/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/140425.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Friday, April 25, 2014, Vol. 15, No. 81 Headlines F R A N C E SOLOCAL GROUP: Moody's Keeps Caa1 CFR Under Review for Downgrade G E R M A N Y ALEO SOLAR: Bosch Providing EUR50 Million in Liquidation LUEBECK: Files for Insolvency; Prelim. Administrator Appointed G E O R G I A GEORGIAN OIL: Fitch Affirms 'BB-' Issuer Default Rating I R E L A N D IRISH BANK: Seeks Approval to Sell More Than US$19-Bil. in Loans MUCKROSS PARK: Revenue Doubles in Its First Year in Receivership SPENCER DOCK: Receivership Fees Total EUR1.59 Million P O R T U G A L BANCO ANGOLANO: Fitch Assigns 'B+' LT Issuer Default Rating R U S S I A CB KEDR: Fitch Assigns 'B' LT Issuer Default Rating; Outlook Neg. PIONEER GROUP: S&P Affirms 'B-' Long-Term CCR; Outlook Stable S P A I N TDA 26-MIXTO: Fitch Affirms 'CCC' Ratings on 2 Note Classes VERTICE 360: Files For Insolvency * Spanish Mortgage Loan Defaults Continue to Rise, Fitch Says U K R A I N E UKRAINE: IMF to Consider US$17-Bil. Bailout on April 30 U N I T E D K I N G D O M ASTRACAST: Creditors to Lose GBP100 Million in Pre-pack Sale BRADFORD BULLS: Appeal Against Points Deduction to be Heard Soon CO-OPERATIVE BANK: Labour Party Set to Break Ties CO-OP BANK: Moody's Cuts Unsecured Debt Rating to 'Caa2' DALTON & DALTON: High Court Enters Wind Up Order EMERALD 2: S&P Assigns Prelim 'B' Corp. Credit Rating HIGHLAND GROUP: S&P Puts 'B' CCR on CreditWatch Developing X X X X X X X X * BOOK REVIEW: From Industry to Alchemy ********* =========== F R A N C E =========== SOLOCAL GROUP: Moody's Keeps Caa1 CFR Under Review for Downgrade ---------------------------------------------------------------- Moody's Investors Service affirmed Solocal Group S.A.'s Probability of Default Rating (PDR) at Ca-PD and assigned the /LD indicator. Solocal's other ratings remain under review for downgrade, including the company's Corporate Family Rating (CFR) of Caa1 and rating of Caa1 on PagesJaunes Finance & Co. S.C.A.'s EUR350 million 8.875% senior secured notes due 2018. Ratings Rationale The rating action and the assignment of the /LD to the PDR (leading to PDR of Ca-PD/LD) follows the payment default on the scheduled amortization of the company's A3, A5 and B3 credit facilities that was due on April 15, 2014 and the end of the three business days grace period. On April 9, 2014 Solocal entered an Accelerated Sauvegarde Process (Sauvegarde Financiere Acceleree or "SFA"), which is expected to last circa one month. As part of the SFA process, the company obtained over 90% majority from its voting creditors, which makes the company's refinancing proposal binding on all Facility A3, A5 and B3 lenders subject to the homologation of the plan by the Commercial Court of Nanterre. Moody's understands that the missed payment of the scheduled amortization will be carried out within 15 days from closing of the SFA process. Moody's expects to conclude its review upon finalization of the restructuring, including closing of the SFA and approval of the planned share capital increase. Solocal is the leading provider of local media advertising and local website and digital marketing services, with the majority of its operations (approximately 97% of 2013 total revenue) in France and the remainder of operations in Spain mainly. The company reported approximately EUR1 billion revenues in the twelve-month period ended 31 December 2013. Solocal is listed on the Paris stock exchange. ============= G E R M A N Y ============= ALEO SOLAR: Bosch Providing EUR50 Million in Liquidation -------------------------------------------------------- PV Tech reports that plans have been agreed at the aleo solar EGM for the company to be wound down through a liquidation, with as much as EUR50 million (US$69.1 million) of support provided by parent company Robert Bosch in order to avoid bankruptcy proceedings. The decision clears the way for SCP Solar, the JV company established by Sunrise Global Solar Energy and Japanese manufacturing machinery producer, CHOSHU Industry to own and operate aleo solar's module manufacturing plant in Germany, saving around 200 jobs, according to PV Tech. The report notes that the aleo brand will be used by the JV, which will operate the plant under the name, AS Abwicklung und Solar-Service AG. Aleo solar board member, York zu Putlitz, and in addition, Dr. Randolf Muller, Matthias Beck und Volker Voss were said to have been appointed as liquidators, substituting the aleo solar management board during the liquidation process, the report relates. LUEBECK: Files for Insolvency; Prelim. Administrator Appointed -------------------------------------------------------------- According to Reuters' Jonathan Gould and Victoria Bryan, German media reported on Wednesday that the small German airport of Luebeck, near Hamburg, has filed for insolvency and a local court has appointed a preliminary administrator. Reuters relates that a statement on the website for the airport, which is served by low-cost carriers such as Ryanair, said around 100 people employed had not received their pay for April. ============= G E O R G I A ============= GEORGIAN OIL: Fitch Affirms 'BB-' Issuer Default Rating ------------------------------------------------------- Fitch Ratings has affirmed JSC Georgian Oil and Gas Corporation's (GOGC) Long-term foreign currency Issuer Default Rating (IDR) at 'BB-' with a Stable Outlook and senior unsecured rating on its USD250 million bond maturing in 2017 at 'BB-'. The ratings for wholly state-owned GOGC are aligned with the sovereign's ratings as the government of Georgia (BB-/Stable) considers the company critical to national energy policy. In aligning the ratings, Fitch considers the 100% indirect state ownership and strong management and governance linkages between GOGC and the state. Fitch views GOGC's standalone profile as commensurate with a 'B+' rating due to the company's small size and limited operations. KEY RATING DRIVERS Ratings Aligned with Sovereign's Ratings GOGC is one of several corporations in Georgia viewed by the government as critical to the national policy. GOGC's rating alignment is supported by 100% indirect state ownership via the JSC Partnership Fund (PF, BB-/Stable) and by strong management and governance linkages with the sovereign. Fitch do not anticipate the Georgian government's announced reorganization of the PF to have any impact on this relationship, but will assess the legal and practical impact of any change once final details of the reorganization are released. Deteriorating 'B+' Standalone Profile Fitch assess GOGC's standalone profile as commensurate with a 'B+' rating. The principal rating constraints are the company's small size and high leverage until at least end-2014 due to the construction of the Gardabani Combined Cycle Power Plant (GCCPP). GOGC continues to receive stable income from regulated gas transit operations with SOCAR Gas Export and Import, a subsidiary of the State Oil Company of the Azerbaijan Republic (SOCAR, BBB- /Stable). Fitch views certain recent government decisions, e.g., continuation of the gas price discount for households and a reduction of GOGC's ownership of Gardabani as weakening GOGC's standalone profile. High Leverage until End-2014 In 2013, GOGC's gross EBITDA leverage exceeded Fitch's 4x guidance for its standalone profile. Fitch expects that in 2014 the company's gross EBITDA leverage will again exceed 4x before improving to about 3x by end-2015 and to 2x by end-2016, subject to phasing out of the gas price discount for households and keeping the Gardabani construction costs within the approved budget. Gardabani Construction on Track GOGC and the PF are constructing the USD220 million 230 Megawatt (MW) capacity gas-fired GCCPP, with expected completion in October 2015 and latest reported progress being ahead of schedule. Even though GOGC is financing 100% of Gardabani through equity contributions and loans to the PF and the project SPV, GOGC will only own 51% in it while retaining managerial control of the plant, and the PF will own the remaining 49%. In Fitch's forecasts for GOCG, it incorporates 100% of future cash flows from Gardabani, but exclude interest and principal repayments from the project SPV and the PF, due to the related- party character of those loans and the fact that PF's loan repayments would likely be supported by cashflows from Gardabani itself. Gardabani, Consumption Drive Profits GOGC expects to generate USD40m of annual EBITDA from