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/raid1/www/Hosts/bankrupt/TCREUR_Public/150520.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 Wednesday, May 20, 2015, Vol. 16, No. 98 Headlines F R A N C E AREVA SA: EDF Chief Defends Full Takeover Proposal G E O R G I A GEORGIA: S&P Affirms 'BB-/B' Sovereign Credit Ratings G R E E C E GREECE: Juncker No Involvement in Compromise Bail-Out Deal H U N G A R Y OT BANK: S&P Affirms 'BB/B' Counterparty Ratings, Outlook Stable R U S S I A AVANGARD POLIS: Placed Under Provisional Administration CB AKADEMRUSBANK: Bank of Russia Submits Evidence to Prosecutors KUPECHESKOE IC: Bank of Russia Revokes Insurance License METALLOINVEST JSC: Fitch Affirms 'BB' IDR, Outlook Stable S P A I N BANCAJA 3: Fitch Affirms 'CCsf' Rating on Class C Notes T U R K E Y TURK HAVA: S&P Lowers CCR to 'BB' Following Turkey Downgrade U N I T E D K I N G D O M AUSTIN REED: Obtains Financial Backing From Alteri X X X X X X X X * TLAC Rule to Build Trust Among Regulators in Bank Wind-Down ********* =========== F R A N C E =========== AREVA SA: EDF Chief Defends Full Takeover Proposal -------------------------------------------------- Michael Stothard at The Financial Times reports that Jean-Bernard Levy, the chief executive of French state-controlled utility EDF, has defended the "industrial logic" of a full takeover of Areva's nuclear reactor business, saying that an offer would be made within days. In his first public comments on the issue, Mr. Levy spoke out in favor of a more radical deal to save the state-controlled nuclear supplier, which reported a EUR4.8 billion loss last year, the FT relates. Areva has fallen victim to the sharp slump in global demand for new reactors that followed the 2011 Fukushima disaster in Japan, the FT discloses. It is also grappling with fierce competition from US, Russian and South Korean companies, the FT states. The group has not sold a new nuclear reactor since 2007, the FT notes. According to the FT, Mr. Levy told French daily Le Figaro that an offer would be made for a complete takeover of Areva NP, the division that designs, manufactures and maintains nuclear reactors and also employs about 17,000 people worldwide. He confirmed that a second, more limited offer, said to be preferred by the Areva management, would also be made to bring 1,200 Areva engineers who specialize in nuclear safety into EDF, the FT relays. The state, which owns 87% of Areva and 85% of EDF, would be able to choose between the two, the FT says. "It is up to the state, which is the majority shareholder of EDF, and Areva to decide," Mr. Levy, as cited by the FT, said. As reported by the Troubled Company Reporter-Europe on May 8, 2015, The Financial Times related that Areva will be cutting 6,000 jobs or 14% of its global workforce in over three years as options for a government-backed rescue package begin to narrow. Areva, which reported a EUR4.8 billion loss last year, said it was also lowering wages for surviving staff in an attempt to deliver the bulk of a EUR1 billion cost reduction target, the FT disclosed. Areva SA is a France-based company that offers technological solutions for nuclear power generation. The Company operates five business divisions, Mining engaged in uranium mines exploration and operation activities; Front End, which converts and enriches the uranium and designs the fuel for the nuclear reactors; Reactors and Services, which includes activities of design, construction, propulsion and research of reactors, as well as maintenance of nuclear power plant; Back-End, which recycles used fuel and provides transport, clean-up and dismantling services and Renewable Energy, specialized in development of wind energy, bioenergy, solar power and hydrogen power solutions. The Company is present in France, Asia-Pacific Region, Americas, Africa and Middle East Region through its subsidiaries, including Areva Mines and KATCO, among others. The major shareholder of the Company is Commissariat a l'Energie Atomique. ============= G E O R G I A ============= GEORGIA: S&P Affirms 'BB-/B' Sovereign Credit Ratings ----------------------------------------------------- Standard & Poor's Ratings Services affirmed its 'BB-/B' long-and short-term foreign and local currency sovereign credit ratings on the Government of Georgia. The outlook remains stable. RATIONALE Georgia has grown at an average of nearly 6% per year for the past decade, which illustrates resilience, particularly given the 2008 conflict with Russia, one of its main economic partners. S&P believes Georgia's longer-term growth prospects are positive and the country will continue to pull in significant amounts of foreign direct investment (FDI), which supports the ratings. A still moderate government debt burden and controlled public finances also underpin the ratings. That said, since S&P's last review, Georgia has faced a set of intensifying external pressures and, in S&P's view, a continuation of heightened domestic political disruption. These factors have exacerbated existing external weaknesses and caused an increase in the government's stock of debt. S&P expects that the significant depreciation of the Georgian lari against the U.S. dollar will worsen the banking sector's asset quality (because 60% of system assets are denominated in foreign currency and the majority of borrowers earn in local currency) and lead to lower credit growth. As a result, S&P has significantly lowered its growth assumptions for 2015 and 2016 by about 2.3% less each year. One of