/raid1/www/Hosts/bankrupt/TCREUR_Public/180406.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
Friday, April 6, 2018, Vol. 19, No. 068
Headlines
B U L G A R I A
BULGARIAN TELECOMM: Moody's Hikes CFR to Ba3, Outlook Stable
F R A N C E
GROUPE DOUX: Court Approves Bankruptcy, Operations to Continue
G E O R G I A
BANK OF GEORGIA: Issuer Replacement No Impact on Fitch BB- Rating
TEGETA MOTORS: Fitch Affirms B-(EXP) IDR, Outlook Stable
I R E L A N D
BL CONSUMER: DBRS Finalizes Provisional 'B' Rating on Cl. F Notes
BLUEMOUNTAIN EUR 2016-1: Moody's Rates Class F-R Notes (P)B2
CREVAL: DBRS Confirms 'BB' Rating on LT Sr. Debt, Trend Positive
EURO-GALAXY CLO VI: Moody's Assigns B2 Rating to Class F Notes
EURO-GALAXY CLO VI: Fitch Rates Class F Notes 'B-sf'
EUROPEAN 2017-PL1 DAC: DBRS Hikes Cl. F Notes Rating to B (high)
TORO EUROPEAN CLO 5: Moody's Assigns B2 Rating to Class F Notes
I T A L Y
BANCA DEL MEZZOGIORNO: Moody's Affirms ba3 Standalone BCA
MONTE DEI PASCHI: Making Progress with Turnaround Plan, Execs Say
K A Z A K H S T A N
LONDON ALMATY: A.M. Best Affirms 'C++ (Marginal)' FS Rating
N E T H E R L A N D S
EDML 2018-1: Moody's Assigns Ba3(sf) Rating to Cl. G Notes
FORNAX ECLIPSE 2006-2: Fitch Cuts Ratings on 2 Tranches to 'Dsf'
S P A I N
IM GBP CONSUMO: DBRS Confirms 'CC' Rating on Class B Notes
SRF 2017-1 FONDO: DBRS Confirms 'BB' Rating on Class D Notes
U K R A I N E
PRIVATBANK: Files Legal Claim Against PwC Over Accounting Abuses
U N I T E D K I N G D O M
BUNNINGS UK: Owner Commences Search for Buyer, CVA Mulled
CONVIVIALITY: Investors Mull Legal Action Amid Financial Woes
KCA DEUTAG: Moody's Hikes CFR to B3, Outlook Stable
X X X X X X X X
* BOOK REVIEW: Risk, Uncertainty and Profit
*********
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B U L G A R I A
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BULGARIAN TELECOMM: Moody's Hikes CFR to Ba3, Outlook Stable
------------------------------------------------------------
Moody's Investors Service has upgraded Bulgarian
Telecommunications Company EAD's (Vivacom) Corporate Family
Rating (CFR) to Ba3 from B1 and has affirmed its Probability of
Default Rating (PDR) of B1-PD.
The outlook on the ratings is stable.
"The upgrade of Vivacom's ratings reflects the company's
successful completion of a refinancing package which will be used
to repay in full by April 2018 the company's outstanding EUR400
million notes due November 2018. It also reflects the company's
consistent track record of steady deleveraging since 2013,
Moody's expectation of a continued improvement in key credit
metrics, and the company's conservative financial policies," says
Alejandro Nunez, a Moody's Vice President -- Senior Analyst and
lead analyst for Vivacom. As part of the recent refinancing
exercise, Moody's expects the company will primarily use its on-
balance sheet cash to repay the balance of the outstanding notes'
redemption not funded by its new bank credit facility, reducing
its outstanding gross debt by approximately BGN113 million, from
BGN788 million to BGN675 million on a proforma basis.
The B1 rating on the existing EUR400 million 6 5/8% senior
secured notes due November 2018 were unaffected by this rating
action and remain unchanged, as they will shortly be redeemed
with proceeds from the new bank facility. Moody's expects to
withdraw the ratings on those existing notes once they are
repaid.
RATINGS RATIONALE
-- RATIONALE FOR Ba3 CFR
Vivacom's Ba3 CFR reflects: (1) the company's position as a
leading telecom operator in Bulgaria with strong market shares in
fixed-line telephony and fixed-line broadband; (2) Vivacom's
strong track record of growing its mobile segment's market share
and revenues; (3) the company's modest leverage with Moody's-
adjusted Gross Debt / EBITDA expected to be around 2.4x at year-
end 2018; (4) its diversified business model, with offers in
fixed-line voice, broadband internet, mobile and pay-TV; (5)
expectations of materially improved free cash flow generation in
2018-2020 supported by modest EBITDA growth, reduced working
capital outflows, lower capex spending and significantly lower
interest expenses resulting from the recent refinancing exercise;
and (6) good liquidity following the successful completion in Q1
2018 of a 5-year senior credit facilities package.
The rating also reflects: (1) the company's modest scale compared
with global telecommunications peers due to its limited
geographical focus in Bulgaria; (2) the competitive telecom
market landscape in Bulgaria and its resulting low, albeit
rising, Average Revenues Per User (ARPU); (3) revenue pressure in
fixed-line services as a result of the structural decline in
fixed-line voice services and price pressures in the
corporate/small enterprises segment; (4) the potential for a
change in the company's parent's (Viva Telecom (Luxembourg) S.A.
[Viva Telecom]) shareholding structure, which is subject to
existing litigation cases at the level of holding companies
outside the Vivacom restricted group; and (5) the possibility
that a material portion of Vivacom's operating cash flows would
be upstreamed over the next two years to the company's parent
(Viva Telecom), which is a risk mitigated by the strong covenant
package and restricted payments limitations in Vivacom's debt
documentation.
Although Moody's expects the company to post low single-digit
percentage revenue and EBITDA growth over the next two years, it
also expects Vivacom's capex spend will decline from 2018 on both
an absolute basis and relative to revenues, such that
capex/revenues will be around 20% in the 2018-2020 period,
following three years of elevated investments in Vivacom's
national 4G network. In addition, the company's recent
refinancing will roughly halve its financial debt costs from mid-
2018 onward thereby saving the company approximately BGN33
million in annual interest expenses after its outstanding EUR400
million notes are repaid in April 2018.
Following materially stronger free cash flow generation in 2017
(of BGN143 million), Moody's anticipates that Vivacom will
continue to generate solid operating and free cash flow, relative
to 2014-2016 levels, while maintaining an adequate level of
network and spectrum investment to support its future growth and
competitiveness.
Vivacom has also proven its adherence to a conservative financial
policy over the past two years and in 2017 reduced its financial
leverage target to a range of 2.0-2.5x net debt/EBITDA (company-
reported) from 3.0x previously. Moody's notes that Vivacom's
reported net leverage was under 2.0x at year-end 2017 and expects
the company's reported net leverage to remain below 2.0x over the
2018-2020 period.
-- RATIONALE FOR B1-PD PDR
Moody's has affirmed the PDR of B1-PD to reflect the change in
Vivacom's debt structure to an all-bank loan structure following
the repayment of the existing senior secured notes with proceeds
from the new bank facility. The company's B1-PD PDR expresses
Moody's view of a 65% family recovery rate, instead of the
standard 50% that the rating agency uses for capital structures
that comprise both bank loans and bonds, and reflects the
inclusion of meaningful maintenance covenants in those credit
facilities' documentation as well as the bank facility's security
over the company's tangible assets. The 65% family recovery rate
translates into a PDR which is one notch below the Ba3 CFR.
RATIONALE FOR STABLE OUTLOOK
Vivacom is well positioned in the Ba3 rating category. The stable
outlook reflects an expectation that Vivacom's gross leverage
will continue to decline modestly, to an average of 2.4x over
2018-2019, and that the company will continue to generate
positive free cash flow even after accounting for a moderate
dividends upstream to service a term loan at Viva Telecom. Also
embedded in the outlook is an expectation that the company will
not increase its conservative net leverage target of 2.0x-2.5x
Net debt/EBITDA (company-reported) and will maintain a good level
of liquidity.
While Vivacom's credit metrics are currently at the stronger end
of the Ba3 category, the stable outlook reflects a degree of
uncertainty regarding the company's long-term ownership and
shareholder strategy.
WHAT COULD CHANGE THE RATING UP / DOWN
Upward pressure on the rating could develop if the company's
(Moody's-adjusted) gross leverage remains consistently below 2.5x
while it also sustainably maintains (Moody's-adjusted.) Retained
Cash Flow (RCF) / Gross Debt above 30%.
Downward pressure on the ratings could arise should Vivacom's
operating performance weaken or should the company incur
additional indebtedness, such that its (Moody's-adjusted) gross
leverage were to be sustainably above 3.0x. Negative ratings
pressure would also arise should the company's (Moody's-
adjusted.) Retained Cash Flow (RCF) / Gross Debt remain
sustainably below 20% or if there were a material deterioration
in the company's liquidity profile.
LIST OF AFFECTED RATINGS
Upgrades:
Issuer: Bulgarian Telecommunications Company EAD
-- LT Corporate Family Rating, Upgraded to Ba3 from B1
Affirmations:
Issuer: Bulgarian Telecommunications Company EAD
-- Probability of Default Rating, Affirmed at B1-PD
Outlook Actions:
Issuer: Bulgarian Telecommunications Company EAD
-- Outlook, Changed to Stable from Positive
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was
Telecommunications Service Providers published in January 2017.
Bulgarian Telecommunications Company EAD ("Vivacom") is the
national telecom incumbent and leading integrated operator in
Bulgaria (Baa2 stable), providing mobile, fixed-line telephony,
fixed-line broadband and pay-TV (both DTH and IPTV) services
nationwide. Vivacom is a fully integrated operator that offers
quadruple-play services nationwide in Bulgaria and benefits from
its leading position in fixed-line telephony business with an 80%
revenue share and the largest player in fixed-line broadband with
a 26% subscriber market share (as of December 2017). In addition,
Vivacom is Bulgaria's third-largest mobile operator (29% revenue
market share as of December 2017), providing post-paid services
to both residential and business customers and pre-paid services
to residential customers with a total of 3.1 million subscribers.
As of December 2017, Vivacom's revenue mix was 59% mobile, 14%
fixed voice, 10% fixed data, 8% pay-TV and 9% other
telecommunications services. In 2017, the company generated total
revenue of BGN889.5 million (EUR454.8 million, at a Bulgarian lev
pegged to the Euro at BGN1.95583/EUR) and company-adjusted EBITDA
of BGN318.9 million (EUR163.1 million).
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F R A N C E
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GROUPE DOUX: Court Approves Bankruptcy, Operations to Continue
--------------------------------------------------------------
Angeline Benoit at Bloobmerg News, citing Agence France-Presse,
reports that the French Tribunal of Commerce in Rennes in western
France approved Groupe Doux's bankruptcy while authorizing
operations to keep running through May 31.
According to Bloomberg, AFP said the tribunal will choose in the
coming weeks between offers made by LDC along with Al-Munajem and
Terrena, on one side, and MHP on the other.
As reported by the Troubled Company Reporter-Europe on April 3,
2018, just-food.com related that loss-making French poultry
producer Groupe Doux announced its intention to file for
liquidation on March 23. Doux revealed it was suffering economic
difficulties back in September, just-food.com disclosed.
Chateaulin-based Doux, which was founded in 1955, is owned by
French co-op the Terrena Group.
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G E O R G I A
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BANK OF GEORGIA: Issuer Replacement No Impact on Fitch BB- Rating
-----------------------------------------------------------------
Fitch Ratings says that the recent substitution of Bank of
Georgia (BOG; BB-/Stable) for its holding company JSC BGEO Group
(BGEO; BB-/Stable) as the issuer of US$350 million Eurobond will
not impact the bond's 'BB-' rating, as both entities are rated at
the same 'BB-' level. The entities' ratings are also unaffected.
The substitution was approved by the majority (more than 90%) of
the noteholders with the terms of the notes remaining unchanged.
