/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/170516.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 Tuesday, May 16, 2017, Vol. 18, No. 096 Headlines A Z E R B A I J A N INT'L BANK OF AZERBAIJAN: Files for Court Protection in U.S. F R A N C E * French Prime RMBS 90+ Days Delinquency Improved in February G E R M A N Y FRESENIUS MEDICAL: Moody's Withdraws B1 Corporate Family Rating I R E L A N D AURIUM CLO III: S&P Assigns 'B-' Rating to Class F Notes BACCHUS 2007-1: Moody's Affirms Ca(sf) Rating on Cl. E Notes HARVEST CLO XVII: Moody's Assigns B2(sf) Rating to Class F Notes LIGHTPOINT 2007-1: Moody's Raises Rating on Cl. E Notes From Ba1 MCGETTIGAN: Broadhaven Credit Partners to Refinance Debts OCP EURO 2017-1: Moody's Assigns B2(sf) Rating to Class F Notes POLYUS FINANCE: Moody's Affirms Ba1 Rating on $800MM Notes I T A L Y ITAU UNIBANCO: XP Investimento Deal No Impact on Fitch 'B' IDR M A C E D O N I A SKOPJE MUNICIPALITY: S&P Puts 'BB-' ICR on CreditWatch Negative N E T H E R L A N D S ARES EUROPEAN CLO III: Moody's Affirms B1 Rating on Class E Notes R U S S I A BANK TGB: Liabilities Exceed Assets, Assessment Shows CB INFORMPROGRESS: Placed on Provisional Administration INTERCOOPBANK JSC: Placed on Provisional Administration M2M PRIVATE BANK: Bank of Russia Inspects Financial Standing SVERDLOVSK REGION: Fitch Affirms 'BB+' LT Foreign-Currency IDRs YUKOS OIL: Was Unlawfully Bankrupted by Russia, Dutch Court Rules S L O V E N I A NOVA LJUBLJANSKA: S&P Raises Counterparty Credit Rating to 'BB' S P A I N BANCO POPULAR LEASING: Moody's Rates Series B Notes (P)Caa2 U K R A I N E UKRAINE: S&P Affirms 'B-/B' Sovereign Credit Ratings U N I T E D K I N G D O M LONMIN PLC: Losses Increase, Faces Debt Covenant Breach Risk NEWGATE FUNDING 2006-1: Moody's Affirms Caa3 Class E Notes Rating SOLOCAL GROUP: Fitch Affirms B- IDR & Revises Outlook to Stable ********* =================== A Z E R B A I J A N =================== INT'L BANK OF AZERBAIJAN: Files for Court Protection in U.S. ------------------------------------------------------------ The foreign representative with respect to the judicial reorganization proceeding in the Republic of Azerbaijan concerning the International Bank of Azerbaijan sought Chapter 15 protection in the U.S. Bankruptcy Court for the Southern District of New York to aid the restructuring of some $3.3 billion in debt. IBA is the largest commercial bank in Azerbaijan. The Bank maintains an international presence through subsidiaries in Russia and Georgia and representative offices in London and Frankfurt. The Bank is also a member of World Economic Forum's Community of Global Growth Companies and various other international financial organizations. IBA was established on December 30, 1992 under the laws of Azerbaijan as an open joint stock company with the primary purpose of commercial lending and borrowing. The Bank is majority-owned by the government of Azerbaijan. Throughout 2014-2016, the Bank and its customers were negatively impacted by adverse economic conditions that acutely affected the economy of Azerbaijan. These included a drop in oil prices and the resulting devaluation of the Azerbaijani Manat (the "AZN"). Despite several capital infusions from the government of Azerbaijan in 2014-2015 to ensure regulatory and debt-covenant compliance, the Bank suffered substantial losses in 2016. To maintain the Bank's financial stability, IBA and the government of Azerbaijan arranged for the transfer of the Bank's non- performing assets from the Bank to an existing government-backed non-banking credit institution -- a solution similar to the "good bank-bad bank" model utilized in the United States following the 2007 financial crisis. But these steps were not sufficient. In 2017, the Bank determined that it needed to restructure its remaining indebtedness in a formal proceeding. On April 17, 2017, IBA's Supervisory Board adopted the Supervisory Board Resolution authorizing the Bank to petition for the commencement of a voluntary restructuring proceeding under the Restructuring Provisions of the Azeri Law on Banks. On May 4, 2017, following approval of the Bank's petition by the Azeri Financial Markets Supervisory Authority ("FMSA") (the Bank's principal financial regulator), the Azeri Court issued an order formally commencing the Azeri Restructuring Proceeding (the "Azeri Commencement Order"). U.S. Lawsuits Gunel Bakhshiyeva, the foreign representative, filed with the New York Court a verified petition seeking recognition of IBA's restructuring as "foreign main proceeding". In addition, in light of imminent risks to the Bank's day-to-day transactions with certain U.S. financial institutions, the petitioner is simultaneously seeking relief on an emergency basis in its Motion for Provisional Relief pursuant to 11 U.S.C. Sec. 1519, 1521(a)(7), and 362 The Bank now seeks ancillary relief in this Chapter 15 Proceeding in order to (i) safeguard from attachment or set-off four U.S.- located "correspondent accounts" used to complete daily USD transactions with various other financial institutions (as further detailed below, the "U.S. Correspondent Accounts"); (ii) guard against burdensome U.S. lawsuits by Bank of Azerbaijan ("IBA," the "Bank," or the "Debtor"), creditors during the course of the Azeri Restructuring Proceeding; and (iii) complete the restructuring of its USD-denominated debt by obtaining U.S. judicial recognition of the Azeri Restructuring Proceeding and, ultimately, the plan approved in such proceeding by vote of the Bank's creditors and confirmation order of the Azeri Court. Accordingly, in support of the Azeri Restructuring Proceeding and to ensure the preservation of going-concern value through the uninterrupted continuation of operations, the Petitioner seeks recognition of the Azeri Restructuring Proceeding as a foreign main proceeding. Owned by Azeri Government IBA was established under the laws of Azerbaijan as a private entity in December 30, 1992, in the form of an open joint stock bank, with the primary purpose of commercial lending and borrowing. In October 2013, the Bank's shareholders approved a capital increase program in order to ensure compliance with capitalization ratios under Basel I and prudential standards (and, derivatively, covenants in certain of the Bank's debt facilities). Accordingly, the Bank received several tranches of capital injections through 2014 and 2015, which increased ownership of the Bank by the government of Azerbaijan, primarily through holdings by the Azeri Ministry of Finance ("Azeri MoF") and CJSC Agrarcredit ("Agrarcredit"), a State-owned non-banking credit institution. As of the Azeri petition date, the Azeri MoF held 76.73% of the Bank's equity and Agracredit held 14.56%. 10,000 Clients IBA is the largest commercial bank in Azerbaijan, with approximately one-third of the domestic market share on the basis of each of assets, total gross loans, and total customer deposits. IBA is a full-service commercial bank offering a range of financial products and services via its network of 36 branches (all located in Azerbaijan), 42 sub-branches, 3 service outlets and 2 currency exchange points across the country, making the Bank one of the most geographically diverse among Azerbaijani banks and of critical importance to customers in the country's more remote regions. Due to its diverse geographic network, the Bank is also one of the largest employers among banks in Azerbaijan, having 1,780 employees as of Dec. 31, 2016. The Bank provides services to over 10,000 corporate clients, comprised almost entirely of companies operating in Azerbaijan. Corporate banking includes project financing and the provision of credit facilities denominated in both Azerbaijani Manats ("AZN") and foreign currencies, predominantly U.S. dollars ("USD"), as well as transactional services including trade finance, foreign exchange and payment service loans. The Bank is also actively involved in trade financing through a number of different instruments including letters of credit, guarantees and collections. On account of its size and capabilities, the Bank facilitates a significant portion of Azerbaijan's total business activity, including its infrastructure projects. IBA is also the largest retail bank in Azerbaijan, with approximately 747,583 retail customers. Its retail services feature a range of products including loans, debit and credit cards and deposit and current accounts. The Bank has the largest number of payment cards in Azerbaijan and is the largest provider of money transfer services, measured by the value of transfers as of Dec. 31, 2016. Finally, IBA has an international presence through subsidiaries in Russia (International Bank of Azerbaijan - Moscow) and Georgia (International Bank of Azerbaijan - Georgia), representative offices in London and Frankfurt, and its participation as a member of World Economic Forum's Community of Global Growth Companies. It is presently a member of the Azerbaijan Banks Association (ABA), the Baku Interbank Currency Exchange (BICEX) and the Baku Stock Exchange (BSE). The Bank is also a member of international organizations including the International Payment System of American Express, Banking Association for Central and Eastern Europe (BACEE), Global Growth Companies Community (GCC), World Economic Forum (WEF), SWIFT, MasterCard International, VISA International and Reuters. U.S. Operations IBA's operations include a number of connections to the United States that render the Requested Relief critical to the successful completion of the Azeri Restructuring Proceeding. First, the Bank has issued USD-denominated, New York law-governed debt, namely, USD 715 million in loan facilities with Cargill Financial Services International, Inc. ("Cargill" and, such loan facilities together, the "Cargill Facilities"). The Cargill Facilities total approximately 31% of the Bank's total Financial Indebtedness. Second, the Bank maintains a number of U.S. bank accounts in New York that it uses in its daily operations. As a foreign bank, IBA does not have an account with the U.S. Federal Reserve. It must therefore utilize correspondent accounts (the "U.S. Correspondent Accounts") at the New York branches of U.S.-based banks (the "U.S. Correspondent Banks") in order to transact in USD. Specifically, the Bank maintains correspondent accounts at the Bank of New York Mellon ("BNYM") (the "BNYM Correspondent Account"); Citibank N.A. ("Citibank") (the "Citibank Correspondent Account"); JP Morgan Chase Bank N.A. ("JPM") (the "JPM Correspondent Account"); Deutsche Bank Trust Company Americas ("Deutsche Bank") (the "DB Correspondent Account"). When clients deposit USD with IBA, those dollars are predominantly held in one of the U.S. Correspondent Accounts through IBA's account with one of the U.S. Correspondent Banks. IBA then utilizes the U.S. Correspondent Accounts to settle transactions in USD with other financial institutions. As of the Azeri petition date, IBA held a total of approximately USD 50 million in the U.S. Correspondent Accounts, although this amount fluctuates significantly as the Bank carries out various USD transactions in the ordinary course of its business. The Bank routinely transfers funds in and out of the U.S. Correspondent Accounts for a variety of business reasons, including: (i) transfers to fulfill customer transactions in USD, (ii) transfers to achieve better terms of service with the correspondent bank, (iii) transfers to reduce cost and maximize returns related to the USD accounts, and (iv) various other ordinary course transfers to optimize the Bank's foreign currency transactions. Importantly, when the Bank's corporate clients send USD funds or direct their own transactional counterparties to send USD funds to their accounts with IBA, these additional funds are held by IBA in the U.S. Correspondent Accounts. For this reason, at any time, IBA's large corporate clients could effect transfers that drastically increase or decrease the amounts in the U.S. Correspondent Accounts. Ms. Bakhshiyeva, the foreign representative, asserts that the U.S. Correspondent Accounts are vital to the Bank's continuation as a going-concern. They allow the Bank to maintain USD deposits for its corporate clients and process transactions for those clients. Critical clients whose businesses regularly require access to the U.S. Correspondent Accounts include the State Oil Company of the Azerbaijan Republic (SOCAR), British Petroleum (BP), Azerbaijani Railways, Azerbaijani Airlines, and companies involved in the Baku-Tbilisi-Ceyhan and South Gas Corridor projects. Such projects relate to the Trans-Anatolian Natural Gas Pipeline and Trans-Adriatic Pipeline, which allow for Azerbaijan gas exports to Europe and are of great importance to the economy of Azerbaijan. Loss of access to these accounts would stop the Bank from transacting in USD. This could destroy the Bank's reputation and key client relationships and seriously call into question the Bank's ability to continue as a going concern. That is why the Bank needs the Requested Relief. Assets and Liabilities As of June 30, 2016, the Bank held a total of AZN14.2 billion in assets (USD8.34 billion), consisting of 36.2% loans and advances to customers; 23.2% receivables from banks and other financial institutions; 20% receivables from Agracredit; 16.1% cash and cash equivalents; 2.7% other assets; and 1.8% real property, equipment and intangibles. These assets include approximately USD50 million as of the Azeri petition date held in the U.S. Correspondent Accounts, although as noted, this amount fluctuates daily as the Bank uses these accounts to effect various USD transactions. As of June 30, 2016, the Bank's liabilities totaled AZN13.6 billion (US$7.99 billion), consisting of: i. 60% customer accounts ii. 14.6% other borrowed funds iii. 12.3% due to other banks iv. 5.8% debt securities in issue v. 5.7% subordinated debt vi. 1.6% other liabilities In addition to its customer deposits, the Bank had financial indebtedness at the time of the Azeri petition date of US$2.3 billion, consisting of the following substantial debt facilities (together, the Bank's "Financial Indebtedness"): i. US$715 million in the Cargill Facilities; ii. approximately US$500 million in English Law-governed bonds (the "Eurobonds"); iii. US$256 million and EUR27 million owed under English law- governed bilateral loans with Credit Suisse AG; iv. US$250 million in private placement notes issued to Emerald Capital Limited, with recourse limited solely to the proceeds of a deposit placed by Emerald Capital Limited with the Bank, governed by English law; v. a US$205 million syndicated loan, governed by English law, with Citibank as agent and various financial institutions as lenders; vi. a US$111 million loan owed to FBME Bank Ltd. governed by the law of Istanbul; vii. a US$100 million subordinated loan agreement governed by English law with Rubrika Finance Company as lender, with limited recourse (the "Subordinated Loan"); viii. EUR86.8 million and US$1.9 million in trade finance liabilities, including letters of credit with various financial institutions, governed by foreign (non-U.S.) law; and ix. English law-governed bilateral loans with ABLV Bank, AS (US$8 million) and Sberbank of Russia (US$20 million). In addition, the Bank acts as depositee on a USD1 billion deposit from the State Oil Fund of Azerbaijan ("SOFAZ"), the sovereign wealth fund of the Republic of Azerbaijan, that is also subject to the Bank's Restructuring Proceeding (the "Affected Deposit"). About IBA's Chapter 15 Case International Bank of Azerbaijan is the largest commercial bank in Azerbaijan. It plays a foundational role in the stability of Azerbaijan's banking system and, by extension thereof, the country's economic development. IBA helps link Azerbaijan to the global economy. IBA filed a Chapter 15 bankruptcy petition (Bankr. S.D.N.Y. Case No. 17-11311) on May 11, 2017. The Hon. James L. Garrity Jr. is the case judge. Gunel Bakhshiyeva, appointed as foreign representative, signed the Chapter 15 petition. Thomas MacWright, Esq., Richard Graham, Esq., Laura L. Femino, Esq., and Jason N. Zakia, Esq., at White & Case LLP, serve as U.S. counsel. =========== F R A N C E =========== * French Prime RMBS 90+ Days Delinquency Improved in February ------------------------------------------------------------- The 90+ days delinquency over current balance of the French prime RMBS decreased to 0.0% in February 2017 from 0.1% in November 