/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/140228.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, February 28, 2014, Vol. 15, No. 42 Headlines G E R M A N Y SAFARI HOLDING: Moody's Assigns B2 Rating to EUR235MM Sr. Notes I R E L A N D HALCYON 2005-1: Fitch Cuts Ratings on 2 Note Classes to 'Csf' HALCYON 2005-2: Fitch Affirms 'CCsf' Ratings on 3 Note Classes HARVEST CLO VII: Fitch Assigns 'B(EXP)sf' Rating to Class F Notes IRISH BANK: Liquidators Offload Second Loan Portfolio K A Z A K H S T A N ALLIANCE OIL: Fitch Puts 'B' LT Issuer Default Ratings on RWN M A L T A ENEMALTA CORP: S&P Revises Outlook to Stable & Affirms 'B+' CCR N E T H E R L A N D S EUROCREDIT CDO III: S&P Cuts Ratings on 2 Note Classes to CCC- NEPTUNO CLO I: S&P Affirms 'B' Ratings on 2 Note Classes R O M A N I A HIDROELECTRICA: Nears Insolvency Exit; Reorganization Underway R U S S I A BALTINVESTBANK: Moody's Changes 'B3' Rating Outlook to Stable METALLOINVEST JSC: S&P Raises Corp Credit Ratings to 'BB' MOBILE TELESYSTEMS: Fitch Affirms 'BB+' LT Issuer Default Rating SISTEMA JOINT: Fitch Affirms 'BB-' LT Issuer Default Rating S P A I N BBVA FINANZIA: S&P Lowers Rating on Class C Notes to 'D' ZINKIA: Enters Administration; Creditor Talks Continue U K R A I N E UKRAINE: May Default on US$3 Billion in Eurobonds U N I T E D K I N G D O M HAMILTON SCHOOL: Appoints Liquidators; 78 Jobs Affected STEMCOR HOLDINGS: To Restructure US$1.3 Billion Debt X X X X X X X X * BOOK REVIEW: The Oil Business in Latin America: The Early Years ********* ============= G E R M A N Y ============= SAFARI HOLDING: Moody's Assigns B2 Rating to EUR235MM Sr. Notes --------------------------------------------------------------- Moody's Investors Service has assigned a definitive B2 rating to Safari Holding Verwaltungs GmbH's senior secured guaranteed EUR235 million notes. The B2 corporate family rating (CFR) and B1-PD probability of default rating (PDR) of Safari Holding GmbH as well as the stable outlook remain unchanged. Ratings Rationale Moody's definitive ratings are in line with the provisional ratings assigned on 30 January 2014. The B2 CFR primarily reflects (1) Lowen Play's small size and lack of international diversification; (2) the material regulatory risk following the regulatory overhaul of the German gaming industry, which could have a material negative effect on Lowen Play's business model from July 2017 onwards; and (3) the key personal risk especially in the context of the regulatory threat. However, the rating benefits from (1) Lowen Play's leading market position in the fragmented German gaming arcades market, supported by a strong network of arcades in affluent states (mainly Bavaria and Baden Wurttemberg); (2) the group's strong profitability in the context of the European gaming universe (based on EBIT margins); (3) the strong demand prospects for the German gaming market supported by sound macroeconomic conditions, especially in Lowen Play's key local states; (4) Lowen Play's good cash conversion supported by strong operating margins, a negative working capital consumption (players pay cash while Lowen Play pays its suppliers with a certain time lag and an acceptable leverage pro-forma of the refinancing with adjusted debt/EBITDA of around 4.0x; (5) the group's very experienced management, which is critical at a time when the German gaming industry is undergoing a material regulatory overhaul; and (6) the company's ability to reduce costs in case of a credit negative regulatory change by July 2017 thanks to short-term gaming machines rental contracts (3 years) and around two-thirds of the group's real estate lease contracts expiring before 2017 (however with options to prolongation for the hirer). Liquidity The liquidity profile of Lowen Play pro-forma of the transaction is adequate. The company had around EUR40 million of cash on balance sheet at closing of the transaction. Given the cash flow generative nature of the business and the negative working capital consumption (customers pay immediately whilst suppliers are paid with a time lag), Moody's expect that the company will rapidly build up a comfortable cash buffer. The group will also have access to a three-year, EUR15 million facility, provided by the institutional shareholders. At close, the facility was fully drawn to cover EUR4.7 million of guarantees and EUR10.3 million as available liquidity for working capital and general corporate purposes. The company intends to put in place bilateral lines which would be used to repay the facility. Lowen Play will not face any material debt maturities over the next three years before the EUR15 million credit facility from its shareholder will come due. The EUR235 million of senior secured guaranteed notes will mature in 2021. Lowen Play will not need to comply with any maintenance covenants neither in the proposed senior secured guaranteed notes nor in the EUR15 million credit facility from its shareholder. Under the notes indenture, Lowen Play will not be allowed to pay out a dividend until 2017. At that time, the company will only be allowed to pay a dividend if gross leverage is equal to or less than 1.5x. Further the company has committed to making a mandatory offer for up to 10% of its originally issued notes subject to maintaining adequate cash liquidity. Rating Outlook The stable outlook assumes an adjusted pro forma leverage of around 4.0x at the closing of the transaction with a gradual deleveraging on a net basis. The current rating also assumes that Lowen Play will maintain conservative financial policies, especially in light of the regulatory risk the company faces from July 2017 onwards. What Could Change the Rating -- UP and DOWN Positive rating pressure is not anticipated in the short to medium term due to the pending regulatory risk. Positive rating pressure would however build if (i) Net debt / EBITDA would drop sustainably and well below 3.0x; (ii) EBIT/Net interest expense would increase sustainably and well above 3.0x, (iii) Lowen Play would generate consistent positive free cash flow. A more benign change in the regulatory environment could also lead to upward rating pressure. Negative rating pressure would be exerted on the rating if (i) Net debt / EBITDA moves sustainably above 4.5x, (ii) EBIT/Net interest expense drops sustainably below 2.0x, (iii) Lowen Play generates negative free cash flow. A more aggressive regulatory change than currently anticipated by management (especially the non availability of hardship clauses) could also lead to negative pressure on the rating. The principal methodology used in this rating was the Global Gaming published in December 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Safari Holding GmbH is the parent entity of the Lowen Play Group and the guarantor of the proposed new notes. The Lowen Play Group is majority owned by AXA LBO Funds. The remaining shares are owned by management and Cofima, a Luxembourg-based holding company controlled by a Dutch entrepreneur. Lowen Play is Germany's largest operator of coin gaming arcades by number of arcades, in a very fragmented market. The company operates 316 amusement arcades and 20 single sites/pubs. Lowen Play operates 8502 slot machines and 1124 amusement machines. Lowen Play reported revenues of EUR222 million and EBITDA of EUR92 million (41% margin) notwithstanding that the company capitalises its gaming machines rental costs (approximately 32% EBITDA margin when adjusted for the machines' rental costs). ============= I R E L A N D ============= HALCYON 2005-1: Fitch Cuts Ratings on 2 Note Classes to 'Csf' ------------------------------------------------------------- Fitch Ratings has downgraded two classes issued by Halcyon 2005-1, Ltd. as follows: -- EUR51,875,000 class A notes to 'Csf' from 'CCsf'; -- EUR15,000,000 class B notes to 'Csf' from 'CCsf'. Key Rating Drivers Since Fitch's last rating action in April 2013, 16.3% of the underlying collateral has been downgraded and 3.4% has been upgraded. The downgraded assets include one asset (3.6%) that has experienced principal losses which resulted in a partial writedown to the class C notes. This transaction was analyzed under the framework described in the report 'Global Rating Criteria for Structured Finance CDOs' using the Portfolio Credit Model (PCM) for projecting future default levels for the underlying portfolio. The degree of correlated default risk of the reference collateral is high given the single sector and vintage concentration. Based on this analysis and given the credit enhancement available to classes A and B, the credit characteristics of the bonds are consistent with a 'Csf' rating. Halcyon 2005-1 is a static synthetic collateralized debt obligation (CDO) and closed on July 25, 2005. The note proceeds collateralize a credit default swap that references a $1.4 billion portfolio of 30 CMBS assets with FMS WERTMANAGEMENT (rated 'AAA/F1+'; Outlook Stable by Fitch) as the current swap counterparty. The swap originally provided protection on US$96 million of realized losses in the portfolio; the U.S. dollar losses are converted into euros at a fixed exchange rate of US$1.20 to EUR1 to the extent such losses are applied to the euro-denominated class A and class B notes. Currently, the proceeds of the notes are invested in short-term money market investments rated 'F1+' by Fitch. Fitch previously withdrew the ratings on