/raid1/www/Hosts/bankrupt/TCREUR_Public/180613.mbx
T R O U B L E D C O M P A N Y R E P O R T E R
E U R O P E
Wednesday, June 13, 2018, Vol. 19, No. 116
Headlines
D E N M A R K
DKT HOLDINGS: Fitch Gives B-(EXP) Rating to EUR1.4BB Notes
F R A N C E
RALLYE: Casino Unveils Asset Disposal Plan to Cut Debt Pile
G R E E C E
EPIHIRO PLC: Moody's Hikes Rating on Class A Notes to B2
I R E L A N D
YVOLVE SPORTS: Seeks Examinership Due to Cash Flow Problems
* IRELAND: Construction Industry Faces Solvency Crisis
N E T H E R L A N D S
INTERXION HOLDING: Moody's Assigns B1 Rating to EUR1-Bil. Notes
P O R T U G A L
BANCO COMERCIAL: Fitch Hikes Preference Shares Rating to 'B-'
SAPEC AGRO: S&P Assigns Preliminary 'B' ICR, Outlook Stable
R U S S I A
CREDIT BANK: Fitch Affirms 'BB-' Long-Term IDR, Outlook Stable
EVRAZ GROUP: Fitch Hikes LT IDR & Sr. Unsec. Debt Rating to 'BB'
X5 RETAIL: Fitch Hikes LT IDRs to 'BB+', Outlook Stable
S P A I N
BBVA-6 FTPYME: Fitch Affirms Csf Rating on Class C Notes
CAIXABANK CONSUMO 2: Fitch Affirms 'B+' Rating on Class B Notes
S W E D E N
INTRUM JUSTITIA: Fitch Alters Outlook to Stable & Affirms BB IDR
T U R K E Y
ANADOLU EFES: Moody's Reviews Ba1 CFR for Downgrade
MERSIN ULUSLARARASI: Moody's Reviews Ba1 CFR for Downgrade
U N I T E D K I N G D O M
ANTHRACITE EURO 2006-1: Fitch Withdraws Csf Rating on Cl. B Notes
ARTEMIS MIDCO: Moody's Assigns First-Time B2 CFR, Outlook Stable
CHARTER MORTGAGE 2018-1: Fitch Assigns BB+ Rating to Cl. X Notes
HOUSE OF FRASER: Landlords Mull Legal Action Over CVA Proposal
KENSINGTON MORTGAGE 2007-1: Fitch Hikes Class B2 Rating to 'Bsf'
MOTHERCARE: Fails to Get Creditor Approval for Unit's Rescue Plan
NEW LOOK: Posts GBP74.3-Mil. Loss for Year Ended March 24
NIGHTHAWK ENERGY: Provides Update on Chapter 11 Proceedings
RIBBON FINANCE 2018: S&P Rates GBP11.8MM Class G Certs 'BB-'
SEADRILL LTD: Expects to Exit Chapter 11 in First Half of July
*********
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D E N M A R K
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DKT HOLDINGS: Fitch Gives B-(EXP) Rating to EUR1.4BB Notes
----------------------------------------------------------
Fitch Ratings has assigned DKT Holdings ApS's (DKT, B+(EXP)/
Stable) new EUR1.4 billion equivalent senior secured notes an
expected rating of 'B-(EXP)'. The notes will be issued via DKT's
100% subsidiary DKT Finance ApS.
Fitch estimates recoveries for the secured notes at 0%
corresponding to a Recovery Rating of 'RR6'. This implies that the
instrument is rated two notches below DKT's Long-Term Issuer
Default Rating (IDR) of 'B+(EXP)', resulting in the 'B-(EXP)'
rating. The notes will be secured by the shares in the
intermediate holding companies DKT Finance ApS and DK
Telekommunikation ApS, the owner of a more than 90% share in the
operating subsidiary TDC A/S (TDC, B+/Stable). The remaining
shares will be purchased via a squeeze out mechanism to achieve
100% ownership. The notes will be structurally subordinated to
debt held at TDC, which drives weak recoveries at the DKT level.
KEY RATING DRIVERS
HoldCo/OpCo Debt Assessed Jointly: Following a change in TDC's
ownership, the new owners plan to refinance the acquisition debt
initially raised by its parent DKT and its intermediate holding
companies (collectively known as HoldCo), as well as existing debt
at TDC, the operating entity (OpCo). Fitch intends to analyse any
HoldCo debt together with debt at TDC as it sees the OpCo and
HoldCo as tied together from a credit perspective. Fitch does not
expect to see significant barriers to cash flow being up-streamed
from the OpCo to the HoldCo. Any HoldCo debt would be structurally
subordinated to both senior secured and unsecured debt at the
OpCo.
Large Prior-ranking Debt: Fitch estimates the amount of prior
ranking debt at TDC A/S at EUR5.5 billion including a senior
secured term loan B of EUR3.9 billion and revolving credit
facility of EUR500 million and senior unsecured debt of EUR1
billion. The latter consists of senior unsecured EUR500 million
notes due 2022 and GBP425 million notes due 2023. TDC has asked
these noteholders to waive their change of control put option
rights and has received the approval.
The debt at HoldCo level is structurally subordinated to debt at
OpCo level. The large amount of debt at TDC's level reduces the
recovery prospects for HoldCo debt. The recovery rate for the
senior secured debt at DKT is therefore 'RR6'/0%, which implies an
instrument rating two notches below the 'B+' IDR, resulting in the
'B-(EXP)' rating.
DERIVATION SUMMARY
TDC's ratings reflect the company's leading position within the
Danish telecoms market. The company has strong in-market scale and
share that spans both fixed and mobile segments. Ownership of both
cable and copper-based local access network infrastructure reduces
the company's operating risk profile relative to domestic European
incumbent peers, which typically face infrastructure-based
competition from cable network operators.
TDC is rated lower than other peer incumbents such as Royal KPN
N.V (BBB/Stable) due to notably higher leverage, which puts it
more in line with cable operators with similarly high leverage
such as VodafoneZiggo Group B.V. (B+/Stable), Unitymedia GmbH
(B+/RWP), Telenet Group Holding N.V. (BB-/Stable) and Virgin Media
Inc. (BB-/Stable). TDC's incumbent status, leading positions in
both fixed and mobile markets, and unique infrastructure ownership
justify higher leverage thresholds than cable peers.
KEY ASSUMPTIONS
Fitch's Key Assumptions within its Rating Case for the Issuer
- Stabilisation of revenue in 2018 and a flat trend thereafter
- Broadly stable EBITDA margin at around 40%-41% in 2018-2021
- Capex at around 17% of revenue in 2018-2021 (including
spectrum)
- Conservative dividend policy to support initial deleveraging
- No M&A
KEY RECOVERY RATING ASSUMPTIONS
- The recovery analysis assumes that the company would be
considered a going concern in bankruptcy and that it would be
reorganised rather than liquidated
- A 10% administrative claim
- Fitch's going-concern EBITDA estimate of DKK6.6 billion
reflects Fitch's view of a sustainable, post-reorganisation
EBITDA level upon which it bases the valuation of the company
- Fitch's going-concern EBITDA estimate is 20% below LTM 2017
EBITDA, assuming likely operating challenges at the time of
distress
- An enterprise value (EV) multiple of 6x is used to calculate
a post-reorganisation valuation and reflects a conservative
mid-cycle multiple
- Fitch estimates the total amount of debt for claims at EUR6.9
billion, which includes debt instruments at OpCo and HoldCo
level as well as drawings on available credit facilities
- Fitch incorporates EUR4.4 billion of prior-ranking debt (term
loan B of EUR3.9 billion and EUR500 million of RCF) and EUR1
billion of remaining senior unsecured debt at OpCo. Senior
unsecured notes at OpCo level have a priority over
instruments at HoldCo due to structural subordination which
results in RR6/0% recovery rating for senior secured
instruments at HoldCo level. The rating for the senior secured
debt at HoldCo level is two notches below the IDR, i.e. 'B-'.
RATING SENSITIVITIES
Developments that may, Individually or Collectively, Lead to
Positive Rating Action
- Expectation that funds from operations (FFO)-adjusted net
leverage will fall below 5.7x on a sustained basis
- Strong and stable free cash flow (FCF) generation, reflecting
a stable competitive and regulatory environment
Developments that may, Individually or Collectively, Lead to
Negative Rating Action
- FFO-adjusted net leverage above 6.5x on a sustained basis
- Further declines in the Danish business putting FCF margins
under pressure into mid- to low-single digits
LIQUIDITY
Comfortable Liquidity: Fitch expects the OpCo and HoldCo to have
comfortable liquidity positions upon refinancing, which will be
supported by EUR600 million of credit facilities. This comprises
EUR500 million of RCF at OpCo, and a super senior EUR100 million
RCF at HoldCo. The company's liquidity profile is also supported
by strong pre-dividend FCF generation.
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F R A N C E
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RALLYE: Casino Unveils Asset Disposal Plan to Cut Debt Pile
-----------------------------------------------------------
Harriet Agnew and Robert Smith at The Financial Times report that
French retailer Casino has announced a EUR1.5 billion asset
disposal plan to help reduce the debt pile of the group, which has
come under mounting pressure in the debt markets in recent weeks.
Casino said on June 11 after market close that it has identified
non-core assets, including real estate assets, which could be sold
for an estimated EUR1.5 billion, the FT relates. It has flagged
half of the disposals for 2018, and the other half early next
year, and expects the asset disposals to help reduce its net debt
in France by around EUR1 billion by the end of 2018, the FT
discloses.
According to the FT, investors have been growing increasingly
concerned about the financial complexity and high leverage of
Casino and its parent company Rallye.
Casino's share price is down over 20% in the past month, amid debt
market jitters and a fiercely competitive environment in its home
market of France, where rival E Leclerc has launched in Paris and
Carrefour has embarked on an ambitious transformation plan, the FT
recounts.
The slump in Casino's share price has effectively put Rallye into
negative equity, as its debt now far outweighs the value of its
holdings, the FT states. Rallye, the FT says, has more than EUR1
billion of potential debt maturities to tackle before the end of
the year.
While the investment holding company has EUR1.7 billion of undrawn
credit lines at its disposal, EUR1.4 billion of these require it
to post Casino stock as collateral, pledging shares in its prized
asset to the banks in order to access financing, the FT notes.
A number of hedge funds have been betting on the collapse of
Rallye using credit-default swaps, causing the price of these
derivatives to surge in recent weeks, the FT relays.
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G R E E C E
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EPIHIRO PLC: Moody's Hikes Rating on Class A Notes to B2
--------------------------------------------------------
Moody's Investors Service has upgraded the rating on the following
notes issued by EPIHIRO PLC:
EUR1623M (Current outstanding balance of 785.6M) Class A Notes,
Upgraded to B2 (sf); previously on May 8, 2018 Upgraded to
B3 (sf)
EPIHIRO PLC, issued in May 2009, is a collateralised loan
obligation (CLO) backed by a portfolio of "secured and unsecured
bond loans" which have been advanced by Alpha Bank AE ("Alpha
Bank" (Caa2/NP)) to medium and large enterprises located in
Greece. Bond loans are products specific to the Greek market and
preferred by "Societe Anonyme" companies instead of traditional
loans, for the reason that they present certain tax advantages.
Term loans may also be added to the portfolio during the revolving
period. Alpha Bank acts as the Seller and Servicer of the
underlying loans and as Greek Account Bank in respect of the
Collection Account Bank and Reserve Account Agreement opened in
the name of the Issuer. The transaction's reinvestment period has
been extended several times since closing and is now scheduled to
end in January 2019.
RATINGS RATIONALE
The rating action on the notes is primarily a result of the
upgrade of the long-term deposit rating of Alpha Bank AE to Caa2
from Caa3, as well as the banks' counterparty risk assessment
(CRA) to B3(cr) from Caa1(cr). Alpha Bank AE is acting as the
Greek Account Bank in respect of the Collection Account Bank and
Reserve Account Agreement.
Methodology Underlying the Rating Action:
The principal methodology used in this rating was "Moody's Global
Approach to Rating Collateralized Loan Obligations" published in
August 2017.
Loss and Cash Flow Analysis:
The transaction is managed to model (using CDOROM) by the Seller
with reference to the CDOROM Condition. In its base case, Moody's
assumed that the Moody's Metric determined by the Cash Manager as
part of the CDOROM Condition would be at the trigger level of the
test. The trigger level of the test is equivalent to a model-
indicated B2 rating on the Class A Notes.
Counterparty Exposure:
Moody's rating action took into consideration the notes' exposure
to relevant counterparties, including Alpha Bank acting as Greek
Account Bank, using the methodology "Moody's Approach to Assessing
Counterparty Risks in Structured Finance" published in July 2017.
In particular, Moody's assessed the default probability of Alpha
Bank by referencing the bank's deposit rating and assessed the
account bank exposure of the Class A Notes as strong, concluding
that the maximum achievable rating in this transaction is B2 (sf).
As a result the rating of the Class A notes is capped at B2 (sf).
Factors that would lead to an upgrade or downgrade of the rating:
The Notes' rating is sensitive to the performance of the
underlying loan portfolio, which in turn depends on economic and
credit conditions that may change. The evolution of the associated
counterparties risk (specifically any upgrade or downgrade of the
ratings of the Greek Account Bank), the level of credit
enhancement and Greece's country risk could also impact the Notes'
ratings.
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I R E L A N D
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YVOLVE SPORTS: Seeks Examinership Due to Cash Flow Problems
-----------------------------------------------------------
Irish Examiner reports that Yvolve Sports Limited is seeking to go
into examinership.
According to Irish Examiner, the court heard the company's
difficulties have been caused by factors including the bankruptcy
of one of its major customers, Toy R Us, resulting in cash flow
problems.
An independent expert report the court heard has said while the
company is insolvent, Yvolve has a good prospect of surviving if
certain steps are taken including the appointment of an examiner,
Irish Examiner relates.
The matter came before Ms. Justice Caroline Costello on June 5 who
adjourned the matter to a date later this month, Irish Examiner
recounts.
The proposed examiner is Neil Hughes --
neil.hughes@bakertillyhb.ie -- of Tilly Hughes Blake, Irish
Examiner discloses.
Yvolve Sports Limited is a toy-making firm that employs 41 people
in Ireland. It makes products for the outdoors and sports
markets.
* IRELAND: Construction Industry Faces Solvency Crisis
------------------------------------------------------
Fearghal O'Connor at the Sunday Independent reports that Ireland's
construction industry is facing a solvency crisis, with warnings
of a raft of liquidations and examinerships now hitting a sector
that's still fragile -- despite the building boom.
At least 42 Irish construction companies have gone into
liquidation since the start of this year, while more have entered
examinership, the Sunday Independent relates. The figure is
contained in email correspondence seen by the Sunday Independent
between industry insiders and insolvency experts in which the
trends were described as "worrying", the Sunday Independent
states.
An onerous public sector contract that has pushed firms into
making lower bids for work, thin margins and the fallout from the
collapse of Carillion are blamed for the developing crisis, the
Sunday Independent discloses.
An industry source described "a growing epidemic" of liquidations
and receiverships in the industry, the Sunday Independent notes.
According to the Sunday Independent, an internal survey, by one of
the biggest contractors in the country, revealed margins averaging
1% to 1.5% across the Irish building trade, compared to an EU
sector norm of 5%. A CIF spokesma, as cited by the Sunday
Independent, said the survey suggested margins were now
"dangerously low".
