/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/180116.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Tuesday, January 16, 2018, Vol. 19, No. 011 Headlines G E R M A N Y NIKI LUFTFAHRT: German Administrator Still Eyes IAG Sale NIKI LUFTFAHRT: Niki Lauda Re-emerges as Potential Bidder SC GERMANY 2017-1: DBRS Finalizes BB(high) Rating on Cl. D Notes I T A L Y MONTE DEI PASCHI: DBRS Issues Ratings Report L U X E M B O U R G PUMA INTERNATIONAL: Fitch Rates US$750MM Senior Notes 'BB' N E T H E R L A N D S GAMMA INFRASTRUCTURE: Moody's Assigns B3 CFR, Outlook Stable P O R T U G A L CAIXA ECONOMICA MONTEPIO: DBRS Issues Ratings Report T U R K E Y PETKIM PETROKIMYA: Moody's Assigns B1 CFR, Outlook Stable PETKIM PETROKIMYA: Fitch Assigns B IDR, Outlook Stable TURKEY: DBRS Sovereign Methodology Update No Impact on Ratings U N I T E D K I N G D O M CARILLION PLC: Enters Into Liquidation After Rescue Talks Fail HONOURS PLC: Fitch Revises Rating Watch on B Notes to Evolving JAMIE OLIVER'S: In Restructuring Talks to Reduce Rent Bill MELTON RENEWABLE: Fitch Affirms BB IDR, Outlook Stable NEW LOOK: Company Voluntary Arrangement Among Rescue Options TOYS R US: Committee Taps Berwin Leighton as U.K. Counsel ZARA UK: Moody's Assigns First-Time B2 CFR, Outlook Stable ********* ============= G E R M A N Y ============= NIKI LUFTFAHRT: German Administrator Still Eyes IAG Sale -------------------------------------------------------- Victoria Bryan at Reuters reports that the German administrator of insolvent airline Niki said he still wanted to sell the leisure carrier to British Airways parent IAG, despite a battle between Austria and Germany over where insolvency proceedings should be handled. An Austrian court ruled on Jan. 12 that the insolvency proceedings should be held there, throwing the deal to sell Niki into doubt, Reuters relates. Intensive talks were held at the weekend with all parties, German administrator Lucas Floether, as cited by Reuters, said in a statement on Jan. 15, adding that the Austrian court had no right to revoke the decision made by a court in another European Union country. Niki's German creditors, which account for more that 75% of its debt, and the staff council have already agreed the deal, Mr. Floether added, calling on the Austrian administrator to approve the sale, Reuters discloses. 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. NIKI LUFTFAHRT: Niki Lauda Re-emerges as Potential Bidder --------------------------------------------------------- Douglas Busvine at Reuters reports that former Formula 1 world champion Niki Lauda has re-emerged as a potential bidder for Niki, the Austrian budget airline he founded whose messy insolvency proceedings may derail an agreed sale to Britain's IAG. Mr. Lauda weighed in after an Austrian court appointed an administrator for Niki on Jan. 12, in response to legal action brought by a passenger rights group seeking to recover money it says the airline owes, Reuters discloses. That turn of events followed the reversal of an earlier decision by a Berlin court to locate the insolvency in Germany, Reuters notes. The German administrator had agreed on a sale of Niki to British Airways owner IAG, Reuters recounts. "I will, of course, make an offer for Niki by Jan. 19," Mr. Lauda told Germany's Handelsblatt business daily, referring to a deadline set by the court in the Austrian town of Korneuburg, Reuters relates. According to Reuters, Mr. Lauda did not say how much he was prepared to bid for Niki but welcomed the transfer of the insolvency proceedings to Austria, where the company he founded in 2003 is registered. 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. SC GERMANY 2017-1: DBRS Finalizes BB(high) Rating on Cl. D Notes ---------------------------------------------------------------- DBRS Ratings Limited finalised the provisional ratings on the Class A, Class B, Class C and Class D Notes (collectively with the unrated Class E Notes, the Notes) issued by SC Germany Consumer 2017-1 UG (the Issuer) as follows: -- AA (sf) on the Class A Fixed-Rate Notes -- A (sf) on the Class B Fixed-Rate Notes -- BBB (sf) on the Class C Fixed-Rate Notes -- BB (high) (sf) on the Class D Floating-Rate Notes The rating of the Class A Notes addresses the timely payment of interest and ultimate payment of principal by the legal final maturity date. The ratings of the Class B, Class C and Class D Notes address the ultimate payment of interest and principal by the legal final maturity date. The Notes are backed by a revolving pool of receivables from consumer loans granted to individuals residing in Germany, originated and serviced by Santander Consumer Bank AG (SCB), which is owned by Santander Consumer Finance S.A. The ratings are based on the considerations listed below: -- The sufficiency of available credit enhancement in the form of subordination (16.2% for Class A Notes, 9.9% for Class B Notes, 6.0% for Class C Notes and 4.4% for Class D Notes), in addition to excess spread. -- The ability of the transaction's structure and triggers to withstand stressed cash flow assumptions and repay the Notes according to the terms of the transaction documents. -- SCB's capabilities with respect to originations, underwriting, servicing and financial strength. -- The legal structure and presence of legal opinions addressing the assignment of the assets to the Issuer and the consistency with DBRS's "Legal Criteria for European Structured Finance Transactions" methodology. DBRS notes that under the interest rate swap on the lowest-ranked Class D and Class E Notes, the swap payments (other than termination payments when the swap counterparty is the defaulting party) rank ahead of the Class A, Class B and Class C Notes in the transaction waterfalls. DBRS considered the relevant interest rate scenarios and the impact of regular swap payments on the cash flows in accordance with its methodologies. Unquantifiable termination payments in a scenario where the Issuer is the defaulting party may also affect the more senior classes of notes without the swap. However, such circumstance is expected to be sufficiently remote for the purpose of the rating assignment, as DBRS does not factor in additional risks related to scenarios such as post-enforcement after an issuer default or issuer liquidation. ========= I T A L Y ========= MONTE DEI PASCHI: DBRS Issues Ratings Report -------------------------------------------- DBRS Ratings Limited released a ratings report on Banca Monte dei Paschi di Siena SpA, which noted these ratings: Debt Rating Rating Action Trend ---- ------ ------------- ----- Long Term Issuer Rating B(high) New Rating Stable Short Term Issuer Rating R-4 New Rating Stable Intrinsic Assessment B(high) -- -- Rating Considerations * Franchise Strength: BMPS is the fourth largest bank in Italy by total assets, with a nationwide distribution network and a significant market share in its home region of Tuscany. In August 2017, the Bank received State support in the form of a precautionary recapitalisation, and is currently implementing a restructuring plan in line with EU rules. (Grid Grade: Moderate) * Earnings Power: Historically weak profitability amid high credit provisions and restructuring charges. (Grid Grade: Weak) * Risk Profile: Large amount of legacy problem loans. In line with the restructuring plan, the Bank is in the process of offloading EUR 26.1 billion in NPEs via securitisation by end-1H18. (Gride Grade: Weak) * Funding and Liquidity: Funding and liquidity conditions deteriorated 2016. Liquidity pressures have recently eased due to a recovery in depositors' confidence. (Grid Grade: Weak) * Capitalisation: Capital buffer improved with the precautionary recapitalisation and burden sharing of junior bondholders. (Grid Grade: Weak) A copy of the full report is available at http://bit.ly/2ATOFb2 =================== L U X E M B O U R G =================== PUMA INTERNATIONAL: Fitch Rates US$750MM Senior Notes 'BB' ---------------------------------------------------------- Fitch Ratings has assigned Puma International Financing S.A's recent US$750 million senior notes issue due in 2026 a final senior unsecured rating of 'BB'. The rating is in line with the current ratings of the 6.75% US$1 billion notes due 2021 and the 5.125% US$600 million notes due 2024 issued by Puma International Financing S.A respectively in January 2014 and in October 2017. The assignment of the final ratings follows the receipt of documents conforming to information already received. The final rating is in line with the expected rating assigned on 8 January 2018. Puma International Financing S.A. is a Luxembourg-based financial vehicle wholly-owned by Puma Energy Holdings Pte Ltd (Puma Energy) ('BB'/Stable). The notes will be unconditionally guaranteed on a senior unsecured basis by Puma Energy and will rank equally in right of payment with all existing and future senior unsecured and unsubordinated obligations of Puma Energy. The net proceeds from the issue are expected to be used to fully redeem Puma