/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/180104.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 Thursday, January 4, 2018, Vol. 19, No. 003 Headlines G E R M A N Y NIKI LUFTFAHRT: Fairplane's Lawsuit May Derail Sale to IAG I T A L Y CREVAL: Seeks Court Approval for Creditor Vote on Rescue Plan K A Z A K H S T A N REAL ESTATE: Fitch Assigns BB+ Long-Term IDR, Outlook Stable L U X E M B O U R G AURIS LUXEMBOURG: Moody's Raises CFR to B1, Outlook Stable MALLINCKRODT INTERNATIONAL: Moody's Reviews Ba3 CFR for Downgrade R U S S I A MTS BANK: Fitch Maintains B+ IDR on Rating Watch Negative U N I T E D K I N G D O M CARILLION PLC: Faces FCA Probe Over Stock Market Announcements EXPRO HOLDINGS: S&P Cuts CCR to 'D' on Restructuring Announcement FUEL JUICE: Enters Into Company Voluntary Arrangement GKN AEROSPACE: Fitch Assigns BB+ First-Time IDR, Outlook Stable LBS HORTICULTURE: Exits Administration After Successful CVA TULLOW OIL: S&P Alters Outlook to Positive, Affirms 'B' CCR ********* ============= G E R M A N Y ============= NIKI LUFTFAHRT: Fairplane's Lawsuit May Derail Sale to IAG ---------------------------------------------------------- Douglas Busvine and Thomas Seythal at Reuters report that a group representing airline passengers has taken legal action to shift insolvency proceedings for budget airline Niki to Austria from Germany, in a move that could endanger the sale of the Air Berlin unit to Britain's IAG. Fairplane, seeking to recover more than EUR1 million (US$1.2 million) it says Niki owes to passengers, filed separate legal cases on Jan. 2 to block insolvency proceedings in Berlin and to open them instead in Austria, Reuters relates. Although the sum sought is relatively small, a spokesman for Air Berlin liquidator Lucas Floether, as cited by Reuters, said the complaint could derail the sale of Niki to IAG's low-cost Vueling operation that was agreed last week. A ruling by the the Charlottenburg Court (in Berlin) on the case was due this week, Reuters states. British Airways' owner IAG said on Dec. 29 it would buy Niki for EUR20 million (US$24 million) and provide up to EUR16.5 million in additional liquidity to the company, Reuters recounts. Fairplane argues however that Niki, which is registered as a company in Austria, had been profitable but had lost access to bridge financing when insolvency proceedings were opened in Germany in December, grounding planes and stranding passengers, Reuters discloses. According to Reuters, spokesman Ronald Schmid said that dragging Niki into the German insolvency process was wrong, and that passengers stood a better chance of getting their money back in the Austrian courts. As reported by the Troubled Company Reporter-Europe on Dec. 15, 2017, the management of NIKI Luftfahrt GmbH on Dec. 13 filed with the local court of Berlin-Charlottenburg a petition for the opening of insolvency proceedings over the assets of NIKI. About Air Berlin In operation since 1978, Air Berlin PLC & Co. Luftverkehrs KG is a global airline carrier that is headquartered in Germany and is the second largest airline in the country. In 2016, Air Berlin operated 139 aircraft with flights to destinations in Germany, Europe, and outside Europe, including the United States, and provided passenger service to 28.9 million passengers. Within the first seven months of 2017, the Debtor carried approximately 13.8 million passengers. It employs approximately 8,481 employees. Air Berlin is a member of the Oneworld alliance, participating with other member airlines in issuing tickets, code-share flights, mileage programs, and other similar services. Air Berlin has racked up losses of about EUR2 billion over the past six years, and has net debt of EUR1.2 billion. On Aug. 15, 2017, Air Berlin applied to the Local District Court of Berlin-Charlottenburg, Insolvency Court for commencement of an insolvency proceeding. On the same day, the German Court opened preliminary insolvency proceedings permitting the Debtor to proceed as a debtor-in-possession, appointed a preliminary custodian to oversee the Debtor during the preliminary insolvency proceedings, and prohibited any new, and stayed any pending, enforcement actions against the Debtor's movable assets. To seek recognition of the German proceedings, representatives of Air Berlin filed a Chapter 15 petition (Bankr. S.D.N.Y. Case No. 17-12282) on Aug. 18, 2017. The Hon. Michael E. Wiles is the case judge. Thomas Winkelmann and Frank Kebekus, as foreign representatives, signed the petition. Madlyn Gleich Primoff, Esq., at Freshfields Bruckhaus Deringer US LLP, is serving as counsel in the U.S. case. ========= I T A L Y ========= CREVAL: Seeks Court Approval for Creditor Vote on Rescue Plan ------------------------------------------------------------- Luca Casiraghi at Bloomberg News reports that Creval will seek court approval for starting creditor vote on its restructuring plan. According to Bloomberg, March 9 is the planned deadline for the creditor vote on the restructuring plan, if U.S. judge approves the outline. The judge is due to decide on March 26 whether to approve the restructuring plan, Bloomberg discloses. Restructuring Plan Reuters' Andrea Mandala on Dec. 19 reported that shareholders in mid-sized Italian bank Creval backed a restructuring plan