/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/160706.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, July 6, 2016, Vol. 17, No. 132 Headlines I R E L A N D AVOCA CLO XVI: Moody's Assigns B2(sf) Rating to Class F Notes CASTLE LANE: High Court Approves Survival Plan QUIRINUS PLC 23: Moody's Affirms Ba3(sf) Rating on X2 Notes I T A L Y * ITALY: May Pump Public Funds Into Troubled Banking System R U S S I A CB MIKO-BANK: Liabilities Exceed Assets, Assessment Shows CB UNIFIN: Liabilities Exceed Assets, Assessment Shows MDM BANK: S&P Lowers Counterparty Credit Rating to 'B-' MOSTOTREST PJSC: Moody's Assigns Ba3 Corporate Family Rating S P A I N CAJA LABORAL: Moody's Affirms Ba1 Long-Term Deposit Ratings FONDO EOLICO: Moody's Raises Rating on E2 Notes to Ba2 GEO TRAVEL: Moody's Affirms B2 CFR & Changes Outlook to Stable HEIDELBERGER DRUCKMASCHINEN: Moody's Affirms B3 CFR; Outlook Pos. S W E D E N SAS AB: Moody's Raises CFR to B2, Outlook Stable U N I T E D K I N G D O M BHS GROUP: Dominic Chappell Defends Actions in Collapse Probe DERBY FIREPLACE: In Liquidation, 11 Jobs Affected PIZZA EXPRESS: Moody's Affirms B3 CFR & Changes Outlook to Stable STAPLES UK: Faces Financial Woes, Mulls Rescue Options * UK: Fitch Says Brexit to Impact European High-Yield Issuance X X X X X X X X * Unenforced & Arbitration Judgments Cost 14% of Cos. Over $50M ********* ============= I R E L A N D ============= AVOCA CLO XVI: Moody's Assigns B2(sf) Rating to Class F Notes ------------------------------------------------------------- Moody's Investors Service assigned the following definitive ratings to notes issued by Avoca CLO XVI Designated Activity Company (the "Issuer" or "Avoca CLO XVI"): -- EUR273,250,000 Class A Senior Secured Floating Rate Notes due 2029, Definitive Rating Assigned Aaa (sf) -- EUR55,850,000 Class B Senior Secured Floating Rate Notes due 2029, Definitive Rating Assigned Aa2 (sf) -- EUR25,650,000 Class C Deferrable Mezzanine Floating Rate Notes due 2029, Definitive Rating Assigned A2 (sf) -- EUR22,500,000 Class D Deferrable Mezzanine Floating Rate Notes due 2029, Definitive Rating Assigned Baa2 (sf) -- EUR27,750,000 Class E Deferrable Junior Floating Rate Notes due 2029, Definitive Rating Assigned Ba2 (sf) -- EUR11,800,000 Class F Deferrable Junior Floating Rate Notes due 2029, Definitive Rating Assigned B2 (sf) RATINGS RATIONALE Moody's definitive rating of the rated notes addresses the expected loss posed to noteholders by the legal final maturity of the notes in 2029. The definitive ratings reflect the risks due to defaults on the underlying portfolio of loans given the characteristics and eligibility criteria of the constituent assets, the relevant portfolio tests and covenants as well as the transaction's capital and legal structure. Furthermore, Moody's is of the opinion that the collateral manager, KKR Credit Advisors (Ireland) ("KKR"), has sufficient experience and operational capacity and is capable of managing this CLO. Avoca CLO XVI is a managed cash flow CLO. At least 90% of the portfolio must consist of senior secured loans and senior secured floating rate notes and up to 10% of the portfolio may consist of unsecured loans, second-lien loans, mezzanine obligations and high yield bonds. The portfolio is expected to be approximately 60-70% ramped up as of the closing date and to be comprised predominantly of corporate loans to obligors domiciled in Western Europe. KKR will manage the CLO. It will direct the selection, acquisition and disposition of collateral on behalf of the Issuer and may engage in trading activity, including discretionary trading, during the transaction's four-year reinvestment period. Thereafter, purchases are permitted using principal proceeds from unscheduled principal payments and proceeds from sales of credit risk and credit improved obligations, and are subject to certain restrictions. In addition to the six classes of notes rated by Moody's, the Issuer issued EUR46.0 million of subordinated notes, which are not rated. The transaction incorporates interest and par coverage tests which, if triggered, divert interest and principal proceeds to pay down the notes in order of seniority. Factors that would lead to an upgrade or downgrade of the ratings: The rated notes' performance is subject to uncertainty. The notes' performance is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. KKR's investment decisions and management of the transaction will also affect the notes' performance. Loss and Cash Flow Analysis: Moody's modeled the transaction using CDOEdge, a cash flow model based on the Binomial Expansion Technique, as described in Section 2.3 of the "Moody's Global Approach to Rating Collateralized Loan Obligations" rating methodology published in December 2015. The cash flow model evaluates all default scenarios that are then weighted considering the probabilities of the binomial distribution assumed for the portfolio default rate. In each default scenario, the corresponding loss for each class of notes is calculated given the incoming cash flows from the assets and the outgoing payments to third parties and noteholders. Therefore, the expected loss or EL for each tranche is the sum product of (i) the probability of occurrence of each default scenario and (ii) the loss derived from the cash flow model in each default scenario for each tranche. As such, Moody's encompasses the assessment of stressed scenarios. CASTLE LANE: High Court Approves Survival Plan ---------------------------------------------- Tim Healy at Irish Independent reports that a survival plan has been approved by the High Court for Castle Lane Food Company. Ms. Justice Marie Baker approved the survival proposals for the company, Irish Independent discloses. It was placed under court protection last April and an examiner was appointed, Irish Independent relates. According to Irish Independent, the judge said she would confirm the scheme of arrangement notwithstanding objections from the company's landlord, owed some EUR100,000 in rent arrears. Castle Lane Food Company is based in Galway. The company employs nine people. QUIRINUS PLC 23: Moody's Affirms Ba3(sf) Rating on X2 Notes ----------------------------------------------------------- Moody's Investors Service affirmed the Class A and Class X2 Notes (the "Notes") issued by Quirinus (European Loan Conduit No. 23) plc (ELoC 23) (amount reflecting the initial outstanding amount): Moody's rating action is as follows: Issuer: Quirinus (European Loan Conduit No. 23) plc (ELoC 23) -- EUR560 million A Notes, Affirmed Baa1 (sf); previously on Dec 24, 2013 Confirmed at Baa1 (sf) -- X2 Notes, Affirmed Ba3 (sf); previously on Dec 24, 2013 Confirmed at Ba3 (sf) Moody's does not rate the Class B, Class C, Class D, Class E or Class F. RATINGS RATIONALE The rating affirmation of the Class A Notes reflects Moody's continuously low loss expectation for the most senior class. Moody's expects that the current Class A Note balance of EUR72.5 million (as of May 2016) will be fully redeemed by the recovery proceeds of EUR 17.8 million for the H&B 3 Loan and the anticipated sales proceeds of the retail portfolio securing the Eurocastle Retail Loan. In addition, Moody's positively took into account the full sequential allocation of recovery proceeds, which benefits the most senior class of Notes. At Moody's last rating action in December 2013, there was still some uncertainty on whether the principal proceeds of the H&B 3 Loan and the Eurocastle Loan would be repaid on a sequential basis. The Class X2 Notes have been affirmed because the overall expected loss for the pool is at a similar level as at the last rating action in December 2013. The Class X Notes reference the underlying loan pool. As such, the key rating parameters that influence the expected loss on the referenced loan pool also influences the rating on the Class X Notes. The rating of the Class X Notes is based on the methodology described in Moody's Approach to Rating Structured Finance Interest-Only Securities published in October 2015. Moody's affirmation reflects a base expected loss in the range of 10%-20% of the current balance, compared with a similar range at the last review in December 2013. Moody's derives this loss expectation from the analysis of the default probability of the securitized loans and its value assessment of the collateral. ========= I T A L Y ========= * ITALY: May Pump Public Funds Into Troubled Banking System ----------------------------------------------------------- Rachel Sanderson and Alex Barker at The Financial Times report that Italy is prepared to defy the EU and unilaterally pump billions of euros into its troubled banking system if it comes under severe systemic distress, a last-resort move that would smash through the bloc's nascent regime