/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/160810.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, August 10, 2016, Vol. 17, No. 157 Headlines G R E E C E GREECE: PM Turns to French, Italian Leaders for Help on Debt Deal SINEPIA DAC: S&P Assigns BB Ratings to Four Note Classes I T A L Y BANCA POPOLARE: Fitch Affirms 'B-' LT IDR, Outlook Negative MEDIOLEASING FINANCE: Moody's Raises Rating on Cl. B Notes to B2 MONTE DEI PASCHI: Moody's Changes B2 Rating Review to Uncertain MONTE DEI PASCHI: Fitch Puts Bonds Rating On Watch Evolving N E T H E R L A N D S NXP BV: Moody's Assigns Ba1 Rating to New Senior Notes Due 2022 PROSPERO CLO II: Moody's Affirms Ba3 Rating on Class D Notes P O R T U G A L NOVO BANCO: Posts Losses of EUR362.6 Mil. in First Half of 2016 NOVO BANCO: Agrees to Sell Macau Unit to Well Link Group R U S S I A CB EUROCITYBANK: Liabilities Exceed Assets, Assessment Shows * RUSSIA: Payouts to Depositors May Hit Record High This Year S P A I N OHL SA: Fitch Says Unprofitable Legacy Contracts Hit 1H16 Profits U K R A I N E UKREXIMBANK: Fitch Affirms 'CCC' LT FC Issuer Default Ratings U N I T E D K I N G D O M EUROHOME UK: S&P Raises Rating on Class B1 Notes to B+ GULF KEYSTONE: Reviews DNO's Offer Amid Restructuring Efforts ROYAL BANK OF SCOTLAND: Fitch Rates Proposed US$ Notes 'BB-(EXP)' ********* =========== G R E E C E =========== GREECE: PM Turns to French, Italian Leaders for Help on Debt Deal ----------------------------------------------------------------- The National Herald reports that as he has before without success, Prime Minister Alexis Tsipras is turning again to French and Italian leaders asking their help for a debt deal for Greece. According to The National Herald, the Radical Left SYRIZA leader's hopes for a deal were pushed back to 2018 by the country's creditors even though he accepted more harsh austerity measures in return for a third bailout of EUR86 billion (US$95.02 billion). Mr. Tsipras' pleas to French President Francois Hollande and Italian Prime Minister Matteo Renzi were ignored during previous entreaties and there was no explanation from the Greek leader's office why he thought they would be able to help this time, The National Herald relates. He is expected to meet them during a meeting of European Socialist leaders on Aug. 25 in Paris, The National Herald discloses. The Greek premier's aim, Kathimerini said, is to set up a meeting on Sept. 9 or before a Sept. 16 European Union leaders meeting and ask Hollande and Renzi to help set up a Southeastern European Alliance, notes the report. SINEPIA DAC: S&P Assigns BB Ratings to Four Note Classes -------------------------------------------------------- S&P Global Ratings assigned its credit ratings to Sinepia DAC's class A1, A2, A3, and A4 notes. At closing, the issuer also issued unrated class M and Z notes. Sinepia is the first cash flow small and midsize enterprise (SME) collateralized loan obligation (CLO) transaction originated by National Bank of Greece S.A. (NBG) since the 2007-2008 financial crisis. The portfolio comprises secured and unsecured Greek law- governed loans, originally advanced by NBG to borrowers comprising SMEs and individual professionals in Greece. S&P's ratings on the class A notes address the timely payment of interest and ultimate payment of principal. The issuer used the net proceeds from the issuance of the notes to purchase the portfolio at closing. At closing, the portfolio comprised assets purchased by the issuer from the originator in its capacity as the seller. The issuer also established a commingling reserve account and setoff reserve account to hold the commingling reserve fund and setoff reserve fund, respectively. As of July 7, 2016, the initial portfolio size is EUR647.77 million. During the transaction's life, the issuer can either substitute further SME loans up to a maximum limit of 20% of the aggregate collateral balance or repurchase assets from the issuer at the principal amount outstanding of such loans, plus any accrued and unpaid interest due on the assets. In respect of substitution of new assets (in exchange for the assets from the portfolio), the substitution criteria must be satisfied for substitute receivables to be included in the portfolio. The substitution is allowed only for non-defaulted assets that are subject to any material amendment. At closing, the issuer also established a cash reserve account with the bank account provider. The cash reserve fund was not funded at closing, but is instead funded out of available funds on each interest payment date (IPD) until the balance standing to the credit of the cash reserve fund reaches the cash reserve fund's required amount. The cash reserve fund is used to pay any shortfall in amounts available to it on any IPD to pay interest due on the class A notes and payments of certain senior expenses. The transaction also benefits from a combined interest and principal waterfall. All interest payments due on the class A notes rank in priority to all interest payments due on the class M and Z notes. All interest payments due on the class M notes rank in priority to all interest payments due on the class Z notes. "Our ratings on the class A notes reflect our assessment of the transaction's credit and cash flow analysis. We assessed the originator's quality, which we based on the historical performance of loans, a qualitative review of the originator's process and guidelines for loan origination and underwriting processes, and other information provided to us. We also took into account the Banking Industry Country Risk Assessment (BICRA) score of Greece and compared the securitized pool against the overall loan book of the originator to determine the scenario default rates (SDR) at each rating level from 'AAA' to 'B'. We then analyzed recovery parameters by adopting the relevant aspects of our corporate collateralized debt obligation (CDO) criteria as the starting point and observing historical recoveries provided by the originator in determining the recovery rate at each rating level. The calculation of the SDRs and recovery rates indicated the minimum level of credit enhancement required at each rating level for the portfolio. At a 'B' rating level, the minimum credit enhancement required was 31.3%, increasing to 59% at the most senior rating levels. At the 'BBB' level, this minimum required credit enhancement was determined at about 43%. S&P then applied its standard stresses outlined in its European SME CLO criteria to determine the minimum required credit enhancement at each rating level. S&P also applied stresses related to default timing and patterns, interest rate and basis risk, recovery timing, the reinvestment rate, servicing fees and other expenses, yield compression, and a commingling liquidity stress. S&P's analysis indicates that the available credit enhancement of 50.01% for the class A notes is sufficient to withstand the credit and cash flow stresses that S&P applies at the assigned rating levels. They also reflect S&P's assessment of the transaction's exposure to counterparty, legal, and operational risks. As S&P's ratings on the notes exceed our long-term rating on the sovereign, it has also applied its rating above the sovereign criteria. As of the ratings date, S&P determined that the maximum rating for a Greek SME CLO transaction under these criteria is 'BB (sf)'. The ratings on the notes may be affected if the ratings on the sovereign were to change. RATINGS LIST SINEPIA D.A.C. EUR647.771 mil secured floating-rate notes (including EUR323.97 million unrated notes) Amount Class Rating (mil, EUR) A1 BB (sf) 150.000 A2 BB (sf) 35.000 A3 BB (sf) 50.000 A4 BB (sf) 88.800 M NR 259.100 Z NR 64.871 NR--Not rated ========= I T A L Y ========= BANCA POPOLARE: Fitch Affirms 'B-' LT IDR, Outlook Negative ----------------------------------------------------------- Fitch Ratings has affirmed Banca Popolare di Vicenza's (Vicenza) Long-Term Issuer Default Rating (IDR) and senior debt ratings at 'B-'. The ratings have been removed from Rating Watch Negative (RWN) following the recapitalization of the bank through a EUR1.5bn capital increase fully subscribed by the Atlante fund. The Outlook on the Long-Term IDR is Negative due to the ongoing challenges the bank faces in maintaining an adequate capital position given its structurally unprofitable business model, the possibility of further losses and the damage suffered by its customer funding franchise. Fitch has also downgraded the bank's Viability Rating (VR) to 'f', removed it from RWN, and upgraded it to 'b-'. The downgrade acknowledges that without the extraordinary support received by the bank in the form of the capital injection, it would have been put in resolution due to the material losses it reported in 2015. This represents a failure by the bank according to Fitch's definitions. The subsequent upgrade reflects Fitch's view that the bank has returned to viability following the recapitalization. KEY RATING DRIVERS IDRS, VR AND SENIOR DEBT Following the downgrade to 'f' and subsequent upgrade to 'b-', Vicenza's VR is now aligned with its Long-Term