International Financing S.A.'s outstanding 6.75% senior notes due 2021 and repay drawn amounts under the group's revolving credit facilities (RCFs). The transaction should improve Puma Energy's debt maturity profile and reduce the company's annual interest cost as the coupon on the new issue is 5%. KEY RATING DRIVERS Improved 3Q17 Performance: EBITDA increased 9% yoy in 3Q17 on the back of improved unit margins and slightly higher volumes in the UK and Asia Pacific. This marginally improves the run rate results for 2017 as 1H17 was below Fitch's expectations due to underperformance in Africa and, particularly, in South Africa (BB+/Stable) where Puma Energy's B2B segment has been negatively impacted by the country's weaker economic environment, especially in the mining sector. The other regions have performed more or less in line with Fitch expectations. Lower Capex Partly Offsets Underperformance: Fitch base case assumes 2017 EBITDA and operating cash flow to have been below 2016's. Fitch expect a significant reduction in capex to partly offset higher working capital requirements attributed to activity ramp-ups in Myanmar and Northern Ireland in 1H17. Cash flow generation partly recovered in 3Q17 as working capital normalised and Fitch assume that this trend continued in 4Q17. Fitch project a downwards revision of capex to around US$350 million-US$450 million p.a. in 2017-2019 as the company winds down its expansionary phase of 2015-2016. Expected Deleveraging Reflects Stable Outlook: Under Fitch base case, funds from operations (FFO) readily marketable inventories (RMI) lease-adjusted net leverage weakens to above 4x in 2017 from 3.8x in 2016, before decreasing to around 3.5x in 2019. The reduction in leverage is driven by stronger free cash flow (FCF) generation as capex remains below the expansionary levels of the past few years, the historically high investments start to contribute to EBITDA and working capital reverses in 2018. Failure to maintain FFO RMI adjusted leverage below 4x will put pressure on the ratings. Moderate Execution Risk: Between 2012 and 2016 Puma Energy spent around US$5.7 billion on maintenance, expansionary capex and acquisitions, while EBITDA only grew to US$718 million in 2016 from US$532 million in 2012. As part of its growth strategy, Puma Energy's asset base has continued to expand. Fitch believe that moderate execution risk remains embedded in its strategy as some of the previous investments have yet to contribute to EBITDA. This is due to longer lead times for some projects and investments in the storage network, which although supportive of the company's downstream business, have not materially contributed to EBITDA. Slower Investment Phase: Fitch forecast that the company has now entered into a materially lower investment phase and will continue to spend around US$350 million to US$450 million annually on investments (down from above US$1 billion p.a, from 2012 to 2015). Apart from maintenance capex of around US$100 million, the rest will mainly be used in greenfield projects. This means a potential increase in project risk as they do not immediately contribute to EBITDA and they could experience delays. Currency/End-Market Risk: Puma Energy's unit margins and EBITDA are not directly affected by oil prices, as evidenced in 2015 when oil prices dropped significantly. The company mainly operates in semi-regulated and fully regulated markets, where the government sets a margin over prices for distributors. However, it is not immune to other factors such as FX and end-market risk. A steep devaluation in currency against the dollar takes around three to six months to pass on to consumers, as seen in 2015 and 2016 and pricing pressure affects some of its end- markets, such as B2B and mining in South Africa. Diversified with Leading Market Shares: Puma Energy is highly diversified by business, geography and customer. It has a unique integrated business model, with no direct peers on a global basis. However, some of these geographies are correlated, as the company is highly dependent on emerging markets. Around 20.1% of its EBITDA in the 12 months ended 30 September 2017 was generated in investment-grade countries, and 34.6% from countries rated 'BB+' to 'BB-'. This is a decrease from 2015 when around one third of Puma's EBITDA was generated from investment-grade countries and partly reflects the downgrade of South Africa's sovereign rating in 2017. The ratings reflect Fitch's expectations that oil products will remain in demand in developing markets due to their essential nature, therefore enjoying limited price elasticity. Limited Oil Price Risk: Puma Energy hedges its physical fuel supply. All of its supply stock is either pre-sold or hedged against price fluctuations. Therefore, in evaluating leverage and interest coverage ratios, Fitch excludes debt associated with financing RMI (such as refined oil products) and reclassifies the related interest costs as cost of goods sold. The difference between RMI-adjusted and RMI-unadjusted FFO net leverage is around 0.5x-1.0x, supporting the IDR at 'BB'. DERIVATION SUMMARY Puma Energy operates a unique business model with no directly comparable peers. The closest competitors are oil majors and commodity traders with downstream assets, although on typically lower margins than Puma. KEY ASSUMPTIONS Fitch's key assumptions within Fitch rating case for the issuer - Volume growth of around 7% p.a, after 2017; - Downstream gross profit margin decreasing to around US$60/ cubic metre by 2019; - Downstream contribution decreasing to around 80% of total gross profit by 2019; - Around US$350 million to US$450 million p.a. outlay for acquisitions and capex for 2017 and 2018 RATING SENSITIVITIES Developments that May, Individually or Collectively, Lead to Positive Rating Action - Improved business risk profile reflecting successful implementation of growth plans through acquisitions and greenfield projects, while maintaining sufficient geographic diversification. - Steady profitability and internal cash-flow growth with EBITDAR surpassing US$1 billion; - Free cash flow (FCF) /EBITDAR excluding expansionary capex (cash conversion) at or above 35% on a sustained basis (2016: 35%); - FFO RMI-adjusted net leverage below 3.0x with evidence of deleveraging on a sustained basis - Maintaining FFO fixed charge coverage above 4.5x (2016: 2.8x) Developments that May, Individually or Collectively, Lead to Negative Rating Action - Sharp deterioration in sales volume due to the competitive or regulatory environment or reflecting difficulties in integrating acquisitions with EBITDAR falling below US$500 million; - FCF/EBITDAR excluding expansionary capex (cash conversion) decreasing to 15% or below on a sustained basis; - Continued debt-funded acquisitions/investments leading to FFO RMI-adjusted net leverage remaining above 4.0x on a sustained basis. LIQUIDITY Adequate Liquidity: Puma Energy's liquidity is adequate, with cash and cash equivalents of US$474 million and undrawn credit lines of around US$1.2 billion (including a US$500 million shareholder RCF) as of 30 September 2017. This compared with US$841.8 million of short-term debt. Liquidity is also supported by projected positive FCF generation in 2018 under Fitch base case. The company raised a new five-year syndicated term loan facility of US$350 million In September 2017 and issued senior unsecured notes of US$600 million notes due 2024 in October. Proceeds were used to refinance existing debt. This, along with the proposed bonds, improves Puma Energy's debt maturity profile. ===================== N E T H E R L A N D S ===================== GAMMA INFRASTRUCTURE: Moody's Assigns B3 CFR, Outlook Stable ------------------------------------------------------------ Moody's Investors Service has assigned a first-time B3 Corporate Family Rating ("CFR") and a B3-PD probability of default rating ("PDR") to Gamma Infrastructure II B.V. (DELTA-CAIW), the top entity of the restricted group that will combine CIF Holding B.V. (CAIW) and Delta Comfort B.V. (DELTA), the cable operators in the Netherlands. At the same time, the agency has assigned B3 ratings to the EUR500 million senior secured Term Loan B (due 2025), EUR120 million of senior secured capex/ acquisition facility and EUR30 million of senior secured revolving credit facility (RCF, both due 2024) being issued by Gamma Infrastructure III B.V., a subsidiary of Gamma Infrastructure II B.V. The proceeds from the Term Loan B together with EUR38 million of cash and EUR385 million of equity from EQT Infrastructure III fund (EQT; the owner of DELTA-CAIW) and certain co-investors, will be used to (1) refinance EUR193 million of existing debt at DELTA (which was acquired by EQT in February 2017); (2) fund the acquisition of CAIW (for which SPA was signed in November 2017) for EUR453 million; (3) refinance CAIW's existing debt of EUR264 million and (4) pay transaction fee while leaving around EUR2 million of cash on balance sheet after closing. "DELTA-CAIW's B3 CFR reflects the group's relatively