/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/141010.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, October 10, 2014, Vol. 15, No. 201 Headlines G E R M A N Y HAPAG-LLOYD AG: CSAV's S&P Rating Reflects Merger Outcome RENA LANGE: German Fashion House Launches U.S. Bankruptcy H U N G A R Y MKB BANK: Moody's Affirms 'Caa2' Long-Term Deposit Ratings L U X E M B O U R G CANYON COS: S&P Assigns 'B' CCR on Leveraged Buyout ESPIRITO SANTO: Files for Bankruptcy; Hearing Scheduled Today N E T H E R L A N D S BABSON EURO 2014-2: Fitch Assigns 'B-(EXP)' Rating to Cl. F Notes R U S S I A DONINVEST: Russia's Central Bank Revokes License MEZHPROMBANK: Pugachev Denies Responsibility for Collapse NARODNY CREDIT: Russia's Central Bank Revokes License POMOSCH INSURANCE: S&P Affirms 'B+' LT CCR; Outlook Negative UNIVERSAL CREDIT: Russia's Central Bank Revokes License S W E D E N SAAB AUTOMOBILE: Vanersborg Court Extends Reorganization Period U N I T E D K I N G D O M HEATHROW FINANCE: Moody's Affirms 'Ba1' Corporate Family Rating PUNCH TAVERNS: S&P Assigns 'B-' LT Corp. Credit Rating PUNCH TAVERNS A: S&P Cuts Ratings on 7 Note Classes to 'D(sf)' PUNCH TAVERNS B: S&P Lowers Ratings on 5 Note Classes to 'D(sf)' X X X X X X X X * BOOK REVIEW: Risk, Uncertainty and Profit ********* ============= G E R M A N Y ============= HAPAG-LLOYD AG: CSAV's S&P Rating Reflects Merger Outcome --------------------------------------------------------- Standard&Poor's Ratings Services affirmed its 'B-' corporate credit rating on Compania Sud Americana de Vapores (CSAV). The outlook remains positive. The positive outlook and rating affirmation reflects S&P's expectation that once the merger of the company's container shipping business with Hapag-Lloyd AG (HL; B+/Stable/--) is completed, CSAV's cash flows will become more predictable and its credit metrics will improve. Nevertheless, the new company faces challenges as it leverages on its larger scale to make its operations more efficient. According to the merger's terms, CSAV will transfer all of its container operation (including assets, debt, and other obligations) to HL and will receive in return a 30% stake in the combined entity. As part of the agreement, CSAV's shareholders (including Quinenco S.A., which holds a 54% stake in CSAV) will contribute EUR259 million of the EUR370 million capital increase that HL will carry out once the transaction is concluded and increase its stake to 34% from 30% in the merged company. HL's current shareholders will control the remaining shares. CSAV's and HL's shareholders have approved the merger, and S&P expects it to be completed by the end of 2014. "CSAV's remaining operations will consist of its car carrier, refrigerated cargo, and bulk businesses. When compared to daily charter rates, these units benefit from higher revenue visibility as freight contracts are mainly between one and three years," said Standard & Poor's credit analyst Marcus Fernandes. Therefore, CSAV's business will enjoy greater stability and predictability. However, the merger will reduce CSAV's scale, and its geographic diversification will diminish. Therefore, S&P don't anticipate material changes in its assessment of CSAV's "weak" business risk profile. RENA LANGE: German Fashion House Launches U.S. Bankruptcy --------------------------------------------------------- Jacqueline Palank, writing for The Wall Street Journal, reported that German fashion house Rena Lange placed its U.S. arm into Chapter 11 bankruptcy this week, following the parent's insolvency filing in Munich. According to the report, the nearly-century-old fashion house says its parent's insolvency prevented it from shipping merchandise to the U.S. without prepayment, but Rena Lange (USA) ran out of money last month. ============= H U N G A R Y ============= MKB BANK: Moody's Affirms 'Caa2' Long-Term Deposit Ratings ---------------------------------------------------------- Moody's Investors Service has affirmed MKB Bank Zrt.'s (MKB) Caa2 long-term local- and foreign-currency deposit ratings and Not Prime short-term ratings. The outlook on the bank's long-term deposit ratings remains negative. MKB's standalone bank financial strength rating (BFSR) of E, equivalent to a baseline credit assessment (BCA) of ca, is unaffected by this rating action. The affirmation of the bank's ratings was prompted by the completion of MKB's sale to the Hungarian state (Ba1 Negative) by Bayerische Landesbank (BayernLB, A3 Negative, D stable/ba2). Ratings Rationale In July 2014, BayernLB announced the sale of its controlling stake (99.9%) in MKB to the Hungarian State, fulfilling the European Commission's requirement set up as a condition for the aid provided to BayernLB by the German government during the financial crisis. The sale and purchase agreement was signed on August 1, 2014. In return for the purchase price of EUR55 million, BayernLB waived EUR270 million of claims to MKB. Following the approval of the bank's sale by the National Bank of Hungary the transaction was completed on September 29, 2014. As a result of MKB's ownership change Moody's has removed parental support from BayernLB implied in MKB's deposit ratings. At the same time the rating agency has introduced a moderate expectation of systemic support into the bank's ratings reflecting the fact that it is now fully controlled by the Hungarian government. The systemic support assumption is also supported by the banks significant market shares in the Hungarian banking system: MKB's share in the total loans and deposits amounted to 9.8% and 7.6%, respectively, at year-end 2013. Consequently, MKB's Caa2 deposit ratings continue to receive two-notches of rating uplift from the bank's BCA of ca. However this rating uplift is now attributable to systemic support. The negative outlook on the bank's ratings reflects (1) the ongoing business and financial challenges faced by the bank; and (2) the recent adoption of the Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism (SRM) regulation in the EU. In particular, this reflects that, with the legislation underlying the new resolution framework now in place and the explicit inclusion of burden-sharing with unsecured creditors as a means of reducing the public cost of bank resolutions, the balance of risk for banks' senior unsecured creditors has shifted to the downside. Although Moody's support assumptions are unchanged for now, the probability has risen that they will be revised downwards to reflect the new framework. For further details, please refer to Moody's Special Comment entitled "Reassessing Systemic Support for EU Banks," published on May 29, 2014. What Could Move The Ratings Up/ Down Given the negative outlook, there is limited upwards pressure on MKB's ratings. A significant improvement in the operating environment in Hungary, leading to enhanced earnings generating capacity and stronger capitalization could help to stabilize the ratings' outlook. A reduction in the rating agency's systemic support assumptions as a result of further developments concerning the bank resolution framework could negatively impact MKB's deposit ratings. Principal Methodology The principal methodology used in this rating was Global Banks published in July 2014. Headquartered in Budapest, Hungary MKB had total assets of HUF1,962 billion (US$9.1 billion) as