Gardabani, provided that Georgia's older, less efficient gas-fired power plants are shut down after 2015, resulting in no change in Georgia's overall gas consumption. Higher gas consumption by subsidized households and power plants could lower GOGC's profitability in 2016-2017 unless the regulator increases end- user gas prices correspondingly in this period. RATING SENSITIVITES Positive: Future developments that may result in positive rating action include: -- A positive rating action for Georgia within the 'BB' category would be replicated for GOGC Negative: Future developments that may result in negative rating action include: -- A negative rating action for Georgia would be replicated for GOGC -- Weakening state support and/or an aggressive investment program resulting in a significant deterioration of standalone credit metrics, e.g., EBITDA leverage above 4x on a sustained basis -- Unanticipated changes in the contractual frameworks supporting GOGC's midstream position, or liquidity problems associated with the concentration of cash deposits. LIQUIDITY AND DEBT STRUCTURE Ample Liquidity, Long-Term Maturities At end-2013, GOGC's short-term debt amounted to GEL6.2 million and was fully covered by cash and short-term deposits of GEL295.5 million. GOGC's sizable maturities come in 2017 when the USD250 million bond is due. At end-2013, GOGC deposited bond proceeds with several local banks, i.e., USD145m was held by, among others, TBC Bank (BB-/Stable) and the Bank of Georgia (BB- /Stable). In addition, GOGC lent on USD50m to the PF and USD28.5 million to the State Service Bureau LLC, the latter balance repayment extended to 2017 from 2013. The rating actions are as follows: Long-term foreign and local currency IDRs: affirmed at 'BB-'; Outlooks Stable Short-term foreign and local currency IDRs: affirmed at 'B' Foreign currency senior unsecured rating: affirmed at 'BB-' ============= I R E L A N D ============= IRISH BANK: Seeks Approval to Sell More Than US$19-Bil. in Loans ---------------------------------------------------------------- Edvard Pettersson at Bloomberg News reports that Irish Bank Resolution Corp., formed to complete the liquidation of Anglo Irish Bank Corp., asked a U.S. bankruptcy judge to approve the sale of loans with nominal balances totaling more than US$19 billion. The proposed purchasers of the U.S. assets include affiliates of Goldman Sachs Group Inc., Deutsche Bank AG (DBK) and Lone Star Funds, Bloomberg says, citing an April 22 filing by the liquidator of the nationalized lender in U.S. Bankruptcy Court in Wilmington, Delaware. Ireland's government seized the Dublin-based bank in January 2009 as its bad loans soared following the collapse of the nation's real-estate market, Bloomberg relates. IBRC filed for creditor protection in Delaware in August to protect its U.S. holdings during the wind-down, Bloomberg recounts. The liquidator, Kieran Wallace, asked the judge to consider approving the loan sales at a May 13 hearing, Bloomberg discloses. 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. MUCKROSS PARK: Revenue Doubles in Its First Year in Receivership ---------------------------------------------------------------- Gordon Deegan at herald.ie reports that Bill Cullen and Jackie Lavin's former hotel Muckross Park has hit revenues of EUR5.4 million in its first year in receivership. According to the report, the five star Co Kerry hotel saw revenues more than double from the EUR2.77 million it recorded in 2011 -- which was the last period in which the Bill Cullen company that operated the hotel filed accounts. The turnaround in the hotel's fortunes however, according to the report, has come too late for Mr. Cullen and his partner, Jackie Lavin, who lost control of the hotel in a court battle with ACC last year. Arising from the court battle win, ACC installed Declan Taite -- declan.taite@rsmfgs.ie -- of Farrell Grants Sparks RSM as receiver, herald.ie reports. The latest receiver extract lodged by Mr. Taite with the Companies Office shows that the hotel recorded revenues of EUR2.56 million from September last year to March of this year, the report discloses. This followed the hotel recording revenues of EUR2.8 million during the prior six months that covered the summer period, the report says. The report relays that the sharp increase in revenues at the hotel over the past 12 months has come against the background of the number of tourist nights in Ireland last year increasing by 7.2pc, generating a spend of EUR4.12 billion. In an RTE radio interview in February, Ms. Lavin said that staff at the hotel "are not allowed to speak to us, they're not allowed to communicate with us in any way", the report adds. SPENCER DOCK: Receivership Fees Total EUR1.59 Million ----------------------------------------------------- Gordon Deegan at Irish Examiner reports that professional and receivers' fees from the receivership of Treasury Holdings' main Spencer Dock company total EUR1.59 million to date, according to new figures have revealed. David Hughes and Luke Charleton -- Luke.Charleton@ie.ey.com -- Ernst & Young were appointed as receivers to various retail units, undeveloped sites and partially developed sites owned by Spencer Dock Development Co Ltd on January 25, 2012, by National Asset Management Agency (NAMA), according to Irish Examiner. Now, the report relates that documents filed with the Companies Office show that the receivers have received EUR277,857 to date in fees. The report notes that Finance Minister Michael Noonan recently revealed that NAMA has paid fees totaling EUR59.6 million to receivers concerning 258 separate receiver appointments since the agency was established. In relation to the Spencer Dock receivership, the documentation shows that a total of EUR1.314 million has been paid out in "professional fees" over the two years from January 2012 to January this year, though no detail is provided on what the professional fees were spent on, relays the Irish Examiner. The report discloses that the extract relating to the six-month period from July 25 last year to January 24 of this year confirms that professional fees of EUR317,486 and receivers' fees of EUR277,857 were paid out during the period. The Revenue Commissioners was also paid EUR337,166 during the most recent six month period covered, The Irish Examiner adds. The receivership was unsuccessfully challenged in the High Court by Treasury Holdings and the professional fees may include legal fees as no entry for legal fees is recorded in the various documents lodged by the receivers with the Companies Office, the report discloses. Spencer Dock Development Co Ltd was placed in receivership with net liabilities totaling over EUR401 million, the report notes. Nine months after the main Spencer Dock firm was placed in receivership, the parent entity, Johnny Ronan and Richard Barrett's Treasury Holdings, was wound up in October 2012, the report says. The report discloses that the four separate receiver extracts lodged by Mr. Hughes and Mr. Charleton show that the aggregate rental income from the firm's properties total EUR9.69 million, with the proceeds from sales totaling EUR7.69 million. The firm had cash reserves of EUR4.87 million on the appointment of Mr. Hughes and Mr. Charleton, the report relates. The figures show at the end of two years in receivership, the company had receipts totaling EUR23.489 million, that included the EUR4.87 million in cash -- and the firm's payments in the two years to January of this year topped EUR20.15 million, the report discloses. The documents show that EUR7.25 million has been distributed to the charge holders to company debentures dating back to 2004, the report relates. In his recent Dail response on the issue of receiverships, Minister Noonan said receivers appointed by NAMA in Ireland control 770 residential properties and 701 commercial properties, the report says. =============== P O R T U G A L =============== BANCO ANGOLANO: Fitch Assigns 'B+' LT Issuer Default Rating ----------------------------------------------------------- Fitch Ratings has assigned Banco Angolano de Investimentos (BAI) a Long-term Issuer Default Rating (IDR) of 'B+' and a Viability Rating (VR) of 'b'. The Outlook on the Long-term IDR is Stable. A Support Rating (SR) and Support Rating Floor (SRF), respectively of '4' and 'B+' have also been assigned. KEY RATING DRIVERS - IDRS, SR AND SRF The bank's IDRs, SR and SRF reflect a limited probability of support from the Angolan authorities (BB-/Stable), if required. Fitch believes that