Georgia's main weaknesses is its external position, as illustrated by persistently high current account deficits that have averaged 12% of GDP between 2008 and 2014, and the large stock of external debt to narrow net external debt has averaged more than 70% of current account receipts over the same period. Georgia has faced external pressure since the war in Ukraine erupted, which was followed by a sharp fall in oil prices. The resulting contraction in Russian growth has lowered trade demand throughout the Commonwealth of Independent States (CIS; Georgia's main export market, accounting for an average of 45% of total exports between 2008 and 2014). Although S&P anticipates that FDI will hold, the growing external imbalance will probably create a need for financing with increased debt. This, in turn, is likely to weaken Georgia's net external debt position as a proportion of now much lower current account receipts. S&P consequently expects that Georgia's current account deficit will widen to about 12% of GDP during 2015, with further downside potential if import growth doesn't reduce faster than the 4% drop in the first quarter of 2015. Data from the first quarter of 2015 shows an average decline of 27% per month in export growth, and S&P assumes a 20% contraction over the full year. Another key source of foreign currency earnings comes from remittances --mainly from Russia, but also Greece and Ukraine -- which we expect will decrease and remain between 1% and 2% of GDP, below the past five-year average (9% of GDP). However, S&P projects that regional growth will improve during 2016, alongside an increase in oil prices. Therefore, S&P views the likely marked contraction in export growth over 2015 to be temporary and that the denominator effect on narrow net external debt from temporarily lower current account receipts will subside as import demand increases alongside regional growth. S&P notes that about 40% of gross external debt belongs to the public sector, which is at concessional rates and with a long average maturity (22 years). S&P also believes that the current International Monetary Fund (IMF) program would be expanded to provide extra external support if needed. The lari has depreciated by about 30% versus the U.S. dollar since August 2014, as lower oil prices led to a weakening of the ruble, which consequently fed through to smaller regional currencies, including the lari. This has happened through trade channels, but also through lower remittance flows and fewer tourists, all of which are key drivers of foreign exchange for Georgia. The high proportion of foreign currency-denominated debt to borrowers who earn in local currency will cause repayment pressures, which could also hamper private sector consumption. S&P expects that the banking sector's asset quality will deteriorate as a result and that credit growth will slow. Domestically driven growth is sensitive to political instability, which S&P believes has remained high over the past few years and has been highlighted by the departure of over one-third of cabinet ministers since November 2014. Looking toward 2016, S&P expects accelerated growth, aided by an improvement in the Russian economy, but S&P notes the cyclical slowdown of investment and consumption in election years (next election is scheduled for October 2016). S&P has lowered its growth expectations (see table 1) for 2015 and 2016, mainly as a result of lari depreciation and much weaker external demand from key regional trading partners Russia, Ukraine, Azerbaijan, and Turkey. S&P also expects that confidence factors, together with cyclically weaker domestic consumption and investment linked to the electoral cycle, will hamper growth. S&P anticipates that the public sector's capital expenditures will remain at budgeted levels and that investments will continue to rise, albeit at a much lower pace than in 2014. S&P also notes that the impact of currency depreciation against the U.S. dollar is not being fully passed through into the real economy, partly because the lari remained relatively constant compared with the currencies of regional trade partners. S&P also understands that investments from the privately funded Co-Financing Fund will start to disburse during 2015, after numerous delays in the past. S&P expects that this dip in growth will be only temporary and that Georgia's long-term potential remains strong, as demonstrated by increasing FDI figures. Substantial potential lies in the country's hydroelectricity generating capacity, vast and unexploited agricultural land, as an increasingly popular tourist destination, and as a strategic point as a trade route from China to Europe, which could include the construction of a new deep water port. Over 2015, S&P expects that the fiscal deficit will widen, but only moderately (under 4% of GDP), as revenues will likely be squeezed. This is in line with lower growth as well as with the government's pledge to stick to its budgeted capital expenditures and incremental increases in social expenditures. S&P expects that the government will implement measures to stimulate revenues, if needed, such as the sale of 4G licenses and assets from its real estate portfolio. S&P expects that deficits will mainly be narrowed by domestic debt issuance. Still, given that 80% of the government's debt stock is in foreign currency -- mainly U.S. dollars -- the impact of exchange rate depreciation, in S&P's opinion, will cause an increase of 5% of GDP in government debt. Also, S&P anticipates that the stock, on