on Dec. 19 by approving a new share issue for up to EUR700 million (US$827 million). Creval announced the larger than expected share issue in November to strengthen its balance sheet, piling up the pressure on local rivals to offload loans that turned sour during a deep recession, as demanded by regulators, Reuters recounts. Its share price has fallen by nearly 60% since then as markets fretted about a cash call which is now equivalent to more than five times the bank's market capitalization, Reuters discloses. Nearly one third of the bank's shareholders, mostly retail investors, attended the Dec. 19 meeting and 96% voted in favor of the capital raising, which will be launched early next year with a view to completion before Italy's general election on March 4, Reuters relays. Creval will use the money to support the writedown of soured debts and sell them off to cut their weighting to below 10% of total lending in 2020 from a third-quarter level of 21%, Reuters states. =================== K A Z A K H S T A N =================== REAL ESTATE: Fitch Assigns BB+ Long-Term IDR, Outlook Stable ------------------------------------------------------------ Fitch Ratings has assigned Kazakhstan's Real Estate Fund Samruk- Kazyna (REFSK) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) of 'BB+' and a National Long-Term Rating of 'AA(kaz)'. The Outlooks are Stable. Fitch has also assigned REFSK a Short-Term Foreign Currency IDR of 'B'. The ratings are based on Fitch's view of REFSK as a government- related entity (GRE) under the agency's exposure draft "Government-Related Entities Rating Criteria" and reflect the entity's linkage with the Republic of Kazakhstan (BBB/Stable/F2), which is the ultimate sponsor of the company. KEY RATING DRIVERS Tight links with the state are reflected in the ultimate 100% ownership of REFSK by the Kazakhstan government, its status as a state agent in the provision of affordable housing with funding from the government, as well as in the strong control and oversight by the state. The two-notch rating differential factors in the moderate financial impact on the government of REFSK's default and the existence of few other state-mandated companies in the sector, which could impact the timeliness of emergency support to REFSK in case of need. Status, Ownership and Control Assessed as Strong REFSK is authorised to implement the state housing policy but operates under the general legal regime. REFSK is a joint-stock company indirectly owned by the government via the fully state- owned National Wealth Fund Samruk-Kazyna (BBB/Stable/F2). Operating and financing activities are controlled by the government and REFSK coordinates its operations with National Wealth Fund Samruk-Kazyna, Ministry on Investment and Development and The National Bank of Kazakhstan. Fitch does not expect any changes to REFSK's legal status, control and ownership over the medium term. Support Track Record Assessed as Very Strong REFSK relies entirely on state funding with no exposure to market debt. As the operator of several state programmes, it has been receiving continuous financial support since its inception in 2009 in the form of 100% charter capital (KZT19.9 billion) and subsidised loans from the state via its parent company. As of end-2017 total accumulated state funding accounted for KZT172.6 billion and an additional KZT34.3 billion is budgeted for 2018. Debt repayment extends till 2032 and the loans carry subsidised interest rates of 0.15% to 2%. The consistent state support underpins REFSK's adequate financial profile. Socio-Political Implications of Default assessed as Strong Fitch views REFSK as strategically important to the state due to its key role in providing housing affordability. According to Kazakhstan's state programme of housing development, Nurly Zher, REFSK continues to be a government-appointed operator in the development of rental and affordable housing in the republic, fully funded by the state. REFSK is designated to deliver 608 thousand sq. m of rental housing and 320 thousand sq. m of affordable housing across the country by 2020 and will manage its rental housing portfolio until 2032 when it is completely bought out by tenants. The provision of affordable housing is a high priority for the Kazakhstan government, as evident from the ongoing evolution of the state housing programme and continuous state funding amid high demand from the population. This means financial distress of REFSK would jeopardise the implementation of the state housing programme, leading to serious socio- political implications, in Fitch's view. Financial Implications of Default assessed as Moderate REFSK has a separate budget and its debt is not consolidated in the general government's accounts. As it is not a participant in debt capital markets default risk on market debt is negligible. In Fitch's view the share of market debt exposure should remain low over the medium term. But should the state's or REFSK's policy change, Fitch would reassess the financial implication of default. Low-Cost Funding Supports Profitability The company has been profitable for the last five years. In 2016, the REFSK recorded a net profit of KZT4 billion, up from an average KZT2 billion in 2012-2015, following its appointment as the agent in the state housing