small scale of operations and high Moody's adjusted gross leverage of around 5.7x for FY2017E with material expansion capex requirements in the first few years, which will lead to negative free cash flow generation," says Gunjan Dixit, a Moody's Vice President -- Senior Credit Officer, and lead analyst for DELTA-CAIW. "The rating is nevertheless supported by the group's strong position and good operating performance in its network coverage areas, its superior network quality and low subscriber churn," adds Ms. Dixit. RATINGS RATIONALE DELTA-CAIW's B3 CFR reflects (1) the solid market positions of DELTA and CAIW within their network coverage areas; (2) the good quality of its DOCSIS 3.0 enabled (to be upgraded to DOCSIS 3.1 over 2018) and/ or FTTH networks; (3) good operating performance and cash generation of DELTA and CAIW's existing businesses, although DELTA's energy business (34% of combined business' revenues with a fairly small EBITDA contribution) will not see any growth; (4) no network overlap with VodafoneZiggo Group B.V. (VodafoneZiggo, B1 stable) and network superiority over Koninklijke KPN N.V.'s (KPN, Baa3 stable) in common coverage areas; (5) good future growth potential fuelled by the planned network expansion programme; and (6) the fact that for the network expansion, CAIW is pursuing a demand aggregation model, with deployment only starting once CAIW reaches a 50% committed sign up, reducing demand risk. However, the B3 CFR is constrained by (1) the company's small scale in terms of revenues and network coverage (revenues of EUR311 million in FY2016) compared to KPN (revenues of EUR6.8 billion in 2016) and VodafoneZiggo (EUR4.2 billion in FY2016 on a pro-forma basis); (2) high Moody's adjusted gross leverage of 5.7x expected at the end of 2017 on a pro-forma basis, and limited deleveraging over the foreseeable future; (3) execution risks associated with the successful roll-out of the network expansion plan (such as potential delays); and (4) the high capex requirements, that will lead to negative free cash flow generation in the first few years and constrain de-leveraging. In addition to the rated debt for this transaction, there is around EUR139 million worth of debt outstanding at certain JVs of CAIW. The debt at the JVs matures in 2019/21 and is fully ring- fenced, outside of DELTA-CAIW's restricted group. However, Moody's based its analysis on proportionate consolidation of the JVs as the agency expects the audited consolidated financial statements for the reporting entity for the restricted group to proportionately consolidate the JVs. The reported net leverage of the restricted group at the end of 2017, pro-forma for the transaction is expected to be around 5.5x (accounting for the JV's on a proportionate basis -- in line with the audited results under Dutch GAAP). This maps to Moody's adjusted gross leverage of 5.7x. Over the next 12-18 months, the company's gross leverage (Moody's adjusted) could see an incremental increase to over 6.0x reflecting the timing difference between the spending of capex (for which the company will be drawing under its capex facility) and the receipt of associated revenue from customers. Moody's currently expects meaningful de-leveraging to begin only from 2020, once the network expansion nears completion. CAIW's capex heavy expansion plan in the first few years will be funded through operating cash flows, drawings under the capex/ acquisition facility and/ or additional debt. The combined company's EBITDA minus Capex is likely to turn materially negative until 2021, if the company pursues the network expansion to the full potential. In this situation, Moody's projects the company's capex to sales ratio to be exceptionally high at around 50% on average for the next 3 years. This implies that free cash flow generation will also likely remain significantly negative. While this heavy capex should translate into future growth, during this period of increased capex requirements, Moody's would expect the company to manage its liquidity prudently. The agency views the combined group's liquidity profile as adequate. It is anticipated that, as of transaction closing, the combined company will have around EUR2 million of cash on the balance sheet. The company will also have a EUR120 million capex/acquisition facility and a EUR30 million RCF both due 2024. While the RCF and capex facility should provide adequate liquidity buffer, Moody's recognizes that the expansion plan related capex is largely discretionary and can be curtailed if liquidity comes under pressure. The company's B3-PD probability of default rating (PDR) is at the same level as its CFR, reflecting the company's covenant-lite structure. The B3 rating for the Term Loan B and the capex facility / RCF reflects the benefit from upstream guarantees from operating companies accounting for 80% of assets and EBITDA, as well as first ranking asset security (excluding real estate). RATIONALE FOR STABLE OUTLOOK The stable rating outlook reflects Moody's expectation that the company will continue to expand its network in line with its business plan and will improve its scale of operations. However, it also reflects the fact that the company's free cash flow will remain materially negative in the near term in order to fund the expansion capex requirements. WHAT COULD CHANGE THE RATING UP/DOWN Upwards rating pressure could arise if (1) the network expansion is executed in line its business plan translating into strong organic revenue and EBITDA growth; and (2) Moody's adjusted Gross Debt/ EBITDA (based on proportionate consolidation -- in line with audited results) reduces to below 5.5x on a sustained basis. Upwards pressure would also be dependent upon the company's ability to return to positive free cash flow generation when network expansion nears completion and maintenance of adequate liquidity. Downwards rating pressure could arise if (1) adjusted leverage goes materially above 6.5x on a sustained basis; (2) the company materially under-performs its business plan; (3) its free cash flow remains negative sustainably beyond 2021; and/or (4) its liquidity profile were to deteriorate materially. LIST OF AFFECTED RATINGS Assignments: Issuer: Gamma Infrastructure II B.V. -- Corporate Family Rating, Assigned B3 -- Probability of Default Rating, Assigned B3-PD Issuer: Gamma Infrastructure III B.V. -- BACKED Senior Secured Bank Credit Facility, Assigned B3 Outlook Actions: Issuer: Gamma Infrastructure II B.V. -- Outlook, Assigned Stable Issuer: Gamma Infrastructure III B.V. -- Outlook, Assigned Stable PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Global Pay Television - Cable and Direct-to-Home Satellite Operators published in January 2017. Headquartered in the Netherlands and owned by EQT Infrastructure III fund (EQT), Gamma Infrastructure II B.V. is the top entity of the restricted group currently covering DELTA (a leading owner and operator of telecom infrastructure and supplier of energy in the Dutch province of Zeeland) and CAIW (the second largest fibre infrastructure owner and a triple-play provider in the Netherlands). For FY2016, on a pro-forma basis, the combined entity generated EUR311 million and EUR97 million in revenues and EBITDA, respectively. =============== P O R T U G A L =============== CAIXA ECONOMICA MONTEPIO: DBRS Issues Ratings Report ---------------------------------------------------- DBRS Ratings Limited released a ratings report on Caixa Economica Montepio Geral, which noted these ratings: Debt Rating Rating Action Trend ---- ------ ------------- ----- Long-Term Issuer Rating BB Trend Changed Negative Short-Term Issuer Rating R-4 Confirm Stable Intrinsic Assessment BB -- -- Rating Considerations * Franchise Strength: Small but stable domestic retail and commercial banking franchise in Portugal. Small international activities in Cape Verde, Angola and Mozambique. (Grid Grade: Good/Moderate) * Earnings Power: Profitability is improving helped by a reduction of retail funding costs, cost restructuring and lower loan loss provisions. 1H17 is the first reported profits since 2013. (Grid Grade: Weak) * Risk Profile: Weak asset quality, with high stock of non- performing assets (NPAs) and coverage levels weaker than domestic peers. Concentration to real estate and construction sectors has reduced but remains substantial. (Grid Grade: Weak) * Funding and Liquidity: Deposit base underpinned by its mutual status, but has experienced some stress. ECB funding has reduced but remains high as a proportion of total assets. (Grid Grade: Moderate/Weak) * Capitalisation: Internal capital generation is improving but remains weak. Improved capital position primarily through recent cash injection from its sole shareholder Montepio Geral Associacao Mutualista (MGAM) and reduction in risk weighted assets.