the class C notes. Rating Sensitivities Further deterioration of the underlying collateral could lead to further rating actions on the distressed notes. HALCYON 2005-2: Fitch Affirms 'CCsf' Ratings on 3 Note Classes -------------------------------------------------------------- Fitch Ratings has affirmed three classes issued by Halcyon 2005-2, Ltd. as follows: -- EUR38,400,000 class A notes at 'CCsf'; -- EUR25,800,000 class B notes at 'CCsf'; -- $15,750,000 class C notes at 'CCsf'. Key Rating Drivers Since Fitch's last rating action in April 2013, 12.7% of the underlying collateral has been downgraded and 3.2% has been upgraded. Currently, 30% of the portfolio has a Fitch derived rating below investment grade and 16.7% has a rating in the 'CCC' category and below, compared to 30% and 10%, respectively, at the last rating action. This transaction was analyzed under the framework described in the report 'Global Rating Criteria for Structured Finance CDOs' using the Portfolio Credit Model (PCM) for projecting future default levels for the underlying portfolio. The degree of correlated default risk of the reference collateral is high given the single sector and vintage concentration. Based on this analysis and given the credit enhancement available to classes A through C, the credit characteristics of the bonds are consistent with a 'CCsf' rating. Halcyon 2005-2 is a synthetic collateralized debt obligation (CDO) and closed on Oct. 7, 2005. The note proceeds collateralize a credit default swap that references a $1.5 billion portfolio of 30 CMBS A-J bonds. FMS WERTMANAGEMENT (rated 'AAA/F1+'/Outlook Stable by Fitch) is the current swap counterparty. The swap provides protection on $96 million of realized losses in the portfolio; the U.S. dollar losses are converted into Euros at a fixed exchange rate of $1.25 to EUR1 to the extent such losses are applied to the euro-denominated class A and class B notes. FMS WERTMANAGEMENT has also entered into a credit support annex to provide additional collateral to mitigate market value risk of liquidation on the Euro and U.S dollar denominated securities due to an early redemption of the notes in an event of default by the swap counterparty. Currently, the proceeds of the notes are invested in U.S. dollar and Euro denominated cash accounts. Rating Sensitivities Further deterioration of the underlying collateral could lead to further rating actions on the distressed notes. HARVEST CLO VII: Fitch Assigns 'B(EXP)sf' Rating to Class F Notes ----------------------------------------------------------------- Fitch Ratings has assigned Harvest CLO VIII Limited notes expected ratings, as follows: EUR243.0 million Class A: 'AAA(EXP)sf'; Outlook Stable EUR47.0 million Class B: 'AA(EXP)sf'; Outlook Stable EUR27.0 million Class C: 'A(EXP)sf'; Outlook Stable EUR21. 0 million Class D: 'BBB(EXP)sf'; Outlook Stable EUR31.0 million Class E: 'BB(EXP)sf'; Outlook Stable EUR10.0 million Class F: 'B(EXP)sf'; Outlook Stable EUR46.0 million Subordinated Notes: not rated Final ratings are contingent on the receipt of final documents conforming to information already reviewed. Key Rating Drivers 'B'/'B-' Portfolio Credit Quality Fitch expects the average credit quality of obligors to be in the 'B'/'B-' range. Fitch has credit opinions on 94% of the indicative portfolio and has a public rating on the remaining entities. Above-Average Recoveries At least 90% of the portfolio will comprise senior secured loans and senior secured bonds. Recovery prospects for these assets are typically more favorable than for second-lien, unsecured, and mezzanine assets. Fitch has assigned Recovery Ratings to 84% of the indicative portfolio. Shorter Weighted Average Life The covenanted weighted average life is 7.6 years, lower than the average for Fitch-rated CLOs 2.0. Limited FX Risk All non-euro-denominated assets have to be hedged using suitable asset swaps. Non-euro assets are limited to 30% of the portfolio. Limited Interest Rate Risk Fixed rate assets can account for no more than 10% of the portfolio. Limited Basis/Reset Risk A liquidity facility (LF) and an interest smoothing account are used to mitigate reset risk from assets switching to semi-annual while the notes are paying quarterly. If the LF expires or is terminated, the notes will switch to semi-annually. The spread on the LF is linked to the outstanding rating of the senior notes. In addition, if Fitch withdraws its rating on the senior notes, or downgrades them below 'BBsf', the LF provider may terminate the LF. Fitch believes that ratings should not be used in this way in transaction documents and has highlighted this to the manager. Trading Gain Release The portfolio manager may designate trading gains as interest proceeds if the portfolio balance remains above the reinvestment target par balance and the class E overcollateralization test stays above its value at the effective date. Transaction Summary Harvest CLO VIII Ltd (the issuer) is an arbitrage cash flow CLO. Net proceeds from the issuance of the notes will be used to purchase a EUR412 million portfolio of European leveraged loans and bonds. The portfolio is managed by 3i Debt Management Investments Limited. The reinvestment period is scheduled to end in 2018. The transaction documents may be amended subject to rating agency confirmation or note holder approval. Where rating agency confirmation relates to risk factors, Fitch will analyze the proposed change and may provide a comment if the change has a negative impact on the then current ratings. Such amendments may delay the repayment of the notes as long as Fitch's analysis confirms the expected repayment of principal at the legal final maturity. If in the agency's opinion the amendment is risk-neutral from the perspective of the rating Fitch may decline to comment. Noteholders should be aware that the structure considers the confirmation to be given in the case where Fitch declines to comment. Rating Sensitivities A 25% increase in the expected obligor default probability would lead to a downgrade of one to three notches for the rated notes. A 25% reduction in the expected recovery rates would lead to a downgrade of one to three notches for the rated notes. IRISH BANK: Liquidators Offload Second Loan Portfolio ----------------------------------------------------- Reuters reports that liquidators appointed to Anglo Irish Bank have sold a second portfolio of loans held by the collapsed lender with a par value of EUR7.3 billion (US$10 billion), removing another contingent liability from the state's finances. Nationalized Anglo Irish, renamed the Irish Bank Resolution Corporation (IBRC) in 2011, was put into liquidation last year in a deal that released Dublin from a commitment to quickly pay off a EUR29 billion debt incurred by the bank, Reuters recounts. The liquidators, KPMG, must either complete the sale of its assets by early this year or transfer them to the National Asset Management Agency (NAMA), the state-owned "bad bank" that is already one of the world's biggest property groups, Reuters says. Ireland, which completed an EU/IMF bailout late last year but still has one of the highest debt levels in the euro zone, will have to cover any losses NAMA incurs over its lifetime, Reuters notes. The portfolio, made up mostly of UK commercial real estate loans, was sold above initial valuations, which were not specified, Reuters relays. The liquidators offloaded 84% of the first EUR2.5 billion portfolio in December, also at prices above independent valuations, Reuters recounts. About Irish Bank Resolution Irish Bank Resolution Corp., the liquidation vehicle for what was once one of Ireland's largest banks, filed a Chapter 15 petition (Bankr. D. Del. Case No. 13-12159) on Aug. 26, 2013, to protect U.S. assets of the former Anglo Irish Bank Corp. from being seized by creditors. Irish Bank Resolution sought assistance from the U.S. court in liquidating Anglo Irish Bank Corp. and Irish Nationwide Building Society. The two banks failed and were merged into IBRC in July 2011. IBRC is tasked with winding them down and liquidating their assets. In February, when Irish lawmakers adopted the Irish Bank Resolution Corp., IBRC was placed into a special liquidation in the Irish High Court to complete liquidation and distribution of the two banks' assets. IBRC's principal asset as of June 2012 was a loan portfolio valued at some EUR25 billion (US$33.5 billion). About 70 percent of the loans were to Irish borrowers. Some 5 percent of the portfolio was under U.S. law, according to a court filing. Total liabilities in June 2012 were about EUR50 billion, according to a court filing. Most assets in the U.S. have been sold already. IBRC is involved in lawsuits in the U.S. IBRC was granted protection under Chapter 15 of the U.S. Bankruptcy Code in December 2013. =================== K A Z A K H S T A N =================== ALLIANCE OIL: Fitch Puts 'B' LT Issuer Default Ratings on RWN ------------------------------------------------------------- Fitch Ratings has placed Alliance Oil Company Ltd's (AOIL) Long- term foreign and local currency Issuer Default Ratings (IDR) of 'B' on Rating Watch Negative (RWN) on the expectation that the acquisition of the company by Alliance Group could significantly affect its financial policies, potentially resulting in a materially worsened credit profile. Privately-owned Alliance Group, which held a 