a net basis, could increase to 40% of GDP over 2015 and 2016. S&P does not expect such a significant depreciation to be repeated. S&P views Georgia's banking system as well capitalized and liquid. However, S&P anticipates that asset quality will deteriorate, linked to repayment difficulties for those borrowers who earn in local currency but hold U.S. dollar-denominated debt. Dollarization is high in Georgia, and 60% of loans are in foreign currency. Of this stock, the IMF estimates that 90% of borrowers will be unhedged. Despite the major currency depreciation, S&P understands that banks have received few requests for restructuring arrangements, although S&P expects this will increase throughout the year. S&P don't anticipate that this deterioration will result in bank recapitalization needs to be provided for by the government. S&P notes that nonresident deposits are subject to high liquidity requirements and that they have continued to increase over 2015 and account for 15% of liabilities. The National Bank of Georgia has countered lari depreciation with US$160 million over 2015 (representing 7% of usable reserves at the end of 2014), selling dollars to smoothen spikes in the exchange rate. However, the significant depreciation shows that the authorities are allowing an adjustment to take place, which should help Georgia to maintain its regional competitiveness. S&P expects that inflation will increase throughout the year as higher debt service costs are passed through to customers. Since November 2014, seven cabinet members have left their posts in the ruling Georgian Dream coalition, illustrating internal disagreements and political instability. As per the Georgian constitution, the resignation of one-third of the ministers triggers a vote of no confidence. At the time of publication, however, S&P understands that no changes had been made to the coalition, as it has the majority of the 150 seats in Parliament. S&P views these events as disruptive and expect that political instability will likely remain elevated. This is a contrast against a backdrop of relative stability since 2007, particularly given that the 2012 parliamentary elections saw a peaceful transfer of power and respect for democracy. OUTLOOK The stable outlook reflects S&P's expectation that the current external pressures will dissipate and that Georgia's relatively healthy fiscal position and strong long-term growth potential will provide space for the authorities to manage slower growth. S&P could lower the ratings if Georgia's external financing needs increase markedly more than we currently expect, thereby increasing external debt, particularly if prospects for FDI deteriorate at the same time. S&P could also consider lowering the ratings if domestic political instability materially reduces the predictability and coherence of policy-making and long-term growth prospects, or if the regional slowdown is prolonged. S&P could raise the ratings if external pressures subside and support a recovery in exports, leading to growth levels stronger than S&P's current base-case estimates. At the same time, improved prospects for investment and FDI, while maintaining fiscal discipline and policy continuity, could also support a positive rating action. In accordance with S&P's relevant policies and procedures, the Rating Committee was composed of analysts that are qualified to vote in the committee, with sufficient experience to convey the appropriate level of knowledge and understanding of the methodology applicable. At the onset of the committee, the chair confirmed that the information provided to the Rating Committee by the primary analyst had been distributed in a timely manner and was sufficient for Committee members to make an informed decision. After the primary analyst gave opening remarks and explained the recommendation, the Committee discussed key rating factors and critical issues in accordance with the relevant criteria. Qualitative and quantitative risk factors were considered and discussed, looking at track-record and forecasts. The committee agreed that all key rating factors were unchanged. The chair ensured every voting member was given the opportunity to articulate his/her opinion. The chair or designee reviewed the draft report to ensure consistency with the Committee decision. RATINGS LIST Rating Rating To From Georgia (Government of) Sovereign credit rating Foreign and Local Currency BB-/Stable/B BB-/Stable/B Transfer & Convertibility Assessment T&C Assessment BB BB Senior Unsecured Foreign Currency BB- BB- Commercial Paper Local Currency B B =========== G R E E C E =========== GREECE: Juncker No Involvement in Compromise Bail-Out Deal ---------------------------------------------------------- According to The Telegraph's Mehreen Khan, Jean-Claude Juncker, the president of the European Commission, has moved to deny reports he has intervened in Greece's bail-out negotiations, and stressed EU leaders would not agree a bail-out deal at a summit at the end of this week. Mr. Juncker had proposed a reduction in Troika-imposed budget targets and a release of emergency cash to prevent Greece going bankrupt in the summer, The Telegraph says, citing a leaked document in Greek media on May 18. The reported "plan" to break Greece's deadlock included a relaxation of Athens' primary budget surplus target to 0.75% this year -- half that previously sought by Greece's paymasters, The Telegraph notes. According to The Telegraph, the proposals, which provided more leeway to the Greek government