propensity to support the bank is high, given BAI's market position as one of the country's leading banks. However, the authorities' ability to support BAI is constrained by the sovereign rating. The Stable Outlook on the Long-term IDR reflects that on Angola's sovereign rating. RATING SENSITIVITIES - IDRS, SR AND SRF The bank's IDRs, SR and SRF are sensitive to a change in Fitch's view of the willingness or ability of the Angolan authorities to provide support for BAI. The ratings could be upgraded if the Angolan sovereign rating is upgraded. However, this is not Fitch's current base case given the recent revision to Stable from Positive of the Outlook on Angola's ratings. A downgrade is also unlikely at the present time. KEY RATING DRIVERS - VR The bank's VR reflects the evolving operating environment in Angola, where the financial markets and regulatory framework are in a development phase. The VR is also driven by certain limitations inherent to the banking sector, notably high concentrations in lending, funding and liquidity profiles. BAI's balance sheet contains a high proportion of cash and government securities, but markets for Angolan securities are not deep. In addition, the bank's deposit base is concentrated and volatile, particularly in foreign exchange, exposing BAI's funding base to event risk. The VR also considers BAI's loan book. Although the loan book represents a relatively small proportion of the bank's balance sheet, loan quality displays some weaknesses. The weak performance of the real estate sector (real estate and construction represented 36% of lending at end-2013) is a source of risk and single obligor concentration is high, although within prudential limits. Related-party lending is significant, but not uncommon within the Angolan banking sector. Loan impairment charges as a proportion of pre-impairment operating profits were high at (71%) in 1H13, limiting the bank's capacity for internal capital generation. BAI's earnings are predominantly generated through interest on corporate loans and government securities. Following several years of consistently strong returns, BAI's return on average equity declined to 8.7% in 1H13, marginally above inflation. BAI's capital ratios are calculated under the Basel I framework, which has been adapted by local regulators, requiring additional capital charges for FX exposure. The bank's Fitch Core Capital/Weighted risks ratio at end-1H13 was 15.1%, considered adequate by Fitch given the bank's asset profile. RATING SENSITIVITIES - VR The bank's VR is sensitive to developments in its operating environment. In addition, the VR is sensitive to event risk given concentrations on both sides of the balance sheet. While Fitch believes the authorities would be supportive of the bank, BAI is sensitive to a liquidity shock, given deposit concentrations, should it not be able to access central bank liquidity for any reason. Founded in 1996, BAI is the largest bank in Angola by total assets and total deposits. BAI is predominantly a corporate bank, supplemented by retail and private banking activities. The bank is supported by its treasury function which manages BAI's liquidity. The bank owns subsidiaries in Portugal and Cape Verde and also has domestic subsidiaries operating in microfinance and insurance. The domestic banking operation, however, contributes the majority of operating income to the group. BAI's shares are widely owned. The largest shareholder is the state oil company Sonangol, which owns 8.5% of the bank. The remaining shares are owned by investment companies, directors of the bank and local investors. The rating actions are as follows: Banco Angolano de Investimentos Long-term IDR assigned at 'B+'; Outlook Stable Short-term IDR assigned at 'B' Viability Rating assigned at 'b' Support Rating assigned at '4' Support Rating Floor assigned at 'B+' =========== R U S S I A =========== CB KEDR: Fitch Assigns 'B' LT Issuer Default Rating; Outlook Neg. ----------------------------------------------------------------- Fitch Ratings has assigned Russian bank JSC CB Kedr (Kedr) Long- term Issuer Default Ratings (IDRs) of 'B'. The Outlook is Negative. KEY RATING DRIVERS - IDRs, VIABILITY RATING (VR) AND NATIONAL RATING Kedr's IDRs are based on its VR of 'b', which reflects the bank's small franchise, weaknesses in asset quality, moderate capitalization and poor profitability. The ratings also take into account the bank's highly granular customer deposit base and limited wholesale debt. The Negative Outlook reflects potential risks related to Kedr's former exposure to a bank, whose license was withdrawn by the Central Bank of Russia in March 2014. Kedr had a total exposure of 0.4x end-9M13 Fitch core capital (FCC) to the bank, which it was able to recover shortly before the license withdrawal. In Fitch's view, there is a risk that the transactions which led to the recovery of Kedr's exposure could be challenged by the State Depositary Insurance Agency (DIA), which is overseeing the resolution of the mentioned bank, potentially leading to their reversal and thus moderate recovery prospects through bankruptcy. This in turn may undermine Kedr's capitalization unless it is promptly rectified by the shareholders. However, the management is confident that the transactions were legitimate and the DIA so far has not appealed them. Kedr has sizable exposures to the real estate and construction sectors. At end-9M13, Kedr's investments in non-core assets amounted to a high 0.6x FCC, mostly represented by a large plot of land in the Moscow region, albeit reasonably valued and attractively located. In addition, Kedr's reported loan exposure to the construction and real estate sectors amounted to a significant 0.9x FCC at end-9M13. Positively, Kedr's reported non-performing loans (NPLs; loans 90 days overdue) were a moderate 4.1% of end-9M13 total loans, 108% covered by reserves, while its corporate loan book concentration was reasonable (the 20 largest exposures comprised 47% of corporate book, or 1.2x FCC at end-9M13). Most of the largest exposures are either short-term working capital facilities, provided to large Krasnoyarsk companies from different industries, or longer-term real estate and construction exposures. However, they are reasonably secured with typically low loan-to-value ratios. Retail loan book (42% of end-9M13 total loans) is represented mostly by unsecured consumer loans, albeit of moderate risk, as they are lent predominantly under salary schemes. Kedr's FCC ratio was a reasonable 13% at end-9M13, although this should be considered together with its asset quality weaknesses. The total regulatory capital ratio was a low 11% at end-2013, meaning that the bank had capacity to withstand additional credit losses equal to only 1.5% of gross loans. Fitch considers Kedr's capital position as tight in light of weak internal capital generation (ROAE of 5.7% in 9M13) and the significant exposure to high risk non-core assets and development loans. Liquidity is supported by highly granular retail funding (73% of total liabilities at end-9M13) and the comfortable buffer of liquid assets, sufficient to withstand a 19% outflow of customer accounts at end-2013. The 1Q14 regulatory accounts also show that customer funding has been stable so far, which is positive in light of overall outflow of customer funds from the Russian banking sector. RATING SENSITIVITIES - IDRs, VR AND NATIONAL RATING The ratings will be downgraded if transactions with the defaulted bank become reversed, potentially requiring recapitalization of Kedr and if the shareholders are hesitant to provide new equity. Significant deterioration of the liquidity position or asset quality could also put downward pressure on the ratings. The Outlook could be revised to Stable if contingent risks related to the bank subside and no significant deterioration of the credit risk profile occurs. Disposal of non-core assets, a strengthening of capitalization and a significant improvement of performance would also be credit positive. KEY RATING DRIVERS AND RATING SENSITIVITIES - SUPPORT RATINGS (SRs) and SUPPORT RATING FLOORS (SRFs) Kedr's SRF of 'No Floor' and '5' Support Rating reflect its limited systemic importance, as a result of which extraordinary support from the Russian authorities cannot be relied upon, in Fitch's view. The potential for support from private shareholders is also not factored into the ratings, as it cannot be reliably assessed. Fitch does not expect any revision of the bank's SRF or Support Rating in the