The interest rate is 6% per annum and the maturity is in July
2023. The Eurobond was initially issued by BGEO in July 2016. Of
the total USD350 million amount USD250 million were on-lent to
BOG on similar terms and USD100 million were used for general
corporate purposes, including investments in other subsidiaries.
The issuer substitution took place on 23 March 2018. This
involved the earlier repayment of USD250 million by BOG and
USD100 million by Georgia Capital to BGEO and subsequent transfer
of USD350 million back to BOG, with it also assuming full
liability for the notes as the new issuer. BOG is expected to use
the proceeds for general lending operations.
TEGETA MOTORS: Fitch Affirms B-(EXP) IDR, Outlook Stable
--------------------------------------------------------
Fitch Ratings has affirmed Georgian auto spare parts and
maintenance provider Tegeta Motors LLC's expected Long-Term
Issuer Default Rating (IDR) of 'B-(EXP)'. The Outlook is Stable.
The affirmation reflects an adequate increase in committed
liquidity to offset upcoming 2018 maturities despite the
postponed issuance of a planned local-currency bond. Unsuccessful
issuance of a medium- or long-term local currency bond of about
GEL30 million by end-August 2018 could result in a negative
rating action as this would mean a failure to diversify funding
sources and improve liquidity.
Tegeta Motors' rating of 'B-(EXP)' is underpinned by its leading
position in the local market and significant proportion of
aftermarket-driven non-cyclical revenues. However, the rating is
limited by the group's small scale, lack of geographical
diversification, material FX risk, weak operating environment,
negative free cash flow (FCF) and tight liquidity position.
KEY RATING DRIVERS
Tight Liquidity: Refinancing needs are high due to the
significant proportion of short-term loans. In 4Q17 the group
successfully refinanced part of its debt and smoothed debt
repayment schedule. Loans totalling GEL28 million due in 2018
make up 30% of debt versus 58% of debt being short-term as of
3Q17-end. However, Fitch consider refinancing risk moderate,
assuming the current credit facilities will be rolled over as the
group has good long-term relationships with its key creditors.
Tegeta Motors' planned bond issue of GEL30 million would smooth
its debt repayment profile, improve liquidity and provide funding
diversification.
Limited but Stable Business Profile: Tegeta Motors operates in
the small and fragmented market of auto spare parts and
aftermarket services in Georgia. It is small compared with
international peers and has limited revenue diversification.
However, this is partly offset by its strong positions in some of
the segments it covers and its relatively greater size in the
local market. In addition, it derives a large proportion of its
revenue from spare parts and aftermarket services sales, which
are typically less sensitive to economic cycles. This part of the
business contributed over half of total revenues and around
three-quarters of group earnings in FY16.
Geographic Concentration: Tegeta Motors' geographic
diversification is limited, as it is primarily focused on
Georgia, with the associated risks of operating in the more
volatile economic conditions typical for emerging markets. The
Georgian automotive market is small, with around 1.2 million
units (including trucks and light vehicles). However, management
estimates that around 3% of sales were attributed to direct
export in 2017 and about 10% were re-exported, providing limited
exposure to other markets. The group also plans to extend its
presence in the Caucasus region by investing via JVs with
reliable partners.
Industry Structure Supports Business: Only 1.3% of cars in
Georgia are less than three years old, while around 91% are over
10 years old. This supports constant demand for automotive
repairs and car parts sales, which make up the largest part of
Tegeta Motors' earnings.
Product Diversification: Tegeta Motors serves a relatively
diverse range of product types compared with similar automotive
repair and distribution groups in larger markets, for example
performing maintenance on industrial equipment and construction
vehicles alongside more traditional truck and light vehicle
servicing. The group also has a diversified mix of retail, fleet
and governmental customers.
Weak FCF: Fitch expect negative FCF of 1%-4% in the coming two
years due to significant investment plans to expand the group's
network. This is likely to be primarily debt funded given the
limited cash reserves and challenging liquidity position. Fitch
could take negative rating action if the expansion plan is
executed in such a way that Fitch expectations for funds from
operations (FFO) adjusted leverage exceed 4.0x on a sustained
basis.
Material FX Risk: The group has a material FX mismatch. All
revenue is generated in Georgian lari, while around 80% of
operating costs are linked to US dollars and euros. All debt at
end-2017 was denominated in foreign currencies (mainly dollars).
The company's planned local currency bond issuance should help
address this exposure. Nonetheless, the group would still face
material FX risk.
DERIVATION SUMMARY
Tegeta Motors' rating of 'B-(EXP)' is underpinned by its leading
market position in the local market, the non-cyclical nature of
major sources of revenue and healthy profitability even in times
of crisis. However, the rating is limited by group's small scale,
lack of geographical diversification, material FX risk, weak
operating environment, negative FCF and tight liquidity position.
The business profile is more exposed to cyclicality, and operates
in an industry with lower barriers to entry than other rated
Georgian corporates such as healthcare provider JSC Medical
Corporation EVEX (B+/Positive) and incumbent telecoms provider
Silknet JSC (B+/Rating Watch Positive).
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Fitch Rating Case for the Issuer
- Revenue growth of around 12% for 2018-2021.
- EBITDA margin remaining around 10% over 2018-2021 based on
historical data and Fitch conservative view on profitability
growth potential. Fitch consider that high competition in the
market will cap the profitability near current levels.
- Capex in line with the company's guidance concerning expansion
strategy and increase of its network, totalling up to GEL90
million over 2018-2021.
- Dividends of GEL3 million a year taking into account the
existing cap established by covenants.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action
- Improved geographical diversification
- Positive FCF on a sustainable basis
- FFO margin increasing to over 10% (2016: 7.4%; 2017E: 8.4%)
- FFO adjusted gross leverage sustainably below 2.5x (2016:
3.4x; 2017E: 2.8x)
Developments That May, Individually or Collectively, Lead to
Negative Rating Action
- FFO margin falling consistently below 5%
- FFO adjusted gross leverage sustained above 4.0x
- Deterioration in the market environment or the company's
market position
- Increasing risks around further refinancing ability, including
deterioration in key banking relationships
LIQUIDITY
Liquidity Challenging: At end-2017 unrestricted cash of GEL13.9
million and available undrawn bank facilities of GEL3.4 million
remained insufficient to cover negative FCF and short-term debt
of GEL28.1 million. However, in 4Q17 the group successfully
refinanced part of its debt and smoothed its debt repayment
schedule: short-term debt made up 30% of total debt at end-2017
compared with 58% at end-3Q17.
In March 2018 the company obtained additional bank facilities of
EUR8.5 million and USD5 million, or about GEL38 million in total,
from TBC Bank and the European Bank for Reconstruction and
Development, which should be enough to cover upcoming short-term
debt repayment. Nevertheless, Fitch consider refinancing risk
moderate and Fitch expect existing facilities will be rolled over
as the group has good long-term relationship with its key
creditor, TBC Bank. In addition, Tegeta's planned bond issue of
GEL30 million will smooth its debt repayment profile and improve
liquidity.
FULL LIST OF RATING ACTIONS
LLC Tegeta Motors
Long-Term IDR: affirmed at 'B-(EXP)'
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I R E L A N D
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BL CONSUMER: DBRS Finalizes Provisional 'B' Rating on Cl. F Notes
-----------------------------------------------------------------
DBRS Ratings Limited finalized provisional ratings on the Class A
Notes, Class B Notes, Class C Notes, Class D Notes, Class E Notes
and Class F Notes (collectively, the Rated Notes) issued by BL
Consumer Issuance Platform S.A., acting in respect of its
compartment BL Cards 2018 (the Issuer) as follows:
-- AAA (sf) on the Class A Notes
-- AA (high) (sf) on the Class B Notes
-- A (high) (sf) on the Class C Notes
-- BBB (sf) on the Class D Notes
-- BB (sf) on the Class E Notes
-- B (sf) on the Class F Notes
The ratings address the timely payment of interest and ultimate
repayment of principal by the final maturity date.
The ratings are based on the considerations listed below:
-- Transaction capital structure including form and sufficiency
of available credit enhancement in the form of
subordination, liquidity support and excess spread.
-- Credit enhancement levels are sufficient to support DBRS's
expected performance under various stress scenarios.
-- The transaction's ability to withstand stressed cash flow
assumptions and repay the Rated Notes according to the terms
of the transaction documents.
-- Buy Way Personal Finance's (the Seller) and its delegates'
capabilities with respect to originations, underwriting,
cash management, data processing and servicing.
-- DBRS conducted an operational risk review of the Seller and
deems it to be an acceptable servicer.
-- The transaction parties' financial strength with regard to
their respective roles.
-- The credit quality and concentration of the collateral and
historical and projected performance of the Seller's
portfolio.
-- The sovereign ratings of the Kingdom of Belgium and the Grand
Duchy of Luxembourg, currently rated AA (high) and AAA,
respectively, by DBRS.
-- The consistency of legal structure with DBRS's "Legal
Criteria for European Structured Finance Transactions"
methodology and the presence of legal opinions that address
the true sale of the assets to the Issuer and non-
consolidation of the Issuer with the Seller.
Notes: All figures are in euros unless otherwise noted.
BLUEMOUNTAIN EUR 2016-1: Moody's Rates Class F-R Notes (P)B2
------------------------------------------------------------
Moody's Investors Service announced that it has assigned the
following provisional ratings to notes to be issued by
BlueMountain EUR CLO 2016-1 Designated Activity Company:
-- EUR1,500,000 Class X-R Senior Secured Floating Rate Notes due
2032, Assigned (P)Aaa (sf)
-- EUR235,200,000 Class A-R Senior Secured Floating Rate Notes
due 2032, Assigned (P)Aaa (sf)
-- EUR50,000,000 Class B-R Senior Secured Floating Rate Notes
due 2032, Assigned (P)Aa2 (sf)
-- EUR26,400,000 Class C-R Deferrable Mezzanine Floating Rate
Notes due 2032, Assigned (P)A2 (sf)
-- EUR21,800,000 Class D-R Deferrable Mezzanine Floating Rate
Notes due 2032, Assigned (P)Baa2 (sf)
-- EUR25,000,000 Class E-R Deferrable Junior Floating Rate Notes
due 2032, Assigned (P)Ba2 (sf)
-- EUR11,200,000 Class F-R Deferrable Junior Floating Rate Notes
due 2032, Assigned (P)B2 (sf)
Moody's issues provisional ratings in advance of the final sale
of financial instruments, but these ratings only represent
Moody's preliminary credit opinions. Upon a conclusive review of
a transaction and associated documentation, Moody's will
endeavour to assign definitive ratings. A definitive rating (if
any) may differ from a provisional rating.
RATINGS RATIONALE
Moody's provisional ratings of the notes address the expected
loss posed to noteholders. The provisional ratings reflect the
risks due to defaults on the underlying portfolio of assets, the
transaction's legal structure, and the characteristics of the
underlying assets.
The Issuer will issue the Refinancing Notes in connection with
the refinancing of the following classes of notes: Class A1
Notes, Class A2 Notes, Class B1 Notes, Class B2 Notes, Class C
Notes, Class D Notes, Class E Notes and Class F Notes due 2030
(the "Original Notes"), previously issued on April 28, 2016 (the
"Original Closing Date"). On the Refinancing Date, the Issuer
will use the proceeds from the issuance of the Refinancing Notes
to redeem in full its respective Original Notes. On the Original
Closing Date, the Issuer also issued EUR44.2M of Subordinated
Notes, which will remain outstanding.
BlueMountain EUR CLO 2016-1 Designated Activity Company is a
managed cash flow CLO. At least 90% of the portfolio must consist
of senior secured loans and senior secured bonds and up to 10% of
the portfolio may consist of unsecured senior loans, second-lien
loans, mezzanine obligations and high yield bonds. The underlying
portfolio is 100% ramped as of the second refinancing closing
date.