45% stake in AOIL, bought out all remaining stock in December 2013, and the company was then de-listed. Alliance Group attracted a USD1.2 billion short-term loan to finance the deal, and although Alliance Group's creditors legally have no recourse to AOIL, we believe that Alliance Group may need to change AOIL's financial policies to be able to service the debt. This could include retreating from previously followed zero-dividend practice and/or issuing financial guarantees, which could translate into AOIL's funds from operations (FFO) adjusted leverage rising above the current negative rating action guidance of 5x. With 9M13 daily hydrocarbon production of 60 thousand barrels of oil equivalent (mbbl/d), AOIL is a Russia-based small integrated oil company, accounting for 0.5% of domestic crude production and 1.5% of oil refining. Key Rating Drivers Small Russian Crude Producer AOIL aims for double-digit growth of oil and gas production in 2014-2015, but even if this growth strategy is successful, its ratings are likely to be limited to the 'B' category, given its limited scale and concentration on Russia. AOIL's upstream production in 9M13 averaged 59.6 mboe/d, up 9% yoy, including natural gas and condensate production of 7.4mboe/d. The company accounts for around 0.5% of crude production in Russia. Timano-Pechora is Key AOIL's ability to implement its upstream growth strategy in the Timano-Pechora region is still important for maintaining and increasing its production, although its significance has declined since AOIL launched its gas business in the Tomsk region. At end-2012, Timano-Pechora accounted for 42% of the company's proved oil and gas reserves. The lower-than-expected production potential of Kolvinskoye, AOIL's largest field, launched in September 2011, resulted in upstream production falling to 52.3 thousand barrels per day (mbbl/d) in 4Q12 from 62.4mbbl/d in 4Q11. More Reliance On Downstream Progress on the Khabarovsk refinery upgrade aimed at increasing AOIL's primary refining capacity to 100mbbl/d supports AOIL's credit profile. Average daily refining volumes at the Khabarovsk refinery totalled 89.5mbbl/d in 9M13, 13% yoy. The company intends to connect the refinery to Transneft's ESPO oil pipeline in 2014, significantly reducing the company's transport costs. "We expect that lower transport costs will largely offset the negative effect from the planned increase of export duty on dark oil products in 2015, and from the expiry of most of AOIL's oil production tax breaks in 2015," Fitch said. No Deleveraging Expected At end-2012 AOIL's FFO Fitch-adjusted gross leverage was 3.2x. Under the current financial and dividend policies we expect it to average 3.5x-4.5x in 2013-2018. "We consider these figures adequate for the current rating. However, we consider it likely that there will be a change in the company's financial policies stemming from the parent's need to service the acquisition debt. This could translate into AOIL's credit metrics significantly worsening, which is reflected by the RWN," Fitch said. Rating Sensitivities Negative: Future developments that may, individually or collectively, lead to negative rating action include: -- A change in dividend policies or a more aggressive financial policy, including issuing guarantees in favour of the parent, leading to FFO adjusted leverage rising above 5x on a sustained basis. -- Worsened information transparency following the acquisition by Alliance Group. -- Inability to connect AOIL's refinery to ESPO pipeline by end- 2014. Positive: Future developments that may, individually or collectively, lead to positive rating action include: -- The RWN could be removed and a Stable Outlook assigned if the company demonstrates its commitment to the current zero- dividend practice and its financial policies remain unchanged, maintaining FFO adjusted leverage consistently at below 5.0x. Liquidity And Debt Structure "We view AOIL's liquidity position as adequate for the current ratings but challenged overall. Organic sources of liquidity are the most constrained due to high capex resulting in negative free cash flow generation. At September 30, 2013, AOIL had USD276 million of cash compared with short-term debt of USD486 million. In 2013, AOIL improved its debt maturity profile by issuing a USD500 million Eurobond due 2020 and preferred stock for the equivalent of USD100 million. The preferred stock was then bought out by Alliance Group," Fitch said. Rating Actions Alliance Oil Company Ltd. Long-Term foreign currency IDR: 'B', placed on RWN Long-Term local currency IDR: 'B', placed on RWN Short-Term foreign currency IDR: affirmed at 'B' Short-Term local currency IDR: affirmed at 'B' Foreign currency senior unsecured rating: 'B'/RR4, placed on RWN National Long-Term Rating: 'BBB(rus)', placed on RWN OJSC Alliance Oil Company Local currency senior unsecured rating: 'B'/RR4, placed on RWN National senior unsecured rating: 'BBB(rus)', placed on RWN ========= M A L T A ========= ENEMALTA CORP: S&P Revises Outlook to Stable & Affirms 'B+' CCR --------------------------------------------------------------- Standard & Poor's Ratings Services said it had revised its outlook on Malta-based utility Enemalta Corp. to stable from negative. At the same time, S&P affirmed its 'B+' long-term corporate credit rating on the company. The outlook revision reflects S&P's understanding that the government of Malta is working on a comprehensive restructuring of its power sector, with an aim to reduce the island's reliance on very high-cost, oil-dependent electricity generation. As part of this restructuring, Malta is near finalization of a transaction with Shanghai Power Electric, a subsidiary of China Power Investment Corporation, which will inject about EUR200 million in equity in return for a minority stake in Enemalta. In S&P's view, an equity injection will relieve the immediate pressure on Enemalta's liquidity position and mark the start of a deleveraging process. Nevertheless, under S&P's base-case scenario, it still expects that Enemalta will generate negative profits and cash flows in the near to medium term. This is because a long-term structural plan to restore profitability has not been made public and is therefore not yet reflected in S&P's projections. The cost of electricity in Malta is among the highest in Europe, mainly reflecting the country's high-cost and oil-based generation portfolio and lack of interconnection with other electricity markets. In order to reduce the high cost of electricity, Malta is aiming to convert its existing plants to run on cheaper natural gas instead of heavy fuel oil, and is also looking to import electricity via a submarine cable from Sicily, which is currently under construction and scheduled for completion in 2015 in S&P's base-case scenario. It is unclear, however, if these efforts will restore profitability at Enemalta or be passed on consumers to the detriment of Enemalta. Absent a long-term and credible structural solution to restore Enemalta's very poor profitability, the company is unlikely to achieve a stand-alone credit profile above S&P's current assessment at 'ccc'. The stable outlook reflects S&P's expectation that Enemalta's liquidity position will stabilize following the equity injection from Shanghai Power Electric. S&P could upgrade Enemalta if it believed its ongoing restructuring would allow the company to achieve financial stability in the long term. This could occur in S&P's view if Enemalta were able to lower its cost of electricity procurement (including cost of production for its own generation) and if it were able to charge the full price for electricity production and procurement, passing costs on to consumers. In S&P's opinion, Enemalta will only stabilize its performance if the company completes a comprehensive rationalization of its cost structure and eliminates its exposure to volatile oil prices. S&P could lower the rating on Enemalta if it believed the company was unlikely to receive the funds from Shanghai Power Electric and therefore improve its liquidity position. Moreover, any sign of weakening government support could lead S&P to revise its GRE assessment and a lowering of the ratings. ===================== N E T H E R L A N D S ===================== EUROCREDIT CDO III: S&P Cuts Ratings on 2 Note Classes to CCC- -------------------------------------------------------------- Standard & Poor's Ratings Services raised its credit ratings on Eurocredit CDO III B.V.'s class A1, A2, B, C-1, C-2, and R combination notes. At the same time, S&P has lowered its ratings on the class D1, D2, E-1, and E-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 Jan. 13, 2014 trustee report. "We subjected the capital structure to a cash flow analysis to determine the break-even default rates for each rated class of notes. In our analysis, we used the reported portfolio balance that we considered to be performing (EUR84,103,658), the current and covenanted weighted-average spreads (2.90% and 2.80%, respectively), and the weighted-average recovery rates that we considered to be appropriate. We applied various cash flow stress scenarios, using four different default patterns, in conjunction with different interest rate stress scenarios for each liability rating category," S&P said. Eurocredit CDO III has been amortizing since the end of its reinvestment period in October 2008. Since