foreseeable future. The rating actions are as follows: Long-term foreign and local currency IDRs: assigned at 'B', Outlook Negative Short-term foreign currency IDR: assigned at 'B' Long-term National rating: assigned at 'BBB-(rus)'; Outlook Negative Viability Rating: assigned at 'b' Support Rating: assigned at '5' Support Rating Floor: assigned at No Floor PIONEER GROUP: S&P Affirms 'B-' Long-Term CCR; Outlook Stable ------------------------------------------------------------- Standard & Poor's Ratings Services said that it affirmed its 'B-' long-term corporate credit rating on Russia-based residential real estate developer CJSC Pioneer Group. The outlook is stable. S&P also affirmed its 'ruBBB-' Russia national scale rating on the company. At the same time, S&P assigned an issue rating of 'B-' and a recovery rating of '4' to the company's senior unsecured notes. The recovery rating indicates S&P's expectation of average (30%- 50%) recovery in the event of a payment default. The rating actions follow the lowering of our anchor for Pioneer to 'b-', from 'b+', reflecting S&P's view that Pioneer's financial risk profile has deteriorated to "highly leveraged" from "significant." This is because the company's large Russian ruble (RUB) 3.6 billion (about EUR40.6 million) acquisition of Botanichesky's land has been fully funded with debt (a mixture of public and bank debt). Moreover, S&P views the company's cash flow generation as highly volatile, as shown by changes in free operating cash flow of more than 50% over the past five years and negative EBITDA in 2010. S&P also expects strongly negative free operating cash flow in 2014, due to the high working capital needs generated by the company's large investment pipeline. On other hand, S&P has removed the two negative modifiers related to the company's capital structure and financial policy. S&P believes there is now limited refinancing risk in Pioneer's capital structure since it has repaid all its short-term debt and increased its cash position. This improvement indicates that Pioneer is currently less reliant on presales and market conditions to meet its financial commitments. S&P also views positively, in terms of financial policy, Pioneer's decision to suspend dividend distributions and its strong commitment to increase its equity base, which S&P still views as thin, as highlighted by a ratio of debt to debt plus equity higher than 60%. The stable outlook reflects S&P's view that Pioneer's operating performance over the next 12 months should benefit from steady demand for affordable apartments in its primary markets and from stable prices in the residential segment. In S&P's opinion, the company should meet its short-term liquidity requirements as long as apartment sales and prices, as well as operating costs, do not suffer from heightened competition in the increasingly crowded Moscow residential property market. In addition, S&P anticipates that Pioneer will maintain a ratio of debt to EBITDA of about 3x. This level of leverage indicates that there is potential for high volatility in the company's cash flows. Upside scenario: S&P could take a positive rating action if Pioneer makes further progress toward lengthening its debt maturities and demonstrates sustainable internal liquidity. This would involve sales of units at margins sufficient to fund the equity component of remaining project costs, service and repay debt, and cover ongoing selling, general, and administrative expenses. A positive rating action would also hinge on a stronger equity base. Downside scenario S&P could take a negative rating action if it saw evidence of deteriorating liquidity, which could arise due to lower sales or prices than S&P forecasts, cost overruns, or delays in project completions. S&P could also take a negative rating action if the debt-to-EBITDA ratio exceeded 4x over the next 12 months. ========= S P A I N ========= TDA 26-MIXTO: Fitch Affirms 'CCC' Ratings on 2 Note Classes ----------------------------------------------------------- Fitch Ratings has taken various rating actions on seven prime Spanish RMBS transactions by affirming 8 tranches, upgrading two tranches and downgrading one tranche. Additionally, the Outlook on three tranches was revised to Stable and on one tranche to Positive. The Rating Watch Positive (RWP) on five tranches was maintained and another tranche was placed on Rating Watch Negative (RWN). AyT Goya Hipotecario III and V comprise loans originated and serviced by Barclays Bank S.A., a Spanish subsidiary of Barclays Bank Plc (A/Stable). Caja Ingenieros AyT 2 and Caja Ingenieros TDA 1 are collateralised by mortgages originated by Caja Ingenieros, while Caixa Penedes 1 TDA comprises collateral originated by Banco Mare Nostrum S.A. (BB+/Negative/B). The mortgages in TDA 26-Mixto Series 1 and 2 are originated by Banca March and Banco de Sabadell. The transaction comprises two groups of notes: Series 1 notes are backed by mortgage loans with loan-to-value ratios (LTV) below 80%, whereas Series 2 notes are backed by mortgage loans with LTVs above 80%. KEY RATING DRIVERS Varied Asset Performance A combination of sufficient credit enhancement and the robust performance of the assets have contributed to the affirmation on all notes and a revision of the Outlook to Stable from Negative for the junior notes in Caja Ingenieros 2 Ayt, Caixa Penedes 1 TDA, Ayt Goya Hipotecario III and V. The underlying assets have performed better than the average for prime Spanish RMBS transactions. As of the latest reported period, three-months plus arrears (excluding defaults) were at 1.7%, 1.1%, 0.9%, and 1% in Caixa Penedes 1 TDA, AyT Goya Hipotecario III, AyT Goya Hipotecario V and Caja Ingenieros 2 AyT respectively. They are well below Fitch's Spanish RMBS index of three-months plus arrears (2.4%). Cumulative gross defaults ranged from 0% (Caja Ingenieros 2 AyT) to 2.3% (Caixa Penedes 1 TDA). Caja Ingenieros TDA 1 has shown stable three-months plus arrears and gross cumulative defaults at both 0.2% of the current pool. The overall strong asset performance is reflected in the affirmation on the class A2 notes. Additionally, the analysis showed that the credit enhancement available for class B and C notes is sufficient to withstand higher rating stresses, resulting in the upgrades to 'AA-sf' and 'Asf' and a revision of the Outlook on class B notes to Positive from Stable. For TDA 26-Mixto Series 1, the affirmation reflects the relatively stable performance of the transaction and the sufficient credit enhancement available to the notes. As of end- December 2013, three-months plus arrears stood at 1.1% of the current asset balance. The increasing volume of defaults continues to exceed the excess spread generated by the transaction, resulting in reserve fund draws. For TDA 26-Mixto Series 2, the levels of three-months plus arrears and gross cumulative defaults have increased marginally over the last 12 months. Despite the modest deterioration in asset performance, the credit enhancement of class B is no longer sufficient to withstand 'BBBsf' rating stresses and Fitch has therefore downgraded the notes to 'BBsf'. Reserve Fund Drawings The excess spread in TDA 26-Mixto Series 2 was insufficient to fully provision for defaulted loans on the last payment date, resulting in a draw of the reserve fund. At present, the reserve fund stands at 95% of its target amount. Even though the pipeline of loans in arrears is limited, Fitch expects further reserve fund draws, which is reflected in today's downgrade of the mezzanine tranche. High Mortgage Prepayments The principal prepayment rates in Ayt Goya Hipotecario III, AyT Goya Hipotecario V, Caja Ingenieros 2 AyT and Caja Ingenieros TDA 1 have increased to approximately 10% over the last months. As these rates are significantly above the market average (3.9%), Fitch cannot rule out the possibility that some prepayments are the result of originator support for troubled borrowers by means of refinancing. Absence of Swap In the absence of a hedge between the 3m Euribor-linked notes and the 12m Euribor-linked mortgages in Caja Ingenieros 2 AyT and Caja Ingenieros TDA1, Fitch has assumed reduced levels of excess spread in its analysis. Exposure to Payment Interruption Risk Given the increased reserve fund draws in TDA 26-Mixto Series 1 in the last 12 months, there is currently insufficient liquidity to cover for payment interruption risk. Therefore the class A2 is placed on RWN. Fitch will maintain contact with the issuer on the progress of potential remedial actions, if