BlueMountain Fuji Management, LLC will manage the CLO. It will
direct the selection, acquisition and disposition of collateral
on behalf of the Issuer and may engage in trading activity,
including discretionary trading, during the transaction's four-
year reinvestment period. Thereafter, purchases are permitted
using principal proceeds from unscheduled principal payments and
proceeds from sales of credit risk and credit improved
obligations, and are subject to certain restrictions.
The transaction incorporates interest and par coverage tests
which, if triggered, divert interest and principal proceeds to
pay down the notes in order of seniority.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's
Global Approach to Rating Collateralized Loan Obligations"
published in August 2017.
Factors that would lead to an upgrade or downgrade of the
ratings:
The rated notes' performance is subject to uncertainty. The
notes' performance is sensitive to the performance of the
underlying portfolio, which in turn depends on economic and
credit conditions that may change. BlueMountain Fuji Management,
LLC investment decisions and management of the transaction will
also affect the notes' performance.
Loss and Cash Flow Analysis:
Moody's modelled the transaction using CDOEdge, a cash flow model
based on the Binomial Expansion Technique, as described in
Section 2.3 of the "Moody's Global Approach to Rating
Collateralized Loan Obligations" rating methodology published in
August 2017. The cash flow model evaluates all default scenarios
that are then weighted considering the probabilities of the
binomial distribution assumed for the portfolio default rate. In
each default scenario, the corresponding loss for each class of
notes is calculated given the incoming cash flows from the assets
and the outgoing payments to third parties and noteholders.
Therefore, the expected loss or EL for each tranche is the sum
product of (i) the probability of occurrence of each default
scenario and (ii) the loss derived from the cash flow model in
each default scenario for each tranche. As such, Moody's
encompasses the assessment of stressed scenarios.
Par amount: EUR400,000,000
Diversity Score: 38
Weighted Average Rating Factor (WARF): 2800
Weighted Average Spread (WAS): 3.35%
Weighted Average Coupon (WAC): 5.0%
Weighted Average Recovery Rate (WARR): 42.75%
Weighted Average Life (WAL): 8 years
As part of the base case, Moody's has addressed the potential
exposure to obligors domiciled in countries with local a currency
country risk ceiling (LCC) of A1 or below. As per the portfolio
constraints, exposures to countries with a LCC of A1 or below
cannot exceed 10%, with exposures to countries with LCCs of Baa1
to Baa3 further limited to 5%. Following the effective date, and
given these portfolio constraints and the current sovereign
ratings of eligible countries, the total exposure to countries
with a LCC of A1 or below may not exceed 10% of the total
portfolio. As a worst case scenario, a maximum 5% of the pool
would be domiciled in countries with LCCs of Baa1 to Baa3 while
an additional 5% would be domiciled in countries with LCCs of A1
to A3. The remainder of the pool will be domiciled in countries
which currently have a LCC of Aa3 and above. Given this portfolio
composition, the model was run with different target par amounts
depending on the target rating of each class of notes as further
described in the methodology. The portfolio haircuts are a
function of the exposure size to countries with local a LCC of A1
or below and the target ratings of the rated notes, and amount to
0.75% for the Class X-R and Class A-R notes, 0.50% for the Class
B-R notes, 0.375% for the Class C-R notes and 0% for Classes D-R,
E-R and F-R.
Stress Scenarios:
Together with the set of modelling assumptions above, Moody's
conducted additional sensitivity analysis, which was an important
component in determining the provisional ratings assigned to the
rated notes. This sensitivity analysis includes increased default
probability relative to the base case. Below is a summary of the
impact of an increase in default probability (expressed in terms
of WARF level) on each of the rated notes (shown in terms of the
number of notch difference versus the current model output,
whereby a negative difference corresponds to higher expected
losses), holding all other factors equal.
Percentage Change in WARF: WARF + 15% (to 3220 from 2800)
Ratings Impact in Rating Notches:
Class X-R Senior Secured Floating Rate Notes: 0
Class A-R Senior Secured Floating Rate Notes: 0
Class B-R Senior Secured Floating Rate Notes: -2
Class C-R Deferrable Mezzanine Floating Rate Notes: -2
Class D-R Deferrable Mezzanine Floating Rate Notes: -2
Class E-R Deferrable Junior Floating Rate Notes: -1
Class F-R Deferrable Junior Floating Rate Notes: 0
Percentage Change in WARF: WARF +30% (to 3640 from 2800)
Ratings Impact in Rating Notches:
Class X-R Senior Secured Floating Rate Notes: 0
Class A-R Senior Secured Floating Rate Notes: -1
Class B-R Senior Secured Floating Rate Notes: -3
Class C-R Deferrable Mezzanine Floating Rate Notes: -4
Class D-R Deferrable Mezzanine Floating Rate Notes: -3
Class E-R Deferrable Junior Floating Rate Notes: -2
Class F-R Deferrable Junior Floating Rate Notes: -2
CREVAL: DBRS Confirms 'BB' Rating on LT Sr. Debt, Trend Positive
----------------------------------------------------------------
DBRS confirmed Credito Valtellinese's Long-Term Issuer Rating as
well as its Long-Term Senior Debt and Long-Term Deposits Ratings
at BB. Concurrently, the Bank's Short-Term Issuer Rating was
confirmed at R-4.
The trend on all ratings is now positive.
With this action, DBRS concluded the rating review, which was
initiated in November 2017 and then extended in February 2018.
-- Long-Term Senior Debt confirmed BB rating;
-- Short-Term Debt Trend Change to R-4 Speculative credit
quality rating;
-- Senior Long-Term Notes - EUR 5 billion EMTN Programme
confirmed BB rating;
-- Senior Short-Term Notes - EUR 5 billion EMTN Programme Trend
Change to R-4 Speculative credit quality rating;
-- Mandatory Pay Subordinated Debt (Tier 2) - EUR 5 billion EMTN
Programme Confirmed B (high) rating;
-- Long-Term Issuer Rating Confirmed BB rating;
-- Long-Term Deposits Confirmed BB rating;
-- Short-Term Deposits Trend Change to R-4 Speculative credit
quality rating; and
-- Short-Term Issuer Rating Trend Change to R-4 Speculative
credit quality rating.
EURO-GALAXY CLO VI: Moody's Assigns B2 Rating to Class F Notes
--------------------------------------------------------------
Moody's Investors Service announced that it has assigned the
following definitive ratings to notes issued by Euro-Galaxy VI
CLO Designated Activity Company (the "Issuer" or " Euro-Galaxy VI
"):
-- EUR245,500,000 Class A Senior Secured Floating Rate Notes due
2031, Definitive Rating Assigned Aaa (sf)
-- EUR30,500,000 Class B-1 Senior Secured Floating Rate Notes
due 2031, Definitive Rating Assigned Aa2 (sf)
-- EUR12,000,000 Class B-2 Senior Secured Fixed Rate Notes due
2031, Definitive Rating Assigned Aa2 (sf)
-- EUR22,000,000 Class C Senior Secured Deferrable Floating Rate
Notes due 2031, Definitive Rating Assigned A2 (sf)
-- EUR22,500,000 Class D Senior Secured Deferrable Floating Rate
Notes due 2031, Definitive Rating Assigned Baa2 (sf)
-- EUR27,500,000 Class E Senior Secured Deferrable Floating Rate
Notes due 2031, Definitive Rating Assigned Ba2 (sf)
-- EUR12,000,000 Class F Senior Secured Deferrable Floating Rate
Notes due 2031, Definitive Rating Assigned B2 (sf)
RATINGS RATIONALE
Moody's definitive rating of the rated notes addresses the
expected loss posed to noteholders by the legal final maturity of
the notes in 2031. The definitive ratings reflect the risks due
to defaults on the underlying portfolio of loans given the
characteristics and eligibility criteria of the constituent
assets, the relevant portfolio tests and covenants as well as the
transaction's capital and legal structure. Furthermore, Moody's
is of the opinion that the collateral manager, PineBridge
Investments Europe Limited ("PineBridge"), has sufficient
experience and operational capacity and is capable of managing
this CLO.
Euro-Galaxy VI is a managed cash flow CLO. At least 90% of the
portfolio must consist of senior secured loans and secured senior
bonds and up to 10% of the portfolio may consist of unsecured
senior obligations, second-lien loans, mezzanine obligations and
high yield bonds. The portfolio is expected to be approximately
at least 70% ramped up as of the closing date and to be comprised
predominantly of corporate loans to obligors domiciled in Western
Europe.
PineBridge manages the CLO. It directs the selection, acquisition
and disposition of collateral on behalf of the Issuer and may
engage in trading activity, including discretionary trading,
during the transaction's reinvestment period, which ends in 2022.
Thereafter, purchases are permitted using principal proceeds from
unscheduled principal payments and proceeds from sales of credit
impaired and credit improved obligations, and are subject to
certain restrictions.
In addition to the seven classes of notes rated by Moody's, the
Issuer will issue EUR39,000,000 of Subordinated Notes, which will
not be rated.
The transaction incorporates interest and par coverage tests
which, if triggered, divert interest and principal proceeds to
pay down the notes in order of seniority.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's
Global Approach to Rating Collateralized Loan Obligations"
published in August 2017.
Factors that would lead to an upgrade or downgrade of the
ratings:
The rated notes' performance is subject to uncertainty. The
notes' performance is sensitive to the performance of the
underlying portfolio, which in turn depends on economic and
credit conditions that may change. PineBridge's investment
decisions and management of the transaction will also affect the
notes' performance.
Loss and Cash Flow Analysis:
Moody's modeled the transaction using a cash flow model based on
the Binomial Expansion Technique, as described in Section 2.3.2.1
of the "Moody's Global Approach to Rating Collateralized Loan
Obligations" rating methodology published in August 2017.
The cash flow model evaluates all default scenarios that are then
weighted considering the probabilities of the binomial
distribution assumed for the portfolio default rate. In each
default scenario, the corresponding loss for each class of notes
is calculated given the incoming cash flows from the assets and
the outgoing payments to third parties and noteholders.
Therefore, the expected loss or EL for each tranche is the sum
product of (i) the probability of occurrence of each default
scenario and (ii) the loss derived from the cash flow model in
each default scenario for each tranche. As such, Moody's
encompasses the assessment of stressed scenarios.
The key model inputs Moody's used in its analysis, such as par,
weighted average rating factor, diversity score and the weighted
average recovery rate, are based on its published methodology and
could differ from the trustee's reported numbers. For modeling
purposes, Moody's used the following base-case assumptions:
Par amount: EUR400,000,000
Diversity Score: 40
Weighted Average Rating Factor (WARF): 2862
Weighted Average Spread (WAS): 3.55%
Weighted Average Coupon (WAC): 5.00%
Weighted Average Recovery Rate (WARR): 42.00%
Weighted Average Life (WAL): 8.5 years
As part of the base case, Moody's has addressed the potential
exposure to obligors domiciled in countries with local a currency
country risk ceiling (LCC) of A1 or below. As per the portfolio
constraints, exposures to countries with a LCC of A1 or below
cannot exceed 10%, with exposures to countries with LCCs of Baa1
to Baa3 further limited to 5%. Following the effective date, and
given these portfolio constraints and the current sovereign
ratings of eligible countries, the total exposure to countries
with a LCC of A1 or below may not exceed 10% of the total
portfolio. As a worst case scenario, a maximum 5% of the pool
would be domiciled in countries with LCCs of Baa1 to Baa3 while
an additional 5% would be domiciled in countries with LCCs of A1
to A3. The remainder of the pool will be domiciled in countries
which currently have a LCC of Aa3 and above. Given this portfolio
composition, the model was run with different target par amounts
depending on the target rating of each class of notes as further
described in the methodology. The portfolio haircuts are a
function of the exposure size to countries with a LCC of A1 or
below and the target ratings of the rated notes, and amount to
0.75% for the Class A Notes, 0.50% for the Class B Notes, 0.375%
for the Class C Notes and 0% for Classes D, E and F.