IDR and the ratings are driven the bank's standalone creditworthiness. The bank's IDRs, VR and senior debt ratings reflect Fitch's view that the bank's capitalization remains weak, despite the capital injection, and that it could weaken further in the foreseeable future. This is because of the possibility of further credit losses, particularly if impaired loans are fair-valued to accelerate their disposal. Other pressures on capital include its structural unprofitability, partly due to a heightened average cost of funding, and the decision of Cattolica Assicurazioni to exit the existing bancassurance agreement. Fitch considers that current capital levels only allow for a limited buffer to absorb further additional credit impairment charges given the large scale of the problem. Vicenza's liquidity has weakened significantly after the material deposit outflows between late 2015 and the completion of the capital increase in May 2016 and has become vulnerable to market sentiment. As a result of its inability to easily access institutional and retail term funding, BPV's funding profile has become skewed towards ECB funding and its balance sheet encumbrance is high. Management is concentrating on repairing its deposit franchise through a number of commercial actions, which might have a positive impact on liquidity but are also likely to weigh negatively on its net interest income. Deposits stabilized since the completion of the capital increase, but we believe the bank's deposit base remains highly vulnerable to market sentiment around the bank and the Italian banking sector in general. Its liquidity position, as defined by its liquidity coverage ratio has become highly volatile. BPV's asset quality is weak with gross impaired loans at over 30% of gross loans, after having dramatically increased since mid- 2015 when the new management made an in-depth review of the loan portfolio, reclassifying a substantial amount of exposures to impaired following ordinary deterioration but also its misconduct in placing its own capital increases in 2013 and 2014 through granting of financing. Coverage levels of impaired loans have since increased, but we believe further charges on its impaired exposure are likely, particularly if the bank intends to accommodate doubtful loan disposals, as indicated in its most recent strategic guidelines, at the current valuation marks. Including the EUR1.5 billion capital injection, the bank estimated a pro-forma CET1 ratio of 12.8% based on end-2015 numbers, 255bp or EUR650 million above its Supervisory Review and Evaluation Process (SREP) requirement. However, Fitch's assessment of capitalization reflects the high capital encumbrance by unreserved impaired loans, which remains at 150% of Fitch Core Capital. Furthermore, a portion of this capital could still be eroded by losses, which could be driven by loan impairment charges or losses on doubtful loan disposals and/or further provisions for risks and charges. The bank's exposure to contingent risks from shareholders' complaints has also heightened after its share price dropped dramatically to EUR0.10 and opened up the risk of losses from future claims that could originate from these complaints. The bank has put in place a properly staffed internal structure to handle this risk and has already booked EUR137 million charges against possible future claims. Fitch rates BPV's senior unsecured obligations in line with the bank's Long-Term IDR. Fitch has also assigned a Recovery Rating of '4' (RR4) to these instruments to reflect average recovery prospects in the event of a default. Fitch expects recoveries would be in the range of 31%-50%, reflecting the bank's considerable share of encumbered assets and a small Tier 2 buffer. SUPPORT RATING (SR) AND SUPPORT RATING FLOOR (SRF) The SR and SRF reflect Fitch's view that senior creditors can no longer expect to receive full extraordinary support from the sovereign in the event that the bank becomes non-viable. The EU's Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism (SRM) for eurozone banks provide a framework for the resolution of banks that requires senior creditors to participate in losses, if necessary, instead of or ahead of a bank receiving sovereign support. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Subordinated Tier 2 debt issued by BPV is rated 'CC' and is notched off once from the VR to reflect the instruments' loss severity and once to reflect non-performance risk as Fitch views that these instruments could be vulnerable to burden sharing ahead or upon a hypothetical resolution scenario. Fitch also assigns a Recovery Rating of '5' (RR5) to these instruments to reflect below average recovery prospects for subordinated bondholders. RATING SENSITIVITIES IDRS, VR AND SENIOR DEBT The Outlook on the Long-Term IDR is Negative. The bank's IDRs, VR and senior debt ratings are sensitive to the extent of the losses which it is likely to incur, if and when it disposes of its doubtful loans. Fitch believes that this would be a necessary measure for it to return to profitability and for confidence to be fully restored. Downside risk also includes further erosion of its liquidity profile, the execution of a new strategy, and the need to improve risk controls before growth can pick up. The bank faces the prospects of having to restructure in an economic environment that is likely to provide it with strong headwinds. Upside potential to the ratings is limited until the bank becomes capital generative. SR AND SRF An upgrade of the SR and any upward revision of the SRF would be contingent on a positive change in the sovereign's propensity to support Vicenza. While not impossible, this is highly unlikely, in Fitch's view. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES Vicenza's subordinated debt rating is primarily sensitive to a change in the VR, which drives the debt rating, but also to a change in Fitch's view of non-performance or loss severity risk relative to Vicenza's viability. The rating actions are as follows: -- Long-Term IDR: affirmed at 'B-', off RWN; Negative Outlook -- Short-Term IDR: affirmed at 'B' -- Viability Rating: downgraded to 'f', off RWN and subsequently upgraded to 'b-' -- Support Rating: affirmed at '5' -- Support Rating Floor: affirmed at 'No Floor' -- Long-term senior unsecured notes and EMTN programme: affirmed at 'B-/RR4'; off RWN -- Short-term rating on EMTN programme: affirmed at 'B' -- Subordinated debt: affirmed at 'CC'/'RR5' MEDIOLEASING FINANCE: Moody's Raises Rating on Cl. B Notes to B2 ---------------------------------------------------------------- Moody's Investors Service has upgraded the rating of the Class B notes of Medioleasing Finance S.r.l. to B2(sf) from B3(sf). This rating action follows the recent repurchase of the non-performing loans and subsequent increase of credit enhancement through overcollateralization. Issuer: Medioleasing Finance S.r.l EUR105.4 mil. Class B Notes, upgraded to B2(sf); previously on Feb. 24, 2015, Upgraded to B3(sf) Medioleasing Finance S.r.l closed in May 2008. The portfolio comprises three pools of Italian financial-lease contracts backed by auto, equipment and real-estate assets. The securitized pool is mainly exposed to real-estate contracts. The split between the three sub-pools (as of the last reporting date in July 2016) was 23.5% for equipment, 0.1% for auto and 76.4% for real estate. It is serviced by Medioleasing S.p.A., which is fully owned by Nuova Banca delle Marche S.p.A. (unrated). RATINGS RATIONALE The upgrade reflects the transaction's deleveraging following the recent repurchase, and the subsequent build-up of credit enhancement through overcollateralization. INCREASED CREDIT ENHANCEMENT On June 21, 2016, the Originator repurchased, on a non-recourse basis, a set of claims that as of 30 September 2015 were classified as non-performing ("in sofferenza" according to "Circolare della Banca d'Italia n. 272 del 30 luglio 2008" and subsequent amendments). The purchase price was around EUR51.5 million, which was equal to the par amount plus accrued interest, as of the date on which the loan was classified as non- performing, less any subsequent recovery. The proceeds from the repurchase have become part of the available fund to repay the senior Class A notes in July 2016. The quick deleveraging of the transaction leads to overcollateralization, i.e., the outstanding portfolio is larger than the total notes it backs. As of July 2016 the outstanding portfolio (excluding the defaulted loans) is 215.8 mil. and the sum of Class A and B notes is only 157 million, implying a high overcollateralization of 27% over the current pool. Besides the overcollateralization as credit enhancement, there is also a reserve fund available in this transactions, which is amortizing and target at 20% of the class A notes' balance. However it should mostly benefit to the Class A notes as it will not be available anymore once Class A notes are fully repaid. REVISION OF KEY COLLATERAL ASSUMPTIONS As part of the rating action, Moody's reassessed its default probability (DP) and recovery rate assumption for the portfolio