/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/170823.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 23, 2017, Vol. 18, No. 167 Headlines F I N L A N D STORA ENSO: S&P Raises CCR to 'BB+' on Improved Business Risk I R E L A N D BAIN CAPITAL 2017-1: S&P Gives Prelim B- Rating to Cl. F Notes N E T H E R L A N D S HIGHLANDER EURO: S&P Raises Class D Notes Rating to B+ (sf) PANTHER CDO V: S&P Affirms B- (sf) Rating on Class E Notes R U S S I A KHANTY-MANSIYSK: S&P Alters Outlook to Stable & Affirms BB+ ICR MOSCOW: S&P Affirms BB+ Issuer Credit Rating; Outlook Positive U N I T E D K I N G D O M DECO 8 - UK: S&P Lowers Class A2 Notes Rating to 'D(sf)' EUROSAIL-UK 2007-2NP: S&P Affirms B- Rating on Class E1c Notes FAB UK 2004-1: S&P Affirms CC (sf) Rating on Class BE Notes NEW LOOK: S&P Cuts CCR to CCC+ on Unsustainable Capital Structure ********* ============= F I N L A N D ============= STORA ENSO: S&P Raises CCR to 'BB+' on Improved Business Risk ------------------------------------------------------------- Stora Enso has successfully transformed itself into a growth- oriented forest and paper company with a focus on stable end markets and less dependence on structurally declining paper markets. S&P said, "We believe the group's business risk profile has sustainably strengthened as a result, demonstrated by improved profitability, while the execution risks from recent large investments have now diminished following successful ramp ups. S&P Global Ratings raised its long-term corporate credit rating on Finland-based forest and paper products company Stora Enso Oyj to 'BB+' from 'BB'. The outlook is stable. S&P said, "At the same time, we have affirmed our 'B' global scale short-term corporate credit rating and our 'K-4' Nordic regional scale short-term rating on Stora Enso. "We also raised the issue ratings on Stora Enso's senior unsecured debt to 'BB+' from 'BB'. The '3' recovery rating is unchanged, indicating our expectation of meaningful recovery (rounded estimate: 50%) in the event of a payment default. "The upgrade reflects our belief that the group's business risk profile has sustainably strengthened as a result of a number of successfully completed large-scale investments. These investments have transformed Stora Enso into a more profitable, diversified and integrated forest products company with a focus on growth markets such as packaging, while reducing the group's dependence on structurally declining graphic paper markets." Stora Enso has made some significant investments over last few years, the latest being the Beihai paperboard mill in China, which it now expects to break even in the fourth quarter of 2017 (ahead of earlier statements) and the Varkaus containerboard mill, which is ramping up as planned and will reach full production in the second half of 2017. In addition, the company has also announced that it will not go ahead with a pulp mill at the Beihai site and also that it will not go ahead with an expansion of the Ostroleka containerboard mill in Poland. S&P views this as positive for Stora Enso's business risk profile as it results in considerably lower project and execution risks, something we previously considered to be a constraint for the rating. At the same time, the group has continued to divest and close its less profitable publication paper mills, exiting in 2016 its Kabel mill in Germany, and Suzhou in China, while reducing costs across the rest of the paper segment. We think that Stora Enso's strategy to steer its business portfolio away from declining paper and toward growing segments such as consumer paperboard and containerboard continues to make sense because these segments enjoy healthy growth prospects at least in line with GDP growth in its countries of operation. S&P anticipates that these measures, teamed with continued stringent cost control in the paper segment, have led to a business portfolio that is less cyclical and less exposed to structurally declining segments, while continuing to enjoy solid growth prospects. S&P said, "As a result of the new profitable growth investments, as well as the reduced share of low margin paper production, we view Stora Enso's profitability as having sustainably improved. We hence forecast adjusted EBITDA margins to improve to around 15% for the next few years, compared with 14.6% in 2016 and 10%-12% in 2010-2014." Stora Enso's stronger operational performance is also leading to improvements in credit metrics, with a ratio of funds from operations (FFO) to debt currently at 25%, compared with around 20% two years ago. With the group's large investment phase now behind it, we expect capital expenditure to reduce to around EUR600 million-EUR650 million per year, which, combined with higher operational cash flows from new projects, leads to higher free operating cash flow generation. S&P said, "As a result, we forecast a gradual strengthening of credit metrics, with FFO-to-debt trending toward 30% and debt to EBITDA falling below 3.0x on an adjusted basis. Stora Enso has a clearly stated financial target to maintain reported net debt to EBITDA below 3.0x (which is equivalent to about 3.5x after our adjustments). We believe this is consistent with a financial risk profile assessment of significant. We view this positively because it limits downside risk to the ratings, in our view. Although we think credit metrics may continue to strengthen further, we don't necessarily expect such improvements to be sustainable, in light of the group's financial policy. "The stable outlook reflects our view that Stora Enso will scale back investments, maintain a stable dividend policy, and improve profitability, leading to improved cash flow generation and a gradual strengthening of credit metrics. We forecast that S&P Global Ratings-adjusted ratio of FFO to debt will increase within the 25%-30% range and adjusted debt to EBITDA will improve to below 3x over through 2018. "While we forecast improvements in credit metrics, we