(Grid Grade: Weak) A copy of the full report is available at http://bit.ly/2qYtO71 =========== T U R K E Y =========== PETKIM PETROKIMYA: Moody's Assigns B1 CFR, Outlook Stable --------------------------------------------------------- Moody's Investors Service has assigned a B1 corporate family rating (CFR) and B1-PD probability of default rating (PDR) to Petkim Petrokimya Holding A.S., the sole petrochemical producer in Turkey. Concurrently, Moody's assigned a B1 senior unsecured rating to Petkim's proposed $500 million bond issuance. The outlook on the ratings is stable. "Petkim's B1 rating balances the company's strong market position in Turkey and currently healthy credit metrics against the increase in leverage and weaker liquidity following the expected purchase of a minority stake in STAR refinery through a mix of new debt and existing cash balances," says Rehan Akbar, a Moody's Vice President -- Senior Analyst. RATINGS RATIONALE Petkim's B1 CFR reflects (1) the company's strong position in the growing Turkish petrochemical market; (2) currently buoyant global petrochemical operating environment which supports EBITDA margins of more than 20%; (3) anticipated on-going cost savings and synergies that will be realized once the STAR refinery becomes operational in Q4 2018; and (4) the strategic importance of Petkim to State Oil Company of the Azerbaijan Republic (SOCAR) (Ba2 stable), which remains a supportive shareholder. The rating also factors in (1) the small scale of the company with a single integrated facility; (2) concentration of its production site and operations in one country; (3) exposure to the volatility and cyclicality of the petrochemical industry; and (4) expected increase in leverage and weakened liquidity following the proposed purchase of a stake in the STAR refinery. Petkim is looking to issue a $500 million bond in order to purchase an 18% stake in the STAR refinery from its shareholder, SOCAR Turkey Energy A.S. (STEAS). The purchase price of $720 million implies that the company will also utilize a material portion of its cash balance for the acquisition. Once operational in Q4 2018, the refinery will provide feedstock to Petkim and will enable the petrochemical company to realize material cost savings through reduced transportation costs of naphtha, lower conversion costs by using reformate instead of heavy naphtha for a portion of its feedstock as well as through reduced inventory costs, common infrastructure and shared services. As of September 30, 2017 (LTM), Petkim's adjusted debt to EBITDA was 1.5x and Moody's forecast leverage to range between 3.5x to 4.5x over the next 12-18 months depending on petrochemical product price movements. Petkim's current liquidity is adequate to meet its ongoing obligations supported by reported cash balance of $338 million as of September 30, 2017 combined with Moody's forecast of about $200 million of unadjusted cash flow generation over the next twelve months. However, Moody's forecast that the company's liquidity position will weaken following the purchase of the STAR refinery stake. Petkim has meaningful short-term debt, primarily consisting of working capital facilities and letter of credits related financial liabilities. As of September 30, 2017, the company reported debt due within one year of $332 million (excluding $192 million of Petlim container port related subsidiary debt). Capital spending is forecasted to decline over the coming years as various investment projects are brought to completion. From 2018 onwards, investment capex is forecasted to be minimal while a major scheduled turnaround in 2018 will require about $60 million of maintenance capex. In 2019, maintenance capex is expected to be less than $30 million. RATIONALE FOR STABLE OUTLOOK The stable outlook reflects Moody's view that Petkim's credit metrics and liquidity position will begin to improve in the second half of 2018, particularly once the STAR refinery becomes fully operational in Q4 2018 and contributes in improving Petkim's profitability. FACTORS THAT COULD LEAD TO AN UPGRADE Positive pressure on the rating is unlikely before the STAR refinery transaction is completed and once the operational refinery brings cost benefits to Petkim. This will provide clarity on the evolution of Petkim's liquidity position as well as the degree of cash savings that the company will be able to realize from the refinery. An upgrade of the rating after this would require a strengthening of Petkim's liquidity position as well as an improvement in credit metrics such that adjusted debt to EBITDA is sustained below 3.0x. FACTORS THAT COULD LEAD TO A DOWNGRADE The rating could be downgraded should Petkim's liquidity position remains weak after the STAR refinery stake purchase. Downward pressure on the rating could also occur if adjusted gross debt to EBITDA is sustained above 4.5x, as a result for example from a weaker operating environment or debt-funded capital spending. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Global Chemical Industry Rating Methodology published in December 2013. COMPANY PROFILE Petkim Petrokimya Holding A.S. (Petkim) is the sole petrochemical producer in Turkey and was established in 1965 by the Turkish government. The company is listed since 1990 on the Istanbul Stock Exchange and was fully privatized in 2008. Petkim is currently 51% owned by STEAS, which in turn is 87% owned by SOCAR while the remaining 49% is publicly listed. The company's operations are located in Aliaga, about 50 kilometers from Izmir in western Turkey. The petrochemical complex has 14 primary production plants including a 588,000 ton/year ethylene cracker. Using naphtha as a feedstock, the company produces 15 different petrochemical products that can be categorised into (1) thermoplastic polymers such as polyvinyl chloride (PVC), low-density polyethylene (LDPE), high-density polyethylene (HDPE) and polypropylene (PP); (2) fiber raw materials such as acrylonitrile (ACN), monoethylene glycol (MEG) and purified terephthalic acid (PTA); and (3) other co-products such as benzene, paraxylene and C4. About 70% of the company's products are sold domestically which translates into a ca. 20% market share for Petkim in Turkey while the remaining 30%, mainly aromatics that have little demand within the country, are exported. For the last twelve months ending September 30, 2017, Petkim reported revenues of $1.9 billion and net income of $360 million. PETKIM PETROKIMYA: Fitch Assigns B IDR, Outlook Stable ------------------------------------------------------ Fitch Ratings has assigned Petkim Petrokimya Holdings A.S. (Petkim) a Long-Term Issuer Default Rating (IDR) of 'B' with Stable Outlook. Fitch has also assigned Petkim's proposed notes an expected rating of 'B(EXP)'/'RR4' subject to the receipt of final documentation conforming to the information already received. The rating reflects Petkim's small scale and high product concentration relative to larger, diversified global peers. Specifically, the company owns a single-site petrochemical complex and is exposed to cyclical commodity polymers, which results in inherent earning volatility. The rating is also constrained by Petkim's forecast elevated leverage under Fitch base case, on the back of the planned debt-funded acquisition of a stake in the STAR refinery. Supports for the rating include a well-invested asset base and a strong position in the growing Turkish chemical market where Petkim is the sole domestic petrochemical producer. The Stable Outlook reflects Fitch view that beyond the forecast peak in funds from operations (FFO) adjusted net leverage in 2018 of 5.1x, Petkim will maintain a financial profile commensurate with Fitch rating sensitivities despite expected supply-driven margin pressure. Fitch base case also assumes that the commissioning of the STAR refinery in 2018 will improve Petkim's cost structure and help mitigate headwinds and support positive free cash flow (FCF) generation and gradual deleveraging post- 2018. KEY RATING DRIVERS Capacity Increases Drive Earnings Pressure: Petkim is a Turkish commodity chemical producer, making predominantly polymers from naphtha, which places the company between the second and third quartiles of the global cost curve. Following a decrease in oil and naphtha prices since end-2014 as well as growing demand for petrochemical products, the naphtha-ethylene spread has remained favourable. However, Fitch forecast that the increase in global ethylene and polymer production, mainly in the US and Middle East on the back of cheap gas, will pose a threat to Petkim's petrochemical margins over the next three years. Positive FCF to Continue: In line with the Fitch oil price deck, Fitch expect that oil prices will remain below US$60/bbl in the long term. This, coupled with the improved cost structure following the planned commissioning of STAR refinery, should allow Petkim to continue to generate positive cash flows as the market moves from top-of-cycle conditions towards a mid-cycle level. Strong Asset Base, Growing Turkish Market: Petkim has a well- invested asset base and is the sole domestic petrochemical producer in the import-dependent Turkish market. In 2014 the company increased the capacity of its main ethylene cracker by 