than tough conditions demanded by its creditors over the last 110 days, also included releasing EUR5 billion to the government in June, and delaying a number of fiscal austerity measures until October. Despite being more "personally involved" in Greece's talks, Mr. Juncker denied he had put forward the compromise deal, The Telegraph relays. He also dismissed Greek hopes that bail-out cash could be released following a summit of EU leaders in Riga on May 14, adding that "the end of May, start of June" provided a more realistic horizon, The Telegraph notes. Speaking in Athens on May 18, Greek prime minister Alexis Tsipras, as cited by The Telegraph, said negotiations with creditors were reaching their "final stages". He maintained the government would not agree to any plans to cut pensions and wages but said his government was willing to "accept compromises" to reach a deal should some form of bridging finance be agreed, according to The Telegraph. Mr. Tsipras also repeated calls for debt restructuring as part of any agreement with Greece's lenders, The Telegraph notes. Indicating a potential split among official creditors, the leaked memo also noted objections to the plan from the International Monetary Fund, raising concerns the Fund was willing to withdraw its support for Greece, The Telegraph discloses. ============= H U N G A R Y ============= OT BANK: S&P Affirms 'BB/B' Counterparty Ratings, Outlook Stable ---------------------------------------------------------------- Standard & Poor's Ratings Services said that it had revised its outlooks on Hungary-based OTP Bank PLC, OTP Mortgage Bank, and Magyar Takarekszovetkezeti Bank ZRt. (Takarekbank) to positive from stable. At the same time, S&P affirmed its 'BB' long-term and 'B' short-term counterparty credit ratings on OTP Bank and OTP Mortgage Bank, and S&P's 'BB-' long-term and 'B' short-term counterparty credit ratings on Takarekbank. S&P's rating actions on these banks follow S&P's review of economic and industry risks for Hungarian banks and S&P's upgrade of Hungary on March 20, 2015. S&P thinks that domestic real estate prices and the ensuing asset quality problems for banks have largely bottomed out in Hungary. Conversion of housing loans in foreign currency to the Hungarian forint, and the government's upcoming setup of an asset management company could unlock pent-up credit demand and help decrease nonperforming loan numbers. In addition, S&P thinks households' appetite for credit will rise in the absence of any further debt relief programs. At the same time, S&P expects a more benign economic operating environment for Hungary's banks, underpinned by low-single-digit GDP growth and a stabilizing economy in the next couple of years. "We have therefore revised our assessment of economic risk for Hungarian banks to '8' from '9' under our Banking Industry Country Risk Assessment (BICRA) methodology. We now view the trend for economic risks in Hungary as positive. At the same time, we have maintained our assessment of industry risk at '7', but now regard the trend as stable versus negative previously. We expect the Hungarian government will pursue a more market friendly policy toward domestic and foreign-owned banks following its commitments -- albeit nonbinding -- included in a memorandum of understanding signed with the European Bank for Reconstruction and Development early this year. One of these is the promise to decrease the heavy bank tax levy to a level in line with EU norms through 2016- 2019. We expect this to alleviate pressure on banks' earnings and improve foreign investors' sentiment. We continue to classify Hungary in our BICRA group '8'," S&P said. "We affirmed our ratings on OTP Bank because our revised economic risk assessment has no immediate impact on our anchor (the starting point for assigning an issuer credit rating to a bank) or our 'bb' stand-alone credit profile (SACP) on the bank, given that its domestic loans account for only 45% of its total loans. About 15% of OTP Bank's cross-border operations are in Russia and Ukraine, which we view as very high risk economies. We think OTP Bank's operations in these countries will remain loss-making and weigh on its bottom-line earnings in 2015, owing to our anticipation of high credit costs and an absence of new lending. We think the risks of operating in Russia and Ukraine will counterbalance the benefits of subsiding economic risks in Hungary," S&P added. S&P equalizes the ratings on OTP Mortgage Bank with those on OTP Bank because of its status as a "core" subsidiary. S&P's view of its status is based on its full ownership by and very close organizational and operational integration with OTP Bank. S&P affirmed its ratings on Takarekbank because, despite the reduced economic risk in Hungary and the bank's strong funding and liquidity, it has diminished its capitalization because it will be managed within Hungary's savings bank cooperatives after it completes its closer integration within the group. S&P's assessment of capital and earnings as "very weak" reflects S&P's view of Takarekbank's limited capitalization and capacity to build up capital internally, owing to weak earnings. S&P recognizes that the gradual strengthening of solidarity mechanisms between the savings banks and Takarekbank ultimately reduces solvency risks for the central organization. Nevertheless, Takarekbank's stand-alone capital position remains very weak and is unlikely to improve over the next few quarters. S&P's long-term rating on the bank includes three