/raid1/www/Hosts/bankrupt/TCREUR_Public/170802.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Wednesday, August 2, 2017, Vol. 18, No. 152
Headlines
A U S T R I A
ERSTE GROUP: Moody's Ups Subordinated MTN Rating from (P)Ba1
B U L G A R I A
BULGARIAN TELECOMM: Moody's Affirms B1 CFR, Outlook Positive
F R A N C E
EUROPCAR GROUPE: S&P Affirms 'B+' CCR, Outlook Stable
PEUGEOT SA: Moody's Hikes CFR to Ba1, Outlook Stable
G E R M A N Y
SOLARWORLD AG: Bonn Court Opens Insolvency Proceedings
I C E L A N D
ICELAND TOPCO: S&P Upgrades Long-Term CCR To 'B+', Outlook Stable
I R E L A N D
SEAGATE TECHNOLOGY: S&P Cuts CCR to BB+ on Weak Prospects
I T A L Y
ATAC: Not at Risk of Bankruptcy, Sole Administrator Says
WASTE ITALIA: To File for Creditor Bankruptcy Protection
L U X E M B O U R G
PICARD BONDCO: Fitch Affirms B IDR on Weak Financial Profile
M A C E D O N I A
SKOPJE MUNICIPALITY: S&P Affirms 'BB-' ICR, Outlook Stable
N E T H E R L A N D S
INTERGEN NV: S&P Affirms 'B' CCR, Outlook Negative
KRATON POLYMERS: S&P Assigns BB- Rating to EUR220MM Term Loan
P O R T U G A L
DOURO MORTGAGES NO.1: S&P Affirms B- Rating on Class D Notes
R O M A N I A
ELECTROCENTRALE BUCURESTI: Bucharest City Hall to Take Over Firm
R U S S I A
EURASIA DRILLING: S&P Places 'BB' CCR On CreditWatch Positive
INTERREGIONAL DISTRIBUTION: S&P Affirms BB-/B Corp. Credit Rating
MOSCOW UNITED: S&P Affirms 'BB-' LT CCR on Improving Performance
S P A I N
BANCO BILBAO: Fitch Affirms BB Preference Shares Rating
HIPOCAT 7: S&P Affirms B- (sf) Rating on Class D Notes
NOVO BANCO: Moody's Extends Caa1 Rating Review for Downgrade
S W I T Z E R L A N D
EFG INTERNATIONAL: Fitch Affirms BB+ Fiduciary Certs. Rating
U K R A I N E
PRIVATBANK PJSC: NBU Removes PwC Over Audit Breaches
* UKRAINE: DGF Sells Assets of 33 Insolvent Banks
U N I T E D K I N G D O M
DOUNREAY TRI: Administrators Seek Buyer for Business
KIDS COMPANY: Former Directors Facing Bans of Up to 6 Years
RARE LONDON: Enters Administration, Ceases Trading
RESIDENTIAL MORTGAGE 30: S&P Rates Class X1- Dfrd Notes CCC (sf)
VEDANTA RESOURCES: S&P Rates U.S. Dollar Sr. Unsec. Notes 'B+'
* UK: 5,500 Clothing Retailers at Risk of Insolvency
*********
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A U S T R I A
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ERSTE GROUP: Moody's Ups Subordinated MTN Rating from (P)Ba1
------------------------------------------------------------
Moody's Investors Service upgraded Erste Group Bank AG's (Erste)
long-term senior unsecured debt and deposit ratings to A3 from
Baa1, and changed the outlook to positive from stable. At the
same time, the rating agency upgraded Erste's Baseline Credit
Assessment (BCA) and Adjusted BCA to baa2 from baa3, and its
long- and short-term Counterparty Risk Assessment (CR Assessment)
to A2(cr)/P-1(cr) from A3(cr)/P-2(cr). Further, Moody's upgraded
the bank's subordinated debt ratings to Baa3 from Ba1, and its
junior subordinated debt rating to Ba1(hyb) from Ba2(hyb). The
bank's short-term ratings were affirmed at P-2.
Concurrently, the rating agency upgraded Erste's additional Tier
1 (AT1) note program to (P)Ba2 from (P)Ba3 as well as the bank's
low-trigger AT1 notes issued under this program (ISIN
XS1425367494 and ISIN XS1597324950) to Ba2(hyb) from Ba3(hyb),
three notches below the bank's baa2 Adjusted BCA.
The rating upgrades were supported by the continued strengthening
of Erste's financial fundamentals while the positive outlook
reflects Moody's expectation that Erste will be able to further
improve its asset risk as well as capital metrics. At the same
time, the rating agency believes that raising the proportion of
loss-absorbing subordinated debt instruments may help reduce the
severity of loss for the bank's senior unsecured debt and
deposits over time, thereby offering the potential for one
additional notch of rating uplift as a result of the rating
agency's Advanced Loss Given Failure (LGF) analysis.
RATINGS RATIONALE
UPGRADE OF ERSTE'S BASELINE CREDIT ASSESSMENT
The upgrade of the bank's BCA followed the continued
strengthening of Erste's key credit metrics and reflects: (1) the
bank's further and sustained de-risking of its balance sheet,
leading to meaningfully lower risk costs supporting its earnings-
generation capacity; and (2) the fostering of the bank's capital
adequacy ratios resulting from its fully restored earnings-
generation power. The upgrade also reflects Erste's favorable
funding profile largely consisting of highly granular retail
deposits and the resulting very low market funding needs over the
next few years.
The upgrade of the bank's BCA was further supported by the
improvement of the bank's Macro Profile to 'Strong' from
'Strong-', reflecting gradual shifts in Erste's geographical
diversification benefiting from proportionally higher exposures
towards the stronger and more stable countries in its Central and
Eastern European (CEE) franchise as well as its home market
Austria.
Over the past twelve months, the bank reduced its problem loan
ratio to 4.9% as of March 31, 2017 from 6.7% as of end-March 2016
and maintained sufficient coverage ratios. This improvement in
the bank's credit risk profile was supported by pro-active
portfolio sales and an underlying improvement in asset quality in
Erste's CEE markets, particularly in Romania and Hungary. Moody's
expects the group's problem loan ratio to decline at a more
gradual rate going forward, and only if the bank maintains tight
control of its geographical concentrations as well as lending
criteria amid favorable business conditions, thereby avoiding
undue new problem loan formation.
The bank further strengthened its fully loaded common equity Tier
1 (CET1) ratio to 12.8% (including retained earnings) as of March
31, 2017 (March 2016: 12.3%). Moody's believes the bank's higher
earnings generation power and thus capital generation capacity
will allow for a sustained build-up of Erste's fully loaded CET1
capital ratio to above 13% over the next 12-18 months, despite
pressure on the bank's earnings from high competition, margin
pressure in a persistently low interest-rate environment and
regulatory costs.
In Moody's view, the sustained higher capital and profitability
levels will help comfortably cover intrinsic risks and
concentrations of the bank's operating model, which is geared
towards more volatile CEE markets, as well as upcoming regulatory
requirements, specifically with regard to the 2019 capital
requirements under the European Banking Authority's Supervisory
Review and Evaluation Process (SREP), including a fully loaded
2.0% buffer as a local systemically important bank (D-SIB; so-
called O-SII buffer) in Austria.
UPGRADE OF THE BANK'S LONG-TERM SENIOR RATINGS
The upgrade of Erste's long-term senior ratings by one notch to
A3 follows the one-notch upgrade of the bank's BCA. The long-term
ratings therefore reflect: (1) the bank's baa2 BCA and Adjusted
BCA; (2) the results of Moody's Advanced Loss Given Failure (LGF)
analysis, which continues to provide two notches of uplift to the
bank's long-term senior ratings from its Adjusted BCA; and (3)
Moody's assumption of a low probability of government support
from the Austrian government (Aa1, stable) to be forthcoming to
Erste in case of need, despite its classification as a
systemically-relevant financial institution. This assumption
continues to lead to no additional rating uplift from government
support.
RATIONALE FOR THE POSITIVE OUTLOOK ON ERSTE'S SENIOR UNSECURED
DEBT AND DEPOSIT RATINGS
The positive outlook on Erste's long-term senior unsecured debt
and deposit ratings reflects Moody's expectation that Erste will
be able to maintain its high earnings generation capacity over
the next 12-18 months. This, coupled with further gradual
improvements in the bank's asset risk metrics, will likely result
in a further build-up of the bank's capital base over time,
supporting the bank's financial profile. This assessment takes
account of continued pressures from the persistent low interest-
rate environment on the bank's earnings as well as a potential
unexpected weakening of the operating environment in its core
operating markets, including Austria.
Moreover, a sustained increase in the volume and level of
subordinated debt relative to the bank's tangible asset base may
lead to a higher rating uplift for the bank's senior unsecured
debt and deposit ratings as a result of Moody's Advanced LGF
analysis which currently provided two notches of rating uplift.
UPGRADE OF THE BANK'S HYBRID CAPITAL INSTRUMENTS
The rating agency upgraded the supplementary capital and hybrid
debt instrument ratings issued by Erste by one notch. The new
rating levels continue to depend on the terms and conditions of
these securities and their respective coupon skip mechanisms:
(1) For Erste's cumulative junior subordinated debt maturing in
2019 (ISIN: XS0303559115), Moody's upgraded the rating by one
notch to Ba1(hyb) from Ba2(hyb), two notches below the bank's
baa2 Adjusted BCA. The ratings reflect the junior subordinated
claim in liquidation and cumulative deferral features tied to the
breach of a net loss trigger.
(2) The ratings of Erste's low trigger undated deeply
subordinated Additional Tier 1 (AT1) instruments (ISIN
XS1425367494 and ISIN XS1597324950) were upgraded to Ba2(hyb),
from Ba3(hyb), three notches below the bank's baa2 Adjusted BCA.
The ratings reflect the rating agency's assessment of the
instruments' deeply subordinated claim in liquidation as well as
its non-cumulative coupon deferral features. In addition, the
securities' principal is subject to a partial or full write-down
on a contractual basis if: (1) Erste's CET1 ratio falls below
5.125%; or (2) the issuer receives public support; or (3) the
Austrian Financial Market Authority (FMA) determines that the
conditions for a full write-down of the instrument are fulfilled
and orders such a write-down to prevent insolvency as a
precautionary measure.
WHAT COULD CHANGE THE RATINGS UP / DOWN
Erste's ratings could be upgraded because of: (1) an upgrade of
its BCA; or (2) a sustained increase in subordinated debt
volumes.
Upward pressure on Erste's baa2 stand-alone BCA would be prompted
by a combination of two or more of the following factors: (1) a
further significant and sustained reduction in the volume of
problem loans, specifically if this led to a problem loan ratio
of below 4% through the cycle, and provided the bank maintains
its solid risk management track record and strict lending
criteria; (2) a sustained and further improvement in Erste's
capitalisation metrics building a meaningful buffer over and
above the bank's SREP ratio requirements; or (3) a continuation
of the bank's solid operating performance and capital-generation
capacity around levels achieved in 2016.
Upward rating pressure on the bank's debt and deposit ratings
would also develop if the bank increases the amount of
subordinated debt that could be bailed in ahead of senior
unsecured debt, providing one additional notch of rating uplift
from Moody's Advanced LGF analysis.
Downward pressure could be exerted on Erste's long-term ratings
as a result of: (1) a downgrade of its baa2 BCA; or (2) a
significant decrease in its bail-inable debt cushion, leading to
fewer notches of rating uplift as a result of Moody's LGF
analysis.
Downward pressure on Erste's baa2 BCA could be exerted following:
(1) a renewed and sustained formation of problem loans and
related loan loss charges, in particular if stemming from the
bank's operations in CEE or if resulting from a loosening of
credit standards amid bright operating conditions; (2) a
sustained weakening in the bank's earnings- and, thus, capital-
generation capacity; or (3) an unexpected weakening of the bank's
meanwhile solid capitalisation levels.
LIST OF AFFECTED RATINGS
The following ratings and rating assessments of Erste Group Bank
AG were upgraded:
- Long-term senior unsecured debt and deposit ratings to A3
positive, from Baa1 stable;
- Senior Unsecured MTN program to (P)A3, from (P)Baa1
- Subordinated and senior subordinated debt ratings to Baa3,
from Ba1;
- Subordinated MTN program to (P)Baa3, from (P)Ba1;
- Baseline Credit Assessment (BCA) to baa2, from baa3;
- Adjusted Baseline Credit Assessment to baa2, from baa3;
- Long-term Counterparty Risk Assessment to A2(cr), from A3(cr);
- Short-term Counterparty Risk Assessment to P-1(cr), from P-
2(cr).
- Cumulative junior subordinate debt rating (ISIN: XS0303559115)
to Ba1(hyb), from Ba2(hyb);
- Non-cumulative preferred securities program rating (low-
trigger AT1) to (P)Ba2, from (P)Ba3;
- Non-cumulative preferred securities ratings (ISIN XS1425367494
and ISIN XS1597324950) to Ba2(hyb), from Ba3(hyb).
The following ratings and risk assessments of Erste Group Bank AG
were affirmed at their current levels:
- Short-term deposit ratings at P-2;
- Commercial Paper ratings at P-2;
- Other Short-term ratings at (P)P-2
Outlook Action:
- Outlook changed to Positive from Stable
The following ratings of Erste Bank, New York, were upgraded:
- Long-term deposit rating to A3 positive, from Baa1 stable;
- Long-term Counterparty Risk Assessment to A2(cr), from A3(cr);
- Short-term Counterparty Risk Assessment to P-1(cr), from P-
2(cr).
Outlook Action:
- Outlook changed to Positive from Stable
The following rating of Erste Finance (Delaware) LLC was
affirmed:
- Backed Commercial Paper at P-2
No Outlook assigned
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks
published in January 2016.
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B U L G A R I A
===============
BULGARIAN TELECOMM: Moody's Affirms B1 CFR, Outlook Positive
------------------------------------------------------------
Moody's Investors Service has changed to positive from stable the
outlook on the ratings of Bulgarian Telecommunications Company
EAD. Concurrently, Moody's has affirmed the company's B1
corporate family rating (CFR), its B1-PD probability of default
rating (PDR), and the B1 rating on the company's EUR400 million
senior secured notes due 2018.
"The change in outlook to positive reflects Vivacom's track
record of solid operating cash flow generation and modest
leverage, as well as its more conservative financial policies, as
the company has recently reduced its reported leverage target to
below 2.5x, from 3.0x," says Alejandro Nunez, a Moody's Vice
President -- Senior Analyst.
RATINGS RATIONALE
Vivacom's B1 ratings reflect: (1) the company's position as a
leading telecom operator in Bulgaria with strong market shares in
fixed-line telephony and fixed-line broadband; (2) Vivacom's
strong track record of growing its mobile segment's market share
and revenues; (3) the company's modest leverage with Moody's
adjusted Gross Debt / EBITDA expected around 2.7x at year-end
2017; (4) its diversified business model, with offers in fixed-
line voice, broadband internet, mobile and pay-TV; (5)
expectations of improved free cash flow generation in the coming
years supported by EBITDA growth, reduced working capital
outflows due to lower receivables and predictable capex spending.
The rating also reflects: (1) the company's relatively small
scale in the global telecommunications industry compared with
peers as a result of its limited geographical focus in Bulgaria;
(2) the competitive telecom market landscape in Bulgaria and its
resulting low Average Revenues Per User (ARPU) generated as well
as potential payments in upcoming mobile spectrum auctions; (3)
continuous revenue pressure as a result of the structural decline
in fixed-line voice services and price pressures in the
corporate/small enterprises segment; (4) the potential for a
change in the Viva Telecom shareholding structure, which is
subject to existing litigation cases at the level of holding
companies outside the Vivacom restricted group; (5) the overhang
resulting from the EUR240 million debt sitting at Viva Telecom
(Luxembourg), the 100% owner of Vivacom, which is mitigated by
the strong covenant package and restricted payments limitations
in Vivacom's debt documentation; and (6) the need to address the
refinancing of the company's EUR400 million senior secured notes
due November 2018, for which the company is already exploring
financing plans.