S&P's July 20, 2012 review, the aggregate collateral balance has decreased to EUR84.10 million from EUR222.48 million. Of this decrease, EUR132.20 million is due to the partial paydown of the class A1 and A2 notes. The remaining decrease (EUR6.17 million) relates to losses from asset defaults. In our view, the partial paydown of the class A1 and A2 notes has increased the available credit enhancement for all classes of notes. In S&P's view, Eurocredit CDO III's portfolio is concentrated. It comprises 27 performing obligors, down from 63 at S&P's previous review. The largest obligor's assets represent almost 7% of the aggregate collateral balance and the 10 largest obligors comprise more than 56% of the total pool of performing assets. "We note that 14.75% of the performing assets will mature after the notes' legal final maturity date in October 2016. In our view, this exposes the transaction to market value risk as the manager may need to sell the assets ahead of the maturity date to repay the transaction's liabilities. To address this risk in our analysis, we gave credit to performing long-dated assets, which represent 5% of the portfolio to calculate the aggregate collateral balance. For the remaining long-dated assets, we reduced their balance by 10% per year for each year after the notes' legal final maturity date," S&P added "In our credit and cash flow analysis, we have considered the transaction's exposure to potential losses incurred from the forced sale of the assets that mature after the legal final maturity date. However, despite the transaction's exposure to market risk and highly concentrated portfolio, the available credit enhancement for the class A1, A2, and B notes is commensurate with higher ratings than previously assigned due to the amortization of the class A1 notes. We have therefore raised to 'AAA (sf)' our ratings on these classes of the notes," S&P noted. The results of the largest obligor default test, a supplemental stress test that S&P introduced in its 2009 criteria update for corporate collateralized debt obligations (CDOs), constrain its ratings on the class C-1, C-2, D1, D2, and R combination notes. The results show that the available credit enhancement for these classes of notes would be limited if the largest obligor were to default, assuming a 5% recovery rate. Taking into account the available credit enhancement after applying the largest obligor test (assuming 5% recoveries on defaulted assets), S&P has raised its ratings on the class C-1, C-2, and R combination notes, and it has lowered its ratings on the class D1 and D2 notes. Under 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 the class E-1 and E-2 notes is commensurate with a 'CCC- (sf)' rating. S&P has therefore lowered to 'CCC- (sf)' from 'CCC+ (sf)' its ratings on these classes of notes. Eurocredit CDO III is a managed cash flow collateralized loan obligation (CLO) transaction that securitizes loans to primarily European speculative-grade corporate firms. The transaction closed in September 2003 and is managed by Intermediate Capital Managers Ltd. RATINGS LIST Class Rating Rating To From Eurocredit CDO III B.V. EUR231.3 Million Fixed- and Floating-Rate Notes and Accreting Notes Ratings Raised A1 AAA (sf) AA+ (sf) A2 AAA (sf) AA+ (sf) B AAA (sf) AA- (sf) C-1 BBB+ (sf) BB+ (sf) C-2 BBB+ (sf) BB+ (sf) R (Combo) BBB+ (sf) BBB (sf) Ratings Lowered D1 CCC+ (sf) B+ (sf) D2 CCC+ (sf) B+ (sf) E-1 CCC- (sf) CCC+ (sf) E-2 CCC- (sf) CCC+ (sf) NEPTUNO CLO I: S&P Affirms 'B' Ratings on 2 Note Classes -------------------------------------------------------- Standard & Poor's Ratings Services took various credit rating actions on all classes of notes in Neptuno CLO I B.V. Specifically, S&P has: -- Raised its ratings on the class C and D notes; -- Affirmed its ratings on the class A-T, A-R, B-1, B-2, E-1, E-2, and Y combination notes; and -- Lowered its rating on the class Z combination notes. The rating actions follow S&P's review of the transaction's performance, using data from the Nov. 24, 2013 payment date report, and the applications of its relevant criteria. Since S&P's 2012 review, the weighted-average spread earned on the collateral pool has increased to 3.98% from 2.95%. The transaction's weighted-average life has decreased to 4.42 years from 5.20 years, over the same period. S&P has also observed that the pool's credit quality has improved. The proportion of assets that S&P considers to be rated in the 'CCC' category ('CCC+', 'CCC', or 'CCC-') has decreased in both notional and percentage terms to 6.47% from 10.97%. Assets that S&P considers to be defaulted (i.e., debt obligations of obligors rated 'CC', 'SD' [selective default], or 'D') have decreased to zero from 5.29 million. The par value tests comply with the required trigger under the transaction documents for all classes of notes, except for the class E notes' par value and reinvestment test. This is unchanged from S&P's 2012 review. The available credit enhancement for all classes of notes has decreased. In S&P's view, this is a result of the reduced aggregate collateral balance (ACB). This decrease is greater than the partial amortization of the class A-T and A-R notes. Since S&P's 2012 review, the class A-T and A-R notes' outstanding balances have decreased by EUR11,250 and EUR16,530, and are now 87.86% and 77.25% of their original balances, respectively. Interest proceeds were used to partially amortize the class A-T and A-R notes after the class E notes breached its par value test at principal and interest payment dates since S&P's 2012 review. In S&P's analysis, it considered that Neptuno CLO I is in its reinvestment period, which will end in November 2014. "We subjected the capital structure to our cash flow analysis, by applying our 2009 corporate cash flow collateralized debt obligation (CDO) criteria, to determine the break-even default rate (BDR) at each rating level. We used the reported portfolio balance that we considered to be performing, the principal cash balance, the weighted-average spread, and the weighted-average recovery rates that we considered to be appropriate," S&P noted. S&P incorporated various cash flow stress scenarios, using various default patterns, levels, and timings for each liability rating category, in conjunction with different interest rate stress scenarios. To help assess the collateral pool's credit risk, S&P used CDO Evaluator 6.0.1 to generate scenario default rates (SDRs) at each rating level. S&P then compared these SDRs with their respective BDRs. Taking into account our observations outlined above, S&P considers the available credit enhancement for the class C and D notes to be commensurate with higher ratings. S&P has therefore raised to 'A (sf)' from 'BBB+ (sf)' its rating on the class C notes and to 'BBB- (sf)' from 'BB+ (sf)' its rating on the class D notes. S&P considers the available credit enhancement for the class Y combination notes to be commensurate with its currently assigned rating. S&P has therefore affirmed its 'BBB+p (sf)' rating on this class of notes. "Our ratings on the class E-1 and E-2 notes are constrained by the application of the largest obligor test, a supplemental stress test that we introduced in our 2009 corporate cash flow CDO criteria. This test addresses event and model risk that might be present in the transaction and assesses whether a CDO tranche has sufficient credit enhancement (not including excess spread) to withstand specified combinations of underlying asset defaults -- based on the ratings on the underlying assets, with a flat recovery rate of 5%," S&P noted. Although the results of S&P's cash flow analysis suggest higher ratings for these classes of notes, the test results constrain S&P's ratings. S&P has therefore affirmed its 'B (sf)' ratings on the class E-1 and E-2 notes. At closing, Neptuno I entered into several derivative obligations, to purchase non-euro-denominated assets and to mitigate the associated risk of currency movements. Advances from the class A-R variable funding notes may fund the purchase of non-euro-denominated assets. The class A-R variable funding notes are currently fully drawn, and their commitment period will end in November 2014. Based on S&P's counterparty analysis, it has concluded that the transaction documents for the derivative counterparty, Barclays Bank PLC (A/Stable/A-1), do not fully comply with S&P's current counterparty criteria. As such, S&P has conducted its cash flow analysis assuming that the transaction does not benefit from support from a derivative counterparty. At the same time, S&P considers that the replacement language relating to the class A-R notes does not fully reflect our CDO variable funding notes criteria. As a result, S&P's current counterparty and CDO criteria constrain its maximum potential ratings in this transaction at 'A+ (sf)'. S&P has therefore affirmed its 'A+ (sf)' ratings on the class A-T, A-R, B-1, and B-2 notes. The subordinated class Z combination notes consist of two components in the form of "Obligation Assimilable du Tresor" -- bonds issued by the French treasury, and equity from the transaction. Due to the notes' exposure to these bonds and following S&P's Nov. 8, 2013 downgrade of France, it has lowered to 'AAp (sf)' from 'AA+p (sf)' its rating on the class Z combination notes. Neptuno CLO I is a cash flow collateralized loan obligation (CLO) transaction