragged on, the
Emperor defaulted, and Fugger found himself with a European
monopoly on copper.
Fugger used his extensive business network in service of the
Pope. His branches all over Europe collected payments due the
Vatican and issued letters of credit that were taken to Rome by
papal agents. Fugger is credited with creating the first
business newsletter. He collected news of evolving business
climate as well as current events from his agents all across
Europe and distributed them to all his branches.
Fugger's endeavors wee not universally applauded. The sin of
usury was still hotly debated, and Fugger committed it
wholesale. He was sued over his monopoly on copper. He was
involved in some messy bribes in bringing Charles V to the
throne. And, his lucrative role as banker in the sale of
indulgences, those chits that absolve the buyer of sin, raised
the ire of Martin Luther himself. Luther referred to Fugger
specifically in his Open Letter to the Christian Nobility of the
German nation Concerning the Reform of the Christian Estate just
before being excommunicated in 1521. Fugger went on, however, to
fund Charles V's war on Protestanism and became even richer.
Fugger built many churches and buildings in Augsburg. He was
generous to the poor and designed the world's first housing
project. These buildings and lovely gardens, called the
Fuggerei, are still in use today.
A New York Times reviewer said that Jacob Fugger the Rich, a
book "concerned with the most famous, most capable, and most
interesting of all [the members of the Fugger family] will be as
interesting for the general reader as for the special student of
business history." This observation is just as true today as in
1931, when first made.
Jacob Streider was a professor of economic history at the
University of Munich.
*********
Monday's edition of the TCR delivers a list of indicative prices
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*********
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Valerie U. Pascual, Marites O. Claro, Rousel Elaine T. Fernandez,
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Copyright 2013. All rights reserved. ISSN 1529-2754.
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