reflecting the portfolio composition and collateral performance to date. Currently, the transaction pool factor has reduced to 53% of the initial pool balance. In July 2016 the total delinquencies stood at 2.3% of the current pool balance and the reported cumulative gross default rate rose to 18.4% of total securitized pool (original pool balance plus replenishments). Moody's kept the expected DP at 18.0% of the current portfolio balance and the assumption for recovery rate at 45%. Moody's also left the coefficient of variation unchanged at 46.1%, corresponding to a portfolio credit enhancement of 25.5%. EXPOSURE TO COUNTERPARTY RISK Moody's has also reviewed the exposure to Medioleasing S.p.A. (unrated), which acts as servicer; Nuova Banca delle Marche S.p.A. (unrated) as the collection account; and BNP Baribas Securities Services (deposit rating A1/P1) as issuer account bank. The related counterparty exposure does not constrain any of the updates. There is no swap in Medioleasing Finance S.r.l transaction. METHODOLOGY The principal methodology used in this rating was "Moody's Approach to Rating ABS Backed by Equipment Leases and Loans" published in December 2015. FACTORS THAT WOULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING: Factors or circumstances that could lead to an upgrade of the rating include (1) performance of the underlying collateral that is better than Moody's expected; (2) deleveraging of the capital structure; (3) improvements in the credit quality of the transaction's counterparties; and (4) a decrease in sovereign risk. Factors or circumstances that could lead to a downgrade of the rating are (1) an increase in sovereign risk (2) worse-than- expected performance of the underlying collateral; (3) deterioration in the notes' available CE; and (4) deterioration in the credit quality of the transaction counterparties. MONTE DEI PASCHI: Moody's Changes B2 Rating Review to Uncertain --------------------------------------------------------------- Moody's Investors Service has changed the review on Banca Monte dei Paschi di Siena S.p.A.'s (Montepaschi) B2 long-term deposit rating, B3 long-term senior unsecured ratings to direction uncertain, previously on review for downgrade; the rating agency also put on review with direction uncertain Montepaschi's Ca and Ca(hyb) subordinated and junior subordinated debt, and ca standalone baseline credit assessment (BCA). The review with direction uncertain reflects the potential for improvements in the bank's creditworthiness in the event of a successful implementation of the bank's restructuring plan announced on July 29, 2016. The review also reflects the considerable uncertainty as to whether the plan will be executed as outlined, and the anticipated negative consequences for the bank's creditors if unsuccessful. The Not-Prime short-term ratings were affirmed, while the C(hyb) preferred stock rating of MPS Capital Trust I was put on review for upgrade. RATINGS RATIONALE --- THE REVIEW BALANCES UPWARD PRESSURES STEMMING FROM A RESTRUCTURING PLAN Moody's said the action was triggered by Montepaschi's restructuring plan, which relies on capital from the private sector and government guarantees under a framework that has already been approved by the European Commission; as such, the rating agency believes that Montepaschi's restructuring plan does not need further approvals. According to the plan, Montepaschi will: (1) increase coverage on bad loans to 67% from 63%, and coverage on other problem loans to 40% from 27%; (2) securitise and deconsolidate all bad loans; and (3) raise EUR5 billion capital to reach a common equity tier 1 (CET1) ratio of 11.4% on a fully phased-in basis. Moody's said that, if successful, the restructuring would be positive for all Montepaschi's creditors, as it would: (1) avoid write-down or conversion of subordinated creditors; and (2) lead to a problem loans ratio of 18%, consistent with the draft request made by the ECB's Single Supervisory Mechanism (SSM) to reduce bad loans (see note 2 at the end of this press release). Furthermore, the rating agency noted that all of the most problematic loans would be deconsolidated from the bank, leading to a lower stock of problem loans of better quality, with lower expected loss than the deconsolidated bad loans, and hence presenting less risk. Residual unlikely to pay and past due problem loans would total EUR19.5 bil. gross, well below the SSM request of a maximum of EUR32.6 billion, and EUR11.7 billion net, again below the SSM's requested maximum of EUR14.6 billion. The capital increase will cover the losses of increasing coverage and of the junior notes of securitized bad loans; capital ratios will be in line with the current ones, while as previously mentioned, Montepaschi's risk profile would improve. Furthermore, Moody's said that Montepaschi's CET1 capital requirement based upon the SSM's Supervisory Review and Evaluation Process, set at 10.75% for 2017, may be reduced given the prospect of a lower risk profile. This would increase the headroom above the operating minimum capital and hence lower the bank's future point of failure. Finally, Moody's said that Montepaschi's profitability should also benefit from a successful execution of the restructuring plan, as funding costs may reduce and management time could be more focused on improving the bank's core business rather than dealing with legacy issues. -- THE REVIEW ALSO INCORPORATES HIGH EXECUTION RISK OF THE RESTRUCTURING PLAN Moody's said that there still are several uncertainties regarding the execution of the restructuring plan, highlighting the risks for Montepaschi's creditors in case the plan's targets are not achieved. Moody's noted that Montepaschi's bad loans securitizations will be the first large transaction of this kind in Italy, and it will need to be concluded in only a few months. The EUR5 bil. capital increase is subject to the completion of the securitization, and the pre-underwriting agreement made by a number of Italian and international banks, is also subject to terms and conditions which include the successful pre-marketing of the rights issue. Given that the targeted EUR5 billion equity increase is more than six times the bank's market capitalization as of 8 August, and about 60% of the bank's pro-forma book value, the success of the pre-marketing is far from assured and this could prevent the syndicate from entering into a full underwriting commitment which would guarantee the capital increase. Moody's believes that, if the equity capital increase fails, Montepaschi could need to resort to state aid, which in turn would likely result in the write-down or conversion of the bank's subordinated debt (see note 3 at the end of this press release). -- LIMITED UPSIDE DRIVES AFFIRMATION OF SHORT-TERM RATINGS Moody's said that, even if the restructuring plan is successful, Montepaschi will still face challenges. In particular, problem loans will still represent 18% of total loans, which although better than several Italian peers, will be significantly higher than the European average of 6%. The affirmation of Montepaschi's short-term deposit rating is driven by Moody's expectations that, if the plan is successful, the long-term deposit rating will likely remain non-investment grade and hence the short-term ratings will remain Not-Prime following the review period, which the rating agency expects to conclude by the end of the year. -- PREFERRED STOCK RATINGS PUT ON REVIEW FOR UPGRADE Moody's said that the review for upgrade of Montepaschi's C(hyb) preferred stock rating, which refers to instruments issued by fully-guaranteed MPS Capital Trust I, reflects the previously discussed upward pressure on all creditors deriving from the bank's restructuring plan. At the same time, the rating agency noted that there is no downside pressure on the preferred stock rating, as it is already at the bottom of the rating scale. FACTORS THAT COULD LEAD TO AN UPGRADE / DOWNGRADE An execution of Montepaschi's restructuring plan could lead to an upgrade of all ratings for Montepaschi. Conversely, Moody's said that a failure in the plan could lead to a downgrade of all ratings, except the C(hyb) preferred stock rating, which is already at the bottom of the rating scale. Note 2: For further information on the ECB's draft request please refer to our issuer comment entitled "ECB deadline for reducing problem loans limits options for Monte dei Paschi", dated July 6. Note 3: State aid scenarios are considered in more detail in our press release entitled "Moody's reviews Banca Monte dei Paschi di Siena's long-term deposit and senior unsecured ratings for downgrade", published on July 15. The principal methodology used in these ratings was Banks published in January 2016. List of affected ratings On Review Direction Uncertain: Issuer: Banca Monte dei Paschi di Siena S.p.A. LT Bank Deposits (Foreign Currency and Local Currency), B2 on Review Direction Uncertain Senior Unsecured Regular Bond/Debenture, B3 on Review Direction Uncertain Subordinate Regular Bond/Debenture, Ca on Review Direction Uncertain Junior Subordinated Regular