that securitizes loans to primarily speculative-grade corporate firms. The transaction closed in May 2007. RATINGS LIST Class Rating Rating To From Neptuno CLO I B.V. EUR512.081 Million Senior Secured Fixed- and Floating-Rate Revolving, and Deferrable Notes Ratings Affirmed A-T A+ (sf) A-R A+ (sf) B-1 A+ (sf) B-2 A+ (sf) E-1 B (sf) E-2 B (sf) Y Combo BBB+p (sf) Ratings Raised C A (sf) BBB+ (sf) D BBB- (sf) BB+ (sf) Rating Lowered Z Combo AAp (sf) AA+p (sf) Combo-Combination. ============= R O M A N I A ============= HIDROELECTRICA: Nears Insolvency Exit; Reorganization Underway -------------------------------------------------------------- Gabriela Stan at Ziarul Financiar reports that Gabriel Dumitrascu, head of privatization with the Energy Department, stated the Economy Ministry will take steps for Hidroelectrica to exit insolvency "as soon as possible", and will reorganize the company by giving up investments unimportant for electricity production. Hidroelectrica is a state-run hydropower producer. Hidroelectrica entered the insolvency process on June 20, 2012, in order to be re-organized. Euro INSOL was appointed the judicial administrator. On March 31, 2013, Hidroelectrica had some 4,900 employees, down from over 5,200 recorded when the company entered the insolvency process. =========== R U S S I A =========== BALTINVESTBANK: Moody's Changes 'B3' Rating Outlook to Stable ------------------------------------------------------------- Moody's Investors Service has changed to stable from positive the outlook on the B3 long-term local- and foreign-currency deposit and B3 local currency debt ratings of Baltinvestbank. Concurrently, Moody's has affirmed the E+ standalone bank financial strength rating (BFSR), which is equivalent to a baseline credit assessment (BCA) of b3, B3/Not Prime long-term and short-term bank deposit ratings and the B3 long-term local currency debt ratings. The outlook on E+ standalone BFSR remains stable. Moody's re-assessment of the outlook is based on Baltinvestbank's latest available audited IFRS for 2012 as well as the bank's unaudited H1 2013 financial statements prepared under IFRS. Ratings Rationale The outlook change reflects Baltinvestbank's: (1) sustained weakness of its profitability metrics despite diversification into retail business; and (2) still weak capitalization that is pressurized by high concentration levels and related-party transactions. Moody's notes that Baltinvestbank's profitability and efficiency indicators (while somewhat improved) remained weak: return on average assets (ROAA) was at 0.35%, and the cost-to-income ratio was a high 76% in H1 2013 (year-end 2012: 0.31% and 82%, respectively). Moody's notes that the bank reported these weak figures despite the ongoing diversification into retail lending: the retail loan portfolio increased to 38% of the gross loan book at year-end 2013, from 26% at year-end 2011. As a result, Moody's notes a significant risk associated with the bank's ability to materially improve profitability and efficiency metrics during the next 12-18 months, especially given the elevated risks in the operating environment. The level of Baltinvestbank's capital adequacy had remained low during most of 2013: the bank's prudential total capital adequacy ratio (N1) was slightly above 11% -- i.e., just above the minimum level of 10% required by the regulator. In December 2013, the bank received property as a capital contribution from shareholders, thus increasing its N1 ratio to 12.33% at year-end 2013. In H1 2014, the shareholders plan to increase the bank's capital by around RUB1 billion. However, Moody's expects the majority of the bank's new capital to be utilized in the growth of total assets during 2014, and the rating agency expects the bank to continue its operations with a modest capital adequacy level. Moody's also notes a significant pressure on Baltinvestbank's capital from (1) high single-name concentrations in the loan book (top 20 loan exposures accounted for 3.5x Tier 1 capital at end- H1 2013); and (2) historical appetite for related-party lending (Moody's estimates that the level of loans to related parties amounted to no less than 90% of Tier 1 capital at end-H1 2013). What Could Move The Ratings Up/Down An upgrade of Baltinvestbank's B3 ratings would be contingent on the bank's ability to operate on a higher capital buffer, significantly decrease related-party and single-name credit concentration, as well as to achieve sustained improvements in profitability and operating efficiency. Any deterioration of the bank's capital base -- resulting from impairment of large corporate exposures or mismanaged growth in the retail segment -- could have negative rating implications. Principal Methodologies The principal methodology used in this rating was Global Banks published in May 2013. Headquartered in St. Petersburg, Russia, Baltinvestbank reported total consolidated assets of RUB61 billion (US$1.9 billion) and total shareholder equity of RUB4.5 billion (US$138 million), according to its end-H1 2013 unaudited report under IFRS. METALLOINVEST JSC: S&P Raises Corp Credit Ratings to 'BB' --------------------------------------------------------- Standard & Poor's Ratings Services raised its long-term corporate credit ratings on Russia-based iron ore and iron ore pellet producer JSC Holding Company Metalloinvest to 'BB' from 'BB-'. The outlook is stable. At the same time, S&P raised the issue rating on the senior unsecured notes, issued by Metalloinvest Finance Ltd., to 'BB' from 'BB-'. The recovery rating on these notes is unchanged at '4', indicating S&P's expectation of average (30%-50%) recovery in the event of a payment default. The upgrade reflects S&P's opinion that Metalloinvest has recently displayed more predictable financial policies, including for dividend distributions. S&P also factors in Metalloinvest's improved debt maturity profile after refinancing most of its 2014 and part of its 2015 maturities with a Russian ruble (RUB) 55 billion (approximately US$1.6 billion) long-term facility from Sberbank in January 2014. Moderate short-term maturities of US$180 million after the refinancing support S&P's "adequate" assessment of Metalloinvest's liquidity, with sources to uses standing over 2.0x. S&P also takes into account that Metalloinvest has demonstrated continued good operating performance, with forecast adjusted debt to EBITDA slightly below 3.0x in 2013. Under S&P's base-case scenario, it expects Metalloinvest will show satisfactory operating performance in 2014. S&P forecasts 2014 EBITDA at about US$1.9 billion, somewhat lower than the 2013 level, assuming lower benchmark iron ore price of US$110 per metric ton (compared with an average US$125 per metric ton so far this year and an average US$130 per metric ton in 2013). According to S&P's estimates, the ratio of adjusted debt to EBITDA will remain close to 3.0x in 2014-2015. S&P continues to assess Metalloinvest's business risk profile as "fair." The profile is constrained by S&P's assessment of Metalloinvest's exposure to high country risk in Russia, where Metalloinvest has its key assets, combined with the volatile and cyclical nature of the iron ore mining industry, given S&P's assumption that prices will fall over 2014-2015 as a result of substantial new capacity additions and somewhat slower growth in China. Metalloinvest's "satisfactory" competitive position, in S&P's opinion, takes into account its view that Metalloinvest is positioned in the first quartile of the pelletizing cost curve, although its all-in costs (factoring in high transport costs, notably for exports) are in the third quartile only. S&P also factors in Metalloinvest's iron ore reserves, a large 14.6 billion metric tons, as well as the company's increasingly solid position in added-value and more stable processed products. For example, Metalloinvest has 40% of the global market share in hot briquetted iron (HBI). S&P also assess Metalloinvest's profitability as above average, underpinned by its low cost production and premium of HBI and iron ore pellets over the benchmark. "We continue to assess Metalloinvest's financial risk profile as "significant." We think that, in 2013 and over 2014-2015, Metalloinvest's ratio of funds from operations (FFO) to adjusted debt will be slightly more than 20%, while adjusted debt to EBITDA should be relatively stronger at close to 3.0x, even while factoring in a lower iron ore price environment, based on our expectation of prices contracting to US$110 per metric ton in 2014 and to US$100 per metric ton in 2015. Importantly, we assume that Metalloinvest will generate positive free operating cash flow over 2014-2015, which should enable it to gradually deleverage from the current adjusted debt level of about US$6.2 billion," S&P said. "Under our ratings approach, the combination of a "fair" business risk profile and a "significant" financial risk profile results in the anchor of 'bb'. We apply a one-notch uplift in our capital structure assessment, reflecting Metalloinvest's liquid 5% stake in Russian metals and mining group OJSC MMC Norilsk Nickel -- currently worth US$1.3 billion, which we think Metalloinvest could use to deleverage further. At the same time, we apply a negative adjustment of one notch in our assessment of Metalloinvest's financial policy owing to potential deviations from our base case, including unforeseen