13% (to 588,000 tons per year), and its purified terephthalic acid (PTA) production capacity by 50% (to 105,000 tons per year). Petkim sells approximately 64% of its products to the domestic market, with the remaining 36% exported mainly to Europe. Demand for petrochemicals products in Turkey grew at a compound annual rate of 6.6% from 2012 to 2016 based on data from the ICIS Supply and Demand Database, and is expected to grow at a compound annual rate of 7% between 2016 and 2023. Petkim plans to add capacity in its speciality chemical products division, with expansions coming onstream in 2018 and 2019. STAR Feedstock to Lower Costs: Starting from 3Q18, Petkim will source its naphtha and mixed xylene supplies from STAR, a 10mtpa refinery in Turkey constructed by State Oil Company of the Azerbaijan Republic (SOCAR,BB+/RWN). Petkim expects to save US$70 million annually on logistic costs after the refinery is commissioned. Fitch view the improved cost structure as positive for the credit profile. Additional synergies with the refinery in infrastructure and services may also provide further upside to Petkim's cost structure and earnings. Leverage to Increase: Petkim plans to use the proposed bond proceeds to purchase an 18% stake in STAR. Fitch believe that the improvement in Petkim's business profile will be small compared with the resulting increase in leverage following the transaction. Under Fitch base case, Petkim's FFO adjusted net leverage peaks at 5.1x in 2018 and gradually decreases to 4.1x in 2020, assuming that through-the-cycle petrochemical margins will be in line with Fitch approach for rating companies in cyclical industries. Although dividends from STAR could improve Petkim's cash flow diversification in the longer term, Fitch have not included them in Fitch forecasts due to uncertainty around their timing and STAR's own financing requirements. Contingent Liabilities of STEAS: Petkim is 51% owned by STEAS, which in turn is 87%-owned by SOCAR and 13% by Goldman Sachs. Petlim, a 70% subsidiary of Petkim, is 30%-owned by Goldman Sachs. In the case of Goldman Sachs' ownership in STEAS and Petlim, the bank has put options with STEAS until 2021. Should these options be exercised, STEAS would incur liabilities of up to US$1.3 billion in respect of STEAS, and US$300 million in respect of Petlim. This could result in pressure on Petkim to upstream additional resources to STEAS. Petkim Rated on Standalone Basis: SOCAR's IDR, which was historically aligned with that of the Republic of Azerbaijan (BB+/Negative), is on Rating Watch Negative to reflect that under Fitch's proposed new methodology, Exposure Draft: Government Related Entities Criteria, the agency could adopt a top-down approach and notch SOCAR's rating down from the sovereign's. Fitch assesses SOCAR's standalone credit profile in the 'B' rating category. Under Fitch's Parent and Subsidiary Rating Linkage (PSL) methodology, Fitch have not factored in any uplift on Petkim's rating from SOCAR's ownership since Fitch regard support from the Azeri government as unlikely. Fitch assess the overall links between SOCAR and Petkim as moderate. This reflects the legal ties represented by cross default clauses to Petkim under SOCAR's bond documentation, and an expected strengthening of operational and strategic ties after the commissioning of the STAR refinery. DERIVATION SUMMARY PJSC Kazanorgsintez (B/Positive) is the closest rated peer to Petkim based on product mix (basic polymers) and geographical concentration. However Kazanorgsintez benefits from its more competitive cost position, higher EBITDA margins (on average over 30%) and from a stronger financial profile with FFO adjusted net leverage of under 1x. Other Fitch-rated, commodity-focused EMEA chemical companies include PAO SIBUR Holding (BB+/Negative), Ineos Group Holdings S.A. (BB+/Stable), Westlake Chemical Corporation (BBB/Stable) and NOVA Chemicals Corporation (BBB-/Stable). SIBUR, Westlake and Nova benefit from competitively priced Russian and North American ethane, placing them in a more advantageous position versus producers with naphtha-based feedstock. Ineos benefits from cross regional diversification as well as product diversification. KEY ASSUMPTIONS Fitch's key assumptions within Fitch rating case for the issuer - Crude oil price of US$52.5/bbl in 2018, US$55/bbl in 2019 and US$57.5/bbl thereafter - Capital expenditure as per the management's guidance - Dividend pay-out assumed at 25% in 2018 and at 50% over 2019- 2020 - Bond proceeds used to finance an 18% stake purchase in the STAR refinery The recovery analysis assumes that Petkim would be considered a going-concern in bankruptcy and that the company would be reorganised rather than liquidated. Fitch have assumed a 10% administrative claim. The going-concern EBITDA is equal to the average EBITDA over 2014-2017, which reflects the industry's move from bottom-of-the cycle to top-of-the cycle conditions. The Fitch-deployed average distressed multiple for recovery analysis in the chemical sector of 4.5x is used to calculate a post-reorganisation valuation. The payment waterfall corresponds to a Recovery Rating 'RR4' (48%) for the senior unsecured rating. Given that Petkim's assets are located in Turkey Fitch would have applied a soft cap of 'RR4' on the senior unsecured rating even if higher recovery was indicated by Fitch analysis. RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action: - FFO adjusted net leverage consistently below 3.0x (2016: 1.3x); and - Significant improvement in cash flow diversification, e.g. higher cash flow generation at Petlim and dividends from the STAR refinery. Developments That May, Individually or Collectively, Lead to Negative Rating Action: - FFO net adjusted net leverage above 4.5x; - Support provided to the parent resulting in higher leverage (e.g. cash outflows related to put options being called by Petlim and STEAS's minority shareholder); and - Material deterioration in the outlook for petrochemical margins. LIQUIDITY Weak Liquidity: Petkim's debt maturity profile is heavily skewed towards the short term and reflects a reliance on low-cost short- term funding from domestic banks. This is not uncommon among Turkish corporates but exposes the company to systemic liquidity risk and results in a weak liquidity ratio, with total cash of TRY1,208 million at end-September 2017 against Fitch-adjusted short-term debt of TRY1,186 million (see below) and forecast negative free cash flow. Petkim aims to hold US$100 million cash on hand. Fitch treats liabilities resulting from letters of credit of TRY452 million at end-September 2017 as short-term debt. Fitch exclude from short-term debt calculation a TRY684 million (US$192 million) loan from to AKBANK in relation to the Petlim port construction. Due to construction delays, the loan has been reclassified to short-term debt, but Petkim received a waiver with an extension of completion dates, which would have resulted in the loan being reclassified to long-term debt at end-2017. TURKEY: DBRS Sovereign Methodology Update No Impact on Ratings -------------------------------------------------------------- DBRS, Inc. has determined that changes to its sovereign methodology, Rating Sovereign Governments, have no impact on the Republic of Turkey's Long-Term Local Currency -- Issuer Rating (BBB (low) with a Negative trend), Long-Term Foreign Currency -- Issuer Rating (BB (high) with a Negative trend), Short-Term Local Currency -- Issuer Rating (R-2 (middle), with a Negative trend), or Short-Term Foreign Currency -- Issuer Rating (R-3, with a Negative trend). Rating drivers also remain unchanged from DBRS's last rating report on Turkey. On October 10, 2017, DBRS requested comments on an update to its sovereign methodology. Following the conclusion of that comment period, the final methodology was published on November 27. As noted in the October 10th press release, the updated methodology revises the approach used to determine whether a differential between foreign and local currency issuer ratings is warranted. As a result of the methodology change, DBRS expected that there would be only a limited number of cases among its existing sovereign ratings where local and foreign currency issuer ratings would differ. Consequently, the October 10 press release indicated that these refinements might have an impact on the ratings of Argentina, Brazil, Colombia, Mexico, and Turkey, most likely affecting the local currency issuer rating. Applying the revised methodology, the one notch differential between Turkey's Foreign and Local Currency -- Issuer Ratings remains appropriate. In the event of a deterioration in credit fundamentals, DBRS believes that Turkey could face material constraints on its access to foreign exchange. This reflects the extent of foreign currency borrowing within the economy and the potential use of foreign exchange reserves to support the lira. Evidence that the government would assign a higher priority to payment of local currency debt is mixed. Nonetheless, local currency