do not foresee a material improvement from current levels, due to the group's investment ambitions and financial policy, which we view as consistent with a significant financial risk profile. Nevertheless, with improving cash flow and a disciplined dividend policy, we could raise the rating to investment grade ('BBB-') if FFO to debt rose to above 30% and if we believed that operations and financial policy supported such metrics in the long term. "We could lower the long-term rating if weakening market conditions resulted in increased competition and material price reductions, leading to a deterioration of Stora Enso's credit metrics. We would consider ratios of FFO to debt of somewhat below 20% and debt to EBITDA of more than 4x, for an extended period of time and with no scope for improvement, as not commensurate with the 'BB+' long-term rating. Furthermore, we think the group's credit quality could weaken if its financial policy became more aggressive. This could occur as a result of large, debt-financed acquisitions or exceptionally shareholder-friendly measures, although we think these are currently unlikely." ============= I R E L A N D ============= BAIN CAPITAL 2017-1: S&P Gives Prelim B- Rating to Cl. F Notes -------------------------------------------------------------- S&P Global Ratings assigned its preliminary credit ratings to Bain Capital Euro CLO 2017-1 DAC's class A, B-1, B-2, C, D, E, and F notes. At closing, the issuer will also issue unrated subordinated notes. The preliminary ratings assigned to the notes reflect S&P's assessment of: -- The diversified collateral pool, which consists primarily of broadly syndicated speculative-grade senior secured term loans and bonds that are governed by collateral quality tests. -- The credit enhancement provided through the subordination of cash flows, excess spread, and overcollateralization. -- The collateral manager's experienced team, which can affect the performance of the rated notes through collateral selection, ongoing portfolio management, and trading. -- The transaction's legal structure, which is expected to be bankruptcy remote. S&P said, "We consider that the transaction's documented counterparty replacement and remedy mechanisms adequately mitigate its exposure to counterparty risk under our current counterparty criteria. "Following the application of our structured finance ratings above the sovereign criteria, we consider the transaction's exposure to country risk to be limited at the assigned preliminary rating levels, as the exposure to individual sovereigns does not exceed the diversification thresholds outlined in our criteria. "At closing, we consider that the transaction's legal structure will be bankruptcy remote, in line with our legal criteria. "Following our analysis of the credit, cash flow, counterparty, operational, and legal risks, we believe that our preliminary ratings are commensurate with the available credit enhancement for each class of notes." Bain Capital Euro CLO 2017-1 is a European cash flow corporate loan collateralized loan obligation (CLO) securitization of a revolving pool, comprising euro-denominated senior secured loans and bonds issued mainly by speculative grade borrowers. Bain Capital Credit, Ltd. is the collateral manager. RATINGS LIST Bain Capital Euro CLO 2017-1 DAC EUR362.50 Million Floating- And Fixed-Rate Notes (Including EUR37.00 Million Subordinated Notes) Class Prelim. Prelim. rating amount (mil. EUR) A AAA (sf) 206.50 B-1 AA (sf) 31.50 B-2 AA (sf) 15.00 C A (sf) 22.00 D BBB (sf) 17.50 E BB (sf) 22.50 F B- (sf) 10.50 Subordinated NR 37.00 NR--Not rated. ===================== N E T H E R L A N D S ===================== HIGHLANDER EURO: S&P Raises Class D Notes Rating to B+ (sf) ----------------------------------------------------------- S&P Global Ratings took various credit rating actions on Highlander Euro CDO B.V.'s (primary issuer; issued the class A-1, A-2, B, C, and D notes) notes and Highlander Euro CDO (Cayman) Ltd.'s (secondary issuer; issued the class E notes) notes (collectively, Highlander Euro CDO). Specifically, S&P has: -- Raised its ratings on the class C and D notes; and -- Affirmed its rating on the class E notes. S&P said, "Today's rating actions follow our credit and cash flow analysis of the transaction using data from the June 20, 2017 trustee report and the application of our relevant criteria. "We conducted our cash flow analysis to determine the break-even default rate (BDR) for each rated class of notes. The BDR represents our estimate of the maximum level of gross defaults, based on our stress assumptions, that a tranche can withstand and still pay interest and fully repay principal to the noteholders. We used the portfolio balance that we consider to be performing, the reported weighted-average spread/coupon, and the weighted- average recovery rates that we considered to be appropriate. We incorporated various cash flow stress scenarios using our standard default patterns, levels, and timings for each rating category assumed for each class of notes, combined with different interest stress scenarios as outlined in our corporate collateralized debt obligation (CDO) criteria. "The class B notes have fully repaid since our previous review. This has increased the available credit enhancement for the class C and D notes. The proportion of assets rated 'CCC+', 'CCC', or 'CCC-' as a percentage of the performing portfolio has reduced to 0.0% from 1.6% since our previous review. "Our cash flow analysis results indicate that the available credit enhancement for the class C and D notes is commensurate with higher ratings than those currently assigned. We have therefore raised to 'AAA (sf)' from 'A+ (sf)' our rating on the class C notes and to 'B+ (sf)' from 'B- (sf)' our rating on the class D notes. The largest obligor test constrains our rating on the class D notes. The largest obligor test measures the risk of several of the largest obligors within the portfolio