of year-end 2013. =================== L U X E M B O U R G =================== CANYON COS: S&P Assigns 'B' CCR on Leveraged Buyout --------------------------------------------------- Standard & Poor's Ratings Services assigned its 'B' corporate credit rating to Luxembourg-based Canyon Cos. S.ar.l. The outlook is stable. At the same time, S&P assigned a 'B+' issue-level rating to the company's credit facilities (the borrowing entity of which is GTCR Valor Cos. Inc., an indirect wholly-owned subsidiary of Canyon). The US$350 million first-lien senior secured credit facilities consist of a US$25 million revolver, US$185 million term loan, and US$140 million delayed-draw term loan. The recovery rating is '2', indicating S&P's expectation for substantial recovery (70%- 90%) in the event of a payment default. S&P is also assigning a 'CCC+' issue-level rating to the company's proposed US$75 million second-lien term loan and US$40 million second-lien delayed-draw term loan. The recovery rating is '6', indicating our expectation for negligible recovery (0%-10%) in the event of a payment default. The company used the proceeds, along with cash on hand at both Cision and Vocus and an equity contribution from GTCR, to fund the buyout of the two companies. The rating on Canyon reflects S&P's assessment of the company's "weak" business risk profile, based on its view of the combined entity's modest position in a narrow and fragmented end market. The rating also reflects S&P's view of the company's "highly leveraged" financial risk profile, based on adjusted leverage, pro forma for the merger and excluding projected cost synergies, in excess of 6x at fiscal year-end 2013. S&P's assessment of Canyon's business risk profile as "weak" reflects its relatively small share in a fragmented global PR software segment, including larger competitors with significantly more resources in the global software market. The company's substantial base of recurring subscription revenues, expanded suite of PR software solutions, and lack of customer concentration partially offset these factors. S&P's business risk assessment also incorporates its view of the technology software industry's "intermediate" risk and the company's "very low" country risk. Additionally, S&P's assessment of the company's management and governance is "fair." Since 2009, Cision has been transitioning into a pure-play PR software solutions provider, divesting legacy print monitoring businesses throughout various regions. Vocus is a provider of cloud-based PR and marketing software, which offers news distribution and PR campaign management solutions. Together, the combined companies will provide end-to-end PR management solutions to a wide group of customers ranging from government and middle market companies to large PR agencies and Fortune 500 firms. S&P expects that post-merger, the entity will achieve EBITDA margins in excess of 30% in fiscal 2014, benefitting from the realization of modest near-term synergies, and the exclusion of lower-margin, noncore operations from the predecessor companies. While these profitability measures are slightly above average for the software industry, S&P notes the company's lack of operating track record, and near-term vulnerability to potential integration risks. S&P views the company's financial risk profile as "highly leveraged." Canyon's pro forma adjusted leverage, excluding forecasted synergies, is in the low-6x area as of Dec. 31, 2013. However, S&P expects cost reductions and modest revenue growth will result in leverage below 6x by fiscal year-end 2014. Furthermore, while S&P expects positive cash flow generation, which provides the capacity for some debt reduction over the intermediate term, S&P believes that the company's ownership structure is likely to preclude sustained deleveraging. ESPIRITO SANTO: Files for Bankruptcy; Hearing Scheduled Today ------------------------------------------------------------- Joao Lima at Bloomberg News reports that Espirito Santo Financial Group SA, part of a Portuguese family empire that unraveled in the wake of soured loans, was forced to file for bankruptcy after a court rejected a request for creditor protection. According to Bloomberg News, ESFG said in a regulatory filing on Oct. 9 that the board's decision follows a ruling by a Luxembourg court on Oct. 3, rejecting the July request. While Banco Espirito Santo SA, formerly partly owned by ESFG, received a EUR4.9 billion (US$6.3 billion) rescue by the Bank of Portugal in August, the court ruled a restructuring of ESFG was "impossible", Bloomberg relates. ESFG was forced to seek creditor protection, joining parent companies Espirito Santo International SA and Rioforte Investments SA, after failing to meet debt obligations following the disclosure of losses on loans across the holding company, Bloomberg recounts. Banco Espirito Santo, once Portugal's biggest bank by market value, was bailed out on Aug. 3, with the central bank moving deposit-taking operations and most assets to a new company called Novo Banco SA, Bloomberg relays. ESFG expects the court to consider a bankruptcy order and appoint one or more receivers at a hearing today, Oct. 10, Bloomberg discloses. ESFG said on Oct. 3 that the court rejected the option of a restructuring of ESFG due to the measures applied by the Bank of Portugal to Banco Espirito Santo and the sale of ESFG's stake in insurer Companhia de Seguros Tranquilidade SA, Bloomberg relates. According to Bloomberg, Swiss regulators have also started bankruptcy proceedings against Banque Privee Espirito Santo SA while ES Bankers (Dubai) Ltd. froze deposits, attributing the decision to the failure of Banque Privee to repay debts. Both the Swiss and the Dubai banks are owned by ESFG. ESFG said the Luxembourg court hasn't made a decision yet on Espirito Santo International and Rioforte Investments requests for creditor protection, Bloomberg notes. About Espirito Santo Espirito Santo Financial Group SA is the owner of about 20% of Banco Espirito Santo SA. Banco Espirito Santo is a private Portuguese bank based in Lisbon, Portugal. In August 2014, Banco Espirito Santo was split into "good" and "bad" banks as part of a EUR4.9 billion rescue of the distressed Portuguese lender that protects taxpayers and senior creditors but leaves shareholders and junior bondholders holding only toxic assets. A total of EUR4.9 billion in fresh capital is being injected into this "good bank", which will subsequently be offered for sale. It has been renamed "Novo Banco", meaning new bank, and will include all BES's branches, workers, deposits and healthy credit portfolios. Also in August 2014, Espirito Santo Financial Portugal, a unit fully owned by Espirito Santo Financial Group, filed under Portuguese corporate insolvency and recovery code. In August 2014, Espirito Santo Financiere SA, another entity of troubled Portuguese conglomerate Espirito Santo International SA, filed for creditor protection in Luxembourg. In July 2014, Portuguese conglomerate Espirito Santo International SA filed for creditor protection in a Luxembourg court, saying it is unable to meet its debt obligations. ===================== N E T H E R L A N D S ===================== BABSON EURO 2014-2: Fitch Assigns 'B-(EXP)' Rating to Cl. F Notes ----------------------------------------------------------------- Fitch