any, and will take rating actions accordingly in the next six months. Maintenance of Rating Watch Positive The Rating Watch Positive on Caixa Penedes 1 TDA, Caja Ingenieros TDA 1, Caja Ingenieros 2 AyT, AyT Goya Hipotecario III and V has been maintained pending further review of the criteria assumptions for rating scenarios beyond 'AA-sf'. RATING SENSITIVITIES A further deterioration of the asset performance entailing a larger volume of late stage arrears as well as defaults and drawings on the reserve fund beyond Fitch's expectations could trigger negative rating actions. The rating actions are as follows: AyT Goya Hipotecario III, FTA Class A (ISIN ES0312274006) 'AA-sf'; remains on Rating Watch Positive Class B (ISIN ES0312274014) affirmed at 'BBB+sf'; Outlook revised to Stable from Negative AyT Goya Hipotecario V, FTA Class A (ISIN ES0312276001) 'AA-sf'; remains on Rating Watch Positive Caja Ingenieros 2 AyT, FTA Class A (ISIN ES0312092002) 'AA-sf'; remains on Rating Watch Positive Caja Ingenieros TDA 1, FTA Class A2 (ISIN ES0364376014) 'AA-sf'; remains on Rating Watch Positive Class B (ISIN ES0364376022) upgraded to 'AA-sf' from 'A+sf'; Outlook revised to Positive from Stable Class C (ISIN ES0364376030) upgraded to 'Asf' from 'BBB-sf'; Outlook Stable Caixa Penedes 1TDA, FTA Class A (ISIN ES0313252001) 'AA-sf'; remains on Rating Watch Positive Class B (ISIN ES0313252019) affirmed at 'A+sf'; Outlook revised to Stable from Negative Class C (ISIN ES0313252027) affirmed at 'BBsf'; Outlook revised to Stable from Negative TDA 26-Mixto, FTA - Series 1 Class A2 (ISIN ES0377953015) 'AA-sf'; put on Rating Watch Negative Class B (ISIN ES0377953023) affirmed at 'BBBsf'; Outlook Negative Class C (ISIN ES0377953031) affirmed at 'BB+sf'; Outlook Negative Class D (ISIN ES0377953049) affirmed at 'CCCsf'; RE 0% TDA 26-Mixto, FTA - Series 2 Class A (ISIN ES0377953056) affirmed at 'Asf'; Outlook Negative Class B (ISIN ES0377953064) downgraded to'BBsf' from 'BBBsf'; Outlook Negative Class C (ISIN ES0377953072) affirmed at 'CCCsf'; RE 0% VERTICE 360: Files For Insolvency --------------------------------- Pamela Rolfe at hollywoodreporter.com reports that Vertice 360 has declared insolvency and filed for a suspension of payments, which paves the way for a court-appointed administrator to prioritize debt and mediate payments with creditors. The report says the move comes after Vertice failed to reach an agreement on its own with its creditors. The film and television group has been seeking to increase capital through various methods since December 2013, after posting a financial debt of $19.9 million (EUR14.4 million), with $93.7 million (EUR67.8 million) in losses, hollywoodreporter.com notes. In addition to the Spanish treasury, which agreed to delay payment for $17.1 million (EUR12.4 million), creditors include Banco Espiritu Santo, Santander Bank, Deloitte, KPMG and others, the report discloses. According to hollywoodreporter.com, the group had been in talks with U.S. fund Red Apple, but negotiations reportedly failed due to the reluctance of Vertice's main shareholder Ezentis, which holds 27.8 percent of the company. Ezentis is a company responsible for the "last mile" of telecommunication companies' access to the end consumer. Vertice sold off its audiovisual services subsidiary VSA las summer, but at the end of the first quarter of this year, the group announced it was negotiating the debt of 10 of its subsidiaries, including its film and TV holdings, the report adds. Vertice 360 is a Spanish media conglomerate. * Spanish Mortgage Loan Defaults Continue to Rise, Fitch Says ------------------------------------------------------------- Fitch Ratings says in a new report that Spanish mortgage loans in arrears by one to two months remained broadly stable at 1.5% in 1Q14, reflecting the stabilization of the broader economy and employment prospects. However, RMBS issuers reported a pick-up in the pace of loans entering default. Coupled with the slow recovery process, this has resulted in a further increase in the outstanding balance of defaulted loans to 4.1% in 1Q14. Fitch believes that this increase would be higher were it not for the support of certain originators, which have been refinancing distressed borrowers. This also explains the higher-than-average prepayment rates across some deals. A lack of liquidity on the housing market and a further decline in prices in 4Q13 (-1.3% quarter-on-quarter) mean recoveries remain low across most deals. Fitch maintains its view that house prices will see a further gradual decline until 2015, when they are expected to bottom out at 40% below peak values. Fitch's 'Mortgage Market Index -- Spain' is part of the agency's quarterly series of index reports. It includes information on the performance of residential mortgages, predominantly from RMBS transactions, but also those held on bank balance sheets. The report sets the housing market against the macroeconomic background and provides commentary on the emerging trends. ============= U K R A I N E ============= UKRAINE: IMF to Consider US$17-Bil. Bailout on April 30 ------------------------------------------------------- Ian Talley at The Wall Street Journal reports that the International Monetary Fund's executive board is tentatively scheduled to consider a US$17 billion bailout for Ukraine on April 30. According to the Journal, IMF staff are currently verifying Kiev's interim government has met the fund's preconditions for the emergency loan. The expected IMF approval next week would unlock another USS$10 billion in aid promised by the U.S. and Europe for the beleaguered country, the Journal notes. IMF Managing Director Christine Lagarde said earlier in April that wide support within the IMF board meant the bailout likely would be granted by early May, the Journal recounts. The IMF reached an interim deal in late March with Ukraine's pro- Western government to provide up to US$18 billion in emergency loans to help the Eastern European nation avert a financial collapse, the Journal relates. Western leaders want the IMF deal done as soon as possible to help shore up the new government's power, but at the same time are trying to ensure Ukraine doesn't repeat the economic and political missteps of the past that helped lead to the current economic turmoil, the Journal says. =========================== U N I T E D K I N G D O M =========================== ASTRACAST: Creditors to Lose GBP100 Million in Pre-pack Sale ------------------------------------------------------------ Insolvency News reports that creditors of bathroom fittings company Astracast are unlikely to recover their full liabilities as owners HLD Group has put the company into administration over a GBP90 million black hole in its pension fund. According to the report, the looming pension liability deterred any interest from trade buyers or private equity firms so insolvency experts recommended that a pre-pack sale would provide the best option for creditors of the business and employees. Insolvency News notes that secured creditor Aldermore is expected to recover its GBP6.9 million lending, but Astracast's pension scheme, which has an estimated buyout liability of GBP90 million and trade creditors totaling GBP13.4 million are unlikely to receive a realisation which recovers their full liabilities. Astracast was part of a cluster of companies owned by HLD known as Spring Ram, trading primarily in the bathroom fittings sector. Formerly known as Jacuzzi UK Group plc, prior to its acquisition by the HLD Group in December 2012, Astracast had been burdened by a huge pension deficit, Insolvency News discloses. "The principal liability for the scheme remained with Astracast, with the company providing a guarantee. The scheme had a significant deficit, estimated by Astracast's directors at circa GBP90m. The company was not in a position to honour this guarantee," Insolvency News relays citing a creditors' report for Spring Ram -- renamed CRS Old -- administrators at Leonard Curtis in Manchester. Insolvency News notes that the Astracast pension is now being transferred to the Pension Protection Fund which will maintain payments to existing pensioners and pay future pensioners around 90% of what they would expect to receive. Astracast was put through a pre-packaged administration with HLD acquiring the assets through Ashworth Global Pipe Systems, which has now changed its name to Astracast and the company is continuing to trade. According to the Leonard Curtis document, CRS Old also owes related companies GBP103m