2016, according to the latest indices published by Moody's Investors Service. The decrease is principally driven by the termination of CIF ASSETS 2001-1. The cumulative defaults as of original balance remained constant at 0.5% from November 2016 to February 2017. Moody's annualised total redemption rate increased to 20.5% in February 2017 from 18.4% for the same period. As of February 2017, the 8 Moody's-rated French prime RMBS transactions had a total outstanding pool balance of EUR55.6 billion, compared with EUR65.1 billion in November 2016, constituting a decrease of 15%. CIF ASSETS 2001-1 was redeemed in February. Transactions Domos 2017, FCT CREDIT AGRICOLE HABITAT 2017 and FCT ELIDE Compartiment 2017-01 were added to the index. ============= G E R M A N Y ============= FRESENIUS MEDICAL: Moody's Withdraws B1 Corporate Family Rating --------------------------------------------------------------- Moody's Investors Service has upgraded the ratings of Fresenius Medical Care AG & Co. KGaA, assigning a long-term issuer rating of Baa3. Concurrently Moody's also withdrew FMC's corporate family rating (CFR) of Ba1 and probability of default rating (PDR) of Ba1-PD following the assignment of an issuer rating of Baa3 as per the rating agency's practice for corporates with investment grade ratings. Please refer to the Moody's Investors Service's Policy for Withdrawal of Credit Ratings, available on its website, www.moodys.com. In addition, Moody's has affirmed all senior secured instrument ratings of FMC and its subsidiaries at Baa3 and has upgraded all senior unsecured instrument ratings of FMC and its subsidiaries to Baa3 from Ba2. Lastly, Moody's has placed under review for upgrade the Ba2 issuer rating of Fresenius Medical Care Holdings, Inc. (FMC Holdings), the sub-holding company of FMC's North American operations. The outlook is stable on all the ratings apart from Fresenius Medical Care Holdings, Inc., where the outlook is under review. Moody's will finalise its review process on FMC Holdings within the next few weeks. The rating action recognizes FMC's defensive business profile, the group's long term track record of profitable growth in a challenging macroeconomic environment and good growth prospects over the next 3 to 5 years, says Stanislas Duquesnoy, Moody's lead analyst for FMC. FMC's leveraged capital structure is mitigated by the company's very resilient cash flow generation through the cycle and a prolonged track record of credit metrics stability, adds Mr. Duquesnoy. RATINGS RATIONALE FMC's upgrades reflect the group's defensive business profile supported by the non- discretionary nature of the demand for its products. Dialysis services are offered to End Stage Renal Disease ('ESRD') patients, which need dialysis at least three times a week in order to survive. FMC's business model is protected by high barriers to entry and Moody's does not see any substitution risk in the next ten years at least. Over the last 15 years at least, FMC has built a strong track record of profitable growth. The group's revenues have grown every single year over the last fifteen years despite very volatile macroeconomic conditions and this growth has been profitable. The group's revenues and earnings have more than tripled over this period. In light of an ageing population and the increasing occurrence of lifestyle diseases such as diabetes and high blood pressure in developed economies, both favorable factors for the development of ESRD, Moody's foresee further sound growth prospects for FMC over the next 3 to 5 years with dialysis patients expected to grow by low to mid-single digits over this period. FMC has also scope to grow its exposure outside of North America and Europe, where increased access to healthcare should support demand going forward. FMC has historically maintained a relatively leveraged capital structure with a Moody's adjusted Debt/EBITDA ratio of around 3.0x to 4.0x over the last 15 years. However credit metrics of FMC have remained remarkably stable over a prolonged period of time and the company has proven able to delever swiftly after debt-financed acquisitions. The resilience of its earnings and cash flows is seen as a strong mitigant to the relatively elevated leverage of the group. LIQUIDITY FMC's liquidity is adequate. FMC had approximately EUR700 million of cash on balance sheet, around EUR1.3 billion availability under revolving credit facilities and EUR200 million capacity under the company's Account Receivables programme at March 31, 2017. Alongside the group's stable operating cash flow generation pre working capital, this should be more than sufficient to cover upcoming cash needs mainly consisting of capex, modest WC consumption, dividends and EUR1.4 billion of debt repayments over the next 12 months. STRUCTURAL CONSIDERATIONS Moody's estimates that FMC's senior secured bank debt amounts to around 30% of its overall gross debt. As such, a portion of the company's unsecured debt, notably the outstanding bonds, will continue to be structurally subordinated to an extent. The absence of any notching of the senior unsecured debt reflects Moody's expectation that FMC will, over time, reduce the amount of senior secured debt in its capital structure. WHAT COULD CHANGE THE RATING UP/ DOWN Further positive rating pressure is not anticipated in the short term. Positive pressure would build over time if FMC were to reduce gross debt /EBITDA to materially and sustainably below 3.0x and CFO/debt materially and sustainably above 20%. A more prudent management of the group's liquidity profile with earlier refinancing of upcoming maturities would also support a higher rating. Moody's could consider downgrading FMC if Moody's adjusted Debt/EBITDA would increase sustainably above 3.5x and CFO/debt would drop towards 15%. Unfavorable reimbursement changes in core markets or changes in payor mix, affecting the group's profit generation and / or material litigation could also put the current rating under pressure. Lastly negative free cash flow generation would exert negative pressure on the rating. Assignments: Issuer: Fresenius Medical Care AG & Co. KGaA -- Issuer Rating, Assigned Baa3 Affirmations: Issuer: Fresenius Medical Care AG & Co. KGaA -- Backed Senior Secured Bank Credit Facility, Affirmed Baa3 -- Senior Secured Bank Credit Facility, Affirmed Baa3 Issuer: Fresenius Medical Care Holdings, Inc. -- Senior Secured Bank Credit Facility, Affirmed Baa3 On Review for Upgrade: Issuer: Fresenius Medical Care Holdings, Inc. -- Issuer Rating, Placed on Review for Upgrade, currently Ba2 Upgrades: Issuer: Fresenius Medical Care AG & Co. KGaA -- Backed Senior Unsecured Conv./Exch. Bond/Debenture, Upgraded to Baa3 from Ba2 Issuer: FMC Finance VII S.A. -- Backed Senior Unsecured Regular Bond/Debenture, Upgraded to Baa3 from Ba2 Issuer: FMC Finance VIII S.A. -- Backed Senior Unsecured Regular Bond/Debenture, Upgraded to Baa3 from Ba2 Issuer: Fresenius Medical Care US Finance II, Inc -- Backed Senior Unsecured Regular Bond/Debenture, Upgraded to Baa3 from Ba2 Issuer: Fresenius Medical Care US Finance, Inc. -- Backed Senior Unsecured Regular Bond/Debenture, Upgraded to Baa3 from Ba2 -- Senior Unsecured Regular Bond/Debenture, Upgraded to Baa3 from Ba2 Withdrawals: Issuer: Fresenius Medical Care AG & Co. KGaA -- Corporate Family Rating, Withdrawn , previously rated Ba1 -- Probability of Default Rating, Withdrawn , previously rated Ba1-PD Outlook Actions: Issuer: Fresenius Medical Care AG & Co. KGaA -- Outlook, Remains Stable Issuer: FMC Finance VII S.A. -- Outlook, Remains Stable Issuer: FMC Finance VIII S.A. -- Outlook, Remains Stable Issuer: Fresenius Medical Care US Finance II, Inc -- Outlook, Remains Stable Issuer: Fresenius Medical Care US Finance, Inc. -- Outlook, Remains Stable Issuer: Fresenius Medical Care Holdings, Inc. -- Outlook, Changed To Rating Under Review From Stable The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. ============= I R E L A N D ============= AURIUM CLO III: S&P Assigns 'B-' Rating to Class F Notes -------------------------------------------------------- S&P Global Ratings assigned credit ratings to Aurium CLO III DAC's class A, B-1, B-2, C, D, E, and F notes. At closing, Aurium CLO III also issued an unrated subordinated class of notes. Aurium CLO III is a cash flow collateralized loan obligation (CLO) transaction securitizing a portfolio of primarily senior secured loans granted to speculative-grade European corporates. Spire Partners LLP manages the transaction. The ratings reflect S&P's assessment of: -- The diversified collateral pool, which comprises primarily broadly syndicated speculative-grade senior secured term loans and bonds that are governed by collateral quality tests. The credit enhancement provided through the subordination of cash flows, excess spread, and overcollateralization. -- The collateral manager's experienced team, which can affect the performance of the rated notes through collateral selection, ongoing portfolio management, and trading. The transaction's legal structure, which is bankruptcy remote. Under the transaction documents, the rated notes pay quarterly interest unless there is a frequency switch event. Following this, the notes permanently switch to semiannual payment. The portfolio's reinvestment period ends approximately four years after closing. S&P's ratings reflect its assessment of the collateral portfolio's credit quality, which has a weighted-average 'B' rating. The portfolio is well-diversified, primarily comprising broadly syndicated speculative-grade senior secured term loans and senior secured bonds. Therefore, S&P has conducted its credit and cash flow analysis by applying its criteria for corporate cash flow collateralized debt obligations. In S&P's cash flow analysis, it considered the EUR375 million target par amount, the covenanted weighted-average spread without Euro Interbank Offered Rate (EURIBOR) floors (4.10%), the covenanted weighted-average coupon (5.25%), and the target minimum weighted-average recovery rates at each rating level as indicated by the manager. S&P applied various cash flow stress scenarios, using four different default patterns, in conjunction with different interest rate stress scenarios for each liability rating category. Citibank, N.A., London Branch is the bank account provider and custodian. The documented downgrade remedies are in line with S&P's current counterparty criteria. Following the application of S&P's structured finance ratings above the sovereign criteria, it considers that the transaction's exposure to country risk is sufficiently mitigated at the assigned rating levels. S&P considers the issuer to be bankruptcy remote, in accordance with its legal criteria. Following S&P's analysis of the credit, cash flow, counterparty, operational, and legal risks, S&P believes its ratings are commensurate with the available credit enhancement for each class of notes. RATINGS LIST Ratings Assigned Aurium CLO III DAC EUR387.35 Million Senior Secured Fixed- And Floating-Rate Notes (Including EUR39.35 Million Subordinated Notes) Class Rating Amount (mil. EUR) A AAA (sf) 220.00 B-1 AA (sf) 41.50 B-2 AA (sf) 10.00 C A (sf) 25.50 D BBB (sf) 18.00 E BB (sf) 22.50 F B- (sf) 10.50 Sub NR 39.35 NR--Not rated. BACCHUS 2007-1: Moody's Affirms Ca(sf) Rating on Cl. E Notes ------------------------------------------------------------ Moody's Investors Service has upgraded the rating of the following notes issued by Bacchus 2007-1 PLC: -- EUR25M (Current rated balance of EUR21.79M) Class D Senior Secured Deferrable Floating Rate Notes due 2023, Upgraded to Baa3 (sf); previously on Jul 5, 2016 Affirmed Ba3 (sf) Moody's has also affirmed the rating on the following notes: -- EUR12.2M Class E Senior Secured Deferrable Floating Rate Notes due 2023, Affirmed Ca (sf); previously on Jul 5, 2016 Affirmed Ca (sf) Bacchus 2007-1 PLC, issued in April 2007, is a Collateralised Loan Obligation (CLO) backed by a portfolio of mostly high-yield senior secured European loans. The portfolio is managed by IKB Deutsche Industriebank AG. The transaction's reinvestment period ended in April 2013. RATINGS RATIONALE The upgrade of the Class D Notes is primarily the result of deleveraging since the last rating action in July 2016 based on May 2016 data. There have been 2 payment dates since the last rating action. On the most recent payment date, in April 2017, the outstanding balance of EUR23.95M of Class C Notes was fully repaid and the remaining balance of principal proceeds were used to begin amortization of the Class D Notes. The Class D Notes have been reduced to 87.18% of their original amount, and Class D overcollateralization level has increased. As of the April 2017 trustee report, the Class D and Class E overcollateralization ratios are reported at 120.54% and 96.54% compared with 118.11% and 96.89% respectively in May 2016. The April 2017 OC ratios do not incorporate the payments made to the notes on the April 2017 payment date; net of such payments, the recalculated Class D OC ratio is 147.46%. 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 analysed the underlying collateral pool as having a performing par and principal proceeds balance of EUR30.40 million, defaulted par of EUR2.00 million, a weighted average default probability of 34.54% over a 4.5 years weighted average life (consistent with a WARF of 4792), a weighted average recovery rate upon default of 43.89% for a Aaa liability target rating, a diversity score of 5 and a weighted average spread of 4.58%. 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. 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 analysing. Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in October 2016. 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 assumed lower weighted average recovery rate for the portfolio. Moody's ran a model in which it reduced the weighted average recovery rate by 5%; the model generated outputs which were within one notch of the base-case results for Classes D and E. This transaction is subject to a high level of macroeconomic uncertainty, which could negatively affect the ratings on the notes, 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 the following: * 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. * Around 39% of the collateral pool consists of debt obligations whose credit quality Moody's has assessed by using credit estimates. As part of its base case, Moody's has stressed large concentrations of single obligors bearing a credit estimate as described in "Updated Approach to the Usage of Credit Estimates in Rated Transactions" published in October 2009 and available at http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_120461. * Recoveries on 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- collateralisation 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 analysed 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. * Lack of portfolio granularity: The performance of the portfolio depends to a large extent on the credit conditions of a few large obligors with Caa or low non-investment-grade ratings, especially when they default. Because of the deal's lack of granularity, Moody's substituted its typical Binomial Expansion Technique analysis with a simulated default distribution using Moody's CDROMTM software and an individual scenario analysis. In addition to the quantitative factors that Moody's explicitly modelled, 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. HARVEST CLO XVII: Moody's Assigns B2(sf) Rating to Class F Notes ---------------------------------------------------------------- Moody's Investors Service assigned the following definitive ratings to notes issued by Harvest CLO XVII Designated Activity Company: -- EUR 242,000,000 Class A Senior Secured Floating Rate Notes due 2030, Definitive Rating Assigned Aaa (sf) -- EUR 43,500,000 Class B-1 Senior Secured Floating Rate Notes due 2030, Definitive Rating Assigned Aa2 (sf) -- EUR 10,000,000 Class B-2 Senior Secured Fixed Rate Notes due 2030, Definitive Rating Assigned Aa2 (sf) -- EUR 21,500,000 Class C Senior Secured Deferrable Floating Rate Notes due 2030, Definitive Rating Assigned A2 (sf) -- EUR 20,000,000 Class D Senior Secured Deferrable Floating Rate Notes due 2030, Definitive Rating Assigned Baa2 (sf) -- EUR 24,000,000 Class E Senior Secured Deferrable Floating Rate Notes due 2030, Definitive Rating Assigned Ba2 (sf) -- EUR 9,750,000 Class F Senior Secured Deferrable Floating Rate Notes due 2030, Definitive Rating Assigned B2 (sf) RATINGS RATIONALE Moody's definitive ratings of the rated notes address the expected loss posed to noteholders by the legal final maturity of the notes in 2030. 