One restructuring expert, who preferred to be anonymous, said
margins at that level were "very unhealthy" and likely stemmed
from an outsourcing trend that saw firms take on work at tight
margins, leaving smaller sub-contractors very exposed, the Sunday
Independent relays.
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N E T H E R L A N D S
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INTERXION HOLDING: Moody's Assigns B1 Rating to EUR1-Bil. Notes
---------------------------------------------------------------
Moody's Investors Service gas assigned a B1 rating to the new
EUR1.0 billion senior unsecured notes due 2025 to be issued by
Interxion Holding N.V., a leading pan-European provider of
carrier-neutral internet data-centre services. Concurrently,
Moody's has affirmed Interxion's B1 corporate family rating
("CFR") and its B1-PD probability of default rating ("PDR"). The
outlook on all ratings is stable.
The company intends to issue EUR1.0 billion worth of senior
unsecured notes to refinance the existing EUR625 million of senior
secured notes, current drawings under its revolving credit
facilities and to provide cash for general corporate purposes. The
rating on the existing ratings remains unchanged, and will be
withdrawn following the repayment of the existing debt instruments
with proceeds from the proposed issuance.
"The affirmation of Interxion's ratings reflects our expectation
that although its leverage following this refinancing will be
initially high for the rating category, at around 6.0x, the
company's high earnings growth, disciplined investment framework
and financial policy will allow the company to restore its credit
metrics during 2018 to levels expected for its B1 rating," says
Alejandro Nunez, a Moody's Vice President -- Senior Analyst and
lead analyst for Interxion.
RATINGS RATIONALE
The B1 rating on Interxion's proposed notes reflects (1) the
company's leading position in Europe as a provider of carrier-
neutral data center services, offsetting the company's moderate
scale; (2) favorable secular industry supply/demand and growth
dynamics, supported by high data volume growth and cloud migration
trends; (3) strong recurring revenues with contract renewal risk
mitigated by good customer diversification and high switching
costs; (4) solid performance, supported by good revenue visibility
and cost containment; and (5) the company's stable profitability
and cash flows given limited customer churn.
Counterbalancing these strengths are: (1) the modest size and
scope of the company's operations relative to its globally rated
peers; (2) a shifting industry landscape with active M&A; (3) the
sector's and company's high capital intensity resulting in
persistent negative free cash flow as the company pursues
development opportunities; and (4) market shifts as technological
and end-market shifts to edge computing gradually temper demand
for core data centers.
The ratings affirmation reflects Moody's view that although the
company's incremental debt arising from the refinancing will
increase pro-forma gross leverage to 6.0x (Moody's-adjusted,
compared with 4.8x pre-transaction), it will also bolster the
company's liquidity and pre-fund Interxion's capex for 2018-2019.
Moody's expects the company's gross leverage to decline towards
5.0x by year-end 2018, principally due to EBITDA growth, which is
a level more consistent with the company's B1 CFR.
Following repayment in full of Interxion's outstanding EUR625
million of senior secured notes due July 2020 and its EUR250
million of revolving credit facility (RCF) drawings (plus
applicable call premium, fees and expenses), the refinancing's
proceeds will provide the company with approximately EUR140
million of cash on balance sheet immediately after the
transaction. In the context of persistent negative free cash flow
owing to high capex levels, this cash plus full availability under
the new EUR200 million RCF and the extension of Interxion's
maturities until at least 2023 (for the RCF) will provide adequate
liquidity over 2018-2019.
Over the past three years, Interxion's reported revenues and
EBITDA have increased by an average of 13% per year and Moody's
expects those trends to continue over 2018-2019 given the secular
demand for Interxion's services, increased investments in new
capacity and its rising backlog level. The ratings also
acknowledge Interxion's high level of growth-oriented capex, which
results in persistent negative free cash flow. However, Moody's
recognizes the discretionary nature of these investments, which
will contribute to EBITDA growth.
RATIONALE FOR STABLE OUTLOOK
The rating outlook is stable, reflecting Moody's expectation that
Interxion will maintain sound liquidity and metrics within the
target set for the current rating category, despite an expectation
that capital spending will remain high, and that the company will
adhere to its publicly stated financial policies.
WHAT COULD CHANGE THE RATING UP/DOWN
Upward ratings pressure could develop if demand and supply
dynamics continue to support pricing and high utilization rates,
leading to a Moody's-adjusted Gross Debt/EBITDA ratio towards 4.0x
and positive free cash flow generation.
Negative ratings pressure could emerge if the company is unable to
sustain levels of profitability and utilization rates such that
Moody's-adjusted Gross Debt/EBITDA were to trend above 5.0x.
LIST OF AFFECTED RATINGS
Affirmations:
Issuer: Interxion Holding N.V.
LT Corporate Family Rating, Affirmed at B1
Probability of Default Rating, Affirmed at B1-PD
Assignments:
Issuer: Interxion Holding N.V.
Senior Unsecured Notes, B1
Outlook Actions:
Issuer: Interxion Holding N.V.
Outlook, Remains Stable
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Communications
Infrastructure Industry published in September 2017.
COMPANY PROFILE
Interxion Holding N.V. (Interxion) is a provider of carrier-
neutral internet data center services and leases out co-location
space in 48 data centers located in 11 European countries,
offering its customers power, cooling and a secure environment to
house their servers, network, storage and IT infrastructure. In
the 12 months ended March 31, 2018, Interxion reported revenue of
EUR509 million and Adjusted EBITDA of EUR230 million.
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P O R T U G A L
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BANCO COMERCIAL: Fitch Hikes Preference Shares Rating to 'B-'
-------------------------------------------------------------
Fitch Ratings has upgraded Banco Comercial Portugues S.A.'s (BCP)
Series C (ISIN: XS 0194093844) preference shares' rating to 'B-'
from 'CCC-'.
KEY RATING DRIVERS
The upgrade follows the resumption of coupon payments by BCP on
June 9, 2018 and reflects the renewed performing status of the
issue. The rating on BCP's Series C preference shares is three
notches below BCP's 'bb-' Viability Rating (VR). The notching
reflects higher expected loss severity and non-performance risk
relative to senior unsecured creditors.
RATING SENSITIVITIES
The ratings on subordinated debt and other hybrid capital issued
by BCP are primarily sensitive to a change in the bank's VR.
Subordinated and other hybrid instruments' ratings are also
sensitive to a change in Fitch's assessment of the probability of
their non-performance relative to the risk captured in BCP's VR.
This may reflect a change in the group's capital management or an
unexpected shift in regulatory buffer requirements, for example.
SAPEC AGRO: S&P Assigns Preliminary 'B' ICR, Outlook Stable
-----------------------------------------------------------
S&P Global Ratings assigned its preliminary 'B' long-term issuer
credit rating to Portugal- and Spain-based specialty chemical
company SAPEC AGRO. The outlook is stable.
S&P said, "At the same time, we assigned our preliminary 'B' issue
rating to SAPEC AGRO's EUR318 million term loan B, including a
EUR128 million add-on to the existing EUR190 million term loan and
EUR60 million revolving credit facility (RCF). The preliminary
recovery rating is '3', reflecting S&P's expectation of meaningful
recovery (50%-70%; rounded estimate 50%) in the event of default."
S&P said, "The final ratings will depend on our receipt and
satisfactory review of all final documentation and final terms of
the transaction." Therefore, the preliminary ratings should not be
construed as evidence of final ratings. If S&P Global Ratings does
not receive final documentation within a reasonable time, or if
the final documentation and final terms of the transaction depart
from the materials and terms reviewed, S&P Global Ratings reserves
the right to withdraw or revise the ratings. Potential changes
include, but are not limited to, utilization of the proceeds,
maturity, size, and conditions of the facilities, financial and
other covenants, security, and ranking.
S&P said, "Our preliminary rating on SAPEC AGRO reflects our
expectation of high S&P Global Ratings-adjusted debt to EBITDA of
about 6.2x-6.4x as of June 2018, and our view of the company's
robust business model, underpinned by a track record of increasing
EBITDA generation. We expect this will continue and contribute to
moderate debt reduction, leading to debt to EBITDA of about 6x in
2019. SAPEC AGRO's high leverage reflects adjusted debt of about
EUR400 million on a pro forma basis, although we anticipate steady
improvement in the leverage ratios supported by moderate EBITDA
growth mainly stemming from organic growth, contributions from
acquisitions, and operational cost discipline. In addition, we
expect the company will generate limited but positive free
operating cash flow (FOCF), supported by moderate capital
investments needs, and that its EBITDA cash interest cover ratios
will remain healthy, at about 5x in 2018 and 2019."
SAPEC AGRO's business risk profile is supported by its growth
potential, stemming from positive long-term market trends; good
positioning in the fragmented niche global market for specialty
crop nutrition; leading position in the off-patent crop protection
market in Iberia; and a long track record of resilient operating
performance with increasing EBITDA margins. SAPEC AGRO benefits
from solid market fundamentals, with increasing population growth
and food demand leading to a better awareness of the yield
enhancement provided by specialty nutrition. Historically
resilient EBITDA margins reflect the company's focus on high-value
crops (greenhouse and open field) and its strong relationships
with key customers, underpinned by its innovative products. S&P
notes that new specialty crop products launched in the past five
years have generated about 16% of specialty crop nutrition sales.
The company also has strong formulation and registration
capabilities enabling it to bring proprietary off-patent new
products to the market, generating higher margins than generics.
Key constraining factors for the preliminary rating include SAPEC
AGRO's small size, with an estimated adjusted EBITDA of EUR60
million-EUR70 million in fiscal years 2018-2020 (fiscal year ends
June 30); a fairly concentrated geographic footprint with Spain,
Portugal, and France accounting for two-thirds of revenues; and a
relatively narrow product focus on specialties for the fruit,
vegetables, and flowers market. However, the broad individual
products offering throughout the plant life cycle mitigates these
factors.
S&P said, "Our preliminary rating also takes into consideration
that SAPEC AGRO is 86% owned by the private-equity firm
Bridgepoint Europe V Investments S.Ö.r.l (with the remaining
shares owned by management), which bought SAPEC AGRO's
agrochemical division from the conglomerate SAPEC group in January
2017. We understand that at this stage, the private equity sponsor
has no plans for further dividend distribution or large debt-
funded acquisitions, and intends to maintain a net debt-to-EBITDA
ratio of 3x-5x from 2018.
"The stable outlook reflects our view that SAPEC AGRO will
continue to increase its EBITDA, achieving an adjusted EBITDA of
EUR60 million-EUR70 million on average in the next two years,
supported by some operational optimization and possibly through
bolt-on acquisitions. We expect the company will continue to
generate positive FOCF generation, with adjusted debt to EBITDA
improving to about 6.0x in 2019.
"We could lower the preliminary rating if the company faces
significant adverse operational or commercial issues, or applies a
more aggressive financial policy, such that its adjusted debt to
EBITDA increases to over 6.5x, or EBITDA interest coverage
declines toward 2.5x without the prospect of a swift recovery.
This could result from significant market share losses in the crop
nutrition or specialty protection segments, increased pressure
from competitors, or higher-than-anticipated acquisitions.
Prolonged generation of negative FOCF or a weakening in liquidity
could also result in pressure on the company's creditworthiness.
"We consider rating upside as remote given the private equity
ownership, the company's small size, and its lack of geographic
diversification. Overtime, upside potential could materialize if
the company continuously increases its EBITDA and FOCF. This would
lead to adjusted debt to EBITDA sustainably less than 5x, along
with at least adequate liquidity. An upgrade would also hinge on a
strong commitment from the private equity owner that it will
maintain the debt sustainably at a level commensurate with a
higher rating."
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R U S S I A
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CREDIT BANK: Fitch Affirms 'BB-' Long-Term IDR, Outlook Stable
--------------------------------------------------------------
Fitch Ratings has affirmed Credit Bank of Moscow's (CBM) Long-Term
Issuer Default Ratings (IDRs) at 'BB-' and Viability Rating (VR)
at 'b+'. The agency has also affirmed Bank Saint Petersburg's
(BSPB) Long-Term IDRs at 'BB-'. The Outlooks on both banks are
Stable.
Fitch has also upgraded CBM's perpetual notes to 'CCC+' from 'CCC'
and removed them from Rating Watch Positive (RWP). This follows
the introduction in March 2018 of Fitch's Bank Rating Criteria,
which among other things expanded the rating scale with the
introduction of '+' and '-' modifiers for the 'CCC' rating
category.
KEY RATING DRIVERS - IDRS AND VRS
The affirmation of CBM's IDRs at 'BB-', one notch higher than the
bank's VR, reflects Fitch's view that the risk of default on
senior obligations (the reference obligations which IDRs rate to)
is lower than the risk of the bank needing to impose losses on
subordinated obligations to restore its viability (which the VR
rates to). This is due to the large volume of junior debt (the
additional Tier 1 perpetual and the Tier 2 subordinated debt),
which amounted to around 13% of IFRS risk-weighted assets (RWAs)
at end-1Q18 and could be used to restore solvency and protect
senior debt holders in case of a material capital shortfall at the
bank.
BSPB's 'BB-' IDRs are driven by the bank's intrinsic financial
strength, as reflected in its VR of 'bb-'.
The two banks' VRs continue to reflect their relatively big
franchises, strong pre-impairment profitability, decent core
capitalisation (stronger in BSPB), and comfortable liquidity and
funding profiles. At the same time, the ratings factor in
potential weaknesses in asset quality (to a higher extent at CBM).
CBM
CBM's reported metrics are good, with NPLs equal to a low 2% of
gross loans and fully covered by reserves at end-1Q18. However,
the bank's asset quality is undermined by still high volume of
risky assets (net of reserves), as assessed by Fitch, although
positively these notably decreased to RUB110 billion at end-1Q18
(0.8x FCC) from RUB149 billion at end-3Q17 (1.1x FCC) due to
active workouts and reserving.
The potentially high-risk assets (net of reserves) include:
- RUB30 billion (23% of FCC) of loan and guarantee exposures to
a financially weak pharmacy company, in which the bank's majority
shareholder is a minority equity investor, and to which the bank
is the largest creditor. The net exposure moderately decreased by
RUB8 billion compared with the previous review, due to additional
provisioning.
- RUB20 billion (15% of FCC) of loans to related-party
construction company for early-stage projects. These decreased by
RUB5 billion. Mitigating the credit risk, the company has a track
record of operations with a number of completed projects and
typically is able to refinance CBM's loans with third parties
(including a large state bank) once projects have become more
developed.
- RUB55 billion (42% of FCC) of large corporate loans to
borrowers with high leverage or weak financial performance (eg
auto dealers, oil refinery). The volume has decreased by RUB20
billion since the previous review, as the bank managed to work out
and dispose of around RUB40 billion of potentially problem
exposures. At the same time, Fitch has also reconsidered one large
loan to be more risky than before. The bank has hard collateral
against some of these exposures, which mitigates the risk,
although its repossession and sale could be challenging.
- RUB5 billion (4% of FCC) of illiquid bonds and weak reverse
repo exposures with high counterparty risks and weak collateral
with limited discounts. These decreased by RUB6 billion.
The bank's robust pre-impairment profit (RUB45 billion in 2017, or
around 6% of average gross loans) provides considerable protection
against potential credit losses. This is sufficient to cover about
40% of the above-mentioned risky assets on an annual basis.