Stress Scenarios:
Together with the set of modeling assumptions above, Moody's
conducted additional sensitivity analysis, which was an important
component in determining the definitive rating assigned to the
rated notes. This sensitivity analysis includes increased default
probability relative to the base case. Below is a summary of the
impact of an increase in default probability (expressed in terms
of WARF level) on each of the rated notes (shown in terms of the
number of notch difference versus the current model output,
whereby a negative difference corresponds to higher expected
losses), holding all other factors equal:
Percentage Change in WARF: WARF + 15% (to 3291 from 2862)
Ratings Impact in Rating Notches:
Class A Senior Secured Floating Rate Notes: -1
Class B-1 Senior Secured Floating Rate Notes: -2
Class B-2 Senior Secured Fixed Rate Notes: -2
Class C Senior Secured Deferrable Floating Rate Notes: -2
Class D Senior Secured Deferrable Floating Rate Notes: -2
Class E Senior Secured Deferrable Floating Rate Notes: -1
Class F Senior Secured Deferrable Floating Rate Notes: 0
Percentage Change in WARF: WARF +30% (to 3721 from 2862)
Ratings Impact in Rating Notches:
Class A Senior Secured Floating Rate Notes: -1
Class B-1 Senior Secured Floating Rate Notes: -4
Class B-2 Senior Secured Fixed Rate Notes: -4
Class C Senior Secured Deferrable Floating Rate Notes: -4
Class D Senior Secured Deferrable Floating Rate Notes: -2
Class E Senior Secured Deferrable Floating Rate Notes: -1
Class F Senior Secured Deferrable Floating Rate Notes: -2
EURO-GALAXY CLO VI: Fitch Rates Class F Notes 'B-sf'
----------------------------------------------------
Fitch Ratings has assigned Euro-Galaxy CLO VI DAC final ratings:
Class A: 'AAAsf'; Outlook Stable
Class B-1: 'AAsf'; Outlook Stable
Class B-2: 'AAsf'; Outlook Stable
Class C: 'Asf'; Outlook Stable
Class D: 'BBBsf'; Outlook Stable
Class E: 'BBsf'; Outlook Stable
Class F: 'B-sf'; Outlook Stable
Subordinated notes: not rated
Euro-Galaxy CLO VI DAC is a cash flow collateralised loan
obligation (CLO). Net proceeds from the issuance of the notes
will be used to purchase a portfolio of EUR400 million of mostly
European leveraged loans and bonds. The portfolio is actively
managed by PineBridge Investments Europe Limited. The CLO
envisages a four-year reinvestment period and an 8.5-year
weighted average life.
KEY RATING DRIVERS
B' Portfolio Credit Quality
Fitch places the average credit quality of obligors in the 'B'
range. The Fitch-weighted average rating factor (WARF) of the
current portfolio is 33.9, below the maximum covenant of 34 in
the indicative matrix point.
High Recovery Expectations
At least 90% of the portfolio will comprise senior secured
obligations. Fitch views the recovery prospects for these assets
as more favourable than for second-lien, unsecured and mezzanine
assets. The Fitch-weighted average recovery rate of the current
portfolio is 62.8%, above the minimum covenant of 60.7%,
corresponding to the matrix WARF of 34, a minimum weighted
average spread of 3.6% and a maximum exposure to the top 10
obligors of 20%.
Limited Interest Rate Exposure
Fixed-rate liabilities represent 3% of the target par, while
fixed-rate assets can represent up to 5% of the portfolio. The
transaction is therefore partially hedged against rising interest
rates.
Diversified Asset Portfolio
The transaction features three Fitch test matrices with different
covenanted maximum exposure to the top 10 obligors. This covenant
ensures that the asset portfolio will not be exposed to excessive
obligor concentration. The portfolio manager can interpolate
between these three matrices.
RATING SENSITIVITIES
A 125% default multiplier applied to the portfolio's mean default
rate, and with this increase added to all rating default levels,
would lead to a downgrade of up to two notches for the rated
notes. A 25% reduction in recovery rates would lead to a
downgrade of up to two notches for the rated notes.
EUROPEAN 2017-PL1 DAC: DBRS Hikes Cl. F Notes Rating to B (high)
----------------------------------------------------------------
DBRS Ratings Limited confirmed and upgraded its ratings on the
notes issued by European Residential Loan Securitization 2017-PL1
DAC (the Issuer):
-- Class A notes confirmed at AAA (sf)
-- Class B notes confirmed at AA (sf)
-- Class C notes upgraded to A (high) (sf) from A (sf)
-- Class D notes upgraded to BBB (high) (sf) from BBB (sf)
-- Class E notes upgraded to BB (high) (sf) from BB (sf)
-- Class F notes upgraded to B (high) (sf) from B (sf)
The rating on the Class A notes addresses the timely payment of
interest and ultimate payment of principal. The ratings on the
Class B notes, Class C notes, Class D notes, Class E notes and
Class F notes address the ultimate payment of interest and
principal.
The ratings follow an annual review of the transaction and are
based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults
and losses as at the February 2018 payment date.
-- Probability of default (PD), loss given default (LGD) and
expected loss assumptions on the remaining receivables.
-- Current available credit enhancement (CE) to the notes to
cover the expected losses at their respective rating levels.
The Issuer is a securitization of first-lien performing and re-
performing Irish residential mortgages originated by Bank of
Scotland (Ireland) Limited, Start Mortgages DAC and Nua Mortgages
Limited. The portfolio is serviced by Start Mortgages DAC, with
the primary servicing activities delegated to Computershare
Limited.
PORTFOLIO PERFORMANCE
As at February 2018, two- to three-month arrears were 2.0%, down
from 2.6% in March 2017; the 90+ delinquency ratio was 6.0%, up
from 0.1% in March 2017 and the cumulative loss ratio was 0.1%.
PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis of the remaining pool of
receivables and updated its base case PD and LGD assumptions to
30.0% and 31.3%, from 32.2% and 38.3%, respectively.
CREDIT ENHANCEMENT
As at the February 2018 payment date, CE to the Class A notes was
59.3%; up from 55.5% at the DBRS initial rating. CE to the Class
B notes was 46.0%, up from 42.4% at the DBRS initial rating. CE
to the Class C notes was 40.8%, up from 37.3% at the DBRS initial
rating. CE to the Class D notes was 33.0%, up from 29.6% at the
DBRS initial rating. CE to the Class E notes was 24.9%, up from
21.6% at the DBRS initial rating. CE to the Class F notes was
19.7%, up from 16.5% at the DBRS initial rating. CE is provided
by subordination of the junior classes and the General Reserve
Fund.
The transaction benefits from an amortizing Liquidity Reserve
Fund of EUR 8.3 million and a non-amortizing General Reserve Fund
of EUR 11.8 million. Amortized amounts of the Liquidity Reserve
Fund will form part of the General Reserve Fund. All else being
equal, the General Reserve Fund is expected to increase as the
Liquidity Reserve Fund amortizes.
The transaction also benefits from an Additional Note Payment
Reserve of EUR 2.7 million, which covers any shortfall in
additional note payment amounts, following the step-up date on
the interest payment date falling in March 2019.
Elavon Financial Services DAC, U.K. Branch acts as the account
bank for the transaction. DBRS's private rating of Elavon
Financial Services DAC, U.K. Branch complies with the Minimum
Institution Rating, given the rating assigned to the Class A
notes, as described in DBRS's "Legal Criteria for European
Structured Finance Transactions" methodology.
BNP Paribas SA (publicly rated AA (low) with a Stable trend by
DBRS) acts as the Interest Rate Cap Provider for the transaction.
DBRS's public Long Term Critical Obligations Rating of BNP
Paribas SA at AA (high) is above the First Rating Threshold as
described in DBRS's "Derivative Criteria for European Structured
Finance Transactions" methodology.
Notes: All figures are in euros unless otherwise noted.
The principal methodology applicable to the ratings is: "Master
European Structured Finance Surveillance Methodology".
TORO EUROPEAN CLO 5: Moody's Assigns B2 Rating to Class F Notes
---------------------------------------------------------------
Moody's Investors Service announced that it has assigned the
following definitive ratings to notes issued by Toro European CLO
5 Designated Activity Company:
-- EUR2,250,000 Class X Secured Floating Rate Notes due 2030,
Definitive Rating Assigned Aaa (sf)
-- EUR232,500,000 Class A Secured Floating Rate Notes due 2030,
Definitive Rating Assigned Aaa (sf)
-- EUR34,000,000 Class B-1 Secured Floating Rate Notes due 2030,
Definitive Rating Assigned Aa2 (sf)
-- EUR22,850,000 Class B-2 Secured Fixed Rate Notes due 2030,
Definitive Rating Assigned Aa2 (sf)
-- EUR14,500,000 Class C-1 Secured Deferrable Floating Rate
Notes due 2030, Definitive Rating Assigned A2 (sf)
-- EUR10,000,000 Class C-2 Secured Deferrable Floating Rate
Notes due 2030, Definitive Rating Assigned A2 (sf)
-- EUR21,720,000 Class D Secured Deferrable Floating Rate Notes
due 2030, Definitive Rating Assigned Baa2 (sf)
-- EUR23,450,000 Class E Secured Deferrable Floating Rate Notes
due 2030, Definitive Rating Assigned Ba2 (sf)
-- EUR11,850,000 Class F Secured Deferrable Floating Rate Notes
due 2030, Definitive Rating Assigned B2 (sf)
RATINGS RATIONALE
Moody's definitive rating of the rated notes addresses the
expected loss posed to noteholders by the legal final maturity of
the notes in 2030. The definitive ratings reflect the risks due
to defaults on the underlying portfolio of loans given the
characteristics and eligibility criteria of the constituent
assets, the relevant portfolio tests and covenants as well as the
transaction's capital and legal structure. Furthermore, Moody's
is of the opinion that the collateral manager, Chenavari Credit
Partners LLP ("Chenavari"), has sufficient experience and
operational capacity and is capable of managing this CLO.
Toro European CLO 5 Designated Activity Company is a managed cash
flow CLO. At least 90% of the portfolio must consist of senior
secured loans and senior secured bonds and up to 10% of the
portfolio may consist of unsecured obligations, second-lien
loans, mezzanine loans and high yield bonds. The portfolio is
approximately at least 70% ramped up as of the closing date and
to be comprised predominantly of corporate loans to obligors
domiciled in Western Europe.
Chenavari will manage the CLO. It will direct the selection,
acquisition and disposition of collateral on behalf of the Issuer
and may engage in trading activity, including discretionary
trading, during the transaction's four-year reinvestment period.
Thereafter, purchases are permitted using principal proceeds from
unscheduled principal payments and proceeds from sales of credit
risk obligations, and are subject to certain restrictions.
In addition to the nine classes of notes rated by Moody's, the
Issuer issues EUR41.25m of subordinated notes, which are not
rated.
The transaction incorporates interest and par coverage tests
which, if triggered, divert interest and principal proceeds to
pay down the notes in order of seniority.
Methodology Underlying the Rating Action:
The principal methodology used in these ratings was "Moody's
Global Approach to Rating Collateralized Loan Obligations"
published in August 2017.
Factors that would lead to an upgrade or downgrade of the
ratings:
The rated notes' performance is subject to uncertainty. The
notes' performance is sensitive to the performance of the
underlying portfolio, which in turn depends on economic and
credit conditions that may change. Chenavari's investment
decisions and management of the transaction will also affect the
notes' performance.
Loss and Cash Flow Analysis:
Moody's modeled the transaction using CDOEdge, a cash flow model
based on the Binomial Expansion Technique, as described in
Section 2.3 of the "Moody's Global Approach to Rating
Collateralized Loan Obligations" rating methodology published in
August 2017. The cash flow model evaluates all default scenarios
that are then weighted considering the probabilities of the
binomial distribution assumed for the portfolio default rate. In
each default scenario, the corresponding loss for each class of
notes is calculated given the incoming cash flows from the assets
and the outgoing payments to third parties and noteholders.