defaulting simultaneously. As a result of structural deleveraging, the underlying portfolio is more concentrated now with nine performing obligors, compared with 22 at our previous review. The largest performing obligor exposure is at 23.5%, while the average performing obligor exposure is 11.1%. "We have affirmed our 'CCC- (sf)' rating on the class E notes as the notes continue to be undercollateralized. The class E overcollateralization test is failing and as a result, the interest payments on these notes are being deferred pursuant to the transaction's payment waterfall." Highlander Euro CDO is a cash flow collateralized loan obligation (CLO) transaction that securitizes loans to primarily speculative- grade corporate firms. The transaction closed in August 2006 and its reinvestment period ended in August 2012. CELF Advisors LLP is the transaction's manager. RATINGS LIST Class Rating To From Highlander Euro CDO B.V. EUR500 Million Secured Floating-Rate And Subordinated Notes Ratings Raised C AAA (sf) A+ (sf) D B+ (sf) B- (sf) Highlander Euro CDO (Cayman) Ltd. EUR38.25 Million Secured Floating-Rate Notes Rating Affirmed E CCC- (sf) PANTHER CDO V: S&P Affirms B- (sf) Rating on Class E Notes ---------------------------------------------------------- S&P Global Ratings raised its credit ratings on Panther CDO V B.V.'s class A1, A2, B, C, and D notes. S&P said, "At the same time, we have affirmed our rating on the class E notes." S&P said, "The rating actions follow our analysis of the transaction using data from the May 31, 2017 trustee report, and the application of our relevant criteria. "Since our previous review, the class A1 notes received EUR73.52 million of principal as the portfolio continues to amortize. As here have not been any new asset defaults since our previous review, the available credit enhancement has increased for all classes of rated notes. "We assessed the credit quality of the outstanding portfolio using our relevant criteria. For the structured finance assets not rated by S&P Global Ratings, we apply our mapping criteria to map notched ratings from another ratings agency and to infer our rating input for the purpose of inclusion in CDO Evaluator. In performing this mapping, we generally apply a three-notch downward adjustment for structured finance assets that are rated by one rating agency and a two-notch downward adjustment if the asset is rated by two rating agencies. "The credit quality of the portfolio has improved to 'BB+' from 'BB' since our previous review. "Over the same period, the portfolio's average recovery rate has also improved in each of our rating scenarios, which had a positive effect on the break-even default rates . "We have applied our supplemental tests to address event and model risk, in line with our corporate cash flow collateralized debt obligations (CDO) criteria." As the transaction employs excess spread, we have applied this test by running our cash flows using the forward interest rate curve. "Following these developments and the application of our criteria, we believe that the available credit enhancement for the class A1, A2, B, C, and D notes is commensurate with higher ratings than those currently assigned. We have therefore raised our ratings on the class A1, A2, B, C, and D notes. "We have affirmed our 'B- (sf)' rating on the class E notes as the available credit enhancement for this class of notes is commensurate with the currently assigned rating." Panther CDO V is a cash flow CDO transaction backed by pools of structured finance assets, as well as speculative-grade corporate loans and bonds. M&G Investment Manager Ltd. is the manager. The transaction closed in August 2007 and its reinvestment period ended in October 2014. RATINGS LIST Panther CDO V B.V. EUR350 mil senior secured and deferrable floating-rate notes and subordinated notes Rating Class Identifier To From A1 XS0308597748 AAA (sf) AA+ (sf) A2 XS0308598399 AAA (sf) AA+ (sf) B XS0308598803 AA+ (sf) A+ (sf) C XS0308599447 A+ (sf) BBB+ (sf) D XS0308600047 BB- (sf) B+ (sf) E XS0308600559 B- (sf) B- (sf) =========== R U S S I A =========== KHANTY-MANSIYSK: S&P Alters Outlook to Stable & Affirms BB+ ICR --------------------------------------------------------------- On Aug. 18, 2017, S&P Global Ratings revised its outlook on the Russian region Khanty-Mansiysk Autonomous Okrug (KMAO) to stable from positive and affirmed the 'BB+' long-term issuer credit rating. OUTLOOK The stable outlook on KMAO reflects S&P's expectation that the region will maintain its liquidity position and high operating balance in the next 12 months. Upside Scenario S&P said, "We could take a positive rating action on KMAO if it manages to contain contingent risks to the budget through, for example, improved financial performance if its key government- related entities (GREs), and/or the region demonstrates structurally stronger budgetary performance than in our current forecast." Downside Scenario S&P would likely take a negative rating action on KMAO if its budgetary performance deteriorated, with deficits after capital accounts exceeding 5% of total revenues because of weaker revenue collection or mounting spending pressures, or if the risk from contingent liabilities further increased. RATIONALE S&P said, "The outlook revision follows our reassessment of KMAO's stand-alone credit profile (SACP) to 'bb+' from 'bbb-'. We believe that KMAO may have to provide potentially higher support from the budget to its GREs than we previously thought, based on financial pressures experienced by some of its largest companies and the recent track record of financial support to some regional companies, such as UTair Aviation and Ugoria Insurance Company. Existing financial stress at some of the GREs, alongside only moderate economic and revenue growth prospects, will likely increase KMAO's exposure to contingent risks and may result in weaker budgetary performance and/or a larger debt burden for the region." A wealthy economy