Moody's expects that after 2018, Vivacom's capex spend will
decline on both an absolute basis and relative to revenues, such
that capex/revenues will be under 20% in 2019, following two
years of elevated investments in the national 4G network. As a
result, the rating agency anticipates that Vivacom will generate
increasing operating and free cash flow, relative to 2015-2016
levels, while maintaining an adequate level of network
reinvestment to support its future growth and competitiveness.
Vivacom has also proven its adherence to a conservative financial
policy over the past two years and has recently reduced its
financial leverage target to a range of 2.0-2.5x net debt/EBITDA
(company-reported) from 3.0x previously. Moody's anticipates that
Vivacom's reported net leverage will be toward the higher end of
that range at year-end 2017 before declining toward the lower
half of that target range in 2018.
RATIONALE FOR POSITIVE OUTLOOK
The change in outlook to positive from stable primarily reflects
the improvement in operating cash flow generation over the past
two years, which Moody's anticipates will rise over the next two
years, and the expectation that leverage will continue to remain
modest, at around 2.7x over the next two years, below the 3.0x
threshold for a possible upgrade to Ba3. This is further
supported by the company's recent change in leverage target,
which was reduced to a range of 2.0x-2.5x Net debt/EBITDA
(company-reported), from 3.0x prior to 2016.
The positive outlook reflects Moody's expectation that Vivacom
will continue its steady operating momentum, moderate leverage
and adherence to its 2.0x-2.5x net debt/EBITDA leverage target.
It also reflects the expectation that Vivacom will successfully
refinance its eurobond maturing in November 2018 well ahead of
maturity.
WHAT COULD CHANGE THE RATING UP / DOWN
Upward pressure on the rating could develop if the company's
adjusted leverage remains below 3.0x on a sustained basis, while
it generates meaningful positive free cash flow.
Downward pressure on the ratings could arise should Vivacom's
operating performance weaken or should the company incur
additional indebtedness, such that its adjusted leverage ratio
moves towards 4.0x. Negative ratings pressure would also arise
should the company's free cash flow generation deteriorate
leading to a weakening in the company's liquidity profile.
Failure to address the refinancing of the November 2018 bond
maturity on a timely manner would also lead to downward pressure
on the rating.
LIST OF AFFECTED RATINGS
Affirmations:
Issuer: Bulgarian Telecommunications Company EAD
-- LT Corporate Family Rating, Affirmed B1
-- Probability of Default Rating, Affirmed B1-PD
-- Senior Secured Regular Bond/Debenture, Affirmed B1
Outlook Actions:
Issuer: Bulgarian Telecommunications Company EAD
-- Outlook, Changed To Positive From Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was
Telecommunications Service Providers published in January 2017.
Bulgarian Telecommunications Company EAD ("Vivacom") is the
national telecom incumbent and leading integrated operator in
Bulgaria (Baa2 stable), providing mobile, fixed-line telephony,
fixed-line broadband and pay-TV (both DTH and IPTV) services
nationwide. Vivacom is a fully integrated operator that offers
quadruple-play services nationwide in Bulgaria and benefits from
its leading position in fixed-line telephony business with a 82%
revenue share and the largest player in fixed-line broadband with
a 26% subscriber market share (as of December 2016). In addition,
Vivacom is Bulgaria's third-largest mobile operator (28% revenue
market share as of March 2017), providing post-paid services to
both residential and business customers and pre-paid services to
residential customers with a total of 3.1 million subscribers. In
its fiscal year 2016, the company generated total revenue of
BGN875.3 million (EUR447.5 million, at a Bulgarian lev pegged to
the Euro at BGN1.95583/EUR) and company-adjusted EBITDA of
BGN310.6 million (EUR158.8 million). As of March 2017, Vivacom's
revenue mix was 57% mobile, 15% fixed voice, 11% fixed data, 8%
pay-TV and 9% other telecommunications services.
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F R A N C E
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EUROPCAR GROUPE: S&P Affirms 'B+' CCR, Outlook Stable
-----------------------------------------------------
S&P Global Ratings affirmed its 'B+' corporate credit rating on
France-based car rental company Europcar Groupe S.A. The outlook
is stable.
S&P said, "At the same time, we affirmed our 'BB' issue ratings
on the upsized EUR500 million senior secured revolving credit
facility (RCF) due 2022. The recovery rating on the RCF is
unchanged at '1', indicating our expectation of full recovery
(90%-100%, rounded estimate 95%) in the event of a payment
default.
"We also affirmed our 'B+' issue ratings on the EUR350 million
fleet bond due 2021. However, we have revised down the recovery
rating to '4' from '3', indicating our expectation of average
recovery (30%-50%, rounded estimate 30%) in the event of a
payment default.
"Lastly, we affirmed our 'B-' issue ratings on the EUR600 million
senior notes due 2022. The recovery rating is unchanged at '6',
indicating our expectation of negligible recovery (0%-10%,
rounded estimate 0%).
"The affirmation reflects our expectation that, despite a
temporary increase in leverage and weaker credit metrics as a
result of recent mergers and acquisitions (M&A), Europcar's
credit ratios will remain within our aggressive financial risk
category and overall consistent with the current rating during
the next 12 months. We incorporate into our assessment Europcar's
recently announced results for the first half of 2017. The
company has posted sound revenue growth of 8.4% (organic 4.6%),
and we expect this trend will be further reinforced by the
acceleration of its pace and scale of M&A, including Spanish low-
cost car rental company Goldcar and German car rental company
Buchbinder."
Last month, Europcar announced its plan to buy Goldcar for around
EUR550 million and Buchbinder for an undisclosed sum. This also
follows the group's recent acquisitions of its Danish and Irish
franchises. Europcar plans to fund the Goldcar and Buchbinder
deals with a combination of EUR175 million of successfully raised
new equity, around EUR600 million of new corporate debt, and
about EUR1 billion committed for fleet debt at both Buchbinder
and Goldcar. S&P understands Europcar will seek to integrate
Goldcar's fleet financing into its own securitization program
over the next 12 months. The Goldcar acquisition is still subject
to antitrust approval, which we anticipate will occur in the
second half of 2017.
Europcar's recent M&A activity should advance the group's
strategic growth plan of reaching EUR3 billion of sales by 2020.
Both the Goldcar and Buchbinder acquisitions help Europcar
diversify to become a provider of broader services, focusing more
on customers who hire cars for holidays and in the fast-growing,
low-cost segment, while continuing to attract business customers
that need longer holding periods, as well as the Vans & Trucks
segment. S&P said, "In our view, Europcar is well placed to
capitalize on Goldcar's expertise and track record in the low-
cost segment, increasing its presence in the Mediterranean
region, while benefiting from easily identifiable cost synergies.
We do expect some cannibalization in sales between Europcar low-
cost brand InterRent and Goldcar, but not over 10% of combined
low-cost sales, or approximately EUR50 million.
We also note that Europcar has been investing in new businesses,
including car sharing platforms such as SnappCar, Bluemove, and
Car2Go, as it seeks to prepare itself against ongoing changes in
the industry. This is mostly driven by the expectation that
people in urban cities are choosing to switch the costly
responsibility of car ownership in favor of convenient on-the-
spot mobility solutions.
"Europcar's recent M&A activity has not affected our view of the
group's business risk profile. In our view, Goldcar and
Buchbinder fit very well with Europcar's strategic objective of
growing the low-cost car rental business, vans, and trucks,
focusing on the leisure segment, and extending its presence in
the Mediterranean. While we recognize that the transactions
should be immediately accretive, the size of these transactions
is not sufficient for us to revise our assessment of the
company's scale or diversity profiles. In addition, we
acknowledge integration risks, given the group's more than five
acquisitions in a very short timeframe.
Our business risk assessment for Europcar reflects its solid
brand recognition and leading market share in Europe in a market
that is still heavily fragmented. Given the recent acquisitions,
we see potential for improving market shares. We consider its
business mix to be balanced between the business (42% of
revenues) and leisure (58% of revenues) segments, as well as
between airport (57% of revenues) and non-airport (43%)
locations. We also consider that it has a good fleet
diversification in terms of manufacturers (Volkswagen, 30%;
General Motors, 14%; Fiat, 14%; Renault, 11%; Peugeot Citroen,
10%; and others 21%). We believe the group benefits from good
operational flexibility and efficiency, with an average fleet
utilization rate of 76.5% in 2016, which is very much in line
with peers.
"Conversely, Europcar's business risk profile is constrained by
our view of the price-competitive, cyclical, and capital-
intensive nature of the car rental industry. We incorporate the
car rental industry's relatively short lease terms (both in
absolute terms and as a percentage of an automobile's economic
life). We think Europcar has limited business and geographic
diversity outside of Europe, which accounted for 92% of 2016
revenues. In addition, we view Europcar as exposed to low-
probability, high-impact events such as severe weather, air
traffic disruptions, and geopolitical shocks. Furthermore, the
company is up against a possible threat from ride-sharing
services, which we expect to increase over time, though we
recognize the group's efforts of investing in those segments
through its new mobility practice. We also note that Europcar is
currently facing potential legal claims on inflating repair bill
costs in the U.K., and this could cost the group about EUR45
million. We note that it is still too early to fully evaluate the
impact on Europcar, so we will monitor the evolution and possible
consequences of such claims and possible contagious effect within
the industry.
"We note that Europcar on a stand-alone basis markedly improved
its financial metrics in 2016. As of Dec. 31, 2016, EBIT coverage
(the core ratio under our operating leasing criteria) improved to
1.6x from 1.0x in 2015, while funds from operations (FFO) to debt
reached 16.3% from 12.6% a year earlier. Debt to capital remained
relatively stable at around 84%. In terms of operating
performance and profitability, we also saw EBIT margins remain
close to 17% in 2016.
"At the same time, we observe that Europcar's financial policy is
notably aggressive, marked by strong M&A activity at the end of
2016 and into 2017. While we believe there are some risks in
successfully integrating recent acquisitions, we positively
acknowledge the complementary nature of these businesses, as well
as important synergies to be realized through, among others,
better fleet purchasing power and lower overheads. Still, we
currently view little headroom in the rating.
"We assess Europcar's financial risk profile as aggressive. We
forecast some weakening credit metrics in 2017 on account of
higher leverage to finance recent acquisitions, with EBIT
coverage declining to at least 1.4x by year-end 2017 from 1.6x as
of Dec. 31, 2016. We expect the company's debt to capital and FFO
to debt will be around 85% and 12%-14%, respectively, over the
next 12-24 months. Lastly, we view that in comparison with U.S.-
based peers Avis Budget and Hertz, Europcar has a lower-risk
balance sheet with more than 90% of its fleet on buyback
agreements. As such, the residual risk is not as high as for its
peers, and it provides Europcar with the financial flexibility to
reduce fleet size and related debt if needed during periods of
economic stress. We note that our credit metrics for Europcar are
based on consolidated debt and cash flow (which include on- and
off-balance-sheet fleet debt), rather than the corporate metrics
that the company reports under.
"We regard Europcar's retained cash as being tied to operations,
which fluctuates substantially during the year, given the
seasonality inherent to the business. In addition, we continue to
view the group as owned by a financial sponsor, given that
Eurazeo holds over 40% of the capital (even after the successful
capital increase), and it meets our conditions for no adjustment
for cash surplus. We also take into account our expectations that
EBIT coverage will remain above 1.1x, debt to capital less than
90%, and liquidity to be adequate.
"Furthermore, because of the upsized RCF, we believe that
recovery prospects for the EUR350 million fleet bond due 2021
will be diluted.
"We view Europcar's recent aggressive M&A strategy as a
constraint to the rating, which leads to some uncertainty
regarding the potential impact on credit metrics of integrating
the various acquisitions, and in particular, regarding off-
balance-sheet financing related to the fleet. We adjust for the
off-balance-sheet operating leases using the present value of
commitments (rather than the number provided by the group)
specified in the annual report, assuming that year one payments
for the fleet continue in future years, given our view of
artificially short agreements relative to the asset life. We will
evaluate the impact once we receive the audited accounts for
2017, which should include the relevant information on the recent
acquisitions.
The stable outlook on Europcar reflects our view that, despite a
temporary increase in leverage and weaker credit metrics as a
result of recent M&A activity, alongside ongoing pricing
pressures in Europe, the company's credit metrics will remain
relatively consistent with the current ratings. That said, we
expect adjusted EBIT interest cover at over 1.3x, debt to capital
of about 85%, and FFO to debt over 12%, together with adequate
liquidity.
"We could lower our ratings on Europcar over the next year if the
company proves unsuccessful in integrating its recent
acquisitions. This would cause weaker-than-expected operating
performance and credit metrics. We could also consider a negative
rating action if Europcar suffers considerable revenue or profit
declines (for example, due to continued pricing pressures),
resulting in EBIT interest coverage falling toward 1.1x or FFO to
debt declining to below 12%, or if liquidity were to weaken from
current levels. Rating pressure could also arise if we believe
that the financial policy becomes more aggressive -- for instance
through additional debt-funded acquisitions or any increase in
shareholder remuneration beyond the group's stated dividend
policy.
"Although unlikely over the next 12 months, we could raise the
ratings on Europcar if better-than-expected earnings, due to
stronger volumes or pricing, together with smoother-than-
anticipated integration of its acquisitions, lead EBIT interest
coverage to improve toward 2016 levels of over 1.6x, FFO to debt
comfortably in the 15%-17% area, and a commitment from the group
to maintain credit metrics within those guidelines. We note,
however, that we currently view the aggressive financial policy
as constraining the ratings at the current levels."
PEUGEOT SA: Moody's Hikes CFR to Ba1, Outlook Stable
----------------------------------------------------
Moody's Investors Service has upgraded the corporate family
rating (CFR) for Peugeot S.A. to Ba1 from Ba2 and the probability
of default rating (PDR) to Ba1-PD from Ba2-PD. The outlook is
stable.
"The upgrade of PSA reflects the continued improvements in the
company's operating performance resulting in credit metrics that
are expected to be well-positioned in the Ba1 rating category
towards year-end," says Falk Frey, a Senior Vice President and
lead analyst for PSA. "The rating also reflects an improved
business profile resulting from the acquisition of GM's European
operations (Opel) and Moody's grown confidence that the
opportunities outweigh the challenges and integration risks that
come along with the acquisition," Mr. Frey added.
A full list of affected entities and ratings can be found at the
end of this press release.
RATINGS RATIONALE
In 2016 PSA, for the third year in a row, has been able to
improve its profitability, generated positive free cash flows and
improved its financial metrics. This positive trend also
continued in the first half year 2017. PSA increased worldwide
unit sales to 1.58 million (+2.3% YoY) resulting in an increase
of automotive division's revenues of 3.3% and a Group revenue
increase to EUR29 billion (+5% YoY). PSA managed to increase its
reported recurring operating income margin to 7% of revenue from
6.6% in H1'16 for the group and to 7.3% for the automotive
division (from 6.8% in H1'16) mainly driven by (1) a more
favorable product mix; (2) efficiency gains in production and
procurement as well as SG&A, following the ongoing restructuring
of the group as well as (3) price increases and product
enrichments while FX impact and higher raw material prices
weighted negative on margins which is expected to continue in
H2'17. The reported operational free cash flow was again positive
with EUR1.6 billion in the first half year.
Following the approval of the acquisition of General Motors' (GM)
European operations by the cartel authorities for around EUR1.1
billion cash and recent agreements with unions and politicians
make us believe that releasing synergies through sharing
additional platforms, combined purchases and, more importantly,
joint R&D efforts will be realizable at an earlier stage than
previously anticipated. In Moody's view the merger makes
strategic sense, deepens an already existing relationship between
the two companies and will strengthen the company's European
market position in Europe where PSA has continuously lost market
share since 2010. The combined businesses elevate the groups
passenger car market share to 16.4% (EU + EFTA), regaining
position as second largest OEM after Volkswagen
Aktiengesellschaft (A3 negative).
While Moody's caution that the acquisition increases further
PSA's reliance on the European market to more than 2/3 of group
sales from 61% in 2016, diversification within Europe increases
as Opel is strong in markets where PSA is not, i.e. Germany and
the UK.
The material investments necessary to employ PSA's
electrification strategy could be spread over a larger vehicle
base, while Opel's car models could leverage on PSA's recent
efforts in CO2 emission reductions, having the lowest emission
levels of European OEMs. Lastly, Opel also provides PSA with a
production facility in the UK that could hedge the combined
group's production position in case of a hard Brexit.