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, Investcorp Credit Management EU Limited ("Investcorp"), has sufficient experience and operational capacity and is capable of managing this CLO. Harvest CLO XVII DAC is a managed cash flow CLO. At least 90% of the portfolio must consist of secured senior obligations and up to 10% of the portfolio may consist of unsecured senior loans, second lien loans, mezzanine obligations, high yield bonds and/or partial PIK obligations. The portfolio is approximately 95% ramped up as of the closing date and is expected to be comprised predominantly of corporate loans to obligors domiciled in Western Europe. The remainder of the portfolio will be acquired during the six month ramp-up period in compliance with the portfolio guidelines. Investcorp 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 impaired obligations, and are subject to certain restrictions. In addition to the seven classes of notes rated by Moody's, the Issuer issued EUR 42,900,000 of subordinated notes. Moody's will not assign a rating to this class of notes. The transaction incorporates interest and par coverage tests which, if triggered, will 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. Investcorp'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 October 2016. 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. Moody's used the following base-case modeling assumptions: Par Amount: EUR 400,000,000 Diversity Score: 38 Weighted Average Rating Factor (WARF): 2750 Weighted Average Spread (WAS): 3.65% Weighted Average Coupon (WAC): 6.25% Weighted Average Recovery Rate (WARR): 43.50% Weighted Average Life (WAL): 8 years As part of the base case, Moody's has addressed the potential exposure to obligors domiciled in countries with local currency country risk ceiling (LCC) of A1 or below. As per the portfolio constraints, exposures to countries with local currency country risk ceiling rating of between A1 to A3 cannot exceed 10%, and there may be no exposure to countries with a local currency country risk ceiling below A3. Following the effective date, and given these portfolio constraints and the current sovereign ratings of eligible countries, the total exposure to countries with a LCC of A1 or below may not exceed 10% of the total portfolio, with no exposure to countries with a LCC below A3. The remainder of the pool will be domiciled in countries which currently have a LCC of Aa3 and above. Given this portfolio composition, the model was run without the need to apply portfolio haircuts as further described in the methodology. Stress Scenarios: Together with the set of modelling assumptions above, Moody's conducted an additional sensitivity analysis, which was an important component in determining the ratings assigned to the rated notes. This sensitivity analysis includes increased default probability relative to the base case. Below is a summary of the impact of an increase in default probability (expressed in terms of WARF level) on each of the rated notes (shown in terms of the number of notch difference versus the current model output, whereby a negative difference corresponds to higher expected losses), holding all other factors equal. Percentage Change in WARF: WARF + 15% (to 3163 from 2750) Ratings Impact in Rating Notches: Class A Senior Secured Floating Rate Notes: 0 Class B-1 Senior Secured Floating Rate Notes: -2 Class B-2 Senior Secured Fixed Rate Notes: -2 Class C Senior Secured Deferrable Floating Rate Notes: -2 Class D Senior Secured Deferrable Floating Rate Notes: -2 Class E Senior Secured Deferrable Floating Rate Notes: -1 Class F Senior Secured Deferrable Floating Rate Notes: 0 Percentage Change in WARF: WARF +30% (to 3575 from 2750) Ratings Impact in Rating Notches: Class A Senior Secured Floating Rate Notes: -0 Class B-1 Senior Secured Floating Rate Notes: -3 Class B-2 Senior Secured Fixed Rate Notes: -3 Class C Senior Secured Deferrable Floating Rate Notes: -4 Class D Senior Secured Deferrable Floating Rate Notes: -2 Class E Senior Secured Deferrable Floating Rate Notes: -1 Class F Senior Secured Deferrable Floating Rate Notes: -1 Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in October 2016. LIGHTPOINT 2007-1: Moody's Raises Rating on Cl. E Notes From Ba1 ---------------------------------------------------------------- Moody's Investors Service announced that it has taken rating actions on the following classes of notes issued by LightPoint Pan-European CLO 2007-1 P.L.C.: -- EUR19M Class C Senior Secured Deferrable Floating Rate Notes due 2026, Upgraded to Aaa (sf); previously on Feb 10, 2016 Upgraded to Aa3 (sf) -- EUR12M Class D Senior Secured Deferrable Floating Rate Notes due 2026, Upgraded to Aa3 (sf); previously on Feb 10, 2016 Upgraded to Baa1 (sf) -- EUR13M (Current outstanding balance of EUR10.8M) Class E Senior Secured Deferrable Floating Rate Notes due 2026, Upgraded to Baa3 (sf); previously on Feb 10, 2016 Upgraded to Ba1 (sf) Moody's has also affirmed the ratings on the following notes: -- EUR259M (Current outstanding balance of EUR41M) Class A Senior Secured Floating Rate Notes due 2026, Affirmed Aaa (sf); previously on Feb 10, 2016 Affirmed Aaa (sf) -- EUR10M Class B Senior Secured Deferrable Floating Rate Notes due 2026, Affirmed Aaa (sf); previously on Feb 10, 2016 Affirmed Aaa (sf) LightPoint Pan-European CLO 2007-1 P.L.C., issued in November 2007, is a collateralised loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured European and US loans. The portfolio is managed by Neuberger Berman Fixed Income LLC. The transaction's reinvestment period ended in February 2014. RATINGS RATIONALE The rating actions on the notes are the result of the deleveraging of the Class A Notes following amortisation of the underlying portfolio since the last payment date in August 2016 and an improvement in portfolio credit quality. Class A Notes have paid down by EUR37 million resulting in increases in over-collateralisation (OC) ratios. As per the trustee report dated March 2017, Class A, Class B, Class C, Class D and Class E OC ratios are reported at 259.95%, 208.96%, 152.23%, 129.94% and 114.80% respectively, compared to August 2016 levels of 186.19%, 165.07%, 135.81%, 122.14% and 111.98%. WARF has improved to 2089 from 2235 during the same period. 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 analysed the underlying collateral pool as having a performing par and principal proceeds of EUR106.42 million, defaults of EUR4.24 million, a weighted average default probability of 13.20% (consistent with a WARF of 2076 over a weighted average life of 4.31 years), a weighted average recovery rate upon default of 45.68% for a Aaa liability target rating, a diversity score of 18 and a weighted average spread of 2.91%. 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 October 2016. 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 assumed a lower weighted average recovery rate for the portfolio. Moody's ran a model in which it reduced the weighted average recovery rate by 5%; the model generated outputs that were one notch lower than the base-case results for Classes D and E. Classes A, B and C were not significantly impacted. This transaction is subject to a high level of macroeconomic uncertainty, which could negatively affect the ratings on the notes, 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 behaviour 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 the following: 1) Portfolio amortisation: The main source of uncertainty in this transaction is the pace of amortisation of the underlying portfolio, which can vary significantly depending on market conditions and have a significant impact on the notes' ratings. Amortisation 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 amortisation would usually benefit the ratings of the notes beginning with the notes having the highest prepayment priority. 2) Recoveries on 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- collateralisation 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 analysed 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. In addition to the quantitative factors that Moody's explicitly modelled, 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. MCGETTIGAN: Broadhaven Credit Partners to Refinance Debts --------------------------------------------------------- Gavin Daly at The Times reports that Broadhaven Credit Partners, a non-bank lender backed by Bain Capital, is putting up almost EUR30 million to refinance the debts of the McGettigan property and hospitality group, whose interests include the Regency hotel near Dublin airport. The overhaul of the McGettigan borrowings was finalized in recent days, in tandem with a rescue plan for two McGettigan companies linked to the Regency, which went into examinership earlier this year, The Times relays. The hotel said its business has suffered after it was the scene of a fatal gangland shooting last year, The Times notes. The examinership was opposed by Oaktree Capital Management, a US fund that was owed about EUR25 million by the McGettigan companies after buying their debts from National Asset Management Agency, The Times discloses. Carval, another investment group, was owed EUR635,400 by the firms, The Times states. OCP EURO 2017-1: Moody's Assigns B2(sf) Rating to Class F Notes --------------------------------------------------------------- Moody's Investors Service has assigned definitive ratings to six classes of notes issued by OCP Euro CLO 2017-1 Designated Activity Company (the "Issuer" or " OCP Euro CLO"): -- EUR202,250,000 Class A Senior Secured Floating Rate Notes due 2030, Assigned Aaa (sf) -- EUR49,750,000 Class B Senior Secured Floating Rate Notes due 2030, Assigned Aa2 (sf) -- EUR21,000,000 Class C Senior Secured Deferrable Floating Rate Notes due 2030, Assigned A2 (sf) -- EUR17,500,000 Class D Senior Secured Deferrable Floating Rate Notes due 2030, Assigned Baa2 (sf) -- EUR22,750,000 Class E Senior Secured Deferrable Floating Rate Notes due 2030, Assigned Ba2 (sf) -- EUR9,250,000 Class F Senior Secured Deferrable Floating Rate Notes due 2030, Assigned B2 (sf) RATINGS RATIONALE Moody's definitive ratings of the rated notes address the expected loss posed to noteholders by the legal final maturity of the notes in 2030. 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, Onex Credit Partners, LLC, ("Onex Credit") has sufficient experience and operational capacity and is capable of managing this CLO. OCP Euro CLO 2017-1 Designated Activity Company is a managed cash flow CLO. At least 90% of the portfolio must consist of senior secured loans and senior secured bonds. The portfolio is expected to be 80% ramped up as of the closing date and to be comprised predominantly of corporate loans to obligors domiciled in Western Europe. Onex Credit Partners, LLC is the portfolio manager. Onex Credit Partners Europe LLP is the portfolio sub-manager and 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 improved and credit risk obligations, and are subject to certain restrictions. In addition to the six classes of notes rated by Moody's, the Issuer issued EUR 38.25M of subordinated notes, which will not be 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. Onex Credit's investment decisions and management of the transaction will also affect the notes' performance. Loss and Cash Flow Analysis: Moody's modelled 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 October 2016. 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. Moody's used the following base-case modelling assumptions: Par Amount: EUR 350,000,000 Diversity Score: 35 Weighted Average Rating Factor (WARF): 2695 Weighted Average Spread (WAS): 3.7% Weighted Average Coupon (WAC): 5.5% Weighted Average Recovery Rate (WARR): 42% Weighted Average Life (WAL): 8 years Moody's has analysed the potential impact associated with sovereign related risk of peripheral European countries. As part of the base case, Moody's has addressed the potential exposure to obligors domiciled in countries with local currency country risk ceiling of A1 or below. For countries which are not member of the European Union, the foreign currency country risk ceiling applies at the same levels under this transaction. Following the effective date, and given the portfolio constraints and the current sovereign ratings in Europe, such exposure may not exceed 10% of the total portfolio. As a result and in conjunction with the current foreign government bond ratings of the eligible countries, as a worst case scenario, a maximum 5% of the pool would be domiciled in countries with local currency country ceiling of Baa1 or below. The remainder of the pool will be domiciled in countries which currently have a local or foreign currency country ceiling of Aaa or Aa1 to Aa3. Given this portfolio composition, the model was run with different target par amounts depending on the target rating of each class as further described in the methodology. The portfolio haircuts are a function of the exposure size to peripheral countries and the target ratings of the rated notes and amount to 0.75% for the Class A notes, 0.5% for the Class B notes, 0.375% for the Class C and 0% for Classes D, E, and F notes. Stress Scenarios: Together with the set of modelling assumptions above, Moody's conducted additional sensitivity analysis, which was an important component in determining the definitive ratings assigned to the rated notes. This sensitivity analysis includes increased default probability relative to the base case. Below is a summary of the impact of an increase in default probability (expressed in terms of WARF level) on each of the rated notes (shown in terms of the number of notch difference versus the current model output, whereby a negative difference corresponds to higher expected losses), holding all other factors equal. Percentage Change in WARF: WARF + 15% (to 3099 from 2695) Ratings Impact in Rating Notches: Class A Senior Secured Floating Rate Notes: 0 Class B Senior Secured Floating Rate Notes: -2 Class C Senior Secured Deferrable Floating Rate Notes: -2 Class D Senior Secured Deferrable Floating Rate Notes: -2 Class E Senior Secured Deferrable Floating Rate Notes: -1 Class F Senior Secured Deferrable Floating Rate Notes: 0 Percentage Change in WARF: WARF +30% (to 3504 from 2695) Ratings Impact in Rating Notches: Class A Senior Secured Floating Rate Notes: -1 Class B Senior Secured Floating Rate Notes: -3 Class C Senior Secured Deferrable Floating Rate Notes: -4 Class D Senior Secured Deferrable Floating Rate Notes: -3 Class E Senior Secured Deferrable Floating Rate Notes: -2 Class F Senior Secured Deferrable Floating Rate Notes: -2 Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in October 2016. POLYUS FINANCE: Moody's Affirms Ba1 Rating on $800MM Notes ---------------------------------------------------------- Moody's Investors Service has affirmed the Ba1 (LGD 3) rating of the $800 million senior unsecured notes due 2023 issued by Polyus Finance Plc (the Notes), an indirect wholly-owned subsidiary of Polyus Gold International Limited (Polyus Gold; Ba1 negative). Polyus Gold's Ba1 corporate family rating, Ba1-PD probability of default rating and the Ba1 (LGD 3) rating on Polyus Gold's $500 million senior unsecured notes due 2022 are unchanged. The outlook is negative. The rating action follows the substitution of the Notes issuer, as a result of which all rights and obligations under the Notes were transferred from Polyus Gold to Polyus Finance Plc on April 28, 2017. RATINGS RATIONALE The affirmation of the Notes' rating reflects the fact that after the issuer substitution (1) the Notes will continue to rank pari passu with other unsecured and unsubordinated obligations of Polyus Gold's group; and (2) the Notes' guarantee structure continues to include the guarantee provided by Polyus Gold's key operating subsidiary, Joint-Stock Company Gold-Mining Company Polyus. RATIONALE FOR NEGATIVE OUTLOOK The negative outlook is in line with the negative outlook on Polyus Gold's ratings. PRINCIPAL METHODOLOGY The principal methodology used in this rating was Global Mining Industry published in August 2014. Jersey-domiciled Polyus Gold is a holder of a 93.14% effective stake in Russia-based PJSC Polyus, which is one of the lowest- cost gold producers globally, with six operating