in the context of a volatile institutional framework Like other Russian regions, KMAO's financial position is highly dependent on the federal government's decisions under Russia's institutional framework, which remains unpredictable, with frequent changes to taxing mechanisms affecting regions. The application of the consolidated-tax-payer-group, the tax payment scheme used by corporate tax payers since 2012, continues to undermine predictability of corporate profit tax (CPT) payments. However, as of 2017, the government has limited the amount of losses interregional holdings are allowed to apply to the tax base. The change will likely support CPT collection in the near term. This change will also partly mitigate the effect from the 1% decrease in the CPT redistribution to local and regional government (LRGs) from the federal level, which will result in an approximately Russian ruble [RUB] 3 billion loss for KMAO in 2017. Decisions regarding regional revenues and expenditures are centralized at the federal level, leaving little budgetary flexibility to the okrug's authorities. More than 90% of KMAO's tax revenues are controlled by federal legislation, which makes it especially difficult for the okrug to address potential revenue volatility. Similar to most Russian LRGs, KMAO's modifiable revenues (mainly transport tax and nontax revenues) are low and don't provide much flexibility. S&P said, "We forecast they will account for less than 10% of the okrug's operating revenues on average over the next three years. However, we believe KMAO has more flexibility on the spending side than peers, due to its relatively large self-financed capital program, which we believe it could reduce at least by half in case of need." KMAO is wealthy by international standards, with the gross regional product (GRP) per capita at about $34.500 on average in 2014-2016. But its economy is highly concentrated on the cyclical oil production industry. The okrug accounts for about 44% of Russia's oil production, and the extractive industries contribute about 80% of the region's GRP. S&P said, "We view KMAO's financial management as weak in an international comparison, as we do that of most Russian LRGs. This is mainly because the region lacks reliable long-term financial and capital planning. Nevertheless, we expect the okrug to maintain a cautious liquidity policy with ample cash reserves and a smooth debt repayment schedule. Also, the region has a good track record of cutting expenditures when faced with revenue stress." Contingent liabilities will likely weigh on the budget S&P said, "We believe that, in the near term, the region will continue to provide extraordinary financial support to its GREs. Our assumption is based on the track record of the past several years when the regional government had to step in and support some regional companies. Last year KMAO made a RUB4.3 billion capital injection to Ugoria Insurance Company in order to bring the company's capital into regulatory compliance. The insurance market is currently under pressure and the prospects for Ugoria Insurance Company's privatization remain unclear. We therefore believe the company may require higher potential support from the okrug in the future. At the end of 2015, KMAO acquired a 38.8% stake in UTair Aviation, a Russian airliner headquartered in the region, which was under financial stress, for the amount of RUB11.5 billion (approximately $192 million as of the date of this publication). KMAO owns about 30 GREs, some of which are not self-supporting. We currently estimate that the overall amount of support the sector may require in the event of stress will likely exceed 2% of KMAO's consolidated operating budget in the coming two years. "We forecast KMAO's operating balance will remain about 5% of operating revenues on average in 2017-2019. We anticipate that the okrug's key revenue source, corporate profit tax (CPT), will continue to account for about 30% of operating revenues in the near term and will remain volatile due to its strong link with the cyclical oil industry. In 2014-2015, KMAO's tax revenue growth was supported by the strong financial performance of the oil industry, which benefited from the ruble's depreciation. As we anticipated, this growth started to decelerate in 2016 as the depreciation effect on exporters' profits was progressively exhausted. Regional revenues will also be affected by the centralization of 1% of the CPT, which will result in a loss of about RUB3 billion in budget revenues for KMAO this year. Although the okrug's revenues continue to be supported by the property tax increase resulting from the cancellation of a property tax relief that had been granted to corporate entities on the federal level a few years ago, we believe overall tax revenues will increase at only a modest rate, well below the inflation rate in 2017. "KMAO's management has a track record of effective spending controls. However, we anticipate that expenditure growth could pick up in the coming three years as the budget comes under the pressures of the presidential elections in 2018 and as the okrug implements a number of capital projects and continues to provide financial support to its GRE sector. We therefore expect the deficit after capital accounts to average 4% in 2017-2019. "We anticipate that the okrug's tax-supported debt will comprise about 41% of consolidated operating revenues at year-end 2019. This estimate factors in not only KMAO's direct debt, but also the liabilities of UTair Aviation and energy transmission company URESK, both of which benefited from substantial financial support from the budget in the past couple of years and which we consider not self-supporting. At the end of 2016, the okrug successfully placed a new RUB6 billion bond with a seven-year maturity, helping extend KMAO's debt maturity profile. As the market expects interest rates to decrease in line with lower inflation, the okrug's management aims to decrease the average weighted interest it pays on its debt by conducting regular placements in 2017-2019. "We assume that KMAO's liquidity will remain strong. The okrug's accumulated cash reserves, net of the anticipated deficit after capital accounts, will continue to comfortably exceed its very low debt service over the next 12 months, which we estimate at RUB6.58 billion. We expect that the okrug could spend part of its current cash reserves in the next 12 months; however, the debt service will continue to remain suppressed, at about 3% of operating revenues on average in 2017-2019. Similar to Russian peers, KMAO's access to external liquidity is limited, in our view, given the weaknesses of the domestic capital market and the banking system. "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." 