programme. The improved performance was supported by increased turnover after REFSK received about KZT114 billion low-cost loans from the parent company in 2016-2017. REFSK expects to remain profitable over the medium term, in line with its historical performance. Earmarked Long-term State Funding Fitch expects REFSK's debt to moderately increase and peak at KZT183.6 billion at end-2018. Under its debt policy, the company fully relies on long-term state funding, which is sourced from the National Fund of the Republic of Kazakhstan and channelled through Samruk Kazyna. Funding in turn is invested to private developers for the construction of affordable housing and rental properties. RATING SENSITIVITIES An upgrade may accompany a similar action on the sovereign ratings, provided that REFSK's links to the government are unchanged, or from tighter integration with the sovereign. Changes to REFSK's status, leading to weakening of support by the sovereign could lead Fitch to widen the notching, resulting in a downgrade. Negative rating action on the Republic of Kazakhstan would also be reflected in REFSK's ratings. =================== L U X E M B O U R G =================== AURIS LUXEMBOURG: Moody's Raises CFR to B1, Outlook Stable ---------------------------------------------------------- Moody's Investors Service has upgraded the ratings of Auris Luxembourg II S.A., the holding company for Sivantos and its subsidiaries, a global manufacturer of hearing aid devices and related products, as follows: - corporate family rating (CFR) to B1 from B2 - probability of default rating (PDR) to B1-PD from B2-PD Concurrently, Moody's has upgraded the instrument rating of Senior Secured Bank Facilities which are borrowed at Auris Luxembourg III S.Ö r.l to Ba3 from B1, and the instrument rating assigned to EUR275 Senior Unsecured Notes issued at Auris Luxembourg II S.A. to B3 from Caa1. Outlook on all ratings is stable. The rating action follows continued good financial and operating performance of the company since the change of outlook on Sivantos's ratings to positive from stable on Jan. 26, 2016 and Moody's expectation of good prospects for the business over the next 12-18 months. RATINGS RATIONALE Sivantos's ratings are supported by: 1) its leading market position in the global hearing aid devices market, which is dominated by six leading companies and is therefore oligopolistic in character; 2) achieving successful transitioning away from the "Siemens" name to its new "Signia" brand and maintaining strong brand awareness; 3) continued positive momentum in financial and operating performance in line with Moody's expectations; and 4) low cyclicality of the industry and continued strong growth driven by ageing populations in developed countries and, potentially, increased penetration in emerging markets. Conversely the rating is constrained by: 1) the Company's size comparatively narrow product range leaving it relatively exposed both to market perception of its products and potential technological changes; partially offset by Sivantos's new product launches and focus on R&D investment; 2) price pressure in the industry, driven mainly by consolidation within retail distribution channels and restraints on public sector health spending; 3) relatively high Moody's adjusted leverage of 4.8x as at the September 2017 financial year end ('fiscal 2017'), albeit offset by strong cash flow generation; and 4) an element of customer and supplier concentration, albeit that Moody's see this as an industry wide feature. The company reported c. 4% year-on-year revenue growth in fiscal 2017, which was mostly organic. Although this was significantly lower than c. 9% organic growth achieved in 2016, the company has allegedly maintained its market share as its growth was affected by phasing out of some low-technology, low-margin products, primarily in Asia, as well as timing of the launch product cycle. Moody's expects the company to return to above-market growth in fiscal 2018 due to the growth in Signia Nx product and at least maintain its growth in line with the market thereafter. The company's margin improved supported by operational cost optimization and scale effects leading to 8% growth in company's reported adjusted EBITDA to EUR237.7m from EUR220.5m. Moody's adjusted leverage improved to 4.8x as of 2017 financial year-end from 6.4x in fiscal 2016, although EBITDA in fiscal 2017 benefitted from a EUR33 million positive change in the fair value of derivatives used to hedge a portion of the company's long-term debt as well as for the purpose of short- term liquidity management of the company's cash pool. LIQUIDITY Sivantos's liquidity is good, supported by EUR112 million cash on balance sheet and EUR71 million availability under EUR75 million revolving credit facility (RCF). The Company exhibits minimal seasonality in demand and has generated cash flows well in excess of capital spending, including one-off restructuring charges, since its acquisition by EQT. The RCF matures in 2021 and contains one springing financial covenant for net leverage not to exceed 9.10:1.00x, which is tested only if the RCF is more than 30% drawn. The Company's near-term debt maturity obligations are minimal, consisting of 1% per annum debt amortisation of the Term Loan, which matures in 2022. The Senior Unsecured Notes mature in 2023. STRUCTURAL CONSIDERATIONS As of September 2017 Sivantos's capital structure consisted of the outstanding amortized EUR405 million and USD585 million Term Loans borrowed at Auris Luxembourg III S.