mines and one development project in Russia. In 2016, the company produced 1.97 million ounces of gold, ranking as the eighth-largest producer globally (according to the company's estimate), and generated revenues of $2.5 billion and reported EBITDA of $1.5 billion. Polyus Gold is beneficially controlled by Mr. Said Kerimov. Polyus Gold owns a 91.73% stake in PJSC Polyus, while a 1.51% stake in PJSC Polyus are treasury shares and 6.76% is in free float on the Moscow Exchange and ADRs in the OTC market. ========= I T A L Y ========= ITAU UNIBANCO: XP Investimento Deal No Impact on Fitch 'B' IDR -------------------------------------------------------------- Fitch Ratings does not expect the acquisition of XP Investimentos S.A. (XP, not rated by Fitch) by Itau Unibanco Holding S.A. (IUH, 'BB+'/Outlook Negative) to impact IUH's ratings. XP's size is small relative to IUH, and Fitch anticipates that IUH will maintain strong capital and liquidity ratios even after the acquisition is completed. On May 11, 2017, IUH informed the market that its subsidiary Itau Unibanco S.A. entered into a Share Purchase Agreement for the acquisition of 49.9% of the total share capital of XP by means of a capital increase of BRL600 million and the acquisition of XP's shares held by the sellers for the amount of BRL5.7 billion. The acquisition of this minority interest in XP would not result in a change in control as IUH has stated that Itau Unibanco S.A. shall act as a minority shareholder and shall not have influence over the commercial and operational policies of XP. The acquisition, which is still subject to certain conditions precedent including regulatory approvals, is viewed by Fitch as a credit positive as it is in line with IUH's continued strategy of earnings diversification by strengthening and complementing its existing fee business franchise. The deals would also reinforce the group's position in the growing digital segment, which is important since Brazil's recession continues to weigh on credit activity. The purchase would have a minor impact on IUH's liquidity and on its benchmark Fitch Core Capital Ratio (FCC). The FCC ratio would only experience a potential drop of approximately 55 - 60 bps, which Fitch believes would be quite manageable for IUH. At Dec. 31, 2016 IUH had a strong FCC of nearly 13.5%, which was the highest of the last five fiscal years. As further evidence of sufficient liquidity, IUH announced earlier this year that it has implemented a new dividend net payout ratio between 35% to 45% (vs. a historical ratio of 30% to 35%). After the Corpbanca investment in Chile and Colombia and the potential purchase of the retail arm of Citibank in Brazil (currently pending regulatory approvals), there are currently limited cost-effective investment opportunities both overseas and in Brazil that would fit IUH's strategies. XP was established in 2001 and is currently the largest independent brokerage company in Brazil, with more than BRL 65 billion under custody and more than 230 thousand clients. XP is also the third largest brokerage company in the country in stock trading volume. In addition to its growing operations in Brazil, it has offices in New York, Miami, London and Geneva. Fitch currently rates IUH as follows: -- Long-term foreign and local currency Issuer Default Ratings (IDRs) 'BB+', Outlook Negative; -- Short-term foreign and local currency IDRs 'B'; -- National long-term rating 'AAA(bra)', Outlook Stable; -- National short-term rating 'F1+(bra)'; -- Viability rating 'bb+'; -- Support rating '3'; -- Support rating floor 'BB-'. ================= M A C E D O N I A ================= SKOPJE MUNICIPALITY: S&P Puts 'BB-' ICR on CreditWatch Negative --------------------------------------------------------------- S&P Global Ratings placed its 'BB-' issuer credit rating on the Macedonian capital, the Municipality of Skopje, on CreditWatch with negative implications. CREDITWATCH The CreditWatch placement reflects that S&P could lower the rating on Skopje by multiple notches over the coming three months if it saw continued uncertainty pertaining to Macedonia's local governments' mandates. This uncertainty could limit Skopje's ability to perform key municipal tasks, and risk timely debt payment should the municipal authorities not be endowed with the power to perform on their responsibilities until new local elections are held. S&P could resolve the CreditWatch if the central government found a solution for the current unclear situation or S&P had reason to believe that local governments, and in particular Skopje, could function legitimately over the coming months despite having no electoral mandate. RATIONALE The rating on the Municipality of Skopje is constrained by a volatile and unbalanced institutional framework under which the municipality operates in Macedonia. The current ambiguous situation at the central government has increased the risks to Skopje's operations -- as it has for all local governments across the country. Despite this, the rating continues to be supported by the city's relatively low, albeit increasing, debt levels and its steady economic growth prospects -- which are likely to be reflected in a reasonable pace of growth in the municipality's operational revenues. This should allow Skopje to maintain solid budgetary results with sustainable operating balances. The city's liquidity position remained strong in 2016, but as the size and timing of future sales is hard to predict given low visibility on unsold office space and likely sales prices, S&P anticipates a gradual weakening of the municipality's liquidity position over 2017-2019, alongside lower associated operating and capital revenues. Institutional set-up is not preventing uncertainties, but not yet affecting economic prospects. Following the December 2016 elections, Macedonia has, to date, failed to put in place a functioning government. With this, the deadline for initiating local elections has passed without action. The Macedonian Law on Local Governments stipulates that local elections are to be held every four years, with the Macedonian Electoral Code specifiying that they should fall into the first half of May. As the Electoral Code does not contain any rules pertaining to the continuation of local governments' mandates until new elections are upheld, there now appears to be a policital vacuum. This puts into question the legal validity of decisions and operations undertaken at the municipal level over the coming weeks and potentially months. The Macedonian parliament could in theory call local elections and with this also change the Electoral Code to extend municipal level council members and mayors mandates. However, so far this has not occurred. Similarly S&P understands the Ministry of Local Governments is seeking a solution for the situation but has not yet concluded upon a resolution. S&P believes this imposes political and operational risks to the municipal tier overall as well as for the particular case of the city of Skopje. In addition, political division in the country may weigh further on the intergovernmental relationship, in particular should local and central government composition differ. Going foward, S&P may reflect this by revising our institutional framework assement for local governments in Macedonia or implementing a qualifier for the increased risks of rapidly rising political uncertainty. S&P's view of Skopje's limited revenue and expenditure flexibility is due to the central government's control over municipalities' finances within the context of the Macedonian municipal framework. Furthermore, the predictability of Macedonia's institutional set-up is affected by the central government's fiscal policy. A high proportion of revenues depends on central government decisions, such as setting the base or range for most local tax rates. S&P notes that further fiscal decentralization to transfer more responsibility to Macedonian municipalities for policing and health care has not progressed markedly in recent years. The provision of most services is funded with transfers from the central government's budget, and local governments have very limited autonomy in managing their revenues and expenditures. The transparency of medium-term plans is weak, in S&P's opinion. The audits for Skopje's accounts are mandated by an independent government body reporting to parliament, not by independent audit firms. The volatility of the real estate market further constrains the predictability of the municipality's budgetary performance. Historically, about one-third of Skopje's revenues is derived, both directly and indirectly, from real estate sales. S&P's view of the city's financial management is weak because the municipality lacks medium-term financial planning for the core budget and its enterprises, and outcomes very often differ markedly from annual budgets. Capital revenues are often overestimated while capital expenditures are routinely well below the budgeted amount. S&P understands that, to some extent, this reflects considerations outside of the Skopje administration's direct control, such as delays owing to lengthy public procurement procedures. Nevertheless, the city government has a tight grip on operating expenditure. Moreover, it arranges funding from multilateral financial institutions directly and via the state treasury in advance for capital projects. Skopje has low income and wealth levels compared to internationally. S&P projects national GDP per capita to average just US$5,500 over 2017-2019. Nevertheless, S&P acknowledges the relative strength of the city's economy within the country, hosting the manufacturing units of export-oriented foreign companies as well as national companies that tend to be headquartered in Skopje. S&P also expects the local economy to gradually expand in line with the national economy, achieving annual GDP growth of about 2.5% over 2017-2019. S&P believes that these steady economic developments are likely to buoy the city's budget performance. S&P projects the operating surplus to gradually narrow toward 21% of operating revenues by 2019 from exceptional 28% in 2016. Budget execution remains strong, but possible volatility still a concern Skopje has shown another strong budgetary year in 2016, surpassing S&P's last review expectations on stronger revenue intake and lower expenditure growth. With this, the city posted not only a sound operating surplus, but also maintained a positive balance after capital accounts, though at decreased levels compared with 2015 due to investments increasing. While tax revenues showed year-on-year growth, non-tax items underperformed both budget and year-end 2015 results. S&P expects tax revenues to stabilize in 2017 and beyond and with this overall revenue growth to slow down. Operating expenditures have developed in line with expectations, while some underspending on goods and services can be observed for 2016. S&P expects 2017 expenditures to increase at a higher pace than last year. Similarly, S&P believes investment expenditures will increase, whereby capital revenues should remain volatile and are likely to underperform the city's budget. Overal this leads to deficits after capital accounts under S&P's forecast through 2019, while roughly stable with its previous view. These deficits after capital accounts average about 6% over 2017- 2019 and lead to steady debt accumulation going forward, and in S&P's base-case scenario. The central government has allowed Macedonian municipalities to take on debt only in recent years, and borrowing limits are gradually being relaxed. S&P forecasts that Skopje's tax-supported debt will increase to 25% of consolidated operating revenues by year-end 2017 and over 30% by year-end 2019 in S&P's base-case scenario. Skopje's municipal company sector constitutes a credit weakness, in S&P's view. Several municipal companies have investment needs and large payables. Additional contingent liabilities may come from the municipality's plans to foster infrastructure development through public-private partnerships. Skopje's debt service coverage ratio is high, with cash holdings- -adjusted for the deficit after capital accounts--substantially exceeding 200% of debt falling due over the coming 12 months. Nonetheless, S&P believes this ratio to be volatile and inflated by 2015 sales of office income and fees from land sales. Going forward, with limited visibility on the potential sales of commercial space, S&P anticipates a gradual reversal of the municipality's strong liquidity position to previously adequate levels. Nonetheless, the city's internal cash flow-generating capability remains strong, with an operating balance before interest exceeding annual debt service by 4x. Skopje holds its cash in an account at the state treasury. These positive factors are mitigated by the city's access to external liquidity, which S&P views as limited owing to the relatively immature local banking system and capital markets for municipal debt. ===================== N E T H E R L A N D S ===================== ARES EUROPEAN CLO III: Moody's Affirms B1 Rating on Class E Notes ----------------------------------------------------------------- Moody's Investors Service has upgraded the ratings on the following notes issued by Ares European CLO III B.V.: -- EUR21M Class C Senior Secured Deferrable Floating Rate Notes due 2024, Upgraded to Aaa (sf); previously on Oct 5, 2016 Upgraded to Aa1 (sf) -- EUR19M Class D Senior Secured Deferrable Floating Rate Notes due 2024, Upgraded to A1 (sf); previously on Oct 5, 2016 Upgraded to Baa1 (sf) Moody's has also affirmed the ratings on the following notes: -- EUR49.5M (Current outstanding balance of EUR29.4M) Class A3 Senior Secured Floating Rate Notes due 2024, Affirmed Aaa (sf); previously on Oct 5, 2016 Affirmed Aaa (sf) -- EUR21M Class B Senior Secured Deferrable Floating Rate Notes due 2024, Affirmed Aaa (sf); previously on Oct 5, 2016 Affirmed Aaa (sf) -- EUR22M Class E Senior Secured Deferrable Floating Rate Notes due 2024, Affirmed B1 (sf); previously on Oct 5, 2016 Affirmed B1 (sf) Ares European CLO III B.V., issued in July 2007, is a collateralised loan obligation (CLO) backed by a portfolio of mostly high-yield senior secured European loans. The portfolio is managed by Ares Management Limited. The transaction's reinvestment period ended in August 2014. RATINGS RATIONALE The rating actions on the notes are primarily a result of the deleveraging of the Class A Notes following amortisation of the underlying portfolio since the last rating action in October 2016. The Classes A1 and A3 Notes have paid down by approximately EUR26 million (7.30% of original amount) since the last rating action in October 2016 and EUR217.59 million (61.03% of original amount) since closing. As a result of the deleveraging, over- collateralisation (OC) has increased. According to the trustee report dated April 2017 the Class A, Class B, Class C, Class D and Class E OC ratios are reported at 395.29%, 230.62%, 162.80%, 128.59% and 103.43% compared to September 2016 levels of 264.76%, 192.00%, 150.61%, 126.03% and 106.00%, respectively. 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 analysed the underlying collateral pool as having a performing par of EUR81.04 million and USD11.15 million and principal proceeds balance of EUR17.39 million and USD5.81 million, defaulted par of EUR3 million, a weighted average default probability of 17.74% (consistent with a WARF of 2587), a weighted average recovery rate upon default of 47.04% for a Aaa liability target rating, a diversity score of 20 and a weighted average spread of 3.59%. Moody's notes that the 02 May 2017 trustee report was published at the time it was completing its analysis of the April 03, 2017 data. Key portfolio metrics such as WARF, diversity scores and OC ratios have not materially changed between these dates. 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 analysing. Methodology Underlying the Rating Action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in October 2016. 