Bond/Debenture, Ca (hyb) on Review Direction Uncertain Senior Unsecured MTN, (P)B3 on Review Direction Uncertain Subordinate MTN, (P)Ca on Review Direction Uncertain Adjusted Baseline Credit Assessment, ca on Review Direction Uncertain Baseline Credit Assessment, ca on Review Direction Uncertain LT Counterparty Risk Assessment, B2(cr) on Review Direction Uncertain Issuer: Banca Monte dei Paschi di Siena, London LT Counterparty Risk Assessment, B2(cr) on Review Direction Uncertain Issuer: MPS Capital Services LT Bank Deposits (Foreign Currency and Local Currency), B2 on Review Direction Uncertain Adjusted Baseline Credit Assessment, ca on Review Direction Uncertain Baseline Credit Assessment, ca on Review Direction Uncertain LT Counterparty Risk Assessment, B2(cr) on Review Direction Uncertain On Review for Upgrade: Issuer: MPS Capital Trust I BACKED Pref. Stock Non-cumulative, C (hyb) on Review for Upgrade Affirmations: Issuer: Banca Monte dei Paschi di Siena S.p.A. ST Bank Deposits (Foreign Currency and Local Currency), Affirmed NP ST Counterparty Risk Assessment, Affirmed NP(cr) Other Short Term, Affirmed (P)NP Issuer: Banca Monte dei Paschi di Siena, London ST Deposit Note/CD Program, Affirmed NP ST Counterparty Risk Assessment, Affirmed NP(cr) Issuer: MPS Capital Services ST Bank Deposits (Foreign Currency and Local Currency), Affirmed NP ST Counterparty Risk Assessment, Affirmed NP(cr) MONTE DEI PASCHI: Fitch Puts Bonds Rating On Watch Evolving ----------------------------------------------------------- Fitch Ratings has placed Banca Monte dei Paschi di Siena SpA's (BMPS, B-/RWE/B/RWN, ccc/RWE) 'BBB' mortgage covered bonds (Obbligazioni Bancarie Garantite, OBG) on Rating Watch Evolving (RWE). The rating action follows the RWE that Fitch has placed on BMPS's Long-Term Issuer Default Rating (IDR) on August 4, 2016. Fitch will resolve the RWE on BMPS's covered bonds following the resolution of the RWE on the bank's IDR. KEY RATING DRIVERS The RWE on BMPS's outstanding OBG directly reflects that on the bank's IDR. The current rating of the covered bonds has no cushion against a downgrade of the IDR: all else being equal, any upside or downside movement of the issuer's IDR will be reflected in the covered bonds rating. The rating is based on BMPS's Long-Term IDR of 'B-', an unchanged IDR uplift of 1 notch, an unchanged Discontinuity Cap (D-Cap) of 3 notches (moderate high risk) and the 83% asset percentage (AP) that Fitch takes into account in its analysis, which provides more protection than the 90% 'BBB' breakeven AP (corresponding to a breakeven overcollateralization (OC) of 11.1%). The 83% AP publicly undertaken by BMPS in its payment report (as of June 2016) is adequate to support timely payments in a 'BB' tested rating on a probability of default (PD) basis and allows the covered bonds to reach a three-notch recovery uplift in a 'BBB' rating scenario where the covered bonds are assumed at default. The 90% 'BBB' breakeven AP is driven by credit loss and cash flow valuation, both at 5.4% in a 'BBB' scenario. The 5.4% credit loss results from a 'BBB' weighted average (WA) foreclosure frequency of 22.1% and a WA recovery rate of 76.7%. The 5.4% cash flow valuation is driven by the open interest rate positions between floating-rate assets and floating-rate liabilities of around 24% in a decreasing interest rate scenario (which is most stressful). Sixty-six per cent of the fixed-rate liabilities are hedged with external eligible counterparties and therefore the agency considered post-swap cash flows for the hedged liabilities. The asset disposal loss for this program is 0% as the program has a conditional pass-through structure (CPT) and no forced sale of the assets would be needed. The unchanged D-Cap of 3 notches is driven by what Fitch assesses as moderate high risk of the systemic alternative management component. Despite the OBG's CPT amortization profile, the agency continues to apply its "weak link" approach among the components of the D-Cap; Fitch believes that the removal of certain guarantee enforcement events and a longer five-month test grace period result in a strong reliance on the issuer's ability to service payments due on the OBG and could pose risks to the timely enforcement of the cover pool as a source of payments. The unchanged IDR uplift of 1 notch reflects the bail-in exemption for fully collateralized covered bonds and that BMPS is a large institution so that resolution by other means than liquidation is likely. RATING SENSITIVITIES The 'BBB' rating would be vulnerable to downgrade if any of the following occurs: (i) the IDR is downgraded by 1 or more notches to 'CCC' or below; or (ii) the number of notches represented by the IDR uplift and the D-Cap is reduced to 3 or lower; or (iii) the AP that Fitch considers in its analysis increases above Fitch's 'BBB' breakeven level of 90%. All else being equal, the 'BBB' rating would likely be upgraded if the bank's IDR is upgraded by 1 or more notches to 'B' or above, provided that adequate protection is in place to support the OBG rating above the 'BBB' rating scenario. The Fitch breakeven AP for the covered bond rating will be affected, among others, by the profile of the cover assets relative to outstanding covered bonds, which can change over time, even in the absence of new issuance. Therefore the breakeven AP to maintain the covered bond rating cannot be assumed to remain stable over time. ===================== N E T H E R L A N D S ===================== NXP BV: Moody's Assigns Ba1 Rating to New Senior Notes Due 2022 --------------------------------------------------------------- Moody's Investors Service rated NXP B.V.'s new Senior Notes due 2022 at Ba1, upgraded the existing senior unsecured notes to Ba1 from Ba2 and affirmed the Ba1 Corporate Family Rating and the Baa2 rating on the secured credit facility. The Ba2 rating of the cash convertible notes of NXP Semiconductors NV was affirmed. The outlook remains positive. The proceeds of the $1 billion Senior Notes will be used to repay the $960 million Freescale Semiconductor, Inc. Senior Secured Notes due 2022. The upgrade of NXP's senior unsecured rating to Ba1 reflects Moody's expectation that NXP will use the $1 billion of proceeds from the new Senior Notes to repay the Freescale Senior Secured Notes due 2022, which will reduce NXP's senior secured debt and result in a greater share of unsecured debt in the capital structure. RATINGS RATIONALE The Ba1 CFR reflects NXP's leadership position in automotive semiconductors and consistent free cash flow generation due to NXP's fab-lite manufacturing model. Moody's expects debt to EBITDA (Moody's adjusted, proforma for the recently announced divestiture of NXP's Standard Products division and repayment of Term Loan B) to remain above 2.5x over the near term, which is high given the significant execution risks involved in integrating NXP and Freescale due to the large operating scale of both companies. Nevertheless, Moody's expects that NXP will direct a majority of FCF to reduce debt such that through the combination of debt reduction and EBITDA growth, debt to EBITDA (Moody's adjusted) will decline toward 2.5x during 2017. The positive outlook reflects Moody's expectation that NXP will use a portion of the net proceeds from the Standard Products division divestiture to repay debt and that the integration of Freescale will proceed smoothly over the next year. Moody's expects that FCF will remain strong in spite of near term revenue headwinds driven by a slowing global economy and the cash costs of the Freescale integration. The rating could be upgraded if NXP successfully integrates Freescale and is making progress in capturing the anticipated $500 million of operating synergies. Moody's would expect NXP to sustain leverage of around 2.5x debt to EBITDA (Moody's adjusted) and to remain committed to a conservative financial policy. The rating outlook could be changed to stable if NXP fails to receive regulatory approval to close the Standard Products divestiture or if regulatory approval includes materially negative closing conditions. The rating could be downgraded if the integration encounters significant operational disruptions or the business otherwise deteriorates or if NXP fails to reduce debt such that Moody's expects that debt to EBITDA (Moody's adjusted) will be maintained above 3.5x. The Baa2 (LGD2) rating on the senior secured credit facility reflects a one notch downward override from the LGD model implied outcome reflecting Moody's view that up notching for this instrument should be limited to two notches above the Ba1 CFR. The Ba1 (LGD4) senior unsecured rating reflects the preponderance of senior unsecured debt in the capital structure, and the guarantees from operating subsidiaries. The Ba2 (LGD6) rating of the cash convertible notes of NXP Semiconductors reflects both the absence of collateral and the absence of upstream guarantees from operating subsidiaries, which renders the cash convertible notes structurally subordinated to the debt of NXP. The SGL-1 rating reflects the company's very strong liquidity profile, which