notches of uplift to reflect its "strategically important" status to the savings cooperatives group, which directly and indirectly owns most of Takarekbank. "The positive outlook on OTP Bank and OTP Mortgage Bank takes into account our expectation of a more benign operating environment in Hungary, and to a certain extent, in the rest of Central and Eastern Europe. We could raise our ratings on the two banks by one notch, if in the next 12 months, we concluded that conditions in the domestic real estate market and the purchasing power of households had improved, while credit demand picked up, leading to less credit risks and better earnings for Hungarian banks. Conversely, if economic risks for Hungarian banks don't decrease as we currently anticipate over our outlook horizon, we could revise the outlook on OTP Bank to stable. An outlook change to stable could also result from a scenario in which credit risks in Russia and Ukraine remain exceptionally elevated and are accompanied by slower economic recovery or credit growth in Hungary than we currently expect. Trends in Russia and Ukraine remain a key rating component, and depending on how conditions evolve, we could consider either a positive or negative rating action on OTP Bank," S&P noted. The positive outlook on Takarekbank reflects the improving economic environment in Hungary, and its expected tighter integration into the group of Hungarian savings bank cooperatives. Such integration would result in the bank operating in a more integral business within the savings cooperatives' group's strategy. S&P also thinks it would create stronger risk management, and harmonized marketing, products, and information technology systems, as well as joint and several liability, across the savings cooperatives group. BICRA SCORE SNAPSHOT* Hungary To From BICRA Group 8 8 Economic risk 8 9 Economic resilience 5 5 Economic imbalances 4 5 Credit risk in the economy 5 5 Trend Positive Stable Industry risk 7 7 Institutional framework 5 5 Competitive dynamics 3 3 Systemwide funding 5 5 Trend Stable Negative *Banking Industry Country Risk Assessment. RATINGS LIST Outlook Action; Ratings Affirmed To From OTP Bank PLC Counterparty Credit Rating Foreign and Local Currency BB/Pos./B BB/Stable/B Senior Unsecured Foreign and Local Currency BB BB Short-Term Debt Foreign and Local Currency B B OTP Mortgage Bank Counterparty Credit Rating Foreign and Local Currency BB/Pos./B BB/Stable/B Magyar Takarekszovetkezeti Bank ZRt. Counterparty Credit Rating Foreign and Local Currency BB-/Pos./B BB-/Stable/B =========== R U S S I A =========== AVANGARD POLIS: Placed Under Provisional Administration ------------------------------------------------------- By its Order No. OD-1090, dated May 18, 2015, the Bank of Russia took a decision to appoint from May 18, 2015 a provisional administration to the closed joint-stock company Insurance Company Avangard Polis. The decision to appoint a provisional administration was taken due to the improper execution of solvency recovery plan by the Company. The powers of the executive bodies of the Company are suspended. Natalia Biryukova, receiver, member of non-profit partnership Managers and Receivers Association, has been appointed as a head of the provisional administration of the Company. CB AKADEMRUSBANK: Bank of Russia Submits Evidence to Prosecutors ---------------------------------------------------------------- The provisional administration of CB AkademRusBank LLC appointed by Bank of Russia Order No. OD-190, dated January 29, 2015, due to the revocation of its banking license, encountered a considerable obstruction to its activity starting the first day of performing its functions. The management of CB AkademRusBank failed to submit title documents for loans totaling more than RUR1 billion, which indicates an attempt to conceal documented evidence of the bank assets' diversion. Besides, the provisional administration established facts of loans totaling RUR590 million issued by the bank while it experienced solvency problems. Those loans were used to repay other earlier issued loans, which may prove the concealment of operations aimed at diverting assets. As a result of the inspection held, the provisional administration established that the value of the bank's property did not exceed RUR179.4 million with the value of its liabilities reaching RUR767.7 million. Therefore, on March 20, 2015, the Arbitration Court of Moscow made a ruling to recognize CB AkademRusBank as insolvent (bankrupt) and initiate bankruptcy proceedings. The state corporation Deposit Insurance Agency was approved as a receiver. The Bank of Russia submitted the information on the financial operations of the former managers and owners of CB AkademRusBank bearing the evidence of the criminal offense to the Prosecutor General's Office of the Russian Federation, the Ministry of Internal Affairs of the Russian Federation and the Investigative Committee of the Russian Federation for consideration and procedural decision making. KUPECHESKOE IC: Bank of Russia Revokes Insurance License -------------------------------------------------------- The Bank of Russia on May 14 revoked the insurance and reinsurance license from Insurance Company Kupecheskoe, limited liability company. The decision is taken due to failure committed by Kupecheskoe, limited liability company, to eliminate violations of the insurance legislation in due time, which served as a ground for the suspension of the insurance and reinsurance licenses, i.e. failure to properly