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 contingent liabilities had deteriorated. All other key rating factors were unchanged. The chair ensured every voting member was given the opportunity to articulate his/her opinion. The chair or designee reviewed the draft report to ensure consistency with the Committee decision. The views and the decision of the rating committee are summarized in the above rationale and outlook. The weighting of all rating factors is described in the methodology used in this rating action. RATINGS LIST Rating To From Khanty-Mansiysk Autonomous Okrug Issuer Credit Rating Foreign and Local Currency BB+/Stable/-- BB+/Positive/-- MOSCOW: S&P Affirms BB+ Issuer Credit Rating; Outlook Positive -------------------------------------------------------------- On Aug. 18, 2017, S&P Global Ratings affirmed its 'BB+' long-term issuer credit rating on Russia's capital city of Moscow. The outlook is positive. At the same time S&P affirmed its 'BB+' issue rating on the city's senior unsecured bond issues. OUTLOOK The positive outlook on Moscow mirrors that on Russia. Any rating action S&P takes on the sovereign would likely be followed by a similar action on Moscow. Downside Scenario S&P said, "We could revise the outlook to stable in case of a similar action on Russia. We view a downside scenario based on Moscow's intrinsic creditworthiness as highly unlikely, because our assessment of Moscow's stand-alone credit profile (SACP) is two notches higher than the long-term rating on the city. Upside Scenario S&P could raise the rating on Moscow if we raise the foreign currency long-term sovereign credit rating on Russia. RATIONALE S&P said, 'The long-term rating on Moscow reflects, and is capped by, the 'BB+' foreign currency long-term rating on the Russian Federation because we believe that Russian local and regional governments (LRGs) cannot be rated above the sovereign. This reflects our view of Russia's institutional framework, in which LRGs have very restricted revenue autonomy and are unable to withstand possible negative intervention by the federal government. "In accordance with our criteria, we assess Moscow's SACP at 'bbb', two notches higher than the issuer credit rating. The SACP results from the combination of our assessment of an LRG's individual credit profile and the effects we see of the institutional framework in which it operates." Still modest economic growth and weak management continue to constrain Moscow's intrinsic creditworthiness. S&P said, "We view Moscow's economy as average internationally because its relatively high income level in terms of GDP per capita is counterbalanced by the very modest economic growth. As Russia's capital, Moscow accounts for about 17% of the country's GDP and its urban area is home to more than 13% of the country's population (8.4% reside within the city limits). The GDP per capita was about $20,800 on average in 2014-2016 and we expect it to grow in line with the national GDP in 2017-2019, at an average 1.6% per year over this period. The city's economy is relatively diversified, with trade contributing 35% to the regional gross product, followed by real estate (19%) and industry (16%)." Under the volatile and unbalanced institutional framework for Russian regions, the majority of Moscow's budget revenues is controlled by the federal government, and remains subject to regular changes in the national tax legislation and interbudgetary relations. S&P said, "Nevertheless, we believe that, thanks to better infrastructure, Moscow has more flexibility on the capital spending side than most Russian LRGs. In our base case, we expect the city will maintain its capital program at about 21% of total expenditures. "We view Moscow's financial management as weak in an international context, as we do for most Russian LRGs. In our view, Moscow's long-term financial and capital planning lacks transparency and predictability, especially given delays in implementation of capital projects. Visibility of the policy regarding its numerous government-related entities (GREs) is also constrained. At the same time, Moscow's cautious debt and liquidity management is better than the Russian average, in our view. "We expect budgetary performance to deteriorate, although cash depletion will help keep debt very low. "In our base-case scenario, we now forecast structural deterioration of the city's budgetary performance, with a still solid operating balance at 17% of operating revenues on average in 2017-2019 but a widening deficit after capital expenditures of 4% on average compared with a 4% surplus over 2014-2016. This is due to the new Russian ruble (RUB) 2.5 trillion-RUB3.5 trillion ($40 billion-$60 billion) long-term program to renovate or rebuild residential buildings announced in late February this year. More than 5,000 dilapidated houses built during Nikita Krushchev's rule ("Khrukhchyovki") are set to be demolished and their residents (about 1.6 million people) relocated to newly built apartment houses. The city expects to complete the program within the next 15-20 years. "Despite our forecast weakening of Moscow's budgetary performance, its tax-supported