is supported by strong FCF and a large cash balance which we expect will remain over $500 million (excluding the cash of NXP's joint venture with TSMC, which was $555 million at July 3, 2016). Assignment: Issuer: NXP B.V. Senior Unsecured Regular Bond/Debentures, rated Ba1 (LGD4) Upgrades: Issuer: NXP B.V. Senior Unsecured Regular Bond/Debentures, upgraded to Ba1 (LGD4) Affirmations: Issuer: NXP B.V. Corporate Family Rating (Foreign Currency), Ba1 Probability of Default Rating, Ba1-PD Speculative Grade Liquidity Rating, SGL-1 Senior Secured Bank Credit Facility, Baa2 (LGD2) Issuer: NXP Semiconductors N.V. Senior Unsecured Conv./Exch. Bond/Debenture, Ba2 (LGD6) Outlook Actions: Issuer: NXP B.V. Outlook, Positive Issuer: NXP Semiconductors N.V. Outlook, Positive The Baa2 rating on the Senior Secured Notes of Freescale Semiconductor is unchanged and is expected to be withdrawn upon the repayment of such notes. NXP B.V., based in Eindhoven, Netherlands, makes high performance mixed signal integrated circuits and discrete semiconductors used in a wide range of applications, including automotive, identification, wireless infrastructure, lighting, industrial, mobile, consumer and computing. The principal methodology used in these ratings was Semiconductor Industry Methodology published in December 2015. PROSPERO CLO II: Moody's Affirms Ba3 Rating on Class D Notes ------------------------------------------------------------ Moody's Investors Service has upgraded the ratings on these notes issued by Prospero CLO II B.V.: US$15 mil. C Notes, Upgraded to Aa3 (sf); previously on April 1, 2016, Upgraded to A2 (sf) Moody's also affirmed these notes issued by Prospero CLO II B.V.: US$30 mil. (current outstanding balance of US$21.2 mil.) A-2 Notes, Affirmed Aaa (sf); previously on April 1, 2016, Affirmed Aaa (sf) US$25 mil. B Notes, Affirmed Aaa (sf); previously on April 1, 2016, Upgraded to Aaa (sf) US$13.5 mil. D Notes, Affirmed Ba3 (sf); previously on April 1, 2016, Upgraded to Ba3 (sf) Prospero CLO II B.V., issued in November 2006, is a collateralized loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured loans. The portfolio is managed by Alcentra NY, LLC. The transaction's reinvestment period ended in October 2012. RATINGS RATIONALE The rating action on the Class C is primarily a result of the significant deleveraging of the Class A-1 and A-1 VF notes following amortization of the underlying portfolio since the last rating action in April 2016. Moody's notes that the class A-1 notes have fully redeemed and the class A-2 has partially redeemed by approximately USD8.8 million. As a result of the deleveraging the OC ratios of the notes have increased significantly. According to the July 2016 trustee report, the classes A, B, C and D OC ratios are 253.04%, 161.07%, 132.23% and 113.88% respectively compared to levels in February 2016 of 233.78%, 155.93%, 129.96% and 113.02% respectively. Moody's notes that the trustee OC ratios will further increase after the payment date in July 2016. The key model inputs Moody's uses in its analysis, such as par, weighted average rating factor, diversity score and the weighted average recovery rate, are based on its published methodology and could differ from the trustee's reported numbers. In its base case, Moody's analyzed the underlying collateral pool as having a performing par balance of USD67.2 million and EUR15.7 million, defaulted par of USD0.65 million and EUR3.36 million, a weighted average default probability of 15.2% (consistent with a WARF of 2472 and a weighted average life of 3.68 years), a weighted average recovery rate upon default of 48.95% for a Aaa liability target rating and a diversity score of 27. The default probability derives from the credit quality of the collateral pool and Moody's expectation of the remaining life of the collateral pool. The estimated average recovery rate on future defaults is based primarily on the seniority of the assets in the collateral pool. Moody's generally applies recovery rates for CLO securities as published in "Moody's Approach to Rating SF CDOs". In some cases, alternative recovery assumptions may be considered based on the specifics of the analysis of the CLO transaction. In each case, historical and market performance and a collateral manager's latitude to trade collateral are also relevant factors. Moody's incorporates these default and recovery characteristics of the collateral pool into its cash flow model analysis, subjecting them to stresses as a function of the target rating of each CLO liability it is analyzing. Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in December 2015. Factors that would lead to an upgrade or downgrade of the ratings: In addition to the base-case analysis, Moody's conducted sensitivity analyses on the key parameters for the rated notes, for which it lowered the weighted average recovery rate by 5 percentage points; the model generated outputs that were in line with the base-case results. This transaction is subject to a high level of macroeconomic uncertainty, which could negatively affect the ratings on the note, in light of uncertainty about credit conditions in the general economy. CLO notes' performance may also be impacted either positively or negatively by 1) the manager's investment strategy and behavior and 2) divergence in the legal interpretation of CDO documentation by different transactional parties because of embedded ambiguities. Additional uncertainty about performance is due to: Portfolio amortization: The main source of uncertainty in this transaction is the pace of amortization of the underlying portfolio, which can vary significantly depending on market conditions and have a significant impact on the notes' ratings. Amortization could accelerate as a consequence of high loan prepayment levels or collateral sales by the collateral manager or be delayed by an increase in loan amend-and-extend restructurings. Fast amortization would usually benefit the ratings of the notes beginning with the notes having the highest prepayment priority. Long-dated assets: The presence of assets that mature beyond the CLO's legal maturity date exposes the deal to liquidation risk on those assets. Moody's assumes that, at transaction maturity, the liquidation value of such an asset will depend on the nature of the asset as well as the extent to which the asset's maturity lags that of the liabilities. Liquidation values higher than Moody's expectations would have a positive impact on the notes' ratings. Recovery of defaulted assets: Market value fluctuations in trustee-reported defaulted assets and those Moody's assumes have defaulted can result in volatility in the deal's over- collateralization levels. Further, the timing of recoveries and the manager's decision whether to work out or sell defaulted assets can also result in additional uncertainty. Moody's analyzed defaulted recoveries assuming the lower of the market price or the recovery rate to account for potential volatility in market prices. Recoveries higher than Moody's expectations would have a positive impact on the notes' ratings. Foreign currency exposure: The deal has exposures to non-USD denominated assets. Volatility in foreign exchange rates will have a direct impact on interest and principal proceeds available to the transaction, which can affect the expected loss of rated tranches. In addition to the quantitative factors that Moody's explicitly modeled, qualitative factors are part of the rating committee's considerations. These qualitative factors include the structural protections in the transaction, its recent performance given the market environment, the legal environment, specific documentation features, the collateral manager's track record and the potential for selection bias in the portfolio. All information available to rating committees, including macroeconomic forecasts, input from other Moody's analytical groups, market factors, and judgments regarding the nature and severity of credit stress on the transactions, can influence the final rating decision. =============== P O R T U G A L =============== NOVO BANCO: Posts Losses of EUR362.6 Mil. in First Half of 2016 --------------------------------------------------------------- The Portugal News reports that Portuguese bank Novo Banco has revealed that it suffered losses of EUR362.6 million during the first half of the year. Novo Banco, which was created from the collapsed Banco Espirito Santo, had reported losses of just over EUR250 million for the first six months of 2015, The Portugal News relates. Novo Banco is currently up for sale and the Bank of Portugal has confirmed that there are four offers on the table, but has so far not disclosed details, The Portugal News discloses. Headquartered in Lisbon, Novo Banco, S.A. provides various financial products and services to private, corporate, and institutional customers. * * * As reported in the Troubled Company Reporter-Europe on Jan. 6, 2016, Moody's Investors Service downgraded to Caa1 from B2 the senior debt and long-term deposit ratings of Portugal's Novo Banco, S.A. and its supported entities. This