Ratings has assigned Babson Euro CLO 2014-2 B.V.'s notes expected ratings: Class A-1 notes: 'AAA(EXP)sf'; Outlook Stable Class A-2 notes: 'AAA(EXP)sf'; Outlook Stable Class B-1 notes: 'AA(EXP)sf'; Outlook Stable Class B-2 notes: 'AA(EXP)sf'; Outlook Stable Class C notes: 'A(EXP)sf'; Outlook Stable Class D notes: 'BBB(EXP)sf'; Outlook Stable Class E notes: 'BB(EXP)sf'; Outlook Stable Class F notes: 'B-(EXP)sf; Outlook Stable Subordinated notes: not rated The assignment of the final ratings is contingent on the receipt of final documents conforming to information already reviewed. Babson Euro CLO 2014-2 B.V. is an arbitrage cash flow CLO. Net proceeds from the notes will be used to purchase a EUR550 million portfolio of European leveraged loans and bonds. KEY RATING DRIVERS Average Portfolio Credit Quality Fitch expects the average credit quality of obligors in the underlying portfolio to be in the 'B' category. Fitch has credit opinions on 79 of the 80 obligors in the identified portfolio. The Fitch weighted average rating factor (WARF) of the portfolio is 36.3%, above the covenanted minimum for the expected ratings of 35.5%. High Expected Recoveries At least 90% of the portfolio will comprise senior secured obligations. Fitch views the recovery prospects for these assets as higher than for second-lien, unsecured and mezzanine assets. Fitch has assigned Recovery Ratings (RR) to 79 of the 80 obligors in the identified portfolio. The covenanted minimum the weighted average recovery rate (WARR) of the identified portfolio is 63.9%, below the covenanted minimum for the expected ratings of 66%. The manager must meet this covenant by the end of the ramp-up period. Limited Interest Rate Risk The notes pay quarterly, while the portfolio assets can reset to semi-annual. The transaction has an interest smoothing account, but no liquidity facility. A liquidity stress for the non- deferrable class A-1, A-2, B-1 and B-2 notes due to a large proportion of assets resetting to semi-annual in any one quarter, is addressed by switching the payment frequency on the notes to semi-annual in this scenario, subject to certain conditions. Partial Interest Rate Hedge Between 7.5% and 20% of the portfolio may be invested in fixed- rate assets, while fixed rate liabilities account for 10.9% of the target par amount. Therefore the transaction is partially hedged against rising interest rates. Limited FX Risk Any non-euro-denominated assets have to be hedged with perfect asset swaps as of the settlement date. The transaction is allowed to invest up to 20% of the portfolio in non-euro-denominated assets. TRANSACTION SUMMARY The portfolio is managed by Babson Capital Europe 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 would not have 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 confirmation is considered to be given in the case where Fitch declines to comment. RATING SENSITIVITIES A 25% increase in the obligor default probability would lead to a downgrade of up to two notches for the rated notes. A 25% reduction in the expected recovery rates would lead to a downgrade of up to four notches for the rated notes. =========== R U S S I A =========== DONINVEST: Russia's Central Bank Revokes License ------------------------------------------------ Itar-Tass reports that the Central Bank of Russia has revoked licenses for banking operations from Doninvest. According to Itar-Tass, the decision was taken due to bank's violation of CBR's regulatory acts and a high-risk monetary policy. Sixty-three banking structures were stripped of the right for financial services in Russia this year, Itar-Tass discloses. Doninvest is a regional commercial bank based in Rostov-on-Don. MEZHPROMBANK: Pugachev Denies Responsibility for Collapse --------------------------------------------------------- Catherine Belton and Neil Buckley at The Financial Times report that Sergei Pugachev, a former close associate of Vladimir Putin, denied any responsibility for the collapse of Mezhprombank. Mr. Pugachev's problems began with the 2010 collapse of Mezhprombank, the top 30 lender he founded, the FT recounts. He fled Russia in 2011 for exile in London as the state moved to take over his shipyards, as part of efforts to recover funds from the bank, the FT relates. Last year, a Moscow court issued a warrant for his arrest, blaming him for the bank's failure, the FT relays. According to the FT, Mr. Pugachev claimed Mezhprombank's bankruptcy was the result of a Kremlin campaign to seize the controlling stakes he held in Russia's two biggest and most modern shipyards at a knockdown price. The businessman is preparing to present evidence in a London court that he said will prove the bankruptcy was part of a state "raid" on his empire, as he seeks to fend off a freezing order on his international assets issued in July by Russia's Deposit Insurance Agency, the FT discloses. At the heart of the case is some US$2.1 billion in unpaid debts owed by Mezhprombank, some of which resulted from emergency Central Bank liquidity support provided in late 2008 in the midst of the global financial crisis, the FT discloses. The government has alleged Mr. Pugachev was behind a series of transactions that damaged the bank's balance sheet, including the transfer of US$700 million in Central Bank bailout funds to an account in Switzerland controlled by his son, the FT relays. Mr. Pugachev, as cited by the FT, said the transaction did not involve the Central Bank funds and was related to a commercial investment. The FT notes that Mr. Pugachev also claimed he had struck an agreement with the Central Bank to repay Mezhprombank's debt with the proceeds from the sale of two St Petersburg shipyards -- Severnaya Verf and Baltiisky Zavod. Those assets had been valued by international audit firm BDO at US$3.5 billion, the FT discloses. Nomura, an investment bank, valued them at between US$2.2 billion and US$4.2 billion -- more than enough to cover the roughly US$1 billion owed to the Central Bank, according to the FT. But the Central Bank revoked the bank's license when it missed an interest payment in October 2010, the FT recounts. Soon afterward, it filed suit to seize Mr. Pugachev's shipyard stakes, triggering a chain of events that ended in their forced sale in 2012, the FT relates. Mezhprombank is a Russian open joint stock bank founded in 1994 as JSC LAKAR. In 1997, it was transformed into open joint stock bank and renamed to Mezhprombank. NARODNY CREDIT: Russia's Central Bank Revokes License ----------------------------------------------------- Itar-Tass reports that the Central Bank of Russia has revoked licenses for banking operations from Moscow's Narodny Credit. According to Itar-Tass, the decision was taken due to bank's violation of CBR's regulatory acts and a high-risk monetary policy. About 63 banking structures were stripped of the right for financial services in Russia this year, Itar-Tass discloses. Narodny Credit is a regional commercial bank based in Moscow. POMOSCH INSURANCE: S&P Affirms 'B+' LT CCR; Outlook Negative ------------------------------------------------------------ Standard & Poor's Ratings Services affirmed its 'B+' long-term counterparty credit and insurer financial strength ratings on Russia-based Pomosch Insurance Company Ltd. The outlook remains negative. S&P also affirmed its 