debt appears somewhat less likely to be restructured due to the profile of major holders of the debt, as it is held predominantly by public sector entities and domestic banks. Accordingly, DBRS considers the risk of a default on Turkey's foreign currency debt to be somewhat higher than the risk of a default on local currency debt. A change in the relative default risk between foreign and local currency debt could lead to a change in the differential between the Foreign and Local Currency -- Issuer Ratings. Factors underlying such a change could include, for example, a stronger external position that reduces the risk of material constraints on Turkey's access to foreign exchange. =========================== U N I T E D K I N G D O M =========================== CARILLION PLC: Enters Into Liquidation After Rescue Talks Fail -------------------------------------------------------------- Angus Howarth at The Scotsman reports that construction giant Carillion has said it has "no choice but to take steps to enter into compulsory liquidation with immediate effect" after talks failed to find another way to deal with the company's debts. The stricken company, which employs 20,000 workers across Britain, said crunch talks over the weekend aimed at driving down debt and shoring up its balance sheet had failed to result in the "short term financial support" it needed to continue trading while a deal was reached, The Scotsman relates. Chairman Philip Green, as cited by The Scotsman, said: "This is a very sad day for Carillion, for our colleagues, suppliers and customers that we have been proud to serve over many years. "Over recent months huge efforts have been made to restructure Carillion to deliver its sustainable future and the board is very grateful for the huge efforts made by Keith Cochrane, our executive team and many others who have worked tirelessly over this period. "In recent days however we have been unable to secure the funding to support our business plan and it is therefore with the deepest regret that we have arrived at this decision. "We understand that HM Government will be providing the necessary funding required by the Official Receiver to maintain the public services carried on by Carillion staff, subcontractors and suppliers." Carillion, which has been struggling under GBP900 million of debt and a GBP590 million pension deficit, has seen its shares price plunge more than 70% in the past six months after making a string of profit warnings and breaching its financial covenants, The Scotsman discloses. The company is understood to have public sector or public/private partnership contracts worth GBP1.7 billion, including providing school dinners, cleaning and catering at NHS hospitals, construction work on rail projects such as HS2 and maintaining 50,000 army base homes for the Ministry of Defence, The Scotsman states. As a result, the Government has been under increasing pressure to intervene to prevent the collapse of the company, The Scotsman notes. Carillion had met with lenders HSBC, Barclays, Santander and Royal Bank of Scotland on Jan. 10 to discuss options for reducing debts, recapitalize or restructure the group's balance sheet, The Scotsman relays. It was followed by a meeting on Jan. 12 between the Government, pension authorities and stakeholders in an attempt to thrash out a rescue package for the firm, The Scotsman recounts. Carillion plc employs about 43,000 people worldwide and provides services to half the UK's prisons, as well as hundreds of hospitals and schools. HONOURS PLC: Fitch Revises Rating Watch on B Notes to Evolving -------------------------------------------------------------- Fitch Ratings has revised its Rating Watch on Honours Plc notes to Evolving from Negative as follows: - Class A1 and A2: 'A+sf' Rating Watch revised to Evolving from Negative - Class B: 'BB-sf' Rating Watch revised to Evolving from Negative - Class C: 'CCCsf', Recovery Estimate (RE) 35% unaffected - Class D: 'CCsf', RE 0% unaffected This transaction is a refinancing of the previous Honours Plc transaction that closed in 1999, a securitisation of student loans originated in the UK by the Student Loans Company Limited. The notes were first placed on RWN in 2016 following the announcement that particular arrears notices sent by former servicer Capita to certain borrowers may not have been in compliance with consumer credit legislation. In October 2016, the issuer provided an estimate of GBP22.5 million for interests and charges, which was later revised to GBP9 million. In December 2017, Capita agreed to pay the issuer GBP8 million for full and final settlement of any claims the issuer may have against Capita. The settlement amount has been deposited into the issuer's accounts. KEY RATING DRIVERS Settlement Credit-positive, Uncertainty Persists The settlement by Capita in relation to the non-compliance is credit-positive. Furthermore, the issuer's financial advisor has updated the estimated cost of the remediation plan, which is lower than previously assumed. However, uncertainty persists as this estimate does not factor in potential refunds to students for the period from January 2016 onwards, the refunds to the UK government arising from overpayments under the subsidy and any implementation costs. Fitch reduced its liability estimate to GBP12 million from GBP20 million, taking into account the settlement amount, but awaits the issuer's remediation proposal expected for 1Q18 before resolving the Rating Watch. Delinquencies Continue to Increase Delinquencies for this student loan type are seasonally highly fluctuating, due to the annual update of the deferment threshold, which may trigger repayments for borrowers whose obligations were previously deferred. Fitch identifies an uptrend in delinquencies (overdue loans) over the last two to three years, which represent a risk to future performance. According to Fitch criteria, Fitch apply rating-specific roll rates to derive default expectations from the delinquency buckets. Revised Model Assumption Fitch uses its proprietary Granular Asset Loss Analyser model to support its analysis of mortgage-style UK student loans such as those of Honours. The agency has derived a total default expectation of 10.3% and has confirmed its recovery assumption at 25%. However, considering the persistent uncertainty around the total impact of the remediation plan and the significant uptrend in delinquencies Fitch has decided not to change the ratings, but instead revised the Rating Watch to Evolving. This constitutes a variation to Fitch's criteria, as model-implied results would have led to an upgrade on the class A and B notes. Rating Cap The transaction is strongly reliant on the UK government making cancellation payments on deferred loans as well as interest subsidy on the qualifying loan balance, hence capping the rating of the notes at that of the UK sovereign (AA/Negative). VARIATIONS FROM CRITERIA As specified above, Fitch deviated from its criteria in its latest rating action, by not following the model-implied results. The model-implied ratings would have led to an upgrade on class A and B notes by two notches but with the class A notes capped at 'AAsf'. RATING SENSITIVITIES Fitch has tested several scenarios to assess the impact of different liability assumptions and also modelled a default sensitivity based on the peak reported seasonal arrears. Change in the liability assumption to GBP7 million: -- Class A: 'A+sf' -- Class B: 'BB- sf' -- Class C: below 'Bsf', Recovery Estimate (RE) 35% -- Class D: below 'Bsf', RE 0% Change in the liability assumption to GBP15 million: -- Class A: 'A+sf' -- Class B: 'BB- sf' -- Class C: below 'Bsf', RE 35% -- Class D: below 'Bsf', RE 0% Increase in defaults to 12.6% -- Class A: 'A+sf' -- Class B: 'BB-sf' -- Class C: below 'Bsf', RE 35% -- Class D: below 'Bsf', RE 0% JAMIE OLIVER'S: In Restructuring Talks to Reduce Rent Bill ---------------------------------------------------------- Bradley Gerrard and Ashley Armstrong at The Telegraph report that Jamie Oliver's Italian restaurants are asking landlords for rent reductions. According to The Telegraph, the Italian chain run by the celebrity chef, which has 60 branches worldwide, is in restructuring talks with advisers at AlixPartners about how to reduce its rent bill amid rising costs. Like other restaurant chains the business has suffered from a triple hit of rising wage costs, a jump in business rates and higher ingredient costs caused by a weaker pound, The Telegraph discloses. A spokesman for Jamie Oliver Restaurant Group confirmed the business was "exploring plans to restructure its Jamie's Italian restaurant estate in the UK, to ensure the business is in good shape for the future, The Telegraph relates. As part of this review, we are in conversation with our stakeholders, but no final decisions or proposals have been made." The company lost GBP9.9 million last year and closed six restaurants in order to stem its losses, affecting around 120 jobs, The Telegraph states. At the time, the company blamed