for handling ailing banks. According to the FT, Matteo Renzi, the Italian prime minister, is determined to intervene with public funds if necessary despite warnings from Brussels and Berlin over the need to respect rules that make creditors rather than taxpayers fund bank rescues, according to several officials and bankers familiar with their plans. The threat has raised alarm among Europe's regulators, who fear such a brazen intervention would devastate the credibility of the union's newly implemented banking rule book during its first real test, the FT relates. In the race to find workable solutions, Margrethe Vestager, the EU's competition chief, has laid out options for Rome to address its banking problems without breaking the bail-in principles of Europe's banking union, the FT discloses. Italy, the FT says, is the eurozone's biggest vulnerability following the shock outcome of the UK vote to leave the EU, with bank stocks plunging by a third. Concerns are building before the outcome of bank stress test results due this month and a constitutional referendum in Italy in early October, on which Mr. Renzi has wagered his job, the FT relays. After several of its ideas on intervention were rebuffed, Rome is considering whether to act alone, the FT states. "We are willing to do whatever is necessary [to defend the banks], and do not rule out acting unilaterally, although that would only be as a last resort," the FT quotes one person familiar with the government's thinking as saying. =========== R U S S I A =========== CB MIKO-BANK: Liabilities Exceed Assets, Assessment Shows --------------------------------------------------------- The provisional administration to manage LLC CB MIKO-BANK as appointed by Bank of Russia Order No. OD-991, dated March 24, 2016, following banking license revocation, in the course of its action to compose the Bank's register of liabilities to depositors, found the facts of ad hoc records of the Bank's liabilities to depositors to a total of over 0.8 billion rubles. At the same time, the Bank executives provided documents which allegedly evidence the facts of Bank employee theft of unaccounted-for depositor funds. However, no fact-finding action was made to identify guilty persons and redress the damage done. Concurrently, the provisional administration found that almost all of the Bank-extended loans, in excess of 3 billion rubles, are unrecoverable as they were extended to technical borrowers. In the aggregate, the circumstances found suggest the facts of intended fraud in the Bank's deposit attraction operations, as well as asset siphoning off, including placement of funds in inherently unrecoverable loans. The current joint efforts of the Bank of Russia and the State Corporation Deposit Insurance are focused on recovery of missing data on open accounts (deposits) to enable inclusion of such data into the register of the Bank's liabilities to depositors. The provisional administration estimates the value of the Bank assets to be under 0.5 billion rubles, vers. 2.2 billion rubles of its liabilities to creditors. On May 20, 2016, the Arbitration Court of the City of Moscow recognized the Bank as insolvent (bankrupt) and initiated bankruptcy proceedings. The State Corporation Deposit Insurance Agency was approved to act as its bankruptcy supervisor. The information on financial transactions indicative of criminal acts as carried out by the Bank's former executives and owners was submitted by the Bank of Russia to the Office for Prosecutor General of the Russian Federation, the Ministry of Internal Affairs of the Russian Federation and the Investigative Committee of the Russian Federation, to be reviewed and to enable the appropriate procedural decisions to be made. CB UNIFIN: Liabilities Exceed Assets, Assessment Shows ------------------------------------------------------ The provisional administration to manage CB Unifin JSC as appointed by Bank of Russia Order No. OD-524, dated February 15, 2016, following banking license revocation, in the course of its financial assessment of this credit institution, revealed the former bank executives-performed transactions which are indicative of asset siphoning off through substituting highly liquid loan debt with receivables from companies with dubious solvency, to a total of RUB1 billion. Concurrently, at the time the Bank was actually insolvent, transactions were being made to meet liabilities to certain creditors, as a matter of preference above and to the detriment of others, to a total of 0.2 billion rubles. The provisional administration estimates the value of the Bank assets to be not more than RUB4.6 billion versus RUB9 billion of its liabilities to creditors. On June 22, 2016, the Arbitration Court of the City of Moscow recognized the Bank as insolvent (bankrupt) and initiated bankruptcy proceedings. The State Corporation Deposit Insurance Agency was approved to act as its bankruptcy supervisor. The information on financial transactions indicative of criminal acts as carried out by the Bank's former executives and owners was submitted by the Bank of Russia to the Office for Prosecutor General of the Russian Federation, the Ministry of Internal Affairs of the Russian Federation and the Investigative Committee of the Russian Federation, to be reviewed and to enable the appropriate procedural decisions to be made. MDM BANK: S&P Lowers Counterparty Credit Rating to 'B-' ------------------------------------------------------- S&P Global Ratings lowered its long-term counterparty credit rating on Russia-based MDM Bank to 'B-' from 'B' and lowered its short-term counterparty credit rating to 'C' from 'B'. The outlook is stable. S&P also lowered its Russia national scale rating to 'ruBBB' from 'ruBBB+'. The capitalization of MDM Bank, measured using S&P's risk- adjusted capital (RAC) ratio before diversification, deteriorated in 2015 to 2.3% from 5.0% as of end-2014. The decline was predominantly caused by the substantial credit costs charged over 2015. These amounted to about Russian ruble (RUB) 21 billion, or 10% of the average loan portfolio. Nevertheless, S&P anticipates that the new bank created through the merger of MDM Bank and B&N Bank will see its RAC ratio increase to about 4.5%-5.0% by the end of 2017, following a planned RUB10 billion share capital increase and RUB3.5 billion of perpetual subordinated debt from the owners. Therefore, S&P's ratings factor in its expectation that the merger with B&N Bank will go ahead as planned and without serious negative implications for asset quality and capital. Therefore, S&P expects MDM Bank to cease to exist in its current form. Should the merger be delayed and no capital support for MDM Bank is forthcoming, or the merged entity's capital position does not recover as fast as S&P expects after the merger, it might consider revising down its view of the capital position. S&P forecasts that credit costs for the consolidated entity are likely to remain high at 4.0%-5.5% over the next two years. At the same time, S&P considers that synergy effects could see the consolidated bank generating a return on equity of about 10% from 2017, compensating for its additional provisioning needs. S&P also views as positive the capital support MDM Bank's owners have recently provided. The owners transferred about RUB4 billion of subordinated debt into equity. An outstanding amount of about RUB5 billion in subordinated debt has also been structured as a perpetual capital instrument, which makes the latter eligible for inclusion in Additional Tier 1 capital under local regulation. S&P considers this instrument to have intermediate equity content because of its perpetual nature and the bank's ability to cancel interest payments, at its sole discretion. Other rating factors remain unchanged as S&P continues to reflect the 'bb-' anchor it applies for commercial banks in Russia. S&P takes into account that MDM Bank's focus on the recovery of legacy problem loans, rather than new business generation, has caused its market share to decline over the past five years. The other factor affecting S&P's assessment of its business position is the integration process; the overall structure of the merged institution is still evolving and there are material integration risks ahead. S&P assess its risk position as moderate, primarily reflecting weaknesses in the bank's risk-management systems that have resulted in a high share of nonperforming loans (NPLs). Furthermore, S&P regards the bank's funding as average and its liquidity as adequate. Consequently, the bank's stand-alone credit profile (SACP) is lower than the anchor at 'b-'. The stable outlook primarily reflects S&P's expectation that, over the next 12-18 months, the expected consolidated group's asset quality and capitalization will remain