Therefore, the expected loss or EL for each tranche is the sum
product of (i) the probability of occurrence of each default
scenario and (ii) the loss derived from the cash flow model in
each default scenario for each tranche. As such, Moody's
encompasses the assessment of stressed scenarios.
Moody's used the following base-case modeling assumptions:
Par amount: EUR400,000,000
Diversity Score: 34
Weighted Average Rating Factor (WARF): 2800
Weighted Average Spread (WAS): 3.70%
Weighted Average Recovery Rate (WARR): 43%
Weighted Average Life (WAL): 8.5 years
Moody's has analysed the potential impact associated with
sovereign related risk of peripheral European countries. As part
of the base case, Moody's has addressed the potential exposure to
obligors domiciled in countries with local currency country risk
ceiling of A1 or below. Following the effective date, and given
the portfolio constraints and the current sovereign ratings in
Europe, such exposure may not exceed 10% of the total portfolio.
As a result and in conjunction with the current foreign
government bond ratings of the eligible countries, as a worst
case scenario, a maximum 10% of the pool would be domiciled in
countries with an A3 country ceiling. The remainder of the pool
will be domiciled in countries which currently have a local or
foreign currency country ceiling of Aaa or Aa1 to Aa3.
Stress Scenarios:
Together with the set of modeling assumptions above, Moody's
conducted additional sensitivity analysis, which was an important
component in determining the definitive rating assigned to the
rated notes. This sensitivity analysis includes increased default
probability relative to the base case. Below is a summary of the
impact of an increase in default probability (expressed in terms
of WARF level) on each of the rated notes (shown in terms of the
number of notch difference versus the current model output,
whereby a negative difference corresponds to higher expected
losses), holding all other factors equal:
Percentage Change in WARF: WARF + 15% (to 3220 from 2800)
Ratings Impact in Rating Notches:
Class X Secured Floating Rate Notes: 0
Class A Secured Floating Rate Notes: 0
Class B-1 Secured Floating Rate Notes: -2
Class B-2 Secured Fixed Rate Notes: -2
Class C-1 Secured Deferrable Floating Rate Notes: -2
Class C-2 Secured Deferrable Floating Rate Notes: -2
Class D Secured Deferrable Floating Rate Notes: -2
Class E Secured Deferrable Floating Rate Notes: 0
Class F Secured Deferrable Floating Rate Notes: 0
Percentage Change in WARF: WARF +30% (to 3640 from 2800)
Ratings Impact in Rating Notches:
Class X Secured Floating Rate Notes: 0
Class A Secured Floating Rate Notes: -1
Class B-1 Secured Floating Rate Notes: -3
Class B-2 Secured Fixed Rate Notes: -3
Class C-1 Secured Deferrable Floating Rate Notes: -4
Class C-2 Secured Deferrable Floating Rate Notes: -4
Class D Secured Deferrable Floating Rate Notes: -2
Class E Secured Deferrable Floating Rate Notes: -1
Class F Secured Deferrable Floating Rate Notes: 0
=========
I T A L Y
=========
BANCA DEL MEZZOGIORNO: Moody's Affirms ba3 Standalone BCA
---------------------------------------------------------
Moody's Investors Service affirmed the ba3 standalone baseline
credit assessment (BCA) of Banca del Mezzogiorno -- MCC S.p.A.
(Banca del Mezzogiorno), its Baa3/Prime-3 deposit ratings, and
the Baa3(cr)/Prime-3(cr) Counterparty Risk Assessments (CR
Assessment); the outlook on Banca del Mezzogiorno's long-term
deposit rating remains stable. At the same time, the rating
agency assigned a Baa3 long-term issuer rating, with negative
outlook.
RATINGS RATIONALE
-- AFFIRMED STANDALONE BCA
Moody's affirmation of the ba3 standalone BCA of Banca del
Mezzogiorno reflects the bank's plan to focus its activity on
lending to corporates in the weaker south of Italy through rapid
loan growth, resulting in lower capitalisation and returns, and
with increased reliance on wholesale funding. These risks are
mitigated by government guarantees on the majority of the loans
that the bank will grant, still good capital ratios, and ample
liquidity resources that could be potentially provided in case of
need by Banca del Mezzogiorno's public shareholders.
Banca del Mezzogiorno reported a stock of EUR1.6 billion loans as
of end-2017; 29% were residential mortgages granted throughout
Italy, whilst the remaining were loans towards large corporate
(46%) and small and medium enterprises (SMEs, 25%) operating in
southern Italy. In its new 2018-2020 business plan, the bank is
planning to focus its new activity on lending to corporate and
SMEs in southern Italy, while the residential mortgage portfolio
will slowly run off in several years; Banca del Mezzogiorno plans
on growing its portfolio of corporate and SME lending by 6% in
2018, and 18% in both 2019 and 2020. Moody's considers this
growth to be rapid, increasing the risk already associated with
the weaker operating environment in the region.
As a mitigating factor, most of new loans granted by Banca del
Mezzogiorno will partially benefit from government guarantees,
which will reduce credit losses; furthermore, the legacy low-risk
residential mortgage portfolio, which according to the bank's
plan will represent 21% of total loans in 2020, will continue to
provide some diversification.
Banca del Mezzogiorno's new strategy will lead to a gradual
reduction in capital, but which in Moody's view will remain good.
The bank's Common Equity Tier 1 (CET1) ratio declined to 16.2% at
end-2017 compared to 28.1% at end-June 2017. The bank has not
disclosed its CET1 targets for the new business plan, but its
capitalisation will fall further given it plans to grow its
equity by almost 20% in three years through earnings retention,
while loans will grow by almost a third in the same timeframe.
Moody's believes that the bank's strategy will lead to lower
returns on tangible assets, as the high and stable commissions
derived from the management of government guarantee funds will be
diluted by the returns on the new lending activity, which Moody's
expects to be low in the context of low interest rates.
The rapid loan growth will be largely financed through the
issuance of bonds in wholesale market (+118% in three years).
Overall, reliance on inherently less stable wholesale funding is
an additional risk; furthermore, the percentage of liquid assets
will likely reduce as the bank's loan book grows, reducing
buffers in case of lack of market access. These additional risks
are however partially mitigated by ample liquidity potentially
available from the public sector in case of need.
-- UNCHANGED EXTREMELY LOW LOSS-GIVEN-FAILURE FOR DEPOSITS
Banca del Mezzogiorno is subject to the EU's Bank Recovery and
Resolution Directive (BRRD), which Moody's considers to be an
Operational Resolution Regime.
According to Moody's advanced Loss Given Failure (LGF) analysis,
Banca del Mezzogiorno's deposits remain likely to face extremely
low loss-given-failure, due to the loss absorption provided by
the residual equity that the rating agency expects in a
resolution scenario, as well as the volume of senior debt issued
by the bank. This results in an uplift of three notches for the
deposit rating from the bank's BCA. This also takes into account
Moody's expectation that deposits will in practice rank above
senior debt in a resolution given the introduction of full
deposit preference in 2019.
-- MODERATE GOVERNMENT SUPPORT
Moody's said it continues to assume a moderate likelihood of
government support for Banca del Mezzogiorno's rated wholesale
deposits in the event of its failure, but this does not result in
any further uplift given the proximity of their unsupported
creditworthiness to the rating of the government of Italy (Baa2
negative). This probability reflects the balance between on the
one hand, the bank's government ownership, and its role in
supporting economic development in southern Italy; on the other
hand, the limitations for government intervention on banks in
distress according to the BRRD.
ISSUER RATING ASSIGNED
Moody's also assigned a first-time Baa3 issuer rating to Banca
del Mezzogiorno. The rating reflects (1) the bank's standalone
BCA of ba3; (2) Moody's expectation that senior debt will likely
face very low loss-given-failure in a resolution scenario, which
provides an uplift of two notches; (3) Moody's assumption of a
moderate probability of government support, which results in an
additional one-notch uplift.
Given the one notch of government support uplift, the long-term
issuer rating is aligned with that of the long-term deposit
rating. While Moody's assessment of the probability of support is
moderate for both instruments, the lower unsupported
creditworthiness of senior unsecured liabilities means that the
issuer rating benefits more from the potential support of the
government.
RATING OUTLOOK
The outlook on Banca del Mezzogiorno's long-term deposit rating
is stable, reflecting the moderate economic recovery in Italy.
Moody's expect Italy's GDP to grow by around 1.5% in 2018.
The bank's issuer rating has instead a negative outlook,
mirroring the negative outlook on Italy's Baa2 sovereign debt
rating.
FACTORS THAT COULD LEAD TO AN UPGRADE
Moody's said that Banca del Mezzogiorno's BCA could be upgraded
following a track record of a low cost of risk, and greater
diversification of funding sources.
The bank's deposit rating could be upgraded following an upgrade
of the BCA. An upgrade of Italy's sovereign debt rating could
also lead to an upgrade of Banca del Mezzogiorno's deposit
rating, but this is unlikely given the negative outlook on
Italy's sovereign debt rating.
Banca del Mezzogiorno's issuer rating could be upgraded following
an upgrade of the BCA, provided that the loan growth is financed
through bail-in-able unsecured debt as stated in the bank's
business plan.
FACTORS THAT COULD LEAD TO A DOWNGRADE
Conversely, Banca del Mezzogiorno's BCA could be downgraded
following a considerable deterioration of the bank's loan book,
or a material reduction of capital.
The bank's deposit and issuer ratings could be downgraded
following a downgrade of the BCA, or if the asset growth is
funded through non bail-in-able debt such as deposits or secured
funding. Furthermore, Banca del Mezzogiorno's issuer rating could
be downgraded following a downgrade of Italy's sovereign debt
rating, which has had a negative outlook since December 2016.
LIST OF AFFECTED RATINGS
Issuer: Banca del Mezzogiorno - MCC S.p.A.
Assignments:
-- Long-term Issuer Ratings, assigned Baa3 Negative
Affirmations:
-- Long-term Counterparty Risk Assessment, affirmed Baa3(cr)
-- Short-term Counterparty Risk Assessment, affirmed P-3(cr)
-- Long-term Bank Deposits, affirmed Baa3 Stable
-- Short-term Bank Deposits, affirmed P-3
-- Adjusted Baseline Credit Assessment, affirmed ba3
-- Baseline Credit Assessment, affirmed ba3
Outlook Action:
-- Outlook changed to Stable(m) from Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Banks
published in September 2017.
MONTE DEI PASCHI: Making Progress with Turnaround Plan, Execs Say
-----------------------------------------------------------------
Valentina Za at Reuters reports that the top executives of
bailed-out Italian bank Monte dei Paschi di Siena told investors
in London on April 4 the bank is making progress with its
turnaround plan.
CEO Marco Morelli and CFO Andrea Rovellini said in one-to-one
investor meetings they were confident about hitting targets
agreed with EU authorities to clear the rescue, Reuters relays,
citing one of two fund managers who attended the meetings.
According to Reuters, the second investor said Messrs. Morelli
and Rovellini did not provide specific figures but said
first-quarter earnings, due in May, would confirm the
restructuring is on track.
Italy' fourth-largest bank, brought low by mismanagement and a
huge bad loan pile, has been the biggest threat to the country's
financial stability for years, until an EUR8.1 billion (US$10
billion) bailout last summer handed the Rome government a 68%
stake, Reuters notes.
Both parties have opposed the previous government's efforts to
shore up the country's banks, which have been struggling to deal
with soured loans left over from a recession, Reuters states.
Monte dei Paschi is due to offload by mid-2018 EUR25 billion
(US$31 billion) in bad loans repackaged as securities in Italy's
biggest such disposal, with help from a state-sponsored,
privately-funded banking support fund, Reuters discloses.
Investors fear Monte dei Paschi may need fresh capital to cover
further loan losses or to be able to shed bad debts more quickly
than anticipated under its restructuring plan, Reuters discloses.
They also worry about the bank's slow turnaround progress,
Reuters relays.
One fund manager, as cited by Reuters, said Mr. Morelli ruled out
the ECB may demand a more ambitious clean-up, after lengthy
negotiations over the turnaround plan agreed with Brussels last
year.