Ö.r.l. and EUR275 million in Senior Unsecured Notes issued at Auris Luxembourg II S.A. The Senior Unsecured Notes are structurally and contractually subordinated to the Term Loans leading to two notches difference between the Notes B3 rating and the CFR. The Ba3 rating on the Term Loans is one notch above the CFR. OUTLOOK The stable outlook reflects Moody's expectation of continued steady growth in earnings and free cash flow generation, driven primarily by the benefits of recent and ongoing product development and the delivery of further cost efficiencies. The outlook also assumes that: 1) the management team will not embark on any material or transformational debt funded acquisitions; and 2) no material shareholder distributions will be made. WHAT COULD CHANGE THE RATING UP Positive rating pressure could be exerted if Moody's adjusted gross debt / EBITDA were to fall below 4.0x and free cash flow/debt (as adjusted by Moody's) were to improve towards 10%. WHAT COULD CHANGE THE RATING DOWN Negative pressure on the ratings could develop if gross debt / EBITDA (Moody's adjusted) were to increase towards 5.5x on a sustainable basis and/or if there were a substantial deterioration in free cash flow generation from its current level. The principal methodology used in these ratings was Medical Product and Device Industry published in June 2017. Headquartered in Singapore, Sivantos is one of the leading global manufacturers of hearing aid devices and related products, with around 80% of revenues being derived from the sale of devices and the remainder stemming from the retail sale of accessories, services and repairs. While the broader market in which the Company operates includes hearing instruments and implants, Sivantos operates solely in the instruments market. In fiscal 2017, the Company reported revenues and adjusted EBITDA of c.EUR967 million and EUR238 million, respectively. MALLINCKRODT INTERNATIONAL: Moody's Reviews Ba3 CFR for Downgrade ----------------------------------------------------------------- Moody's Investors Service placed the ratings of Mallinckrodt International Finance SA, including the Ba3 Corporate Family Rating and Ba3-PD Probability of Default Rating, under review for downgrade. The SGL-2 Speculative Grade Liquidity Rating was affirmed. This action follows announcement that Mallinckrodt will acquire Sucampo Pharmaceuticals (unrated) for a total purchase price of $1.2 billion. The deal will be funded with a mix of bank revolver borrowings and term loan debt and/or cash. Management expects the transaction to close in the first quarter of 2018 and is subject to customary closing conditions and the tender of a majority of Sucampo's outstanding shares. Ratings placed on review for downgrade: Mallinckrodt International Finance SA: Ba3 Corporate Family Rating Ba3-PD Probability of Default Rating B2 (LGD 6) unsecured notes Mallinckrodt International Finance SA and co-borrower Mallinckrodt CB LLC: Ba1 (LGD 2) senior secured term loan due 2024 Ba1 (LGD 2) senior secured revolver expiring 2022 B1 (LGD 4) guaranteed unsecured notes Outlook Actions: Outlook, Changed To Rating Under Review From Stable Rating affirmed SGL-2 Speculative Grade Liquidity Rating RATINGS RATIONALE The acquisition of Sucampo increases Mallinckrodt's gross debt/EBITDA to around 4.9 times on a pro forma basis from around 4.4 times (LTM September 30, 2017) and reduces its financial flexibility. Mallinckrodt also faces earnings pressure in its specialty generics segment and sales growth headwinds in 2018 on its largest drug, Acthar. That said, the acquisition of Sucampo provides incremental earnings diversification for a few years and improves its pipeline of late stage drugs. Moody's review will focus on (1) the earnings outlook and pipeline of Sucampo; (2) Mallinckrodt's deleveraging timeline and capabilities; and (3) the mix of funding sources. Mallinckrodt's existing Ba3 Corporate Family Rating (under review for downgrade) is supported by the company's moderate scale in specialty branded pharmaceuticals, good free cash flow, and healthy liquidity. The Ba3 rating is constrained by Mallinckrodt's high concentration of profits in one product, H.P. Acthar Gel ("Acthar") and in controlled substances. Acthar accounts for 40% of sales and a greater share of profits. Acthar is not protected by any patents, however, companies would face significant hurdles to get a generic version approved. Low single digit organic growth in 2018 in the branded business will be offset by declines in its specialty generics segment. The ratings are also constrained by Mallinckrodt's aggressive appetite for acquisitions that will likely lead to increased leverage from time to time. The SGL-2 Speculative Grade Liquidity Rating reflects Moody's expectation for good cash generation in excess of $400 million in 2018. Mallinckrodt had $372 million of cash at September 30, 2017. The company has a $300 million maturity in April 2018, that, if not refinanced, would strain liquidity. The $900 million revolver that expires in February 