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 assumed lower weighted average recovery rate for the portfolio. Moody's ran a model in which it reduced the weighted average recovery rate by 5%; the model generated outputs that were within one notch of the base-case results. This transaction is subject to a high level of macroeconomic uncertainty, which could negatively affect the ratings on the notes, 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 behaviour 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 the following: * Portfolio amortisation: The main source of uncertainty in this transaction is the pace of amortisation of the underlying portfolio, which can vary significantly depending on market conditions and have a significant impact on the notes' ratings. Amortisation 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 amortisation would usually benefit the ratings of the notes beginning with the notes having the highest prepayment priority. * 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- collateralisation 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 analysed 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. * 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. * Foreign currency exposure: The deal has exposure to non-EUR 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 modelled, 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. =========== R U S S I A =========== BANK TGB: Liabilities Exceed Assets, Assessment Shows ----------------------------------------------------- The provisional administration to manage JSC BANK TGB as appointed by Bank of Russia Order No. OD-627, dated March 13, 2017, following banking license revocation, inspected the Bank and found a shortage of cash to a total of RUR1.7 billion, USD6.7 million and EUR1 million, according to the press service of the Central Bank of Russia. In addition, the provisional administration found that in the run-up to the revocation of the banking license, the Bank issued loans to individuals in the total amount of over RUR600 million from the funds, which had been allegedly raised from individuals during the BoR-imposed ban to attract deposits. The provisional administration estimates the value of the Bank assets to total under RUR1.7 billion versus RUR7.8 billion of its liabilities to creditors. On March 27, 2017, the Bank of Russia lodged a legal application to the Court of Arbitration of the city of Moscow on recognising the Bank insolvent (bankrupt). The hearing of this application is scheduled on June 19, 2017. The Bank of Russia submitted the information on the operations performed by former management and owners of JSC BANK TGB which bear the evidence of criminal offence to the Prosecutor General's Office of the Russian Federation, the Ministry of Internal Affairs of the Russian Federation and Russian Investigative Committee for consideration and procedural decision making. CB INFORMPROGRESS: Placed on Provisional Administration ------------------------------------------------------- The Bank of Russia, by its Order No. OD-1236, dated May 15, 2017, revoked the banking license of Moscow-based credit institution Commercial Bank of Assistance for Development of Trade and Supply Informprogress (limited liability company) or CB Informprogress LLC from May 15, 2017. According to the financial statements, as of April 1, 2017, the credit institution ranked 575th by assets in the Russian banking system. The business model of CB Informprogress LLC was largely designed to serve the interests of its owners. The bank placed funds in low-quality assets, including in construction, and inadequately assessed the risks assumed. Following the creation of required loss provisions, the credit institution's equity capital fell below the amount of its registered authorised capital. CB Informprogress LLC failed to timely comply with the Bank of Russia's instruction on aligning its authorised and equity capital. The Bank of Russia repeatedly applied supervisory measures to the credit institution, including restrictions on household deposit taking. The management and owners of CB Informprogress LLC have not taken effective measures to bring its activities back to normal. Under these circumstances, the Bank of Russia performed its duty on the revocation of the banking licence of the credit institution in accordance with Article 20 of the Federal Law "On Banks and Banking Activities". The Bank of Russia's decision resulted from the credit institution's failure to comply with federal banking laws and Bank of Russia regulations, its failure to meet the Bank of Russia's demand to align its authorised and equity capital within the timeframe stipulated in paragraph 4.1 of Chapter IX of the Federal law "On Insolvency (Bankruptcy)", and given the repeated application over the past year of supervisory measured envisaged by the Federal law "On the Central Bank of the Russian Federation (Bank of Russia)". The Bank of Russia, by its Order No. OD-1237, dated May 15, 2017, appointed a provisional administration to CB Informprogress LLC for the period until the appointment of a receiver pursuant to the Federal Law "On the Insolvency (Bankruptcy)" or a liquidator under Article 23.1 of the Federal Law "On Banks and Banking Activities". In accordance with federal laws, the powers of the credit institution's executive bodies are suspended. CB Informprogress LLC is a member of the deposit insurance system. The revocation of the banking license is an insured event as stipulated by Federal Law No. 177-FZ "On the Insurance of Household Deposits with Russian Banks" in respect of the bank's retail deposit obligations, as defined by law. The said Federal Law provides for the payment of indemnities to the bank's depositors, including individual entrepreneurs, in the amount of 100% of the balance of funds but no more than a total of RUR1.4 million per one depositor. INTERCOOPBANK JSC: Placed on Provisional Administration ------------------------------------------------------- The Bank of Russia, by its Order No. OD-1238, dated May 15, 2017, revoked the banking license of Moscow-based credit institution Joint-stock Commercial Bank INTERCOOPBANK (joint-stock company) from May 15, 2017, according to the press service of the Central Bank of Russia. According to the financial statements, as of April 1, 2017, the credit institution ranked 573rd by assets in the Russian banking system. JSCB INTERCOOPBANK JSC has long been in the purview of the Bank of Russia due to the bank's transit and dubious transactions connected with cash out transactions and overseas money diversion under securities transactions. The high involvement of JSCB INTERCOOPBANK JSC in such suspicious operations despite the supervisor's repeated measures aimed at their suppression, has demonstrated the unwillingness on the part of the bank's management and owners to normalise its activities. Under the circumstances, the Bank of Russia took a decision to withdraw JSCB INTERCOOPBANK JSC off the banking services market. The Bank of Russia took this decision due the credit institution's failure to comply with federal banking laws and Bank of Russia regulations, repeated violations within one year of the requirements stipulated by Article 7 (except for Clause 3 of Article 7) of the Federal Law "On Countering the Legalisation (Laundering) of Criminally Obtained Incomes and the Financing of Terrorism", and the requirements of Bank of Russia regulations issued in compliance with the indicated Federal Law, and taking into account repeated applications within one year of measures envisaged by the Federal Law "On the Central Bank of the Russian Federation (Bank of Russia)". The Bank of Russia, by its Order No. OD-1239, dated May 15, 2017, appointed a provisional administration to JSCB INTERCOOPBANK JSC for the period until the appointment of a receiver pursuant to the Federal Law "On the Insolvency (Bankruptcy)" or a liquidator under Article 23.1 of the Federal Law "On Banks and Banking Activities". In accordance with federal laws, the powers of the credit institution's executive bodies are suspended. JSCB INTERCOOPBANK JSC is a member of the deposit insurance system. The revocation of the banking license is an insured event as stipulated by Federal Law No. 177-FZ "On the Insurance of Household Deposits with Russian Banks" in respect of the bank's retail deposit obligations, as defined by law. The said Federal Law provides for the payment of indemnities to the bank's depositors, including individual entrepreneurs, in the amount of 100% of the balance of funds but no more than a total of RUR1.4 million per one depositor. M2M PRIVATE BANK: Bank of Russia Inspects Financial Standing ------------------------------------------------------------ The provisional administration of PJSC M2M Private Bank appointed by Bank of Russia Order No. OD-4399, dated December 9, 2016, following the revocation of its banking license, held the inspection of the bank's financial standing that revealed low quality of the bank's loan portfolio which resulted from the bank's lending to companies with poor financial position, including lending to companies controlled by the bank's owners, some of which are registered and located abroad where it is not required to disclose and provide information when conducting financial operations. Moreover, the bank acquired a numismatic collection from the beneficiary owner at an elevated price with further offsetting of its cost through assignment of overdue debt. On February 22, 2017, the Arbitration Court of the City of Moscow recognised the PJSC M2M Private Bank bankrupt. The State Corporation Deposit Insurance Agency was appointed as a receiver. The Bank of Russia submitted the information on financial transactions bearing the evidence of the criminal offence conducted by the former management and owners of PJSC M2M Private Bank to the Prosecutor General's Office of the Russian Federation, the Ministry of Internal Affairs of the Russian Federation and the Investigative Committee of the Russian Federation for consideration and procedural decision making. SVERDLOVSK REGION: Fitch Affirms 'BB+' LT Foreign-Currency IDRs --------------------------------------------------------------- Fitch Ratings has affirmed Russian Sverdlovsk Region's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'BB+' with Stable Outlooks and Short-Term Foreign-Currency IDR at 'B'. The region's outstanding senior unsecured domestic debt has been affirmed at BB+. KEY RATING DRIVERS The ratings reflect the Fitch's expectation that Sverdlovsk will maintain a moderate debt level and satisfactory operating performance with an operating balance sufficient for interest payment coverage. The ratings also factor in the region's developed industrialised economy, albeit exposed to business cycle volatility, and weak institutional framework for Russian sub-nationals. Fitch forecasts Sverdlovsk's operating balance will hover at around 6%-7% of operating revenue in 2017-2019 after a sound 8.4% in 2016. The moderate deterioration of operating performance reflects negative changes in national tax regulation, i.e. reduced share allocation of corporate income tax and excises on oil-refinery products. Operating revenue growth in 2017 will also remain fragile due to the slow pace of the local economy recovery. The region managed to narrow the fiscal deficit to 3.1% of total revenue in 2016 after a period of a high deficit, averaging 12.8% in 2013-2015. Fitch expects the region's deficit before debt variation will remain moderate over the medium term, in the range of 3%-4% of total revenue due to strict control of expenditure. However, Fitch notes that the region's expenditure flexibility is limited, as the scope for capex reduction is almost exhausted, with the share of capital outlays decreasing to 12% of total spending in 2016. Fitch expects the region will maintain capex at below 10% of total expenditure in 2017-2019, lagging its national peers and leaving little room for expenditure flexibility. The region's direct risk was almost unchanged in 2016 relative to current revenue and accounted for 37.8% (2015: 38.1%). Fitch projects Sverdlovsk's direct risk will remain below 50% of current revenue over the medium term. The region's self-financing capacity will remain moderate as the current balance and capital revenue will cover 55%-60% of capex in the medium term, leading to market funding requirements. In its debt policy, Sverdlovsk relies on medium-term bank loans (65% of direct risk at April 1, 2017), followed by budget loans (27%), with the residual related to outstanding domestic bonds (8%). About 81% of maturities are spread over 2017-2019. The weighted average maturity of the debt is estimated at 2.7 years, which is short compared with international peers. The region is planning to tap the domestic bond market in 2017 and replace part of the medium-term bank loans with long-term bonds. This will ease annual refinancing pressure and extend the region's debt repayment profile. The region has a developed industrial economy weighted towards the metallurgical and machine-building sectors. Its wealth metrics are above the median for Russian regions with GRP per capita 25% above the median in 2015. However, the overall concentration on a few sectors of the processing industry exposes the region's revenue to economic cycles. According to preliminary estimates, regional GRP grew by 1.9% in 2016, in contrast to the national economic decline of 0.2%. The region's credit profile remains constrained by the weak institutional framework for Russian local and regional governments (LRGs), which has a shorter record of stable development than many of its international peers. Weak institutions lead to lower predictability of Russian LRGs' budgetary policies, which are subject to the federal government's continuous reallocation of revenue and expenditure responsibilities within government tiers. RATING SENSITIVITIES A weak operating balance that was insufficient to cover interest expenditure and continuous growth of direct risk toward 60% of current revenue would lead to a downgrade. A sound budgetary performance with operating balance at above 10% of operating revenue, accompanied by sound debt metrics, with direct risk-to-current balance (2016: 5.9x) below average debt maturity could lead to an upgrade. YUKOS OIL: Was Unlawfully Bankrupted by Russia, Dutch Court Rules ----------------------------------------------------------------- The Yukos Foundation issued a statement noting a ruling from the Amsterdam Court of Appeal on the Yukos Oil Company bankruptcy. The Foundation said: "The Amsterdam Court of Appeal [on May 9, 2017] ruled that the Russian Federation unlawfully bankrupted Yukos Oil Company. The court concluded that the Russian authorities 'not only violated the Russian (tax) rules, but also that this was done with the apparent intent to make Yukos insolvent and ultimately bankrupt Yukos.' The Russian bankruptcy cannot be recognized in The Netherlands, the court ruled, as that would 'violate public order.' The Dutch Yukos Foundation that was set up to protect Yukos foreign assets is now one step closer to distributing additional assets to the former shareholders of Yukos Oil. "'The Yukos Foundation applauds the ruling in this case, which has exposed the extent to which the Russian Federation will go to manipulate the legal process and ignore the rule of law in order to accomplish their aims,' said Steve Theede, former Yukos CEO, and now a member of the Foundation's board of directors. "The Amsterdam Court of Appeal's decision is in favor of one of the subsidiaries of Yukos Oil, the Dutch company Yukos Finance BV, worth hundreds of millions of dollars. Russian company Promneftstroy argued it owned Yukos Finance, which the court ruled it bought in a rigged bankruptcy auction. Promneftstroy's claims were all dismissed. "'The Foundation -- which has spent over 10 years fighting Promneftstroy's claim to ownership of the Dutch entity in order to protect Yukos' financial assets and return them to shareholders -- believes today's ruling should resolve the case once and for all,' Theede added. "The Foundation was set up to protect the assets of the Yukos group outside Russia for the purpose of ultimately distributing the monies to creditors and former shareholders of Yukos, who were harmed by the unlawful expropriation. The ruling shows that Yukos' management's strategy to seek the protection of independent courts, outside of Russia, pays off,' said Eelco Meerdink, who represented Yukos in the proceedings. While Promnefstroy may appeal the court's decision to the Supreme Court, Meerdink said 'the Foundation is confident that this judgment will be upheld.' "Yukos, which was once Russia's largest oil company, was bankrupted in 2006 after Russian authorities imposed back tax claims and fines of $24 billion in what was widely seen as a politically motivated assault on