shareholder distributions and merger and acquisition activity, and the limited visibility on developments at Udokan, a greenfield copper mine located in Eastern Siberia. However, in our view, these constraints are offset by Metalloinvest's more predictable financial policy in 2013 and its commitment to the dividend- payout limits established at the beginning of the year," S&P added. The stable outlook takes into account S&P's expectation that Metalloinvest's adjusted debt-to-EBITDA ratio will remain close to 3.0x, even while factoring in S&P's assumption of a decrease in iron ore prices to $110 per metric ton in 2014 and to $100 per metric ton in 2015. S&P also expects that Metalloinvest will continue to demonstrate conservative financial strategies and will continue to show its commitment to deleveraging. S&P would view an average ratio of adjusted FFO to debt of 20%-30% as commensurate with the current rating level. Rating upside is limited at this stage, given the cyclicality of the iron ore industry, the company's sales exposure to Russian domestic market, and still average all-in cost position for exports to China and other Asian countries, given the high transport costs. A negative rating action could be related to elevated leverage owing to higher shareholder distributions or increased merger and acquisition activity. S&P currently do not factor into its assessment the multibillion-dollar development of the Udokan mine. Furthermore, S&P may revise the outlook to negative if adverse changes in iron ore prices result in adjusted FFO to debt dropping below 20%. MOBILE TELESYSTEMS: Fitch Affirms 'BB+' LT Issuer Default Rating ---------------------------------------------------------------- Fitch Ratings has revised the Outlook on OJSC Mobile Telesystems' (MTS) Long-Term Issuer Default Rating (IDR) to Positive from Stable and affirmed the IDR at 'BB+'. The revision of the Outlook reflects the revision of the Outlook on JSFC Sistema (BB-/Positive), MTS's controlling shareholder. MTS is a leading Russian and CIS mobile operator with modest leverage and strong free cash flow generation. It is the largest operator in Russia and the second-largest in Ukraine by subscribers. Key Rating Drivers Fundamentals Overlaid by Shareholding On a standalone basis, MTS's credit profile is commensurate with a low investment grade rating. MTS's ratings are notched down for the negative influence of Sistema, MTS's majority shareholder. Under Fitch's methodology, a subsidiary can be generally rated maximum two notches above its parent if the parent-subsidiary linkage is weak. Robust FCF Generation MTS sustainably generates positive free cash flow (FCF). Capex as a percentage of revenue has been high (well above 20%) inflated by 3G, and more recently, long-term evolution (LTE) spending in Russia. Fitch expects this ratio to drop in the medium to long term, but stabilize at a higher level than MTS's European peers, due to lower average revenue per user (ARPU). Sufficient LTE Spectrum MTS has sufficient LTE spectrum to successfully compete in Russia. The introduction of technological neutrality regarding the use of radio spectrum in Russia will allow the re-farming 1,800 MHz frequencies, reducing a need for expensive clearance of 800MHz spectrum. MNP Not A Threat The introduction of mobile number portability (MNP) in Russia in 2014 is unlikely to put MTS in a disadvantaged position. "We believe the hardest hit will be operators in the middle, with the lowest priced and market leaders including MTS potentially benefiting from the regulatory change," Fitch said. Sluggish Growth Prospects Key Russian and Ukrainian mobile markets are mature and unlikely to demonstrate further strong growth. "We expect demand for faster data to remain strong but it will be a challenge to monetize it with all operators chasing heavy-data customers," Fitch said. Competition is likely to intensify in light of the market-share ambitions of Tele2 Russia Holdings AB (BB+/RWE) backed by mobile assets of Rostelecom (BBB-/Stable). "However, we believe the impact of the new larger market player will only be felt from 2H15," Fitch said. Modest Leverage MTS's leverage has been moderate at below 1.5x net debt/EBITDA and 2.0x FFO adjusted net leverage. Organic development, including LTE roll-out in Russia, but also increased pay-outs under a dividend policy revised in November 2012 and updated in February 2014 should not jeopardize this. Corporate Governance is Key MTS has adhered to high standards of corporate governance with its strategy and all key transactions reviewed and approved with the involvement of independent directors. "We note that Sistema's financial situation at the holdco level is improving, which reduces risks that it may leverage its control over MTS to extract excessive cash flows. High transparency on Sistema's financial situation and strategy and its rating level differentiate MTS from most other private telecom companies in Russia, where there is significantly less visibility of strategic plans and the financial agenda of their controlling shareholders," Fitch said. Rating Sensitivities The ratings could benefit from an upgrade of Sistema provided that MTS continues to adhere to high corporate governance standards. A downgrade could arise from weaker corporate governance but also excessive shareholder remuneration and other developments that lead to a sustained rise in funds from operations adjusted net leverage to above 3.0x. Competitive weaknesses and market-share erosion, leading to significant deterioration in pre-dividend FCF generation, may also become a negative rating factor. Full List of Ratings Actions Long-Term IDR: affirmed at 'BB+', Outlook revised to Positive from Stable Short-Term IDR: affirmed at 'B' Local currency Long-Term IDR: affirmed at 'BB+, Outlook revised to Positive from Stable Local currency Short-Term IDR: affirmed at 'B' National Long-Term Rating: affirmed at 'AA(rus)', Outlook revised to Positive from Stable Senior unsecured debt: affirmed at 'BB+' foreign and local currency, 'AA(rus)' Loan participation notes issued by MTS International Funding Ltd and guaranteed by MTS: affirmed at 'BB+' SISTEMA JOINT: Fitch Affirms 'BB-' LT Issuer Default Rating ----------------------------------------------------------- Fitch Ratings has revised the Outlook on Sistema Joint Stock Financial Corp.'s Long-Term Issuer Default Rating (IDR) to Positive from Stable and affirmed the IDR at 'BB-'. The revision of the Outlook reflects significant deleveraging at the holdco level and expectations of continuing stable dividends from key subsidiaries, which should be sufficient to resolve legacy support issues for weaker parts of the group. Sistema is a diversified holding company with its key assets being controlling stakes in OJSC Mobile TeleSystems (MTS; BB+/Positive), a large telecoms operator in Russia and CIS, and Joint Stock Oil Company Bashneft (Bashneft; BB/Positive), a medium-sized Russian oil company. Sistema's credit profile is shaped by its ability to control cash flows and extract dividends from these two key subsidiaries. These positives are overlaid by a significant debt burden at the holdco level including exposure to substantial off-balance-sheet liabilities through its subsidiaries and potential support requirements for weaker assets of the group. Key Rating Drivers Reliable Dividend Flow Sistema's key operating subsidiaries, MTS and Bashneft generate strong free cash flow (FCF) supporting their ability to pay large dividends. Sistema can effectively control the cash flows of these subsidiaries and shape their dividend policy. Additional Dividends an Option In view of both MTS's and Bashneft's low leverage and stable operating performance, they retain flexibility to upstream significant additional dividends without jeopardizing their ratings. On a standalone basis, MTS's credit profile is consistent with low investment grade level. "We estimate that Sistema may extract up to USD4 billion in extra dividends, which would be sufficient to address any debt issues at the holdco level and provide necessary financial support to its weaker subsidiaries," Fitch said. Focus on Dividends, Monetization Sistema adopted a new strategy in 2013, which aims to transform the company into a diversified investment holding company, with a focus on receiving stable dividends and monetizing its investments and less emphasis on operating control. "However, we note that material dividend diversification may only be achievable in the long term, and expect that Sistema will continue to depend on dividends from MTS and Bashneft as a key recurring income stream in the short to medium term at least," Fitch said. Diversification benefits will likely come at a price of lower control over the investments' cash flows if Sistema's portfolio composition changes to minority stakes. As an investment holding company, Sistema will remain intrinsically exposed to high M&A risks. Off-Balance-Sheet Exposure Reduced Sistema guarantees some debt of its subsidiaries, most notably Sistema Shyam TeleServices (SSTL) in India. On a positive note, this subsidiary's debt had significantly reduced to USD621 million at end-September 2013 from USD1,574 million at end- 2011with Sistema's help. SSTL significantly downsized its operations and scaled down its development ambitions in India with the aim of becoming EBITDA break-even by 