2022 is undrawn, although Moody's expects that the facility will be used to partially fund the acquisition of Sucampo. The revolver has a springing maximum net debt/EBITDA covenant of 5 times in 2018 that only applies if drawn more than 25%. Moody's expects that the company would be in compliance, pro forma for the acquisition, even if largely drawn. The principal methodology used in these ratings was Pharmaceutical Industry published in June 2017. Luxembourg-based Mallinckrodt International Finance SA is a subsidiary of Staines-upon-Thames, UK-based Mallinckrodt plc (collectively "Mallinckrodt"). Mallinckrodt is a specialty biopharmaceutical company with annual revenues of approximately $3.3 billion. =========== R U S S I A =========== MTS BANK: Fitch Maintains B+ IDR on Rating Watch Negative --------------------------------------------------------- Fitch Ratings is maintaining MTS Bank's (MTSB) Long-Term Issuer Default Rating (IDR) of 'B+' and Support Rating of '4' on Rating Watch Negative (RWN). The RWN on MTSB's support-driven ratings mirrors that on the ratings of the bank's majority shareholder, Sistema Joint Stock Financial Corp. (Sistema; BB-/RWN). Sistema's ratings were originally put on RWN in June 2017 following litigation with a Russian oil company Rosneft (see also 'Fitch: Large Litigation Payment Weakens Sistema's Credit Profile' dated 19 December 2017 at www.fitchcratings.com). Recently the two companies have concluded a settlement agreement which was approved by the arbitrage court whereby Sistema should pay RUB100 billion to Bashneft. Fitch has not yet been able to fully assess the impact of this settlement on Sistema's credit profile. KEY RATING DRIVERS IDRs and Support Ratings The IDRs and Support Rating of MTSB are driven by the potential support, in case of need, by the bank's shareholder, Sistema and/or its subsidiaries. This view is mainly based on the (i) the track record of capital support, including RUB15 billion of equity provided in 2016; (ii) MTSB's role as a treasury for the group; and (iii) the brand association with MTS, a major operating subsidiary of the group. At the same time, the one-notch difference between the ratings of Sistema and MTSB reflects the bank's weak performance until recently, limited franchise and therefore strategic importance for the group. The affirmation of the Short-Term IDR at 'B' reflects Fitch's view that the bank's Long-Term IDR is unlikely to be downgraded by more than two notches, due to the bank's standalone creditworthiness, as reflected in the bank's Viability Rating of 'b-'. RATING SENSITIVITIES IDRs and Support Ratings The RWN on MTSB's Long-Term IDR would be resolved following a resolution on Sistema's ratings after Fitch has fully assessed the impact on its leverage and broader credit profile from the recent settlement agreement with Rosneft. The rating actions on the parent entity would also likely result in a similar rating action on MTSB's support-driven ratings with the current notching being maintained. Failure of the parent to provide timely support, if needed, could result in a widening of the notching. The rating actions are as follows: Long-Term IDR: 'B+', remains on RWN Short-Term IDR: affirmed at 'B' Viability Rating: 'b-', unaffected Support Rating: '4', remains on RWN =========================== U N I T E D K I N G D O M =========================== CARILLION PLC: Faces FCA Probe Over Stock Market Announcements -------------------------------------------------------------- Jack Torrance at The Telegraph reports that troubled outsourcer Carillion is being investigated by the Financial Conduct Authority over the "timeliness and content" of some of its stock market announcements. According to The Telegraph, the company, a major supplier to the UK Government, said the probe concerned updates it released between December 7, 2016 and July 10, 2017, when it made the first of three profit warnings last year and announced the departure of its chief executive. Carillion's share price has fallen more than 90% since July as it has struggled to repair its balance sheet, The Telegraph notes. Last month it agreed a deal with its lenders to push back the test date for its financial covenants but it still faces the prospect of a possible rights issue or debt-for-equity swap to raise much-needed capital, The Telegraph relates. Carillion plc is a British multinational facilities management and construction services company headquartered in Wolverhampton, United Kingdom. EXPRO HOLDINGS: S&P Cuts CCR to 'D' on Restructuring Announcement ----------------------------------------------------------------- S&P Global Ratings said that it lowered its long-term corporate credit rating on Expro Holdings U.K. 3 Ltd. (Expro) to 'D' from 'CCC+'. At the same time, S&P lowered its issue ratings on Expro's $175 million revolving credit facility (RCF) and $1.3 billion term loan to 'D' from 'CCC+'. The downgrade to 'D' follows Expro's announcement that it submitted a plan to reorganize its debt under Chapter 11, after reaching an agreement with debt holders and shareholders to equitize its entire debt (about $1.4 billion). The restructuring plan also includes an equity commitment from new shareholders for $200 million through a rights offering. S&P understands that debtholders