rising cost pressures but industry sources have said that Jamie's Italian is another example of falling victim to rampant over expansion, The Telegraph recounts. MELTON RENEWABLE: Fitch Affirms BB IDR, Outlook Stable ------------------------------------------------------ Fitch Ratings has affirmed Melton Renewable Energy UK PLC's (MRE) Long-Term Issuer Default Rating (IDR) at 'BB' with Stable Outlook and senior secured notes at 'BB'. The rating affirmation reflects Fitch expectations of positive free cash flow (FCF) generation, supported by dividend restriction covenants. This is despite further regulatory change and power price exposure. Fitch expects that MRE will be reviewing its refinancing options for the senior secured notes expiring in 2020 later this year. KEY RATING DRIVERS UK Regulatory Change: Following the removal of the climate change levy for renewable generators in August 2015 and removal of embedded benefits in June 2017, the regulatory regime has become less supportive. The latter gradually removes 15% of MRE's FY17 (financial year end June) EBITDA by FY21. However, Fitch expect that this will be entirely offset by a recovery in renewables obligation certificate (ROC) recycle prices from FY18. This is based on the ending of ROC certification for new capacity in March 2017 and outturn for the compliance period ended March 2017. Longer term, MRE is looking to compensate the loss of embedded benefits by signing new PPA contracts on improved terms, but not before March 2020 for biomass and February 2022 for landfill gas. This is not yet reflected in Fitch's rating case. Power Price Exposure: Around 35% of revenue is exposed to wholesale price risk under the renewables obligation (RO) scheme, with potential price volatility and a significant impact on cash flows and the rating. Given that MRE hedges forward up to six to 12 months, the continued recovery in UK baseload forwards should start to impact EBITDA from FY19. However, although UK forwards have moved higher, it remains to be seen whether this is a cyclical or more structural market shift. Biomass Supply Contracts Lower Risks: Uninterrupted availability of fuel supplies is key to maintaining biomass output and cash flow generation. MRE's strategy is based on putting availability ahead of cost and plant availability averages 89%. With 65 supply contracts from 40 local suppliers, MRE has long-term contracts in place for poultry litter and straw. The company's fuel mix is more diversified, the scale substantially smaller and suppliers tend to be closer to generation facilities than immediate peer Drax Group Holdings Limited (BB+/Stable), reducing the supply chain risk. Fuel costs account for 40% of total, but with transport costs the main variable partly correlated with the electricity price, this largely hedges the risk of a sharp increase in costs. Landfill in Natural Decline: MRE uses internal knowledge and long-term landfill gas curve forecasts prepared by industry consultant Golder Associates to build output forecasts. Golder Associates estimates the company's current recoverable landfill gas half-life at around 13 years. This implies that output can continue for up to 37 years or around 2055. The Fitch rating case is based on company guidance, supported by Golder Associates estimates, adjusted to reflect output figures for 1Q18 (-3%) and a natural average decline rate of 4%-5% pa. MRE has recently extended the term of gas supply arrangements, lowering the risk of renegotiating royalty costs. Refinancing Risk: The PPAs expire in March 2020 (biomass) and February 2022 (landfill). However, the capital structure expires earlier, the revolving credit facility (RCF) in August 2019, the senior secured notes in February 2020 and shareholder loan in February 2021. MRE has reduced refinancing risk, redeeming 10% of the notes in both August 2015 and June 2016. Further early repayment of the notes bears a penalty of 3% until February 2018 and 1.6% until February 2019. Fitch expect that MRE will likely be exploring refinancing options this spring-summer. A bond issue would likely be amortising and mature with the ROCs in 2027. DERIVATION SUMMARY Closest peer, Drax, is larger and has substantially lower expected gearing with forecast funds from operations (FFO) adjusted net leverage averaging 1.3x for 2017-20 compared with MRE's 2.9x for 2018-21. Forecast FFO fixed charge cover is higher at 7.5x for Drax compared with MRE, pre-refinancing, at 3.5x. However, MRE is better diversified by fuel with lower supply chain risk. Another UK peer, Viridian Group Investments Limited, rated 'B+'/Stable, earns 25% of EBITDA from wind, but has higher gearing with forecast FFO adjusted net leverage averaging 4.4x for 2018-20 and lower FFO fixed charge cover of 2.1x. Viesgo Generacion, S.L.U, rated 'BB'/Stable, has lower gearing than MRE with forecast average FFO adjusted net leverage of 1.3-1.4x, but is fully exposed to merchant price risk and does not enjoy regulatory support comparable to the ROCs underpinning MRE's cash flows. KEY ASSUMPTIONS Fitch's key assumptions within Fitch rating case for the issuer: - Output projections as per company guidance; - UK forwards for unhedged volumes of GBP42.50/ MWh for FY20 and FY21; - RPI assumed at 2.6% for FY19-21, used for updating ROC values, opex; - ROC recycle price assumed at 10% of buyout price (previously 5%); - Senior secured notes of GBP148.9 million with a coupon of 6.75% are refinanced in FY20 with an issue of GBP100 million and coupon of 5%; and - Expected further repayments of the shareholder loan, after a drawdown by GBP18 million in FY17, classified as dividends, in FY18, FY20 and FY21, are adjusted to comply with the permitted payment covenant (2.5x net debt/ EBITDA from FY19). RATING SENSITIVITIES Developments that May, Individually or Collectively, Lead to Positive Rating Action - Increased wholesale electricity prices or output above Fitch's expectations leading to FFO adjusted gross leverage sustainably below 2.5x (FY17: 4.8x) and FFO gross interest cover sustainably above 4.0x (FY17: 3.0x) together with no adverse regulatory change and improved support visibility. Developments that May, Individually or Collectively, Lead to Negative Rating Action - Lower wholesale electricity prices or output below Fitch's expectations leading to FFO adjusted net leverage sustainably above 4.0x and FFO gross interest cover sustainably below 2.5x; and - Further changes to the regulatory framework with a material negative impact on profitability and cash flow. LIQUIDITY MRE's cash position in September 2017 was GBP11.4 million. The company's debt comprises GBP148.9 million senior secured notes due in February 2020 and a subordinated shareholder loan of GBP136.1 million. Fitch treat the shareholder loan, which is unsecured and due to be repaid no earlier than February 2021, as equity. MRE also has access to a GBP20 million RCF due in 2019. In view of low capex and working capital requirements, Fitch expect MRE to be substantially free cash flow-positive. NEW LOOK: Company Voluntary Arrangement Among Rescue Options ------------------------------------------------------------ Mark Kleinman at Sky News reports that New Look, the fashion retailer, is weighing a plan to close about 10% of its British stores in another sign of the tumult facing the high street. Sky News has learnt that the South African-owned chain is drawing up proposals for a Company Voluntary Arrangement (CVA), a process often used by struggling retailers to restructure financial obligations to creditors. According to Sky News, sources said on Jan. 11 that New Look's CVA plan was not yet finalized and was only one of a number of options under consideration. A decision about whether to proceed is expected to be taken in the coming weeks, and would require the consent of bondholders, Sky News notes. If it does go ahead with the store closures, roughly one-tenth of New Look's nearly-600 outlets in Britain would be axed, with sizeable rent reductions sought at many of the remaining shops, Sky News states. Landlords and other creditors would be asked to vote on the plan later this year, Sky News discloses. New Look is the latest in a series of big names to examine a radical shrinking of their store portfolios amid rising pressures from online and discount rivals, increased labour costs and a deteriorating outlook for consumer confidence, Sky News relays. TOYS R US: Committee Taps Berwin Leighton as U.K. Counsel --------------------------------------------------------- The official committee of unsecured creditors of Toys "R" Us, Inc. seeks approval from the U.S. Bankruptcy Court for the Eastern District of Virginia to hire Berwin Leighton Paisner LLP as its special counsel. The firm will advise the committee regarding the proposal issued by Toys "R" Us Limited, a non-debtor subsidiary that is incorporated in England, for a company voluntary arrangement in order to impair certain unsecured claims filed by its creditors. The firm's hourly rates are: Partners GBP605 - GBP875 Associate