then-Yukos CEO Mikhail Khodorkovsky. Former Yukos assets today form the bulk of state- controlled Rosneft, the world's biggest public oil producer." The Yukos Foundation was formed in 2005 to ensure that the assets of the Yukos group outside Russia can be protected and distributed fairly to the company's former creditors and shareholders as soon as litigation regarding the entitlement to such assets is favorably resolved. The Foundation is identifying and verifying Yukos shareholders in order to return financial assets to them when legal challenges are completed. About Yukos Oil Headquartered in Moscow, Yukos Oil -- http://yukos.com/-- was an open joint stock company under the laws of the Russian Federation. Yukos was involved in energy industry substantially through its ownership of its various subsidiaries, which own or are otherwise entitled to enjoy certain rights to oil and gas production, refining and marketing assets. The Company filed for Chapter 11 protection on Dec. 14, 2004 (Bankr. S.D. Tex. Case No. 04-47742), but the case was dismissed on Feb. 24, 2005, by the Hon. Letitia Z. Clark. A few days later, the Russian Government sold its main production unit Yugansk to a little-known firm Baikalfinansgroup for US$9.35 billion, as payment for US$27.5 billion in tax arrears for 2000- 2003. Yugansk eventually was bought by state-owned Rosneft, which is now claiming more than US$12 billion from Yukos. On March 10, 2006, a 14-bank consortium led by Societe Generale filed a bankruptcy suit in the Moscow Arbitration Court in an attempt to recover the remainder of a US$1 billion debt under outstanding loan agreements. The banks, however, sold the claim to Rosneft, prompting the Court to replace them with the state- owned oil company as plaintiff. On April 13, 2006, court-appointed external manager Eduard Rebgun filed a chapter 15 petition in the U.S. Bankruptcy Court for the Southern District of New York (Bankr. S.D.N.Y. Case No. 06-0775), in an attempt to halt the sale of Yukos' 53.7% ownership interest in Lithuanian AB Mazeikiu Nafta. On May 26, 2006, Yukos signed a US$1.49 billion Share Sale and Purchase Agreement with PKN Orlen S.A., Poland's largest oil refiner, for its Mazeikiu ownership stake. The move was made a day after the Manhattan Court lifted an order barring Yukos from selling its controlling stake in the Lithuanian oil refinery. On Aug. 1, 2006, the Hon. Pavel Markov of the Moscow Arbitration Court upheld creditors' vote to liquidate OAO Yukos Oil Co. and declared what was once Russia's biggest oil firm bankrupt. On Nov. 23, 2007, the Russian Trading System and Moscow Interbank Currency Exchange stopped trading Yukos shares after the company formally ceased to exist. Mr. Rebgun completed the company's liquidation process after Russia's Federal Tax Service has entered Yukos' liquidation on the Uniform State Register of Legal Entities. As reported in the Troubled Company Reporter-Europe on Nov. 14, 2007, the Moscow Arbitration Court entered an order closing the liquidation proceedings of Yukos, 15 months after it was declared bankrupt on Aug. 1, 2006. =============== S L O V E N I A =============== NOVA LJUBLJANSKA: S&P Raises Counterparty Credit Rating to 'BB' --------------------------------------------------------------- S&P Global Ratings said that it raised its long-term counterparty credit rating to 'BB' from 'BB-' on Slovenia-based Nova Ljubljanska Banka D.D. (NLB). The outlook remains positive. At the same time, we affirmed the short-term counterparty credit rating at 'B'. S&P also raised the issue rating on NLB's senior unsecured debt to 'BB' from 'BB-'. The rating action follows S&P's review of the Slovenian banking sector and reflects ita view of reduced economic risks and improved operating conditions for banks domiciled in the country. S&P has revised its Banking Industry Country Risk Assessment (BICRA) for Slovenia to group '6' from group '7'. S&P observes reduced economic imbalances in the Slovenian banking system, prompting S&P to revise its economic risk score to '6' from '7'. S&P's assessment of industry risk remains at '6', indicating its view of relatively high risks. The revised BICRA group score results in a stronger anchor, S&P's starting point in assigning an issuer credit rating, for NLB, which is now 'bb+' versus 'bb' previously. Slovenia has the highest GDP per capita in Central and Eastern Europe. S&P estimates that the economy will grow by 2.7% in 2017 and 2.4% in 2018 thanks to increasing domestic consumption and solid net exports. The nonfinancial corporate sector is still going through a strong deleveraging and derisking period after the financial crisis hit Slovenia in 2009. Even though some industries remain highly leveraged, the consolidated corporate debt-to-GDP ratio has plunged to 50% in 2016 from a peak of 85% in 2009. On aggregate, private-sector lending continues to shrink and underpins S&P's assessment of an ongoing correction of Slovenia's credit cycle. Positively, nationwide inflation-adjusted real estate prices have bottomed out since 2015, and credit losses reached a record low of 0.4% of systemwide domestic loans in 2016. S&P sees the correction phase nearing an end and deem the remaining impact on Slovenia's banking sector as limited. S&P continues to expect that macroeconomic imbalances in the economy will keep decreasing as the correction period phases out and new lending resumes. Further supporting S&P's assessment are the abating corporate indebtedness, continued decline of nonperforming loans (NPLs), an improvement of governance standards in some of the corporate sectors, as well as the government's ongoing privatization efforts. Although S&P continues to see industry risk as relatively high, it now views positively that, since the handover of banking regulation to the Single Supervisory Mechanism in 2014, S&P believes that Slovenia's banking system will benefit from the supervisor's more proactive approach to reducing looming imbalances and system risks. NOVA LJUBLJANSKA BANKA D.D. As of year-end 2016, 45% of NLB's exposure is to foreign countries, most of which have a similar or weaker economic environment than Slovenia's. The weighted economic risk score for NLB is weaker than that of a pure domestic bank, but not to an extent that it weighs on S&P's initial assessment. While S&P don't expect a material change in NLB's geographical footprint over the next 12 months, S&P highlights that its overall assessment of NLB's credit quality would be sensitive to expansion in higher risk countries. S&P continues to view NLB's business position as adequate, reflecting its dominant domestic market position and a strengthened presence in South Eastern Europe (SEE). The bank's management is implementing several restructuring measures, including improved risk management and governance standards since the large-scale state intervention in 2013. In S&P's view, the planned partial privatization of NLB within 2017-2018 via an initial public offering is likely to bolster the bank's business position in the long term, but S&P don't anticipate a material impact on the bank's profile in the next two years. S&P assess NLB's capital and earnings as adequate, indicating S&P's assumption that its risk-adjusted capital (RAC) ratio before adjustments for the bank will remain at 9%-10% over the next 12-18 months. NLB's adjusted RAC ratio reached 9.6% in 2016 from 6.9% in 2015. This marked improvement was largely thanks to a reduction of highly risk-weighted NPLs. S&P's RAC projection incorporates the bank's objective to be more aggressive with dividend payouts and targeted growth in SEE countries, which S&P considers to be of higher risk. NLB's risk position remains moderate, reflecting S&P's view that its asset quality continues to compare poorly with that of its peers operating in countries with similar economic risks, despite progress in the workout of legacy NPLs and noncore assets, as well as an improvement of risk management and lending and governance standards. The bank's reported gross NPLs stood at 13.8% of total loans as of Dec. 31, 2016, having decreased from 19.3% a year earlier, on the back of recoveries, write-offs, and sales of nonperforming claims. S&P expects further reduction of the NPL stock, reflecting the economic recovery in Slovenia, intensive workout efforts, repayments, and active market for NPL sales. S&P regards NLB's funding as average, reflecting the bank's strong domestic retail franchise, which mainly comprise a stable and diversified retail deposit. The funding profile is similar to other Slovenia-based banks that experience excessive inflows of new retail deposits. S&P now views NLB's liquidity position as strong thanks to the bank's reduced reliance on short-term wholesale funding and its high liquidity buffer, which mainly consists of cash and well- diversified liquid debt securities. S&P's ratio of broad liquid assets to short-term wholesale funding reached 7.5x as of end- 2016. The ratio is stronger than the majority of banks S&P rates, pointing to its view that NLB will withstand adverse market shocks without access to wholesale funding in the next 12 months. S&P believes that NLB's subsidiaries in SEE are also well equipped with strong liquidity and preserve a self-funded profile. OUTLOOK The positive outlook on NLB reflects S&P's continued positive assessment of economic prospects in Slovenia that could support further improvement of NLB's asset quality and internal capital generation capacity over the next year, contributing to the improvement of the bank's credit profile. In S&P's view, there is at least a one-in-three likelihood that it could upgrade NLB over the next 12 months. S&P anticipates that further derisking of the corporate sector in Slovenia will enhance NLB's overall asset quality and income generation for its loan business. S&P expects a further rundown of NLB's NPL stock and noncore assets that enables new capacities for lending and profit generation. S&P could take a positive rating action if economic risks in Slovenia diminish further, supporting a healthy operating environment, and in turn, NLB's business position. A faster-than- expected increase of NLB's capitalization or a significant drop in nonperforming assets, which translated into a sustainable increase in its RAC ratio beyond 10%, could also lead to an upgrade. S&P notes, however, that a positive rating action would hinge on contained risks in NLB's foreign business. S&P could revise the outlook to stable within the next 12 months if it saw a material deterioration of the operating environment in Slovenia or in NLB's main foreign markets. This would hamper NLB's earnings performance and heighten risks of a renewed build- up of problem loans. S&P could also revise the outlook to stable if NLB were to expand aggressively into riskier SEE countries. BICRA SCORE SNAPSHOT To From BICRA Group 6 7 Government Support Uncertain Uncertain Economic Risk 6 7 Economic Resilience 3 3 Economic Imbalances 3 4 Credit Risk In The Economy 5 5 Economic Risk Trend Positive Positive Industry Risk 6 6 Institutional Framework 4 4 Competitive Dynamics 4 4 Systemwide Funding 3 3 Industry Risk Trend Positive Stable RATINGS SCORE SNAPSHOT Nova Ljubljanska Banka D.D. To From Issuer Credit Rating BB/Positive/B BB-/Positive/B SACP bb bb- Anchor bb+ bb Business Position Adequate (0) Adequate (0) Capital and Earnings Adequate (0) Adequate (0) Risk Position Moderate (-1) Moderate (-1) Funding and Average and Average and Liquidity Strong (0) Adequate (0) Support (0) (0) ALAC Support (0) (0) GRE Support (0) (0) Group Support (0) (0) Sovereign Support (0) (0) Additional Factors (0) (0) RATINGS LIST Upgraded To From Nova Ljubljanska Banka D.D. Counterparty Credit Rating BB/Pos./B BB-/Pos./B Senior Unsecured BB BB- ========= S P A I N ========= BANCO POPULAR LEASING: Moody's Rates Series B Notes (P)Caa2 ----------------------------------------------------------- Moody's Investors Service has assigned the following provisional ratings to the notes to be issued by IM GRUPO BANCO POPULAR LEASING 3, FT: -- EUR880M Series A Notes due August 2050, Assigned (P)A2 (sf) -- EUR220M Series B Notes due August 2050, Assigned (P)Caa2 (sf) Moody's issues provisional ratings in advance of the final sale of financial instruments, but these ratings only represent Moody's preliminary credit opinions. Upon a conclusive review of a transaction and associated documentation, Moody's will endeavour to assign definitive ratings. A definitive rating (if any) may differ from a provisional rating. IM GRUPO BANCO POPULAR LEASING 3, FT is a cash securitization of lease receivables granted by Banco Popular Espanol, S.A. ("Banco Popular", Long Term Deposit Rating Ba3 Not on Watch, Long Term Senior Unsecured Rating (P)B1 Not on Watch, Long Term Counterparty Risk Assessment Ba2(cr) Not on Watch) and Banco Pastor, S.A. (NR) to corporates, small and medium-sized enterprises (SMEs) and self-employed individuals located in Spain. RATINGS RATIONALE The ratings of the notes are primarily based on the analysis of the credit quality of the underlying portfolio, the structural integrity of the transaction, the roles of external counterparties and the protection provided by credit enhancement. The provisional pool analysed was, as of April 2017, composed of a portfolio of 37,428 lease contracts granted to obligors located in Spain. Most of the assets were originated between 2014 and 2016, and have a weighted average seasoning of 2.3 years and a weighted average remaining term of 5.1 years. The securitised portfolio includes different sub-pools characterised by the nature of the leased assets: real estate (21.4%), equipment (32.7%), vehicles (42.4%) and other (3.5%). The top three industry sectors in the pool, in terms of Moody's industry classification, are Transportation Cargo (26.6%), Construction & Building (11.4%) and Beverage, Food & Tobacco (9.4%). Geographically, the borrowers are located mostly in the regions of Andalusia (19.1%), Catalonia (18.4%) and Madrid (16.1%). At closing, any leases more than 30 days in arrears will be excluded from the final portfolio. The securitized portfolio does not include the so-called "residual value instalment", i.e. the final instalment amount to be paid by the lessee (if such option is chosen) to acquire full ownership of the leased asset. The transaction benefits from a cash reserve which is funded at closing and is equivalent to 3% of the original balance of the pool of assets. This reserve fund provides liquidity protection to the notes over the life of the transaction and credit protection on the final maturity. In addition, Series A Notes benefit from the subordination of Series B Notes, which represent 20% of the total issue. In Moody's view, the credit positive features of this deal include, among others: (i) the pool granularity with an effective number of obligors exceeding 600, (ii) the portfolio diversification across industry sectors and geographical regions; (iii) the low exposure to the real estate development sector, representing 5.4% of the pool volume, (iv) the short weighted average life of the portfolio of 2.8 years. The transaction also shows a number of credit weaknesses, including: (i) the historical recovery data provided by Banco Popular and the performance observed on its previous leasing transactions show below average recoveries compared to the Spanish market; (ii) high degree of linkage to Banco Popular acting as key counterparty in the transaction in its role of servicer and treasury account holder; (iii) absence of interest rate hedge mechanism in place while the notes pay a floating coupon and 29.6% of the pool balance are fixed rate leases. In its quantitative assessment, Moody's assumed an inverse normal default distribution for this securitised portfolio due to its granularity. The rating agency derived the default distribution, namely the relevant main inputs such as the mean default probability and its related standard deviation, via the analysis of: (i) the characteristics of the loan-by-loan portfolio information, complemented by the available historical vintage data; (ii) the potential fluctuations in the macroeconomic environment during the lifetime of this transaction; and (iii) the portfolio concentrations in terms of industry sectors and single obligors. Moody's assumed the cumulative default probability of the portfolio to be equal to 11.2% over a weighted average life of 2.8 years (equivalent to a B1 rating proxy), with a