Monte dei Paschi made a 2017 loss of EUR3.5 billion, hit by
EUR5.3 billion in loan writedowns as revenues dropped 6%, Reuters
discloses.
Banking sources have told Reuters Monte dei Paschi needs to find
a partner quickly, possibly as part of a three-way merger, but
none have emerged so far.
Banca Monte dei Paschi di Siena SpA -- http://www.mps.it/-- is
an Italy-based company engaged in the banking sector. It
provides traditional banking services, asset management and
private banking, including life insurance, pension funds and
investment trusts. In addition, it offers investment banking,
including project finance, merchant banking and financial
advisory services. The Company comprises more than 3,000
branches, and a structure of channels of distribution. Banca
Monte dei Paschi di Siena Group has subsidiaries located
throughout Italy, Europe, America, Asia and North Africa. It has
numerous subsidiaries, including Mps Sim SpA, MPS Capital
Services Banca per le Imprese SpA, MPS Banca Personale SpA, Banca
Toscana SpA, Monte Paschi Ireland Ltd. and Banca MP Belgio SpA.
===================
K A Z A K H S T A N
===================
LONDON ALMATY: A.M. Best Affirms 'C++ (Marginal)' FS Rating
-----------------------------------------------------------
A.M. Best has affirmed the Financial Strength Rating of C++
(Marginal) and the Long-Term Issuer Credit Rating of "b+" of
Insurance Company London-Almaty JSC (London Almaty) (Kazakhstan).
The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect London Almaty's balance sheet strength, which
A.M. Best categorizes as strong, as well as its marginal
operating performance, very limited business profile and weak
enterprise risk management (ERM).
The company's balance sheet assessment is underpinned by its
risk-adjusted capitalization being at the strongest level, as
measured by Best's Capital Adequacy Ratio (BCAR). Although A.M.
Best expects London Almaty's risk-adjusted capitalization to
decline over the next three years as a result of underwriting
growth and dividend payments, it is likely to remain at the
strongest level. Offsetting factors for balance sheet strength
include the company's small capital base, which increases its
sensitivity to shock events, and its significant dependence on
reinsurance for underwriting large limit risks. Additionally, the
company's invested assets are exposed to the high financial
system risk in Kazakhstan.
London Almaty's operating performance has been largely
profitable, albeit volatile and dependent on investment income.
The company's annual return on equity has varied between minus
2.4% and 34.0% over the past five years (2013-2017). Volatile
operating results have been driven by fluctuating investment
performance, reflecting changes in the fair value of the
company's invested assets, and from foreign exchange movements
following the devaluation of the Kazakh Tenge. The company's
underwriting operations have been loss making in each of the past
three years (2015-2017), driven principally by the company's high
expense base and lack of scale.
London Almaty is a small insurer and ranked 12th in the Kazakh
non-life market based on 2017 gross written premiums. Despite
ambitious plans to grow its underwriting portfolio, success has
been mixed. Whilst gross written premiums grew by over 80% in
2016, surpassing KZT 6 billion, planned growth in 2017 did not
materialize and the company's premium base shrank by nearly 10%.
In A.M. Best's view, the high cost of attracting new business in
Kazakhstan presents a material barrier to profitable growth over
the near term. The company's approach to risk management is
focused principally on adhering to local regulatory guidelines
and requirements. An undeveloped internal risk management
framework and the company's exposure to the heightened economic,
political and financial system risks associated with operating in
Kazakhstan remain offsetting factors in A.M. Best's assessment of
ERM.
=====================
N E T H E R L A N D S
=====================
EDML 2018-1: Moody's Assigns Ba3(sf) Rating to Cl. G Notes
----------------------------------------------------------
Moody's Investors Service has assigned the following credit
ratings to notes issued by EDML 2018-1 B.V.:
-- EUR452.5 million Class A mortgage-backed notes 2018 due
January 2057, Definitive Rating Assigned Aaa(sf)
-- EUR11.5 million Class B mortgage-backed notes 2018 due
January 2057, Definitive Rating Assigned Aa3(sf)
-- EUR11 million Class C mortgage-backed notes 2018 due January
2057, Definitive Rating Assigned A2(sf)
-- EUR7 million Class D mortgage-backed notes 2018 due January
2057, Definitive Rating Assigned Baa1(sf)
-- EUR3 million Class E mortgage-backed notes 2018 due January
2057, Definitive Rating Assigned Baa3(sf)
-- EUR2.5 million Class F mortgage-backed notes 2018 due January
2057, Definitive Rating Assigned Ba1(sf)
-- EUR3.75 million Class G mortgage-backed notes 2018 due
January 2057, Definitive Rating Assigned Ba3(sf)
Moody's has not assigned any ratings to the Class H notes and to
the Class RS notes. The Class A to H notes are mortgage backed
notes. The proceeds of the Class RS notes will be partially used
to fund the reserve account.
The transaction represents the third securitisation of Dutch
prime mortgage loans backed by residential properties located in
the Netherlands originated by Elan Woninghypotheken B.V. (former
Dynamic Credit Woninghypotheken B.V.) (Elan, not rated). The
portfolio will be serviced by Quion Services B.V. (Quion, not
rated) and Intertrust Administrative Services B.V. (Intertrust,
not rated) will act in the role of issuer administrator.
At the pool cut-off date as of November 2017, the portfolio
consists of 1,207 loans with a total principal balance of
EUR395.5 million. However, on the closing date part of the
proceeds of the notes issuance (EUR104.5 million) has been
deposited in a separate account. This amount will be subsequently
used prior to the first notes payment date to finance the
purchase by the issuer of an additional pool of loans. This
additional pool consists of 387 mortgage loans with a total
principal balance of EUR131.4 million as of the November 2017
cut-off date. These additional loans are loans for which at the
cut-off date the seller has extended binding offers to the
prospective borrowers, but which have not yet been accepted by
the borrowers. If the borrowers accept these offers, the seller
is obligated to provide the loans to the borrowers on the terms
as specified in the binding offers; if the applicable additional
purchase conditions are satisfied, the issuer will purchase these
loans from the seller up to the amount of EUR104.5 million.
Moody's analysis of this transaction is based on the combined
pool data as of January 2018. The pool figures presented in this
press release are based on the November 2017 pool cut. The
differences between the pool cut as of November 2017 and that as
of January 2018 are negligible. The originator will also provide
the final pool cut data to Moody's before the first notes payment
date.
RATINGS RATIONALE
The ratings of the notes take into account, among other factors:
(1) the historical performance of the collateral; (2) the credit
quality of the underlying mortgage loan pool, (3) the seasoning
of the loan pool, (4) the initial credit enhancement provided to
the senior notes by the junior notes and the reserve fund, and
(5) the legal and structural features of this transaction.
-- Expected Loss and MILAN CE Analysis
Moody's determined the MILAN credit enhancement (MILAN CE) and
the portfolio's expected loss (EL) based on the pool's credit
quality. The expected portfolio loss (EL) of 1.5% and the MILAN
CE of 12.5% serve as input parameters for Moody's cash flow
model, which is based on a probabilistic lognormal distribution.
The MILAN CE reflects the loss Moody's expects the portfolio to
suffer in the event of a severe recession scenario.
The key drivers for the MILAN CE number, which is higher than the
Dutch Prime RMBS sector average (7.3%), are (i) the limited
historical performance data for the originator's portfolio; (ii)
the weighted average current loan-to- market-value (LTMV) of
98.9%, (iii) the fact that 94.6% of the pool are loans with
portability option, which refers to the possibility of the
borrower to "port" his/her mortgage loan conditions to another
property, and (iv) the weighted average seasoning of 0.19 years
with the maximum vintage concentration of 99.2% in 2017.
The key drivers for the portfolio expected loss, which is higher
than the Dutch Prime RMBS sector average (0.9%) and is based on
Moody's assessment of the lifetime loss expectation, are (i) the
limited historical performance data for the originator's
portfolio; (ii) benchmarking with comparable transactions in the
Dutch RMBS market, and (iii) the current economic conditions in
the Netherlands.
-- Operational Risk Analysis
The servicer Quion is not rated by Moody's, which introduces
operational risk into the transaction. Operational risk is
mitigated by the appointment of a back-up servicer facilitator
(BNP Paribas Securities Services, Luxembourg Branch (part of BNP
Paribas, rated Aa3/P-1)) who will assist the Issuer in appointing
a back-up servicer on best effort basis upon termination of
servicing agreement. The documentation also contains estimation
language if the servicer report is not available due to the
servicer disruption. In addition, Intertrust acts in the role of
cash manager.
-- Transaction structure
The transaction has the benefit of liquidity through a reserve
account fully funded at 1.36% of the rated notes' balance (1.34%
of the mortgage-backed notes' balance) which consists of five
sub-ledgers for each of the class A-G notes. Only the Class A
ledger will amortise subject to a floor of 50% of the initial
amount. Amortisation will occur subject to certain strict
conditions when the outstanding balance of mortgage loans is less
than 50% of the amount at closing (including the pre-funded
amount at closing). After the respective classes of notes have
amortised the corresponding reserve sub-ledgers will be equal to
zero and will be released to the principal waterfall. On legal
final maturity of the notes any remaining amounts will be
released to the principal waterfall. In addition, principal to
pay interest is available to pay the interest rate on the Class A
notes or for Class B to G notes in case they become the most
senior notes outstanding.
-- Interest Rate Risk Analysis
99.8% of the pool balance (as of the November 2017 cut-off date)
is comprised of fixed rate mortgage loans with different reset
frequencies. The notes pay three-month EURIBOR, which means there
is an interest mismatch in the transaction. To mitigate the
fixed-floating mismatch, the issuer entered into swap agreement
with the swap counterparty ING Bank N.V. (Aa3/P-1/Aa3(cr)).
However, this is not a typical Dutch swap providing guaranteed
excess spread in the transaction. The issuer will pay to the swap
counterparty the swap notional amount multiplied by the swap rate
plus the prepayment penalties for fixed rate mortgage loans. In
return, the Issuer will receive the swap notional multiplied by
the three-month EURIBOR rate. The floating-rate loans are
unhedged. Moody's has taken into consideration the interest rate
swap and the unhedged basis risk arising from the floating rate
loans in its cash flow modelling.
Factors that would lead to an upgrade or downgrade of the
ratings:
Factors that would lead to an upgrade of the ratings include
economic conditions being better than forecast resulting in
better-than-expected performance of the underlying collateral.
Factors that would lead to a downgrade of the ratings include
economic conditions being worse than forecast resulting in worse-
than-expected performance of the underlying collateral,
deterioration in the credit quality of the counterparties and
unforeseen legal or regulatory changes.
-- Stress Scenarios
Moody's Parameter Sensitivities: At the time the rating was
assigned, the model output indicated that the Class A notes would
have achieved Aa1(sf) rating if the expected loss was as high as
3.0% assuming MILAN CE increased to 17.5% and all other factors
remained the same. The Class B notes would have achieved A1(sf)
rating if the expected loss was as high as 2.25% assuming a MILAN
CE increased to 15.0% and all other factors remained the same.
The Class C notes would have achieved Baa1(sf) rating if the
expected loss was as high as 2.25% assuming MILAN CE increased to
15.0% and all other factors remained the same. The Class D notes
would have achieved Baa3(sf) rating if the expected loss was as
high as 2.25% assuming MILAN CE increased to 15.0% and all other
factors remained the same. The Class E notes would have achieved
Ba2(sf) rating if the expected loss was as high as 2.25% assuming
MILAN CE increased to 15.0% and all other factors remained the
same. The Class F notes would have achieved B1(sf) rating if the
expected loss was as high as 2.25% assuming MILAN CE increased to
15.0% and all other factors remained the same. The Class G notes
would have achieved B3(sf) rating if the expected loss was as
high as 2.25% assuming MILAN CE increased to 15.0% and all other
factors remained the same.