follows the Bank of Portugal's (BoP) announcement on Dec. 29, 2015, that it had approved the recapitalization of Novo Banco by transferring EUR1,985 million of senior debt back to Banco Espirito Santo, S.A. (BES unrated). Moody's said the outlook on Novo Banco's deposit and senior debt ratings is now developing. NOVO BANCO: Agrees to Sell Macau Unit to Well Link Group -------------------------------------------------------- Nelson Moura at Macau Business Daily, citing to a group release on the Portuguese Securities Market Commission (CMVM), reports that Portuguese banking group Novo Banco S.A (Novo Banco) has agreed on the sale of its Macau unit, Novo Banco Asia S.A. (Novo Banco Asia), to Hong Kong incorporated brokerage firm Well Link Group Holdings Limited. Novo Banco Asia -- formerly known as Banco Espirito Santo do Oriente (BESOR) -- is the Macau subsidiary of Novo Banco, which was created after the collapse of its parent company Banco Espirito Santo (BES) in 2015, Macau Business Daily discloses. The value of the purchase wasn't revealed by the bank, and the deal is now pending approval by the Portugal Central Bank and the Monetary Authority of Macau (AMCM), Macau Business Daily notes. In an interview with Portuguese newspaper Jornal de Negocios in July of this year, Novo Banco's former Chief Executive Officer, Eduardo Stock da Cunha stated that the sale of the Macau unit would probably reach higher values than the sale of the bank's other units, since in Asia it is normal to "pay higher market multiples than those we can get in a small operation like Cape Verde or in a European unit", Macau Business Daily recounts. While its parent company in Portugal registered EUR981 million (MOP8.6 billion/US$1 billion) in losses in 2015, Novo Banco Asia generated MOP4.6 million (US$575,737) in profits last year, Macau Business Daily relays. Headquartered in Lisbon, Novo Banco, S.A. provides various financial products and services to private, corporate, and institutional customers. * * * As reported in the Troubled Company Reporter-Europe on Jan. 6, 2016, Moody's Investors Service downgraded to Caa1 from B2 the senior debt and long-term deposit ratings of Portugal's Novo Banco, S.A. and its supported entities. This follows the Bank of Portugal's (BoP) announcement on Dec. 29, 2015, that it had approved the recapitalization of Novo Banco by transferring EUR1,985 million of senior debt back to Banco Espirito Santo, S.A. (BES unrated). Moody's said the outlook on Novo Banco's deposit and senior debt ratings is now developing. =========== R U S S I A =========== CB EUROCITYBANK: Liabilities Exceed Assets, Assessment Shows ------------------------------------------------------------ The provisional administration of PJSC CB EurocityBank appointed by Bank of Russia Order No. OD-2158, dated July 7, 2016, due to the revocation of its banking license encountered an obstruction of its activity starting the first day of performing its functions which the Bank of Russian believes was aimed at concealing the fact of diverting assets from PJSC CB EurocityBank, according to The Central Bank of Russia's Press Service. Examination of the bank's premises detected that the greater part of electronic media (servers) used to store information about the credit institution's assets, liabilities and their flow was missing. Also, it was noted that the integrity of information stored in some electronic devices must have been intentionally damaged. Besides, the provisional administration has detected that many right-establishing documents as regards the bank's outstanding loans worth RUR5.1 billion was missing. At the same time, the provisional administration revealed the existence of loan assignment contracts worth RUR1.4 billion to a dummy company. The preliminary examination launched by the provisional administration revealed that the asset value of the bank did not exceed RUR3.2 billion, while its liabilities to creditors amounted to RUR6.4 billion. This data is written down in the report submitted by the provisional administration to the Bank of Russia. On August 1, 2016, the Bank of Russia submitted a petition to the Court of Arbitration of the city of Moscow to recognize PJSC CB EurocityBank insolvent (bankrupt). The Bank of Russia has submitted the information on the financial transactions bearing the evidence of criminal offences conducted by the former management and owners of PJSC CB EurocityBank to the Prosecutor General's Office of the Russian Federation, the Russian Ministry of Internal Affairs and the Investigation Committee of the Russian Federation for consideration and procedural decision making. * RUSSIA: Payouts to Depositors May Hit Record High This Year ------------------------------------------------------------- Jake Rudnitsky at Bloomberg News reports that Russian payouts to depositors of failed lenders may reach a record this year as an unprecedented bank purge isn't letting up, according to the country's ratings company Expert RA. According to Bloomberg, Stanislav Volkov, Expert RA's managing director for bank ratings, said nineteen banks, including seven of Russia's 50 biggest by assets, are already in the "red zone," which puts them at risk of losing a license in the coming six months. As more lenders are forced to shut down, he estimates that payments from the Deposit Insurance Agency to savers could exceed RUR500 billion (US$7.7 billion) this year from RUR443 billion in 2015, Bloomberg discloses. Asset quality is deteriorating as Russia's longest recession in two decades throttles demand for loans and banks run short on capital to cover losses, Bloomberg says. More than 30% of Russian lenders have been labeled as mismanaged or under-capitalized and shut down since Bank of Russia Governor Elvira Nabiullina took over in 2013, Bloomberg notes. The total number of banks was at 630 on July 1, Bloomberg relays, citing central bank data. While finance executives and public officials have said the worst of the crisis is over, another 10 banks lost their licenses in July, bringing the total this year to 60, Bloomberg relates. The central bank said in July banks posted RUR360 billion in profit in the first half, up from RUR51 billion a year earlier, Bloomberg recounts. The country's regulator may continue to pull bank licenses at the same pace next year, Bloomberg says, citing Expert RA. According to Bloomberg, Mr. Volkov said for the seven biggest banks under threat, authorities may mount a rescue instead of stripping their licenses. ========= S P A I N ========= OHL SA: Fitch Says Unprofitable Legacy Contracts Hit 1H16 Profits ----------------------------------------------------------------- Fitch Ratings says OHL SA (BB-/Stable) suffered a drop in profits in its construction activity in 1H16 as a result of unprofitable legacy contracts and delays in commencing new contract work. Positively, OHL's actions to strengthen its balance sheet have resulted in the Spanish construction and concession operator being better positioned than a year ago to offset potential liquidity issues caused by lower cash flow. OHL's lackluster results in construction for 1H16 were mainly driven by an unexpected rise in costs in some of its older contracts. Of the reported EUR270 million LTM to June 2016 recourse EBITDA, construction accounted for around EUR100 million and the rest was contributed by recurring dividends from concessions. "While we expect recurring dividends from OHL's concessions business for the whole of 2016 to be similar to the previous year (EUR155 million), we forecast a slow recovery in construction business profitability driven by new projects in lower-risk developed markets. In addition, we expect cash flow to benefit from positive working capital movements, which typically provides cash inflow in the second half of the year," Fitch said. "In the medium term we expect OHL to improve the cash conversion of profits generated, as the company is now re-focusing its construction business in lower-risk developed countries, with cash flow also benefitting from a reduced working capital cycle." In the past nine months, OHL has substantially simplified its debt structure. Some of the proceeds of both its EUR1 billion capital increase and the recent sale of the 7% stake in Abertis (EUR815 million) were used to repay debt at its concession-owning subsidiary. By partly repaying the margin loans linked to the share price of OHL Mexico and Abertis, OHL significantly reduced the risk of margin loan triggers, which is positive for the group's liquidity. Although these transactions occurred at OHL Concesiones level -- therefore outside our perimeter of analysis -- Fitch views the debt reduction positively as it reduces the likelihood of cash support from the parent company. Fitch focuses its analysis on the recourse perimeter, adjusting metrics to reflect the ring-fenced nature of the concession business by excluding related funds from operations (FFO) and non-recourse debt but including recurring dividends from the non-recourse operations. In its net leverage metrics, Fitch uses available cash (EUR595 million at end-June 2016) as a