unchanged from the projected levels, despite the difficult operating environment in Russia. That said, ongoing capital support from the shareholders is likely to compensate for the operational and financial risks that stem from the planned merger between B&N Bank and MDM Bank. S&P could consider lowering the rating if the bank does not manage to sustainably recover its capital position within the next 12 months, indicated by S&P's RAC ratio remaining below 3%. S&P could also lower the rating because the integration risks arising from the merger with B&N Bank had materialized. An upgrade would depend on operating conditions in Russia stabilizing, and on MDM Bank making progress in its integration with B&N Bank. S&P could consider raising the rating if it considered that, within the Russian banking sector, the systemic importance of the bank created from MDM Bank and B&N Bank had increased. MOSTOTREST PJSC: Moody's Assigns Ba3 Corporate Family Rating ------------------------------------------------------------ Moody's Investors Service has assigned a first-time non- investment grade Ba3 corporate family rating (CFR) and Ba3-PD probability of default (PDR) rating to Russian infrastructure construction company Mostotrest PJSC (Mostotrest). The outlook on the ratings is stable. "Mostotrest's Ba3 rating weighs its position as Russia's largest transportation infrastructure construction player, its good revenue visibility and healthy financial profile against its modest scale versus global peers, reliance on a flagging Russian construction market, and high project concentration with exposure to large high-risk multi-year works," says Ekaterina Lipatova, a Moody's Assistant Vice President -- Analyst. RATINGS RATIONALE Mostotrest's Ba3 CFR reflects (1) its position as the Russia's largest transport infrastructure construction player with established reputation as a reliable general contractor and strong in-house expertise in technologically-advanced projects, with a focus on roads and bridges; (2) the low risk business model, whereby most projects relate to the construction of important federal transport infrastructure and are performed under contracts with state bodies; (3) good revenue visibility, owing to its healthy backlog as well as solid bidding opportunities even during down-cycles in the market of large complex infrastructure projects characterized by limited competition and material barriers to entry; (4) strong track record of successful execution and careful project and cost management supporting adequate operating margins despite increasing inflationary pressure; and (5) gradual diversification into more profitable and stable services segment. The rating further factors in Mostotrest's conservative financial policy and prudent development strategy, which, together with moderate capex requirements, allows the company to maintain a healthy financial profile with adjusted debt/EBITDA at below 2.5x in 2016. On a net-debt basis, adjusted leverage will be stronger, at or below 1.0x, supported by substantial cash balances at year- end under the distinct annual cash cycle, whereby contract receipts are clustered towards the end of each year. Although high seasonality involves some in-year liquidity volatility, the company's good access to bank funding mitigates this risk. However, the rating is constrained by Mostotrest's (1) modest scale relative to its global peers; (2) reliance on Russian transport infrastructure construction market, which is under ongoing pressure from the weak domestic economy and the resulting lower state spending on infrastructure projects, albeit longer- term fundamentals remain strong; (3) high project and customer concentration (its five largest projects account for around 50% of its order book); and (4) exposure to large complex high-risk multi-year projects and growing participation in public--private partnership (PPP) projects, which require material long-term investments. In particular, Moody's cautions significant risks related to Mostotrest's involvement in the large and complex Kerch bridge project and will closely monitor its execution. Although there is also some corporate governance risk associated with the controlling shareholder being a financial investor, it is partly offset by the shareholder's long-term strategic view toward its holding, in particular, given its relation to Russian Railways Joint Stock Company (Ba1 negative), a large customer in the infrastructure market. RATIONALE FOR THE STABLE OUTLOOK The stable outlook on the ratings reflects Moody's expectation that Mostotrest's business model will prove resilient to the deteriorating operating environment and the company will maintain healthy construction volumes and profitability. The outlook assumes that the company will continue to adhere to a conservative financial policy with adjusted debt/EBITDA sustainably below 3.0x. WHAT COULD CHANGE THE RATINGS UP/DOWN Mostotrest's rating could be upgraded if the company (1) builds a track record of strong operating performance growing its revenue and backlog, while preserving healthy profitability; (2) sticks to conservative financial policies with adjusted debt/EBITDA sustainably below 2.0x; and (3) maintains good visibility over future cash flows alongside conservative liquidity management. Mostotrest's rating could come under pressure if the company faced material deterioration in its business and financial profile, with adjusted debt/EBITDA increasing materially above 3.0x on sustainable basis. Any uncertainty regarding the company's liquidity could also put negative pressure on the ratings. ========= S P A I N ========= CAJA LABORAL: Moody's Affirms Ba1 Long-Term Deposit Ratings ----------------------------------------------------------- Moody's Investors Service has affirmed Caja Laboral Popular Coop. de Credito's long-term deposit ratings at Ba1. The rating agency also affirmed the bank's baseline credit assessment (BCA) and adjusted BCA at ba1 and upgraded the Counterparty Risk (CR) Assessment to Baa2(cr)/Prime-2(cr) from Baa3(cr)/Prime-3(cr). The outlook on the long-term deposit ratings remains stable. Caja Laboral's Not-Prime short-term deposit ratings were unaffected by today's rating action. This rating action reflects the stabilization of the bank's solvency and liquidity position, with improving asset quality trends offset by downward pressure on the bank's top-line earnings. The rating action also reflects the result of Moody's Advanced Loss Given Failure (LGF) analysis, which indicates a higher cushion against default provided to the senior obligations represented by the CR Assessment, in light of the bank's deleveraging and stability in deposits. RATINGS RATIONALE RATIONALE FOR AFFIRMING THE BCA Caja Laboral's affirmed ba1 BCA continues to reflect the bank's adequate solvency levels against its balance sheet risk profile, as well as its favorable funding position, given its large deposit base and reduced reliance on market funding. However, the BCA also reflects the relatively high -- albeit declining -- level of problematic assets and the historically modest profitability indicators. In terms of asset risk, the bank's non-performing loan (NPL) ratio stood at 7.2% by end-December 2015, down from 8.4% a year earlier, and compares favorably with the system average of 9.5%. While the exposure to other problematic assets -- namely repossessed real estate assets and refinanced loans classified as performing -- has not evolved as positively as the stock of NPLs, the broader problematic assets ratio still declined to 17.2% at the end of 2015 from 17.7% a year before. Moody's has also incorporated Caja Laboral's improved capital ratios, primarily driven by the balance sheet deleveraging with a lower exposure to sovereign bonds. Moody's calculated Tangible Common Equity (TCE) ratio improved to 12.4% at end-December 2015 from 10.7% a year earlier, benefiting from lower risk weighted assets that Moody's assigns to the bank's sovereign exposure, given that a large part of the bank's Spanish sovereign debt portfolio matured in 2015. From a regulatory perspective, the bank's capital ratios also improved, with Caja Laboral reporting a phased-in Common Equity Tier 1 (CET 1) ratio of 15.1% at end- December 2015, which compares to 13.6% a year earlier. In affirming Caja Laboral's BCA, Moody's has also taken into account the weakening trend in the bank's top-line earnings, which, to a large extent, offsets the positive developments on the bank's financial strength due to improved quality of assets. The bank's net interest income decreased by 16% in 2015 compared to 2014, which, combined with the stability observed in other revenue sources and operating expenses, led to a 17% decrease in the pre-provision income in 2015. RATIONALE FOR AFFIRMING THE LONG-TERM