Conservatively assuming an extra 50% stress on the risky assets it
would therefore require between 1 and 1.5 years to reserve them
sufficiently, which is reasonable.
The net profitability in 2017 was strong with 18% ROAE, but
dropped in 1Q18 (7% ROAE) due to significant FX losses on
derivatives, which are expected to be a one-off.
The bank's core capital is only moderate relative to potential
problems, with FCC at 12% and regulatory Core Tier 1 capital ratio
at a lower 9% at end-1Q18 (due to higher loan provisioning in the
local accounts). However, the bank's capital is bolstered by a
large junior debt cushion, including additional Tier 1 and loss-
absorbing Tier 2 subordinated debt, which are together equal to
RUB145 billion or 13% of RWAs. This is sufficient to fully cover
all of the above potentially risky exposures in the worst-case
scenario when large losses need to be recognised before the bank
is able to absorb them through profits.
CBM's capitalisation should also be viewed in the context of
significant 1.5x double-leverage at the level of the bank's
holding company, Concern ROSSIUM, which also holds stakes in non-
financial businesses. The holdco had around RUB55 billion of debt
at end-1Q18 and is largely reliant on upstreaming of liquidity and
dividends to service this, potentially representing a significant
burden for CBM. However, the bank's majority shareholder currently
holds most of the holdco's debt, which somewhat reduces risks
relating to the double leverage, although his funding sources are
not fully clear to Fitch.
A large reverse repo book poses limited credit risk due to
underlying securities being of quasi-sovereign quality. It is also
well matched with dedicated funding sources (direct repos and
certain corporate deposits) mitigating liquidity risk.
CBM's liquidity buffer at end-1Q18 (comprising cash and
equivalents, short-term interbank and unencumbered on-balance-
sheet securities repo-able with the central bank) covered customer
accounts net of the largest customer by around 40%, while
refinancing risk for wholesale debt is limited for 2H18-2019.
BSPB
NPLs were equal to 5% of gross loans at end-1Q18 and totally
provisioned. Restructured loans made up a further 11% and were
reserved by 50%, which is reasonable, in Fitch's view, as some of
these exposures are fully performing and/or have good collateral
coverage. The unreserved part accounted for a moderate 0.3x FCC at
end-1Q18.
Fitch notes BSPB has considerable exposure to real estate and
construction sectors (29% of corporate loans at end-1Q18), but the
large part is financing of operating cash generating real estate
placed as collateral with comfortable LTVs of around 60%. Judging
by the largest exposures, the rest is mostly made up by loans to
financially stable borrowers.
The bank's Fitch Core Capital (FCC) ratio at end-1Q18 was a
reasonable 13%, while the regulatory Tier 1 ratio was a lower 11%,
mainly due to larger provisions in local GAAP. The bank's
capitalisation provides a moderate safety buffer against potential
credit losses and enables the bank to increase reserves by extra
4% of gross loans before breaching regulatory minimums, including
a 1.875% conservation buffer. The bank's strong pre-impairment
profit (5% of average gross loans) provides additional protection.
Customer funding comprised 87% of BSPB's total liabilities, net of
direct repo, at end-1Q18. Customer accounts are rather granular,
with the 20 largest depositors making up only 10% of total. Repo
funding is sizable (25% of liabilities) and used to finance carry
trades in short-term market instruments. The bank has a
comfortable cushion of liquid assets, which, net of market funding
maturing within one year, covered customer accounts by 25% at end-
1Q18.
DEBT RATINGS
CBM's senior unsecured debt is rated in line with the bank's Long-
Term IDRs.
The ratings of CBM's and BSPB's subordinated debt are notched down
once from the banks' VRs. This incorporates zero notches for
incremental non-performance risk and one notch for below-average
expected recoveries in case of default.
The rating of CBM's perpetual additional Tier 1 notes is three
notches below the bank's VR. The notching reflects incremental
non-performance risk relative to the bank's VR due to the option
to cancel coupon payments at CBM's discretion; and likely high
loss severity in case of non-performance due to the instrument's
deep subordination.
SUPPORT RATINGS AND SUPPORT RATING FLOORS
CBM's Support Rating of '4' and the Support Rating Floor of 'B'
reflect Fitch's view that there is a moderate probability of
support from the Russian authorities, given CBM's moderate
franchise and its recently acquired status of a systemically
important bank, as well as the recent track record of state
support being provided to three failed systemic banks without
losses being imposed on their senior creditors.
BSPB's Support Rating of '5' and Support Rating Floors of 'No
Floor' reflect that support from the Russian authorities, although
possible given the bank's significant deposit franchise, cannot be
relied upon due to its still small size and lack of overall
systemic importance.
RATING SENSITIVITIES
An upgrade of CBM's ratings would require a marked improvement in
its asset quality and a strengthening of capitalisation through
reduced exposure to risky assets, higher core capital ratios
and/or reduced risks stemming from double leverage at the holdco
level.
The Long-Term IDR and senior debt ratings may be downgraded to the
level of the VR if the coverage of the bank's risky asset
exposures by its junior debt decreases significantly, increasing
the risk of losses for senior creditors in case of the bank's
failure.
An upgrade of BSPB's ratings would require a strengthening of its
franchise and credit metrics.
Negative rating pressure for both banks may stem from a sharp
asset quality deterioration resulting in material capital erosion
or a significant liquidity squeeze.
The rating actions are as follows:
Credit Bank of Moscow
-- Long-Term Foreign- and Local-Currency IDRs: affirmed at 'BB-',
Outlooks Stable
-- Short-Term Foreign-Currency IDR: affirmed at 'B'
-- Viability Rating: affirmed at 'b+'
-- Support Rating: affirmed at '4'
-- Support Rating Floor: affirmed at 'B'
-- Senior unsecured debt: affirmed at 'BB-'
CBOM Finance Plc (Ireland)
-- Senior unsecured debt: affirmed at 'BB-'
-- Subordinated debt: affirmed at 'B'
-- Hybrid capital instrument: upgraded to 'CCC+' from 'CCC'; RWP
off
Bank Saint Petersburg PJSC
-- Long-Term Foreign- and Local-Currency IDRs: affirmed at 'BB-',
Outlooks Stable
-- Short-Term Foreign-Currency IDR: affirmed at 'B'
-- Viability Rating: affirmed at 'bb-'
-- Support Rating: affirmed at '5'
-- Support Rating Floor: affirmed at 'No Floor'
-- Subordinated debt (issued by BSPB Finance plc): affirmed at
'B+'
EVRAZ GROUP: Fitch Hikes LT IDR & Sr. Unsec. Debt Rating to 'BB'
----------------------------------------------------------------
Fitch Ratings has upgraded Russia-based steel manufacturer Evraz
Group S.A.'s Long-Term Issuer Default Rating (IDR) and senior
unsecured debt instrument rating to 'BB' from 'BB-'. The Short-
Term IDR has been affirmed at 'B'. The Outlook is Stable.
Fitch's upgrade reflects Evraz's successful reduction of net debt
to USD4 billion, leading to funds from operations (FFO) adjusted
gross leverage of 2.4x and FFO adjusted net leverage of 1.8x at
end-2017. Evraz has a target for absolute net debt of USD3
billion-USD3.5 billion and for net debt/EBITDA below 2x through
the industry cycle, which reflects the group's intention to
maintain financial discipline. Fitch's rating case assumes some
moderation in steel prices after a peak in 2018 on the back of
lower raw material costs and forecasts an increase in FFO adjusted
gross and net leverage in 2019 and 2020.
The Stable Outlook on the rating is underpinned by Fitch's view
that the group will operate within its FFO-adjusted net leverage
sensitivity of 2.5x on a sustained basis. This reflects Fitch's
assumption that management will consider the medium-term commodity
price environment when signing off capital expenditure plans and
recommending any dividends over and above the minimum target of
USD300 million.
KEY RATING DRIVERS
Policies Taking Shape: Over the last 3 years debt reduction was a
priority for management with Evraz plc not paying a dividend in
2015 and 2016. With net debt/ EBITDA having been reduced to 1.5x
the board has agreed to set a dividend floor at USD300 million per
annum with the scope for higher distributions based on financial
performance and the market outlook for the group's products.
Together with a net debt/EBITDA target below 2x and an absolute
net debt target of USD3 billion-USD3.5 billion these financial
policies provide the basis for Fitch's rating forecast. Fitch
expects discretion by management over the short-term on how to
prioritise these policies if trade-off decisions have to be made.
Supportive Macroeconomic Environment: In the medium-term, Russian
GDP, industrial production and construction output are all
expected by Fitch to grow 1%-2% annually. Therefore, Fitch expects
long product demand to rise in the coming years. CRU Group
forecasts an uptick in domestic demand to 27.6mt in 2020 from
25.9mt in 2017. Given that global demand is showing an equally
benign pattern and supply-side reform in China is restraining
exports, Fitch expects capacity utilisation and earnings to be
supported in the long run. Fitch sees prices peaking towards mid-
2018 as the end of the heating season in China will increase
competition on export markets and reverse most of the gains seen
over the last 12 months.
Protectionist Measures May Distort Markets: The Section 232
investigation in the US presents no direct threat to Evraz as the
group only supplies around 500kt of slab to its rolling mill in
Portland. Generally the tariffs will lead to increased prices for
buyers in the US, while markets outside the US may see increased
competition in the short-term due to oversupply. Fitch may also
see retaliatory measures in response to the protectionist measures
imposed by the US from Europe, Canada and other countries. The
current Fitch rating case does not capture downside risks that
could result from increasing protectionism of important trading
partners.
Cost-Competitive Position: Evraz's steel assets are placed in the
first quartile of the global cost curve and the group benefits
from high self-sufficiency in iron ore of 81% and coking coal of
184%, including supplies of coal from subsidiary Raspadskaya.
Consequently, it is better-placed across the steel market cycle to
control the cost base of its upstream operations than less
integrated international steel peers.
Higher Earnings Contribution from Raw Materials: In terms of
EBITDA generation, Evraz has had lower profitability among its
integrated Russian steel peers over the last three years. However,
the gap in margin has narrowed in comparison to PJSC Novolipetsk
Steel (NLMK) and OJSC Magnitogorsk Iron & Steel Works (MMK). While
the group's rebar products (around 10-15% of overall steel sales
volumes) remain exposed to keen competition from small- and mid-
sized players, other steel products have benefited from the
improved supply and demand dynamics and the coal division has
materially contributed towards an uplift in reported EBITDA
margin. Higher raw material prices and a low cost base lead to
high value accretion from the coal assets.
DERIVATION SUMMARY
Evraz's 'BB' rating is adequately positioned against Russian steel
peers NLMK (BBB-/Stable), PAO Severstal (BBB-/Stable) and MMK
(BBB-/Stable) on comparative measures such as scale of operations,
business diversification and self-sufficiency but has higher
leverage than its peers. Evraz also has higher exposure to long
steel products and the competitive domestic construction market,
whereas peers broadly have higher exposure in Russia to the more
concentrated flat steel market. EBITDA margin was 24% for 2017
compared with 32% for Severstal, 26% for NLMK and 26% for MMK.
Evraz's 'BB' IDR incorporates the higher-than-average systemic
risks associated with the Russian business and jurisdictional
environment, as do the ratings for peers referred to above.
KEY ASSUMPTIONS
Fitch's Key Assumptions within its Rating Case for the Issuer
- USD/RUB at 58 in 2018, at 59 in 2019 and at 59 in 2020
- Steel volumes to decline in 2018 due to the sale of DMZ, mid-
single digit increases in 2019 and 2020 as blast furnace
maintenance is completed
- Up to mid-single digit increase in coal production at
Yuzhkuzbasugol
- Low-to-mid-single digit rise in steel prices in 2018 followed
by a correction over 2019-2020 and a moderate recovery
thereafter
- Around USD700 million capex in 2018 and 2019 and incremental
reductions towards USD550 million thereafter
- Dividends of USD620 million in 2018, decreasing towards USD450
million in the following years
RATING SENSITIVITIES
Future Developments That May Individually or Collectively, Lead to
Positive Rating Action
- FFO-adjusted gross leverage sustained below 2.5x
- FFO-adjusted net leverage sustained below 2.0x
- Proven commitment to conservative financial policy
Future Developments That May Individually or Collectively, Lead to
Negative Rating Action
- FFO-adjusted gross leverage sustained above 3.0x
- FFO-adjusted net leverage sustained above 2.5x
- Failure to maintain positive free cash flow (FCF) post-
dividend
LIQUIDITY
Strong Liquidity: At end-2017, Evraz had available USD1.5 billion
of cash and cash equivalents. It is expected to generate positive
FCF after dividends over the coming years and only has short-term
maturities of USD62 million in 2018, with USD682 million falling
due the year after. Given that the group intends to incrementally
reduce net debt, the business is funded up to 2020.
X5 RETAIL: Fitch Hikes LT IDRs to 'BB+', Outlook Stable
-------------------------------------------------------
Fitch Ratings has upgraded Russia-based food retailer X5 Retail
Group N.V.'s (X5) Long-Term Foreign-and Local-Currency Issuer
Default Ratings (IDRs) to 'BB+' from 'BB'. The Outlook is Stable.
The upgrade reflects Fitch's assessment of X5's improved business
profile as the company has firmed up its market position as the
largest food retailer in Russia. It has also demonstrated solid
execution of its growth strategy over the past four years, which
it believes is sustainable against the backdrop of heightened
competition. The 'BB+' rating also takes into account its
tightened financial leverage target following the recent adoption
of a dividend policy. Fitch therefore forecasts the company's
financial profile will be stable and aligned with a 'BB+' rating
over the next four years. X5's ratings are moderately impacted by
the operating environment in Russia.
KEY RATING DRIVERS
Effective Strategy Implementation: X5 has more than doubled its
revenue and EBITDA since 2013, while maintaining the EBITDA margin
at around 7%, which is strong by industry standards. X5's record
of effective implementation of its growth strategy lowers
execution risks related to further expansion, as the company aims
to solidify its position as Russia's largest food retailer. Fitch
believes this will be achievable.
Largest Food Retailer in Russia: The ratings are based on X5's
strong business profile as the largest food retailer in Russia,
with a multi-format strategy and wide geographic footprint in the
country. The company's increased focus on digitalisation and
innovation and continuous improvements in customer value
proposition and logistics should enable X5 to withstand growing
competition from other large retail chains and specialised stores.
Revenue Growth to Decelerate: Fitch projects X5's revenue to
continue growing in double digits over 2018-2021 but the pace of
growth is likely to decelerate. This will result from a high base
effect and its assumption that the number of new store openings
will reduce as market penetration by modern retail reaches levels
of developed economies. Fitch also expects large players to
prioritise operating efficiency over network expansion and become
increasingly selective in new store locations.
Expected Structural Decline in Profitability: Fitch's conservative
projections continue to factor in a gradual decrease in X5's
EBITDA margin to below 7% (adjusted for potential long-term
incentives; LTI) by 2021 (2017: 7.4%) due to potential gross
margin sacrifices to fend off competition and protect footfall
rates. Fitch's projections also assume that X5 will be able to
maintain broadly stable operating lease expenses as a proportion
of revenue, despite the company's plan to expand primarily through
leasehold stores. This is based on X5's growing presence in
regions with lower rents and its strong bargaining power with
landlords, as proven over 2016-2017.