and has total liabilities of GBP193m. BRADFORD BULLS: Appeal Against Points Deduction to be Heard Soon ---------------------------------------------------------------- Daily Star reports that the Bradford Bulls has formally announced their intention to contest the RFL's decision to dock them six points for going into administration. Bradford will argue in front of a specially-convened independent sporting sanctions panel that they had no option but to breach the game's insolvency regulations as they faced the threat of a winding-up petition, according to the report. Daily Star relates that a statement from the governing body said: "The RFL can confirm that Bradford Bulls have submitted an appeal against the points deduction handed down by the RFL board of directors as a penalty for entering into administration in January 2014. "The appeal has been lodged on the grounds that the insolvency event arose solely as a result of force majeure, in that the club's administration occurred in circumstances that were unforeseeable and unavoidable. "The appeal will be heard by a specially-convened independent sporting sanctions appeal panel chaired by a qualified solicitor or barrister. "The panel will also feature at least two other members, one of whom must be a fully-qualified insolvency practitioner. "The panel has the discretionary power to instruct an independent firm of accountants or alternative expert to provide evidence to assist them in deciding whether or not the insolvency event arose as a result of force majeure. "The panel will hear Bradford's appeal as soon as possible, with details of the time and date to be confirmed in due course." Acccording to the report, the RFL said it will be bound by the decision of the panel, which could confirm the deduction of six points, reduce the severity of the penalty or overthrow it. Bradford Bulls is a professional rugby league club in Bradford, West Yorkshire, England, who plays in the Super League. CO-OPERATIVE BANK: Labour Party Set to Break Ties ------------------------------------------------- Matthew Holehouse at The Telegraph reports that the Labour Party is poised to break its ties with the Co-operative Bank after more than 90 years. According to The Telegraph, Iain McNicoll, Labour's general secretary, is looking to move loans worth more than GBP1 million out of the Co-op, and place them with trade union-owned and controlled Unity Trust bank. The party has faced scrutiny over its relationship with the troubled Co-op, which had to be rescued by US investors after its disastrous failed bid to take over the Britannia Building Society, The Telegraph relates. A major report into the near-collapse by Sir Christopher Kelly will blame poor governance, saying directors performed "extremely cursory" checks before attempting the takeover, The Telegraph states. David Cameron claimed Labour "knew" about the past of Rev Flowers, who was chairman of the bank, and accused the party of failing to alert financial regulators to concerns about him while he had "trooped in and out of Downing Street under Labour", The Telegraph relates. Labour denied being aware of a string of long-standing allegations about Rev Flowers' sexual conduct, The Telegraph relays. Co-op Bank -- part of the mutually owned food-to-funerals conglomerate Co-operative Group -- traces its history back to 1872. The bank gained prominence for specializing in ethical investment. It refuses to lend to companies that test their products on animals, and its headquarters in Manchester is powered by rapeseed oil grown on Co-operative Group farms. Founded in 1863, the Co-op Group has more than six million members, employs more than 100,000 people, and has turnover of more than GBP13 billion. * * * The Troubled Company Reporter-Europe on Nov. 14 and 18, 2013 has reported that Moody's Investors Service has affirmed The Co-operative Bank's Caa1 senior unsecured debt and deposit ratings, and changed the outlook on the rating to negative from developing, and Fitch Ratings has downgraded the company's Issuer Default Rating to 'B' from 'BB-' and placed it on Rating Watch Negative. CO-OP BANK: Moody's Cuts Unsecured Debt Rating to 'Caa2' -------------------------------------------------------- Moody's Investors Service has downgraded by one notch to Caa2 the Co-Operative Bank Plc's senior unsecured debt and deposit ratings, and maintained the negative outlook on the ratings. The bank's standalone bank financial strength rating (BFSR) has been affirmed at E, which is equivalent to a baseline credit assessment (BCA) of ca. The BFSR has a stable outlook. The bank's short-term ratings are unaffected by the action. The downgrade reflects Moody's opinion of a reduced likelihood of systemic support coming from the UK authorities in the event that additional capital is required for the Co-operative Bank; any further capital needs would need to be raised from either existing shareholders or in the market, but Moody's believes there is a much reduced likelihood that the UK government would commit taxpayer's money to inject capital into the bank if this was required in the future, as the bank's ongoing deleveraging process is leading to a smaller and less systemically important financial institution. At the same time, Moody's notes that the Caa2 senior debt and deposit ratings benefit from two notches of uplift from the bank's standalone BCA of ca to reflect the (1) the cushion for senior creditors provided by the planned additional capital raise and outstanding subordinated bonds; and (2) Moody's continued expectation of regulatory forbearance, giving the bank several years to ensure that it can again meet regulatory capital requirements (the Prudential Regulation Authority's Individual Capital Guidance - ICG). Despite the envisaged imminent capital raise of GBP400 million that the bank has announced in order to maintain its core equity tier 1 ratio prudently above 7%, the standalone ratings at E/ca continue to reflect the significant challenges faced by the bank to re-establish a sustainable business. Ratings Rationale Downgrade Incorporates Moody's View Regarding Reduced Likelihood Of Systemic Support From Uk Government In The Event Of Need The downgrade of the Co-operative Bank's debt and deposit ratings reflects Moody's view of the reduced likelihood of potential support coming from the UK government, as the ongoing deleveraging process is leading to a smaller and less systemically important financial institution. The remaining two notches of uplift incorporate the benefit to senior unsecured creditors from the proposed GBP400 million capital increase and the cushion generated by the outstanding GBP196 million of subordinated debt. Moody's also notes that the bank continues to benefit from regulatory forbearance from the Prudential Regulation Authority (PRA) to meet its Individual Capital Guidance (ICG). Standalone Ratings Continue To Reflect Significant And Protracted Downside Risk Taking into consideration the planned imminent capital increase, Moody's has maintained the bank's standalone credit assessment at ca, reflecting the significant execution risks attached to management's plan to re-establish a sustainable, viable and sufficiently solvent business over the medium term. The bank's weak capital position and the potential for additional unexpected losses to arise from conduct remediation costs heighten the shorter-term execution risks of this turnaround strategy and pose significant risks for bondholders over the next several years. While Moody's acknowledges management's efforts to review areas of risk and maintain appropriate provisions, the extension and wide range of additional conduct remediation costs reflect the significant downside risk arising from its legacy conduct and documentation issues. The Co-operative Bank reported a GBP1.3 billion operating loss prior to its liability-management exercise in 2013, and Moody's believes that the bank will find it challenging to return to profitability over the next two to three years. As a result, capital ratios will decline over this period of time, unless the bank is able to dispose of non-core assets in a capital-accretive way. Moody's notes that the GBP400 million capital increase is critical to enable the bank to realise its plan to remain as a going concern entity, and eventually be able to return to profitability. The capital raise will also be crucial to enabling the bank to improve its leverage ratio from 2.4% as of December 2013 to 3.2%. This is just above the minimum PRA requirement and compares