1Q15. "We believe this will limit the amount of additional support required from Sistema," Fitch said. The holdco also granted a number of equity put options, which effectively turn these instruments into debt recourse to Sistema, increasing its leverage. Weak Developing Assets Some of Sistema's operating subsidiaries are fairly weak credits, and some are highly leveraged, most importantly in the high-tech segment, and may require financial support from the parent. Although Sistema is not contractually committed to provide this support, additional reputational/strategic considerations may apply. Holdco Leverage Improving A sale of the minority 49% stake in Russneft for USD1.2 billion in 2013 allowed Sistema to notably delever at the holdco level. "We expect that dividends from MTS and Bashneft will be sufficient to gradually reduce off-balance sheet liabilities and sort out legacy support requirements for weak subsidiaries," Fitch said. Rating Sensitivities A reduction in off-balance-sheet liabilities and sustained deleveraging at the holdco level to below 2.5x net debt including off-balance-sheet liabilities to normalized dividends may be positive. This is likely to be achieved through limiting Sistema's exposure to further losses and debt increases at Shyam and re-organization of the technology segment so that it becomes capable of sustainably servicing its debt without parental support. A protracted rise in this metric to above 4.5x may lead to negative rating action. A portfolio reshuffle increasing the share of subsidiaries with low credit profiles could also be rating negative. Full List of Rating Actions Long-Term IDR: affirmed at 'BB-', Outlook revised to Positive from Stable Local currency Long-Term IDR: affirmed at 'BB-, Outlook revised to Positive from Stable National Long-Term Rating: affirmed at 'A+(rus)', Outlook revised to Positive from Stable Senior unsecured debt: affirmed at 'BB-' foreign and local currency, 'A+(rus)' Loan Participation Notes issued by Sistema Funding S.A. and guaranteed by Sistema: affirmed at 'BB-' ========= S P A I N ========= BBVA FINANZIA: S&P Lowers Rating on Class C Notes to 'D' -------------------------------------------------------- Standard & Poor's Ratings Services lowered to 'D (sf)' from 'CCC- (sf)' its credit rating on BBVA Finanzia Autos 1, Fondo de Titulizacion de Activos' class C notes. At the same time, S&P has affirmed its 'AA- (sf)' and 'BBB (sf)' ratings on the class A and B notes, respectively. S&P has reviewed BBVA Finanzia Autos 1's collateral performance, considering recent delinquency, default, and recovery levels, as well as the transaction's current structural features. Since S&P's previous review on Dec. 28, 2012, the transaction has paid down significantly. The outstanding portfolio balance, excluding defaulted loans (defined in this transaction as loans in arrears for more than 12 months), as of the last interest payment date (IPD) in January 2014 was 7.3% of the closing balance, down from 13.4% at S&P's December 2012 review. Since S&P's previous review, it has continued to observe stabilizing delinquencies, with slight reductions in some arrears buckets. However, long-term delinquencies have continued to roll into defaults. Due to the transaction's deteriorating performance observed so far, and S&P's opinion of increasing uncertainty regarding future macroeconomic performance, it has increased its baseline default rate for the outstanding securitized portfolio. S&P analyzed the transaction's exposure to credit risk by applying its European Consumer Finance Criteria. As of January 2014, cumulative defaults had increased to 8.59% of the original balance from 8.23% a year before. The increase in the level of cumulative defaults has breached the most junior class of notes' interest deferral trigger, which is set at 8.5% in the transaction documents. S&P's ratings on the notes in this transaction address the timely payment of interest due under the rated notes, and ultimate payment of principal at maturity. As the class C notes breached its interest deferral trigger and missed an interest payment, S&P has lowered to 'D (sf)' from 'CCC- (sf)' its rating on the class C notes. The increase in the level of defaults had resulted in the transaction's reserve fund being fully depleted since April 2010. The reserve fund has not been replenished since then due to the lack of available funds under the transaction's priority of payments. As of the last IPD, the transaction had accumulated a principal deficiency of EUR4.5 million, which is the difference between the accrued redemption on the notes and the available funds in accordance with the priority of payments (the principal deficiency in October 2012 was EUR4.0 million). However, despite this principal deficiency, the paydown of the assets has led to a high level of senior note amortization, which has in turn increased the available credit enhancement for the class A and B notes. Although the level of available credit enhancement that the performing balance provides is positive for the class A and B notes, it is negative for the class C notes. As a result, there is insufficient performing collateral available to fully repay the principal amount outstanding for the class C notes, which therefore continue to be undercollateralized. The transaction is exposed to counterparty risk through Societe Generale Sucursal en Espana as guarantor of the bank account provider, and Deutsche Bank AG (London Branch) as a swap provider. Under S&P's current counterparty criteria, it considers that the required minimum rating for the supporting entities and the transaction's replacement mechanisms adequately mitigate its exposure to counterparty risk. Following S&P's credit and cash flow analysis, it has concluded that the class A notes in this transaction has sufficient available credit enhancement to allow them to support a 'AAA' rating level. However, S&P's nonsovereign ratings criteria constrain its rating on the notes at 'AA- (sf)' as, under its criteria, the highest rating S&P would assign to a structured finance transaction is six notches above the investment-grade rating on the country in which the securitized assets are located. This transaction securitizes Spanish consumer assets. Therefore, the highest rating achievable in this transaction is 'AA- (sf)', which is six notches above S&P's 'BBB-' long-term sovereign rating on Spain. Therefore, S&P has affirmed its 'AA- (sf)' rating on the class A notes. Following S&P's credit and cash flow analysis, it has determined that the available credit enhancement for the class B notes is commensurate with the currently assigned rating. S&P has therefore affirmed its 'BBB (sf)' rating on the class B notes. BBVA Finanzia Autos 1 is backed by a portfolio of Spanish loans granted to purchase new and used cars. Finanzia Banco de Credito S.A. -- the consumer finance arm of Banco Bilbao Vizcaya Argentaria S.A. -- originated the transaction, which closed in April 2007. The revolving period ended in April 2008, one year ahead of the scheduled date, because the delinquency rate was higher than the trigger threshold level. POTENTIAL EFFECTS OF PROPOSED CRITERIA CHANGES These ratings are based on S&P's applicable criteria, including those set out in the criteria article "Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions," published on June 14, 2011. However, please note that these criteria are under review. As a result of this review, S&P's future criteria applicable to ratings above the sovereign may differ from its current criteria. This criteria change may affect the ratings on these notes. Until such time that S&P adopts new criteria, it will continue to rate and surveil these notes using its existing criteria. RATINGS LIST Class Rating Rating To From BBVA Finanzia Autos 1, Fondo de Titulizacion de Activos EUR800 Million Asset-Backed Floating-Rate Notes Rating Lowered C D (sf) CCC- (sf) Ratings Affirmed A AA- (sf) B BBB (sf) ZINKIA: Enters Administration; Creditor Talks Continue ------------------------------------------------------ Sonya Dowsett at Reuters reports that Zinkia, owner of the children's TV character Pocoyo, entered administration on Wednesday, the latest Spanish company to seek protection from creditors in an economic slowdown. According to Reuters, despite reaching agreement on refinancing with bondholders, banks and commercial creditors, Zinkia said in a statement the company did not manage to renegotiate the terms of a EUR2.5 million (US$3.4 million) loan with a private lender. "Zinkia continues to negotiate with different creditors and potential investors in order to find a solution which will allow it to come out of administration as quickly as possible with the least damage to its brands," Reuters quotes the company as saying in a statement. Zinkia's shares were suspended from trade by the Spanish stock market regulator after the announcement, Reuters relates. Zinkia is a Spanish entertainment company. ============= U K R A I N E ============= UKRAINE: May Default on US$3 Billion in Eurobonds ------------------------------------------------- Darya Korsunskaya at Reuters reports that Russia's Deputy Finance Minister Sergei Storchak said on Tuesday there is a small risk that Ukraine may default on US$3 billion in Eurobonds that Russia recently acquired. "We probably have risks, but not so big ones," Reuters quotes Mr. Storchak