Dividend Policy Adoption, Neutral: Fitch views X5's dividend
policy adopted in September 2017 as broadly neutral to the
ratings. The dividend policy sets a target payout ratio of at
least 25% of X5's net profit, provided that the company's net
debt-to-EBITDA ratio is below 2.0x (2017: 1.7x). The adoption of a
dividend policy by the market leader evidences a maturing food
retail market in Russia. As capex intensity decreases, Fitch
expects dividends to absorb X5's growing cash flows generation,
leading to a broadly neutral free cash flow (FCF) profile over the
medium term. Fitch therefore projects funds from operations (FFO)
adjusted leverage to remain stable at around 3.8x over 2018-2021
(2017: 3.7x).
Tightened Leverage Target: Following the dividend policy adoption,
X5 has also tightened its internal leverage target, indicating the
comfortable range of year-end net debt-to-EBITDA as 1.6x-1.8x.
This is a material reduction from the previously communicated
level of around 3.0x. Fitch considers the company's intention to
maintain a conservative capital structure as a positive rating
factor. The ratings incorporate Fitch's expectation that X5 will
consider cash preservation measures to manage its leverage to
targeted levels in case of weaker than expected performance.
Consumer Sentiment Improves: After three years of contraction,
real disposable incomes in Russia resumed growth in February 2018,
laying a base for recovery in consumer sentiment. Fitch therefore
expects a gradual improvement in consumer purchasing behaviour
over the next two years. Nevertheless, this is unlikely to drive a
material growth in X5's like-for-like (LfL) sales as competition
remains intense among food retailers and the market environment is
characterised by high promotional activity. In addition, current
historically low levels of food inflation in Russia make it
difficult to replicate growth in average shopping basket reported
in the past three years.
Weak Fixed Charge Coverage: X5's FFO fixed charge coverage remains
weak for the 'BB+' rating, albeit broadly aligned with the 'BB'
rating category for the sector. However, this is somewhat
mitigated by a more conservative capital structure and favourable
lease cancellation terms. The metric is under pressure from
substantial operating lease expenses but Fitch projects it to
remain broadly stable over 2018-2021 (2017: 2.0x).
Structurally Subordinated Local Bonds: Four rouble bonds issued by
X5 FINANSE LLC (financial company, 100%-owned by X5) remain
structurally subordinated to the rest of the group's debt as
bondholders do not have recourse to operating companies.
Nevertheless, Fitch no longer applies any notching to instrument
ratings and rates these bonds in line with X5's IDR at 'BB+' as
prior-ranking debt to EBITDA is less than 2x, which is Fitch's
threshold for structural subordination and hence lower recoveries
for unsecured creditors. As X5 has tightened its leverage target,
Fitch believes that the threshold will not be exceeded over the
medium term.
DERIVATION SUMMARY
X5 benefits from a stronger business profile than the other two
Fitch-rated Russian food retailers Lenta LLC (BB/Stable) and O'Key
Group SA (B+/Stable) due to its larger business scale, stronger
market position and greater format diversification. In comparison
with international retail chains, X5 has a scale commensurate with
the 'BBB' category rating and similar credit metrics but more
limited geographic diversification, which is partly offset by
stronger growth prospects and room for expansion. X5 also compares
well with Chile-based retailer Cencosud SA (BBB-/Stable).
X5's ratings take into consideration the higher-than-average
systemic risks associated with the Russian business and
jurisdictional environment. No Country Ceiling or parent/
subsidiary linkage aspects were in effect for these ratings.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Its Rating Case for the Issuer
- Revenue CAGR around 14% over 2018-2021, driven mostly by
selling space growth;
- LTI expenses at around 0.2% of revenue over 2018-2021;
- EBITDA margin (adjusted for potential LTI expenses) gradually
decreasing over 2018-2021;
- Capex at 3%-5% of revenue;
- Slight deterioration in working capital turnover;
- Dividend payout at 55%-85% over 2019-2021;
- No large-scale M&A activity.
RATING SENSITIVITIES
Developments That May, Individually or Collectively, Lead to
Positive Rating Action
- LfL sales growth comparable with close peers, together with
maintenance of its leading market position in Russia's food
retail sector and successful execution of its growth strategy;
- Maintenance of strong FFO margin;
- FFO-adjusted gross leverage below 3.5x on a sustained basis
(2017: 3.7x);
- FFO fixed charge coverage around 2.5x on a sustained basis
(2017: 2.0x).
Developments That May, Individually or Collectively, Lead to
Negative Rating Action
- A contraction in LfL sales growth relative to close peers,
particularly if combined with FFO margin erosion to below 4.0%
(2017: 6.1%);
- FFO-adjusted gross leverage above 4.5x on a sustained basis;
- FFO fixed charge cover below 2.0x on a sustained basis;
- Worsened operating cash flow generation coupled with higher-
than-expected capex or dividends keeping FCF firmly in
negative territory.
LIQUIDITY
Adequate Liquidity: At end-March 2018, X5's short-term debt of
RUB57.4 billion and expected negative FCF slightly exceeded
available liquidity sources, which consisted of cash balances of
RUB12.9 billion and undrawn committed credit facilities of RUB57.3
billion. Nevertheless, Fitch considers the company's liquidity
position as adequate due to undrawn uncommitted facilities and
firm access to local funding, including the local bond market.
In addition, X5 has flexibility in managing its capex plans, which
is the major driver behind the projected negative FCF, while the
group's operating cash-flow generation remains strong.
FULL LIST OF RATING ACTIONS
X5 Retail Group N.V.
- Long-Term Foreign- and Local-Currency IDRs: upgraded to 'BB+'
from 'BB', Stable Outlook;
X5 FINANSE LLC (100%-owned by X5 Retail Group N.V.)
- RUB15 billion bonds due September 2031
- Local currency senior unsecured rating: upgraded to 'BB+' from
'BB'
- RUB5 billion bonds due October 2022
- Local currency senior unsecured rating: upgraded to 'BB+' from
'BB-'
- RUB5 billion bonds due March 2023
- Local currency senior unsecured rating: upgraded to 'BB+' from
'BB-'
- RUB5 billion bonds due April 2023
- Local currency senior unsecured rating: upgraded to 'BB+' from
'BB-'
- RUB5 billion bonds due August 2023
- Local currency senior unsecured rating: upgraded to 'BB+' from
'BB-'
X5 Finance B.V. (100%-owned by X5 Retail Group N.V.)
- Senior unsecured rating: upgraded to 'BB+' from 'BB'
=========
S P A I N
=========
BBVA-6 FTPYME: Fitch Affirms Csf Rating on Class C Notes
--------------------------------------------------------
Fitch Ratings has upgraded BBVA-6 FTPYME, FTA's class B notes and
affirmed the others as follows:
Class B: upgraded to 'A+sf' from 'BBBsf'; Outlook Stable
Class C: affirmed at 'Csf'; Recovery Estimate (RE) increased to
20% from 0%
The transaction is a cash flow securitisation of a static
portfolio of secured and unsecured loans granted by Banco Bilbao
Vizcaya Argentaria (BBVA, A-/Stable/F2) to small- and medium-sized
enterprises (SMEs) in Spain. The initial balance was EUR1.5
billion at closing in June 2007.
KEY RATING DRIVERS
Continued Deleveraging
The upgrade of the class B notes reflects a significant increase
in credit enhancement due to the rapid amortisation of the senior
notes. The notes have paid down a further EUR22 million over the
last 12 months, increasing credit enhancement to 94% from 39%.
Low Delinquencies
Delinquencies of 90+ days as of April 30, 2018 have decreased to
0.2% of the non-defaulted balance from 0.34% a year ago. Low
average delinquencies for the past three years and more favourable
macroeconomic conditions, reflected in lower default assumptions
for Spain in Fitch's Global SME CLO Criteria, have led to the
transaction's annual average default rate assumption being revised
to 2.6%, from 3% a year ago.
Increased Obligor Concentration
Obligor concentration has continued to increase with the
amortisation of the portfolio. The proportion of the portfolio
comprising obligors that make up more than 50 basis points of the
performing notional has increased to 81% from 73.5% and the
exposure to the 10-largest obligors has increased to 52.3% from
31.3%. Fitch applies a correlation and default probability uplift
as well as a haircut to the recovery of these assets to account
for the increased concentration risk.
Payment Interruption Risk
The highest achievable note rating in this transaction is capped
at 'A+sf' due to exposure to payment interruption risk. The
reserve fund remains depleted and the structure would lack a
source of liquidity, should the servicer default.
Significant under-collateralisation for Class C notes
The transaction maintains a large principal deficiency ledger
(PDL) balance of EUR14.9 million, which has decreased by EUR2.5
million over the last 12 months. The PDL is 46% of the outstanding
class C notes balance. The affirmation of the C notes' 'Csf'
rating reflects the notes' under-collateralisation and
subordinated position.
RATING SENSITIVITIES
An increase of 25% to the default probability resulted in no
change to the model-implied ratings. Similarly a decrease of 25%
to recoveries resulted in no change to the model-implied ratings.
A further sensitivity was run under which the five-largest
obligors were assumed to have defaulted with no recoveries, which
Fitch found had no impact on cash flow model-implied ratings.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset
pool and the transaction. There were no findings that affected the
rating analysis. Fitch has not reviewed the results of any third-
party assessment of the asset portfolio information or conducted a
review of origination files as part of its ongoing monitoring.
Fitch did not undertake a review of the information provided about
the underlying asset pool ahead of the transaction's initial
closing. The subsequent performance of the transaction over the
years is consistent with the agency's expectations given the
operating environment and Fitch is therefore satisfied that the
asset pool information relied upon for its initial rating analysis
was adequately reliable.
Overall, Fitch's assessment of the information relied upon for the
agency's rating analysis according to its applicable rating
methodologies indicates that it is adequately reliable.
CAIXABANK CONSUMO 2: Fitch Affirms 'B+' Rating on Class B Notes
---------------------------------------------------------------
Fitch Ratings has affirmed CaixaBank Consumo 2 FT notes, as
follows:
Class A notes: affirmed at 'A+sf'; Outlook Stable
Class B notes: affirmed at 'B+sf'; Outlook Stable
This transaction is a static cash securitisation of unsecured
consumer loans, consumer loans secured by first-and second-lien
real estate (RE) and consumer drawdowns of related mortgage lines,
extended to obligors in Spain by CaixaBank S.A (BBB/Positive/F2),
which is also the account bank counterparty.
KEY RATING DRIVERS
Credit Enhancement (CE) Building Up
The affirmation reflects Fitch's view that current and projected
levels of CE for the notes are sufficient to mitigate the credit
and cash flow stresses commensurate with the rating scenarios.
Class A note CE stood at 27.5% as of the latest reporting period
and is expected to continue increasing, as the transaction
amortises on a fully sequential basis.
Asset Composition
The share of assets secured by RE had increased to 40% of the
portfolio balance as of March 2018 compared with 25% at closing in
June 2016, while the share of assets paying fixed interest rate
had decreased to around 53% from 71.8% at closing. These trends
are within Fitch's initial expectations and reflect the longer
average maturity of the RE secured consumer loans. The portfolio
balance has amortised to EUR656 million as of March 31, 2018 from
EUR1,300 million at closing, and the balance of delinquent loans
(three month plus arrears excluding defaults) currently stand at
2.2%.
Interest Rate Risk
The transaction is exposed to interest rate risk, as the structure
is un-hedged and nearly 53% of the pool pays a fixed interest rate
as of March 2018, while the securitisation notes pay floating
coupons. This risk will reduce over time as the fixed-interest
rate loans amortise first and floating-rate loans have a longer
tenor to maturity. Fitch has accounted for this risk in its
analysis and found the available CE on the notes sufficient to
mitigate it.
Account Bank Triggers Cap Rating
The class A notes' rating is capped at 'A+sf' under Fitch's
Structured Finance and Covered Bonds Counterparty Rating Criteria,
due to the account bank replacement trigger being set at 'BBB',
which is insufficient to support 'AAsf' or 'AAAsf' ratings.
RATING SENSITIVITIES
A worsening of the Spanish macroeconomic environment, especially
employment conditions, or an abrupt shift of interest rates could
jeopardise the underlying borrowers' affordability. This could
have negative rating implications for the transaction.
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S W E D E N
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INTRUM JUSTITIA: Fitch Alters Outlook to Stable & Affirms BB IDR
----------------------------------------------------------------
Fitch Ratings has revised Intrum Justitia AB's Outlook to Stable
from Positive. Its Long-Term Issuer Default Rating (IDR) has been
affirmed at 'BB', its Short-Term IDR at 'B' and its senior
unsecured long-term debt rating at 'BB'.
The Outlook revision reflects Fitch's view that the leverage
resulting from Intrum's combination with the Lindorff group in
mid-2017 is unlikely now to reduce as swiftly as previously
expected. Illustrative of this is the group's 2Q18 announcement of
a deal with Intesa Sanpaolo SpA (Intesa; BBB/Stable), both to form
a joint venture servicing Italian non-performing loans and to
invest in a special purpose vehicle purchasing a non-performing
loan portfolio from Intesa.
KEY RATING DRIVERS
IDRS AND SENIOR DEBT
Intrum's ratings reflect the debt taken on as part of 2017's
combination with Lindorff, and the net impact on leverage of
subsequent corporate activity. They also take account of Intrum's
market-leading franchise in the European debt purchasing and
credit management sector, where the group benefits both from
diversification across 24 countries and from its high proportion
of fee-based servicing revenue, which complements more balance
sheet-intensive investment activities.
When announcing its planned combination with Lindorff in November
2016, Intrum indicated a medium-term net debt-to-'cash EBITDA'
(i.e. adjusted for non-cash items including portfolio
amortisation) target of 3.0x. The subsequent divestment of certain
businesses as part of the process to gain European Commission
approval for the merger reduced the combined business's projected
EBITDA, while also generating proceeds for potential deleveraging.
Following the Intesa announcement Intrum has restated its
commitment to a net debt-to-cash EBITDA target of 2.5-3.5x, but
has forecast a short-term rise to around 4.5x when the transaction
closes in late 2018, before achieving a mid-range position by end-
2020.
Fitch's core leverage metric for companies with proven stable
asset-based cash generation and/or significant non-balance-sheet-
related earnings, such as debt purchasers, is gross debt-to-
adjusted EBITDA (also adjusted for portfolio amortisation). The
benchmark boundary between 'b' and 'bb' range ratings is at 3.5x,
and by Fitch's calculations the ratio at end-1Q18 (pro forma for
the year) was around 4.2x, which continues to constrain the rating
at its current level. Referencing management's forecasts above for
future net debt-to-cash EBITDA, Fitch now sees the likely
timeframe for deleveraging as longer than is consistent with that
envisaged in a Positive Outlook.
The Intesa transaction substantially increases Intrum's presence
within the sizeable Italian market, providing both a stake in a
EUR10.8 billion gross book value, predominantly secured loan
portfolio and an ongoing servicing partnership with one of Italy's
largest banks. However, its scale also brings increased execution
risk, at a time when the group is still implementing the merger
with Lindorff, even though this appears to have proceeded
satisfactorily to date.