implement Bank of Russia directions concerning financial stability and solvency. The decision becomes effective as of the day of its publication in the Bank of Russia Bulletin. Due to the license revocation, Kupecheskoe, limited liability company, shall be obliged: -- to take a decision on terminating insurance activity according to the legislation of the Russian Federation; -- to fulfill obligations arising out of insurance (reinsurance) contracts, and also to pay insurance benefits due for occurred insured events; -- to transfer obligations assumed under insurance (reinsurance) contracts and (or) to terminate such contracts. Within a month's period from the effective date of the decision on license revocation, Kupecheskoe, limited liability company, shall notify insured persons on the license revocation, early termination of insurance (reinsurance) contracts and (or) transfer of obligations assumed under insurance (reinsurance) contracts to another insurer. METALLOINVEST JSC: Fitch Affirms 'BB' IDR, Outlook Stable --------------------------------------------------------- Fitch Ratings has affirmed Russia-based JSC Holding Company Metalloinvest's Long-term Issuer Default Rating (IDR) at 'BB'. The Outlook is Stable. The affirmation reflects the expected deleveraging despite a weak price environment in iron ore and steel products. The company's strong business profile and low production costs provide healthy positive free cash flow (FCF) generation and resilience to market price volatility. The company's liquidity position was comfortable at end-2014, and Fitch understands that the company is actively addressing its USD1.3 billion maturities in 2016, which include USD0.7 billion of Eurobonds. KEY RATING DRIVERS Continued Deleveraging The company reduced its total debt in 2014 by USD1.2 billion to USD4.7 billion and is committed to continue deleveraging. The company generated positive FCF of USD1 billion in 2014 despite the weak price environment. Fitch expects the company to remain FCF positive during 2015-2018 although the absolute amount of cash flow is expected to decline due to a decline in profitability. Fitch expects the company's funds from operations (FFO) adjusted leverage to slightly rise to around 3.0x at end-2016 but to reduce to 2.2x at end-2018. Fitch expects further iron ore price softening, but the company's profitability to remain strong (32% EBITDA margin in 2015 and 27.9% in 2016), partly due to domestic currency weakness. Steel Segment Improvement As Fitch expected, Metalloinvest's steel segment demonstrated a material improvement after the restructuring program at the Ural Steel plant (closing an inefficient open hearth furnace) in 2013. Despite the weak price environment, the steel segment posted EBITDA of USD424 million vs negative EBITDA of USD24 million in 2013. Fitch expects the performance of the steel segment to decline in 2015 as a result of weak prices for steel products and pig iron in both export and domestic markets. The negative effect of softer prices will be compensated to some extent by the weaker domestic currency and low iron ore prices. Key Investment Projects Fitch expects Metalloinvest's annual capital spending to be around USD400 million-USD500 million during 2015-2017 as two major investment projects will be realised: the construction of a 5mtpy pellet plant number 3 at MGOK (total capex of USD450 million); and the construction of a 1.8mtpy HBI-3 plant at LGOK (total capex of USD650 million). In case of prolonged weakness in iron ore prices, the company retains the flexibility to delay the implementation of some of the projects, although given they are near completion, the opportunity costs of doing so are rising. Norilsk Nickel Stake a Source of Liquidity In 2011 Metalloinvest acquired 4% in Norilsk Nickel for USD2.2 billion. In late 2012, Norilsk Nickel shareholders agreed a new dividend policy that covers the debt raised for the stake acquisition. Norilsk Nickel's share buyback in 2013 automatically increased Metalloinvest's share to 5% from 4%. Norilsk Nickel's dividends brought in USD150 million in 2013 and USD121 million in 2014 to Metalloinvest. In late 2014, Metalloinvest disposed of 1.8% of its 5% stake using USD588 million proceeds to repay RUB25 billion bonds due in 1Q15. The remaining 3.2% stake is expected to bring in USD100 million in 2015-2016 and USD80 million in 2017+ as dividends. Udokan Project Not the Base Case Fitch does not expect Metalloinvest to participate in the development of the Udokan copper project. If Udokan was developed by Metalloinvest, it could threaten its deleveraging path and worsen its financial profile. Corporate Governance Metallonvest is a private company with corporate governance broadly in line with other Russian corporates. The country's overall weak standards of governance and lack of legal safeguards are constraints on the ratings. As a result, Fitch continues to notch down the company's ratings by two notches. The absence of a stated dividend policy, and the use of intercompany loans between Metalloinvest and its owner as an alternative means of temporarily up-streaming cash to the USM group are risks. These are balanced by the group's track record of responsible financial management and commitment to, and history of, deleveraging. LIQUIDITY AND DEBT STRUCTURE Metalloinvest's end-2014 liquidity position was strong with USD0.5 billion of cash in hand and USD0.6bn of undrawn committed bank facilities compared with USD643m of short-term borrowings. However, 2016 will see a spike in maturities of USD1.3 billion, including the USD0.7 billion Eurobond repayment in 3Q16. This may require partial refinancing, although we understand the company is already addressing this. In need, the company's 3.2% stake in Norilsk Nickel, worth USD0.9 billion, represents a potential source of liquidity. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Iron ore price assumptions are in line with Fitch price deck: USD50/t in 2015 and 2016, USD60/t in 2017 and USD70/t in 2018. - 20% YoY price decline in steel products in 2015 with 2% annual recovery afterwards. - Average RUR/USD exchange rate of 57.9 in 2015 and 55 afterwards. RATING SENSITIVITIES Positive: Future developments that could lead to positive rating action include: - Further deleverage resulting in FFO adjusted gross leverage sustainably below 2.0x and FFO fixed charge cover ratio sustainably above 8.0x. Negative: Future developments that could lead to negative rating action include: - EBITDAR margin below 25% on a sustained basis. - Related-party transactions with a major shareholder that are detrimental to the company's liquidity. - FFO adjusted gross leverage sustainably above 3.0x and FFO fixed charge cover sustainably below 6.0x - Failure to take action to address 2016 maturities by end-2015 FULL LIST OF RATING ACTIONS: JSC Holding Company Metalloinvest Foreign currency long-term IDR: affirmed at 'BB'; Outlook Stable Senior unsecured rating: affirmed at 'BB' Local currency long-term IDR: affirmed at 'BB'; Outlook Stable National long-term rating: affirmed at 'AA-(rus)'; Outlook Stable Metalloinvest Finance Limited Senior unsecured rating affirmed at 'BB' ========= S P A I N ========= BANCAJA 3: Fitch Affirms 'CCsf' Rating on Class C Notes -------------------------------------------------------- Fitch Ratings has revised the Outlook on FTPYME Bancaja 3, FTA to Stable and affirmed the ratings, as follows: Class C (ISIN ES0304501044): affirmed at 'Bsf'; Outlook Revised to Stable from Negative Class D (ISIN ES0304501051): affirmed at 'CCsf'; Recovery Estimate 0% FTPYME Bancaja 3, FTA, is a granular cash flow securitization of a static portfolio of secured and unsecured loans granted to Spanish small- and medium-sized enterprises by Bancaja. KEY RATING DRIVERS The affirmation and the Outlook revision on the notes reflect the stable performance of the transaction over the past one year. The class B notes paid in full on December 2014 and the class C notes have since amortized by EUR1.7 million. This has increased credit enhancement on the class C notes to 28.5% from 15.9%. The reserve fund is fully depleted and there is a principal deficiency ledger (PDL) balance of EUR949,000 (down from EUR2.6 million 12 months ago). There are no funds which could be used to mitigate the interruption of payments to the noteholders caused by a default of the servicer Bankia (BBB-/Negative/F3). The portfolio is highly concentrated with top 10 obligors accounting for 30.6% of the portfolio and the largest industry, real estate, comprising 39.2% of the portfolio. It is also unlikely that the interest deferral trigger, which defers interest on the class D notes once the PDL reaches a certain level, will be triggered. This means that the class C notes will have to carry the interest on the uncollateralized portion of the class D notes. The class D notes are under collateralized and the rating indicates it is highly probable that the notes will default due to the concentrated portfolio and the fairly high PDL level. Delinquencies have decreased over the last 12 months with 90+ arrears decreasing to 1.5% from 1.9% and 180+ arrears decreasing to 1.3% from 1.5%. This decrease is in part due to loans rolling over into default, with total defaults increasing to EUR20.3 million from EUR20 million. Recoveries have slowed over the past 12 months and the current recovery rate is low at 42.8%. RATING SENSITIVITIES Increasing the default rate of the assets in the portfolio by 1.25x or reducing the recovery rate of the assets in the portfolio by 0.75x would not result in a downgrade to the notes. The class D notes' rating is unaffected by either of the above sensitivities. =========== T U R K E Y =========== TURK HAVA: S&P Lowers CCR to 'BB' Following Turkey Downgrade ------------------------------------------------------------ Standard & Poor's Ratings Services lowered its long-term corporate credit rating on Turkish airline Turk Hava Yollari (THY) to 'BB' from 'BB+'. The outlook is stable. At the same time, S&P lowered the issue ratings on THY aircraft- backed enhanced-equipment trust certificates to 'BBB+'. The rating action on THY follows that on Turkey on May 8, 2015. In accordance with S&P's criteria for government-related entities (GREs), a downgrade of Turkey by one notch results in a similar action on THY. S&P's downgrade of THY is triggered solely by S&P's rating action on the sovereign; S&P has not adjusted its view of THY's SACP or our base-case scenario. S&P's 'BB' long-term rating on THY reflects S&P's assessment of its stand-alone credit profile (SACP) at 'bb' as well as S&P's view that there is "moderately high" likelihood that the Turkish government would provide timely and sufficient extraordinary financial support to THY in the event of financial distress. S&P bases this view on its assessment of THY's: -- "Important" role in Turkey's economy, as the main gateway to the country's capital city; and -- "Strong" link with the government of Turkey. Although THY is a profit-seeking enterprise, it provides