'ruA' Russia national scale rating on the company. At the same time, S&P removed its 'B+' long-term counterparty credit and insurer financial strength ratings on core subsidiary Giva Insurance Company LLC from CreditWatch, where S&P placed them with negative implications on July 8, 2014. S&P then affirmed its 'B+' ratings and 'ruA' Russian national scale rating on the company. The outlook on Giva is negative, reflecting that on IC Pomosch. S&P bases the affirmations and removal from CreditWatch on its view that IC Pomosch and Giva are fully integrated. Giva is a core subsidiary to IC Pomosch, and they are likely to preserve operational and financial integration over the next year. S&P understands the two companies make all decisions on risk control and investment strategy jointly, and that their client bases are correlated. After the companies announced Giva's transfer of its reinsurance business to IC Pomosch, S&P had anticipated that the two companies would face an overlap in their insurance products (such as for obligatory liability insurance for developers of new constructions or liability insurance of construction risks) under their new joint strategy. However, S&P understands from its recent discussions with management that the two companies have complementary product lines that should support business growth for the group as a whole. Giva writes liability insurance for developers of new constructions in Russia, which is obligatory since Jan. 1, 2014. In addition, it writes obligatory third-party liability motor insurance for IC Pomosch's corporate clients. S&P understands that Giva's business lines will also generate business for IC Pomosch in some areas like liability insurance of construction risks. The two companies continue to face high expenses that lead them to post underwriting losses. Their net combined ratios, the industry's leading underwriting profitability metric, exceed 100% (the lower the combined ratio, the more profitable the company, and a ratio of more than 100% signifies an underwriting loss.) The ratings on IC Pomosch and Giva continue to reflect S&P's view of IC Pomosch's vulnerable business risk profile based on moderate insurance industry and country risk in Russia, the company's less than adequate competitive position, its less than adequate financial risk profile built on moderately strong capital and earnings, and its high risk position. S&P notes that IC Pomosch's shareholders are currently revising their approach toward the company's investment strategy by gradually eliminating equities in the investment portfolio. S&P thinks this shift could diminish the impact of asset risk on the company's capital adequacy under Standard & Poor's capital model. At the same time, though, the company could easily reverse this strategy if market conditions become favorable. IC Pomosch's legal dispute with one of its clients is still under discussions that may stretch over as much as one year. S&P understands that the first court rulings may be announced in first-quarter 2015 and could indicate whether the legal claims against the company are well-grounded. S&P regards the shareholders as committed to IC Pomosch because they have announced they would inject fresh capital of Russian ruble (RUB) 300 million (about EUR$7.5 million) if the company faces a large loss linked to the dispute. This amount would represent close to 25% of the company's current total capital. The negative outlook on IC Pomosch reflects significant pressure on the company's capital adequacy owing to: -- The legal dispute mentioned above that could result in a final claim of RUB350 million. -- Increased market risk owing to potentially higher investments in equities. -- Heightened non-life premium risk due to Giva's transfer of inward reinsurance business to IC Pomosch. -- A potentially worsening risk position after 2014 results due to asset-liability mismatch that could exceed 10%. S&P could take a negative rating action on IC Pomosch if capital and earnings fell to S&P's upper adequate category. This could happen for any of the following reasons, combined with shareholder reluctance to inject sufficient fresh capital into the company for its future needs: -- A court ruling against IC Pomosch in its legal dispute. -- The company's continued strategy of investing more than 10% of invested assets in equities. -- Substantial further growth in the inward reinsurance business. In addition, a revision of the risk position to very high risk might lead to a negative rating action due to growing asset- liability mismatch in the company's business book. S&P is likely to revise the group status of Giva negatively if S&P believes that there is less integration between the two companies, which may be evidenced in an overlap of business lines and would lead to increased competition between two companies. S&P is unlikely to revise the outlook to stable until each of the unfavorable factors identified above has ceased to be relevant. UNIVERSAL CREDIT: Russia's Central Bank Revokes License ------------------------------------------------------- Itar-Tass reports that the Central Bank of Russia has revoked licenses for banking operations from Moscow's Universal Credit. According to Itar-Tass, the decision was taken due to bank's violation of CBR's regulatory acts and a high-risk monetary policy. About 63 banking structures were stripped of the right for financial services in Russia this year, Itar-Tass discloses. Universal Credit is a regional commercial bank based in Moscow. =========== S W E D E N =========== SAAB AUTOMOBILE: Vanersborg Court Extends Reorganization Period --------------------------------------------------------------- Deutsche Presse-Agentur reports that a Swedish district court on Oct. 8 approved the extension of the ongoing reorganization of struggling carmaker Saab, where production was halted in May. The Chinese consortium, National Electric Vehicle Sweden (NEVS), welcomed the decision by the Vanersborg District Court, dpa relates. NEVS took over Saab in June 2012, dpa recounts. The ruling was issued after a creditors' meeting, where the court- appointed administrator Lars Eric Gustafsson said it was necessary to continue with the reorganization, dpa relays. The court ruled that the process should continue until Nov. 29, dpa discloses. The court also appointed a seven-strong creditors' committee to monitor the process, dpa notes. The committee included two union representatives, dpa states. During reorganization approved at the end of August, NEVS had been able to postpone demands to pay suppliers or creditors, according to dpa. NEVS reorganization plan has outlined two main scenarios to save the carmaker, dpa says. According to dpa, the "main track" was to finalize negotiations with two Asian automotive manufacturers. One of the unnamed firms is interested in part ownership of the consortium, while another was considering future cooperation, dpa states. NEVS and local unions recently concluded talks to lay off 155 employees over further delays in restarting production, dpa relays. About Saab Automobile Saab Automobile AB is a Swedish car manufacturer owned by Dutch automobile manufacturer Swedish Automobile NV, formerly Spyker Cars NV. Saab halted production in March 2011 when it ran out of cash to pay its component providers. On Dec. 19, 2011, Saab Automobile AB, Saab Automobile Tools AB and Saab Powertain AB filed for bankruptcy after running out of cash. Some of Saab's assets were sold to National Electric Vehicle Sweden AB, a Chinese-Japanese backed start-up that plans to make an electric car using Saab Automobile's former factory, tools and designs. On Jan. 30, 2012, more than 40 U.S.