Based on the announced financing structure Moody's does not
anticipates a substantial change in PSA's credit metrics and from
the consolidation of Opel. For 2017 on a pro-forma basis Moody's
would expect PSA's debt/EBITDA to fall below 2.5x despite a
negative free cash flow resulting from the Opel acquisition and a
dilution in the EBITA margin to around 4% from 4.7% in 2016
standalone.
Rating Outlook
The stable outlook reflects Moody's expectation that PSA's
business model has a better flexibility to contend with the long-
term cyclicality within the global passenger vehicle markets than
in the last cyclical downturn based on a significantly reduced
break-even level of its European production network. The stable
outlook also assumes that PSA will be able to weather the
challenging landscape as a result of heavy investment
requirements for (1) alternative propulsion technologies; (2)
autonomous driving; (3) the shift of production capacities
towards alternative fuel vehicles; (4) connectivity as well as
(5) regulations relating to vehicle safety, emissions and fuel
economy. Furthermore, the acquisition of Opel should not lead to
a significant deterioration of PSA's credit metrics based on a
relatively modest debt increase and low purchase price.
What could change the rating Down/Up
Moody's does not anticipates any further upgrade for PSA over the
next 12 to 18 months given the sizable challenges PSA is faced
with a successful integration achieving a profitable turnaround
of Opel. However the ratings could come under upward pressure
should (1) PSA generate positive free cash flows despite
anticipated restructuring cash outflows; (2) leverage
(debt/EBITDA) fall constantly below 2.0x; (3) profitability be
restored to an EBITA margin at or above 5% sustainably an the
company's liquidity profile remain solid.
The Ba1 ratings could come under pressure should (1) PSA or the
combined PSA-Opel group exhibit a sustained negative market share
development in its key markets; (2) FCF generation become
negative for a sustained period of time also impacted by sizable
restructuring expenses relating to the acquisition of Opel or due
to the inability to reduce Opel's cash consumption; (3) the
company's EBITA margin fall below 3.0%; (4) its leverage
(debt/EBITDA) exceed 3.0x on a sustainable basis; (5) the group's
liquidity profile materially weaken, or (6) if there are any
emission-related issues that would lead to significant fines, or
other remediation measures, which is currently not part of
Moody's assumptions.
Liquidity
Peugeot's liquidity profile is solid supported by a cash balance
of EUR13.2 billion as of June 30, 2017, internally generated cash
flows and access to committed covenanted syndicated credit
facilities of EUR2.0 billion maturing in 2020 and EUR1.0 billion
maturing in 2018 (excluding EUR1.2 billion at Faurecia). These
credit facilities were undrawn as of June 2017 and Peugeot was
compliant with the financial covenants included in these credit
agreements. These sources are deemed to be more than sufficient
to cover the anticipated cash outflows for capital expenditures,
maturing debt, working capital needs as well as the cash outflow
for the acquisition of Opel.
LIST OF AFFECTED RATINGS
Upgrades:
Issuer: Peugeot S.A.
-- LT Corporate Family Rating, Upgraded to Ba1 from Ba2
-- Probability of Default Rating, Upgraded to Ba1-PD from Ba2-PD
-- Backed Senior Unsecured Medium-Term Note Program, Upgraded to
(P)Ba1 from (P)Ba2
-- Senior Unsecured Regular Bond/Debenture, Upgraded to Ba1 from
Ba2
-- Backed Senior Unsecured Regular Bond/Debenture, Upgraded to
Ba1 from Ba2
Issuer: GIE PSA Tresorerie
-- Backed Senior Unsecured Regular Bond/Debenture, Upgraded to
Ba1 from Ba2
Affirmations:
Issuer: Peugeot S.A.
-- Backed Other Short Term, Affirmed (P)NP
Issuer: GIE PSA Tresorerie
-- Commercial Paper, Affirmed NP
Outlook Actions:
Issuer: Peugeot S.A.
-- Outlook, Remains Stable
Issuer: GIE PSA Tresorerie
-- Outlook, Remains Stable
The principal methodology used in these ratings was Automobile
Manufacturer Industry published in June 2017.
Peugeot is Europe's (EU+EFTA) third-largest maker of passenger
cars with its three brands Peugeot, Citroân and DS. In addition
Peugeot holds a 46.6% interest in Faurecia SA (Ba2 stable, fully
consolidated in PSA's results), one of Europe's leading
automotive suppliers (turnover of EUR18.7 billion in 2016), and
has a 25% shareholding in Gefco, France's second-largest
transportation and logistics service provider. Peugeot also
provides financing to dealers and end-customers through its
finance arm Banque PSA Finance in joint venture with Santander
Consumer Finance.
In 2016, Peugeot generated revenues of EUR54 billion and reported
a recurring operating income of EUR3.2 billion.
=============
G E R M A N Y
=============
SOLARWORLD AG: Bonn Court Opens Insolvency Proceedings
------------------------------------------------------
The local court of Bonn has just opened insolvency proceedings on
the assets of SolarWorld AG as well as its subsidiaries
SolarWorld Industries Sachsen GmbH, SolarWorld Industries
ThÅringen GmbH, SolarWorld Innovations GmbH and SolarWorld
Industries Deutschland GmbH. Attorney at law, Horst Piepenburg,
Duesseldorf, has been appointed as insolvency administrator.
In this context, the insolvency administrator points out that the
ongoing search for an investor, typical in insolvency cases, and
the accompanying investor process, especially concerning the
manufacturing sites of SolarWorld Industries Sachsen GmbH and
SolarWorld Industries Thueringen GmbH have no substantial impact
on the assets, financial and earning situation of SolarWorld AG.
According to the information currently available, it is not
possible for shareholders of SolarWorld AG to receive
distributions from any proceeds from the sale.
In wake of the opening of the insolvency proceedings on the
assets of SolarWorld AG, Mr. Philipp Koecke has just stated to
the Supervisory Board that he immediately and without notice
resigns his Management Board mandate; furthermore Mr. Frank Henn,
Mrs. Colette Rueckert-Hennen and Mr. Juergen Stein have just
stated to the Supervisory Board that they resign their respective
Management Board mandates subject to the registration of the
resignation in the commercial register.
SolarWorld AG is based in Bonn, Germany.
=============
I C E L A N D
=============
ICELAND TOPCO: S&P Upgrades Long-Term CCR To 'B+', Outlook Stable
-----------------------------------------------------------------
S&P Global Ratings raised its long-term corporate credit rating
on Iceland Topco Ltd. (Iceland Foods) to 'B+' from 'B'. The
outlook is stable.
S&P said, "We also raised our issue rating to 'B+' from 'B' on
the group's 2020 senior secured floating rate notes, 2021 6.25%
senior secured notes, and 2024 6.75% senior secured notes. The
senior secured notes have about GBP800 million outstanding after
buy-backs. The recovery rating remains at '3', indicating our
expectations of meaningful recovery (50%-70%; rounded estimate
50%).
"At the same time, we raised our issue rating to 'BB+' from 'BB'
on the group's GBP30 million super senior revolving credit
facility (RCF). The recovery rating remains at '1+', reflecting
our expectation of full recovery (100%) in the event of default.
"The upgrade reflects our view that Iceland Foods' deleveraging
prospects have strengthened in light of proactive debt reduction
and improving operating performance. In June, the group reduced
debt through GBP50 million partial redemption of its floating
rate notes due 2020. We also note its improving operating
performance seen in positive like-for-like sales growth for the
past four quarters on the back of its successful store refit
program. We expect S&P Global Ratings-adjusted debt to EBITDA to
remain below 5x (improving to 4.8x in FY2018 and 4.6x in FY2019,
from 4.9x in FY2017)."
Iceland Foods maintains its niche position as the U.K.'s second-
largest frozen food retailer behind Tesco PLC (BB+/Stable). The
group offers compelling value propositions for those who prefer
branded grocery products at discounted prices, with prices
typically between those of the big four supermarkets (Tesco,
Sainsbury's, Asda, and Morrisons) and German discounters (Aldi
and Lidl) in the U.K.
Despite intensified competition among U.K. grocers, Iceland Foods
maintained an S&P Global Ratings-adjusted EBITDA margin of 9.6%
in FY2017 (or about 5.7% on a reported basis when excluding our
operating lease adjustment). S&P said, "Nevertheless, we expect
that the impact of rising labor and food costs in the U.K. will
be to some extent absorbed by the group's profitability,
resulting in our forecast of adjusted EBITDA margin slightly
reducing to 9.3% in FY2018 and FY2019 (or around 5.5% on a
reported basis when excluding our operating lease adjustment).
"Following the success of the store refit program, we expect that
Iceland Foods will take advantage of its improving earnings and
will increasingly reinvest more of its operating cash flow for
further expansion. Based on the track record of proactive
deleveraging, we also see the potential of further debt
reduction.
"At the same time, our ratings are constrained by the group's
smaller scale relative to larger supermarket chains: it is the
ninth-largest grocer in the U.K. with overseas diversification
limited to about 2% of group revenues. Owing to high rent costs
and coupon rates, we also forecast reported EBITDAR cash interest
coverage to remain below 2x. These factors are reflected in our
comparable rating assessment incorporating a one-notch downward
adjustment to arrive at our current ratings."
In S&P's base case, it assumes:
-- In anticipation of Brexit, we forecast U.K. real GDP growth
falling to 1.4% in 2017 and 0.9% in 2018 from 1.8% in 2016.
-- Consumer price index inflation rising to 2.7% in 2017 and
2.3% in 2018, from 0.6% in 2016.
-- S&P expects that the weak pound sterling will inevitably
result in rising input costs, as some food ingredients are
sourced from eurozone countries. Through partial selling
price inflation, S&P forecasts that this could help
contribute to Iceland Foods' like-for-like sales growth of
about 3% in FY2018 and FY2019, increasing from 2% in FY2017.
-- S&P forecasts total revenue growth to improve to 6.8% in
FY2018 and 6.2% in FY2019, from 4.4% in FY2017, reflecting
the group's increasing capital investment in store refitting,
new store openings in both conventional and warehouse store
formats, accompanied by the gradual roll-out of new store
designs.
-- S&P expects adjusted EBITDA margin of about 9.3% in FY2018
and FY2019, marginally reducing from 9.6% in FY2017 on rising
labor and food costs. In the absence of S&P's operating lease
adjustment, this would translate into reported EBITDA margin
of 5.5% in FY2018 and FY2019, slightly reduced from 5.7% in
FY2017.
-- Capital expenditure (capex) of about GBP85 million to GBP95
million in FY2018 and about GBP90 million to GBP100 million
in FY2019, rising from GBP67 million in FY2017. This should
support the group's EBITDA growth, mostly on the back of the
accelerating shop refit program and new store openings.
Based on these assumptions, S&P arrives at the following credit
measures:
-- S&P forecasts its adjusted debt to EBITDA to improve to 4.8x
in FY2018 and 4.6x in FY2019 (4.9x in FY2017).
-- The deleveraging trend mainly reflects S&P's forecast EBITDA
growth being supported by healthy reinvestment and the GBP50
million partial redemption of the July 2020 floating rate
notes in June 2017 (FY2018-Q1).
-- EBITDAR cash interest coverage (defined as reported EBITDA
before deducting rent over cash interest plus rent) of about
1.80x in FY2018 and 1.85x in FY2019, improving from 1.7x in
FY2017.
S&P said, "The stable outlook reflects our view that Iceland
Foods' proactive debt reduction and improving operating
performance continues to strengthen its deleveraging prospects.
We forecast adjusted debt to EBITDA will remain below 5x, with
reported EBITDAR cash interest coverage of around 1.8x in FY2018.
"We could raise the ratings if Iceland Foods further reduces its
debt on the back of strengthening operating performance,
resulting in its S&P Global Ratings-adjusted debt to EBITDA
improving close to 4x and reported EBITDAR cash interest coverage
improving toward 2.2x, while it maintains strong reported free
operating cash flow (FOCF).
"Any ratings upside would also be contingent on our view of
conservative financial policy regarding leverage and shareholder
returns.
"We could consider a negative rating action if Iceland Foods'
growth and deleveraging prospects weakened. This could arise if,
for example, the group experienced a slowdown in EBITDA growth or
a decline in EBITDA margins due to higher labor and food costs
resulting in our adjusted debt to EBITDA increasing beyond 5x,
reported EBITDAR cash interest coverage falling toward 1.5x, or
weakened FOCF generation.
"We could also lower the ratings if we perceive a more aggressive
financial policy regarding capital investment or shareholder
returns."
=============
I R E L A N D
=============
SEAGATE TECHNOLOGY: S&P Cuts CCR to BB+ on Weak Prospects
---------------------------------------------------------
S&P Global Ratings lowered its corporate credit rating on Dublin,
Ireland-based Seagate Technology PLC to 'BB+' and revised the
outlook to stable from negative. S&P said, "We also lowered all
issue level ratings on the company's unsecured notes to 'BB+' in
conjunction with the downgrade. The recovery rating is '3',
indicating our expectation of meaningful recovery (50%-70%;
rounded estimate: 60%) in the event of a payment default.
"The downgrade is based on our view of Seagate's diminishing
business prospects, given its concentration in the HDD market,
which is sensitive to flash memory prices and the affordability
of SSDs. The fiscal fourth quarter underperformance highlights
the company's lack of business diversity to address customers'
evolving storage needs, and more specifically its reliance on
enterprise performance that has been increasingly pressured by
the price and availability of substitute products. Seagate has
more recently focused on high capacity drives and away from lower
margin consumer markets. Revenues in the fourth quarter, however,
declined by about 9% on a sequential basis, primarily as a result
of weak demand from cloud producers and in its enterprise
segment. Although the company attributed some of the top-line
weakness to temporary market conditions, Seagate, in our view, is
increasingly challenged to meet the diverse storage demand from
enterprise and cloud clients without internal access to flash.
Although the company has partnerships in place to secure flash
from external sources, a lack of direct control weakens its
bargaining power and market relevance.
"The stable outlook reflects our expectation that despite a mid-
to high-single-digit percentage revenue decline, disciplined cost
management and ample internal liquidity sources will cover
shareholder returns such that leverage remains in the mid-to-high
2x area over the coming year."
=========
I T A L Y
=========
ATAC: Not at Risk of Bankruptcy, Sole Administrator Says
--------------------------------------------------------
ANSA reports that Manuel Fantasia, the sole administrator of
Rome's troubled public transport company ATAC, said "no" on
July 31 when asked if it risked going bankrupt.
He also denied reports that the company's financial problem was
endangering the supply of fuel for its vehicles, ANSA relates.
According to ANSA, the company's problems include big debts, low
satisfaction among users about the quality of the service,
frequent strikes, high absenteeism and the poor state of many of
its vehicles.
WASTE ITALIA: To File for Creditor Bankruptcy Protection
--------------------------------------------------------
Marco Bertacche at Bloomberg News reports that the Waste Italia
board gave mandate to the company's chief executive officer to
file for credit protection request with Milan tribunal as per
art. 161, par. 6 of Italy's bankruptcy law.
Gruppo Waste Italia SpA, known as Kinexia SpA, is an Italy-based
company engaged in the development activities in the field of
renewable energy. Its activities include the design,
construction and operation of plants in the fields of
photovoltaic, wind, biogas and district heating.
===================
L U X E M B O U R G
===================
PICARD BONDCO: Fitch Affirms B IDR on Weak Financial Profile
------------------------------------------------------------
Fitch Ratings has affirmed Picard Bondco S.A.'s Long-Term Issuer
Default Rating (IDR) at 'B' and Picard Groupe S.A.S.'s senior
secured floating-rate notes (FRNs) and revolving credit facility
(RCF) ratings at 'BB-'/'RR2'. Fitch has also affirmed Picard
Bondco S.A.'s EUR428 million 2020 senior notes at 'CCC+'/'RR6'.
The Outlook on the IDR is Stable.
The ratings reflect Picard's weak financial profile,
counterbalancing a strong business profile. The latter is
characterised by a high resilience to market fluctuations,
together with high profitability and cash-flow conversion,
measured as EBITDA margin and free cash flow (FCF) margin,
compared to food retailer peers. Fitch believes Picard's
refinancing risk is manageable despite its high leverage and
expects to see some refinancing activity within the next twelve
months. Should this not materialise, Fitch would consider a
negative rating action.