potential source for debt repayment, as no cash contribution will be needed to fund equity commitment at concession level in the next three years. A successful restoration of the company's profitability, leading to Fitch-adjusted net leverage to around 2.0x and EBITDA interest cover above 3.0x (including recurring dividends) on a sustained basis could lead to a positive rating action. Conversely, Fitch's adjusted recourse net leverage above 4.0x and EBITDA interest cover below 2.0x on a sustained basis could lead to a downgrade. Based on the LTM figures to June 2016, Fitch-adjusted FFO net leverage was 3.8x, and the figure for 2016 is expected to be around 3.6x, both within the range of sensitivities for the rating. ============= U K R A I N E ============= UKREXIMBANK: Fitch Affirms 'CCC' LT FC Issuer Default Ratings ------------------------------------------------------------- Fitch Ratings has affirmed the Long-Term Foreign Currency Issuer Default Ratings (IDRs) of JSC The State Export-Import Bank of Ukraine (Ukreximbank) and JSC State Savings Bank of Ukraine (Oschadbank) at 'CCC'. The banks' IDRs are driven by their standalone strength, as reflected by their 'ccc' Viability Ratings (VRs). KEY RATING DRIVERS VIABILITY RATINGS, IDRS, NATIONAL RATINGS AND SENIOR DEBT The banks' 'CCC' Long-Term IDRs and 'ccc' VRs reflect weaknesses in both banks' credit profiles, in particular, high loan impairment, weak pre-impairment profitability and low capital ratios. As a result of this, both banks will be reliant on further solvency support should asset quality continue to deteriorate. The ratings also consider the still difficult, albeit gradually stabilizing operating environment, reasonable coverage of existing non-performing loans (NPLs, loans more than 90 days overdue) by loan impairment reserves (LIR), reduced near-term refinancing risks following both banks' Eurobond restructurings in 2015, stabilized deposit trends, underpinned by the recent stabilization of the hryvnia, and solid liquidity cushions. Both banks' standalone credit profiles are strongly linked with that of the sovereign due to their large exposure to sovereign debt and, more generally, the public sector, and the dependence of credit quality on the authorities' ability to support macroeconomic stability and public sector corporates. At end- 1Q16, direct sovereign exposure (claims on the government and the central bank) relative to Fitch Core Capital (FCC) was 25.5x at Ukreximbank and 5.6x at Oschadbank. Loans issued to state-owned corporates contributed a further 6.6x FCC and 2x FCC, respectively. Asset quality came under increased pressure in 2015-1Q16 due to recession (GDP dropped by 9.9% in 2015), currency depreciation (FX loans were 50% of the total at Oschadbank at end-1Q16, and 78% at Ukreximbank) and the unresolved conflict in the east. At end-1Q16, NPLs were reported at 39% of loans at Ukreximbank and 47% at Oshadbank, while total LIR provided reasonable NPL coverage (100% at Ukreximbank and 86% at Oschadbank). Restructured exposures are sizeable at both banks (46% at Ukreximbank; 26% at Oschadbank, of which 13% is represented by state-owned Naftogaz ('CCC'), with some of these being fairly high risk and a potential source of additional asset quality problems in the near term. These are provisioned at various levels, mainly reflecting the borrower performance track record post restructuring. Fitch expects only moderate economic recovery in Ukraine (we forecast GDP growth of 1% in 2016 with medium-term growth of 2%), which limits the potential for near-term improvements in asset quality metrics and constrains balance sheet growth and earnings generation. However, Fitch understands that additional provisioning requirements following the regulator's recent asset quality review should be moderate. Loss absorption capacity is limited relative to the levels of problem assets, despite recent capital support provided by the authorities to both banks. At end-1Q16, Oschadbank had a regulatory capital adequacy ratio (CAR) of 12.8% (regulatory minimum: 10%), which allowed the bank to increase its LIR by 3.7% without breaching regulatory capital requirements. Ukreximbank with its regulatory CAR of 9.2% at end-1H16 had no capacity to absorb additional losses through equity and remained reliant on the sector-wide regulatory forbearance with respect to non- compliance with capital requirements. Pre-impairment profit, net of interest income accrued but not received in cash, was negative at both banks in 1Q16. Moderate equity injections in 2017, following the asset quality review, are possible, in Fitch's view. Direct market risks remain high due to large short open currency positions (OCP), which expose the banks to revaluation losses in case of hryvnia depreciation. However, actual positions are smaller, when adjusted for USD-linked government bonds held by both banks and treated as UAH assets for OCP purposes. At end-May, 2016, the banks' foreign currency liquidity (comprising cash and equivalents and short-term interbank placements) was comfortably sufficient to meet near-term wholesale funding maturities, although the stability of the banks' highly dollarized deposit funding (end-1Q16: 74% of the total at Ukreximbank and 47% at Oschadbank) is also key to maintaining FX liquidity. FX liquidity will start to be used in 2019, when the banks' restructured Eurobonds begin to amortize. The presence of public sector corporates in the deposit bases (end-1Q16: 48% of client funds at Ukreximbank and 26% at Oschadbank) should result in somewhat greater predictability of client flows. Liquidity in local currency is comfortable and underpinned by large holdings of unpledged government securities eligible for refinancing with the National Bank of Ukraine (37% of assets at Ukreximbank and 26% at Oschadbank at end-1H16). SUPPORT RATINGS AND SUPPORT RATING FLOORS The affirmation of the Support Rating Floors at 'No Floor' and Support Ratings at '5' reflects Fitch's view of the Ukrainian authorities' still limited ability to provide support to the banks, in particular in foreign currency, in case of need, as indicated by the sovereign's 'CCC' Long-Term Foreign Currency IDR. However, the propensity to provide support to these two banks remains high, particularly in local currency. This view takes into account the banks' 100%-state ownership, policy roles, high systemic importance, and the track record of capital support for the banks under different governments. SUBORDINATED DEBT - UKREXIMBANK Ukreximbank's subordinated debt rating has been affirmed at 'C', the lowest possible issue rating. The two-notch differential between the bank's VR of 'ccc' and the subordinated debt rating of 'C' reflects one notch for incremental non-performance risk (resulting from the flexibility to defer coupons in certain circumstances, for example if the bank reports negative net income for a quarter) and one notch for potentially weaker recoveries due to the instrument's subordination. RATING SENSITIVITIES VRs, IDRS, NATIONAL RATINGS AND SENIOR DEBT Both banks' low ratings reflect very high levels of credit risk. The VRs could be downgraded if additional loan impairment recognition further undermines capital positions without sufficient support being provided by the authorities, or if deposit outflows sharply erode the banks' liquidity, in particular in foreign currency. Further stabilization of the sovereign's credit profile and the country's economic prospects would reduce risks to the ratings. SUPPORT RATINGS AND SUPPORT RATING FLOORS The SRs could be upgraded and the SRFs revised upwards if Fitch revises its view of the authorities' ability to provide timely support to the banks, in particular, in foreign currency. However, this is unlikely in the near term, given the country's weak external finances. SUBORDINATED DEBT - UKREXIMBANK The rating could be upgraded in case of an upgrade of the bank's VR. The rating actions are as follows: Ukreximbank: -- Long-Term Foreign Currency and Local Currency IDRs: affirmed at 'CCC' -- Senior unsecured debt of Biz Finance PLC: affirmed at 'CCC'/Recovery Rating 'RR4' -- Subordinated debt of Biz Finance PLC: affirmed at 'C'/Recovery Rating 'RR5' -- Short-Term Foreign Currency IDR: affirmed at 'C' -- Support Rating: affirmed at '5' -- Support Rating Floor: affirmed at 'No Floor' -- Viability Rating: affirmed at 'ccc' -- National Long-Term rating: affirmed at 'AA-(ukr)'; Outlook Stable Oschadbank: -- Long-Term Foreign Currency and Local Currency IDRs: affirmed at 'CCC' -- Senior unsecured debt of SSB No.1 PLC: affirmed at 'CCC'/Recovery Rating 'RR4' -- Short-Term Foreign Currency IDR: affirmed at 'C' -- Support Rating: affirmed at '5' -- Support Rating Floor: affirmed at 'No Floor' -- Viability Rating: affirmed at 'ccc' -- National Long-Term rating: affirmed at 'AA-(ukr)'; Outlook Stable =========================== U N I T E D K I N G D O M =========================== EUROHOME UK: S&P Raises Rating on Class B1 Notes to B+ ------------------------------------------------------ S&P Global Ratings raised its credit ratings on Eurohome UK Mortgages 2007-2 