In 2017, Intrum reported unchanged pre-tax earnings from
continuing operations of SEK1.76 billion, despite a 61% rise in
revenue net of portfolio amortisation. This reflected the costs
associated with implementing the Lindorff combination, but
underlying profitability benefited from recurring cash flows
within the company's core businesses and an EBITDA margin that
remains wide after excluding portfolio amortisation as non-margin
revenue. Profitability is a rating strength, and the range of
countries in which the group operates further limits the
dependence on any one market. Asset quality is driven by the
accuracy of Intrum's pricing models and strength of the group's
collection procedures - areas in which the group has a good track
record.
Funding arrangements were fully renewed in June 2017 as part of
the Lindorff transaction and sources remain wholesale market-
focused but with no significant near-term maturities. The group's
EUR1.1 billion revolving bank facility has a 4.5 year term, and
EUR3 billion (equivalent) of senior unsecured bonds an average
term of 5.6 years.
The rating of Intrum's senior unsecured debt is equalised with the
Long-Term IDR, reflecting Fitch's expectation for average recovery
prospects given that Intrum's funding is largely unsecured.
The Stable Outlook on Intrum's Long-Term IDR reflects Fitch's view
that Intrum should continue to report adequate profitability while
maintaining leverage at current levels.
RATING SENSITIVITIES
IDRS AND SENIOR DEBT
A sustained reduction of Intrum's cash flow leverage resulting in
a gross debt-to-EBITDA ratio well within Fitch's 'bb' category
range for leverage (2.5x to 3.5x) could lead to an upgrade of
Intrum's Long-Term IDR and senior debt ratings.
Conversely Intrum's Long-Term IDR and senior debt ratings could be
downgraded if leverage shows a material sustained increase, or if
operating performance weakens as a result of either the Intesa
investments or the group's own acquired debt portfolios not
delivering the returns anticipated on purchase.
Intrum's Short-Term IDR would only change if the group's Long-Term
IDR is upgraded to 'BBB-' or higher, or downgraded below
'B-'.
Intrum's senior unsecured debt rating is primarily sensitive to
changes in Intrum's Long-Term IDR. Changes to Fitch's assessment
of recovery prospects for senior unsecured debt in a default
scenario (e.g. introduction to Intrum's debt structure of a
materially larger revolving credit facility, ranking ahead of
senior unsecured debt) could also result in unsecured debt being
notched below the IDR.
===========
T U R K E Y
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ANADOLU EFES: Moody's Reviews Ba1 CFR for Downgrade
----------------------------------------------------
Moody's Investors Service has placed on review for downgrade the
ratings of 11 non-financial corporates domiciled in Turkey.
These rating actions follow Moody's recent decision to place
Turkey's Ba2 government bond rating under review for downgrade.
Moody's has placed on review for downgrade the ratings of the
following corporates:
-- Anadolu Efes Biracilik ve Malt Sanayii A.S. (Efes)
-- Cola Icecek A.S. (CCI)
-- Dogus Holding A.S. (Dogus)
-- Eregli Demir ve Celik Fabrikalari T.A.S. (Erdemir)
-- Koc Holding A.S. (Koc Holding)
-- Ordu Yardimlasma Kurumu (OYAK)
-- Ronesans Gayrimenkul Yatirim A.S. (Ronesans)
-- Turkcell Iletisim Hizmetleri A.S. (Turkcell)
-- Turk Hava Yollari Anonim Ortakligi (Turkish Airlines)
-- Turkiye Petrol Rafinerileri A.S. (Tupras)
-- Turkiye Sise ve Cam Fabrikalari A.S. (Sisecam)
Additionally, Moody's has taken rating actions on two enhanced
equipment trust certificate (EETC) transactions related to Turkish
Airlines: Bosphorus Pass Through Trust 2015-1A and the Japanese
Yen denominated, Anatolia Pass Through Trust, Class A and Class B,
also issued in 2015. Moody's downgraded the Class A certificates
of the Bosphorus transaction to Baa2 from Baa1 and then placed all
of the EETC ratings under review for downgrade.
The outlooks for all the above corporates were stable prior to
this action except for Dogus, which had a negative outlook.
RATINGS RATIONALE
Moody's placement of ratings on review for downgrade reflects
Moody's view that the credit quality of the aforementioned
corporates is correlated to varying degrees to that of the
Government of Turkey, given the companies' high dependence on
their Turkish operations for revenue and cash flow generation.
The review will assess the credit implications and potential
vulnerabilities on each of the company's ratings in the context of
a currently challenging operating environment. In particular,
Moody's will assess the impact of the macro-economic environment
on the various companies' liquidity profiles and ability to
refinance approaching debt maturities, valuations and the
weakening lira on costs structures and foreign currency debt
obligations. Where Moody's sees stresses emerging, it may take an
earlier action.
EFES
The review for downgrade of Efes' ratings reflects the company's
high dependence on its Turkish operations for revenue and cash
flow generation, representing 45% of the beer group's EBITDA in
2017. Efes' Ba1 rating under review for downgrade reflects its
leadership position in the Turkish market, the material cash flow
contribution from its improving Russian operations and the
company's strong financial and liquidity profiles. The rating is
constrained at one notch above the sovereign rating of Turkey as
the sovereign rating of Russia (Ba1 positive) is too close to that
of Turkey to warrant more differentiation.
CCI
The review for downgrade of CCI's ratings reflects the company's
exposure to the Turkish economy, accounting for 50% of the
company's sales volume in 2017. CCI's Ba1 rating under review for
downgrade reflects its strong market positions in Turkey, Central
Asia, Iraq and Pakistan, improving financial profile, and strong
liquidity profile. The rating is constrained at one notch above
the sovereign rating of Turkey given that most of its foreign
exposure is to countries with speculative ratings.
DOGUS
The Ba2 rating under review for downgrade reflects Dogus'
geographical concentration of revenues, which are mainly based in
Turkey and are therefore linked to the performance of the Turkish
economy. While Dogus has been growing its international operations
away from Turkey it has also resulted in consolidated debt levels
increasing to TRY23.8 billion ($6.3 billion) from about TRY8.4
billion ($3.9 billion) in 2013 with market based leverage
increasing from 9.4% to 32.5%.
In addition to the credit linkages to Turkey, Moody's considers
Dogus to have a weakening liquidity profile due to diminishing
public stakes and reduced dividend inflows following the disposal
if its remaining 9.95% stake in Turkiye Garanti Bankasi A.S.
(Garanti Bank) in February 2017, which has been used to diversify
its investment portfolio. However, the reduction of cash balances
and loss of dividend income from Garanti Bank combined with
limited visibility on future dividend income from its investments,
has weakened Dogus' liquidity profile over the next 12 to 18
months.
ERDEMIR
Erdemir's Ba2 rating under review for downgrade reflects the
healthy financial profile of the company and its well-established
market share in Turkey as a leading domestic steelmaker. However,
the company's credit linkages with Turkey constrain the rating
given that all of the company's core assets are located in Turkey
and the vast majority of its revenues (c.80%) and cash flows are
generated domestically. The review for downgrade is therefore a
direct result of the change in Turkey's government bond rating.
Erdemir's rating is positioned in line with the government bond
rating to reflect a solid financial profile, with the company
displaying a robust operating and financial performance in 2017
and early 2018, leading to high margins and strong credit metrics
for the rating. Adjusted gross debt/EBITDA improved to 0.8x in
2017 from 1.2x in 2016 mainly due to a large EBITDA improvement.
The rating takes into account (1) the cyclicality of the company's
underlying end markets with a large reliance on construction and
the distribution chain; (2) competition from imports, particularly
from CIS steelmakers; (3) the majority of reported debt being
short term, although this is mitigated by overall positive net
cash position due to very large cash balance at the end of 2017,
which has increased further at the end of Q1 2018 to $2.2 billion
comfortably covering all outstanding debt; and (4) expected rising
capital expenditures and high dividend pay-outs which could turn
free cash flow into negative territory in 2018 and beyond if
operational cash flows do not improve further.
Erdemir's National Scale Rating was not affected by this rating
action.
KOC HOLDING and OYAK
Koc Holding and OYAK are two Turkish investment holding companies,
both with credit linkages and high exposure to the domestic
operating environment in Turkey. However, Koc Holding and OYAK
have diversified investment portfolios with a number of mature,
dividend generating investments as well as exposure to export
revenues, which allow their ratings to be rated one notch above
the Government of Turkey.
Since December 2017 to June 4, 2018, Koc Holding's listed
investment values have declined by 14%, in line with the decline
of Turkey's Borsa 100 index. OYAK's listed investments increased
by 9% during the same period due to higher share price performance
from Erdemir, OYAK cement companies and Hektas. Despite these
equity price movements the market-based leverage for both
companies have remained conservatively positioned given their net
cash positions.
In addition, both these companies maintain strong financial
flexibility and have for many years maintained net cash positions.
As of year-end 2017, Koc Holding at the holding level had $2.1
billion of cash and $1.5 billion of borrowings. Similarly, OYAK as
of 31 December 2017 had about TRY7.7 billion ($2.1 billion) of
cash with TRY196 million of borrowings at the holding level but
had TRY5.2 billion ($1.4 billion) of net debt at various
intermediate holding companies: ATAER (iron & steel, chemical and
automotive investments), OYAK Cimento (cement investments) and
BIREN (energy investments).
RONESANS
The review for downgrade on Ronesans' Ba2 rating reflects its
exposure to Turkey, as evidenced by its 100% property portfolio
and operational concentration in Turkey. As such, Ronesans'
performance is impacted by the political, social and economic
environment in Turkey and thus constrained by the Government of
Turkey's credit profile.
While Ronesans' rental agreements are linked to the euro/lira
exchange rate, Ronesans' rental income is indirectly exposed to
currency risks stemming from the mismatch between euro-linked
leases and tenants' local currency revenue. The risk of a sudden
depreciation of the lira is to some extent mitigated by reasonable
rent levels relative to tenant turnover, as demonstrated by
moderate occupancy cost ratios (OCRs = (rents plus costs)/tenant
sales) of 12%-13%. Moody's expects the weakening lira against the
euro (7% between April and May 2018), to have a more pronounced
impact on Ronesans' smaller tenants which Ronesans will have to
pro-actively manage.
TURKCELL
Turkcell's Ba1 rating under review for downgrade is rated one
notch above Turkey's bond rating. While the company has a strong
financial profile and a market leadership position, it also has a
high dependence on its Turkish operations for revenue and cash
flow generation. Turkcell also has significant cash balances of
TRY4.7 billion with the majority deposited in the domestic banking
system. As such, the ratings are constrained at one notch above
the sovereign rating and the outlook has changed in line with the
sovereign rating of Turkey. While Turkcell has international
operations that contribute to cash flow generation, the majority
of these international operations are in countries rated below the
sovereign bond rating of Turkey.
TURKISH AIRLINES
Moody's classifies Turkish Airlines as a government-related issuer
(GRI) because of the Government of Turkey's 49.12% ownership stake
held through its sovereign wealth fund. The Ba3 rating under
review for downgrade incorporates a one-notch uplift from a
baseline credit assessment (BCA) of b1 given Moody's assumption of
moderate government support. Moody's assessment of Turkish
Airlines' BCA and government support assumptions has not changed
as a result of this rating action.
Moody's does not currently see any downward pressure on the b1 BCA
given the airline's financial and operational improvements seen in
recent quarters, particularly following a rebound in Turkey's
tourism sector in the second half of 2017. Traffic data for the
first four months of 2018 has been strong, with passenger load
factors reaching 81.2% versus 75.4% over the same period in 2017
while passengers carried increased 24.4% over the same period.
However, the ratings have been placed on review for downgrade as a
result of the sovereign rating action on Turkey in order to assess
what a potential sovereign downgrade could mean for the one-notch
GRI uplift. A potential sovereign downgrade could also lead to
Turkish Airlines' rating being constrained by the sovereign
rating.
BOSPHORUS PASS THOUGH TRUST 2015-1A DOWNGRADED TO Baa2, ALL
TURKISH AIRLINES RELATED EETCS PLACED ON REVIEW FOR DOWNGRADE
The downgrade of the Class A rating of the Bosphorus transaction
to Baa2 from Baa1 reflects a decrease in the current equity
cushion of about 10 percentage points versus Moody's original
projection when it first rated the transaction in 2015. Moody's
estimates the current loan-to-value (LTV) at about 72% versus its
prior projection of about 62% in Spring 2018. This change is based
on applying a steeper annual depreciation rate for Boeing B777-
300ERs than Moody's had used in the past. Specifically, Moody's is
now using a 6% annual rate of decline for wide-body aircraft
models except the B787 and A350 families, for which it now uses 5%
rates of decline in value.
The Bosphorus transaction finances three of Turkish Airlines' 33
Boeing B777-300ERs. The transaction is a full-payout lease
structure, which will lead to growth in the equity cushion with
the passage of time. Based on the repayment structure, the LTV
will improve to only about 65% by September 2023 and by about 10%
per year thereafter, until the final scheduled payment in March
2027. The Anatolia transaction finances three Airbus A321-200s
delivered new to Turkish Airlines in 2015. The loans-to-value for
this transaction remain supportive of the current notching of +5
notches and +2 notches above Turkish Airlines' rating for
estimated peak loans-to-value of about 51% and about 61%.
The EETC ratings have been placed on review for downgrade in
connection with the review of Moody's rating on Turkish Airlines.
The post-review corporate family rating of Turkish Airlines and
the Local Currency Country Ceiling for Turkey will be key factors
in resolving the review of the EETC ratings.
TUPRAS
Tupras' Ba1 rating under review for downgrade reflects the healthy
financial profile of the company but Tupras' credit linkages with
Turkey constrains the rating given that all of the company's core
assets are located in Turkey and a majority of its cash flows are
generated domestically. The review for downgrade is therefore a
direct result of the change in Turkey's government bond rating.
Tupras' rating is positioned one notch higher than the government
bond rating to reflect (1) its strong financial profile with
Moody's adjusted debt/EBITDA of 3.3x and adjusted EBIT/interest
expense of 5.3x as of 31 March 2018 (LTM); and (2) its sales
exposure to refined products commodities which can be readily sold
in the international markets if domestic demand for any reason
declines.
SISECAM
The review for downgrade of Sisecam's ratings reflects its
exposure to the Turkish economy, with around two fifths of its
revenues generated in Turkey, and an additional fifth produced and
exported from the country. Sisecam's Ba1 rating under review for
downgrade reflects its leading market position in Turkey, balanced
revenue and product mix, as well as the group's strong financial
profile and robust liquidity position. The rating is constrained
at one notch above the sovereign rating of Turkey because of
Sisecam's limited exposure to investment grade markets.
LIST OF AFFECTED RATINGS
Issuer: Anadolu Efes Biracilik ve Malt Sanayii A.S.
Placed on Review for Downgrade:
-- Corporate Family Rating, currently Ba1
-- Probability of Default Rating, currently Ba1-PD
-- Senior Unsecured Regular Bond/Debenture, currently Ba1
Outlook Actions:
-- Outlook, Changed To Rating Under Review From Stable
Issuer: Coca-Cola Icecek A.S.
Placed on Review for Downgrade:
-- Corporate Family Rating, currently Ba1
-- Probability of Default Rating, currently Ba1-PD
-- Senior Unsecured Regular Bond/Debenture, currently Ba1
Outlook Actions:
-- Outlook, Changed To Rating Under Review From Stable
Issuer: Dogus Holding A.S.