representing approximately 65% of Expro's first lien debt and more than 92% of its shareholders agreed to the restructuring plan. S&P will keep the ratings on the $175 million RCF due 2020 and $1.28 billion term loan B due 2021 at 'D' until the debt restructuring is completed. FUEL JUICE: Enters Into Company Voluntary Arrangement ----------------------------------------------------- Richard Frost at Insider Media reports that Fuel Juice Bars, a private equity-backed juice bar operator with sites across the UK has agreed a restructuring plan with its creditors. The proposed Company Voluntary Arrangement (CVA) for Fuel Juice Bars, which serves fresh fruit juices and smoothies and has branches in a host of shopping centers, was reviewed at a meeting on Friday, December 22, 2017 and secured support from 100% of creditors, Insider Media relates. Damian Webb -- damian.webb@rsmuk.com -- Paul Dounis -- paul.dounis@rsmuk.com -- and Phillip Sykes -- phillip.sykes@rsmuk.com -- from RSM Restructuring Advisory were appointed as supervisors of the CVA at the meeting, Insider Media discloses. RSM's specialist retail advisors assisted in putting in place a restructuring plan that focused on stabilizing the business and ensuring the ongoing success of the vast majority of the sites, Insider Media states. Working with the British Property Federation and other key stakeholders, notably landlords, RSM prepared the restructuring proposal, Insider Media relays. Fuel Juice Bars is backed by leisure-focused private equity firm Kings Park Capital, Insider Media notes. Fuel Juice Bars is headquartered at Empire Business Park in Burnley. In December 2017, Insider Media reported that the company had restructured leading to the closure of nine branches. GKN AEROSPACE: Fitch Assigns BB+ First-Time IDR, Outlook Stable --------------------------------------------------------------- Fitch has assigned an Issuer Default Rating (IDR) of 'BB+' to GKN Aerospace Services Limited (GASL). The Outlook on the IDR is Stable. The rating is based on the application of Fitch's parent and subsidiary linkage criteria, using a top-down approach which leads to the rating of GASL being one notch below that of its parent, GKN Holdings (BBB-/Stable). The strength of the links between GKN Holdings and GASL is based on the strong operational and strategic ties, exemplified by GASL's importance to the group as the sole aerospace entity within the group in the UK, common management control, and a centralised treasury. These factors are offset by weak to moderate legal ties, which lead to the one notch differential between the two entities. KEY RATING DRIVERS Strong Linkage: The rating of GASL is one notch below that of its parent, GKN Holdings (BBB-/Stable) based on Fitch's parent and subsidiary linkage criteria. The links are deemed strong based on strong operational and strategic ties, offset somewhat by weak to moderate legal ties as GASL receives no written guarantees from GKN Holdings in relation to any of its obligations. 'BB' Category Standalone Rating: GASL's standalone rating profile is at the low end of the 'BB' category as a result of a rather weak business profile being offset by a reasonable cash-flow profile. GASL has a moderate market position, but its overall business profile is weakened by the company's small scale, significant reliance on one important customer, little geographic diversification and its significant exposure to the commercial aerospace industry. Good and Stable Cash Generation: GASL's cash flows are indicative of an investment-grade aerospace and defence company, with the funds from operations (FFO) margin at a consistently strong level as a consequence of a good maturity mix of aircraft programmes, aided by no financing costs. The free cash flow (FCF) is somewhat more volatile, although still positive in most years, as a result of working-capital swings and capex needs, both of which are driven by programme investment needs, which can be lumpy. Simple Capital Structure: GASL has no authority to borrow funds externally (other than some operating leases) and relies solely on the group's centralised cash pooling arrangements for its operating cash needs. As a consequence, capital structure factors such as leverage are not material elements in the assessment of the standalone credit profile. In line with the agency's criteria, Fitch does not treat the company's pension plan liability as debt, but does analyse the cash contributions to, and service costs related to, its pension plans. Positive Aerospace Market Outlook: The global sector outlook for aerospace and defence (A&D) is positive, with most sector indicators such as aircraft deliveries, aircraft finance availability, and defence expenditures supporting the outlook. Fitch Ratings expects large commercial aircraft deliveries in 2018 to rise by 7% and by at least 8% in 2019. Spending in addressable defence markets should rise at or above global GDP growth in 2018. The favourable outlook in these key markets offsets political and trade risks, new aircraft and engine programme ramp-ups, and business jet sector weakness. DERIVATION SUMMARY GASL's rating is based on Fitch's parent and subsidiary linkage methodology and is notched down by one notch from the ratings of the parent entity GKN Holdings (BBB-/Stable), due to the strong links between the two, exemplified by the strategic importance of GASL to the group, common management control and the operational ties, such as a centralised cash pooling arrangement. GASL's standalone rating profile is at the low end of the 'BB' category. Although its FFO margins are comparable to peers' such as MTU Aero Engines AG (BBB-/Stable), Orbital ATK, Inc. (BB+/RWP), L-3 Technologies (BBB-/Stable) and Harris Corporation (BBB-/Positive), GASL has more volatile FCF margins and narrower customer and geographic diversity. KEY ASSUMPTIONS Fitch's Key Assumptions Within Fitch Rating Case for the Issuer are: - no change to the relationship between GKN Holdings and GASL; - single-digit turnover decline in 2018, low single-digit growth in 2017 and over 2019-2020; - operating margin of 6% in 2020; - average capex intensity of 5.3% over 2017-2020; - moderate increase in net financial liabilities held for trading (fair value of forward foreign-currency derivative contracts); - cash pension contribution of GBP20 million each year. RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action: - Strengthening of the legal ties between GKN Holdings and GASL - GASL's IDR could be upgraded if GKN Holdings plc is upgraded Developments That May, Individually or Collectively, Lead to Negative Rating Action: - Looser ties between GKN Holdings and GASL - GASL's IDR could be downgraded if GKN Holdings plc is downgraded LIQUIDITY Liquidity Supported by Parent: GASL's FFO has been sufficient to cover working-capital outflows over the past four years. This has led to positive cash flow from operations (CFO) generation, which has been sufficient to cover capex in most years. Fitch expect GASL to continue to generate positive FCF. GASL's liquidity is further supported by access to the group's centralised liquidity arrangements, which can be used to fund GASL's operating cash needs. GASL has no bank or capital-market debt outstanding and no access to other facilities such as factoring lines. LBS HORTICULTURE: Exits Administration After Successful CVA ----------------------------------------------------------- Matthew Appleby at Horticulture Week reports that LBS Horticulture went into administration in October but came out just before Christmas. The Colne, Lancashire-based company was placed into administration on Oct. 16, Horticulture Week recounts. Under the stewardship of business recovery specialists Walsh Taylor, the company was able to continue trading while in administration thanks to an injection of funds from an individual investor, Horticulture Week relates. As a result of that financial backing, and support from creditors, the future of the business has now been safeguarded, Horticulture Week discloses. The company has now confirmed it is back trading as normal, Horticulture Week notes. LBS Worldwide exited administration via a Company Voluntary Arrangement (CVA) allowing the company to trade on retaining its legal identity and saving 34 jobs, while giving a return to creditors, Horticulture Week relays. TULLOW OIL: S&P Alters Outlook to Positive, Affirms 'B' CCR ----------------------------------------------------------- S&P Global Ratings said that it revised to positive from stable its outlook on U.K.-based oil and gas exploration and production company Tullow Oil. At the same time, S&P affirmed its 'B' long- term corporate credit rating on Tullow. S&P said, "We also affirmed our 'B' rating on Tullow's senior secured debt, and our 'B-' rating on its senior unsecured debt. "The outlook revision follows our update of our base-case scenario for Tullow for 2017 and 2018, to reflect the company's higher production guidance for 2017, a change in our working assumption for Brent oil to $55 per barrel (/bbl) in 2018, and lower capital expenditure (capex) than we previously assumed. In our view, those developments should support stronger free operating cash flows (cash flow from operations minus capex) in the years 2017 and 2018, accelerating somewhat the company's deleveraging process." In addition, the company has completed the refinancing of its reserve-based lending (RBL) facility, creating a comfortable debt maturity profile. While the refinancing has no direct impact on the rating, it allays some of our previous concerns. In S&P's view, the current liquidity position should allow the company to better manage the business amid low oil prices and absorb potential country risk shocks in Ghana. These steps continue Tullow's recent progress, including its $724 million net equity injection earlier this year, the sale (farm down) of a stake in its project in Uganda (down to 10% from 33% in exchange for $900 million, including $200 million in cash), and the divestment of its Dutch assets. Despite the positive momentum, we believe that the company's financial risk profile does not yet warrant a stronger assessment. S&P now expects the company's S&P Global Ratings-adjusted funds from operations (FFO) to debt to be in the range of 15%-17% in 2017 and 2018; by comparison, we view FFO to debt of about 12% as commensurate with the existing rating and FFO to debt approaching 20% as commensurate with a higher rating. S&P said, "Under our base-case scenario, we project that Tullow's adjusted EBITDA will be $1.3 billion in 2017 