PLC's class A2, A3, M1, M2, and B1 notes. At the same time, S&P has affirmed its rating on the class B2 notes. The rating actions follow S&P's credit and cash flow analysis of the transaction using information from the June 2016 investor report and loan-level data. S&P's analysis reflects the application of its U.K. residential mortgage-backed securities (RMBS) criteria and S&P's current counterparty criteria. Since S&P's August 2013 review, the weighted-average foreclosure frequency (WAFF) has decreased. This decrease is primarily due to the transaction's increased seasoning and the decline in arrears. Over the same period, the weighted-average seasoning of the performing loans has increased to 83 from 73 months. The reported total arrears decreased to 21.6% compared with 31.5% at S&P's previous review. However, in S&P's credit model it considered that 23.7% of the portfolio is delinquent to account for arrears that have previously been capitalized and for the risk that arrears might increase in the future, considering they are currently at a historically low levels. S&P's weighted-average loss severity (WALS) calculations have increased at the 'AAA' level, but have decreased at all other rating levels. Although the transaction has benefitted from the decrease in the weighted-average current loan-to-value (LTV) ratio, this has been offset by the increase in S&P's repossession market-value decline assumptions, which have been greater at the 'AAA' level. Rating WAFF WALS level (%) (%) AAA 55.1 52.9 AA 44.7 44.9 A 37.2 32.3 BBB 30.0 24.8 BB 21.8 19.3 The reserve fund is at its required level and cannot amortize because the transaction has breached the cumulative net loss trigger. Due to this trigger breach, the transaction does not meet the pro rata repayment conditions set out in the transaction documents, so it is paying sequentially for the remainder of its life. S&P has modeled it as such in its analysis. The liquidity facility has not been drawn. The size of the liquidity facility was reduced in June 2016, and S&P has considered this in its cash flow analysis. The liquidity facility agreement held with Deutsche Bank AG does not comply with S&P's current counterparty criteria. The transactions documents do not include a strong commitment of the liquidity provider to replace itself or draw to cash its obligation if S&P downgrades it to below 'A-1'. In fact, following our June 9, 2015 downgrade of Deutsche Bank, it failed to take any remedial actions. Therefore, in the scenarios where S&P gives benefit to the liquidity facility, its current counterparty criteria cap the maximum achievable ratings at the long-term issuer credit rating (ICR) on Deutsche Bank, 'BBB+ (sf)'. S&P's analysis indicates that the class A2, A3, M1, M2, and B1 notes pass its cash flow stresses at higher rating levels than those currently assigned. S&P has therefore raised its ratings on the class M1, M2, and B1 notes. The class A2 and A3 notes are able to withstand S&P's cash flow stresses at the 'A' rating level even without the benefit of the liquidity facility. As a result, S&P has raised to 'A (sf)' from 'BBB+ (sf)' its ratings on the class A2 and A3 notes and delinked them from S&P's long- term ICR on Deutsche Bank. The ratings on the class A2 and A3 notes are still linked to the ICR on the swap counterparty, Barclays Bank PLC. The transaction's swap documents are not in line with S&P's current counterparty criteria, but they comply with a previous version. As a result, S&P's current counterparty criteria cap its rating on the notes at the ICR plus one notch on Barclays Bank. S&P has also affirmed its 'B- (sf)' rating on the class B2 notes as it do not expect these notes to suffer interest shortfalls in the next one to two years. S&P's credit stability analysis indicates that the maximum projected deterioration that it would expect at each rating level for the one- and three-year horizons, under moderate stress conditions, is in line with S&P's credit stability criteria. Eurohome UK Mortgages 2007-2 securitizes U.K. residential mortgages by Deutsche Bank's U.K. mortgage origination arm, DB mortgages. The transaction closed in 2007. RATINGS LIST Class Rating To From Eurohome UK Mortgages 2007-2 PLC EUR70 Million, GBP460.5 Million Mortgage-Backed Floating-Rate Notes Ratings Raised A2 A (sf) BBB+ (sf) A3 A (sf) BBB+ (sf) M1 BBB+ (sf) BBB (sf) M2 BBB- (sf) BB (sf) B1 B+ (sf) B (sf) Rating Affirmed B2 B- (sf) GULF KEYSTONE: Reviews DNO's Offer Amid Restructuring Efforts ------------------------------------------------------------- OilVoice reports that the Board of Gulf Keystone has reviewed DNO ASA's proposal to acquire the total share capital of the Company, which it received by letter late on July 28, 2016. Gulf Keystone notes that DNO's proposal is conditional upon the successful completion of the ongoing Balance Sheet Restructuring Transaction, announced by Gulf Keystone on July 14, 2016, OilVoice relates. "The Board has concluded that completion of the Restructuring best serves our stakeholders and we will not engage in any additional process that causes the Company to be distracted from that objective. The Company has responded to DNO accordingly," Oil Voice quotes the Company as saying. "In light of the importance of the proposed Restructuring for all stakeholders, the Board continues to strongly recommend that shareholders vote in favor of the resolution to authorize the increase in the Company's share capital, to be proposed at the Special General Meeting ('SGM'), in order to implement the Restructuring." Debt-for-Equity Swap As reported by the Troubled Company Reporter-Europe on July 19, 2016, Reuters related that distressed debt funds will become big shareholders in troubled oil firm Gulf Keystone after bondholders agreed to swap US$500 million of debt for equity, wiping out some of the world's top funds as shareholders. According to Reuters, the firm has been fighting to avoid insolvency after low oil prices and overdue oil export payments from the Kurdistan regional government crippled its balance sheet. Gulf Keystone Petroleum Limited is an oil and gas exploration and production company operating in the Kurdistan region of Iraq. It is listed on the main market of the London Stock Exchange. ROYAL BANK OF SCOTLAND: Fitch Rates Proposed US$ Notes 'BB-(EXP)' ----------------------------------------------------------------- Fitch Ratings has assigned The Royal Bank of Scotland Group plc's (RBSG, BBB+/Stable/F2/bbb+) forthcoming issue of USD-denominated perpetual subordinated contingent convertible capital notes (CCCN) an expected rating of 'BB-(EXP)'. The final rating is subject to Fitch receiving final documentation conforming to information already received. KEY RATING DRIVERS The CCCN are expected to qualify as additional Tier 1 (AT1) instruments with fully discretionary interest payments and are subject to conversion into RBSG's ordinary shares on breach of a consolidated 7% CRD IV common equity Tier 1 (CET1) ratio, which is calculated on a fully loaded basis. The rating of the securities is five notches below RBSG's 'bbb+' Viability Rating (VR), in line with Fitch's criteria, for assigning ratings to hybrid instruments. The securities are notched twice for loss severity to reflect the conversion into common shares on a breach of the 7% fully loaded CET1 ratio trigger, and three times for incremental non-performance risk relative to the VR. The notching for non-performance risk reflects the instruments' fully discretionary coupons, which Fitch views as the most easily activated form of loss absorption. Under the terms of the securities, the issuer will be subject to restrictions on interest payments if it has insufficient distributable items (RBSG's distributable reserves stood at GBP14.6 billion at June 30, 2016), is insolvent or fails to meet the combined buffer capital requirements that are being gradually introduced from 2016. Potential other factors are a breach of the minimum regulatory leverage ratio. RBSG's fully loaded Basel III CET1 ratio at June 30, 2016 was 14.5%, providing it with a buffer in excess of GBP18 billion for the 7% CET1 ratio trigger, although non-performance in the form of non-payment of interest would likely be triggered before reaching the 7% trigger, most likely by breaching the bank's regulatory requirements. RBSG's indicative minimum CET1 requirement applicable from 1 January 2019 is 10.8%, made up of 4.5% CET1 requirement under Pillar 1, 2.8% under Pillar 2A, a capital conservation buffer of 2.5% and a 1% G-SIB buffer. RATING SENSITIVITIES The CCCN's rating is primarily sensitive to changes in RBSG's VR. The securities' rating is also sensitive to a change in their notching, which could arise if Fitch changes its assessment of the probability of their non-performance relative to the risk captured in the VR. This may reflect a change in Fitch's assessment of capital management at RBSG, reducing the holding company's flexibility to service the securities or an unexpected shift in regulatory buffer requirements, for example. ********* 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 * * *