Placed on Review for Downgrade:
-- Corporate Family Rating, currently Ba2
-- Probability of Default Rating, currently Ba2-PD
Outlook Actions:
-- Outlook, Changed To Rating Under Review From Negative
Issuer: Eregli Demir ve Celik Fabrikalari T.A.S. (Erdemir)
Placed on Review for Downgrade:
-- Corporate Family Ratings, currently Ba2
-- Probability of Default, currently Ba2-PD
Outlook Actions:
-- Outlook, Changed To Rating Under Review From Stable.
Issuer: Koc Holding A.S.
Placed on Review for Downgrade:
-- Corporate Family Rating, currently Ba1
-- Probability of Default Rating, currently Ba1-PD
-- Senior Unsecured Regular Bond/Debenture, currently Ba1
Outlook Actions:
-- Outlook, Changed To Rating Under Review From Stable
Issuer: Ordu Yardimlasma Kurumu (OYAK)
Placed on Review for Downgrade:
-- Corporate Family Rating, currently Ba1
Outlook Actions:
-- Outlook, Changed To Rating Under Review From Stable
Issuer: Ronesans Gayrimenkul Yatirim A.S.
Placed on Review for Downgrade:
-- Corporate Family Ratings, currently Ba2.
-- Senior Unsecured Regular Bond/Debenture, currently Ba2.
Outlook Actions
-- Outlook, Changed To Rating Under Review From Stable.
Issuer: Turkcell Iletisim Hizmetleri A.S.
Placed on Review for Downgrade:
-- Corporate Family Ratings, currently Ba1.
-- Probability of Default, currently Ba1-PD.
-- Senior Unsecured Regular Bond/Debenture, currently Ba1.
Outlook Actions
-- Outlook, Changed To Rating Under Review From Stable.
Issuer: Turk Hava Yollari Anonim Ortakligi
Placed on Review for Downgrade:
-- Corporate Family Rating, currently Ba3
-- Probability of Default Rating, currently Ba3-PD
Outlook Actions:
-- Outlook, Changed To Rating Under Review From Stable
Issuer: Bosphorus Pass Through Trust 2015-1A
Downgrades:
-- Senior Secured Enhanced Equipment Trust, Downgraded to Baa2
from Baa1; Placed on Review for Further Downgrade
Outlook Actions:
-- Outlook, Changed To Rating Under Review From Stable
Issuer: Anatolia Pass Through Trust
On Review for Possible Downgrade:
-- Senior Secured Enhanced Equipment Trust, currently Ba1
-- Senior Secured Enhanced Equipment Trust, currently Baa1
Outlook Actions:
-- Outlook, Changed To Rating Under Review From Stable
Issuer: Turkiye Petrol Rafinerileri A.S.
Placed on Review for Downgrade:
-- Corporate Family Rating, currently Ba1
-- Probability of Default Rating, currently Ba1-PD
-- Senior Unsecured Regular Bond/Debenture, currently Ba1
Outlook Actions:
-- Outlook, Changed To Rating Under Review From Stable
Issuer: Turkiye Sise ve Cam Fabrikalari A.S.
Placed on Review for Downgrade:
-- Corporate Family Rating, currently Ba1
-- Probability of Default Rating, currently Ba1-PD
-- Senior Unsecured Regular Bond/Debenture, currently Ba1
Outlook Actions:
-- Outlook, Changed To Rating Under Review From Stable
The principal methodology used in rating Coca-Cola Icecek A.S. was
Global Soft Beverage published in January 2017. The principal
methodology used in rating Anadolu Efes Biracilik ve Malt Sanayii
A.S. was Global Alcoholic Beverage Industry published in March
2017. The principal methodology used in rating Erdemir was Steel
Industry published in September 2017. The principal methodology
used in rating Ronesans Gayrimenkul Yatirim A.S. was Global Rating
Methodology for REITs and Other Commercial Property Firms
published in July 2010. The principal methodologies used in rating
Turk Hava Yollari Anonim Ortakligi were Passenger Airline Industry
published in April 2018 and Government-Related Issuers published
in August 2017. The principal methodology used in rating Turkcell
Iletisim Hizmetleri A.S. was Telecommunications Service Providers
published in January 2017. The principal methodology used in
rating Turkiye Petrol Rafinerileri A.S. was Refining and Marketing
Industry published in November 2016. The principal methodology
used in rating Turkiye Sise ve Cam Fabrikalari A.S. was Global
Manufacturing Companies published in June 2017. The principal
methodology used in rating Dogus Holding A.S., Ordu Yardimlasma
Kurumu (OYAK) and Koc Holding A.S. was Investment Holding
Companies and Conglomerates published in December 2015. The
principal methodologies used in rating Bosphorus Pass Through
Trust 2015-1A and Anatolia Pass Through Trust were Enhanced
Equipment Trust and Equipment Trust Certificates published in
December 2015, and Passenger Airline Industry published in April
2018.
CORPORATE PROFILES
EFES
Headquartered in Istanbul, Efes is Turkey's leading beer producer
with 61% market share according to the company. Efes also sells
beer in Russia (Ba1 positive), its largest market in terms of
volume, Kazakhstan (Baa3 stable), Ukraine (Caa2 positive), Moldova
(B3 stable) and Georgia (Ba2 stable). Efes owns 50.3% of the
capital of CCI, Turkey's leading soft drink producer whose
geographical reach includes other Middle Eastern and Central Asian
countries. The company reported consolidated sales of TRY12.9
billion ($3.2 billion) in 2017, including TRY4.5 billion ($1.1
billion) in beer sales.
CCI
Coca-Cola Icecek is the sixth-largest independent bottler in the
Coca-Cola system as measured by sales volume. The company produces
and distributes soft beverages in Turkey, Central Asia, Pakistan
and the Middle East. The company is listed and headquartered in
Turkey, with a market capitalization of TRY9.2 billion ($2.0
billion) as of June 4, 2018. CCI generated sales of TRY8.5 billion
($2.3 billion) in 2017. The company is 50.3% owned by Anadolu Efes
Biracilik ve Malt Sanayii A.S. (Efes, Ba1, rating under review)
and 20.1% by The Coca-Cola Company (TCCC; Aa3 negative).
DOGUS
Headquartered in Istanbul, Turkey, Dogus Holding A.S. is an
investment holding company owned by the Sahenk family. It
comprises more than 200 companies, which are active in seven
sectors: automotive, construction, media, tourism & services, real
estate, food & entertainment and energy. The company's main
activities are tied to the Turkish economy, but the company is
aiming to create regional leaders in their respective industries.
As of December 31, 2017, Dogus Holding reported consolidated
assets of TRY36.5 billion and revenue of TRY20.4 billion.
ERDEMIR
Eregli Demir ve Celik Fabrikalari T.A.S. is the largest integrated
steel manufacturer in Turkey with a steel production capacity of
c. 9.6 million tons per year. Erdemir produces both flat (85% of
steel produced in 2017) and long steel products. The company also
produces iron ore and pellets, most of which are sold internally
to group companies. Erdemir has a modest vertical integration, via
its 90% stake in the largest Turkish iron ore mine with an annual
capacity of 2.5 million tons of iron ore. However, the company
still needs to import iron ore from third parties for
approximately 75% of its iron ore needs and for 100% of its coking
coal needs. The vast majority of Erdemir sales (81% in 2017) are
domestic, the remainder being sold on the international markets,
mostly in EMEA.
In 2017 the company produced nearly 9 million tonnes of steel and
generated revenues of TRY18.6 billion ($5.1 billion). Erdemir's
largest shareholder is Ordu Yardimlasma Kurumu (OYAK), the Turkish
private pension fund primarily serving members of the Turkish
Armed Forces, who holds 49.3% of Erdemir's shares through Ataer
Holding.
Erdemir is quoted on the Istanbul stock exchange and its market
capitalisation was approximately $8.6 billion as of 4 June 2018.
Free float is c. 47.6%.
KOC HOLDING
Founded in 1926, Koc Group is one of Turkey's most prominent
business groups, with investments in various sectors including
energy, automotive, consumer durables and finance. Koc Holding
A.S. was established in 1963 to house and centrally manage the
group's diverse investment portfolio. The Koc family members
directly and indirectly own 64.3% of the holding company while
another 26.5% is listed on Borsa Istanbul.
OYAK
Ordu Yardimlasma Kurumu (OYAK), based in Ankara/Turkey, is the
private top-up pension fund for Turkish military personnel, and is
governed by its own laws and run by professionals. As a mutual
assistance organisation, its purpose is to provide permanent
members with retirement, death and pension benefits, and to make
personal loans. OYAK functions as an additional pillar to the
state pension system. OYAK's investments cover a broad range of
industries including iron and steel, cement and concrete,
automotive and logistics, energy, financial services, and
chemicals and pharmaceuticals. As of fiscal year-end 2017, OYAK
reported total consolidated assets of TRY73.9 billion and revenue
of TRY37.0 billion.
RONESANS
Ronesans Gayrimenkul Yatirim A.S. is one of the largest retail
focused commercial property owner and manager in Turkey with a
total portfolio value of EUR2.1 billion (stake adjusted for JV's).
The property portfolio comprises of 10 dominant shopping centers
(84% of GLA) of which three are a 50/50 joint venture with GIC and
one with Amstar Global Partners (AGP); and two offices (16% of
gross leasable assets - GLA) with a total GLA of 685sqm. It has
also one property under development valued at EUR148 million and
11 land bank plots for future development opportunities valued at
EUR259 million.
TURKCELL
Turkcell Iletisim Hizmetleri A.S., headquartered in Istanbul,
Turkey and established in 1993, started operations as a mobile
telephony service provider in Turkey in 1994 and acquired a 25-
year GSM license in 1998; a 20-year 3G license granted in April
2009; and a 4.5G license effective for 13 years until April 30,
2029. Today Turkcell is an integrated communication and technology
service provider in Turkey. The company shares its domestic market
with two other players and captures 41.3% of the total telephony
market and around 44% of the mobile subscribers according to
Information and Communication Technologies Authority (ICTA). Over
the years Turkcell has expanded its operations into Ukraine,
Belarus, Azerbaijan and Turkish Republic of Northern Cyprus.
In 2017, the company reported revenues of TRY17.6 billion,
adjusted EBITDA of TRY7.6 billion, total reported debt of TRY12.5
billion and cash & cash equivalents of TRY4.7 billion.
TURKISH AIRLINES
Founded in 1933, Turkish Airlines is the national flag carrier of
the Republic of Turkey and is a member of the Star Alliance
network since April 2008. Through the Ataturk International
Airport in Istanbul acting as the airline's primary hub, the
airline operates scheduled services to 251 international and 49
domestic destinations across 120 countries globally. It operates a
fleet of 219 narrow-body, 90 wide-body and 18 cargo planes. As of
year-end 2017, the company reported revenues of $11.0 billion and
a net profit of $223 million.
TUPRAS
Turkiye Petrol Rafinerileri A.S. is the sole refiner in Turkey,
with a dominant position in the domestic petroleum product market.
The refining business consists of one very high complexity
refinery in Izmit, two medium complexity refineries located in
Izmir and Kirikkale and one simple refinery in Batman, with a
combined annual crude processing capacity of 28.1 million tonnes
(611 mbbl/day). Headquartered in Korfez/Turkey, Tupras generated
sales of TRY53.9 billion and reported a net profit of TRY3.9
billion in 2017.
SISECAM
Founded in 1935, Sisecam is a Turkish industrial manufacturer of
glass products as well as soda ash and chromium-based chemicals.
Sisecam has four business segments operating through its core
subsidiaries, namely Trakya Cam Sanayii A.S. (flat glass),
Pasabahce Cam Sanayii ve Tic A.S. (glassware), Anadolu Cam Sanayii
A.S. (glass packaging) and Soda Sanayii A.S. (chemicals). Over the
past decade, the group has been increasing its geographical
footprint in Eastern Europe, Western Europe and CIS as part of its
growth strategy. Sisecam is 65% owned by Turkiye Is Bankasi A.S.
and 8% owned by Efes Holding A.S., with the remaining 27% listed
on Borsa Istanbul. Sisecam reported consolidated revenues of
TRY11.3 billion and an operating profit of TRY1.9 billion in 2017.
MERSIN ULUSLARARASI: Moody's Reviews Ba1 CFR for Downgrade
----------------------------------------------------------
Moody's Investors Service has placed on review for downgrade the
Ba1 corporate family rating (CFR) and the Ba1 senior unsecured
rating of Mersin Uluslararasi Liman Isletmeciligi A.S. (Mersin
International Port or MIP).
Moody's rating action follows Moody's recent decision to place
Turkey's Ba2 government bond rating on review for downgrade.
RATINGS RATIONALE
Moody's review for downgrade mirrors the review for downgrade of
the Government of Turkey's rating and reflects the constraints
placed on MIP's ratings by the sovereign's ratings, given the
multiple channels of shared exposure and contagion that exist
between sovereign and corporate issuers. As a result and in spite
of its strong operating performance and relatively low leverage,
Moody's does not currently expect MIP to be rated more than one
notch higher than the sovereign rating.
MIP's ratings are one notch higher than the rating of the
Government of Turkey because (1) a significant element of MIP's
revenues is derived from overseas markets; (2) the company has
minimal exposure to local debt markets and financial system over
the short to medium term; and (3) the possibility of support from
its 51% overseas shareholder PSA International Pte. Ltd. (Aa1
stable).
Overall, MIP's Ba1 CFR is underpinned by (1) the company's very
strong competitive position serving an extensive hinterland; (2)
the supportive long-term concession agreement under which it
operates; (3) the strong operational support from its 51% owner,
PSA International Pte. Ltd.; and (4) its track record of prudent
financial policy.
These factors are balanced by (1) the potential risks associated
with the sovereign, as MIP operates under a concession agreement
granted by the state and all its assets are located within Turkey;
(2) its high exposure to container volume variations; and (3) its
capital investment requirements which, although modest, are key to
adapting the port infrastructure to trends in the shipping
industry, and also suggests higher exposure to more volatile and
less profitable transhipment volumes in the future.
WHAT COULD CHANGE THE RATING -- UP/ DOWN
The rating review will be concluded after the rating review of
Turkey is concluded. The ratings of MIP may be confirmed if the
Government of Turkey's rating is confirmed.
Conversely, the ratings of MIP may be downgraded if the Government
of Turkey's rating is downgraded, or Moody's concludes that the
monetary, financial or economic policies in Turkey are likely to
undermine financial stability and sustainable growth such that
there is a materially greater risk of a deterioration in the
government's credit profile affecting MIP.
The principal methodology used in these ratings was Privately
Managed Port Companies published in September 2016.
CORPORATE PROFILE
Mersin Uluslararasi Liman Isletmeciligi A.S. holds the concession
for the operation of Mersin Port, one of the largest port
terminals by both tonnage and import/export container throughput
in Turkey. The port is located on the south eastern coast of
Turkey in Mersin and close to Adana, both of which are large
regional cities, and derives its revenues from a full range of
port services, including container terminal services (76% of 2017
revenues), conventional cargo services (16% of 2017 revenues), and
towage and pilotage services (8% of 2017 revenues).
===========================
U N I T E D K I N G D O M
===========================
ANTHRACITE EURO 2006-1: Fitch Withdraws Csf Rating on Cl. B Notes
-----------------------------------------------------------------
Fitch Ratings has affirmed 10 tranches, upgraded one tranche and
downgraded one tranche of three structured finance collateralised
debt obligations (SF CDO) transactions. Fitch has simultaneously
withdrawn the ratings on all 12 tranches, as they are no longer
considered relevant to the agency's coverage, due to the highly
distressed nature of the ratings, at the 'CCsf' or 'Csf' levels.