poorly with peers able to generate capital organically through earnings. What Could Change the Rating -- UP Upward pressure on the long-term debt and deposit ratings of the Co-operative Bank could develop over the longer term as Moody's sees evidence of the full recapitalization plan, together with significant progress being made in the bank's restructuring, deleveraging and cost-saving initiatives. What Could Change the Rating -- DOWN Negative pressure on the senior unsecured debt and deposit ratings would stem from either (1) the bank's inability to raise additional capital to increase its core equity tier 1 ratio; (2) delays in the progress on the cost saving and restructuring plans; (3) a significant deterioration of its liquidity; and/or (4) higher than expected impairments or conduct-related costs. DALTON & DALTON: High Court Enters Wind Up Order ------------------------------------------------ Dalton & Dalton Tax Consultants Ltd, a Lancashire based company which misrepresented its ability to obtain council tax rebates for customers, has been wound up in the High Court on April 4, following an investigation by the Insolvency Service. The Court heard that the company made unsolicited calls to arrange appointments for its sales agents to visit prospective customers at home, where agents invariably told prospective customers that they were likely to be successful with an application for council tax re-banding and hence a rebate of council tax paid in previous years. An agreement was signed and the customer was required to pay an upfront fee of GBP165 if they wished to instruct Dalton & Dalton Tax Consultants Ltd. In the event that the company achieved a council tax rebate for a customer, it was able to retain a 'success fee' of 25% of the rebated amount. Commenting on the case, Colin Cronin, an Investigation Supervisor with the Insolvency Service, said, "Dalton & Dalton Tax Consultants Ltd grossly overstated its ability to achieve council tax re-banding and rebates for its customers, thereby inducing customers to pay an advance fee of GBP165 for this service. "It is telling that the company's income was derived almost entirely from these advance fees and very little was from the success fees to which it was entitled if it achieved financial rebates for customers. "These winding-up proceedings show that the Insolvency Service will take firm action against companies which mislead the public in this way." The investigation established that the company had no meaningful expertise or success in challenging council tax banding on behalf of its customers. Analysis of the company's income showed that it had banked receipts totalling GBP1,085,946 of which GBP1,045,821 represented the upfront fees paid by customers and just GBP17,688 of the company's income was from success fees. Only 1% of the 2,750 concluded council tax banding challenges made by the company had been successful. The Court found that Dalton & Dalton Tax Consultants Ltd had traded with a lack of commercial probity by making misleading and unfounded statements and selling a service which provided no commercial benefit to the overwhelming majority of its customers. The petition to wind-up Dalton & Dalton Tax Consultants Ltd was presented under s124A of the Insolvency Act 1986 on 5 February 2014. The company was wound-up on 4 April 2014. EMERALD 2: S&P Assigns Prelim 'B' Corp. Credit Rating ----------------------------------------------------- Standard & Poor's Ratings Services said that it assigned its preliminary 'B' long-term corporate credit rating to U.K.-based Emerald 2 Limited (Emerald 2), an intermediate holding company of ERM Worldwide Ltd. The outlook is stable. "At the same time, we assigned our preliminary 'B' issue ratings to the US$680 million senior secured (first-lien) loans due 2021, the US$50 million revolving credit facility (RCF) due in 2020, and the US$70 million acquisition facility due in 2020, all issued by Emerald 3 Limited and other subsidiaries. The recovery rating on these facilities is '4', indicating our expectation of average (30%-50%) recovery prospects in the event of a payment default," S&P said. In addition, S&P assigned its preliminary 'CCC+' issue rating to the US$150 million subordinated (second-lien) loans due 2022, issued by Emerald 3 Limited and other subsidiaries. The recovery rating on this loan is '6', indicating S&P's expectation of negligible (0%-10%) recovery prospects in the event of a payment default. The final ratings will depend on S&P's receipt and satisfactory review of all final transaction documentation. Accordingly, the preliminary ratings should not be construed as evidence of the final ratings. If Standard & Poor's does not receive the final documentation within a reasonable time frame, or if the final documentation departs from materials reviewed, S&P reserves the right to withdraw or revise its ratings. Potential changes include, but are not limited to, utilization of loan proceeds, maturity, size and conditions of the loans, financial and other covenants, security, and ranking. The ratings on Emerald 2 reflect S&P's assessment of the company's financial risk profile as "highly leveraged" and its business risk profile as "fair," as its criteria define these terms, and that Emerald 2's key credit metrics will remain in the "highly leveraged" financial risk profile category throughout 2015 and 2016. S&P takes into account shareholder loans in its adjusted debt calculations, in line with its criteria. Following Emerald 2's refinancing, the shareholder instruments will have been partially repaid, leaving approximately US$250 million remaining at the close of the transaction. S&P's fully adjusted debt figure of US$1.1 billion for the year ending March 2015 includes the new financing package totaling US$830 million, the remaining shareholder instruments of about US$275 million (including accrued interest at year end 2015), and S&P's estimate of about US$32 million for operating leases. S&P calculates the group's leverage to be about 9.1x at the close of the transaction (7.1x excluding the Charterhouse's shareholder instruments), which S&P estimates will improve to about 8.6x (6.6x) by the end of financial year ending March 31, 2015. Cash flow protection, as indicated by S&P's adjusted funds from operations (FFO)-to-debt ratio, is expected to remain in the low single digits in the medium term, and S&P forecasts that this ratio will stay relatively stable. S&P anticipates that free operating cash flow will be relatively strong compared with similarly rated 'B' peers, at about $40 million in financial year 2015. S&P's assessment of Emerald 2's business risk profile as "fair" reflects ERM's operations in the niche but fast growing environmental consultancy market, exposure to cyclical natural resources market to some degree, and weaker product diversification than competitors such as URS Corp. However, these risks are partly offset by ERM's ability to retain clients by closely integrating with them, (albeit running the risk of losing a small number of staff to its clients), being well- diversified across end markets and geographies, and being a strong player within its niche addressable market. That said, S&P notes that the company's Standard & Poor's-adjusted EBITDA margins of 13% (equivalent to 17.5% excluding discretionary bonuses) are low when compared with typical professional service providers and therefore, S&P assess it as "below average". Management focuses on 27 key global clients, which results in higher revenue growth but also results in higher concentration risk (approximately 28% of sales). Potential exposure to litigation and problems relating to requirements not being met pose a risk to the company's reputation. S&P's business risk assessment incorporates its view of the global professional service industry's "intermediate" risk, and a "low" country risk. The stable outlook reflects S&P's view that ERM will generate steady revenue growth and cash flows, despite the moderate levels of growth that S&P forecasts in its key markets of North America and Europe in 2014. Downward pressure could arise if the company undertakes a more aggressive financial policy -- in terms of shareholder returns and acquisitions -- than S&P currently envisage. A reduction in cash flow generation caused by a decline in margins or lower cash conversion, including FFO interest coverage of less than 2x, could trigger a negative rating action. S&P sees limited rating upside given that forecast credit metrics are firmly placed in the "highly leveraged" financial risk category. Furthermore, the impact of the substantially larger interest paying debt (totaling $830 million) as part of the proposed partial replacement of the capital structure will place additional pressure on cash interest coverage. However, if S&P sees sustained deleveraging and improving credit metrics it could consider raising the ratings. HIGHLAND GROUP: S&P Puts 'B' CCR on CreditWatch Developing ---------------------------------------------------------- Standard & Poor's Ratings Services said that it has placed its 'B' long-term corporate credit rating on U.K.