DEPOSIT RATINGS The affirmation of Caja Laboral's long-term deposit ratings at Ba1 reflects: (1) The affirmation of the bank's adjusted BCA at ba1; (2) the result from the rating agency's Advanced Loss-Given Failure (LGF) analysis, which results in an unchanged no uplift for the deposit ratings; and (3) Moody's assessment of a low probability of government support, which results in no uplift. RATIONALE FOR UPGRADING THE CR ASSESSMENT Moody's has upgraded the CR Assessment of Caja Laboral by one- notch to Baa2(cr)/Prime-2(cr) from Baa3(cr)/Prime-3(cr), two notches above the adjusted BCA of ba1. The upgrade of the CR Assessment is based on the outcome of Moody's Advanced LGF analysis, which provides a more favorable outcome for the CR Assessment as a consequence of the decline in total assets and the stability in deposits observed in 2015. As a consequence, the senior obligations represented by the CR Assessment benefit from a higher cushion against default. RATIONALE FOR THE STABLE OUTLOOK Caja Laboral's deposit ratings carry a stable outlook, reflecting our expectations that Spain's favorable economic conditions will help to preserve current trends in the bank's credit fundamentals. WHAT COULD CHANGE THE RATING ? UP Upward pressure on Caja Laboral's standalone BCA could be primarily driven by a sustainable recovery in the bank's recurrent earnings, provided that its risk profile does not deteriorate. Any change to the BCA would likely also affect deposit ratings, as they are linked to the BCA. Caja Laboral's deposit ratings could also change as a result of changes in the loss-given-failure faced by these securities. WHAT COULD CHANGE THE RATING ? DOWN Downward pressure could be exerted on Caja Laboral's BCA as a result of: (1) An acceleration in the trend of NPL formation, on an absolute level and in relation to the system average; (2) any worsening in operating conditions beyond our current expectations; and/or (3) any weakening of Caja Laboral's internal capital generation and risk absorption capacity. Caja Laboral's deposit ratings could also change as a result of changes in the loss-given failure faced by these securities. LIST OF AFFECTED RATINGS Issuer: Caja Laboral Popular Coop. de Credito Upgrades: Short-term Counterparty Risk Assessment, upgraded to P-2(cr) from P-3(cr) Long-term Counterparty Risk Assessment, upgraded to Baa2(cr) from Baa3(cr) Affirmations: Adjusted Baseline Credit Assessment, affirmed ba1 Baseline Credit Assessment, affirmed ba1 Long-term Deposit Ratings, affirmed Ba1 Stable Outlook Actions: Outlook remains Stable. FONDO EOLICO: Moody's Raises Rating on E2 Notes to Ba2 ------------------------------------------------------ Moody's Investors Service has upgraded to Ba2 from B1, the rating of the Series E2 notes issued under the AyT FONDO EOLICO, FTA programme (AyT Fondo Eolico). Issuer: AyT FONDO EOLICO, FTA EUR7.6 mil. Series E2 Notes, Upgraded to Ba2; previously on June 29, 2015, Upgraded to B1 AyT Fondo Eolico represents the securitization of loans granted for the purpose of developing different Eolic projects in the region of Galicia. These projects are established under the Galician Eolic Plan (Plan Eolico Estrategico), which the Galician government has approved to promote the development of Eolic parks in Galicia. RATINGS RATIONAL The upgrade follows the upgrade of Abanca Corporacion Bancaria, S.A. long term deposit rating to B2 from Caa1 and the upgrade of its Counterparty Risk (CR) assessment to Ba3(cr) from B2(cr) on June 27, 2016. Given that Abanca acts as guarantor to ensure any principal payments due on the loans, this has a positive impact in the transaction. KEY COLLATERAL ASSUMPTIONS The transaction features a guarantee from Abanca Corporacion Bancaria, S.A. on any principal payments due on the loans. Abanca Corporacion Bancaria, S.A. also guarantees the portion of interest that does not depend on the turnover of the debtor. However, there is no guarantee that bondholders will receive the variable amount (2.75% of turnover) of interest to which they are entitled. Moody's ratings do not address the timely payment of this portion of interest, but only the (1) timely payment of interest accrued at the reference index plus 25 basis points; and (2) payment of principal at final legal maturity of the notes. Moody's did not conduct a cash flow analysis or stress scenarios as it directly derived the rating by accounting for the joint benefit of the guarantee and of the cash deposits. Moody's rating methodology takes into account the joint benefit of the guarantee and the cash deposits. The rating agency is assuming a default probability for the notes that is consistent with the CR Assessment of the guarantor, but currently includes in its recovery assumption the benefit of the cash deposit, as well as a claim on the guaranteeing bank for the residual amount of the principal. As a result, Moody's currently rates the notes one notch above the CR Assessment of the guaranteeing bank. COUNTERPARTY RISK EXPOSURE The rating action took into consideration the notes' exposure to relevant counterparties, such as the guarantor and the issuer account bank. Moody's also incorporated the updates to its structured finance methodologies in its analysis of the transaction. The likelihood of payments under the notes relies primarily on a guarantee from Abanca Corporacion Bancaria, S.A. In addition, since 2008, the guarantor strengthened its collateral guarantee by making cash deposits in BNP Paribas Securities Services (deposits/senior unsecured A1 stable). This deposit currently represents around one third of the current outstanding notes' amount. FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING: Factors or circumstances that could lead to a downgrade for the ratings affected by the rating actions would be (1) worse-than- expected performance of the underlying collateral; (2) an increase in counterparty risk; and (3) an increase in sovereign risk. Factors or circumstances that could lead to an upgrade of the ratings affected by today's action would be (1) better-than- expected performance of the underlying collateral; (2) a decline in counterparty risk; and (3) a reduction in sovereign risk. PRINCIPAL METHODOLOGY The principal methodology used in this rating was "Rating Transactions Based on the Credit Substitution Approach: Letter of Credit-backed, Insured and Guaranteed Debts" published in December 2015. GEO TRAVEL: Moody's Affirms B2 CFR & Changes Outlook to Stable -------------------------------------------------------------- Moody's Investors Service has changed to stable from negative the outlook on the ratings of Spanish-based on line travel agency Geo Travel Finance S.C.A. Luxembourg (ODIGEO or the company). The change in outlook to stable from negative takes into account these factors: -- Strong recovery in trading performance and deleveraging in the year ended March 31, 2016, -- Expectations of a continuation of conservative financial policies supporting further deleveraging -- Continued growth in the European on line travel agency (OTA) sector supported by increasing travel volumes, the shift to on line and market share gains for larger players -- The company's low exposure to the UK and Moody's expectations of a limited impact on ODIGEO from uncertainties caused by Brexit At the same time, Moody's has affirmed ODIGEO's B2 corporate family rating (CFR) and B2-PD probability of default rating (PDR), as well as the Caa1 rating on the EUR129 million senior unsecured notes maturing in 2019. Moody's has also affirmed the B3 rating on the EUR295 million senior secured notes maturing in 2018 and issued by Geo Debt Finance S.C.A. RATINGS RATIONALE The change in outlook reflects the company's strong trading performance and reduction in leverage in FY2016. Booking volumes and revenue margin grew by 9.8% and 6.4% respectively, with strong growth in mobile (bookings up 51%) and in non-flight revenue margin (up 9.6%). The company's core markets of France, Spain and Italy were stable with growth in the rest of the business (bookings up 20%). The company has reduced its exposure to paid search contributing to a reduction in variable costs per booking of 6.1%, leading to underlying EBITDA growth (before staff bonuses which were withheld in FY2015) of approximately 12%. In addition leverage has fallen to 4.7x debt to EBITDA on a Moody's-adjusted basis at 31 March 2016, stated pro forma for the buyback of EUR30 million of senior secured notes in April 2016, compared to 5.4x at Sept. 30, 2015. Moody's expects conservative financial policies to continue which will support further deleveraging. The European OTA sector is expected to grow as air passenger volumes increase, as more customers seek to make purchases on line, and as the larger OTAs gain share at the