KEY RATING DRIVERS
Fitch has affirmed 10 classes at 'Csf' that have negative credit
enhancement (CE). For these classes, the probability of default
was evaluated without factoring in potential losses from the
performing assets. Default for these notes at or prior to maturity
continues to appear inevitable.
Fitch has upgraded Odeon ABS 2007-1 B.V.'s class A-1 notes to
'CCsf' from 'Csf'. The upgrade is due to the significant increase
in CE for the tranche mainly due to the amortisation of the high
quality RMBS assets in the portfolio. The outstanding amount of
the class A-1 notes is now covered by the performing portfolio
assets that are rated 'CCC' and above plus cash. However,
available CE for the class A-1 notes is lower than the losses
projected at the 'CCCsf' rating stress under Fitch's Structured
Finance Portfolio Credit Model (SF PCM) analysis. Therefore, the
default of this class still appears probable.
Fitch has downgraded Anthracite Euro CRE CDO 2006-1 P.L.C.'s class
B notes to 'Csf' from 'CCsf'. As the CE available to this class
remains negative and has further decreased from last year, a
default at or prior to maturity appears more likely than in the
past and is now considered as inevitable.
RATING SENSITIVITIES
Not applicable.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10
No third-party due diligence was provided or reviewed in relation
to these rating actions.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset
pool and the transaction. There were no findings that were
material to this analysis. Fitch has not reviewed the results of
any third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.
The majority of the underlying assets have ratings or credit
opinions from Fitch and/or other Nationally Recognised Statistical
Rating Organisations and/or European Securities and Markets
Authority registered rating agencies. Fitch has relied on the
practices of the relevant Fitch groups and/or other rating
agencies to assess the asset portfolio information.
Overall, Fitch's assessment of the information relied upon for the
agency's rating analysis according to its applicable rating
methodologies indicates that it is adequately reliable.
SOURCES OF INFORMATION
This information was used in the analysis:
Anthracite Euro CRE CDO 2006-1 P.L.C
- Transaction reporting provided by The Bank Of New York Mellon
as of May 3, 2018.
- Loan-by-loan data provided by The Bank Of New York Mellon as
of May 3, 2018.
House of Europe Funding III PLC
- Transaction reporting provided by Deutsche Bank as of May 22,
2018.
- Loan-by-loan data provided by Deutsche Bank as of May 22,
2018.
Odeon ABS 2007-1 B.V.
- Transaction reporting provided by TMF Group as of April 30,
2018.
- Loan-by-loan data provided by TMF Group as of April 30, 2018.
The rating actions are as follows:
Anthracite Euro CRE CDO 2006-1 P.L.
- EUR16.4 million Class B: downgraded to 'Csf' from 'CCsf';
withdrawn
- EUR53.5 million Class C: affirmed at 'Csf'; withdrawn
- EUR36.7 million Class D: affirmed at 'Csf'; withdrawn
- EUR33.4 million Class E: affirmed at 'Csf'; withdrawn
House of Europe Funding III PLC
- EUR131.8 million Class A: affirmed at 'Csf'; withdrawn
- EUR60 million Class B: affirmed at 'Csf'; withdrawn
- EUR57.5 million Class C: affirmed at 'Csf'; withdrawn
- EUR7.5 million Class D: affirmed at 'Csf'; withdrawn
Odeon ABS 2007-1 B.V.
- EUR15 million Class A-1: upgraded to 'CCsf' from 'Csf';
withdrawn
- EUR21 million Class A-2: affirmed at 'Csf'; withdrawn
- EUR13.5 million Class A-3: affirmed at 'Csf'; withdrawn
- EUR13.5 million Class B: affirmed at 'Csf'; withdrawn
ARTEMIS MIDCO: Moody's Assigns First-Time B2 CFR, Outlook Stable
----------------------------------------------------------------
Moody's Investors Service assigned a first-time B2 corporate
family rating (CFR) and a Probability of Default Rating (PDR) of
B2-PD to Artemis Midco (UK) Limited. Artemis is controlled by
funds managed and advised by Cinven and was formed in connection
with the acquisition of the group Partner in Pet Food ("PPF").
Concurrently, Moody's has assigned a B2 instrument rating to the
senior secured Term Loan B of EUR265 million and to the EUR45
million Revolving Credit Facility ("RCF" ) being raised by Artemis
Acquisitions (UK) Limited in connection with the acquisition. The
outlook on all ratings is stable.
PPF is being acquired by Artemis with the balance of the funding
requirement funded by an equity injection from Cinven.
"The B2 CFR reflects the group's lack of product diversification,
its small scale relative to both large and more diversified peers
and to major retailers who are PPF's main customers, and highly
leveraged capital structure. These challenges are partially
mitigated by the positive trend of the underlying market of pet
food and the company's established relationship with customers in
key geographies" says Lorenzo Re, a Moody's Vice President --
Senior Analyst and lead analyst for Artemis.
RATINGS RATIONALE
The Group is weakly positioned in the B2 rating category
reflecting (1) highly leveraged capital structure with an expected
leverage (Moody's adjusted gross debt to EBITDA) of 6.3x in 2018;
(2) high product concentration and limited geographical
diversification; (3) small scale relative to large branded pet
food peers and major retailers, who are PPF's main customers; (4)
exposure to foreign currency and to raw material price
fluctuations, which can drive volatility in results.
The rating also factors in (1) the favorable underlying industry
trend, with growing and non-cyclical demand; (2) the Group's solid
market positioning in Central European markets; (3) its ample and
diversified customer base, with well-established relations with
major clients; (4) positive free cash flow generation.
PPF has a good track record of growing its business by expanding
into new markets and gaining new customers, helped by the
progressive shift towards more value added products. Moody's
expects this trend to continue with sales growing at mid to low
single digit rates through 2020, on the back of sustained demand,
especially in Central European markets where PPF benefits from
leading market positions. Western European markets will continue
to represent a growth opportunity, should the company be able to
gain new contracts, which is however subject to higher execution
risk.
The improving sales mix, with the expected above-average growth of
the premium segment and branded products will support
profitability. Moody's therefore anticipate EBITDA to growth by
10% in the next 12-18 months.
The need to add production capacity to cope with volume growth
will add volatility to capex and free cash flow generation. High
capex at EUR26 million, owing to the expansion capacity mainly in
the can segment, will limit cash flow generation in 2018. Moody's
expects free cash flow to be neutral this year and to gradually
improve to EUR10 million - EUR15 million in 2019 and 2020, thanks
to lower level of investments.
Moody's expects leverage to decline at around 6.0x by 2019 and
below going forward which weakly position the rating at the B2
level.
LIQUIDITY
Moody's expects the Group to maintain adequate liquidity supported
by the EUR45 million RCF, undrawn at closing, and neutral to
positive free cash flow generation. The company will not face any
debt maturities in the next 18 months, owing to the bullet
maturity of the term-loan in 2025. However, Moody's expects
significant requirements for capex of up to EUR30 million in the
next 18 months for production capacity increases and working
capital swings of up to EUR15 million during the year.
The RCF will be subject to a senior leverage covenant at 9.0x,
tested quarterly if more than 50% of the facility is drawn.
STRUCTURAL CONSIDERATIONS
The B2-PD is in line with the CFR and incorporates a 50% family
recovery rate, reflecting the covenant-lite debt structure. The
capital structure includes a shareholder loan that is eligible for
a full equity treatment under Moody's criteria and is not
therefore included in Moody's debt calculation. The debt structure
includes the EUR265 million Term Loan and the EUR45 million RCF,
both senior secured and ranking pari passu. Moody's assigned a B2
instrument rating to the Term Loan B and RCF with a loss given
default (LGD) assessment of LGD3.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook reflects Moody's expectations that operating
performance will continue to modestly improve in the next 12-18
months with leverage trending towards 6.0x.
WHAT COULD CHANGE THE RATING UP/DOWN
The current business profile limits upwards pressure on the
ratings. Positive pressure is unlikely unless the company improves
its scale and geographic diversification. Success in reducing
business concentration, together with a solid track record of
stable operating performance and ongoing free cash flow generation
leading to a Moody's adjusted debt to EBITDA below 4.5x could lead
to an upgrade.
Conversely, negative pressure on the rating could result from (1)
negative free cash flow generation on a sustainable basis; (2)
failure to reduce a Moody's-adjusted leverage at or below 6.0x by
2019; and (3) deterioration in the liquidity position.
Headquartered in Hungary, Partner in Pet Food is a manufacturer of
cat and dog food, marketing its products in 38 countries across
Europe. PPF specializes in retail branded products, servicing
customers across different distribution channels, including
traditional retailers, discounters, specialty pet retailers and
on-line.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Global
Packaged Goods published in January 2017.
LIST OF AFFECTED RATINGS
Assignments:
Issuer: Artemis Acquisitions (UK) Limited
-- Senior Secured Bank Credit Facility, Assigned B2, LGD3
Issuer: Artemis Midco (UK) Limited
-- Probability of Default Rating, Assigned B2-PD
-- Corporate Family Rating, Assigned B2
Outlook Actions:
Issuer: Artemis Acquisitions (UK) Limited
-- Outlook, Assigned Stable
Issuer: Artemis Midco (UK) Limited
-- Outlook, Assigned Stable
CHARTER MORTGAGE 2018-1: Fitch Assigns BB+ Rating to Cl. X Notes
----------------------------------------------------------------
Fitch Ratings has assigned Charter Mortgage Funding 2018-1 plc's
notes ratings as follows:
Class A: 'AAAsf'; Outlook Stable
Class B: 'AA+sf'; Outlook Stable
Class C: 'A+sf'; Outlook Stable
Class D: 'A-sf'; Outlook Stable
Class E: 'BBB+sf'; Outlook Stable
Class X: 'BB+sf'; Outlook Stable
This transaction is a securitisation of owner-occupied (OO)
mortgages that were originated by Charter Court Financial Services
(CCFS), trading as Precise Mortgages (Precise), in England,
Scotland and Wales.
KEY RATING DRIVERS
Prime Underwriting
All loans are drawn from CCFS's 'Tier 1' and 'Tier 2' prime owner-
occupied originations and are selected based on prior adverse
credit history characteristics that are more stringent than the
standard 'Tier 1' and 'Tier 2' requirements. Fitch has therefore
used its prime foreclosure frequency (FF) matrix. The loans have
been granted to borrowers with full income verification, full
property valuations and with a clear lending policy in place. The
available data, though limited, shows strong performance, which
would be expected of prime loans. A lender adjustment of 1.05x has
been applied as the performance history is drawn exclusively from
a benign economic environment.
Class X Notes Capped
Prior to the optional redemption date, all excess spread will be
used to make payments of interest and principal on the class X
notes. However, any subordinated hedging amounts payable are due
senior to these items in the revenue priority of payments. In case
of a default of the swap counterparty and that the swap mark-to-
market is in favour of the swap counterparty, excess spread may
not be available to make payments to the class X notes. Fitch has
therefore capped the class X notes' rating at 'BB+sf'.
Final Ratings
The class D note final rating is higher than the expected rating.
This is because the final swap fixed-rate and final note margins
are lower than the assumptions provided to Fitch when assigning
the expected ratings.
Criteria Variations
Help-to-Buy Equity Loans
Twenty percent of the pool comprises loans in which the UK
government has lent up to 40% inside London and 20% outside London
of the property purchase price in the form of an equity loan. This
allows borrowers to fund a 5% cash deposit and mortgage the
remaining balance. When determining these borrowers' base FF via
debt-to-income (DTI) and sustainable loan-to-value (sLTV), Fitch
has taken the balances of the mortgage loan and equity loan into
account.
Self-employed Borrowers
CCFS may choose to lend to self-employed individuals with only one
year's income verification completed. Fitch believes that this
practice is less conservative than other prime lenders. An
increase of 30% to the FF for self-employed borrowers with
verified income was applied instead of the 20% increase, as per
criteria.
RATING SENSITIVITIES
Material increases in the frequency of defaults and loss severity
on defaulted receivables producing losses greater than Fitch's
base case expectations may result in negative rating action on the
notes. Fitch's analysis revealed that a 30% increase in the
weighted average (WA) FF, along with a 30% decrease in the WA
recovery rate, would imply a downgrade of the class A notes to
'AA-sf'.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch reviewed the results of a third-party assessment conducted
on the asset portfolio information, and concluded that there were
no findings that affected the rating analysis.
Fitch conducted a review of a small targeted sample of CCFS's
origination files and found the information contained in the
reviewed files to be adequately consistent with the originator's
policies and practices and the other information provided to the
agency about the asset portfolio.
Overall, Fitch's assessment of the asset pool information relied
upon for the agency's rating analysis according to its applicable
rating methodologies indicates that it is adequately reliable.
HOUSE OF FRASER: Landlords Mull Legal Action Over CVA Proposal
--------------------------------------------------------------
Oliver Shah at The Times reports that property giants are
considering legal action against House of Fraser as the department
store chain attempts to cut rents and shut stores.
According to The Times, a group of about a dozen landlords is in
talks with City law firm Bryan Cave Leighton Paisner (BCLP) over a
potential move to block House of Fraser's company voluntary
arrangement (CVA). The retailer earlier revealed plans to close
more than half its 59 stores, with the loss of up to 6,000 jobs,
The Times recounts.
House of Fraser's CVA has attracted particular anger because its
Chinese owner wants to take out GBP70 million via the sale of a
51% stake to a related company after the restructuring, The Times
discloses. C.banner, the Hong Kong-listed buyer, has said it will
pump GBP70 million of the GBP140 million price into the loss-
making company, The Times relates.
KENSINGTON MORTGAGE 2007-1: Fitch Hikes Class B2 Rating to 'Bsf'
----------------------------------------------------------------
Fitch Ratings has upgraded six tranches of Kensington Mortgage
Securities plc. - Series 2007-1 (KMS 2007-1) notes and affirmed
the others.
KMS 2007-1 is a securitisation of non-conforming UK residential
mortgages; the loans were originated by Money Partners Limited
(MPL), Money Partners Loans Limited (MPLL) and Kensington Mortgage
Company Limited (KMC).
KEY RATING DRIVERS
Growing Credit Enhancement (CE)
CE available to the KMS 2007-1's notes at the time of this
analysis, in combination with consistent performance, led to the
upgrade of the ratings of the class M1a, M1b, M2b, B1a, B1b and B2
notes. CE continues to grow despite pro-rata amortisation due to
the transaction's non-amortising reserve fund.
Pro-rata Amortisation
The transaction amortises on a pro-rata basis upon satisfaction of
performance triggers linked to the principal deficiency ledger,
reserve fund target and drawn liquidity amounts as well as the
percentage of the late-stage arrears. A breach of any of these
triggers will result in the transaction switching back to
sequential amortisation, which will provide further protection to
the senior tranches.
Cumulative Repossessions
KMS2007-1's cumulative repossessions are elevated at 19.5% of the
current principal balance, compared with 19% last year; however,
the rate of repossessions has continued to slow since the global
financial crisis.