Turkey with an essential service and foreign currency. In S&P's view, if THY were to default this would disrupt its activities. This is because THY relies heavily on foreign funding for its aircraft, which could be repossessed in the event of a default. The government is an important shareholder for THY and it has a policy of supporting THY in certain circumstances. The stable outlook on THY reflects S&P's view that the company will be able to maintain its competitive position, despite the competitive environment in the airline industry, and maintain FFO to debt at around 22% over the next 12 months after investing significantly in its fleet. The stable outlook also reflects that the rating would be unaffected if S&P was to lower the sovereign local or foreign currency ratings by one notch. S&P could lower the rating if THY were not able to maintain its weighted-average FFO to debt above 20%. This could occur, for example, if the Turkish lira or euro weakened or if domestic demand and average ticket prices for international flights were lower than S&P forecasts, causing THY's 2015 revenues to grow by less than 7% and its EBITDA margin to fall below 13%. S&P could also consider a downgrade if oil prices increased to above $90 per barrel, but ticket prices remained weak, because this could lead to adjusted FFO to debt dipping below 20% especially given THY's sizable capex plans. S&P could also lower the rating if THY's liquidity position deteriorated, for example, because it was unable to secure funding for its upcoming capex. S&P could take a positive rating action on THY if its adjusted FFO to debt was sustainably over 30% or if S&P upgraded Turkey. S&P could also consider an upgrade if it saw significant growth in THY's revenues, above our base-case scenario, and improvement in its EBITDA margin. =========================== U N I T E D K I N G D O M =========================== AUSTIN REED: Obtains Financial Backing From Alteri -------------------------------------------------- Ashley Armstrong at The Telegraph reports that Austin Reed, the 114-year-old British tailor whose famous clients include International Monetary Fund chief Christine Lagarde, has received financial backing from Alteri, a specialist retail vehicle. The loan agreement -- which does not disclose details of how much money is being loaned to Austin Reed -- comes four months after the retailer closed 31 shops under a restructuring plan that allowed the retailer to cut its debts, The Telegraph relays. Austin Reed's company voluntary arrangement, which was approved by creditors in February, meant that 166 stores have survived and saw existing shareholders inject GBP3 million into the business, The Telegraph discloses. According to The Telegraph, the group's three-year secured loan from Alteri is expected to provide the business with fresh liquidity and help to fund the purchase of stock and an investment in its online operations. In the group's last available accounts the group said that an existing GBP7 million bank facility with Icelandic bank Landsbanki was sufficient, but that has proved to not be the case, The Telegraph notes. Austin Reed is a Thirsk-based fashion retailer. =============== X X X X X X X X =============== * TLAC Rule to Build Trust Among Regulators in Bank Wind-Down ------------------------------------------------------------- Jim Brunsden and Ben Moshinsky at Bloomberg News report that the Financial Stability Board's proposed internal total loss-absorbing capacity rule applies to cases where a bank and its supervisors agree to handle any wind-down centrally, with the lead role given to authorities in the nation where the firm has its headquarters. According to Bloomberg, the alternative to this so-called single- point-of-entry strategy is a multiple-point-of-entry approach, whereby local regulators are responsible for planning how to handle a crisis at a unit of the bank based on their territory, and to take the necessary preemptive measures. The FSB has said that the internal TLAC rule provides "comfort" to local supervisors that resources will be available in a crisis to recapitalize and, if necessary, safely wind down the units, while preserving stability, Bloomberg relates. This in turn, it has said, should mitigate the temptation for local regulators to demand more far-reaching measures, Bloomberg notes. "Without such confidence, host authorities could demand extra resources to be ring-fenced in their own jurisdictions either ex- ante or ex-post in a resolution," Bloomberg quotes the FSB as saying in its blueprint for TLAC published in November. "The adverse consequences of such actions, including global fragmentation of the financial system, and disorderly resolutions of failed cross-border firms, should be avoided." The events of the 2008 financial crisis shattered trust between national regulators of global banks, Bloomberg notes. The U.K. and the Netherlands were forced to compensate depositors of failed Icelandic bank Landsbanki Islands hf, and bankruptcy lawyers clashed over cash transfers Lehman Brothers Holdings Inc. made from its European units in the period leading up to its collapse, Bloomberg recounts. Since then, disputes over the prerogatives of a bank's home supervisor and local host authorities have been a common theme in talks on post-crisis financial oversight, Bloomberg states. ********* 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 2015. 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 202-362-8552. * * * End of Transmission * * *