coefficient of variation (CoV, i.e. the ratio of standard deviation over mean default rate) of 35.6%. The rating agency has assumed stochastic recoveries with a mean recovery rate of 35% and a standard deviation of 20%. Given legal uncertainties to access recovery proceeds on defaulted leases upon insolvency of the originator, Moody's assumed a 15% stressed mean recovery rate upon originator default. In addition, Moody's has assumed the prepayments to be 10% per year. These assumptions correspond to a portfolio credit enhancement of 21%. Counterparty risks: Banco Popular and Banco Pastor, S.A. will act as servicers of the leases, while InterMoney Titulizacion, S.G.F.T., S.A. will be the management company (Gestora) of the Issuer. All of the payments under the assets in the securitised pool are paid into the servicer's account and swept daily into an issuer account held at Banco Santander S.A. (Spain) ("Banco Santander", Long Term Deposit Rating A3 Not on Watch, Short Term Deposit Rating P-2 Not on Watch). Moody's has considered one month of lost collections upon insolvency of the servicer due to potential commingling risk. In addition, Banco Popular acts as paying agent and will hold the Issuer's treasury account which, two business days before each monthly payment date, will receive the amounts to be paid under the waterfall. Moody's has considered this additional exposure to Banco Popular in its analysis. The principal methodology used in these ratings was "Moody's Approach to Rating ABS Backed by Equipment Leases and Loans" published in December 2015. Please note that on March 2017, Moody's released a Request for Comment, in which it has requested market feedback on potential revisions to its Methodology for Counterparty Risk in Structured Finance. If the revised Methodology is implemented as proposed, the Credit Rating on IM GRUPO BANCO POPULAR LEASING 3, FT may be affected. Please refer to Moody's Request for Comment, titled "Moody's Proposes Revisions to Its Approach to Assessing Counterparty Risks in Structured Finance" for further details regarding the implications of the proposed Methodology revisions on certain Credit Ratings. The ratings address the expected loss posed to investors by the legal final maturity of the notes. Moody's ratings address only the credit risk associated with the transaction, Other non-credit risks have not been addressed but may have a significant effect on yield to investors. Factors that would lead to an upgrade or downgrade of the ratings: Factors or circumstances that could lead to a downgrade of the ratings affected by action would be (1) worse-than-expected performance of the underlying collateral; (2) an increase in counterparty risk; (3) an increase in country risk. Factors or circumstances that could lead to an upgrade of the ratings affected by action would be the better-than-expected performance of the underlying assets, a decline in counterparty risk or decreased country risk. Moody's also tested other set of assumptions under its Parameter Sensitivities analysis. If the assumed default probability of 11.2% used in determining the initial rating was changed to 14.6% and the recovery rate of 35% was changed to 25%, the model- indicated ratings for Serie A and Serie B of A2(sf) and Caa2(sf) would be Baa2(sf) and Ca(sf) respectively. Parameter Sensitivities provide a quantitative, model-indicated calculation of the number of notches that a Moody's-rated structured finance security may vary if certain input parameters used in the initial rating process differed. The analysis assumes that the deal has not aged. It is not intended to measure how the rating of the security might migrate over time, but rather, how the initial rating of the security might differ as certain key parameters vary. ============= U K R A I N E ============= UKRAINE: S&P Affirms 'B-/B' Sovereign Credit Ratings ---------------------------------------------------- S&P Global Ratings affirmed its 'B-/B' long- and short-term foreign and local currency sovereign credit ratings on Ukraine. The outlooks on the long-term foreign and local currency ratings are stable. At the same time, S&P affirmed the 'uaBBB-' Ukraine national scale rating. RATIONALE The affirmation balances improved macroeconomic fundamentals and significant progress made in financial and energy sector reforms against the risks stemming from large principal and interest payments due over S&P's forecast horizon through 2020. In 2016, the Ukrainian economy saw a strengthening recovery after a significant contraction in 2015, as well as a sharp decline in inflation. The government also implemented key reforms that saw the International Monetary Fund (IMF) disburse a new financing tranche in April 2017. At the same time, S&P's 'B-' long-term rating captures the significant debt repayments Ukraine faces over the forecast horizon, political challenges that could slow the pace of reforms, and the growth-slowing blockade in the east of the country. A key drag on the ratings are the large principal and interest repayments coming due over 2017-2020 of more than US$20 billion (about 21% of 2017 GDP). S&P expects that Ukraine will fulfil its short-term sovereign debt obligations in 2017 (US$2.6 billion) and 2018 (US$3.9 billion) given donor funds, existing foreign exchange and hryvna balances held by The National Bank of Ukraine (NBU), and the government's ability to issue in both domestic and international markets. However, debt repayments in 2019 (US$7.5 billion) -- mostly the principal repayment of the sovereign Eurobond and repayments to international financial institutions (including US$1 billion to United States Agency for International Development) -- remain dependent on the government's ability to pass the reforms required by the IMF and its ability to refinance some debt on the international market. This year, S&P expects the Ukrainian government will issue a Eurobond to test the market. The effective interest rate on the entire outstanding stock of general government debt has increased with the increase in debt, although so has the weighted average maturity of Ukraine's debt stock. Large contingent liabilities, including two court cases relating to a US$3 billion Eurobond issued to Russia and a $31.8 billion litigation case filed by Gazprom against Naftogaz (for nonpayment in a potential take-or-pay contract), threaten the fiscal outlook (although Naftogaz has countersued Gazprom for a similarly large amount) and debt sustainability. The Naftogaz arbitration ruling is due on June 30, 2017, while the conflict over the Russia- bought Eurobond may drag on for longer. However, S&P understands that even an unfavorable ruling for Ukraine regarding the bond would not impair its ability to service its restructured and newly-issued bonds because a court-ordered freeze on these payments is not legally possible. Positively, Ukraine's economy registered a moderate recovery in 2016, after a significant contraction in 2015. Real GDP grew by 2.3%, driven by a strong recovery in investments and a bumper grain harvest in the fourth quarter. S&P forecasts growth of 1.9% in 2017, despite challenging conditions in light of the recent blockade in the east of the country. S&P expects consumption will strengthen over the forecast horizon on the back of higher minimum wages, decelerating inflation, and gradual labor market improvements. S&P expects continuing growth as reforms boost investment in key sectors such as agriculture and construction, likely leading to GDP growth averaging 2.7% per year in 2017-2020. In addition, the Deep Comprehensive Free Trade Agreement with the EU, which came into force in 2016 and has partly compensated for the declining exports to Russia, could support export growth in the medium term. S&P thinks the government will attempt pension and land reforms (upon which further IMF disbursements hinge) despite the politically sensitive nature of such reforms. S&P also believes Ukraine's western partners will remain engaged. However, S&P notes uncertainty around the adoption of land reform given strong vested interests and the degree to which some opposition parties are not in favor of the reforms. At the same time, the one-year shield protecting Prime Minister Volodymyr Groysman from a vote of no confidence expired in April, giving rise to the risk of early elections or a potential cabinet reshuffle. S&P notes risks to reform progress and possible delays in IMF disbursements if the current coalition government of the Petro Poroshenko Bloc and the People's Front falters or early elections are called. Moreover, corruption in Ukraine remains pervasive and progress in the fight against it is only gradual. In addition, tensions with Russia and the quasi- separatist areas in the east remain and have deteriorated since S&P's last review. The resultant trade blockade in the Donbass region will drag on growth this year. In 2016, Ukraine's current account deficit widened to US$3.8 billion (4.1% of GDP), from US$189 million (0.2% of GDP) in 2015. This sharp increase stemmed from accelerating imports as investments recovered, and imports, particularly of machinery and equipment, subsequently increased. However, S&P forecasts that the current account will consolidate gradually over the forecast horizon owing to increasing exports in both nominal and real terms. At the same time, a potential slowdown in key steel export markets introduces an element of volatility. As the economy continues its recovery and exports pick up, S&P forecasts the current account deficit will average 3.3% of GDP in 2017-2020, financed by a mix of foreign direct investment, donor funds, and foreign borrowings. Still, S&P forecasts external debt net of liquid assets to average 131% of current account receipts in 2017-2020, while gross external financing needs as a percentage of current account receipts and usable reserves, our key external liquidity measure, will also stand at 137%. Both ratios will likely start declining, however, because the growth of current account receipts will remain supported by sound export performance. Ukraine's Extended Fund Facility (EFF) with the IMF officially ends in March 2019, but disbursements are already behind schedule. The IMF has so far disbursed over US$8.32 billion of the $17.5 billion available. S&P's ratings on Ukraine assume that the government will remain broadly on course with the IMF program and engaged with development partners, albeit with some continued lags. The next tranche of IMF funds, along with the associated external donor funds, is likely to be disbursed in the second half of 2017 if Ukraine progresses with key land and pension reforms. While the bulk of IMF funds are lent to the NBU to boost foreign exchange reserves, continuation of the program requires fiscal prudence and fulfilling IMF requirements to unlock funds from the EU and other donors. Ukraine has achieved a strong fiscal adjustment over the last two years with the general government deficit declining to 2.2% of GDP in 2016 from almost 10% in 2014. The increase in energy tariffs has helped government finances as it resulted in Naftogaz (a state owned enterprise) recording its first profit (on a cash basis) in 2016 and has led us to equalize the central and general government balances. S&P notes ongoing risks to public finances, however, including the conflict in the east, which has seen defense spending double in 2016 (to at least 5% of GDP) compared with 2014. Additionally, there is a risk of fiscal slippage in the run-up to the presidential elections in 2019. S&P expects a budget deficit of 3.3% in 2017, averaging 3.0% over the forecast horizon. Budget deficit numbers do not include the debt- increasing effects of bank recapitalization (which S&P considers a one-off) and currency depreciation. As a result, change in government debt will be significantly above the budget deficit recorded during 2014-2017. The fiscal outlook remains critically dependent on reforms and the EFF. Politically sensitive reforms are still needed, especially in the public sector, where the pension deficit is estimated at 6% of GDP (one of the highest in Europe). The government has prioritized the privatization of state-owned enterprises (SOEs), and may reattempt to privatize the Odessa portside plant this year (after being unsuccessful in 2016). S&P should see a boost to revenues from mid-2017 as smaller SOEs are privatized using the government's Prozorro platform (online auction platform) and measures to improve tax collection bear fruit. The government expects that the decision todouble the minimum wage at the beginning of the year will increase tax and social security revenues as more workers are lifted out of the shadow economy. Moreover, S&P understands that the government has committed to use any surplus fiscal revenues to prepay corporate tax receipts, increase investment, or for saving. Ukraine's net general government debt now includes the City of Kyiv's debt that the central government has taken on outright. Initially, this debt amounted to US$449 million but was reduced in a restructuring effort to US$351 million, which is now included in state debt. Net general government debt remains high for a low-income economy, although S&P forecasts it will decline to 72.6% by 2020 after peaking at 88.7% in 2017. In S&P's view, the high level of debt means that targeting continued fiscal consolidation while retaining access to relatively cheap official financing via the IMF and other donors is critical to timely debt service. Since the February 2015 lows, official reserve assets increased by $10.7 billion to $15.5 billion as of end-December 2016, reflecting IMF foreign currency loan inflows, reduced external debt payments, and continued but easing use of capital controls. Rising reserve assets have bolstered the NBU's credibility and promoted hryvnia stability, notwithstanding a further weakening over 2016. Since the start of 2017 the hryvnia has appreciated against the U.S. dollar, although S&P expects a slight depreciation by the end of the year. Recent currency appreciation reflects buoyant steel prices abroad, as well as a more stable macroeconomic picture domestically. Some capital controls remain, although the NBU has begun a partial liberalization. S&P expects foreign exchange liberalization will progress slowly throughout the year as the NBU weighs the burden these controls have on investment flows against the risks that lifting them poses to the exchange rate. The NBU has effectively tempered the high inflation levels of 2015, and its target of 12% plus/minus 3% in 2016. This symbolized an important step toward inflation targeting, which further aided monetary policy credibility and indicated an improving but still weak monetary transmission mechanism. However, the recent resignation of the central bank governor has increased uncertainty about the NBU's course while the search for a successor continues. Conditions in the financial sector have improved, but further recovery will be slow due to high levels of nonperforming loans in the system. Of the country's180 banks, 87 have closed because of weak asset quality (due to prevalent related-party lending). The nationalization and subsequent recapitalization of Ukraine's largest bank, PrivatBank, which accounts for 36% of all domestic deposits, was key to avoiding a financial sector crisis. However, the capitalization has added to the government's balance sheet at an initial cost of around 7% of GDP in 2016, and a subsequent recapitalization is expected in the coming months, albeit smaller than the first. S&P classifies Ukraine's banking sector in group '10' ('1' being the lowest risk, and '10' the highest) under S&P's Banking Industry Country Risk Assessment (BICRA) methodology. S&P notes that a new corporate governance framework and more prudent NBU stress tests are being implemented and that liquidity in the banking sector has largely improved. Public confidence and economic growth will hinge on the authorities ensuring that banks operating in Ukraine meet capital and regulatory requirements. OUTLOOK The stable outlook reflects S&P's view that over the next 12 months the Ukrainian government will maintain access to its official creditor support by pursuing required reforms on the fiscal, financial, and economic fronts; specifically, that the Rada (parliament) is able to broadly pass key pension and land reforms as set out by donors, thereby maintaining reform momentum this year. Downside risk to the ratings