Directors GBP500 - GBP550 Senior Associates GBP350 - GBP540 Junior Associates GBP265 - GBP340 Trainees GBP210 - GBP230 Ian Benjamin, Esq., a partner at Berwin Leighton, disclosed in a court filing that his firm is a "disinterested person" as defined in section 101(14) of the Bankruptcy Code. In accordance with Appendix B-Guidelines for reviewing fee applications filed by attorneys in larger Chapter 11 cases, Mr. Benjamin disclosed that his firm has not agreed to any variations from, or alternatives to, its standard or customary billing arrangements; and that no Berwin Leighton professional has varied his rate based on the geographic location of the Debtors' bankruptcy cases. Mr. Benjamin also disclosed that Berwin Leighton has not represented the committee before its formation and that its rates have not changed since the petition date. Berwin Leighton is developing a budget and staffing plan that will be presented for approval by the committee, according to Mr. Benjamin. The firm can be reached through: Ian Benjamin, Esq. Berwin Leighton Paisner LLP Adelaide House, London Bridge, London, United Kingdom EC4R 9HA Tel: +44 (0)20 3400-1000 / +44 (0)20 3400-4131 Email: ian.benjamin@blplaw.com About Toys "R" Us Toys "R" Us, Inc., is an American toy and juvenile-products retailer founded in 1948 and headquartered in Wayne, New Jersey, in the New York City metropolitan area. Merchandise is sold in 880 Toys "R" Us and Babies "R" Us stores in the United States, Puerto Rico and Guam, and in more than 780 international stores and more than 245 licensed stores in 37 countries and jurisdictions. Merchandise is also sold at e-commerce sites including Toysrus.com and Babiesrus.com. On July 21, 2005, a consortium of Bain Capital Partners LLC, Kohlberg Kravis Roberts and Vornado Realty Trust invested $1.3 billion to complete a $6.6 billion leveraged buyout of the company. Toys "R" Us is now a privately owned entity but still files with the Securities and Exchange Commission as required by its debt agreements. The Company's consolidated balance sheet showed $6.572 billion in assets, $7.891 billion in liabilities, and a stockholders' deficit of $1.319 billion as of April 29, 2017. Toys "R" Us, Inc., and certain of its U.S. subsidiaries and its Canadian subsidiary voluntarily filed for relief under Chapter 11 of the Bankruptcy Code (Bankr. E.D. Va. Lead Case No. Case No. 17-34665) on Sept. 19, 2017. In addition, the Company's Canadian subsidiary voluntarily commenced parallel proceedings under the Companies' Creditors Arrangement Act ("CCAA") in Canada in the Ontario Superior Court of Justice. The Company's operations outside of the U.S. and Canada, including its 255 licensed stores and joint venture partnership in Asia, which are separate entities, are not part of the Chapter 11 filing and CCAA proceedings. Grant Thornton is the monitor appointed in the CCAA case. Judge Keith L. Phillips presides over the Chapter 11 cases. In the Chapter 11 cases, Kirkland & Ellis LLP and Kirkland & Ellis International LLP serve as the Debtors' legal counsel. Kutak Rock LLP serves as co-counsel. Toys "R" Us employed Alvarez & Marsal North America, LLC as its restructuring advisor; and Lazard Freres & Co. LLC as its investment banker. It hired Prime Clerk LLC as claims and noticing agent. A&G Realty Partners, LLC, serves as its real estate advisor. On Sept. 26, 2017, the U.S. Trustee for Region 4 appointed an official committee of unsecured creditors. The Committee retained Kramer Levin Naftalis & Frankel LLP as its legal counsel; Wolcott Rivers, P.C. as local counsel; FTI Consulting, Inc. as financial advisor; and Moelis & Company LLC as investment banker. ZARA UK: Moody's Assigns First-Time B2 CFR, Outlook Stable ---------------------------------------------------------- Moody's Investors Service has assigned a first-time B2 corporate family rating (CFR) and a B2-PD probability of default rating (PDR) to Zara UK Midco Limited, the top entity of the borrowing group which comprises Flamingo Horticulture Ltd ("Flamingo") and Afri Flowers Holding B.V. ("Afriflora") and their respective subsidiaries - a leading European flower and premium vegetables producer and distributor with farm operations in Kenya, Ethiopia and South Africa. Concurrently, Moody's has assigned a B2 (LGD 4) instrument rating to the EUR280 million 7-year senior secured term loan B to be borrowed by Zara UK Midco Limited and EUR30 million 6-year senior secured revolving credit facility (RCF) to be borrowed by Zara UK Midco Limited and certain of its subsidiaries. The outlook on the ratings is stable. The rating action is triggered by the proposed issuance of the above credit facilities to support the acquisition of Afriflora from KKR by the private equity funds managed and/or advised by Sun Capital Partners, Inc. and its affiliates ("Sun Capital"). The acquisition funding will also include an equity contribution comprising a roll-over of Flamingo and Afriflora equity and new cash equity contributed by Sun Capital. RATINGS RATIONALE The B2 CFR reflects Zara's (i) strong market position, albeit in narrow product segments: cut flowers and premium vegetables in the UK and sweetheart roses globally, supported by the company's cost advantage in sweetheart roses production; (ii) a degree of vertical integration combining its own production with third- party sourcing leading to ability to meet fluctuations in demand; (iii) positioning in the product segments with favourable growth trends in otherwise mature core markets; (iv) long-term relationships with leading retail customers across the value spectrum and with third-party suppliers. The rating also negatively reflects Zara's (i) limited product diversification; (ii) exposure to demand volatility stemming from the customer preferences and retailer promotional activity as well as potential margin volatility due to pricing pressure in UK retail and ability to pass through cost increase; (iii) political risk arising from operating in Kenya and Ethiopia which account for most of its own production; (iv) vulnerability to weather and crop disease risk inherent in the industry leading to potential margin volatility, although Moody's understands that neither Afriflora or Flamingo have experienced crop disease; (v) concentration of the customer base with the top 5 customers accounting for around three quarters of sales. Moody's expects to see gradual deleveraging of the business from 4.5x (gross Moody's adjusted) at the end of 2017 primarily due to top line growth following recent production capacity increase at Afriflora and growth in line with the market in the UK and Europe for Flamingo, combined with some margin expansion. The company's liquidity pro forma for the transaction is good, supported by EUR10 million cash on balance sheet expected as of closing and undrawn EUR30 million RCF. Moody's expect the company to generate positive free cash flow due to reduced capex requirements following significant investments in the past several years and limited working capital outflows. The company is subject to some intra-year seasonality in demand and working capital swings in the Flamingo flower business and may be affected by payment terms with its key customers. The B2 rating of the credit facilities, ranking pari-passu with each other, is in line with the CFR due to the 50% family recovery rate applied to covenant-lite bank debt structures. OUTLOOK RATIONALE The stable outlook reflects Moody's expectation of continued growth in the two businesses supported by volume growth at Afriflora and margin expansion at Flamingo as well as some moderate synergies from combining the two businesses. The outlook also assumes that no material debt-financed acquisitions or shareholder distributions will be made. WHAT COULD MOVE THE RATINGS UP/DOWN Positive rating pressure could develop if Moody's adjusted debt/ EBITDA ratio falls sustainably below 4.0x and EBIT margin improves towards a high-single digit while free cash flow generation remaining solid. Downward rating pressure could develop if the company's leverage rises above 5.0x for a prolonged period, EBIT margin deteriorates towards 5% or free cash flow becomes negative leading to liquidity concerns. The principal methodology used in these ratings was Global Packaged Goods published in January 2017. Zara UK Midco Limited is a leading European supplier of flowers and premium vegetables to retail and wholesale customers with 66% of sales generated in the UK. The company runs farming operations primarily in Kenya and Ethiopia as well as in South Africa with 541 hectares of combined greenhouse production capacity. In 2016 the combined entity generated revenues of EUR531 million and adjusted EBITDA of EUR55 million (based on 2017 average GBP/EUR exchange rate). ********* 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. 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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 2018. All rights reserved. ISSN 1529-2754. 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