debt will likely increase only very gradually and in our forecast reach only 7.7% of consolidated operating revenues by the end of 2019. In our base case, we don't expect the city to borrow in 2017-2018; instead, we expect it to finance deficits by depleting its currently large cash reserves. Borrowing in 2019-2020 will depend on how quickly the implementation of the renovation program goes and will be contingent on revenue collection. "Moscow's liquidity position remains the major strength for its intrinsic creditworthiness. Over the next 12 months, we expect the city's debt-service coverage will remain robust: cash reserves will stay well in excess of annual debt service. In our opinion, Moscow also has a structurally strong capacity to generate internal cash, thanks to high operating margins, but we also think that it remains exposed to the weaknesses of the Russian domestic capital and financial markets. "We expect that, in the next 12 months, the city will spend a portion of its cash to cover the deficit after capital accounts. However, it will still have about RUB450 billion (about $7.5 billion) of free cash on its accounts, which will exceed its debt service by 29x. Thanks to reliance on amortizing medium-term bonds with gradual repayment profiles, and only limited borrowing in recent years, debt service will likely remain at below 1% of operating revenues through the end of 2020. "We believe that Moscow's contingent liabilities are low. The city owns a number of transport and utility GREs. The city provides ongoing support to many of them, but the actual potential financial support to these GREs in the event of stress is likely to be limited. We estimate that the maximum amount of extraordinary financial support that might be required by the numerous city-owned public service providers would not exceed 10% of its operating revenues. "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." 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 remained unchanged. The chair ensured every voting member was given the opportunity to articulate his/her opinion. The chair or designee reviewed the draft report to ensure consistency with the Committee decision. The views and the decision of the rating committee are summarized in the above rationale and outlook. The weighting of all rating factors is described in the methodology used in this rating action. RATINGS LIST Rating To From Moscow (City of) Issuer Credit Rating Foreign and Local Currency BB+/Positive/-- BB+/Positive/-- Senior Unsecured Local Currency BB+ BB+ =========================== U N I T E D K I N G D O M =========================== DECO 8 - UK: S&P Lowers Class A2 Notes Rating to 'D(sf)' -------------------------------------------------------- S&P Global Ratings lowered to 'D (sf)' from 'CCC (sf)' its credit rating on DECO 8 - UK Conduit 2 PLC's class A2 notes. S&P said, "At the same time, we have affirmed our 'D (sf)' ratings on the class B, C, D, E, F, and G notes. S&P said, "Our ratings in DECO 8 - UK Conduit 2 address the timely payment of interest and the ultimate payment of principal no later than the April 2018 legal final maturity date for the class A2 notes and the January 2036 legal final maturity date for the class B to G notes. On the July 2017 interest payment date all classes of notes experienced interest shortfalls. "We understand that interest on the class A2 notes was not paid as the liquidity provider did not accept part of the liquidity drawing request submitted by the special servicer. We further understand that the unfunded amount comprised, among other things, amounts due and payable to the interest rate swap provider." As a result, an interest shortfall has occurred on the most senior class of notes and the issuer issued a note event of default. S&P said, "In accordance with our interest shortfall criteria, we have therefore lowered to 'D (sf)' from 'CCC (sf)' our rating on the class A2 notes. "At the same time, we have affirmed our 'D (sf)' ratings on the class B, C, D, E, F, and G notes as they continue to experienced interest shortfalls." DECO 8 - UK Conduit 2 is a commercial mortgage-backed securities (CMBS) transaction, which closed in April 2006 and was secured by a portfolio of 22 mortgage loans backed by 75 U.K. commercial properties and 92,464 ground leases. RATINGS LIST Class Rating To From DECO 8 - UK Conduit 2 PLC GBP630.131 Million Commercial Mortgage-Backed Floating-Rate Notes Rating Lowered A2 D (sf) CCC (sf) Ratings Affirmed B D (sf) C D (sf) D D (sf) E D (sf) F D (sf) G D (sf) EUROSAIL-UK 2007-2NP: S&P Affirms B- Rating on Class E1c Notes -------------------------------------------------------------- S&P Global Ratings raised its credit ratings on Eurosail-UK 2007- 2NP PLC's class A3a, A3c, M1a, M1c, B1a, B1c, C1a, D1a, and D1c notes. S&P said, "At the same time, we have affirmed our rating on the class E1c notes. S&P said, "The rating actions follow our credit and cash flow analysis of June 2017 information and the application of our relevant criteria." Since December 2012, the servicer (Acenden Ltd.) reports arrears to include amounts outstanding, delinquencies, and other amounts owed in its investor reports. Other amounts owed include, among other items, arrears of fees, charges, costs, ground rent, and insurance. Delinquencies include principal and interest arrears on the mortgages, based on the borrowers' monthly installments. Amounts outstanding are principal and interest arrears, after payments by borrowers are first allocated to other amounts owed. In this transaction, the servicer first allocates any arrears payments to other amounts owed, then interest and principal amounts. From a borrowers' perspective, the servicer first allocates any arrears payments to interest and principal amounts, and then to other amounts owed. This difference in the servicer's allocation of payments for the transaction and the borrower, results in amounts outstanding being greater than delinquencies. S&P