-based premium department store group Highland Group Holdings Ltd. (House of Fraser) on CreditWatch with developing implications. At the same time, S&P placed its 'B' issue rating on the GBP250 million senior secured notes due 2018, issued by House of Fraser (Funding) PLC, on CreditWatch with developing implications. The recovery rating on these notes remains unchanged at '4'. The CreditWatch placements reflect the uncertainties surrounding House of Fraser's future capital structure, governance, financial policies, and business strategy following the April 14, 2014, announcement that Nanjing Xinjiekou Department Store Co. Ltd. (Nanjing Xinbai) has signed a definitive agreement to acquire an approximately 89% shareholding of House of Fraser. The proposed transaction is due to close within the next four months and values House of Fraser at GBP480 million. Nanjing Xinbai is a publicly listed company on the Shanghai Stock Exchange. "We believe that the effects of the proposed takeover on House of Fraser's business and financial risk profiles remain uncertain," said Standard & Poor's credit analyst Tim Wells. "The developing CreditWatch status indicates that we could raise, affirm, or lower the ratings. It is possible that Nanjing Xinbai will look to expand the House of Fraser business into new markets such as China and the Middle East. It is unclear what the new shareholder's intention is for House of Fraser's capital structure and we do not yet have sufficient visibility on the relative financial strength of the new parent company Nanjing Xinbai or its largest shareholder Sanpower Group, a holding with investments in the industries of retail, supply chain, information technology, media, real estate and financial services. We understand that the documentation of the outstanding GBP250 million senior secured notes includes a change-of-control clause, and that House of Fraser will seek consent from noteholders to waive their rights on the change of control. It is also possible that some of these bonds will be bought back by the new owner." "House of Fraser's operating performance in 2013 was in line with our forecasts, with positive same-store sales growth and strong growth in its online business. For the financial year to Jan. 25, 2014, House of Fraser's revenues were up 5% to GBP732 million, with reported EBITDA of about GBP60 million. Under its existing capital structure, we forecast that House of Fraser will maintain Standard & Poor's-adjusted debt to EBITDA in the 8.0x- 8.5x range and EBITDA interest coverage of about 1.5x," S&P added. S&P aims to resolve the CreditWatch placement once it has more clarity on Nanjing Xinbai's future strategy for House of Fraser and its possible effect on the company's business and financial risk profiles. "We would consider raising the ratings on House of Fraser should Nanjing Xinbai fully disclose its business and financial strategy for the company, and should this strategy support an improvement in its credit profile for House of Fraser, leading to a sustained adjusted debt-to-EBITDA ratio approaching 5.0x," Mr. Wells continued. "Any upside would also have to factor in a relatively good credit standing for Nanjing Xinbai, the ultimate owner of House of Fraser. With the limited information we have at this stage, we consider the likelihood of this scenario as modest, given the financial leverage of House of Fraser and its acquirer. That said, we still lack sufficient information regarding how this transaction will be funded and what its credit metrics and financial policy will be." Conversely, S&P would consider lowering the ratings if it considered that Nanjing Xinbai's future strategy for House of Fraser would adversely affect the latter's business or financial risk profiles or the relative financial strength of the new parent company would negatively affect House of Fraser's credit quality. =============== X X X X X X X X =============== * BOOK REVIEW: From Industry to Alchemy --------------------------------------- Author: Max Holland Publisher: Beard Books Softcover: 335 pages List Price: $34.95 Review by Gail Owens Hoelscher Order your personal copy today at http://amazon.com/exec/obidos/ASIN/158798153X/internetbankrupt "From Industry to Alchemy" tells the story of people caught in the middle of global competition, the institutional restraints within which smaller companies had to operate after the Second World War, the rise of Japanese industry, and the conglomeration frenzy of the 1980s. The author's goal in writing this book was to chronicle the decline in American manufacturing through the story of that company. Burgmaster was the culmination of the dream of a Czechoslovakian immigrant, Fred Burg, who described himself as a "born machinist." After coming to America in 1911, he learned the tool-and- die trade, becoming so adept that he "could not only drill the hole, but also make the drill." A life-long inventor, he designed an electric automatic transmission that was turned down by GM's Charles Kettering; GM came out with a hydraulic version six years later. Forced by finances to work in retailing, after World War II he retired, moved to California and set up a machine-tool shop with his son and son-in-law to manufacture the turret drill, his own design. With the help of the Korean War, and a previous shortage of machine tools, business took off. It was a hands-on operation from the start and remained that way. Burg once fired an engineer who didn't want to handle a machine part because his hands would get dirty. Management spent time on the shop floor, listening to employee ideas. Burg lived and breathed research and development, constantly fiddling to devise new machines and make old ones better. Between 1955 and 1962, sales grew 13-fold and employees from 62 to 272. Burg Tool was featured on Richland Oil Company's broadcast Success Stories. By 1965, however, Fred Burg was getting old and the three 159partners knew that Burgmaster needed to fund another expensive, risky expansion to fill back orders or lose market share. Although companies had made offers before, Houdaille, a company named for the Frenchman who invented recoilless artillery during World War I, seemed a good match. The two had similar origins, it seemed. Houdaille had begun an ambitious acquisition program, and saw Burgmaster fitting into an unfilled niche. With a merger, new capacity would be financed, and "Burgmaster would continue to operate under present management, personnel and policies but as a Houdaille division." What comes next is management by numbers rather than hands-on decisionmaking; alienation of skilled blue-collar workers; pushing aside of management; squelching of innovation; foreign and domestic competition; bitter trade disputes; leveraged buyouts; the politics of U.S. trade policy; Japan-bashing; and the inevitable liquidation of Burgmaster and loss of livelihood of more than 400 employees. This book was originally titled When the Machine Stopped: A Cautionary Tale from Industrial America," published in 1989. It was named by Business Week as one of the ten best business books of 1989. The Chicago Tribune said that "anyone who wants to understand American business must read When the Machine Stopped.Holland has written the best business book in years." The author explains trade regulations, the machine-tool industry, and detailed corporate buyouts with equal clarity. This down-to-earth book provides valuable insight into the changes within an industry. It combines fascinating, creative characters; number crunchers; growing corporate disdain for manufacturing; and tangible consequences of Washington and Wall Street gone crazy. Max Hollandis a writer and research fellow at the Miller Center of Public Affairs at the University of Virginia. His father worked for 29 years as a tool-and-die maker, union steward, and machine shop foreman for Burgmaster. ********* 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 * * *