KEY RATING DRIVERS
Robust Business Model: Picard's sales and profitability have
proven resilient to adverse market conditions, such as food-scare
events and ever-increasing competitive pressure, notably through
prices. It is the leading brand in the French frozen food market
and among the most widely recognised retail brands. As most of
its sales are generated by own-branded products, the group's
profit margins are higher than typical food retailers'. High
operating margins combined with limited working-capital and capex
needs enable it to consistently generate positive FCF,
distinguishing it from its retail peers.
Strengthening Profitability: Over FY18-FY21 (financial year
ending in March) Fitch expects group EBITDA margin to be
sustainable at 14.2% (FY17: 14.5%), up from Fitch former
estimates of 13.9%. Fitch forecasts a consolidation of like-for-
likes sales growth resulting in positive operating leverage, and
falling foreign expansion costs as a percentage of sales. Like-
for-like sales should be supported by initiatives to enhance the
product offering and services, including in-store snack bars,
selected wine offers, more frequent innovation and a new loyalty
programme. Management is also focused on developing models that
are quickly profitable in foreign countries, such as in Japan and
Switzerland.
Slow Geographic Diversification: Lack of geographic
diversification is a rating constraint as it lowers the group's
potential for growth. Expansion in Switzerland and Japan looks
promising and operations there are already profitable, but Fitch
does not expects any significant contribution to overall group
EBITDA over the next five years.
On the other side, in countries which are not profitable yet,
Fitch expects limited losses due to management's cautious
approach. It has some track record in adapting foreign
operations' business models should they not perform well.
Examples include the partnership with a local player in Italy and
the development of a corner-in-shop model in Sweden in parallel
to the own-store model.
Positive Free Cash Flow: Fitch expects annual FCF to average 3.8%
of sales during FY18-FY19 (FY17: 3.0%). Low cash-flow volatility
continues to reflect the group's resilient gross profit margin
and flexibility to scale back expansion capex, without eroding
EBITDA and funds from operations (FFO). This means that Picard
will not significantly deleverage in FY18 and FY19, but it
provides the group with adequate financial flexibility and
liquidity to implement its strategy under the current capital
structure.
Manageable Refinancing Risk: With the RCF maturing in August 2018
and senior secured FRNs in February 2019, Fitch expects to see
some refinancing activity within the next twelve months. Fitch
understand that the Swiss industrial food group Aryzta is
evaluating various options regarding its 49.5% stake in Picard.
Picard has high leverage (Fitch projects Picard's FFO adjusted
net leverage to be still at 6.6x at FYE19, albeit down from 7.2x
at FYE17), but Fitch believes the group has several refinancing
options available, supported by its strong business model and
cash-generative profile.
Should no refinancing option materialise as Fitch get close to
major debt maturities, Fitch would consider a negative rating
action.
DERIVATION SUMMARY
Compared to food retail peers such as Carrefour SA (BBB+/Stable)
or Casino Guichard-Perrachon SA (BB+/Stable), Picard is small,
and has poor geographic diversification and high leverage.
However, these weak aspects are offset by its strong competitive
position as the leader in a niche market. Furthermore, its unique
business model (food retailer selling mostly own-brand products)
enables it to reach levels of profitability in line with food
manufacturers such as Premier Foods ('B'/Negative), and much
higher than its immediate peers. This supports adequate its
financial flexibility and liquidity.
KEY ASSUMPTIONS
Fitch's key assumptions within Fitch ratings case for the issuer
include:
- moderate like-for-like sales growth driven by management's
initiatives to support French like-for-like sales in a highly
competitive environment, and cautious expansion pace;
- EBITDA margin sustainable at 14.2% over FY18-FY20;
- capex average 3% of sales per annum, reflecting continual
investments in store remodelling, IT, as well as moderate
expansion through owned stores;
- no dividend payments;
- average annual FCF at 3.8% of sales over FY18-FY19.
KEY RECOVERY ASSUMPTIONS
- The recovery analysis assumes that Picard would be considered
a going concern in bankruptcy and that the company would be
reorganised rather than liquidated. Fitch has assumed a 10%
administrative claim in the recovery analysis.
- Picard's recovery analysis assumes a post-reorganisation
EBITDA 25% below FY17 EBITDA of EUR202.3 million. At this level
of EBITDA and after taking corrective measures into account,
Fitch would expects Picard to continue to generate slightly
positive free cash flow but have very limited deleveraging
capacity from a high level.
- It also assumes a distressed multiple EV of 6.0x, which is
higher than food manufacturer peer Premier Foods' ('B'/Negative)
5.0x. In Fitch views Picard's higher multiple reflects its niche
positioning and less vulnerable business profile as a retailer
generating sales mostly through own-branded products.
- Fitch generally assumes a fully drawn RCF in its recovery
analyses since credit revolvers are usually tapped as companies
are under distress. Therefore Fitch assumes Picard's EUR30
million RCF will be fully drawn.
- Such assumptions result in high recovery prospects, in the
71%-90% range, for Picard Groupe S.A.S.'s RCF and senior secured
FRNs. Therefore Fitch affirms Picard's senior secured debt rating
at 'BB-'/'RR2' or two notches above Picard's IDR. The recovery
prospects are capped at 'RR2' as most of the borrowing group's
assets are in France. Following the payment waterfall, the senior
notes' recovery rating is affirmed at 'CCC+'/'RR6', indicating
recoveries in the 0%-10% range.
RATING SENSITIVITIES
Future Developments That May, Individually or Collectively, Lead
to Positive Rating Action
An upgrade of the IDR is unlikely over the rating horizon, as a
meaningful improvement in Picard's financial ratios is reliant on
a significant improvement in the group's operating performance,
which Fitch currently does not foresee. Provided that Picard's
business model and profitability remain resilient, future
developments that may, individually or collectively, lead to
positive rating actions include:
- FFO-adjusted gross leverage below 6.0x (5.5x net of readily
available cash) on a sustained basis;
- FFO fixed charge cover above 2.5x (FY17: 1.7x) on a sustained
basis.
Future Developments That May, Individually or Collectively, Lead
to Negative Rating Action
- FFO-adjusted gross leverage over 7.5x (7.0x net of readily
available cash) on a sustained basis combined with:
- a deterioration in like-for-like sales and EBITDA margin
reflected in FCF generation below 3% of sales;
- FFO fixed charge cover below 1.5x;
- early refinancing of Picard PIKCo S.A.'s PIK notes through a
debt instrument with terms and conditions that may place the
FRNs and senior note holders in a less favourable position.
=================
M A C E D O N I A
=================
SKOPJE MUNICIPALITY: S&P Affirms 'BB-' ICR, Outlook Stable
----------------------------------------------------------
On July 27, 2017, S&P Global Ratings affirmed and removed from
CreditWatch its 'BB-' issuer credit rating on the Macedonian
capital, the Municipality of Skopje. The outlook is stable.
S&P had originally placed the rating on CreditWatch with negative
implications on May 12, 2017.
As a "sovereign rating" (as defined in EU CRA Regulation
1060/2009 "EU CRA Regulation"), the ratings on the Municipality
of Skopje are subject to certain publication restrictions set out
in Art 8a of the EU CRA Regulation, including publication in
accordance with a pre-established calendar (see "Calendar Of 2017
EMEA Sovereign, Regional, And Local Government Rating Publication
Dates: Midyear Update," published July 10, 2017, on
RatingsDirect). Under the EU CRA Regulation, deviations from the
announced calendar are allowed only in limited circumstances and
must be accompanied by a detailed explanation of the reasons for
the deviation. In this case, the reason for the deviation is the
resolution of the CreditWatch. The next scheduled rating
publication on the sovereign rating on the Municipality of Skopje
will be on Nov. 10, 2017.
OUTLOOK
S&P said, "The stable outlook reflects our view that Skopje will
maintain sustainable debt levels and adequate liquid reserves.
With a now-prolonged mandate for mayors and council members and
despite the upcoming local elections in October 2017, the
municipality will in our view perform in line with our base-case
expectation and retain strong operating surpluses."
Downside Scenario
S&P could lower our rating on Skopje within the next 12 months if
we lowered our ratings on Macedonia (BB-/Stable/B), or if
Skopje's liquidity position became structurally weaker. Rating
pressure could also arise from relaxed control of operating
expenditures and increased investments, which in turn would
weaken the city's budgetary performance and push deficits after
capital accounts to more than 5% of revenues."
Upside Scenario
If S&P raised its ratings on Macedonia, it could raise its rating
on Skopje within the next 12 months, if, at the same time, the
city markedly exceeded its base-case expectations. These include
higher revenues from property taxes and fees for construction
land, paving the way for stronger budgetary performance, with
sustained deficits below 5% of revenues, and a prolonged build-up
of cash reserves that consistently exceeds annual debt service.
RATIONALE
The central government made changes to the Electoral Code in the
past month, which has, importantly,extended the mandates of local
governments as well as scheduling local elections in the first
half of October 2017. S&P said, "With this legal change, we have
reason to believe that local governments, and in particular
Skopje, will now function legitimately over the coming months.
Local governments' mandates have been extended indefinitely until
new elections are held, alleviating concerns a similar situation
could arise in the coming months if further delays occur in the
electoral cycle. The rating on Skopje is constrained by a
volatile and unbalanced institutional framework under which the
municipality operates in Macedonia. 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 enable Skopje to
maintain solid budgetary results with sustainable operating
balances. The city's liquidity 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, we
anticipate a gradual weakening of the municipality's liquidity
over 2017-2019, alongside lower associated operating and capital
revenues."
Following the December 2016 elections, Macedonia's new government
was not approved by parliament until late May, causing the
deadline to initiate local elections to pass without action. The
Macedonian Law on Local Governments previously stipulated that
local elections are to be held every four years, with the
Macedonian Electoral Code specifying that they should fall in the
first half of May. As the Electoral Code did not contain any
rules pertaining to the continuation of local governments'
mandates until new elections are held, a legal and political
vacuum appeared that put into question the legal validity of
decisions and operations undertaken at the municipal level. The
Macedonian parliament subsequently made changes to the Electoral
Code to extend municipal level council members' and mayors'
mandates indefinitely until local elections are held. In
addition, the amended Electoral Code states that local elections
are to be held by the first half of October. S&P said, "Taking
this into account, we believe previous political and operational
risks to the municipal tier overall, as well as for Skopje in
particular, have been mitigated. Nonetheless, the upcoming local
elections and overall tense situation at the central government
level may continue to pose some uncertainties.
"In accordance with our 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 (see 'Related Criteria And Research')." At
the onset of the committee, the chair confirmed that the
information provided to the Rating Committee by the primary
analyst had been distributed in a timely manner and was
sufficient for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the
recommendation, the Committee discussed key rating factors and
critical issues in accordance with the relevant criteria.
Qualitative and quantitative risk factors were considered and
discussed, looking at track-record and forecasts.
The committee agreed that all key rating factors are 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 (see 'Related Criteria and Research').
RATINGS LIST
Rating
To From
Skopje (Municipality of)
Issuer Credit Rating
Foreign and Local Currency BB-/Stable/-- BB-/Watch Neg/--
=====================
N E T H E R L A N D S
=====================
INTERGEN NV: S&P Affirms 'B' CCR, Outlook Negative
--------------------------------------------------
S&P Global Ratings said it affirmed its 'B' corporate credit
rating on InterGen N.V. and removed the rating from CreditWatch,
where it was placed with negative implications on June 8, 2017.
The outlook is negative. S&P said, "Our issue-level ratings on
the company's senior secured debt are unchanged at 'B'. The
recovery rating on the debt is unchanged at '3', indicating our
expectations for meaningful (50%-70%; rounded estimate: 50%)
recovery in the event of a default."
InterGen has announced its intent to sell all of its Mexican
assets, or about 2.2 gigawatts (GW) of the company's 5.1 GW. S&P
said, "In our base-case scenario, we have assumed that the
company is successful in divesting these assets and that it uses
a majority of asset sale proceeds to repay debt and refinance the
revolving credit facility maturing in 2018.
"The negative outlook reflects our view that there is significant
uncertainty, both in terms of timing and actual sale proceeds,
surrounding the Mexican asset sales, and if the company fails to
reduce leverage to below 5.5x, we could lower the rating.
"We could lower the rating if the company fails to improve its
financial risk profile by reducing debt to offset the loss of
business diversity and contracted cash flows. We could also lower
the rating if the company is unable to refinance its revolving
credit facility or if leverage exceeds 5.75x on a sustained basis
following the asset divestment. If the company fails to announce
or complete a sale by Dec. 31, 2017, we could lower the rating,
possibly by multiple notches.
"If the company is successful at selling its Mexico-based assets
and deleveraging to below 5.5x on a sustained basis, we could
revise the outlook to stable."
KRATON POLYMERS: S&P Assigns BB- Rating to EUR220MM Term Loan
-------------------------------------------------------------
S&P Global Ratings assigned its 'BB-' issue-level ratings to
Kraton Corp.'s proposed EUR220 million term loan issued by Kraton
Polymers Holdings B.V. and estimated face value $606 million term
loan issued by Kraton Polymers LLC. The recovery ratings on both
debt issuances are '1', indicating expectations for very high
(90%-100%; rounded estimate: 95%) recovery in the event of a
payment default. The transaction is approximately leverage-
neutral and S&P expects the company to use proceeds to refinance
the company's existing term loan.
S&P said, "At the same time, we are raising our issue-level
ratings on the company's existing senior secured debt to 'BB-'
from 'B+', and revising our recovery ratings to '1' from '2',
indicating expectations for very high (90%-100%; rounded
estimate: 95%) recovery in the event of a payment default. Once
the proposed refinancing of the remaining balance of $886 million
on the term loan is completed and this debt has been fully
repaid, we will withdrawal this rating.
"We are also affirming our 'B-' issue-level ratings and
maintaining our '5' recovery ratings on the company's senior
unsecured notes , indicating expectations of modest (10%-30%:
rounded estimate: 15%) recovery in the event of a payment
default.
"Our corporate credit ratings on Kraton Corp. and Kraton Polymers
LLC remain 'B', with a positive outlook. For the corporate credit
rating rationale, see the research update on Kraton Corporation
published March 16, 2017.
RATINGS LIST
Kraton Corp.
Kraton Polymers LLC
Corporate Credit Rating B/Positive/--
Ratings Raised To
From
Kraton Corp.
Kraton Polymers LLC
Senior secured BB- B+
Recovery rating 1(95%) 2(85%)
Affirmed Ratings
Kraton Corp.
Kraton Polymers LLC
Kraton Polymers Capital Corp.
Senior unsecured B-
Recovery rating 5(15%)
New Ratings
Kraton Polymers Holdings B.V.
Senior Secured
EUR220 million term loan BB-
Recovery rating 1(95%)
Kraton Polymers LLC
Senior Secured
$606 million term loan BB-
Recovery rating 1(95%)
===============
P O R T U G A L
===============
DOURO MORTGAGES NO.1: S&P Affirms B- Rating on Class D Notes
------------------------------------------------------------
S&P Global Ratings took various rating actions in SAGRES STC -
Douro Mortgages No.1, SAGRES STC - Douro Mortgages No.2, and
SAGRES STC - Douro Mortgages No.3.
Specifically, S&P has:
-- Raised and removed from CreditWatch positive our rating on
Douro Mortgages No. 3's class A notes; and
-- Affirmed and removed from CreditWatch positive our ratings on
Douro Mortgages No. 3's class B, C, and D notes, and Douro
Mortgage's No. 1 and 2's class A, B, C, and D notes.
S&P said, "On July 19, 2017, we placed on CreditWatch positive
our ratings in these transactions due to the incorrect
application of property type adjustments at our previous reviews
(see "Ratings On 32 Portuguese RMBS Tranches Placed On
CreditWatch Positive Following Revised Collateral Assessment").
Today's rating actions follow our credit and cash flow analysis
of the most recent transaction information that we have received
as part of our surveillance review cycle. Our analysis reflects
the application of our European residential loans criteria, our
current counterparty criteria, and our structured finance ratings
above the sovereign (RAS) criteria (see "Methodology And
Assumptions: Assessing Pools Of European Residential Loans,"
published on Dec. 23, 2016, "Counterparty Risk Framework
Methodology And Assumptions," published on June 25, 2013, and
"Ratings Above The Sovereign - Structured Finance: Methodology
And Assumptions," published on Aug. 8, 2016).