-based Saab dealerships filed an involuntary Chapter 11 petition for Saab Cars North America, Inc. (Bankr. D. Del. Case No. 12-10344). The petitioners, represented by Wilk Auslander LLP, assert claims totaling US$1.2 million on account of "unpaid warranty and incentive reimbursement and related obligations" or "parts and warranty reimbursement." Leonard A. Bellavia, Esq., at Bellavia Gentile & Associates, in New York, signed the Chapter 11 petition on behalf of the dealers. The dealers want the vehicle inventory and the parts business to be sold, free of liens from Ally Financial Inc. and Caterpillar Inc., and "to have an appropriate forum to address the claims of the dealers," Leonard A. Bellavia said in an e-mail to Bloomberg News. Saab Cars N.A. is the U.S. sales and distribution unit of Swedish car maker Saab Automobile AB. Saab Cars N.A. named in December an outside administrator, McTevia & Associates, to run the company as part of a plan to avoid immediate liquidation following its parent company's bankruptcy filing. On Feb. 24, 2012, the Court granted Saab Cars NA relief under Chapter 11 of the Bankruptcy Code. Donlin, Recano & Company, Inc., was retained as claims and noticing agent to Saab Cars NA in the Chapter 11 case. On March 9, 2012, the U.S. Trustee formed an official Committee of Unsecured Creditors and appointed these members: Peter Mueller Inc., IFS Vehicle Distributors, Countryside Volkwagen, Saab of North Olmstead, Saab of Bedford, Whitcomb Motors Inc., and Delaware Motor Sales, Inc. The Committee tapped Wilk Auslander LLP as general bankruptcy counsel, and Polsinelli Shughart as its Delaware counsel. The Troubled Company Reporter, on July 18, 2013, reported that the U.S. arm of Saab Automobile AB won approval of its Chapter 11 liquidation plan, marking the end of the road for Swedish auto maker's bankruptcy proceedings. =========================== U N I T E D K I N G D O M =========================== HEATHROW FINANCE: Moody's Affirms 'Ba1' Corporate Family Rating --------------------------------------------------------------- Moody's Investors Service has affirmed the Ba1 corporate family rating (CFR) and Ba2-PD probability of default rating (PDR) of Heathrow Finance plc (HF) and the Ba3 ratings of HF's GBP325 million 7.125% due 2017 and GBP275 million 5.375% due 2019 senior secured notes. The only asset of Heathrow Finance plc ("HF") is its shares in Heathrow (SP) Limited ("HSP"). HSP is a holding company which owns the company that owns London Heathrow Airport ("LHR"), Europe's busiest and the world's third busiest airport in terms of total passengers. Concurrently, Moody's has also assigned a provisional (P)Ba3 rating to GBP250 million of new notes (the Notes) to be issued by HF, which are expected to mature in March 2025. The outlook on all ratings is stable. The proceeds of the Notes will be used to repay some of HF's bank facilities. The remainder of the net proceeds will be retained by HF and its subsidiaries to be used for general corporate purposes. The Notes incorporate a Net Debt to RAB (Regulatory Asset Base) covenant, which, at 92.5 percent, is higher than the 90 percent covenant included in existing financing arrangements. Over the medium term, the company will have the optionality to harmonize this covenant at the higher level whilst maintaining a five percentage point headroom under the covenant level, as per its financial policy. Moody's considers that the resulting increase in leverage does not materially alter the credit quality of HF's CFR and the existing notes. Moody's issues provisional ratings in advance of the final sale of securities and these ratings reflect Moody's preliminary credit opinion regarding the transaction only. Upon a conclusive review of the final documentation, Moody's will endeavor to assign a definitive rating to the Notes. A definitive rating may differ from a provisional rating. Ratings Rationale The Ba1 CFR of HF reflects a Probability of Default Rating of Ba2- PD and a 35% Family-wide loss given default assumption. The CFR is an opinion of the HF group's ability to honor its financial obligations and is assigned to HF as if it had a single class of debt and a single consolidated legal structure. The (P)Ba3 / LGD- 5(83%) rating of the HF Notes reflects the structural subordination of the HF Notes and the other HF Debt in the HF group structure versus the HSP secured debt financing structure (SDF). HF's Ba1 CFR reflects (1) its ownership of Heathrow, which is one of the world's most important hub airports and the largest European airport, (2) the relatively resilient traffic characteristics of Heathrow, (3) the long established framework of economic regulation that pertains to Heathrow and which currently applies for the period to 31 December 2018, (4) the declining capital expenditure program at Heathrow, (5) the capacity constraints it faces, (6) an expectation that the HF group will maintain a reasonable headroom under its Net Debt to RAB covenant, and (7) the features of the HSP SDF which puts certain constraints around management activity together with the protective features of the HF Debt which effectively limits HF's activities to its investment in HSP. Rating Outlook The rating outlook is stable. This reflects Moody's expectation that LHR will see low single digit growth overall in passenger volumes and maintain a credit profile commensurate with the current rating category. The outlook further assumes that HSP will continue to manage its debt raising program in a way that minimizes refinancing risk and allows it to comfortably meet new funding requirements. What Could Change the Rating Up The Corporate Family Rating and rating of the HF Notes could move up if the HF group were to exhibit a financial profile that evidenced materially lower leverage than currently expected. This could be suggested by a Net Debt to RAB ratio likely to be permanently below 80% and an Adjusted Interest Cover Ratio of permanently more than 1.2 times. What Could Change the Rating Down The Corporate Family Rating and rating of the HF Notes could move down if the HF group were to exhibit a financial profile that evidenced materially higher leverage than currently expected. This could be suggested by a materially reduced headroom under its Net Debt to RAB covenant or an Adjusted Interest Cover Ratio that is consistently less than 1.0 times. The methodologies used in this rating were Operational Airports outside of the United States published in May 2008, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. PUNCH TAVERNS: S&P Assigns 'B-' LT Corp. Credit Rating ------------------------------------------------------ Standard & Poor's Ratings Services said that it assigned its 'B-' long-term corporate credit rating to British hospitality and pub group Punch Taverns PLC. The outlook is stable. At the same time, S&P assigned its 'B+' long-term issue rating to the A tranches of Punch's notes issued by two subsidiaries, Punch A and Punch B. The recovery