said, "We have refined our analysis of these other amounts owed by using the available reported loan-level data. The new approach results in a minor increase in the weighted-average foreclosure frequency (WAFF) and a slightly larger increase in the weighted-average loss severity (WALS). The pool factor (the outstanding collateral balance as a proportion of the original collateral balance) in this transaction is 35.4%. Acenden references the level of amounts outstanding to arrive at the 90+ days arrears trigger. The level of 90+ days amounts outstanding (including repossessions) has been rising and is at 28.8%. The notes in this transaction amortize sequentially, as the pro rata conditions are not satisfied. Amounts outstanding continue to increase and with cumulative losses at 3.54% (the threshold is 1.25%), it is very likely that the transaction will continue paying principal sequentially. S&P said, "We have incorporated this assumption in our cash flow analysis. This transaction benefits from increased credit enhancement compared with our last review, due to a nonamortizing reserve fund and the sequential amortization." Rating WAFF WALS Expected level (%) (%) credit loss (%) AAA 34.90 38.50 13.44 AA 28.80 30.80 8.87 A 23.53 19.66 4.63 BBB 19.35 13.64 2.64 BB 14.99 9.78 1.47 B 13.19 6.95 0.92 S&P said, "Our current WAFF assumptions have decreased because of the lower level of arrears (actual and projections) and greater seasoning than in our previous review. We applied arrears projections because the transaction has underperformed our U.K. nonconforming residential mortgage-backed securities (RMBS) index. Our WALS assumptions have also decreased because of the refined treatment of potential losses, given the servicer's method of allocation of payments of other amounts owed for the transaction. "The lower expected losses combined with an increase in available credit enhancement allows the class A3a, A3c, M1a, M1c, B1a, B1c, C1a, D1a, and D1c notes to pass our stresses at higher rating levels that those currently assigned. We have therefore raised our ratings on these classes of notes. "We have also affirmed our rating on the class E1c notes as they do not face any shortfalls in the next 18 months and enjoy a reasonable level of credit enhancement. "The currency swap provider, Swiss Reinsurance Co. Ltd. (AA- /Stable/A-1+) is not in line with our current counterparty criteria. Accordingly, our ratings on the notes in this transaction are capped at our long-term issuer credit rating on Swiss Re plus one notch, i.e., at the 'AA' rating level. "Our credit stability analysis for this transaction indicates that the maximum projected deterioration that we would expect at each rating level over one- and three-year periods, under moderate stress conditions, is in line with our credit stability criteria." This transaction is a U.K. nonconforming RMBS transaction, originated by Southern Pacific Mortgage Ltd., GMAC Residential Funding Co. LLC, Preferred Mortgages Ltd., and London Mortgage Company. RATINGS LIST Class Rating To From Eurosail-UK 2007-2NP PLC EUR480.7 Million, œ267.575 Million Mortgage-Backed Floating- Rate Notes And An Overissuance Excess Spread Backed Floating- Rate Notes Ratings Raised A3a AA (sf) A (sf) A3c AA (sf) A (sf) M1a AA (sf) A (sf) M1c AA (sf) A (sf) B1a AA- (sf) A- (sf) B1c AA- (sf) A- (sf) C1a A+ (sf) BBB (sf) D1a BB- (sf) B (sf) D1c BB- (sf) B (sf) Rating Affirmed E1c B- (sf) FAB UK 2004-1: S&P Affirms CC (sf) Rating on Class BE Notes ----------------------------------------------------------- S&P Global Ratings raised its credit ratings on FAB UK 2004-1 Ltd.'s class A-1E, A-1F, A-2E, and S1 notes. S&P said, "At the same time, we have affirmed our ratings on the class A-3E, A-3F, and BE notes." S&P said, "The rating actions follow our updated credit and cash flow analysis of the transaction using data from the latest trustee report available to us, and the application of our relevant criteria. "Similar to our previous review of the transaction, the class A-1E and A-1F notes have continued to amortize as the transaction continues to deleverage. Over the same period, however, our analysis highlights that the transaction has incurred further losses, due to an additional default in the portfolio. This has resulted in a reduction in credit enhancement for all classes of notes, according to our analysis, which has offset any benefit achieved through the structure's deleveraging. "The transaction's credit quality has improved since our previous review. Our analysis indicates an increase in the proportion of assets rated in the 'A' and 'BBB' rating categories. This has led to an improvement in the scenario default rates (SDRs) at all rating levels. The SDR represents the level of gross defaults the transaction can expect at each rating level. "For the portion of the assets not rated by S&P Global Ratings, we apply our third-party mapping criteria to map notched ratings from another ratings agency and to infer our rating input for the purpose of inclusion in CDO Evaluator. In performing this mapping, we generally apply a three-notch downward adjustment for structured finance assets that are rated by one rating agency and a two-notch downward adjustment if the asset is rated by two rating agencies. "We conducted our cash flow analysis to determine the break-even default rate (BDR) for each rated class of notes. The BDR represents our estimate of the maximum level of gross defaults, based on our stress assumptions, that a tranche can withstand and still fully repay the noteholders. We used the portfolio balance that we consider to be performing, the reported weighted-average spread, and the weighted-average recovery rates that we considered to be appropriate. We incorporated various cash flow stress scenarios using our shortened and additional default patterns and levels for each rating category assumed for each class of notes, combined with different interest stress scenarios as outlined in