The three portfolios' assets performance has remained stable
since our previous reviews and is on average stronger than our
Portuguese residential mortgage-backed securities (RMBS) index
(see "Portuguese RMBS Index Report Q1 2017," published on June 1,
2017). As of the most updated investor reports, total
delinquencies were at 1.21%, 0.87%, and 0.71% in Douro Mortgages
No. 1, 2, and 3, respectively, compared with 1.15%, 0.78%, and
0.84% at our previous reviews. Prepayment levels remain low and
the transactions are unlikely to pay down significantly in the
near term, in our opinion.
We have observed a decrease in the weighted-average foreclosure
frequency (WAFF) and a decrease in the weighted-average loss
severity (WALS) for each rating level compared with our previous
reviews.
Douro Mortgages No. 1
Rating level WAFF (%) WALS (%)
AAA 14.75 7.15
AA 10.93 5.38
A 8.88 2.87
BBB 6.48 2.00
BB 4.09 2.00
B 3.38 2.00
Douro Mortgages No. 2
Rating level WAFF (%) WALS (%)
AAA 14.09 8.38
AA 10.46 6.37
A 8.54 3.39
BBB 6.21 2.19
BB 3.91 2.00
B 3.26 2.00
Douro Mortgages No. 3
Rating level WAFF (%) WALS (%)
AAA 15.66 12.20
AA 11.56 9.47
A 9.42 5.23
BBB 6.85 3.43
BB 4.28 2.39
B 3.55 2.00
S&P said, "The large decreases in the WALS figures are primarily
due to our error in previously treating certain underlying
properties securing the mortgages as commercial properties
instead of residential properties. Our European residential loans
criteria consider that nonresidential loans are more likely to
default than residential loans and therefore apply adjustments to
the foreclosure frequency and loss severity for nonresidential
properties. Considering the properties as residential in our
analysis results in us no longer applying these adjustments.
The swap counterparties for these transactions--Banco BPI, S.A.
(Cayman Islands Branch) (BB+/Stable/B) in Douro Mortgages No. 1
and Douro Mortgages No. 3, and The Royal Bank of Scotland PLC
(BBB+/Stable/A-2) in Douro Mortgages No. 2--did not take remedial
actions in line with the swap agreements when previously becoming
ineligible counterparties. S&p said, "In our analysis of the
class A and B notes in Douro Mortgages No. 1 and the class A
notes in Douro Mortgages No. 3, we do not give credit to this
swap. Consequently, our ratings on these notes are delinked from
the issuer credit rating (ICR) on the swap provider. Under our
current counterparty criteria, our ratings on Douro Mortgages No.
1's class C and D notes, and Douro Mortgages No. 3's class B, C,
and D notes are capped at our long-term ICR on Banco BPI. Our
ratings on Douro Mortgages No. 2's class A, B, C, and D notes are
also capped, at our long-term ICR on The Royal Bank of Scotland.
"Under our RAS criteria, we applied a hypothetical sovereign
default stress test to determine whether a tranche has sufficient
credit and structural support to withstand a sovereign default
and so repay timely interest and principal by legal final
maturity.
"Our RAS criteria designate the country risk sensitivity for RMBS
as moderate. Under our RAS criteria, these transactions' notes
can therefore be rated four notches above the sovereign rating,
if they have sufficient credit enhancement to pass a minimum of a
severe stress. In addition, the most senior notes in the three
transactions satisfy the conditions that permit a maximum of six
notches of uplift (two additional notches of uplift) subject to
credit enhancement being sufficient to pass an extreme stress
(see "Understanding Standard & Poor's Rating Definitions,"
published on June 3, 2009)."
Given that the transactions' performance has been stable, the
notes have been amortizing pro rata since the conditions
permitted them to.
S&p said, "In the case of Douro Mortgages No. 1, the reserve fund
has reached its floor so even if the notes are amortizing on a
pro rata basis, credit enhancement has only slightly increased
for all classes of notes since our previous review, but is not
enough to support higher ratings than those currently assigned.
"The reserve funds in Douro Mortgages No. 2 and Douro Mortgages
No. 3 have not reached their floor yet. Consequently, credit
enhancement for all classes of notes in both transactions has
remained almost unchanged since our previous review. That said,
due to the transaction's stable performance, under our RAS
criteria the class A notes in Douro Mortgages No. 3 are now able
to achieve a higher rating than that currently assigned.
Taking into account the results of our credit and cash flow
analysis and the application of our relevant criteria, we have
raised and removed from CreditWatch positive our rating on Douro
Mortgages No. 3's class A notes.
"At the same time, we have affirmed and removed from CreditWatch
positive our ratings on Douro Mortgages No. 3's class B, C, and D
notes, and our ratings on all classes of notes in Douro Mortgages
No. 1 and Douro Mortgages No. 2.
Douro Mortgages No. 1, 2, and 3 are Portuguese RMBS transactions,
which closed between November 2005 and July 2007. They securitize
first-ranking mortgage loans originated by Banco BPI for the
acquisition of residential properties in Portugal.
RATINGS LIST
Class Rating
To From
Rating Raised And Removed From CreditWatch Positive
SAGRES STC - Douro Mortgages No. 3 EUR1.515 Billion Mortgage-
Backed Floating-Rate Securitisation Notes And Floating-Rate
Securitisation Notes
A BBB (sf) BB+ (sf)/Watch Pos
Ratings Affirmed And Removed From CreditWatch Positive
SAGRES STC - Douro Mortgages No. 1 EUR1.509 Billion Mortgage-
Backed Floating-Rate Securitisation Notes
A A- (sf) A- (sf)/Watch Pos
B BB+ (sf) BB+ (sf)/Watch Pos
C B+ (sf) B+ (sf)/Watch Pos
D B- (sf) B- (sf)/Watch Pos
SAGRES STC - Douro Mortgages No. 2 EUR1.509 Billion Mortgage-
Backed Floating-Rate Securitisation Notes
A1 BBB+ (sf) BBB+ (sf)/Watch Pos
A2 BBB+ (sf) BBB+ (sf)/Watch Pos
B B+ (sf) B+ (sf)/Watch Pos
C B- (sf) B- (sf)/Watch Pos
D B- (sf) B- (sf)/Watch Pos
SAGRES STC - Douro Mortgages No. 3 EUR1.515 Billion Mortgage-
Backed Floating-Rate Securitisation Notes And Floating-Rate
Securitisation Notes
B B (sf) B (sf)/Watch Pos
C B- (sf) B- (sf)/Watch Pos
D B- (sf) B- (sf)/Watch Pos
=============
R O M A N I A
=============
ELECTROCENTRALE BUCURESTI: Bucharest City Hall to Take Over Firm
----------------------------------------------------------------
Romania-Insider.com reports that the Bucharest City Hall will
take over Electrocentrale Bucuresti S.A (ELCEN), which would help
solve the capital's heating problem, said Romanian Prime Minister
Mihai Tudose.
Romania-Insider.com relates that the Prime Minister met with the
Bucharest mayor Gabriela Firea and the Bucharest district mayors
on July 5 to discuss about ELCEN and other topics.
He summoned on July 24 an extraordinary Parliamentary session to
adopt a draft law for the takeover, Romania-Insider.com says.
The Bucharest City Hall manages Bucharest's thermal energy
distributor RADET, the report notes. Both RADET and ELCEN became
insolvent last year, the report discloses. The two companies are
essential for the supply of heat and hot water to Bucharest.
However, they are managed by two different institutions at the
present, namely the City Hall and the Energy Ministry.
Romania-Insider.com notes that the whole process represents a new
attempt to merge the two companies. The merger idea has been
discussed since 2013, but negotiations have failed, the report
says.
Electrocentrale Bucharest S.A. (ELCEN) is a Romanian state-owned
company, which operates several thermal power plants in Bucharest
that produce electricity and hot water.
===========
R U S S I A
===========
EURASIA DRILLING: S&P Places 'BB' CCR On CreditWatch Positive
-------------------------------------------------------------
S&P Global Ratings placed its 'BB' long-term corporate credit
rating on Russia-based oilfield services (drilling) company
Eurasia Drilling Co. (EDC) on CreditWatch with positive
implications. The 'B' short-term corporate credit rating was
affirmed.
"The CreditWatch follows Schlumberger's announcement that it has
agreed to acquire 51% of EDC, subject to various regulatory
approvals. If the transaction proceeds, we would likely upgrade
EDC, based on our view that its credit profile would be
strengthened by ownership by the world's largest oilfield
services company.
"Schlumberger had attempted to buy EDC in 2015, but the deal
didn't proceed because the company didn't obtain approval from
the authorities. Although we do not have any information
regarding the receipt of any preliminary approvals, we think
there is a higher likelihood of the transaction closing this
time. At the same time, we note that a consortium led by the
Russian Fund of Direct Investments and the Russia-China
Investment Fund has reportedly also filed a similar acquisition
request with the Federal Antimonopoly Service, which creates
uncertainty about EDC's future shareholding structure.
"Absent the possible developments around its shareholding
structure, EDC's credit profile remains unchanged. Supporting
factors are the company's robust credit metrics, with funds from
operations (FFO) to debt of 40%-50%, and improving conditions on
the Russian oilfield services market.
"The Russian oil market emerged from its trough in 2016, and we
anticipate a gradual increase in capital expenditures (capex) in
the sector in the coming years. We think higher demand for
drilling in 2017 and 2018 will translate into a recovery of EDC's
EBITDA to $450 million in 2017. This profitability, coupled with
lower capex versus historical levels, should enable the company
to deleverage further and maintain S&P Global Ratings-adjusted
debt to EBITDA below 2.0x.
"Russia's three leading oil and gas producers -- LUKoil, Gazprom
Neft, and Rosneft -- represented more than 70% of EDC's revenues
in 2016, and these companies' capex was about Russian ruble (RUB)
1.5 trillion (about $23 billion) in 2016. We expect this
aggregate capex will increase to RUB1.7 trillion in 2017 ($27
billion, taking into account the stronger-than-expected ruble
than in 2016), and climb again in 2018. In addition to
investments in new fields, EDC foresees increasing demand for
complex services, due to the mature nature of key oil-producing
fields (in 2016, value-added services compensated for the decline
in EDC's overall drilling volumes).
"We understand the company plans to set its capital spending at a
more sustainable level of about $200 million a year. In previous
years, it completed construction of jack-up rigs and finalized
its fleet renovation program. This capex would enable EDC to
resume some dividend distribution and further strengthen its
balance sheet.
"Under our base-case scenario, we expect EDC will report EBITDA
of $430 million-$470 million annually in 2017 and 2018, after
EBITDA of $405 million in 2016."
The following assumptions underpin S&P's base case:
-- Gradual recovery of drilling volumes, supported by a share of
horizontal drilling of not lower than 30% in the total
portfolio, combined with modest price adjustments;
-- A healthy EBITDA margin not thinner than 20% for 2017-2018;
-- Modest contribution from the offshore drilling division (in
2016, the division contributed about 15% total EBITDA);
-- Capex of about $200 million a year, above maintenance capex
of $100 million in 2016, supporting gradual modernization of
the fleet; and
-- Start of dividend repayments in 2018, when EDC achieves
targeted leverage sustainably below 2.0x (the last dividend
was $280 million in 2014).
Based on these assumptions, S&P arrives at the following credit
measures for EDC:
-- FFO to debt of 40%-45% in 2017, increasing to about 50% in
2018;
-- S&P Global Ratings-adjusted net debt to EBITDA of 1.5x-2.0x
in 2017 and 2018; and
-- Positive free operating cash flow (FOCF) generation exceeding
$100 million in 2017 and 2018.
As of Dec. 31, 2016, the company had S&P Global Ratings-adjusted
debt of $777 million, consisting of Eurobonds, ruble bonds, and
loans. S&P said, "We continue to see the currency mismatch
between the company's revenues and operating expenses (which are
ruble denominated) and its debt (most of which is in U.S.
dollars) as a weakness. We understand that this negative impact
would be lower starting in 2017, since the company's reported
debt will likely be about 30% below the 2016 figure. We expect
that if the ruble is 10% stronger, this would still result in
credit metrics within the range of our current assessment.
"Our assessment of EDC's fair business risk continues to be
supported by the company's leading positions in the domestic
drilling market and long-term relations with its key customers,
LUKoil and GazpromNeft. We also positively assess EDC's resumed
cooperation with Russia's largest oil company Rosneft, which
should somewhat offset the declining volumes from LUKoil and
further strengthen EDC's customer mix. Still, we continue to see
EDC's high geographic concentration and limited customer
diversity as constraints.
"We consider EDC's liquidity as adequate, based on our forecast
ratio of liquidity sources to liquidity uses at 1.2x for the 12
months started April 1, 2017. We understand that the company has
no committed credit facilities in place.
S&P forecasts that the main sources of EDC's liquidity during the
12 months to April 1, 2018, include:
-- Cash and equivalents of about $365 million on March 31, 2017;
and
-- Expected FFO of slightly more than $340 million.
Forecast liquidity uses for the same period include:
-- Contractual debt amortization of about $305 million;
-- Capex of about $200 million;
-- Payment to the remaining global depositary receipt holders
totaling about $80 million; and
-- Minor working capital outflow.
EDC is subject to certain covenants under existing facilities.
S&P said, "We estimate the headroom under these covenants as
adequate as of April 1, 2017.
"We plan to resolve the CreditWatch if and when the transaction
closes, including confirmation of the key terms of the deal, with
the final shareholding structure. We will also seek to clarify
Schlumberger's strategy and intentions for EDC.
"We would likely upgrade EDC by one notch if Schlumberger
acquires 51% of EDC. This would reflect both the benefits for EDC
of Schlumberger' interest and involvement, and the limitations
factored into our 'BB+' foreign currency rating and transfer and
convertibility assessment on the Russian Federation.
"We would affirm our rating on EDC if the Schlumberger purchase
does not proceed. At this stage, we do not envisage material
risks to EDC's credit profile if the consortium of investors
gains control of the company."
INTERREGIONAL DISTRIBUTION: S&P Affirms BB-/B Corp. Credit Rating
-----------------------------------------------------------------
S&P Global Ratings said that it has affirmed its 'BB-/B' long-
and short-term corporate credit ratings on Russian electricity
company Interregional Distribution Grid Company of Centre, Public
Joint-Stock Company (IDGC of Centre). The outlook is positive.
The affirmation reflects our expectation that IDGC of Centre will
maintain stable operating performance while tariffs and costs
demonstrate similar dynamics. S&P said, "At the same time, we
expect that discretionary cash flows will be moderately negative
in the coming years, primarily stemming from higher dividends
while capital expenditures remain at previously observed levels.
"In our view, higher dividend payouts--set last year at 50% of
net income under International Financial Reporting Standards
(IFRS)--will limit the company's ability to reduce leverage. This
is because we expect cash flows after dividend payments will be
moderately negative over the next 2-3 years. Accordingly, we
expect that IDGC of Centre will maintain or slightly improve the
ratios it achieved in 2016. We forecast funds from operations
(FFO) to debt at 24%-26% compared with 24.6% in 2016, and FFO
cash interest coverage at about 3x-4x after 3.3x in 2016, which
are commensurate with our assessment of the company's financial
risk profile as aggressive. We mainly focus on FFO to debt and
FFO interest coverage because the company operates in a
relatively high interest rate environment.
"We do not anticipate a meaningful negative effect on the group's
operating performance as it eliminates "last mile" agreements, in
which some large customers pay inflated tariffs for using high-
voltage grids. We expect the phase-out of these agreements will
continue over the next two years. Although transmission volumes
will likely decrease by 8%-9% per year, we expect average tariffs
will increase accordingly, reducing the subsidizing of smaller
consumers by large ones. This will result in generally stable
EBITDA margins of 20%-22% in the coming years.
"We continue to see a moderate likelihood that the Russian
Federation (foreign currency BB+/Positive/B, local currency BBB-
/Positive/A-3), IDGC of Centre's ultimate owner, would provide
timely and sufficient extraordinary support to the company in the
event of financial distress. Our assessment reflects the
company's dominant role in low-voltage electricity distribution
in central Russia and our assessment that privatization risk is
currently low, given the present economic environment.