rating is '1', indicating S&P's expectation of very high recovery (90%-100%) in the event of a payment default. S&P also assigned a 'B-' long-term issue rating to Punch A's M3 notes. The recovery rating is '3', indicating S&P's expectation of meaningful recovery (50%-70%) in the event of a payment default. S&P previously rated Punch A's and Punch B's notes under its corporate securitization methodology, but S&P now rates them according to its corporate methodology. The corporate credit rating reflects S&P's view of Punch's "weak" business risk profile and "highly leveraged" financial risk profile, as S&P's criteria define these terms. With about 3,800 pubs at the end of August 2014, Punch is among the largest operators of leased and tenanted pubs in the U.K. About 96% of these pubs are either freehold or long leasehold. The company generates most of its income by providing drinks and renting its pubs to tenants. Over the past several years, the turnover in the U.K. pub market has deteriorated significantly, falling to about GBP9 billion in 2013 from more than GBP13 billion in 2006. Reasons for this include a general shift in consumer habits to healthier lifestyles, rising demand for higher-quality food, and the smoking ban introduced in 2007. By contrast, the market for eating out expanded over the same period, reaching more than GBP11 billion after GBP9 billion in 2006. On average, the size of tenanted pubs is smaller than those of managed pubs, and the food offering at many tenanted pubs is less rich than in managed pubs. Consequently, these market trends severely hampered tenanted pub operators. The number of tenanted pubs in the U.K. has declined to about 30,000 in 2013 from roughly 37,000 in 2006, whereas the number of managed pubs has remained broadly unchanged at about 12,000. S&P's assessment of Punch's business risk profile as weak reflects these adverse market trends and Punch's tenants' limited success in maintaining profitability. Since Punch started its disposal program in 2010, it has reduced the number of pubs to 3,800 as of 2014 from close to 5,400. It expects to sell a up to 900 non-core pubs over the coming years. In the first half of 2014, the group's non-core pubs, which are up for sale, have posted like-for-like declines in net income of up to 17%. The core pubs' historical performance, while better, has also been weak. Between 2010 and 2013, the like-for-like net income of the core pubs deteriorated by up to 5% per year. 2014 will likely to be the first year since 2010 that Punch will show positive like-for-like income growth rates. Punch's network is widespread across the U.K. About 37% of its pubs are in the economically stronger South East England, with 4% of them in Central London. The non-core pubs in South East England contribute slightly less than the group average, at about 32%. However, Punch has no presence abroad, which makes it fully exposed to economic and regulatory changes in the U.K. Although the group was under pressure to sell assets, between Sept. 2010 and March 2014 management was able to achieve average disposal proceeds of about GBP259,000 per non-core pub and GBP812,000 per core pub. This equates to EBITDA multiples of 19x- 20x. In light of management's long-standing track record of disposals, which are an essential part of its business strategy, our operating profit and cash flow forecasts incorporate further disposal proceeds over the coming years. This stands in contrast to S&P's liquidity analysis, where it do not assume ad hoc disposals will be a source of cash, in line with S&P's criteria. S&P views Punch's financial risk profile as "highly leveraged." Both of S&P's core leverage ratios -- Standard & Poor's-adjusted funds from operations (FFO) to debt and debt to EBITDA -- are well below the thresholds S&P would associate with a higher assessment. S&P estimates that FFO to debt will remain below 5% in 2015 and 2016, and debt to EBITDA will stay higher than 8x, including S&P's adjustment for operating leases, which increases the Standard & Poor's-adjusted debt figure by GBP80 million to GBP90 million. Given the "weak" business risk assessment, S&P has not netted cash against financial debt. However, S&P has assumed some mandatory prepayments in view of the pub disposal proceeds. Including interest on payment-in-kind (PIK) debt, S&P estimates Punch's adjusted EBITDA interest coverage in 2015-2016 at about 1.5x, supporting S&P's assessment of a "highly leveraged" financial risk profile. Excluding PIK debt interest, adjusted EBITDA coverage is 1.7x-1.8x, also in the "highly leveraged" category, as is Punch's ratio of adjusted free operating cash flow to debt of 2%-3%. After the restructuring, S&P forecasts Punch will generate a reported operating cash flow slightly higher than GBP80 million per year in 2015 and 2016. After capital expenditures of GBP40 million-GBP45 million, this should translate into reported free operating cash flow of roughly GBP40 million per year. This compares with scheduled amortization of GBP30 million-GBP45 million per year, excluding mandatory prepayments, and reveals that Punch is required to dispose of assets to fund its cash needs. In S&P's view, asset disposals are important for Punch's compliance with financial covenants. S&P's anchor for Punch -- the starting point in assigning the corporate credit rating -- is 'b-'. The combination of a "weak" business risk and a "highly leveraged" financial risk assessment indicates an anchor of 'b' or 'b-'. In light of Punch's high leverage ratios, even for a "highly leveraged" company, S&P has selected the lower of the two. The modifiers have no impact on the anchor. Consequently the long-term rating is 'B-', the same level as the anchor. In S&P's base-case scenario for Punch, it assumes: -- An overall solid economic environment in the U.K., with real GDP rising by 2.5% in 2015 and by 2.2% in 2016. -- Punch's disposal of about 240 pubs in 2015 and about 200 pubs in 2015, translating into proceeds of about GBP60 million and GBP40 million, respectively. -- About 1% year-on-year growth in drink and rent income for core pubs and a decline of about 3% per year for non-core pubs. Altogether, this should translate into a per annum revenue decline of 2%-3%. -- Given the increasing share of core pubs in the overall portfolio and strict cost control, reported EBITDA margins should rise by 25 basis points (bps) to 50 bps per year to about 46% (the Standard & Poor's-adjusted EBITDA margin is about 48%). -- Fairly limited additional working capital needs and broadly stable capital expenditures of GBP40 million-GBP45 million. Based on these assumptions, S&P arrives at these credit measures: -- Adjusted FFO to debt of 4%-5%. -- Adjusted debt to EBITDA of 8.0x-8.5x. -- Adjusted EBITDA interest coverage of about 1.5x, equating to adjusted EBITDA cash interest coverage of 1.7x-1.8x. -- Adjusted free operating cash flow to debt of 2%-3%. "We assess Punch's liquidity as "less than adequate" under our criteria. In contrast to our operating and leverage ratio forecasts, we do not factor in future asset disposals into our liquidity calculation. We therefore estimate insufficient covenant headroom for Punch's fixed charge covenant. According to our estimates, the group's free cash flow before interest will just be enough to cover both interest and