Moody's Parameter Sensitivities provide a quantitative/model-
indicated calculation of the number of rating notches that a
Moody's structured finance security may vary if certain input
parameters used in the initial rating process differed. The
analysis assumes that the deal has not aged and is not intended
to measure how the rating of the security might migrate over
time, but rather how the initial rating of the security might
have differed if key rating input parameters were varied.
Parameter Sensitivities for the typical EMEA RMBS transaction are
calculated by stressing key variable inputs in Moody's primary
rating model.
The principal methodology used in these ratings was "Moody's
Approach to Rating RMBS Using the MILAN Framework" published in
September 2017.
The analysis undertaken by Moody's at the initial assignment of
ratings for RMBS securities may focus on aspects that become less
relevant or typically remain unchanged during the surveillance
stage.
The ratings address the expected loss posed to investors by the
legal final maturity of the notes. In Moody's opinion, the
structure allows for timely payment of interest and ultimate
payment of principal with respect to the Class A, Class B, Class
C, Class D, Class E, Class F and Class G notes by the legal final
maturity. Moody's ratings only address the credit risk associated
with the transaction. Other non-credit risks have not been
addressed, but may have a significant effect on yield to
investors.
FORNAX ECLIPSE 2006-2: Fitch Cuts Ratings on 2 Tranches to 'Dsf'
----------------------------------------------------------------
Fitch Ratings has downgraded Fornax (Eclipse 2006-2) B.V.'s class
E and F notes and affirmed the class G notes:
EUR22.2 million class E (XS0267555570) downgraded to 'Dsf' from
'Csf'; Recovery Estimate (RE) revised to 50% from 95%
EUR16.8 million class F (XS0267555737) downgraded to 'Dsf' from
'Csf'; RE 0%
EUR6.7 million class G (XS0267556032) affirmed at 'Dsf'; RE 0%
The transaction is a securitisation of initially 19 CRE loans
originated by Barclays Bank PLC. The two loans remaining (both
defaulted) are the EUR203,000 Cassina Plaza loan and the EUR6.1
million ATU loan. The issuer also holds some funds on account.
KEY RATING DRIVERS
The downgrades reflect a non-payment of interest on the class E
notes, the most senior notes outstanding. As per the notice
published on the 23 August 2017, an inability to pay senior
creditors led Fornax to apply to the District Court of Amsterdam
for a suspension of payments. An 'indefinite' suspension of
payments was granted on 15 August 2017 and as a result, no
interest or principal note payments have been made since this
date, with funds being held on account.
An extraordinary resolution allowing a restructuring of the
current priority of payments that places payments to third-party
creditors (up to a maximum amount of EUR250,000) ahead of
payments to the holders of class E notes was passed by the class
E noteholders. Fitch expects Fornax will now file a request to
revoke the payment suspension. Should the court agree to revoke
the suspension of payments, Fornax will be able to resume making
payments to its creditors. Any remaining funds are unlikely to be
sufficient to repay the class E notes in full.
The RE for the class E notes has been reduced as a result of
lower-than-expected recoveries from the Cassina Plaza loan, with
EUR28.2 million of debt being written off, as well as an
estimated EUR1 million of outstanding senior creditor fees that
are likely to be paid ahead of the class E notes. The ATU loan is
expected to fully repay from sale proceeds by legal maturity.
RATING SENSITIVITIES
The ratings will be withdrawn within 11 months.
=========
S P A I N
=========
IM GBP CONSUMO: DBRS Confirms 'CC' Rating on Class B Notes
----------------------------------------------------------
DBRS Ratings Limited confirmed its ratings on the following Notes
issued by IM GBP Consumo I F.T. (the Issuer):
-- Series A Notes confirmed at A (sf)
-- Series B Notes confirmed at CC (sf)
The rating actions follow an annual review of the transaction and
are based on the following analytical considerations:
-- The overall portfolio performance as of the February 2018
payment date, in particular with regards to low levels of
cumulative net loss and delinquencies;
-- No Early Termination Event has occurred; and
-- The current levels of credit enhancement (CE) available to
the Notes to cover expected losses.
The rating of the Series A Notes addresses the timely payment of
interest and the ultimate repayment of principal on or before the
Final Maturity Date in April 2050. The rating of the Series B
Notes addresses the ultimate payment of interest and repayment of
principal on or before the Final Maturity Date.
The transaction represents the issuance of notes backed by a pool
of approximately EUR 510 million of consumer loan receivables
granted and serviced by Banco Popular Espanol S.A. (BPE) and
Banco Pastor S.A.U. to private individuals in Spain. Banco
Santander S.A. (Santander) acquired Banco Popular in June 2017.
PORTFOLIO PERFORMANCE
The transaction is performing within DBRS's expectations. As of
March 2018, one year after closing, cumulative defaults stood at
0.1%. The 90+ delinquency ratio was 1.5%.
REVOLVING PERIOD
The transaction includes an initial two-year revolving period
that is scheduled to end on the payment date in March 2019, after
which the transaction will begin to amortize. Concentration
limits are in place to mitigate any negative evolution of the
portfolio and performance triggers are included in the Revolving
Period Termination Events. To date, all triggers are being met.
CREDIT ENHANCEMENT
CE to the Series A Notes is provided by the subordination of the
Series B Notes and a cash reserve funded at closing through a
subordinated loan. CE for the Series A Notes remained at 19.0% in
March 2018, stable from closing given the revolving period. The
transaction benefits from a reserve that provides liquidity
support to the structure and can be used to pay down principal on
the Series A, and on Series B Notes on the last payment date.
BPE and Santander act as account banks for the transaction. Given
the account bank reference rating of "A" - one notch below the
DBRS public Long-Term Critical Obligations Rating of BPE and
Santander at A (high) -- as well as the mitigants outlined in the
transaction documents, DBRS considers the risk arising from the
exposure to the two account banks to be consistent with the
ratings assigned to the Series A Notes.
Notes: All figures are in euros unless otherwise noted.
SRF 2017-1 FONDO: DBRS Confirms 'BB' Rating on Class D Notes
------------------------------------------------------------
DBRS Ratings Limited confirmed the bonds issued by SRF 2017-1
Fondo de Titulizacion (the Issuer) as follows:
-- Class A confirmed at AAA (sf)
-- Class B confirmed at A (sf)
-- Class C confirmed at BBB (sf)
-- Class D confirmed at BB (sf)
The rating on the Class A notes addresses the timely payment of
interest and ultimate payment of principal. The ratings on the
Class B, Class C and Class D notes address the ultimate payment
of interest and principal.
The confirmations follow an annual review of the transaction and
are based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults
and losses.
-- Portfolio default rate (PD), loss given default (LGD) and
expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the notes to cover
the expected losses at their respective rating levels.
The Issuer is a securitization of Spanish residential mortgage
loans originated by Catalunya Banc, S.A., Caixa d'Estalvis de
Catalunya, Caixa d'Estalvis de Tarragona and Caixa d'Estalvis de
Manresa. Banco Bilbao Vizcaya Argentaria S.A. (BBVA) acts as
Master Servicer, with servicing operations delegated to Anticipa
Real Estate, S.L.U. in its role as servicer. The portfolio is
largely concentrated in the Autonomous Region of Catalonia (76%
of the outstanding portfolio balance), exposing the transaction
to potential fluctuations or changes in house prices, economic
performance and regional laws. DBRS has assessed the geographical
concentration in its analysis and continuously monitors portfolio
performance as part of its ongoing surveillance of the
transaction.
PORTFOLIO PERFORMANCE
As of January 2018, two- to three-month arrears represented 0.7%
of the outstanding portfolio balance, up from 0.0% at closing in
April 2017. As of January 2018, the 90+ delinquency ratio was
1.6%, up from 0.0% in April 2017. As of January 2018, the
cumulative default ratio was 0.0%; DBRS notes that defaults are
defined as loans in arrears over 12 months.
PORTFOLIO ASSUMPTIONS
DBRS conducted a loan-by-loan analysis of the remaining pool of
receivables and has updated its base case PD and LGD assumptions
to 25.3% and 38.7% respectively.
CREDIT ENHANCEMENT
As of the January 2018 payment date, credit enhancement to the
Class A notes was 40.2%; up from 38.5% at the DBRS initial
rating. Credit enhancement to the Class B notes was 29.6%, up
from 28.6% at the DBRS initial rating. Credit enhancement to the
Class C notes was 25.4%, up from 24.6% at the DBRS initial
rating. Credit enhancement to the Class D notes was 22.3%, up
from 21.6% at the DBRS initial rating. Credit enhancement to each
class of rated notes is provided by subordination of junior
classes.
The transaction benefits from an amortizing Reserve Fund,
currently at the target level of EUR 5.8 million, and available
to cover senior fees and interest on the Class A notes.
BNP Paribas Securities Services, Spanish branch acts as the
account bank for the transaction. The DBRS private rating of BNP
Paribas Securities Services, Spanish branch complies with the
Minimum Institution Rating, given the rating assigned to the
Class A notes, as described in DBRS's "Legal Criteria for
European Structured Finance Transactions" methodology.
Notes: All figures are in euros unless otherwise noted.
=============
U K R A I N E
=============
PRIVATBANK: Files Legal Claim Against PwC Over Accounting Abuses
----------------------------------------------------------------
Roman Olearchyk at The Financial Times reports that PrivatBank,
Ukraine's largest commercial lender, has filed a US$3 billion
legal claim against PwC saying that "serious and extensive
breaches" at the auditing group allowed alleged accounting abuses
that forced the state to nationalise the bank.
According to the FT, Petr Krumphanzl, PrivatBank's chairman, said
in a statement on April 2 that PwC "failed absolutely to identify
the ongoing operation of the huge fraud within the bank over many
years which resulted in virtually the entire corporate loan book
of the bank being non-performing and without any or any adequate
security".
"It will now be for the Cyprus court to determine the claims
being brought by PrivatBank against PwC in due course," the FT
quotes Mr. Krumphanzl as saying.
PwC Ukraine, as cited by the FT, said it had not been served with
any official claim adding that it "does not believe there is any
basis for this action and we will if necessary defend our
position vigorously".
PrivatBank, which was previously owned by two Ukrainian
oligarchs, said it had filed the legal proceedings on March 30 in
a Nicosia court against two PwC group affiliates, one registered
in Ukraine and another in Cyprus, the FT relates.
PrivatBank, which was nationalized in late 2016, cited a December
High Court of London order freezing more than US$2.5 billion of
"worldwide" assets belonging to the bank's former oligarch owners
Igor Kolomoisky and Gennady Bogolyubov, the FT recounts.
It described the claims against PwC as "the next significant step
being taken? . ? . ?. ?to seek to recover substantial compensation
for the huge losses it has suffered, the burden of which thus far
has fallen in large part on the state of Ukraine", the FT notes.
===========================
U N I T E D K I N G D O M
===========================
BUNNINGS UK: Owner Commences Search for Buyer, CVA Mulled
---------------------------------------------------------
Ben Stevens at Retail Gazette reports that Bunnings' owner has
started a search for buyers for the DIY retailer while
considering the closure of 40 underperforming stores with a
company voluntary arrangement (CVA).
Wesfarmers has drafted in Lazard to help secure a buyer for its
250 stores estate in the UK, after it purchased Homebase in 2016
for GBP340 million, Retail Gazette relays, citing Sky News.
Since then, it has been pushing to convert the Homebase estate
into Bunnings but has faced significant financial troubles in the
process, Retail Gazette notes.
Westfarmers revealed a GBP506 million write-down of Bunnings UK,
a sum larger than its original buying price, alongside a GBP15.5%
drop in Bunnings UK revenues, Retail Gazette discloses.
Though an outright sale is understood to be the most likely
outcome, with Lazard having already approached a range of new
prospective owners, a CVA is also on the cards, Retail Gazette
states.
Executives are understood to have already pledged to close around
40 underperforming stores, according to Retail Gazette.