Nevertheless, we believe privatization might be on the agenda
when economic conditions stabilize. We view IDGC of Centre as a
government-related entity rather than a subsidiary of Rosseti
because we believe the government to be the ultimate decision-
maker.
"The positive outlook on IDGC of Centre reflects the positive
outlook on Russia. We expect that IDGC of Centre will maintain
stable operating performance, which should allow it to finance
its sizeable capex program primarily with internally generated
cash flows. In addition, we anticipate that the company's
financial policy regarding dividends and liquidity management
will remain prudent. We expect that the group will maintain FFO
to debt of around 25%, FFO cash interest coverage ratios of 3x-
4x, and adequate liquidity.
"We could raise the ratings on IDGC of Center if we were to raise
our ratings on Russia.
"We could also upgrade the company if its FFO cash interest
coverage ratio stayed sustainably above 4x while the FFO-to-debt
ratio remained at about 25%.
"We could revise the outlook to stable if we were to revise the
outlook on Russia to stable.
"We could downgrade IDGC of Centre if its leverage increased
significantly as a result of higher dividends, inflated capex, or
a sharp decline in EBITDA, leading to FFO to debt decreasing
below 12% and FFO cash interest coverage below 2x. Downward
rating pressure might also arise if the company started to rely
excessively on short-term financing or its liquidity deteriorated
to less-than-adequate levels."
MOSCOW UNITED: S&P Affirms 'BB-' LT CCR on Improving Performance
----------------------------------------------------------------
S&P Global Ratings said that it has affirmed its 'BB-' long-term
corporate credit rating on Russia-based electricity utility
Moscow United Electric Grid Co. PJSC (MOESK). The outlook is
positive.
S&P said, "The affirmation reflects our expectation of a gradual
improvement in MOESK's operating performance over the next few
years, supported by steady increases in tariffs in line with
inflation, the company's ability to control costs, and its
financial performance after 2017 on the back of moderate
dividends and slightly lower capital expenditure (capex). We
expect that, in 2017-2019, the ratio of funds from operations
(FFO) to debt will be in the range of 20%-24% in 2017-2019
compared with 21.6% in 2016, and the FFO cash interest coverage
ratio will be 3x-4x compared with 2.8x in 2016. We mainly focus
on MOESK's FFO to debt and FFO interest coverage metrics because
the company operates in a relatively high interest rate
environment in Russia, which is captured in its FFO."
MOESK has reduced its dividend payout ratio to 25% of net income
under International Financial Reporting Standards (IFRS) in 2017,
which will help to preserve cash, although its discretionary cash
flow will remain negative. S&P said, "At the same time, we
estimate that, after 2017, if MOESK manages to maintain that
moderate dividend payout ratio and slightly reduce its capex, its
leverage metrics will gradually improve. We note, however, that
Russian government-related entities have been under pressure to
increase the dividend payout to 50%; although MOESK has been able
to keep a lower payout ratio, we cannot rule out increases in the
future.
"MOESK's fair business risk profile remains constrained by a
tariff regime that lacks protection from political intervention,
a track record of government attempts to manually control
electricity tariffs, as well as by the company's somewhat
concentrated customer base and above-industry-average losses in
grids. These constraints are mitigated by MOESK's role as the
major distribution grid operator in Moscow city and region, which
we consider to be the most lucrative areas in the country, and by
its relatively stable earnings base derived from regulated power
distribution.
"We also continue to believe that there is a moderate likelihood
that MOESK would receive timely and sufficient extraordinary
support from its ultimate owner, the Russian Federation (foreign
currency BB+/Positive/B, local currency BBB-/Positive/A-3), if
needed. In particular, we think that privatization risk is low in
the next 12 months, given the current economic environment, but
it might become an option when economic conditions stabilize. We
view MOESK as a government-related entity rather than a
subsidiary of Rosseti because we believe the government to be the
ultimate decision-maker.
"The positive outlook on MOESK reflects the positive outlook on
Russia. We anticipate that MOESK will maintain stable operating
performance, which should allow it to finance its sizeable capex
program primarily with internally generated cash flows, resulting
in stable leverage. We also expect that the group will preserve
its adequate liquidity position, and maintain its FFO-to-debt
ratio above 20% and FFO cash interest coverage ratios at 3x-4x.
"We would likely raise our rating on MOESK if we were to upgrade
Russia. Upside potential for the rating on MOESK might also stem
from a stronger financial risk profile, such that FFO to debt
reached about 25% while FFO cash interest coverage stayed
sustainably above 4.0x. For an upgrade, we also assume the
company will maintain adequate liquidity and maturity profiles.
"We could revise our outlook on MOESK to stable if we were to
revise the outlook on Russia to stable.
"Moreover, we might consider a negative rating action if we
observed a more aggressive financial policy at MOESK or if
regulatory actions resulted in higher-than-expected debt at the
company. Specifically, this could happen if the company's FFO to
debt were to decrease below 12% and FFO cash interest coverage
dropped below 2x. Downward rating pressure might also arise if
the company started to rely excessively on short-term financing,
if its liquidity deteriorated to less-than-adequate levels, or if
its profitability decreased considerably, weakening its financial
metrics."
=========
S P A I N
=========
BANCO BILBAO: Fitch Affirms BB Preference Shares Rating
-------------------------------------------------------
Fitch Ratings has affirmed Spain-based Banco Bilbao Vizcaya
Argentaria S.A.'s (BBVA) Long-Term Issuer Default Rating (IDR) at
'A-' with a Stable Outlook.
This rating action follows the revision of the Outlook on Spain's
sovereign rating.
KEY RATING DRIVERS
IDRS, VR, DCR AND SENIOR DEBT
BBVA's Long-Term IDR and Viability Rating (VR) are one notch
above Spain's sovereign rating (BBB+/Positive), reflecting
diversification benefits from the bank's solid retail franchises
in several countries outside Spain, namely Mexico, Turkey and a
number of South American countries. The ratings also factor in
the bank's modest risk appetite, weaker, albeit improving, asset
quality metrics relative to peers, satisfactory capitalisation
and resilient earnings generation.
BBVA's risk profile is nevertheless correlated to that of the
Spanish sovereign, as reflected in the sensitivity of the group's
performance and asset quality to the economic environment in
Spain. The bank's cost of market funding and the stability of the
investor base are also typically influenced by perceptions of
sovereign risk. The revision of the Outlook on Spain's sovereign
rating to Positive reflects, among others, an improved macro-
economic environment, which should feed through to the bank's
asset quality over time.
BBVA's asset quality metrics are weaker than peers', mainly
reflecting the group's domestic exposure but also the group's
business in several emerging markets. Better economic conditions
in Spain are helping the group to digest its stock of problem
assets (non-performing loans and foreclosed assets). Fitch
calculates that at end-2016 the problem asset ratio was
relatively high at 6.6% but expects it to decline gradually in
the medium term as the Spanish labour and property markets
strengthen on the back economic growth.
Profitability has been fairly stable over the business cycle, due
to geographical diversification and a retail banking focus. Wider
margins in emerging economies and tight cost controls helped to
absorb higher loan impairment charges over the past five years,
particularly in Spain, and to maintain a resilient internal
capital generation capacity. Fitch expects a gradual improvement
in BBVA's earnings over the medium term, including that in the
US, where profitability is still weak.
Capitalisation is broadly commensurate with BBVA's risk profile
as the bank has solid buffers above minimum regulatory
requirements. Risk-weighted capital metrics are weaker than those
of many international peers, while the leverage ratio is stronger
but its exposure to emerging markets is higher than peers. At
end-March 2017, the bank reported fully loaded common equity Tier
1 and leverage ratios of 11% and 6.6%, respectively.
BBVA's stable funding profile is underpinned by solid retail
deposit franchises in its core markets. The group's international
subsidiaries have no material funding imbalances. BBVA is a
regular issuer in the domestic and international wholesale debt
markets and has an adequate liquidity position.
Fitch has affirmed the rating of BBVA's senior non-preferred
notes in line with the bank's Long-Term IDR and existing senior
debt ratings. Fitch views the likelihood of default on the senior
non-preferred notes the same as the likelihood of default of the
bank.
Fitch has affirmed BBVA's Derivative Counterparty Rating (DCR) at
the same level as the Long-Term IDR. This is because, in Spain,
derivative counterparties have no preferential legal status over
other senior obligations in a resolution scenario.
SUPPORT RATING AND SUPPORT RATING FLOOR
BBVA's Support Rating (SR) of '5' and Support Rating Floor (SRF)
of 'No Floor' reflect Fitch's belief that senior creditors of the
bank can no longer rely on receiving full extraordinary support
from the sovereign in the event that the bank becomes non-viable.
The EU's Bank Recovery and Resolution Directive (BRRD) and the
Single Resolution Mechanism (SRM) for eurozone banks provide a
framework for resolving banks that is likely to require senior
creditors participating in losses, instead of or ahead of a bank
receiving sovereign support.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Subordinated debt and other hybrid capital issued by BBVA are
notched down from its VR, in accordance with Fitch's assessment
of each instrument's respective non-performance and relative loss
severity risk profiles, which vary considerably.
Subordinated (lower Tier 2) debt is rated one notch below the
bank's VR to reflect the above- average loss severity of this
type of debt. Upper Tier 2 debt is rated three notches below the
bank's VR to reflect the above-average loss severity of this type
of debt (one notch) and high risk of non-performance (two
notches) given the option to defer coupons if the issuer reports
losses in the last audited accounts.
Preferred shares are rated five notches below the bank's VR to
reflect the higher-than-average loss severity risk of these
securities (two notches),and the high risk of non-performance
(three notches) due to a profit test for legacy issues and fully
discretionary coupon payments for recent issues.
SUBSIDIARIES AND AFFILIATED COMPANIES
BBVA Capital Finance, S.A. Unipersonal, BBVA International
Preferred, S.A. Unipersonal, BBVA Senior Finance, S.A.
Unipersonal, BBVA U.S. Senior, S.A. Unipersonal, BBVA
Subordinated Capital, S.A. Unipersonal are BBVA's wholly-owned
financing subsidiaries, whose senior debt, subordinated and
hybrid securities ratings are aligned with those of BBVA based on
Fitch's view of an extremely high probably of support from the
parent if required, underpinned by an irrevocable guarantee in
many cases.
RATING SENSITIVITIES
IDRS, VR, DCR AND SENIOR DEBT
The Stable Outlook indicates that rating upside is limited in the
foreseeable future. However, over the longer-term BBVA's ratings
could benefit from a sustained improvement in economic conditions
in Spain, further improvement in capitalisation and materially
stronger asset quality, as well as better sovereign credit
dynamics in the key foreign markets where the group operates.
A downgrade of Spain's sovereign rating would trigger a downgrade
of the bank's VR and Long-Term IDR. While currently limited,
downward rating pressure could also arise from substantial asset
quality or earnings deterioration or unexpected headwinds in the
group's foreign operations.
The rating of senior non-preferred notes is primarily sensitive
to a change in the Long-Term IDR of BBVA. For the preferred
senior debt and the DCR to achieve a one-notch uplift, the buffer
of qualifying junior debt and non-preferred senior debt would
need to exceed Fitch estimates of a 'recapitalisation amount'.
This amount is likely to be around or above the bank's minimum
pillar 1 total capital requirement.
SUPPORT RATING AND SUPPORT RATING FLOOR
An upgrade of the SR and upward revision of the SRF would be
contingent on a positive change in the sovereign's propensity to
support its banks. While not impossible, this is highly unlikely,
in Fitch's view.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Subordinated debt and other hybrid capital issued by BBVA are
primarily sensitive to a change in its VR. Upper Tier 2 notes and
preferred shares are also sensitive to Fitch changing its
assessment of the probability of their non-performance relative
to the risk captured in the bank's VR.
SUBSIDIARIES AND AFFILIATED COMPANIES
The senior debt ratings of BBVA's wholly-owned financing
subsidiaries are sensitive to the same factors that drive the
Long-Term IDR of BBVA. The subordinated debt and hybrid
securities ratings of BBVA's wholly-owned financing subsidiaries
are primarily sensitive to changes in BBVA's VR. Hybrid
securities are also sensitive to Fitch changing its assessment of
the probability of their non-performance relative to the risk
captured in the bank's VR
The rating actions are:
BBVA
Long-Term IDR: affirmed at 'A-'; Outlook Stable
Short-Term IDR: affirmed at 'F2'
Viability Rating: affirmed at 'a-'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'
Derivative Counterparty Rating: affirmed at 'A-(dcr)'
Senior unsecured debt long-term rating: affirmed at 'A-'
Senior non-preferred debt long-term rating: affirmed at 'A-'
Senior unsecured debt short-term rating and commercial paper:
affirmed at 'F2'
Subordinated debt: affirmed at 'BBB+'
Upper Tier 2 debt: affirmed at 'BBB-'
Preference shares: affirmed at 'BB'
BBVA International Preferred, S.A. Unipersonal
Preference shares guaranteed by BBVA: affirmed at 'BB'
BBVA Senior Finance, S.A. Unipersonal
Senior unsecured debt long-term rating: affirmed at 'A-'
Senior unsecured debt short-term rating and commercial paper:
affirmed at 'F2'
BBVA U.S. Senior, S.A. Unipersonal
Commercial paper guaranteed by BBVA: affirmed at 'F2'
BBVA Subordinated Capital, S.A. Unipersonal
Subordinated debt guaranteed by BBVA: affirmed at 'BBB+'
HIPOCAT 7: S&P Affirms B- (sf) Rating on Class D Notes
------------------------------------------------------
S&P Global Ratings has raised its credit ratings on Hipocat 7,
Fondo de Titulizacion de Activos' class A2, B, and C notes. S&P
said, "At the same time, we have affirmed our rating on the class
D notes.
"Today's rating actions follow our credit and cash flow analysis
of the most recent transaction information that we have received
and the July 2017 investor report. Our analysis reflects the
application of our European residential loans criteria, our
structured finance ratings above the sovereign (RAS) criteria,
and our current counterparty criteria (see "Methodology And
Assumptions: Assessing Pools Of European Residential Loans,"
published on Dec. 23, 2016, "Ratings Above The Sovereign -
Structured Finance: Methodology And Assumptions," published on
Aug. 8, 2016, and "Counterparty Risk Framework Methodology And
Assumptions," published on June 25, 2013)."
The transaction features an interest deferral trigger for the
class B to D notes. If triggered, the interest payments are
subordinated below principal in the priority of payments. These
triggers are based on the difference between the available funds
and the outstanding balance of the notes. None of these interest
deferral terms have been triggered to date and we do not expect
them to be triggered in the short term.
Available credit enhancement for all classes of notes has
increased since our previous review due to the amortization of
the class A2 notes and the partial replenishment of the reserve
fund.
Class Available credit enhancement,
excluding defaulted loans (%)
A2 28.46
B 22.32
C 10.45
D 2.53
Hipocat 7 features a reserve fund, which can amortize to a target
amount. At present, it totals EUR6.57 million, which represents
2.53% of the outstanding notes balance. It is not at its required
balance of EUR25.39 million because it has been used to provision
for defaulted assets in the past.
As per the investor report dated July 2017, severe delinquencies
of more than 90 days, excluding defaults, are 1.02%, which is
below S&P's Spanish residential mortgage-backed securities (RMBS)
index, although they have been above the index in the past (see
"Spanish RMBS Index Report Q1 2017," published on June 1, 2017).
Mortgage loans in arrears for more than 18 months are classified
as defaulted in this transaction and, consequently, artificially
written off. The outstanding balance of loans in default, at
about 10%, is higher than in other Spanish RMBS transactions that
we rate. Prepayment levels remain low and we believe that the
transaction is unlikely to pay down significantly in the near
term.
Around 69% of the collateral pool is concentrated in Catalonia,
which was the home region of the originator. Specifically, around
63% of the pool is in the province of Barcelona. S&P said, "We
have considered this high concentration limit in our analysis.
Since the pool exceeds both the threshold province and region
concentration limits, we have applied the highest province
adjustment.
"After applying our European residential loans criteria to this
transaction, our credit analysis results show a decrease in the
weighted-average foreclosure frequency (WAFF) and a decrease in
the weighted-average loss severity (WALS) for each rating level.