Errors Resolved
Fitch identified in its June 17, 2017 rating action that a
commingling loss was incorrectly applied and an incorrect
portfolio balance was used. Fitch's rating action corrects for
these two errors. The correction is credit-positive and
contributes to the upgrades.
RATING SENSITIVITIES
Adverse macroeconomic conditions could result in high unemployment
or a decline in property values. This in turn may compress the
excess spread and reduce the CE available, leading to negative
rating actions.
USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10
Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.
DATA ADEQUACY
Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset
pool and the transaction. There were no findings that affected the
rating analysis. Fitch has not reviewed the results of any third-
party assessment of the asset portfolio information or conducted a
review of origination files as part of its ongoing monitoring.
Fitch did not undertake a review of the information provided about
the underlying asset pool ahead of the transaction's initial
closing. The subsequent performance of the transaction over the
years is consistent with the agency's expectations given the
operating environment and Fitch is therefore satisfied that the
asset pool information relied upon for its initial rating analysis
was adequately reliable.
Overall and together with the assumptions, Fitch's assessment of
the information relied upon for the agency's rating analysis
according to its applicable rating methodologies indicates that it
is adequately reliable.
Full list of rating actions:
Class A3a XS0292638920: affirmed at 'AAAsf'; Outlook Stable
Class A3b XS0292650974: affirmed at 'AAAsf'; Outlook Stable
Class A3c XS0292652756: affirmed at 'AAAsf'; Outlook Stable
Class M1a XS0292639225: upgraded to 'A+sf'; from 'Asf'; Outlook
Stable
Class M1b XS0292651196: upgraded to 'A+sf'; from 'Asf'; Outlook
Stable
Class M2b XS0292639654: upgraded to 'BBB+sf' from 'BBBsf';
Outlook Stable
Class B1a XS0292639902: upgraded to 'BB+sf' from 'BBsf'; Outlook
Stable
Class B1b XS0292651436: upgraded to 'BB+sf' from 'BBsf'; Outlook
Stable
Class B2 XS0292640157: upgraded to 'Bsf' from 'CCCsf'; Outlook
Stable
MOTHERCARE: Fails to Get Creditor Approval for Unit's Rescue Plan
-----------------------------------------------------------------
The Daily Mail reports that a bungled vote to restructure
struggling Mothercare has put hundreds more jobs on the line.
According to The Daily Mail, more than 300 staff are at risk at
the mother-and-baby retailer's Children's World subsidiary --
which operates under the Mothercare name -- after the firm was
forced to admit it had not secured approval for a turnaround plan
at its 21 stores.
Mothercare announced on June 8 that creditors had backed an
insolvency procedure called a company voluntary arrangement,
The Daily Mail relates.
But a review of the votes by KPMG revealed the Children's World
subsidiary had won only 73.3% of the votes, just short of the 75%
it needed, and which other parts of the CVA received, The Daily
Mail discloses.
NEW LOOK: Posts GBP74.3-Mil. Loss for Year Ended March 24
---------------------------------------------------------
Russell Jackson at The Scotsman reports that fashion chain
New Look has swung to a full-year loss amid plunging sales on the
high street and online.
The retailer reported an operating loss of GBP74.3 million for the
year to March 24, having made GBP97.6 million profit in the
previous year, The Scotsman relates.
New Look's sales in the UK fell by 11.7% on a like-for-like basis,
accelerating from a decline of 6.8% the year before. Website sales
slumped by 19.2%, The Scotsman discloses. Total revenue was
GBP1.34 billion, down from GBP1.45 billion year on year, The
Scotsman states.
"Last year was undoubtedly very difficult for New Look, with a
well-documented combination of external and self-inflicted issues
impacting our performance," The Scotsman quotes Alistair McGeorge,
New Look's executive chairman, as saying.
"Trading conditions will remain tough in the year ahead, but
further operational efficiencies and a resolute focus on our core
strengths and heartland customer will help to ensure we remain on
the right track."
New Look launched a restructuring plan in March, announcing it
would shut 60 stores as part of a Company Voluntary Agreement
(CVA), affecting 980 jobs, The Scotsman recounts.
The company said the CVA would allow the business to save GBP40
million, The Scotsman notes.
NIGHTHAWK ENERGY: Provides Update on Chapter 11 Proceedings
-----------------------------------------------------------
Nighthawk, the US-focused oil development and production company,
on June 11 disclosed that it has received notice on behalf of
Fastighets AB Korpralen and Mr. Johan Claesson (the
'Requisitioning Shareholders') that they no longer wish to propose
the resolutions set out in the Notice of General Meeting dated May
31, 2018, and that Messrs. Claesson and Johan Damne no longer wish
to be appointed as directors of the Company. The meeting had been
requisitioned on behalf of the Requisitioning Shareholders under
section 303 of the Companies Act. As a result of there now being
no business to be put before the meeting, the Directors have taken
the decision to cancel the General Meeting on June 28, 2018. The
Company will shortly be writing to shareholders to inform them of
the cancellation of the General Meeting.
The Requisitioning Shareholders withdrew their requirement for the
meeting to take place and for the resolutions to be proposed on
the understanding that within the context of and under the
timeline established in the bid procedures approved by US
bankruptcy court handling the Chapter 11 case of Nighthawk, the
directors of the Company will work with the Requisitioning
Shareholders on a reconstruction plan for the solvent
reconstruction of the Company and its subsidiaries. There is no
assurance that the Company and Requisitioning Shareholders will be
able to agree on such a plan, or that it will be presented to and
approved by the bankruptcy court.
The timeline for the bid procedures has now been fixed by the US
bankruptcy court. The bid procedures provide for submission of
competing bids for the Nighthawk Production oil and gas assets by
June 22, 2018, an auction among competing bidders on June 26,
2018, and a final hearing to approve the sale of those assets on
June 28, 2018.
The Company's ordinary shares remain suspended from trading on
AIM.
Further announcements will be made in due course.
About Nighthawk Energy
Nighthawk Energy -- http://www.nighthawkenergy.com/-- is an
independent oil and natural gas company operating in the
Denver-Julesburg (DJ) Basin of Colorado, USA. The Debtors are the
direct and ultimate parent entities of non-debtors Nighthawk
Production LLC and OilQuest USA, LLC. The sole or primary
operating entity of the Debtors is Nighthawk Production, an oil
and gas exploration company which is organized under Delaware law
and based in Denver, Colorado. Production's principal business
activity is the exploration for, as well as the development and
sale of, hydrocarbons, operating solely in the state of Colorado
where it holds interests in over 150,000 net mineral acres in and
around Lincoln County. Nighthawk's common shares are publicly
listed on the London Stock Exchange (LSE:HAWK).
Nighthawk Royalties LLC and Nighthawk Energy each filed
Chapter 11 petition (Bankr. D. Del. Lead Case No. 18-10989) on
April 30, 2018. The petitions were signed by Rick McCullough,
president. The case is assigned to Judge Brendan Linehan Shannon.
At the time of filing, Debtor Nighthawk Royalties estimated at
least $50,000 in assets and $10 million to $50 million in
liabilities, while debtor Nighthawk Energy estimated $100,000 to
$500,000 in assets and $10 million to $50 million in liabilities.
The Debtors retained by Greenberg Traurig, LLP as counsel; SSG
Advisors, LLC as Investment Banker; and JND Corporate
Restructuring as claims agent.
RIBBON FINANCE 2018: S&P Rates GBP11.8MM Class G Certs 'BB-'
------------------------------------------------------------
S&P Global Ratings assigned credit ratings to Ribbon Finance 2018
PLC's class A to G notes. At closing, Ribbon Finance 2018 also
issued unrated class X1 and X2 certificates.
The transaction is backed by one senior loan, which Goldman Sachs
Bank USA (Goldman Sachs) originated in April 2018 to facilitate
the acquisition by the borrower sponsor of 20 full-service hotel
properties in the U.K.
The senior loan backing this true sale transaction equals GBP449.8
million and is secured by 17 Holiday Inn and three Crowne Plaza
hotels located throughout the U.K.
As part of EU and U.S. risk retention requirements, the issuer and
the issuer lender (Goldman Sachs), entered into a GBP22.5 million
(representing 5% of the senior loan) issuer loan agreement, which
ranks pari passu to the notes of each class and the class X1 and
X2 certificates. The issuer lender advanced the issuer loan to the
issuer on the closing date. The issuer applied the proceeds of the
issuer loan as partial consideration for the purchase of the
senior loan from the senior loan seller.
The market value of the portfolio of 20 full service hotels is
GBP692.0 million, which equates to a loan-to-value (LTV) ratio of
65.0%. The five-year loan has scheduled amortization.
CREDIT EVALUATION
S&P said, "We consider that the portfolio can sustain a net cash
flow of GBP42.5 million, which would imply a debt yield of 9.4%.
Our net recovery value for the portfolio is GBP521 million, which
represents a 24.7% haircut (discount) to the open market
valuation.
"We evaluated the underlying real estate collateral securing the
loan to generate this expected case value. Our analysis focused on
sustainable property cash flows and capitalization rates. We
assumed that a real estate workout would be required throughout
the five-year tail period needed to repay noteholders if the
borrower were to default. The tail period is the period between
the maturity date of the loan and the transaction's final maturity
date. We then determined the recovery proceeds for the loan by
applying a recovery proceeds rate at each rating category. This
analysis begins with the adoption of base market value declines
and recovery rate assumptions for different rating levels. At each
rating category, we adjusted the base recovery rates to reflect
specific property, loan, and transaction characteristics.
"We compared the derived recovery proceeds with the proposed
capital structure.
"Following our credit analysis, we consider the available credit
enhancement for each class of notes to be commensurate with our
assigned ratings on the notes."
RATINGS LIST
Ribbon Finance 2018 PLC
GBP427.31 mil commercial mortgage-backed floating-rate notes
Amount
Class Rating (mil, GBP)
A AAA (sf) 153.900
B AA (sf) 48.070
C AA- (sf) 27.930
D A (sf) 49.020
E BBB- (sf) 81.700
F BB (sf) 54.815
G BB- (sf) 11.875
X1 NR 0.000
X2 NR 0.000
NR--Not rated
SEADRILL LTD: Expects to Exit Chapter 11 in First Half of July
--------------------------------------------------------------
Seadrill Limited on June 7 disclosed that it anticipates emerging
from the chapter 11 process in the first half of July 2018.
As previously announced, on April 17, 2018, the court overseeing
the Company's chapter 11 cases entered an order confirming
Seadrill's plan of reorganization (the "Plan"). Since
confirmation of the Plan, the Company has been preparing to close
the Plan transactions and satisfy conditions precedent, which will
occur on the "Effective Date" of the Plan anticipated to be in the
first half of July 2018.
Existing Seadrill Limited will be wound up and the new Company
with the reorganized capital structure will assume its name. The
Company plans to re-list the new Company's common stock on both
the New York Stock Exchange and the Oslo Stock Exchange as before,
retaining the same ticker symbols as before. Listing for both
exchanges is expected to occur during July 2018, shortly after the
Effective Date.
The Plan will result in the equitization of approximately $2.3
billion in unsecured bond obligations, more than $1 billion in
contingent newbuild obligations, substantial unliquidated guaranty
obligations, and more than $250 million in unsecured interest rate
and currency swap claims, while leaving employee, customer, and
ordinary trade claims largely unimpaired.
On the Effective Date, the Company will issue its equity, debt,
and cash distributions per the terms of the Plan. Allocations to
certain existing stakeholders and new capital providers will
depend on the results of the equity and notes rights offerings.
As publicized previously, the deadline to subscribe to the equity
and notes rights offerings was 5:00 p.m. New York City time on
June 8, 2018.
The Plan will enable the Company to emerge with a re-profiled
capital structure and sufficient liquidity that puts the Company
in a strong position to execute its business plan.
About Seadrill Ltd
Seadrill Limited is a deepwater drilling contractor providing
drilling services to the oil and gas industry. It is incorporated
in Bermuda and managed from London. Seadrill and its affiliates
own or lease 51 drilling rigs, which represents more than 6% of
the world fleet.
As of Sept. 12, 2017, Seadrill employed 3,760 highly-skilled
individuals across 22 countries and five continents to operate
their drilling rigs and perform various other corporate functions.
As of June 30, 2017, Seadrill had $20.71 billion in total assets,
$10.77 billion in total liabilities and $9.94 billion in total
equity.
Seadrill reported a net loss of US$155 million on US$3.17 billion
of total operating revenues for the year ended Dec. 31, 2016,
following a net loss of US$635 million onUS$4.33 billion of total
operating revenues for the year ended in 2015.
After reaching terms of a reorganization plan that would
restructure $8 billion of funded debt, Seadrill Limited and 85
affiliated debtors each filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code (Bankr. S.D.
Tex. Lead Case No. 17-60079) on Sept. 12, 2017.
Together with the chapter 11 proceedings, Seadrill, North Atlantic
Drilling Limited ("NADL") and Sevan Drilling Limited ("Sevan")
commenced liquidation proceedings in Bermuda to appoint joint
provisional liquidators and facilitate recognition and
implementation of the transactions contemplated by the RSA and
Investment Agreement, and Simon Edel, Alan Bloom and Roy Bailey of
Ernst & Young are to act as the joint and several provisional
liquidators.
In the Chapter 11 cases, the Company has engaged Kirkland & Ellis
LLP as legal counsel, Houlihan Lokey, Inc. as financial advisor,
and Alvarez & Marsal as restructuring advisor. Slaughter and May
has been engaged as corporate counsel, and Morgan Stanley served
as co-financial advisor during the negotiation of the
restructuring agreement. Advokatfirmaet Thommessen AS is serving
as Norwegian counsel. Conyers Dill & Pearman is serving as Bermuda
counsel. Prime Clerk serves as claims agent.
The United States Trustee for Region 7 formed an official
committee of unsecured creditors with seven members: (i)
Computershare Trust Company, N.A.; (ii) Daewoo Shipbuilding &
Marine Engineering Co., Ltd.; (iii) Deutsche Bank Trust Company
Americas; (iv) Louisiana Machinery Co., LLC; (v) Nordic Trustee
AS; (vi) Pentagon Freight Services, Inc.; and (vii) Samsung Heavy
Industries Co., Ltd.
Kramer Levin Naftalis & Frankel LLP is serving as lead counsel to
the Committee. Cole Schotz P.C. is local and conflicts counsel to
the Committee. Zuill & Co (in exclusive association with Harney
Westwood & Riegels) is serving as Bermuda counsel. London based
Quinn Emanuel Urquhart & Sullivan, UK LLP, is serving as English
counsel. Parella Weinberg Partners LLP is the investment banker
to the Committee. FTI Consulting Inc. is the financial advisor.
*********
Monday's edition of the TCR delivers a list of indicative prices
for bond issues that reportedly trade well below par. Prices are
obtained by TCR editors from a variety of outside sources during
the prior week we think are reliable. Those sources may not,
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Nothing in the TCR constitutes an offer or solicitation to buy or
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Each Tuesday edition of the TCR contains a list of companies with
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Each Friday's edition of the TCR includes a review about a book of
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*********
S U B S C R I P T I O N I N F O R M A T I O N
Troubled Company Reporter-Europe is a daily newsletter co-
published by Bankruptcy Creditors' Service, Inc., Fairless Hills,
Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA.
Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante,
Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman,
Editors.
Copyright 2018. All rights reserved. ISSN 1529-2754.
This material is copyrighted and any commercial use, resale or
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