and $1.1 billion- $1.2 billion in 2018, compared with our previous assumption of $1.2 billion-$1.3 billion in 2017 and $1.0 billion-$1.1 billion in 2018. In 2016, the company reported an adjusted EBITDA of $890 million. The improvement reflects the expected ramp-up of the Tweneboa-Enyenra-Ntomme (TEN) Ghanaian oilfield project and the company's long-term hedging policy." The following assumptions underpin our base-case scenario: -- Brent oil prices of $55 per barrel (/bbl) in 2018. S&P understands that more than 60% of production in 2018 has been locked in at an average price of $51/bbl. The current Brent price is about $65/bbl. -- Production of about 80,000-85,000 barrels of oil equivalent per day (boepd) in 2018. Recently the company guided for production between 85,000-89,000 boepd in 2017. These figures exclude any insurance compensation related to the loss of production arising from the faulty turret at Jubilee. -- Capex (including exploration) of about $400 million-$500 million in 2018. S&P said, "We understand that the capex budget in 2018 will include some amounts to support a sustainable production level from the Ghanaian assets. We understand that the company has some flexibility to reduce its capex in the coming years without immediately affecting production. However, it is likely to make use of this flexibility only if oil prices drop materially. -- Up to $150 million of proceeds from the farm down of the company's project in Uganda. -- No dividend payouts in 2018. Based on these assumptions, S&P arrives at the following credit metrics: -- Adjusted FFO to debt of about 15%-17% in 2017 and 2018. -- Reported net debt to EBITDA below 3.0x in 2017 and in 2018. We note that the company's objective of reducing the net debt to EBITDA to 2.5x over the medium term. -- Improved free operating cash flows (FOCF) of more than $400 million in 2017 and FOCF of more than $250 million in 2018. Given the commissioning of the ramp up of the TEN project, the return of the Jubilee oilfield to full production, and the divestment of the Dutch assets, Tullow's assets are becoming more concentrated in Ghana. S&P now expects that about 75% of the production will come from Ghana, compared with 50% in 2015. At the moment, the ratings on Tullow are not constrained by the country risk of Ghana (B-/Positive/B; transfer and convertibility [T&C] assessment 'B'). However, the Tullow rating is limited to one notch above the T&C. S&P said, "We view the Ghanaian economy as reasonably well-diversified; however, a substantial portion of the forecast growth comes from increasing oil production. On the back of lower commodity prices and delays in oil production in the country in 2016, the government raised money from the World Bank and from the International Monetary Fund (IMF). In our view, prolonged low commodity prices could put pressure on the country's budget, which may have a negative impact on Tullow's business and its ability to use its U.S. dollar-denominated cash flow freely. Tullow mitigates some of the country risks by holding significant cash balances abroad and collecting its revenues outside the country. After its refinancing, the company has improved its capability to absorb certain country shocks. At this stage, we continue to cap the rating on Tullow at no higher than 'B+', given the existing portfolio concentration." S&P said, "The positive outlook reflects the possibility that we could raise the rating on Tullow in the coming 12 months as the company continues to strengthen its balance sheet and ramp up production in its main assets in Ghana. "Under our base-case scenario, we expect an adjusted FFO-to-debt ratio of about 15%-17% in 2017 and 2018. We view an FFO-to-debt ratio approaching 20% as commensurate with a higher rating. In our view, the company could see stronger credit metrics if it is able to achieve sustainable higher production from TEN and Jubilee and lock in additional hedges at current prices (Brent oil at about $65/bbl). "We consider an FFO-to-debt ratio approaching 20% and at least neutral projected FOCF as commensurate with a higher rating. Other factors include further progress with the ramp up of the TEN project and the restoration of Jubilee's full production capacity." Moreover, a higher rating should be supported also by the company maintaining sufficient financial flexibility to be rated above the 'B' T&C assessment of Ghana. In S&P's view, the recent refinancing provides the needed financial flexibility, but this could deteriorate if the company did not refinance its maturities in advance. S&P said, "We would consider revising the outlook back to stable if the FFO-to-debt ratio fell below 15% or if the FOCF was less supportive than we currently assume. Such a scenario is possible if there are delays at the TEN project or issues at the Jubilee field that hamper production growth, or if there is a material decline in oil prices (for example, below $40/bbl) for a sustained period. In this scenario, the current hedges would provide only temporary relief." In addition, any negative change in Ghana's T&C assessment would lead us to revise the outlook to stable, or in some cases result in a downgrade. ********* 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. 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