Based on recent information received from the trustee on the low
use of the payment holiday flexibility by borrowers on this pool
and our analysis of the performance of loans that used this
flexibility in the past, we have reassessed our view of the risks
in relation to payment holiday. At the same time, we have
reflected the recent performance data in combination with
improved macroeconomic conditions, by not projecting arrears in
addition to the existing arrears in the pool in our credit
analysis. The combination of these two variables has had a
positive effect on our credit analysis."
Rating level WAFF WALS CC
(%) (%) (%)
AAA 28.73 21.54 6.19
AA 21.48 17.42 3.74
A 17.72 10.09 1.79
BBB 12.86 6.43 0.83
BB 8.30 4.14 0.34
B 6.94 2.36 0.16
CC--Credit coverage.
S&P said, "Under our RAS criteria, we applied a hypothetical
sovereign default stress test to determine whether a tranche has
sufficient credit and structural support to withstand a sovereign
default and so repay timely interest and principal by legal final
maturity.
"Our RAS criteria designate the country risk sensitivity for RMBS
as moderate. Our credit and cash flow analysis indicates that the
class A2 and B notes now have sufficient credit enhancement to
withstand our stresses at the 'AA+' and 'A' rating levels,
respectively. Our RAS criteria cap our ratings in this
transaction at six notches above our 'BBB+' foreign currency
long-term sovereign rating on Spain for the class A2 notes and at
four notches above our rating on Spain for the class B notes. We
have therefore raised to 'AA+ (sf)' from 'BBB- (sf)' and to 'A
(sf)' from 'BB (sf)' our ratings on the class A2 and B notes,
respectively.
"Our credit and cash flow analysis indicates that the class C
notes now pass our stresses at the 'BB+' rating level, including
the support from the swap. We have therefore raised to 'BB+ (sf)'
from 'B+ (sf)' our rating on the class C notes.
"The class D notes do not pass our cash flow stresses at the 'B'
rating level. Our cash flow analysis for the class D notes shows
that we do not expect a default to occur in the next 12 months.
In line with paragraphs 92 and 93 of our European residential
loans criteria, and our criteria for assigning 'CCC' category
ratings, the collateral performance, the evolution of the level
of credit enhancement, and the macroeconomic conditions in Spain,
we have affirmed our 'B- (sf)' rating on the class D notes (see
"Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings,"
published on Oct. 1, 2012).
"Our European residential loans criteria set the minimum
projected losses at 0.35% at the 'B' rating level. The projected
losses that we compare with these credit coverage floors include
the negative carry resulting from interest due on the rated
liabilities during the foreclosure period. Projected losses with
interest meet the minimum floor level at the 'B' rating level.
"In our opinion, the outlook for the Spanish residential mortgage
and real estate market is not benign and we have therefore
increased our expected 'B' foreclosure frequency assumption to
3.33% from 2.00%, when we apply our European residential loans
criteria, to reflect this view (see "Outlook Assumptions For the
Spanish Residential Mortgage Market," published on June 24,
2016). We base these assumptions on our expectation of modest
economic growth, continuing high unemployment, and house prices
stabilization during 2017."
Hipocat 7 is a Spanish RMBS transaction that closed in June 2004
and securitizes first-ranking mortgage credits. Catalunya Banc
(formerly named Caixa Catalunya) originated the pool, which
comprises credits secured over owner-occupied properties, mainly
in Catalonia.
RATINGS LIST
Class Rating
To From
Hipocat 7, Fondo de Titulizacion de Activos EUR1.4 Billion
Mortgage-Backed Floating-Rate Notes
Ratings Raised
A2 AA+ (sf) BBB- (sf)
B A (sf) BB (sf)
C BB+ (sf) B+ (sf)
Rating Affirmed
D B- (sf)
NOVO BANCO: Moody's Extends Caa1 Rating Review for Downgrade
------------------------------------------------------------
Moody's Investors Service has extended its review for downgrade
of the Caa1 long-term deposit and Caa2 senior unsecured debt
ratings of Novo Banco, S.A. and its supported entities.
The ratings review was initiated on April 5, 2017, following the
announcement by the Bank of Portugal on March 31, 2017 that, as
part of Novo Banco's sale process, a liability management
exercise (LME) would be undertaken on senior bondholders, with
the aim of recapitalizing the bank by at least EUR500 million.
The Bank of Portugal also announced that the private equity firm
Lone Star (unrated) will acquire 75% of Novo Banco's capital
after injecting EUR1 billion of capital, while the resolution
fund will maintain 25% of the bank's shares.
Concurrently, Moody's has extended its review for downgrade of
Novo Banco's counterparty risk assessment (CR Assessment) of
B3(cr). The bank's standalone Baseline Credit Assessment (BCA)
remains at ca.
The extension of the review follows the announcement on July 24,
2017 of the terms and conditions of the LME, which state that
Novo Banco has made a cash offer to repurchase its outstanding
senior debt. The offer will expire on October 2, 2017. Moody's
expects to conclude the review on Novo Banco's ratings once it
has visibility on the outcome and completion of the LME. Under
the terms of the sale agreement, the LME needs to be fulfilled
before Lone Star can complete its acquisition of a majority stake
in Novo Banco. If the LME is unsuccessful, there is an increased
risk of a resolution or liquidation for the bank with consequent
losses for senior creditors.
RATINGS RATIONALE
Moody's decision to extend the rating review process is driven by
the fact that Novo Banco's sale process remains ongoing subject
to the completion of the LME on October 2, 2017.
Novo Banco's standalone BCA of ca reflects Moody's view that the
LME on the bank's outstanding senior bonds (EUR3 billion at end-
December 2016) to recapitalize the bank has the effect of
allowing the issuer to avoid a likely eventual default, according
to Moody's definitions. The rating agency considers this offer to
be a distressed exchange that will be made as a means of avoiding
Novo Banco's liquidation and close the sale process.
Novo Banco's ca standalone credit assessment also reflects its
very weak credit fundamentals, in particular the bank's: (1) very
weak asset risk with the non-performing asset ratio (non-
performing loans + foreclosed real estate assets) reaching around
40% at end-December 2016; (2) weak capital position, with the
fully loaded Common Equity Tier 1 standing at 9.6% at end-March
2017 and (3) loss making operations (i.e. Novo Banco reported a
loss of EUR797 million at end-December 2016). These will be in
part mitigated by Lone Star's EUR1 billion capital injection and
the establishment of the so-called contingent capital mechanism
to recapitalize the bank under specific circumstances. However,
these measures are not sufficient to prevent the LME on the
bank's senior debt from raising at least EUR500 million of Common
Equity Tier 1, and hence the bank's default on its senior debt.
The bank's senior debt rating of Caa2 on review for downgrade
reflects the rating agency's view that Novo Banco's senior debt
bondholders will suffer losses under the LME. Based on the terms
and conditions of the offer, losses for investors could
potentially be higher than the 10%-20% range indicated by Moody's
Caa2 rating, underpinning the current review for downgrade. In
concluding the rating review, Moody's will consider the potential
for further losses for these investors based on the degree of
acceptance of the offer, as well as the repurchase price that
will be finally applied to the affected bonds. The review for
downgrade also reflects the risk of higher than expected losses
for senior bondholders should Novo Banco fail to recapitalize by
at least EUR500 million through the LME. This would mean a breach
of the sale agreement with Lone Star and an increased risk of
Novo Banco being resolved or liquidated.
At present, Moody's does not expect junior deposits, currently
rated at Caa1 and excluded from the LME, to incur losses.
However, the review for downgrade on these ratings reflects the
risk that losses could yet arise for Novo Banco's junior
deposits, should the announced measures prove insufficient to
restore the viability of the bank, or fail altogether, thereby
increasing the risk of a resolution or liquidation and consequent
losses for depositors.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Given the low standalone BCA, scope for a further downgrade is
limited, but it would likely be downgraded to c in the event that
plans to recapitalize the bank through a LME on senior
bondholders proves unsuccessful. This would mean the sale process
to Lone Star would fail, making it very likely that the
resolution fund would place the bank into a resolution or
liquidation process. This, or the prospect of larger-than-
expected losses on senior unsecured debt or deposits, would
likely result in lower ratings.
The BCA could be upgraded if the bank successfully completes the
LME and demonstrates that its solvency has been materially
improved after the sale to Lone Star, without the prospect of
further losses for creditors. A positive change in the BCA would
likely lead to an upgrade in all ratings.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings/analysis was
Banks published in January 2016.
=====================
S W I T Z E R L A N D
=====================
EFG INTERNATIONAL: Fitch Affirms BB+ Fiduciary Certs. Rating
------------------------------------------------------------
Fitch Ratings has affirmed EFG International AG's (EFGInt) and
EFG Bank AG's Long-Term Issuer Default Ratings (IDRs) at 'A' and
Viability Ratings (VRs) at 'a'. The Outlooks on the Long-Term
IDRs are Negative.
The rating actions are part of Fitch's periodic review of Swiss
private banks.
KEY RATING DRIVERS
IDRS AND VR
EFGInt is a global private banking group offering private banking
and asset management services and is headquartered in Zurich.
EFGInt is the ultimate parent and bank holding company of all
EFGInt group entities. EFG Bank operates as EFGInt's main Swiss
private banking subsidiary. EFGInt's and EFG Bank's ratings are
driven by the group's intrinsic strength, which Fitch assess on a
consolidated basis because the individual operating entities'
credit profiles cannot be meaningfully disentangled. This is
because their highly cohesive strategy, governance and risk
management result in ordinary support being available to EFG Bank
from other group companies. The equalisation of the ratings also
takes into account EFGInt's role as holding company and the
absence of double leverage.
The IDRs and VR reflect the group's well-established private
banking franchise in Switzerland and internationally, now
enlarged and complemented by BSI, a Lugano-based mid-sized
private bank (acquired last year) with a presence in key
financial markets in Europe, Latin America, the Middle East and
Asia. At end-1H17, EFGInt managed CHF138 billion in assets under
management (AuM), including around CHF60 billion at BSI.
Net new money outflows stood at around CHF27 billion since end-
2015 (32% of BSI's end-2015 AuM), related to the reputational
impact of the closure of BSI's Singapore operations in May 2016,
staff and client departures, and voluntary business reductions
initiated by EFGInt in line with its risk appetite. Banca
d'Italia's request to close BSI offices in Milan and Como due to
administrative weaknesses in 2Q17 could further damage EFGInt's
reputation; however, the potential AuM outflow and the impact on
the bank's P&L have been limited.
AuM outflows continued in 1H17, but at a slower pace. Excluding
the CHF6 billion AuM attrition that EFGInt reported in 1H17, the
bank saw marginally positive underlying net new assets of CHF0.5
billion in the first half of the year, mainly driven by a rebound
in Asia, which is a positive signal. The resulting net asset
outflow of CHF5.5 billion is still high and above the bank's
expectation but Fitch expects it to slow down in the course of
the year. Restoring AuM growth will remain an important driver of
Fitch assessments of the combined EFG/BSI's profitability and
franchise.
EFGInt's gross AuM margins remained resilient at 85bp in 1H17,
excluding mark-to-market gains on interest rate derivatives
hedging fixed-rate mortgages, in line with the bank's target.
Fitch will watch for evidence that the AuM base remains capable
of delivering similar levels of profitability.
The integration of BSI is well on track. EFG has completed the
legal integration of all BSI's entities worldwide as planned and
on schedule in eight months. As a final step, the migration of
BSI to EFG's Swiss IT platform is due to be completed by end-
2017. EFGInt expects the acquisition of BSI to generate CHF240
million in cost synergies by 2019, predominantly related to the
integration of IT systems. Fitch expects EFGInt's performance to
be burdened by front-loaded integration costs at least until
2018, as the bank expects 65% of CHF250 million restructuring
costs to be incurred by end-2017.
The ratings also factor in the group's sound capitalisation, with
a fully-loaded Basel III CET1 ratio of 15.9% at end-1H17. This is
slightly lower than at end-2016 as the final purchase price for
BSI of CHF971 million was CHF188 million higher than that
recorded at year-end. However, capitalisation is still higher
than initially envisaged when EFGInt agreed to buy BSI.
EFGInt is bound by and reports regulatory capital ratios under
Swiss GAAP, under which a revaluation of pension liabilities does
not have an impact on regulatory capital ratios. The group's
Swiss GAAP CET1 ratio stood at a sound 17.7% at end-1H17, with a
leverage ratio of 5%.
EFGInt's capitalisation is sound but remains exposed to potential
legal liabilities in excess of representations and warranties
offered by BSI's seller, BTG Pactual. The adoption of IFRS9 could
exert pressure on EFGInt's equity as it would require the bank to
account for its life insurance investment portfolio at fair
value, which stood at CHF294 million below the current valuation
at amortised cost. However, this would not affect the regulatory
capital ratios, which are based on Swiss GAAP.
The ratings also reflect EFGInt's modest risk appetite, albeit
slightly higher than Swiss private banking peers'. On-balance
sheet risks are moderate and reflect the bank's business model,
as the bulk of the exposures are to private banking clients and
over-collateralised with financial instruments or mortgages. The
life insurance investment portfolio (CHF810 million held-to-
maturity at end-1H17) is of higher risk than bank loans, as it
introduces income statement volatility and longevity risk.
EFGInt's asset quality is sound, underpinned by conservative
underwriting standards, but Fitch views it as weaker than peers'
due to valuation risk around the life insurance portfolio and the
addition of BSI's loan exposures, some of which present higher
risks than traditional private banking loans.
The Negative Outlook reflects Fitch views that BSI's integration
carries significant risk of deviation from management's targets
in terms of cost-cutting and benefits from the enlarged
franchise. The Outlook also incorporates the risk of a potential
impairment in EFGInt's portfolio of life insurance policies and
potential further litigation risk not covered by the existing
protection arrangements concluded by EFGInt with BTG.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
EFGInt's bons de participations are rated five notches below the
VR to reflect their fully discretionary coupon deferral and high
loss severity. The Tier 2 notes issued by EFG International
(Guernsey) Limited and EFG Funding (Guernsey) Limited and
guaranteed by EFGInt, are rated two notches below EFGInt's VR to
reflect high loss severity given the notes' permanent and full
point-of non-viability write-down feature.
SUPPORT RATING AND SUPPORT RATING FLOOR
EFGInt's and EFG Bank's Support Ratings (SR) and Support Rating
Floors (SRF) reflect Fitch views that support from the Swiss
authorities cannot be relied upon, primarily because of the
group's low systemic importance. The group caters to an affluent
client base and does not have a retail deposit franchise in
Switzerland.
RATING SENSITIVITIES
IDRS AND VR
A failure by the combined group to restore net new money growth
and sustainably reverse the recent confidence-driven AuM outflows
by end-2017 and prolonged uncertainty about the group's ability
to generate sustainable profitability would likely result in a
downgrade. Pressure on profitability and, consequently, on the
ratings, could also arise from a failure to reduce the group's
cost-to-income ratio materially, most likely due to lower cost
synergies than expected or significant delays in implementing
efficiency improvements.
Should a significant impairment of the bank's life insurance
policy portfolio materialise, or should legal risks exceeding
existing protection from BTG significantly dent EFGInt's
capitalisation, this would also put pressure on the ratings.
An upgrade is highly unlikely in the short-term as indicated by
the Negative Outlook. However, upside could arise over the longer
term once BSI's integration is completed and uncovered litigation
risk related to BSI has materially receded. An upgrade would also
be contingent on material cost efficiency improvement, a track
record of net new money growth underpinning sustainable
profitability and an unchanged risk appetite.
SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
The ratings of bons de participations and the Tier 2 notes are
primarily sensitive to changes in EFGInt's VR. They are also
sensitive to changes in their notching, which in the case of the
bons de participations could arise if their non-performance risk
increases materially, for instance, due to higher regulatory
capital requirements.
SUPPORT RATING AND SUPPORT RATING FLOOR
An upgrade of EFGInt and EFG Bank's SRs and an upward revision of
the SRFs are unlikely, given the group's low systemic importance.