expense of smaller players. ODIGEO is the #1 or #2 OTA in flights in its main European markets and the #3 OTA overall in Europe across flight and non-flight products. It has grown revenue margin at 7.2% per annum on average over the last 5 years and despite the potential uncertainties over the pace of market growth following Brexit, the company remains well placed to deliver solid single digit growth in the medium term. In addition the company has a low exposure to UK generated business and to sterling. The B2 CFR reflects (1) ODIGEO's continued high leverage; (2) a geographic concentration in Southern Europe and France; and (3) industry risks, including value chain disintermediation from airlines or other intermediaries, exposure to paid search costs and risks of exogenous shocks. More positively, the ratings are supported by: (1) ODIGEO's competitive positioning within the OTA industry in Europe, particularly within the flight segment and in its key markets of France, Spain, Italy, Germany, and Scandinavia; (2) Moody's expectation that the on line travel market will continue to benefit from migration from high-street travel agencies, although at a slower rate than in the past; (3) Moody's expectation of general growth in the airline passenger market; and (4) conservative financial policies expected to drive further deleveraging. Rating Outlook The stable outlook reflects Moody's expectation that the company will continue to generate solid single-digit growth in revenue margin and with a stable cost environment. It also assumes that conservative financial policies will continue with no material debt-funded acquisitions or dividends in the near to medium term, and that liquidity will remain satisfactory. What Could Change the Rating - Up Upward pressure on the rating could occur if Moody's-adjusted debt/EBITDA were to trend substantially below 4.0x on a sustainable basis, with Moody's-adjusted free cash flow (FCF) to debt above 10%. Moody's would in such a scenario also expect ODIGEO to display solid growth in revenue margin and stable EBITDA margins, with liquidity remaining satisfactory. What Could Change the Rating - Down Negative rating pressure could develop if Moody's-adjusted debt/EBITDA were to exceed 5.0x, if Moody's-adjusted FCF to debt were to trend towards zero, or if the company's liquidity profile was to weaken. Negative pressure could also develop if there is significant disruption to the market or distribution chain resulting in reducing revenue margin or profitability, or if the company is unable to carry out a timely refinancing of its capital structure. HEIDELBERGER DRUCKMASCHINEN: Moody's Affirms B3 CFR; Outlook Pos. ----------------------------------------------------------------- Moody's Investors Service has changed to positive from stable the outlook on its ratings of Heidelberger Druckmaschinen AG. At the same time, Moody's affirmed the group's B3 corporate family rating, the B3-PD probability of default rating (PDR) and the Caa1 (LGD4) rating on the EUR205 million senior unsecured notes (due 2022). RATINGS RATIONALE "The outlook change to positive was prompted by Heidelberg's recovering credit metrics through fiscal year (FY) 2016 (ended 31 March 2016) and our assessment of the group's strengthened business profile following multi-year restructuring initiatives to re-align its product portfolio and improve profitability," says Goetz Grossmann, Moody's lead analyst for Heidelberg. "While we expect the group's leverage to reduce towards 6x Moody's-adjusted debt/EBITDA over the next two years, supported by moderate growth in earnings and a gradual phasing out of restructuring costs, an upgrade to B2 would mainly hinge on the group's ability to meaningfully improve its negative free cash flow generation by fiscal year-end March 2018," adds Mr. Grossmann. The rating action recognizes Heidelberg's improved financial performance and credit metrics in fiscal year ended March 2016. While topline growth of 7.6% year-over-year (yoy) was strongly supported by favorable currency movements (mainly owing to a strengthening US dollar) and scope effects, increased profits before non-recurring items led to a moderate recovery in margins and reduced the group's leverage. For instance, Heidelberg's EBITA margin as adjusted by Moody's of 3.8% in the previous fiscal year climbed to 4.5% in fiscal year 2016 (3% including restructuring costs, which Moody's adjusted only until FY 2015), and leverage reduced to 5.8x debt/EBITDA (7.1x including restructuring costs) from 7.4x in FY 2015. The improved leverage also benefitted from Heidelberg's pension obligations, which decreased during 2015 to EUR534 million as of 31 March 2016 from EUR605 million in the prior year and which Moody's includes in its debt calculations for Heidelberg. Moreover, Moody's acknowledges Heidelberg's large-scale restructuring measures and portfolio re-alignment executed over the last couple of years, which significantly lowered its fixed cost base (e.g. headcount reduction to below 11,600 in FY 2016 from 15,200 in FY 2011) and strengthened its business profile. Moody's considers Heidelberg's current business model to be less vulnerable to customers' cyclical spending on new printing presses following the disposal and re-organization of certain loss-making equipment businesses such as its postpress commercial and packaging activities in 2015. At the same time, the group has expanded its expertise in new technologies such as digital printing and in the more stable and profitable segment of services and consumables, partly through acquisitions. As a result, the group's revenue share derived from higher-margin services and consumables has increased to 47% in FY 2016 from 37% in FY 2013. Moody's also expects the group's strategic focus on further growing its more profitable services segment (reported EBITDA margins more than twice as high as in the equipment segment), together with ongoing, although abating restructuring measures, to spur further growth in profits and improve free cash flow generation. Nonetheless, before considering an upgrade of Heidelberg to B2, Moody's would require free cash flow (FCF) generation to improve to positive territory. This should also be supported by lower interest costs given Heidelberg's recently optimized financing structure. Following the full early redemption of its outstanding 9.25% high-yield bond (due 2018) in June 2016 and a loan of up to EUR100 million granted by the European Investment Bank (EIB) to fund its R&D activities in May 2016, Moody's expects the group's borrowing costs to reduce by some EUR8 million p.a. OUTLOOK The positive outlook reflects Moody's expectation of Heidelberg to modestly grow its topline (including through occasional bolt- on acquisitions) and to at least maintain its current profitability (including possible additional restructuring expenses). This should translate into leverage reducing well below 6.5x debt/EBITDA and positive free cash flow generation over the next 12-18 months. LIQUIDITY Heidelberg's liquidity is adequate. This assessment takes into consideration a sizeable cash position on the group's balance sheet amounting to EUR215 million (of which EUR30 million are subject to foreign exchange restrictions) at March 31, 2016, and projected funds from operations in excess of EUR60 million (after restructuring cash-outflows) in FY 2016. These sources are sufficient to cover all basic cash requirements of the group over the next 12-18 months, including capital expenditures of over EUR90 million, smaller debt maturities and working capital spending, although Moody's projects free cash flow to remain slightly negative this fiscal year. Moreover, Moody's liquidity analysis of Heidelberg comprises the group's committed and largely undrawn EUR250 million revolving credit facility (maturing in June 2019) as well as compliance with financial covenants as stipulated in its financing agreements. WHAT COULD CHANGE THE RATING Moody's might consider to upgrade Heidelberg to B2, if the group was able to (1) sustainably improve profitability, evidenced by Moody's-adjusted EBITA margins of 3.5% or higher (including restructuring costs), (2) reduce leverage to below 6.5x Moody's- adjusted debt/EBITDA, (2) improve Moody's-adjusted EBITA/interest expense above 1x, and (4) if visibility of sustained positive free cash flow generation were to increase. Downward pressure on Heidelberg's ratings would evolve, if the group materially failed to improve its operating profitability and free cash flow generation as expected by Moody's. Any evidence of a weakening liquidity including insufficient headroom under financial covenants could also result in a rating downgrade or stabilization of the outlook. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Global Manufacturing Companies published in July 2014. Based in Wiesloch, Germany, Heidelberger Druckmaschinen AG is the leading global manufacturer of sheet-fed offset printing presses used primarily in the advertising and packaging printing segments. Its main competitors include unrated Koenig & Bauer and Komori. In fiscal year ended March 31, 2016, (FY 2016), the group generated revenues over EUR2.5 billion and reported EBITDA (excluding special items) of EUR189 million. Heidelberg operates under three business segments: (1) Heidelberg Equipment (approximately 53% of revenues in FY 2016); (2) Heidelberg Services (around 47%); and (3) Heidelberg Financial Services (less than 1%). =========== S W E D E N =========== SAS AB: Moody's Raises CFR to B2, Outlook Stable ------------------------------------------------ Moody's Investors Service has upgraded Scandinavian airline group SAS AB's (SAS) corporate family rating to B2 from B3 and its probability of default rating to B2-PD from B3-PD. Concurrently, Moody's has upgraded its subsidiary SAS Denmark-Norway-Sweden's backed subordinated loan rating to Caa1 (LGD 6) from Caa2 (LGD 6) and its backed senior unsecured MTN rating to (P)B3 (LGD 4) from (P)Caa1 (LGD 5). Moody's has affirmed the NP commercial paper rating and the (P)NP backed other short term rating. The outlook on all the ratings is stable. "We upgraded SAS's ratings to reflect its material earnings improvement in fiscal year 2015 and its solid financial performance in the first half of fiscal year 2016, which have strengthened the company's credit metrics," says Sven Reinke, a Moody's Vice President - Senior Credit Officer and lead analyst for SAS. "We anticipate that SAS's performance will continue to be challenged by the expansion of low-cost competitors, including Norwegian Air Shuttle ASA. However, our forecast of low oil prices for the next two years and SAS's ongoing cost saving initiatives will support a stable operating performance over the next 12-18 months", Mr. Reinke adds. RATINGS RATIONALE The upgrade of SAS's ratings reflects the airline's strong performance in fiscal year (FY)2015 and its solid results in the first half of FY2016, which resulted in credit metrics that for the last 12 months to April 2016 were well within Moody's guidance for a B2 rating. The company's reported that pre-tax income before nonrecurring items improved substantially to SEK1,329 million in the 12 months to April 2016, up from SEK388 million the previous year. This improvement was driven by (1) lower fuel costs, which fell to SEK6.8 billon compared with SEK9.3 billion in the previous 12 months; and (2) lower payroll expenses of SEK9.4 billion compared with SEK10.2 billion in the previous 12 months, as a result of SAS's cost saving measures. These cost savings more than offset a material decline in currency-adjusted passenger yield by 8.5% in the first half of FY2016. SAS has executed a number of restructuring and cost efficiency programs in recent years, such as the 4Excellence Next Generation program between 2012 and 2015 that lowered the company's cost base by around SEK3 billion. Key pillars of the program were new pension terms (notably the transition away from defined-benefit to defined-contribution schemes), and the reduction of headcount by around 2,600 full-time employees, equivalent to 17% of the workforce. The company delivered a further SEK920 million of cost savings in FY2015, predominately owing to the outsourcing of ground handling and aircraft maintenance activities, aircraft fleet simplification and the introduction of a two-tier production model, whereby more regional services are now operated by wet-lease partners. However, SAS continues to suffer from severe yield pressure driven by additional capacity from both low cost and network carriers. SAS increased its own capacity by 11.5% in the first half of FY2016 as it expanded its long-haul network. Despite lower ticket prices, SAS could not fully utilize the additional capacity, with revenue passenger kilometers rising by only 8.7%. This resulted in a decrease of its load factor to 67.7% compared with 69.5% in the first half of FY2015. SAS also reported operational difficulties in Q2 FY2016, partially owing to an abnormal level of unscheduled maintenance. However, Moody's notes that SAS affirmed its outlook for FY2016, guiding for a positive earnings before tax before non-recurring items, as well as a capacity increase of 10%. After deciding to prioritize production stability and quality in the current fiscal year, the company lowered its targeted cost savings for FY2016 by SEK0.3 billion to SEK0.7 billion. SAS is targeting efficiencies in areas such as maintenance, ground handling, supply chain and logistics, administration and sales, and facilities and rental agreements. SAS's ratings reflect the application of Moody's rating methodology for government-related issuers (GRIs). The B2 rating for SAS incorporates a one-notch uplift from the GRI methodology reflecting the combination of the following GRI inputs: (1) a baseline credit assessment (BCA) of b3; (2) the Aaa local- currency rating of the Scandinavian sovereign shareholders; (3) 'High' dependence; and (4) 'Low' support. SAS's b3 BCA reflects the company's improving although still low operating profitability, despite far reaching internal restructuring efforts, leading to moderately high leverage. SAS's current adjusted debt-to-EBITDA ratio is well positioned for a b3 BCA. This ratio fell to 4.2x in Q1 FY2016 from 7.2x at FY2014. However, Moody's expects no material improvement in leverage over the next 12-18 months, as low fuel expenses and ongoing cost efficiency measures are likely to be offset by yield pressure, as a result of growing capacity in SAS's core Scandinavian market. The company's liquidity is adequate even beyond a 12-month horizon, as SAS has taken a number of measures to improve its liquidity in the past three years. This includes the sale of assets as well as the SEK3.5 billion preference share issuance and SEK1.6 billion convertible bond issuance from February 2014. At the end of H1 FY2016 in April 2016, SAS had cash and cash equivalents of SEK9.1 billion, which compares favorably with short-term debt of SEK2.7 billion. RATIONALE FOR THE STABLE OUTLOOK The stable outlook reflects Moody's expectation that SAS will continue to reduce its cost base. This is likely to offset some of the negative effects of the intensifying competition from low- cost carriers in the Nordic region, which is likely to continue to pressure SAS's top-line growth and yields. The company targets efficiency measures of SEK1.5 billion for FY2016-FY2018. In addition, the materially reduced oil price provides cost relief in the current FY2016, after a time delay owing to fuel hedging currently in place, and Moody's expects the oil price to remain low for the next two to three years. WHAT COULD CHANGE THE RATING UP/DOWN Upward pressure could be exerted on the rating if SAS's adjusted leverage were to fall below 4.5x and if its adjusted EBIT to interest expense ratio were to improve to more than 1.5x on a sustainable basis, while generating positive free cash flow and maintaining an adequate liquidity profile and demonstrating the resilience of its business model against increasing competition from low cost competitors, as well as other legacy airlines. The rating could come under negative pressure if the company's gross adjusted leverage were to increase above 6.0x and if the adjusted EBIT to interest expense ratio were to trend back towards 1.0x, or as a result of weakened liquidity. Given the company's current strategy, Moody's believes that any deterioration in its credit metrics would likely be the result of a downturn in demand or intensifying external competition with an associated capacity increase from other airlines. In addition, the removal of the GRI related rating uplift for example as a result of a reduction of the government ownership stake in SAS could lead to a rating downgrade. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Global Passenger Airlines published in May 2012. Other methodologies used include the Government-Related Issuers methodology published in October 2014. Based in Stockholm, Sweden, SAS AB is publicly listed, and 49.7% owned by the governments of Denmark, Norway and Sweden, 50.3% by private investors (7.5% of which is held by the Knut and Wallenberg Foundation). SAS AB is the holding company for Scandinavian Airlines System Denmark-Norway-Sweden, referred to as the SAS Consortium, which is one of Europe's largest passenger airlines, with total revenues of around SEK39.7 billion and 28.1 million passengers in the 12 months to October 2015. The Consortium primarily serves the Scandinavian and the European region, as well as a number of destinations in the US and Asia. =========================== U N I T E D K I N G D O M =========================== BHS GROUP: Dominic Chappell Defends Actions in Collapse Probe ------------------------------------------------------------- Alan Tovey at The Telegraph reports that Dominic Chappell, the former owner of failed retailer BHS, has taken to television to defend his actions as custodian of the 88-year-old business which collapsed on his watch. In a Newsnight interview, the former bankrupt executive -- who received a GBP600,000 salary and took out a separate GBP1.4 million -- sought to explain his actions and said the money he took out of the business had no impact on its collapse, calling the GBP2.6 million he received "a drip in the ocean", The Telegraph relates. Mr. Chappell, as cited by The Telegraph, said that he was "a chancer" but had to be to take on BHS when no one else was willing to. "We took a chance with BHS. We were the only people to stick our heads above the parapet and give it a go, otherwise [Sir Philip Green] would have liquidated that company and thousands of people would have lost their jobs straight away," The Telegraph quotes Mr. Chappell as saying. "We gave it the best shot we possibly could. We did everything we could to save that company. We were probably the only people who were prepared to take that risk to try to get it to break even, to try to get it to make a profit. So if I'm a chancer for that, well, yes I am." He said he "sincerely and utterly apologized" to BHS's 11,000 staff in 163 stores who lost their jobs when the business collapsed into administration this spring, just a year after Mr. Chappell's Retail Acquisitions bought BHS from Sir Philip's Arcadia for GBP1, The Telegraph relays. BHS Group is a department store chain. The company employs 10,000 people and has 164 shops. DERBY FIREPLACE: In Liquidation, 11 Jobs Affected ------------------------------------------------- Sam Metcalf at TheBusinessDesk.com reports that eleven jobs have been lost after The Derby Fireplace Company slipped into liquidation. Lucinda Matkin -- lucinda.matkin@lmianda.co.uk -- of LM Insolvency & Advisory was appointed liquidator of the company on June 27, TheBusinessDesk.com relates. According to TheBusinessDesk.com, Ms. Matkin said the company suffered from a shift in market preferences towards online retail, resulting in a fail in sales of a number of years. Ms. Matkin added that the Company had considered a CVA (Company Voluntary Arrangement) process, and making cost savings by condensing the business down to one showroom, by closing its Nottingham showroom, TheBusinessDesk.com relays. The Company also tried the introduction of interest free credit and the launch of a new Company website) in an attempt to increase sales; however these initiatives failed to generate enough sales to sustain the business long term, and the directors of the company chose a CVL (Company Voluntary Liquidation) instead, TheBusinessDesk.com notes. "All 11 staff have been made redundant, and the company has ceased trading. All stock including log burners, fires, fire surrounds and home accessories will be available for sale via auction through our agents, John Pye & Sons," TheBusinessDesk.com quotes Ms. Matkin as saying. The Derby Fireplace Company is a Derby- and Nottingham-based supplier of fireplace products. PIZZA EXPRESS: Moody's Affirms B3 CFR & Changes Outlook to Stable ----------------------------------------------------------------- Moody's Investors Service has changed to stable from positive the outlook on all the ratings of PizzaExpress Financing 1 plc and PizzaExpress Financing 2 plc. At the same time, Moody's has affirmed the B3 corporate family rating (CFR) and B2-PD probability of default rating (PDR) of PizzaExpress Financing 1 plc, the holding company to the Pizza Express group of companies (Pizza Express or the company). Moody's has also affirmed the B2 rating of the GBP465 million Senior Secured Notes due 2021 issued by PizzaExpress Financing 2 plc and the Caa1 rating of the GBP200 million Senior Unsecured Notes due 2022 issued by PizzaExpress Financing 1 plc. "We have changed our outlook on Pizza Express to stable because our Adjusted Debt-to-EBITDA is unlikely to fall below 6.5x because of an expected slowdown in like-for-like revenue growth this year compared to 2015", says Emmanuel Savoye, AVP-Analyst at Moody's. RATINGS RATIONALE The change in outlook from stable to positive reflects the weakening performance since the positive outlook was assigned in June 2015, notably in terms of like-for-like (LFL) sales growth which have been negative in the last two quarters after a very strong year in 2015. The negative LFL sales reflect strong comparable from the previous year, but also 1) higher competition in the UK characterized by an increasingly crowded market place due to continued new restaurant openings and 2) slowdown in the growth rate of the casual dining market since late 2015 due to declining consumer confidence. In addition, EBITDA margins have decreased in the UK due to lower volumes and investments in new concepts such as take-away. As a result, leverage remained stable at 6.6x as of the last twelve months to April 2016 compared to the same period last year. Continued positive LFL sales, stable EBITDA margins, and deleveraging were among the conditions for the positive outlook assigned in June 2015. However, Moody's continues to see the current rating as well positioned in the B3 category. Pizza Express has reported negative like-for-like (LFL) sales of -1.2% and -3% in the last two quarters in the UK and Ireland citing lower footfall as the main driver. Although S&P believes that positive fundamentals remain for the UK casual dining market, S&P also recognizes that it is being affected by increasing competition, while the recent outcome of the UK referendum to leave the European Union may lead to a period of economic uncertainty. Trading has however been supported by new restaurant roll outs, with total revenues increasing by 15.2% year-to-date to April 2016 compared to the previous year. EBITDA margins in the UK remained high for the industry but trended lower to 22.4% year-to-date to April 2016 from 23.4% the year before. The decrease in margins is due to lower volumes and investments in new concepts, in particular in the delivery segment. Moody's view the company's acquisition in February of Firezza, a small delivery chain in the UK, and its recent agreement in May with Deliveroo, to enable it grow in the delivery sector positively, because of the growing trend in home delivery which will support volumes. Moody's also notes that margins will be negatively affected by the planned increases of the minimum national living wage with the cost estimated by the company at GBP2 million pro forma for the year. Moody's expects the company to continue the roll out of new stores in the UK as well as internationally and to use internally generated cash flows to finance the investments required. As a result, Moody's do not expect any meaningful free cash flow generation in the next 12 months while recognizing that a large portion of the expected capex is discretionary. In light of the bullet maturities of the outstanding notes, Moody's expects deleveraging to be driven by EBITDA growth and Moody's currently assumes that Moody's Adjusted Debt-to-EBITDA will stay at or above 6.5x in the next twelve months. Moody's considers Pizza Express's near-term liquidity to be adequate, with sufficient internal resources to service the coupon on its outstanding notes. In addition, liquidity is supported by a GBP20 million revolving credit facility which is expected to remain undrawn, although it could be utilized if site roll-out plans are accelerated. The RCF has a draw-stop mechanism when total net leverage exceeds 9.0x and the facility is drawn more than 25%. Moody's has also affirmed the B2 and the Caa1 ratings of the outstanding GBP465 million senior secured notes and GBP200 million senior unsecured notes. The different ratings for the notes continue to reflect the relative ranking within the capital structure. The GBP465 million senior secured notes together with the GBP20 million revolving credit facility benefit from a guarantor and security package that comprises around 90% of total group EBITDA and assets. However, the revolver also benefits from priority of payment according to the intercreditor agreement. The GBP200 million senior unsecured notes rank behind these instruments and benefit from a senior subordinated guarantee from the same guarantor group. RATIONALE FOR THE STABLE OUTLOOK The stable outlook reflects the expectation that Moody's Adjusted Debt-to-EBITDA will stay at or above 6.5x in the next twelve months supported by the roll out of new stores and that LFL revenues will stabilize and grow only marginally next year. Moody's do not expect any meaningful free cash flow generation in the next twelve months due to the company's use of internally generated cash flows to finance the investments required for the ramp up of new restaurant openings. The outlook also assumes that the company will not embark on any transforming acquisitions or make debt-funded shareholder distributions. WHAT COULD CHANGE THE RATING UP/DOWN Upward pressure on the rating could materialize if Moody's- adjusted debt/EBITDA falls below 6.5x on a sustainable basis, with Moody's-adjusted EBITA coverage of interest expenses moving towards 2.0x. Negative pressure could arise if EBITDA margins continue to decrease and like-for-like sales growth remain negative for a prolonged period of time leading to Moody's-adjusted debt/EBITDA sustainably above 7.0x, or if liquidity substantially weakens. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Restaurant Industry published in September 2015. Founded in 1965, Pizza Express has grown to become the leading player in the UK casual dining market measured by number of restaurants. As at April 3, 2016, it operated 480 sites in the UK and Ireland as well as 90 international sites principally in China, the Middle East and India. It also has licensing arrangements in place to enable Pizza Express pizzas, salad dressings and other products to be sold through supermarkets. Headquartered in London, it has approximately 11,000 employees worldwide. For FYE 2015 it had revenues of GBP428 million and EBITDA of GBP100 million. Pizza Express was acquired by Hony Capital in a GBP895 million LBO in August 2014. STAPLES UK: Faces Financial Woes, Mulls Rescue Options ------------------------------------------------------ Ashley Armstrong at The Telegraph reports that Staples, the US stationery chain, is considering pulling out of the UK market, in the latest blow to the UK's struggling high street. According to The Telegraph, the UK arm, which has 107 stores across the country, is dependent on its US parent, Staples Inc, for financial support in order to continue operating as a going concern. However, after the US group's US$6 billion (GBP4.53 billion) attempted merger with US rival Office Depot was blocked by competition regulators earlier this year, Staples Inc. is reviewing the future of its European operations, which includes around 200 stores, and plans to slash US$300 million (GBP226 million) of annual cost, The Telegraph discloses. Staples, The Telegraph says, has struggled with years of declining revenue as demand wanes for traditional office basics like folders, ink cartridges and filing cabinets and as shoppers hunt for bargains online. It is understood that KPMG has only recently been appointed to work on options which could include a sale of Staples' UK business, financial restructuring, a potential company voluntary arrangement or administration, The Telegraph relays. According to The Telegraph, a source close to the process said that all options were being reviewed but said that the shops were in poor retail park locations which would make it less appealing to a trade buyer. * UK: Fitch Says Brexit to Impact European High-Yield Issuance -------------------------------------------------------------- The vote to leave the EU in the UK's referendum will further subdue already constrained European high-yield new issuance volumes and lead to more financial distress and higher default rates for leveraged UK and eurozone issuers into 2017 and beyond, Fitch Ratings says. This differs markedly from recent periods of European high-yield volatility, which were largely confined to funding markets. Volatility is nothing new for the post-crisis European high-yield market. But the lower growth outlook through 2017 for the UK and eurozone economies following the "Brexit" vote presents rebalancing pressures for their respective consumer and producer sectors. 'B' category credits in pro-cyclical discretionary consumer and fixed-asset related sectors in the UK will come under the most stress. Weaker sterling erodes purchasing power and managements' preference to preserve cash flow via cost-cutting and deferred investment raises risks regarding the outlook for employment and spending in the UK's unbalanced economy. Both the Bank of England and the European Central Bank may respond with further stimulus in the form of rate cuts and accelerated asset purchases, but the impact could be limited due to the already low rates and uncertain spill-overs into funding conditions for European banks. Moreover, collateral quality constraints in central bank asset purchase programs exclude speculative-grade corporate debt. Credit quality is more robust at this late stage of the credit cycle and a sharp spike in default rates remains unlikely in light of financial system repair. But credit investors are likely to bear the burden of declining debt-service capacity in the next default cycle. The "Brexit" vote has brought that closer and we expect high-yield investors to price risky credit accordingly. =============== X X X X X X X X =============== * Unenforced & Arbitration Judgments Cost 14% of Cos. Over $50M --------------------------------------------------------------- Burford Capital, a global finance firm focused on law, on June 29, 2016, announced research showing the troubling scale of damages and awards left unpaid by judgment evaders. A new Burford study shows that 86 percent of private practice lawyers have clients who in the last five years have not been paid the full value of a successful litigation or arbitration judgment or award. Almost one in five lawyers (19 percent) said their clients' unenforced judgments were worth between $10 and $50 million (GBP7 to GBP35 million); 14 percent said that their client's unenforced judgments were worth more than $50 million. "If one were to add up the lost value to companies around the world when they cannot enforce judgments, the collective sum would be billions," said Christopher Bogart, CEO of Burford Capital. The study, conducted by Burford in conjunction with the Lawyer Research Service, points to a significant global problem. After securing justice in court, often at a cost of millions in legal fees and years of effort, companies can be left hanging when judgment debtors -- individuals, corporations or foreign governments -- simply fail to pay what they owe. Collecting is even more problematic when these judgment debtors take steps to bury assets in offshore structures. The majority of corporate executives surveyed (58 percent) confirmed that their companies have not been paid the full value of litigation and arbitration judgments in the past five years. The majority of lawyers (62 percent) said the prime reason judgments or awards could not be satisfied was because debtors' assets were hidden offshore. They identified the regions most likely to erect barriers to securing judgment awards as Russia and the former Soviet states (37 percent), followed by the Caribbean (20 percent) and Asia (16 percent). Corporations may, however, leverage professional judgment enforcement and asset tracing partners to recover judgment awards. Mr. Bogart continued: "Given the scale of the problem, businesses are increasingly turning to enforcement partners -- and the savviest companies are also utilizing litigation finance to turn those unenforced judgment debts into capital for the business, without adding cost or risk to corporate balance sheets." According to the survey, more than half of private practice lawyers (52 percent) said clients have worked with judgment enforcement and asset tracing professionals to recover judgment awards the past five years. However, only 11 percent have clients who have sought and secured financing to fund these enforcement services, moving these costs off their balance sheets -- signalling both an opportunity for businesses and a need for law firms to educate clients. The study is based on a survey of over 200 private practice lawyers, in-house counsel and corporate C-level executives in the UK, US, Europe and Asia. A copy of the report is available at: http://bankrupt.com/misc/Burford_WhitePaper_NY_Final.pdf About Burford Capital Burford -- http://www.burfordcapital.com/-- is a global finance firm focused on law. Burford's businesses include litigation finance, insurance and risk transfer, law firm lending, corporate intelligence and judgment enforcement, and a wide range of investment activities. Burford's equity and debt securities are publicly traded on the London Stock Exchange. The firm works with lawyers and clients around the world from its principal offices in New York and London. ********* 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 2016. 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 * * *