scheduled amortization for 2015, but insufficient in 2016 without disposals. However, following the restructuring, we estimate liquidity sources to be significantly higher than liquidity uses over the coming 12 months," S&P said. On a pro forma basis, S&P calculates Punch's total sources of liquidity at close to GBP350 million in the 12 months following the debt refinancing, consisting of: -- Cash and equivalents of about GBP50 million; -- Liquidity facilities of more than GBP200 million; and -- FFO of more than GBP80 million. S&P forecasts uses of liquidity to reach close to GBP90 million over the same period, comprising: -- Scheduled amortization totaling GBP30 million; -- An intrayear working capital swing of GBP15 million, but a limited year-on-year change; and -- Capital expenditures of GBP40 million-GBP45 million. The stable outlook reflects S&P's forecast that Punch should be able to generate about 1% like-for-like sales growth at its core pubs, while keeping the revenue decline at non-core pubs under control at about 3% per year. The increasing share of core pubs and cost control should help improve the reported EBITDA margin slightly, to about 46%. S&P also assumes the group will dispose of a further 440 to 450 non-core pubs to generate aggregate proceeds of close to GBP100 million over 2015 and 2016. S&P do not anticipate meaningful working capital needs. Downside scenario S&P could consider lowering its ratings if unexpected declines in revenues, EBITDA margins, and cash flows significantly impeded Punch's ability to fund interest, scheduled amortization, and capital expenditures. In particular, the ratings could come under pressure if, combined with this, management were unable to complete the planned disposals. Even if there were no decline in cash flows compared with S&P's estimates, without any disposal proceeds, S&P anticipates a financial covenant breach in 2016. Upside scenario S&P could raise the long-term rating if Punch were able to generate significant like-for-like sales growth at both its core and non-core pubs, alongside stronger EBITDA margins and asset disposal proceeds that exceed S&P's estimates. However, S&P do not consider such a scenario likely in the near term. PUNCH TAVERNS A: S&P Cuts Ratings on 7 Note Classes to 'D(sf)' -------------------------------------------------------------- Standard & Poor's Ratings Services lowered to 'D (sf)' and removed from CreditWatch negative its credit ratings on Punch Taverns Finance PLC's (Punch A) class M1, M2(N), B1, B2, B3, C(R), and D1 notes. S&P's 'BB- (sf)' ratings on Punch A's class A1(R) and A2(R) are unaffected by the rating actions. The downgrades follow the consent to the transaction's restructuring proposal from The Royal Bank of Scotland PLC (liquidity facility provider and swap counterparty) announced on Oct. 7, 2014, and the previous consent from Lloyds Bank PLC (liquidity facility provider), and the noteholders. S&P understands that, with the required approval and consent, the restructuring will occur on Oct. 8, 2014. Under the agreed proposal, the respective noteholders will exchange the class M1, M2(N), B1, B2, B3, C(R), and D1 notes, at a fraction of their face amount, for a combination of cash, new class M3 and B4 notes that Punch A will issue, and, in the case of the class M1, B1, B2, and C(R) notes, new ordinary shares in Punch Taverns PLC. S&P's criteria consider such an exchange to be distressed and tantamount to a default. This is because, in S&P's view, the exchange avoids an otherwise likely default on the notes and results in an impairment of economic terms, compared with the existing contractual obligations. In particular, S&P believes that noteholders will not receive offsetting compensation for these: -- The combination of any cash, notes, and shares offered is less than the original par amount of each class of notes; -- The debt-to-equity swap offered to the class M1, B1, B2, and C noteholders alters the nature of the original promise and subordinates their claims; -- The class B4 notes do not benefit from any security on the issuer's assets or from the support of the liquidity facility, they allow for interest to be paid in kind, and have a bullet repayment profile (the notes are redeemed on the final maturity date); and -- The class M3 notes are also structured with a bullet repayment, as opposed to the amortizing structure of the outstanding notes to be exchanged. Taking these factors into account, S&P has lowered to 'D (sf)' and removed from CreditWatch negative its ratings on the class M1, M2(N), B1, B2, B3, C(R), and D1 notes (S&P had placed its ratings on all classes of notes on CreditWatch negative on April 1, 2014). S&P's ratings on these classes of notes will remain at 'D (sf)' for a period of 30 days, after which S&P will withdraw them. As S&P anticipated in its previous review, Punch A's class A1(R) and A2(R) notes are not at risk of defaulting. Therefore, S&P don't consider the offer put forward to these notes to be a distressed exchange under our criteria. While the approval of the restructuring has no rating implications for the class A1(R) and A2(R) notes, S&P understands that the contractual terms of the notes will vary, such that their repayment will be slower. Furthermore, S&P believes the holders of the restructured notes will have access to a reduced liquidity facility support. Therefore, S&P's ratings on these classes of notes remain on CreditWatch negative to reflect that the weaker characteristics of the restructured notes could lead S&P to lower its ratings on them. S&P expects to reassess the effect of the restructuring on our ratings when it has been completed. Punch A is a corporate securitization backed by a portfolio of tenanted public houses. RATINGS LIST Punch Taverns Finance PLC GBP2.65 Billion Asset-Backed Fixed- and Floating-Rate Notes Ratings Lowered and Removed From CreditWatch Negative Class Rating Rating To From M1 D (sf) CCC (sf)/Watch Neg M2(N) D (sf) CCC (sf)/Watch Neg M2(N) D (sf) (SPUR) CCC (sf)/Watch Neg (SPUR) B1 D (sf) CCC- (sf)/Watch Neg B2 D (sf) CCC- (sf)/Watch Neg B3 D (sf) CCC- (sf)/Watch Neg B3 D (sf) (SPUR) CCC- (sf)/Watch Neg (SPUR) C(R) D (sf) CCC- (sf)/Watch Neg D1 D (sf) CCC- (sf)/Watch Neg Ratings Unaffected A1(R) BB- (sf)/Watch Neg A2(R) BB- (sf)/Watch Neg A2(R) BB- (sf)/Watch Neg (SPUR) SPUR--Standard & Poor's underlying rating. PUNCH TAVERNS B: S&P Lowers Ratings on 5 Note Classes to 'D(sf)' ---------------------------------------------------------------- Standard & Poor's Ratings Services lowered to 'D (sf)' and removed from CreditWatch negative its credit ratings on Punch Taverns Finance B Ltd.'s (Punch B) class A3, A6, B1, B2, and C1 notes. S&P's ratings on Punch B's class A7 and A8 notes are unaffected by the rating actions. The downgrades follow the receipt of the liquidity facility provider's consent announced on Oct. 7, 2014, and the previous consent from the noteholders to the transaction's restructuring proposals. S&P understands that, with the required approval and consent, the restructuring will occur on Oct. 8, 2014. Under the agreed proposal, the respective noteholders will exchange the class B1, B2, and C1 notes, at a fraction of their face amount, for new securities. In the case of the class B1 and B2 notes, the noteholders will exchange their notes for a combination