could build if Ukraine fails to effectively implement further reforms required by the IMF for further funding, if sizable contingent liabilities crystalize on the general government balance sheet, if the central bank's independence is called into question, or if S&P concludes that a further debt exchange is likely. S&P could consider a positive rating action if economic growth significantly outperforms our expectations, alongside falling fiscal and external deficits, and there is no further deterioration in the situation in the east of the country. In accordance with S&P's relevant policies and procedures, the Rating Committee was composed of analysts that are qualified to vote in the committee, with sufficient experience to convey the appropriate level of knowledge and understanding of the methodology applicable. At the onset of the committee, the chair confirmed that the information provided to the Rating Committee by the primary analyst had been distributed in a timely manner and was sufficient for Committee members to make an informed decision. After the primary analyst gave opening remarks and explained the recommendation, the Committee discussed key rating factors and critical issues in accordance with the relevant criteria. Qualitative and quantitative risk factors were considered and discussed, looking at track-record and forecasts. The committee agreed that the economic assessment had improved. All other key rating factors were unchanged. The chair ensured every voting member was given the opportunity to articulate his/her opinion. The chair or designee reviewed the draft report to ensure consistency with the Committee decision. The views and the decision of the rating committee are summarized in the above rationale and outlook. The weighting of all rating factors is described in the methodology used in this rating action. RATINGS LIST Rating To From Ukraine Sovereign Credit Rating Foreign and Local Currency B-/Stable/B B-/Stable/B Ukraine National Scale uaBBB-/--/-- uaBBB-/--/-- Transfer & Convertibility Assessment B- B- Senior Unsecured Foreign Currency[1] B- B- Foreign Currency D D Foreign Currency B- B- [1] Dependent Participant(s): Ukraine =========================== U N I T E D K I N G D O M =========================== LONMIN PLC: Losses Increase, Faces Debt Covenant Breach Risk ------------------------------------------------------------ Henry Sanderson and Nicholas Megaw at The Financial Times report that losses increased at Lonmin, the South Africa-focused platinum mining company that is battling labor unrest and weak prices, because of falling production and negative currency movements. The company on May 15 reported an operating loss of US$181 million for the six months to the end of March, compared with a loss of US$15 million during the same period one year earlier, the FT relates. Lonmin also highlighted the risk of it breaching a condition on its bank loans, the FT notes. Lonmin's loan agreements include a condition that the company's consolidated tangible net worth cannot fall below US$1.1 billion, the FT discloses. According to the FT, this declined to US$1.4 billion at March 31, following the latest impairment, and Lonmin highlighted the risk that a further writedown could result in the company breaching the covenant. The London-listed company has been restructuring its operations, cutting more than 5,000 jobs last year after it launched a rescue rights issue in 2015 to reduce its debt amid a collapse in platinum prices, the FT relays. Lonmin Plc -- http://www.lonmin.com-- is a United Kingdom-based producer of Platinum Group Metals. Lonmin mines, refines and markets platinum group metals (PGMS) -- platinum, palladium, rhodium, iridium, ruthenium and gold. The Company has productive operations in South Africa and Canada. The Company's resources and operations include: Marikana operations, the Company's flagship operation; Pandora operations, a joint venture in which it has a 42.5% interest; Marikana Smelters and Base Metal Refinery and Brakpan Precious Metal Refinery which has capacity to process and refine production, offering the potential to smelt and refine third party and recycling material; Limpopo project, formerly an operational mine; Akanani project; Canadian projects, joint ventures with Vale and Wallbridge exploring PGM mineralisation in the Sudbury Basin in Ontario, and Northern Ireland project which is an early stage exploration opportunity. NEWGATE FUNDING 2006-1: Moody's Affirms Caa3 Class E Notes Rating ----------------------------------------------------------------- Moody's Investors Service has upgraded tranches Ba and Bb in the transaction Newgate Funding PLC: Series 2006-1, to Aaa (sf) from Aa1 (sf), and affirmed the other rated tranches in this transaction. The rating action reflects the increased levels of credit enhancement for the affected notes and stable collateral performance. RATINGS RATIONALE The rating action is prompted by deal deleveraging resulting in an increase in credit enhancement for the affected tranches. Sequential amortization in 2008-2016 and non-amortizing reserve fund led to the increase in the credit enhancement available in this transaction. The credit enhancement available to the tranches Ba and Bb, affected by credit rating, stands at 35.58%. Moody's affirmed the ratings of the remaining tranches that had sufficient credit enhancement to maintain the current rating on the affected notes. The performance of the transactions has continued to be stable. 90+ delinquencies have decreased in the past year, with 90 days plus arrears currently standing at 17.50% of current pool balance, compared to 21.62% a year ago. Cumulative losses currently stand at 2.13% of original pool balance up from 2.11% a year earlier. As a part of the review, Moody's reassessed the transaction's lifetime loss expectation, based on the collateral performance to date. Moody's maintained the Expected Loss and MILAN CE assumption unchanged for this transaction, due to its stable performance. As a result of lower delinquencies, the transaction switched back to the pro-rata amortization in September 2016, for the first time since 2008. The principal methodology used in these ratings was "Moody's Approach to Rating RMBS Using the MILAN Framework", published in September 2016. The analysis undertaken by Moody's at the initial assignment of these ratings for RMBS securities may focus on aspects that become less relevant or typically remain unchanged during the surveillance stage. Factors that would lead to an upgrade or downgrade of the ratings: Factors or circumstances that could lead to an upgrade of the ratings include (1) performance of the underlying collateral that is better than Moody's expected, (2) improvement in the notes' available credit enhancement and (3) improvement in the credit quality of the transaction counterparties. Factors or circumstances that could lead to a downgrade of the ratings include (1) an increase in sovereign risk (2) performance of the underlying collateral that is worse than Moody's expected, (3) deterioration in the notes' available credit enhancement and (4) deterioration in the credit quality of the transaction counterparties. Issuer: Newgate Funding PLC: Series 2006-1 -- GBP20M Class Ba Notes, Upgraded to Aaa (sf); previously on Oct 14, 2015 Upgraded to Aa1 (sf) -- EUR20M Class Bb Notes, Upgraded to Aaa (sf); previously on Oct 14, 2015 Upgraded to Aa1 (sf) -- GBP135M Class A4 Notes, Affirmed Aaa (sf); previously on Jun 13, 2014 Affirmed Aaa (sf) -- GBP7.5M Class Ma Notes, Affirmed Aaa (sf); previously on Jun 13, 2014 Upgraded to Aaa (sf) -- EUR10M Class Mb Notes, Affirmed Aaa (sf); previously on Jun 13, 2014 Upgraded to Aaa (sf) -- GBP10M Class Ca Notes, Affirmed A1 (sf); previously on Oct 14, 2015 Upgraded to A1 (sf) -- EUR10.1M Class Cb Notes, Affirmed A1 (sf); previously on Oct 14, 2015 Upgraded to A1 (sf) -- EUR23.4M Class D Notes, Affirmed B2 (sf); previously on Oct 14, 2015 Upgraded to B2 (sf) -- GBP2.6M Class E Notes, Affirmed Caa3 (sf); previously on Oct 14, 2015 Upgraded to Caa3 (sf) SOLOCAL GROUP: Fitch Affirms B- IDR & Revises Outlook to Stable --------------------------------------------------------------- Fitch Ratings has affirmed Solocal Group's Long-Term Issuer Default Rating (IDR) at 'B-' and the senior secured bond rating at 'B'/'RR3'. The Outlook is revised to Stable from Negative. The Long-Term IDR of 'B-' reflects the evolving business profile of the group with some competitive advantages, low monetisation, robust growth prospects in digital advertising and high operating leverage of the business. The rating case firmly assumes that management will achieve growth in terms of customer numbers and recurring EBITDA in the internet business. The group remains vulnerable to technical innovation across the web, competitive pressures in the industry and a turn in the cycle. KEY RATING DRIVERS Some Competitive Advantages: Solocal is able to update customers' data and content across the web in real time. Through its own media (59% audience reach) and mobile apps (47 million installed on handsets), Solocal can use cookies on desktops and broader functionality embedded into the apps to gather big data that provides a competitive edge to its online marketing business. Also, a lot of smaller businesses may not want to employ an advertising agency but are happy to discuss cheaper, local choices of digital advertising with their internet support provider. These are the products that cannot be easily replicated by competitors. Low Audience Monetisation: The value to customers is less obvious than for a market-leading online classified business. Therefore, the product offering requires more explaining and a bigger sales effort. Also, the average product value marketed by Solocal's clients is much lower than real estate in the case of rightmove or cars in the case of AutoTrader. Hence, the group's customers are more price-sensitive. While average revenue per advertiser (ARPA) is not calculated on a fully comparable basis (EUR84 for Solocal, GBP842 for rightmove, GBP1,526 for AutoTrader; all quoted per month), looking at revenues and cash flow generation of the three players reveals that Solocal has substantially lower monetisation. Robust Growth Prospects for Digital Advertising: Currently, 24% of Solocal's customers make use of the digital marketing products. Management is keen to increase penetration and capitalise on this cross-selling opportunity, where the group has proprietary data that allows it to profile internet users and, as a result, better target advertising to the right audience. Market commentators forecast growth for this market in France of around 10% per annum to 2020. This business is expected to deliver solid earnings growth (from a relatively small base). One should bear in mind that advertising revenues are cyclical and have high correlation with GDP. High Operating Leverage: Solocal reported headcount of 4,386 and staff expenses of EUR368.5 million (representing 45% of turnover) for 2016. The sales force alone comprises around 2,000 people. For an internet company, this represents a very high fixed-cost base. As a result, there is a concern that earnings could weaken quickly if: i) any product areas were affected by technological innovation across the web; ii) Solocal saw mounting competitive pressures due to new entrants or consolidation moves; or iii) economic conditions weakened (not expected in the near term). In order to make the business more resilient, management would have to evolve the business model to be more scalable (not only towards growth but also towards possible contraction). Prospect of Industry Consolidation: The internet business is very fragmented. In most cases, growth is key to develop meaningful earnings. Currently, there are too many players in a lot of the segments in which Solocal is active, limiting income for everyone. Consolidation would make a lot of sense to improve economies of scale and gain pricing power. The market participants that do not manage to participate in this process could be left behind and become less relevant. Fitch note that there are internet companies out there that are better capitalised than Solocal. Validation of Business Plan Required: Assessing the business plan, Fitch has concluded that management has the means at its disposal to manage future refinancing risk, particularly if the group amortises part of the debt ahead of the maturity in 2022. As a result, a Long-Term IDR of 'B-' with a Stable Outlook is warranted. Fitch ratings case reflects growth in terms of customer numbers and recurring EBITDA from the internet business. If management fails to deliver on these points, the business may become less relevant and Fitch may question the business model. DERIVATION SUMMARY Solocal Group offers a broad range of services to enhance customers' visibility on the web. This starts with creating and maintaining websites and their content, achieving better rankings on search engines (increasingly with a geographical focus), placing advertising links with the target audience, and offering transactional tools to complete bookings and payments. The group generates traffic from its own media platforms, including PagesJaunes and Mappy, as well as through partnerships with international players, including Google and Apple. Solocal's operations demonstrate weaker monetisation of audience reach and structurally higher costs than market-leading online classified businesses such as rightmove and AutoTrader. Fitch considers that the current business profile limits Solocal Group to a 'B' category rating, while the online classified businesses with number-one or -two positions in their local markets can achieve 'BB' category ratings, assuming in both cases very little debt funding. KEY ASSUMPTIONS Fitch's key assumptions within Fitch ratings case for the issuer include: - 2017 EBITDA in the range of EUR210 million-215 million and mid-single digit growth in 2018; - an effective tax rate of 45% for purposes of the income statement, of which 85% is assumed to translate into cash tax; - restructuring cost that may be qualified as recurring and utilisation of provisions of around EUR15 million per annum; - these items are included in "Other Items Before FFO" in Fitch's presentation of the cash flow statement; - working-capital outflows of on average EUR5 million per annum; - EUR75 million of capital expenditure per annum over the medium term -- note that this is a Fitch assumption; the company's guidance is for EUR60 million of capital expenditure per annum; - EUR37 million of non-operating/non-recurring cash-flow expenditure in 2017 (including costs related to the financial restructuring of EUR28 million), reflecting the group's communication regarding pro forma net debt as at end-December 2016 of EUR344 million, implying a reduction of cash balances of EUR37 million; - use of free cash flow to build up a cash balance that is under all circumstances sufficient to safeguard liquidity and pursue additional capital expenditure/growth opportunities (mostly of an organic nature); - no dividends over the rating horizon. RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Positive Rating Action - Above-market growth in the local search business with a visibly improving market position; - FFO adjusted gross leverage below 1.5x (forecast for FY17: 3.3x); - Material reduction in operating leverage. Future Developments That May, Individually or Collectively, Lead to Negative Rating Action - Further declines in customer number and recurring EBITDA from the internet business; - Lack of growth momentum in the digital business over the next 24 months; - Free cash flow margin falling below 5% on a sustained basis; - Failure to maintain cost discipline across the organisation; - Weakening liquidity due to either operational issues or corporate activity; - Failure to make voluntary debt repayments over the five-year tenor of the reinstated bonds. LIQUIDITY Adequate Liquidity: Following completion of the debt restructuring, the group holds around EUR60 million of cash and is expected to generate positive free cash flow on an ongoing basis. ********* 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. 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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, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2017. 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. 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