CONVIVIALITY: Investors Mull Legal Action Amid Financial Woes
-------------------------------------------------------------
Ben Stevens at Retail Gazette reports that investors are
reportedly preparing for legal action against embattled off-
license retailer Conviviality over concerns they were misinformed
about its financial figures.
The rapid decline of the Bargain Booze and Wine Rack parent
company has aroused suspicion of its board members, Retail
Gazette relays, citing The Times.
In May, it reported that group sales had almost doubled to
GBP1.56 billion, while chief executive Diane Hunter announced in
January that she had "confidence for both achieving current year
board expectations, as well as the group's longer-term
performance", Retail Gazette notes.
However, last week Conviviality announced intentions to appoint
administrators, potentially placing 2600 jobs at risk, Retail
Gazette relates.
Ms. Hunter has also stepped down, Retail Gazette discloses.
This has caused investors to question if and when the company
knew it was facing financial difficulty, suggesting signs should
have been there long before its first profit warning, Retail
Gazette states.
According to Retail Gazette, they are likely to focus on a GBP30
million equity funding in December to fund the purchase of 127
convenience stores from the collapsed supply firm Palmer &
Harvey.
Last week, Conviviality revealed that an emergency GBP125 million
sale had failed and that it was preparing to appoint
administrators within the next 10 days, Retail Gazette recounts.
KCA DEUTAG: Moody's Hikes CFR to B3, Outlook Stable
---------------------------------------------------
Moody's Investors Service has upgraded the Corporate Family
Rating (CFR) of Scotland based oilfield services KCA Deutag Alpha
Ltd (KCA) to B3 from Caa1 and Probability of Default Rating (PDR)
to B3-PD from Caa1-PD. Concurrently, Moody's has upgraded to B3
from Caa1 the rating on its senior secured term facilities, which
includes the term loan B upsized to $415 million and revolving
credit facility (RCF). Moody's also upgraded to B3 from Caa1 the
rating of the $375 million senior secured notes due 2021 and $535
million senior secured notes due 2022, both issued by KCA Deutag
UK Finance plc. Finally, Moody's has assigned B3 rating to the
new $400 million senior secured notes due 2023 to be issued by
KCA Deutag UK Finance plc. The outlook is stable.
This concludes the review initiated on March 13, 2018.
RATINGS RATIONALE
The upgrade of the rating reflects the resilience of the Moody's
adjusted EBITDA margin for the company over the last two years to
around 20% despite the significant downturn in the oilfield
services sector and Moody's expectations that the recent
improvement in the oil price will result in additional capital
expenditures from oil companies. The upgrade also reflects
Moody's view that the acquisition of Dalma Energy LLC (Dalma)
will strengthen KCA business profile with increased land drilling
operations in jurisdictions less vulnerable to oil price
fluctuations. The acquisition will allow KCA to become a
prominent player in the Middle East with greater access to the
Omani and Saudi Arabian markets.
Because the transaction is partly financed with an equity
component and use of cash on the balance sheet, the pro forma
Moody's adjusted leverage is estimated at 5.5x, excluding
synergies, compared to 6.1x on a stand-alone basis at the end of
2017. This is more commensurate with a B3 rating.
For 2018 Moody's expects that the company will continue to
improve its financial metrics and based on 9 months trading of
Dalma expects the new combined entity's Moody's adjusted EBITDA
to be around $325 million (23% margin). Moody's expects the
company's free cash flow (FCF) to be negative at approximately
$75 million, impacted by the combined companies working capital
requirement of around $65 million, higher Moody's adjusted
capital expenditure of approximately $95 million and financing
costs. However, Moody's expects FCF to be positive in 2019 based
on expected continued EBITDA growth and normalization of both
working capital and capital expenditure.
KCA rating is supported by (1) the resilience of the Moody's
adjusted EBITDA margin for the company at approximately 21% on
average over the last 6 quarters, compared to 19% in 2015 and
about 17% in 2014, pre oil downturn; (2) the company's
diversified operations between onshore (about 48% of 2017
revenue; 69% reported EBITDA before corporate costs) and offshore
(about 52% of 2017 revenue; 31% reported EBITDA before corporate
costs) that supported the company's EBITDA during the last 2
years of downturn; (3) the strong presence in key oil producing
regions such as UK North Sea / Norway, Middle East and Russia.
KCA has no exposure to the US market where rig count levels are
more volatile and the market is generally more commoditised; (4)
stable contract backlog of about $5.1 billion as per February 1,
2018 that provides revenue visibility and (5) the company's pro
active cost management since 2014 that supports EBITDA margins.
Operating expenses have decreased by 47% from 2014 to 2017 and
overheads by 37% over the same period, and are now expected to be
mostly stable.
However, the rating is constrained by (1) KCA high Moody's
adjusted pro forma leverage of 5.5x based on preliminary pro
forma 2017 EBITDA for KCA and Dalma; (2) the challenging market
conditions with uncertainties around pricing which remains low;
(3) negative free cash flow expected in 2018.
Moody's regards KCA's liquidity as adequate for its near-term
requirements albeit Moody's adjusted FCF generation was negative
in 2017. As of December 31, 2017, the company had cash and cash
equivalent of approximately $108 million and full availability
under its $275 million RCF.
Pro forma the acquisition of Dalma, KCA is expected to have an
opening cash balance of approximately $76 million and continued
access to its RCF. The company has improved its maturity profile
with the extension of the term loan B maturity to 2023 from 2020.
The first maturity is the $375 million senior secured notes due
2021.
STRUCTURAL CONSIDERATIONS
At the end of 2017 KCA Deutag's debt comprises of a senior
secured RCF of $275 million (of which $75 million is carved out
for letters of credit and guarantees), a senior secured term loan
B of $356.5 million now maturing in 2023, senior secured notes of
$375 million due in 2021 and the senior secured notes of $535
million due 2022. The company's Oman entity Oman KCA Deutag
Drilling Company LLC has an additional $48 million of funding,
which is not rated and amortises on a straight line basis to
2020.
As part of the acquisition financing, the term loan B amount is
to be increased to $415 million from $356.5 million outstanding
at the end of 2017 and its maturity is extended to 2023. KCA
Deutag UK Finance plc issued new $400 million senior secured
notes due 2023
All the senior secured notes issued by KCA Deutag UK Finance plc
and secured revolving and term facilities borrowed by KCA Deutag
Alpha Ltd rank pari passu and benefit from similar security and
guarantee packages from material subsidiaries. In addition,
guarantors have provided first-ranking security over certain of
their respective assets in support of such guarantees, including
a first-ranking security interest in the shares of KCA Deutag
Alpha.
Using Moody's Loss Given Default (LGD) methodology, the
probability of default rating (PDR) is in line with the CFR based
on a 50% recovery rate, as is typical for transactions with
senior secured notes and first-lien senior secured bank debt with
any financial maintenance covenants. All the rated debt
instruments are rated B3, at the same level as the CFR.
RATING OUTLOOK
KCA's stable outlook reflects Moody's view that the company will
continue to operate at satisfactory margin levels, with some
deleveraging towards a ratio of 5.6x at the end of 2019 based on
expected EBITDA growth, full year contribution of Dalma and
slight debt repayment. The stable outlook also assumes that the
company will return to a more solid cash generation during 2019,
strengthening its liquidity profile.
WHAT COULD TAKE THE RATING UP
The rating could be upgraded if the Moody's-adjusted leverage
improves sustainably towards 5x and the company maintains a solid
liquidity profile.
WHAT COULD TAKE THE RATING DOWN
Downward pressure on the rating could emerge if Moody's-adjusted
leverage rises sustainably above 6x; and liquidity profile
deteriorate.
LIST OF AFFECTED RATINGS
Upgrades:
Issuer: KCA Deutag Alpha Ltd
-- Probability of Default Rating, Upgraded to B3-PD from Caa1-PD
-- Corporate Family Rating, Upgraded to B3 from Caa1
-- Senior Secured Bank Credit Facility, Upgraded to B3 from Caa1
Issuer: KCA DEUTAG UK Finance plc
-- Senior Secured Regular Bond/Debenture, Upgraded to B3 from
Caa1
Assignments:
Issuer: KCA DEUTAG UK Finance plc
-- Backed Senior Secured Regular Bond/Debenture, Assigned B3
Outlook Actions:
Issuer: KCA Deutag Alpha Ltd
-- Outlook, Changed To Stable From Rating Under Review
Issuer: KCA DEUTAG UK Finance plc
-- Outlook, Changed To Stable From Rating Under Review
RATING METHODOLOGY
The principal methodology used in these ratings was Global
Oilfield Services Industry Rating Methodology published in May
2017.
===============
X X X X X X X X
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* BOOK REVIEW: Risk, Uncertainty and Profit
-------------------------------------------
Author: Frank H. Knight
Publisher: Beard Books
Softcover: 381 pages
List Price: $34.95
109
Review by Gail Owens Hoelscher
Order your personal copy today at
http://www.amazon.com/exec/obidos/ASIN/1587981262/internetbankrup
t
The tenets Frank H. Knight sets out in this, his first book, have
become an integral part of modern economic theory. Still readable
today, it was included as a classic in the 1998 Forbes reading
list. The book grew out of Knight's 1917 Cornell University
doctoral thesis, which took second prize in an essay contest that
year sponsored by Hart, Schaffner and Marx. In it, he examined
the relationship between knowledge on the part of entrepreneurs
and changes in the economy. He, quite famously, distinguished
between two types of change, risk and uncertainty, defining risk
as randomness with knowable probabilities and uncertainty as
randomness with unknowable probabilities. Risk, he said, arises
from repeated changes for which probabilities can be calculated
and insured against, such as the risk of fire. Uncertainty arises
from unpredictable changes in an economy, such as resources,
preferences, and knowledge, changes that cannot be insured
against.
Uncertainty, he said "is one of the fundamental facts of life."
One of the larger issues of Knight's time was how the
entrepreneur, the central figure in a free enterprise system,
earns profits in the face of competition. It was thought that
competition would reduce profits to zero across a sector because
any profits would attract more entrepreneurs into the sector and
increase supply, which would drive prices down, resulting in
competitive equilibrium and zero profit.
Knight argued that uncertainty itself may allow some
entrepreneurs to earn profits despite this equilibrium.
Entrepreneurs, he said, are forced to guess at their expected
total receipts. They cannot foresee the number of products they
will sell because of the unpredictability of consumer
preferences. Still, they must purchase product inputs, so they
base these purchases on the number of products they guess they
will sell. Finally, they have to guess the price at which their
products will sell. These factors are all uncertain and
impossible to know. Profits are earned when uncertainty yields
higher total receipts than forecasted total receipts. Thus,
Knight postulated, profits are merely due to luck. Such
entrepreneurs who "get lucky" will try to reproduce their
success, but will be unable to because their luck will eventually
turn.
At the time, some theorists were saying that when this luck runs
out, entrepreneurs will then rely on and substitute improved
decision making and management for their original
entrepreneurship, and the profits will return. Knight saw
entrepreneurs as poor managers, however, who will in time fail
against new and lucky entrepreneurs. He concluded that economic
change is a result of this constant interplay between new
entrepreneurial action and existing businesses hedging against
uncertainty by improving their internal organization.
Frank H. Knight has been called "among the most broad-ranging and
influential economists of the twentieth century" and "one of the
most eclectic economists and perhaps the deepest thinker and
scholar American economics has produced." He stands among the
giants of American economists that include Schumpeter and Viner.
His students included Nobel Laureates Milton Friedman, George
Stigler and James Buchanan, as well as Paul Samuelson. At the
University of Chicago, Knight specialized in the history of
economic thought. He revolutionized the economics department
there, becoming one the leaders of what has become known as the
Chicago School of Economics. Under his tutelage and guidance, the
University of Chicago became the bulwark against the more
interventionist and anti-market approaches followed elsewhere in
American economic thought. He died in 1972.
*********
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Each Friday's edition of the TCR includes a review about a book
of interest to troubled company professionals. All titles are
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*********
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