The rating actions are:
EFG International
Long-Term IDR affirmed at 'A'; Outlook Negative
Short-Term IDR: affirmed at 'F1'
Viability Rating: affirmed at 'a'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'
Fiduciary certificates (XS0204324890) backed by preferred shares:
affirmed at 'BB+'
EFG Bank
Long-Term IDR affirmed at 'A'; Outlook Negative
Short-Term IDR: affirmed at 'F1'
Viability Rating: affirmed at 'a'
Support Rating: affirmed at '5'
Support Rating Floor: affirmed at 'No Floor'
EFG Funding (Guernsey) Limited
Basel III-compliant Tier 2 subordinated debt: affirmed at 'BBB+'
EFG International (Guernsey) Limited
Basel III-compliant Tier 2 subordinated debt: affirmed at 'BBB+'
=============
U K R A I N E
=============
PRIVATBANK PJSC: NBU Removes PwC Over Audit Breaches
----------------------------------------------------
The National Bank of Ukraine has removed PricewaterhouseCoopers
Audit LLC from the Register of accounting firms authorized to
audit banks. The decision to this effect was taken by the NBU
Board on July 20, 2017 upon the recommendation from the Committee
on the Audit of Ukrainian Banks.
"The rationale behind this decision was PricewaterhouseCoopers
Audit LLC's verification of misrepresented financial information
in the financial statements of CB PRIVATBANK PJSC. In particular,
this concerns information on credit exposure and regulatory
capital reported by the bank," NBU said in a statement.
"The audit findings by PricewaterhouseCoopers Audit LLC failed to
highlight risks faced by PRIVATBANK PJSC, which led to the bank
being declared insolvent and nationalized, with substantial
recapitalization costs borne by the state."
The NBU is authorized to remove accounting firms from the
Register of banks' auditors in accordance with Article 7 of the
Law of Ukraine On the National Bank of Ukraine, Article 70 of the
Law of Ukraine On Banks and Banking and NBU regulations. The
regulator's practice of barring accounting firms from auditing
banks is in line with international approaches and is in
compliance with the 27th principle of the Basel Core Principles
of Banking Supervision.
In 2015-2016, the NBU barred nine accounting firms from auditing
banks for audit policy violations.
PrivatBank is the largest commercial bank in Ukraine, in terms of
the number of clients, assets value, loan portfolio and taxes
paid to the national budget. PrivatBank has its headquarters in
Dnipropetrovsk, in central Ukraine.
* UKRAINE: DGF Sells Assets of 33 Insolvent Banks
-------------------------------------------------
Ukrinform reports that the Deposit Guarantee Fund last month sold
assets of 33 insolvent banks, the fund's press service said.
"Last week [mid July] the general sum from the sale of assets of
33 bankrupt banks totaled UAH411.14 million. In particular, a
successful auction was held on July 18, during which the lot was
sold at a record price of UAH243.67 million," the fund said in a
report, Ukrinform relays.
According to Ukrinform, the Deposit Guarantee Fund said
UAH382.02 million was received in repayment of the fund
creditors' claims, UAH27.59 million from the sale of main banks'
assets, and UAH1.54 million from the sale of property of
insolvent banks.
===========================
U N I T E D K I N G D O M
===========================
DOUNREAY TRI: Administrators Seek Buyer for Business
----------------------------------------------------
Recharge reports that administrators have opened a data room as
they hunt for potential buyers for the troubled 10MW Dounreay Tri
floating wind demonstration project, to be located around 6km off
the Caithness coastline in Scotland.
According to Recharge, work on the project was suspended after
developer Dounreay Tri, a company formed by Swedish investor
Hexicon to carry out the project, experienced cash-flow problems
forcing it into administration.
Brian Milne -- b.milne@frenchduncan.co.uk -- and Linda Barr --
l.barr@frenchduncan.co.uk -- of Glasgow-based accountants French
Duncan were appointed joint administrators of the company,
Recharge relates.
KIDS COMPANY: Former Directors Facing Bans of Up to 6 Years
-----------------------------------------------------------
The Insolvency Service announced the Business Secretary's
intention to commence disqualification against former directors
of Kids Company.
A spokesperson for the Insolvency Service said: "We can confirm
that the Insolvency Service has written to the former directors
of Keeping Kids Company informing them that the Business
Secretary intends to bring proceedings to have them disqualified
from running or controlling companies for periods of between two-
and-a-half and six years.
"As this matter will now be tested in the Court it is not
appropriate to comment further."
The proceedings will name all nine former directors:
- Sunetra Devi Atkinson
- Erica Jane Bolton,
- Richard Gordonn Handover,
- Vincent Gerald O'Brien,
- Francesca Mary Robinson,
- Jane Tyler,
- Andrew Webster and
- Alan Yentob.
The former chief executive Camila Batmanghelidjh was not formally
a director at the time the charity collapsed, however the
proceedings will allege that she acted as a de facto director and
should therefore also be disqualified from running or controlling
other companies.
The intention to bring disqualification proceedings follows an
investigation by the Insolvency Service, an executive agency of
the Department for Business, Energy and Industrial Strategy.
Kids Company was a London-based children's charity. The
Insolvency Service was appointed to wind up the charity after it
collapsed in 2015.
Brian Milne and Linda Barr of Glasgow-based accountants French
Duncan were appointed joint administrators of the company,
RARE LONDON: Enters Administration, Ceases Trading
--------------------------------------------------
BBC News reports that fashion label Rare London announced on
Facebook that administrators had decided it should cease trading,
making staff redundant.
Customers took to the site to complain they had not received
ordered items or refunds for returned goods, BBC relates.
According to BBC, a statement by the company said they would have
to make a claim against the insolvent estate to get their money
back.
In a statement posted on Facebook on July 31, Rare London, as
cited by BBC, said administrators from Duff & Phelps Ltd were
appointed on July 26.
The label told customers who had recently placed an order or were
awaiting a refund to contact their bank or credit card company to
see if they could get their money back through them, BBC
discloses.
RESIDENTIAL MORTGAGE 30: S&P Rates Class X1- Dfrd Notes CCC (sf)
----------------------------------------------------------------
S&P Global Ratings assigned its credit ratings to Residential
Mortgage Securities 30 PLC's (RMS 30) class A, B- Dfrd, C- Dfrd,
D- Dfrd, E- Dfrd, F1- Dfrd, and X1- Dfrd notes. Our ratings
address the timely receipt of interest and the ultimate repayment
of principal on the class A notes, and the ultimate payment of
interest and principal on the other rated classes of notes. At
closing, RMS 30 also issued unrated class F2, F3, X2, and Z
notes.
RMS 30 is a securitization of a pool of buy-to-let and owner-
occupied residential mortgage loans, to nonconforming borrowers,
secured on properties in England, Scotland, and Wales.
Of the collateral pool, Kensington Mortgage Co. Ltd. (KMC) and
affiliates originated 76.23% and Money Partners Ltd. originated
23.77%. The remainder is made up of an acquired loan originated
by Infinity Mortgages Ltd. At closing, the issuer purchased the
portfolio from the seller (Kayl PL S.a.r.l) and obtained the
beneficial title to the mortgage loans. The majority (99.85%) of
the initial pool was previously securitized in earlier Kensington
transactions: Residential Mortgage Securities 21 PLC (29.81%),
Residential Mortgage Securities PLC 22 (37.58%), and Money
Partners Securities 4 PLC (32.47%). These transactions are to be
called in the coming months, but the beneficial interest in the
mortgage loans transferred, on the closing date, to the issuer.
At closing, the issuer used the proceeds from the class Z notes
and part of the class X2 notes to fund the initial general
reserve fund at 2.0% of the class A to F3 notes' balance. The
target general reserve fund is 3.0% of the class A to F3 notes'
closing balance until the class A to F2 notes are fully redeemed.
Thereafter, the general reserve fund target amount is zero.
There is also a liquidity reserve, which is funded from principal
receipts if the general reserve fund amounts fall below 1.5% of
the outstanding balance of the class A to F3 notes. The required
balance of the liquidity reserve is 2% of the class A notes and
amortizes in line with the class A notes. Funding the liquidity
reserve is not a debit on the principal deficiency ledger (PDL).
However, using the liquidity reserve to pay senior fees or the
class A notes' interest would cause a debit to the PDL.
At closing, the issuer purchased the pool as of the May 31, 2017
pool cut-off date. All amounts of interest accruing and paid for
the period between the pool cut-off date and the closing date
form part of the issuer's available revenue funds. In addition,
the servicing costs of the pool between the pool cut-off date and
the closing date are the liability of the issuer. S&P said, "In
our analysis, we have included the additional revenue funds and
servicing costs that generated by the pool in the period between
the pool cut-off date and the closing date. Consequently, on the
first interest payment date (IPD) beginning in December 2017, the
issuer benefits from an additional two months' worth of asset
interest payments and has to pay an additional two months' worth
of servicing fees.
"During our analysis, we were made aware of loans that have the
potential for setoff arising from capitalization redress
payments, in line with the Oct. 19, 2016 Financial Conduct
Authority (FCA) consultation paper (GC16/6 -- The fair treatment
of mortgage customers in payment shortfall: Impact of automatic
capitalizations). The scale of the potential setoff risk has been
estimated by the mortgage administrator, KMC, using the FCA's
finalized guidance (FG17/4 -- The fair treatment of mortgage
customers in payment shortfall: impact of automatic
capitalizations) which was published in April 2017. Despite the
seller agreeing to make a redress payment to the issuer in line
with the amount to be setoff, or repurchasing the relevant loan,
in our analysis we have modelled setoff losses in line with the
finalized FCA guidance. We expect this issue to be resolved and
all compensation to be made to borrowers by June 2018, in line
with the FCA guidance."
The notes' interest rate is based on an index of three-month
LIBOR. Within the mortgage pool, the loans are linked to either
the Money Partners variable rate, the Kensington variable rate,
or three-month LIBOR. There is no swap in the transaction to
cover the interest rate mismatches between the assets and
liabilities.
KMC is the mortgage administrator for all of the loans in the
transaction. However, it has delegated its functions to Homeloan
Management Ltd. There is also the intention under the transaction
documents for KMC, in its role as mortgage administrator, to
delegate the servicing function to Acenden Ltd., which S&P has
considered in its analysis.
The class X1- Dfrd notes are not supported by any subordination
or the general reserve fund. S&P said, "In our analysis, the
class X1- Dfrd notes are unable to withstand the stresses we
apply at our 'B' rating level. Consequently, we consider that
there is a one-in-two chance of a default on the class X1- Dfrd
notes and that these notes are reliant upon favorable business
conditions to redeem.
"Our ratings reflect our assessment of the transaction's payment
structure, cash flow mechanics, and the results of our cash flow
analysis to assess whether the rated notes would be repaid under
stress test scenarios. Subordination and the reserve fund provide
credit enhancement to the notes. Taking these factors into
account, we consider the available credit enhancement for the
rated notes to be commensurate with the ratings that we have
assigned."
RATINGS LIST
Ratings Assigned
Residential Mortgage Securities 30 PLC GBP477.404 Million
Residential Mortgage-Backed Fixed- And Floating-Rate Notes
(Including GBP34.65 Million Unrated Notes)
Class Rating Amount
(mil. GBP)
A AAA (sf) 324.76
B- Dfrd AA+ (sf) 25.98
C- Dfrd AA (sf) 14.07
D- Dfrd A+ (sf) 20.57
E- Dfrd A (sf) 12.99
F1- Dfrd BB+ (sf) 14.07
X1- Dfrd CCC (sf) 30.31
F2 NR 7.59
F3 NR 12.99
X2 NR 5.41
Z NR 8.66
NR--Not rated.
VEDANTA RESOURCES: S&P Rates U.S. Dollar Sr. Unsec. Notes 'B+'
--------------------------------------------------------------
S&P Global Ratings assigned its 'B+' long-term issue rating to a
proposed issue of U.S. dollar-denominated senior unsecured notes
by Vedanta Resources PLC (foreign currency: B+/Stable/--). The
rating is subject to S&P's review of the final issuance
documentation.
S&P said, "We believe the proposed issuance will partly refinance
Vedanta Resources' debt maturities over the next 12-15 months.
The company plans to use the proceeds to partly refinance its
bank loans, and to fund a tender offer for its outstanding bonds
due 2019 and 2021. The proposed notes, therefore, would not have
any impact on Vedanta Resources' cash flow leverage ratios,
though they will improve the liquidity position and extend the
average debt maturity.
"Since our upgrade of Vedanta Resources on Jan. 16, 2017, the
company's operating and financial performance is largely on track
to meet our expectations for fiscal year ending March 31, 2018.
The company's operating performance during the first quarter of
fiscal 2018 was softer than our expectations. However, we expect
performance to recover over next few quarters with the restarting
of affected units in the power business and a ramp-up at the
aluminum business.
"The operational issues at Vedanta Resources' aluminum and power
operations, higher raw material costs, and unfavorable currency
movements contributed to a weaker performance relative to our
expectations in the first quarter of fiscal 2018. Sustained
strong prices and good production at the zinc operations with
higher EBITDA from the oil business supported cash flows in the
first quarter. Overall, we believe Vedanta Resources' fund from
operations (FFO) to debt will likely approach 10%-11% by end
fiscal 2018, from 5.9% in fiscal 2017. Sustained high zinc prices
and a ramp-up of aluminum operations with solid profitability
will be essential for the company to reach these ratio levels. We
could raise the rating if we expect Vedanta Resources' ratio of
FFO to debt will be above 12% on a consistent basis."
Vedanta Resources completed a merger of its subsidiaries Cairn
India and Vedanta Ltd. S&P said, "In our view, the merger will
improve the cash flow fungibility within Vedanta Ltd. by
simplifying the group structure to some extent. However, it will
not change Vedanta Resources' financial metrics or materially
improve cash flow fungibility between Vedanta Ltd. and the
holding company Vedanta Resources."
* UK: 5,500 Clothing Retailers at Risk of Insolvency
----------------------------------------------------
Drapers Online reports that more than 5,500 clothing retailers
are estimated to be at risk of becoming insolvent, as business
rates and Brexit negotiations continue to add pressure on the
industry.
Around 18% (5,538) of all clothing retailers are showing warning
signs, according to accountancy firm Moore Stephens, which
analysed 30,940 businesses, Drapers relates.
Drapers says the accountancy firm attributed this to the recent
rise in business rates and the introduction of the national
living wage.
Other factors included increasing competition from online rivals
and the weakened pound, says Drapers.
"Clothing retailers are being buffeted hard on many fronts.
Rising costs and intensifying competition are putting pressure on
revenue and making profit margins harder to maintain," Drapers
quotes Jeremy Willmont, Moore Stephens head of restructuring and
insolvency, as saying. "Sterling's post-Brexit performance could
have a chilling effect on discretionary spending on 'fast
fashion' imported from overseas supply chains."
*********
Monday's edition of the TCR delivers a list of indicative prices
for bond issues that reportedly trade well below par. Prices are
obtained by TCR editors from a variety of outside sources during
the prior week we think are reliable. Those sources may not,
however, be complete or accurate. The Monday Bond Pricing table
is compiled on the Friday prior to publication. Prices reported
are not intended to reflect actual trades. Prices for actual
trades are probably different. Our objective is to share
information, not make markets in publicly traded securities.
Nothing in the TCR constitutes an offer or solicitation to buy or
sell any security of any kind. It is likely that some entity
affiliated with a TCR editor holds some position in the issuers'
public debt and equity securities about which we report.
Each Tuesday edition of the TCR contains a list of companies with
insolvent balance sheets whose shares trade higher than US$3 per
share in public markets. At first glance, this list may look
like the definitive compilation of stocks that are ideal to sell
short. Don't be fooled. Assets, for example, reported at
historical cost net of depreciation may understate the true value
of a firm's assets. A company may establish reserves on its
balance sheet for liabilities that may never materialize. The
prices at which equity securities trade in public market are
determined by more than a balance sheet solvency test.
Each Friday's edition of the TCR includes a review about a book
of interest to troubled company professionals. All titles are
available at your local bookstore or through Amazon.com. Go to
http://www.bankrupt.com/booksto order any title today.
*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Valerie U. Pascual, Marites O. Claro, Rousel Elaine T. Fernandez,
Joy A. Agravante, 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
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Information contained herein is obtained from sources believed to
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contact Peter Chapman at 215-945-7000 or Joseph Cardillo at
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* * * End of Transmission * * *