of new class B3 notes that Punch B will issue, and new ordinary shares in Punch Taverns PLC, with the class C1 notes being exchanged only for new ordinary shares. S&P's criteria consider such an exchange to be distressed and tantamount to a default. This is because, in S&P's view, the exchange avoids an otherwise likely default on the notes and results in an impairment of economic terms, compared with the existing contractual obligations. In particular, S&P believes that noteholders will not receive offsetting compensation for these: -- The principal amount of new securities offered is less than the original par amount of each note; -- The debt-to-equity swap offered to the class B1, B2, and C1 noteholders alters the nature of the original promise and subordinates their claims; and -- The class B3 notes do not benefit from any security on the issuer's assets or from the support of the liquidity facility and have a bullet repayment profile (the notes are redeemed on the final maturity date). As S&P anticipated in its previous review, it views the class A3 and A6 notes to be at risk of default. This prospect, combined with amended contractual terms, which slow the timing of payments and weakens the previous liquidity facility support (without offsetting compensation) qualifies the offer for the class A3 and A6 notes as a distressed exchange under S&P's criteria. Taking these factors into account, S&P has lowered to 'D (sf)' and removed from CreditWatch negative its ratings on the class A3, A6, B1, B2, and C1 notes (S&P had placed its ratings on these classes of notes on CreditWatch negative on April 1, 2014). In S&P's view, the offer as it relates to the class A7 and A8 notes is not a distressed exchange under its criteria. This is because these classes of notes benefit from a guarantee provided by MBIA UK Insurance Ltd. (B/Stable/--) and therefore, do not face the risk of a payment default. Therefore, for the class A7 notes, S&P's criteria consider the restructuring of the notes as opportunistic. The class A8 notes will instead be fully prepaid in cash on completion of the restructuring. However, S&P understands that, following the restructuring, the class A7 notes will no longer benefit from the MBIA guarantee. To reflect the removal of this support, S&P's ratings on the class A7 notes remain on CreditWatch negative. S&P expects to reassess the effect of the restructuring on our ratings on the class A3, A6, and A7 notes when it has been completed. At the same time, S&P will withdraw its ratings on the class A8 notes following their repayment. S&P's ratings on the class B1, B2, and C1 notes will remain at 'D (sf)' for a period of 30 days, after which it will withdraw them. Punch B is a corporate securitization backed by a portfolio of tenanted public houses. RATINGS LIST Punch Taverns Finance B Ltd. GBP1.574 Billion Fixed- And Floating-Rate Asset-Backed Notes Ratings Lowered And Removed From CreditWatch Negative Class Rating To From A3 D (sf) CCC (sf)/Watch Neg A6 D (sf) CCC (sf)/Watch Neg B1 D (sf) CCC- (sf)/Watch Neg B2 D (sf) CCC- (sf)/Watch Neg C1 D (sf) CCC- (sf)/Watch Neg Ratings Unaffected A7 B (sf)/Watch Neg A7 CCC (sf)/Watch Neg (SPUR) A8 B (sf) A8 CCC (sf) (SPUR) SPUR--Standard & Poor's underlying rating. =============== X X X X X X X X =============== * BOOK REVIEW: Risk, Uncertainty and Profit ------------------------------------------- Author: Frank H. Knight Publisher: Beard Books Softcover: 381 pages List Price: $34.95 Review by Gail Owens Hoelscher Order your personal copy today at http://is.gd/al9gqP The tenets Frank H. Knight sets out in this, his first book, have become an integral part of modern economic theory. Still readable today, it was included as a classic in the 1998 Forbes reading list. The book grew out of Knight's 1917 Cornell University doctoral thesis, which took second prize in an essay contest that year sponsored by Hart, Schaffner and Marx. In it, he examined the relationship between knowledge on the part of entrepreneurs and changes in the economy. He, quite famously, distinguished between two types of change, risk and uncertainty, defining risk as randomness with knowable probabilities and uncertainty as randomness with unknowable probabilities. Risk, he said, arises from repeated changes for which probabilities can be calculated and insured against, such as the risk of fire. Uncertainty arises from unpredictable changes in an economy, such as resources, preferences, and knowledge, changes that cannot be insured against. Uncertainty, he said "is one of the fundamental facts of life." One of the larger issues of Knight's time was how the entrepreneur, the central figure in a free enterprise system, earns profits in the face of competition. It was thought that competition would reduce profits to zero across a sector because any profits would attract more entrepreneurs into the sector and increase supply, which would drive prices down, resulting in competitive equilibrium and zero profit. Knight argued that uncertainty itself may allow some entrepreneurs to earn profits despite this equilibrium. Entrepreneurs, he said, are forced to guess at their expected total receipts. They cannot foresee the number of products they will sell because of the unpredictability of consumer preferences. Still, they must purchase product inputs, so they base these purchases on the number of products they guess they will sell. Finally, they have to guess the price at which their products will sell. These factors are all uncertain and impossible to know. Profits are earned when uncertainty yields higher total receipts than forecasted total receipts. Thus, Knight postulated, profits are merely due to luck. Such entrepreneurs who "get lucky" will try to reproduce their success, but will be unable to because their luck will eventually turn. At the time, some theorists were saying that when this luck runs out, entrepreneurs will then rely on and substitute improved decision making and management for their original entrepreneurship, and the profits will return. Knight saw entrepreneurs as poor managers, however, who will in time fail against new and lucky entrepreneurs. He concluded that economic change is a result of this constant interplay between new entrepreneurial action and existing businesses hedging against uncertainty by improving their internal organization. Frank H. Knight has been called "among the most broad-ranging and influential economists of the twentieth century" and "one of the most eclectic economists and perhaps the deepest thinker and scholar American economics has produced." He stands among the giants of American economists that include Schumpeter and Viner. His students included Nobel Laureates Milton Friedman, George Stigler and James Buchanan, as well as Paul Samuelson. At the University of Chicago, Knight specialized in the history of economic thought. He revolutionized the economics department there, becoming one the leaders of what has become known as the Chicago School of Economics. Under his tutelage and guidance, the University of Chicago became the bulwark against the more interventionist and anti-market approaches followed elsewhere in American economic thought. He died in 1972. ********* 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. 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 * * *