as saying. "It's possible to begin with the fact that the debtor has a difficult financial situation, that it can't return the money to us in two years." Mr. Storchak added that while the possibility existed of substituting one instrument for another, he was opposed to including Ukraine's debt to Russia in a general restructuring, Reuters relates. The comments come as Western governments and the IMF are trying to put together an international bailout for Ukraine after pro- Russian president Viktor Yanukovich was forced out after months of street protests, and are seeking to involve Russia in the process, Reuters notes. Mr. Storchak, as cited by Reuters, said Russia was under no legal obligation to go on with its US$15 billion package of lending to Ukraine -- agreed after Yanukovich walked away from a free trade deal with Europe -- but did not rule out Russia's providing more credit. Russia already purchased US$3 billion worth of Eurobonds in December, Reuters recounts. =========================== U N I T E D K I N G D O M =========================== HAMILTON SCHOOL: Appoints Liquidators; 78 Jobs Affected ------------------------------------------------------- BBC News reports that The Hamilton School in Aberdeen has appointed liquidators, with the loss of 78 jobs. The private school was shut on Friday after inspectors said they were not confident pupils were "safe and well cared for", BBC relates. Following the closure, school directors decided to stop operating the associated nursery, BBC recounts. Inspectors said they had identified 14 areas of concern at the nursery, including feeding and medication, BBC relays. Blair Nimmo and Geoffrey Jacobs, of KPMG, who have been appointed joint liquidators, said that 78 of 84 staff members had been made redundant, with the remaining six retained to help transfer pupil information to new schools, BBC discloses. STEMCOR HOLDINGS: To Restructure US$1.3 Billion Debt ---------------------------------------------------- Duncan Robinson, Andrew Bolger and James Crabtree at The Financial Times report that Stemcor, which is majority-owned by the Oppenheimer family, will restructure its US$1.3 billion debt after a high court judge overruled an objection from one of its creditors. But while the Oppenheimer family retains its 71% stake in the business, it has in effect lost control of the board, the FT states. The new independent board will include senior executives and have a majority over family representatives, all of whom will be non-executives, the FT says. The trading group, which had revenues of more than GBP5 billion in 2013, defaulted on a US$850 million loan last year, the FT recounts. Falling steel prices had damaged the profitability of the low-margin business, the FT discloses. According to the FT, under the deal, Stemcor will repay its US$1.3 billion credit facility over the next two years by selling or winding down 13 of its businesses. Creditors will also stump up US$1.15 billion for a new committed trade finance facility, the FT says. In return, creditors get more orthodox corporate governance at the steel trader, which has been dominated by the family of its founder, Hans Oppenheimer, the FT notes. Simon Freakley, chief executive of Zolfo Cooper, who led the restructuring, as cited by the FT, said a debt-for-equity swap was never discussed because there was a clear path to resolution through disposals and future trading. Headquartered in London, Stemcor Holdings Limited trades steel and steel-making raw materials worldwide. =============== X X X X X X X X =============== * BOOK REVIEW: The Oil Business in Latin America: The Early Years ----------------------------------------------------------------- Author: John D. Wirth Ed. Publisher: Beard Books Softcover: 282 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/DvFouR This book grew out of a 1981 meeting of the American Historical Society. It highlights the origin and evolution of the stateowned petroleum companies in Argentina, Mexico, Brazil, and Venezuela. Argentina was the first country ever to nationalize its petroleum industry, and soon it was the norm worldwide, with the notable exception of the United States. John Wirth calls this phenomenon "perhaps in our century the oldest and most celebrated of confrontations between powerful private entities and the state." The book consists of five case studies and a conclusion, as follows: * Jersey Standard and the Politics of Latin American Oil 141 Production, 1911-30 (Jonathan C. Brown) * YPF: The Formative Years of Latin America's Pioneer State Oil Company, 1922-39 (Carl E. Solberg) * Setting the Brazilian Agenda, 1936-39 (John Wirth) * Pemex: The Trajectory of National Oil Policy (Esperanza Duran) * The Politics of Energy in Venezuela (Edwin Lieuwen) * The State Companies: A Public Policy Perspective (Alfred H. Saulniers) The authors assess the conditions at the time they were writing, and relate them back to the critical formative years for each of the companies under review. They also examine the four interconnecting roles of a state-run oil industry and distinguish them from those of a private company. First, is the entrepreneurial role of control, management, and exploitation of a nation's oil resources. Second, is production for the private industrial sector at attractive prices. Third, is the integration of plans for military, financial, and development programs into the overall industrial policy planning process. Finally, in some countries is the promotion of social development by subsidizing energy for consumers and by promoting the government's ideas of social and labor policy and labor relations. The author's approach is "conceptual and policy oriented rather than narrative," but they provide a fascinating look at the politics and development of the region. Mr. Brown provides a concise history of the early years of the Standard Oil group and the effects of its 1911 dissolution on its Latin American operations, as well as power struggles with competitors and governments that eventually nationalized most of its activities. Mr. Solberg covers the many years of internal conflict over oil policy in Argentina and YPF's lack of monopoly control over all sectors of the oil industry. Mr. Wirth describes the politics and individuals behind the privatization of Brazil's oil industry leading to the creation of Petrobras in 1953. Mr. Duran notes the wrangling between provinces and central government in the evolution of Pemex, and in other Latin American countries. Mr. Lieuwin discusses the mixed blessing that oil has proven for Venezuela., creating a lopsided economy dependent on the ups and downs of international markets. Mr. Saunders concludes that many of the then-current problems of the state oil companies were rooted in their early and checkered histories." Indeed, he says, "the problems of the past have endured not because the public petroleum companies behaved like the public enterprises they are; they have endured because governments, as public owners, have abdicated their responsibilities to the companies." John D. Wirth is Gildred Professor of Latin American Studies at Standford University. ********* Monday's edition of the TCR delivers a list of indicative prices for bond issues that reportedly trade well below par. Prices are obtained by TCR editors from a variety of outside sources during the prior week we think are reliable. Those sources may not, however, be complete or accurate. The Monday Bond Pricing table is compiled on the Friday prior to publication. Prices reported are not intended to reflect actual trades. Prices for actual trades are probably different. Our objective is to share information, not make markets in publicly traded securities. Nothing in the TCR constitutes an offer or solicitation to buy or sell any security of any kind. It is likely that some entity affiliated with a TCR editor holds some position in the issuers' public debt and equity securities about which we report. Each Tuesday edition of the TCR contains a list of companies with insolvent balance sheets whose shares trade higher than US$3 per share in public markets. At first glance, this list may look like the definitive compilation of stocks that are ideal to sell short. Don't be fooled. Assets, for example, reported at historical cost net of depreciation may understate the true value of a firm's assets. A company may establish reserves on its balance sheet for liabilities that may never materialize. The prices at which equity securities trade in public market are determined by more than a balance sheet solvency test. A list of Meetings, Conferences and Seminars appears in each Thursday's edition of the TCR. Submissions about insolvency- related conferences are encouraged. Send announcements to conferences@bankrupt.com Each Friday's edition of the TCR includes a review about a book of interest to troubled company professionals. All titles are available at your local bookstore or through Amazon.com. Go to http://www.bankrupt.com/booksto order any title today. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Valerie U. Pascual, Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2014. All rights reserved. ISSN 1529-2754. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Europe subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter Chapman at 215-945-7000 or Nina Novak at 202-241-8200. * * * End of Transmission * * *