our collateralized debt obligations (CDOs) of pooled structured finance assets criteria and our corporate CDO criteria. "Additionally, as part of our analysis and in accordance with our criteria, we have applied our supplemental tests to address event and model risk. In accordance with paragraph 21 of our corporate CDO criteria, as the transaction employs excess spread, we have applied the supplemental test by running our cash flows using the forward interest rate curve, including the highest loss from the largest obligor test net of their recoveries. "At closing, the class S1 notes represented GBP10.000 million of combination notes, which comprise GBP7.500 million of class A-1F notes and GBP2.500 million of class C subordinated notes, which has an outstanding rated balance of GBP1.125 million. Based on the reduction in the class S1 notes' outstanding rated balance, our credit and cash flow analysis indicates that this class of notes is able to achieve a higher rating than that currently assigned. We have therefore raised to 'AA+p (sf)' from 'AAp (sf)' our rating on the class S1 notes. "Our credit and cash flow results indicate that the available credit enhancement has increased for the class A-1E, A-1F, and A- 2E notes and is now commensurate with higher ratings than those currently assigned. We have therefore raised our ratings on these classes of notes. "Overall, our analysis indicates that, although slightly decreased, the available credit enhancement for the class A-3E, A- 3F, and BE notes is commensurate with the currently assigned ratings. We have therefore affirmed our ratings on these classes of notes." FAB UK 2004-1 is a cash flow mezzanine structured finance CDO transaction that closed in April 2004. RATINGS LIST Class Rating To From FAB UK 2004-1 Ltd. GBP214.5 Million Fixed-, Floating-, And Zero-Coupon Notes Ratings Raised A-1E BBB+ (sf) BBB (sf) A-1F BBB+ (sf) BBB (sf) A-2E BB+ (sf) BB (sf) S1 AA+p (sf) AAp (sf) Ratings Affirmed A-3E CCC- (sf) A-3F CCC- (sf) BE CC (sf) NEW LOOK: S&P Cuts CCR to CCC+ on Unsustainable Capital Structure ----------------------------------------------------------------- S&P Global Ratings said that it lowered its long-term corporate credit rating on U.K. apparel retailer New Look Retail Group Ltd. to 'CCC+' from 'B-'. The outlook is stable. S&P said, "At the same time, we lowered our long-term issue-level ratings on New Look's œ700 million and EUR415 million senior secured notes to 'CCC+' from 'B-', in line with the corporate credit rating. The '4' recovery rating on these notes is unchanged, reflecting our expectation of average recovery (30%- 50%; rounded estimate: 40%) in the event of default. "We also lowered our long-term issue-level rating on the group's œ200 million senior unsecured notes (of which œ176.7 million remain outstanding) to 'CCC-' from 'CCC'. The '6' recovery rating is unchanged, indicating our expectation of negligible recovery (0%-10%; rounded estimate: 0%) in the event of default." New Look continued to underperform in the first quarter of the fiscal year ending June 24, 2018, as soft conditions in the U.K. apparel market and merchandising missteps led to further declines in like-for-like sales and negative free operating cash flows (FOCF). S&P said, "In our view, earnings visibility remains poor and a turnaround looks increasingly unlikely in the near term, as New Look's offering appears to consistently lack appeal. Given that reported net leverage rose to 10x in June 2017, and we assume that it will increase further under our base-case scenario, we now consider New Look's capital structure unsustainable. We expect the significant cash interest burden to weigh heavily on the EBITDA, resulting in further negative FOCF generation. Although we expect liquidity sources will be sufficient to cover uses over the next 12 months, we expect this cash burn will exert pressure on liquidity in the next 12-24 months. "The stable outlook reflects our view that New Look should not face a liquidity crisis or any refinancing risks in the upcoming 12 months, given its material committed facilities and long-term debt maturities. This should help management focus on implementing operating initiatives such as changes to its merchandising strategy in an attempt to turn around the business and stabilize its operating performance. "We could lower the ratings if we anticipate a specific default scenario within the next 12 months. This could occur if New Look's liquidity position deteriorates such that a payment shortfall is likely, underpinned by a failure to stabilize its earnings decline and further material cash burn. "We could also lower the ratings, including the long-term corporate credit rating, if we think New Look is likely to take steps to restructure the group's significant balance sheet debt obligations through a distressed exchange. This includes any debt repurchases conducted at below par. Given the group's rating, fragile operating performance, and weakening liquidity, we may well view any such transactions as akin to a distressed exchange offer, which could trigger a downgrade to 'SD' (selective default) at the issuer level. "We could consider an upgrade if we anticipate that New Look would return to sustainably positive like-for-like revenue and EBITDA growth over several quarters, leading to material FOCF generation and demonstrating that management's strategic initiatives are turning around operating performance. This could demonstrate the long-term sustainability of the capital structure, underlined by a sustainable trend of deleveraging and a return to adequate liquidity." ********* 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. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2017. All rights reserved. ISSN 1529-2754. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Europe subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter Chapman at 215-945-7000 or Joseph Cardillo at 856-381-8268. * * * End of Transmission * * *