/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/181211.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Tuesday, December 11, 2018, Vol. 19, No. 245 Headlines G E R M A N Y HSH NORDBANK: Fitch Lowers Long-Term IDR to BB+, Outlook Stable SGL CARBON: S&P Alters Outlook to Stable & Affirms 'B-' ICR G R E E C E CAPITAL PRODUCT: S&P Puts BB- ICR on Watch Neg. Amid Spin-Off I R E L A N D QUDOS: Enters Liquidation, 1,500+ Insurance Claims in Limbo ROCKFORD TOWER 2018-1: Moody's Assigns B2 Rating to Class F Notes ROCKFORD TOWER 2018-1: Fitch Assigns B-sf Rating to Class F Debt K A Z A K H S T A N TENGRI BANK: S&P Withdraws 'B-/B' Long-Term Issuer Credit Ratings P O R T U G A L BANCO COMERCIAL PORTUGUES: Fitch Raises LT IDR to BB CAIXA GERAL: Fitch Raises Long-Term IDR to BB, Outlook Positive R U S S I A ZLATKOMBANK JSC: Put on Provisional Administration U K R A I N E ALFA-BANK JSC: Fitch Assigns B- Long-Term Issuer Default Ratings U N I T E D K I N G D O M FINSBURY SQUARE 2017-1: Fitch Affirms 'Bsf' on Class D Notes FISHING REPUBLIC: Directors Opt to File for Administration FOUR SEASONS: Set to Launch Formal Sale Process in Rescue Bid LERNEN BONDCO: Moody's Affirms B3 CFR, Outlook Stable ONE SELECT: Halts Trading, Ofgem to Select Supplier for Customers ********* ============= G E R M A N Y ============= HSH NORDBANK: Fitch Lowers Long-Term IDR to BB+, Outlook Stable --------------------------------------------------------------- Fitch Ratings has upgraded HSH Nordbank AG's Viability Rating (VR) to 'bb+' from 'bb-' and removed it from Rating Watch Positive (RWP) following the sale of the former public sector bank to a consortium of private investors on November 28, 2018. At the same time, Fitch has downgraded HSH's support-driven Long- Term Issuer Default Rating (IDR) to 'BB+' from 'BBB-' and Short- Term IDR to 'B' from 'F3' and removed both IDRs from Rating Watch Negative (RWN). The Outlook on the Long-Term IDR is Stable. At the same time, Fitch affirmed the bank's Long- and Short-term deposit ratings at 'BBB-' and 'F3', respectively, and removed them from RWN. Fitch also affirmed the ratings of several legacy senior bonds with embedded derivatives that rank pari passu with senior preferred debt at 'BBB-' and removed them from RWN and assigned Long- and Short-term programme ratings of 'BBB-' and 'F3' to HSH's senior preferred debt. The rating action follows the sale of the bank by its former public sector owners. Following the privatisation HSH's IDRs and senior debt ratings are driven by the bank's VR as Fitch no longer factors institutional support from the bank's former public sector owners into HSH's ratings. KEY RATING DRIVERS VR, IDRS AND SENIOR DEBT The VR, IDRs and senior debt ratings of HSH reflect its corporate banking focused business model, significantly improved asset quality and capitalisation balanced by low operating profit, which Fitch expects to improve gradually, and a predominantly wholesale-driven funding profile despite plans to increase retail funding. HSH maintains its business focus on Germany, where Fitch expects the operating environment to remain solid. Fitch expects HSH to develop its business model under new ownership and with a cleaned-up balance sheet. However, Fitch views HSH's franchise as moderate as it operates in the highly competitive German corporate banking sector, with a less diverse business model than universal bank peers, by concentrating on corporate customers. Fitch expects profitability to be supported by lower loan impairment charges following the clean-up of HSH's balance sheet, and by the bank's plans to significantly increase cost- efficiency, apply sound pricing discipline, increase fee- generating businesses and lower funding costs. Fitch believes that the bank will face challenges in improving revenue given HSH's role as a commercial bank in a competitive sector, with relatively high funding costs that should improve only gradually. Moreover, Fitch believes that the bank's business model and exposure to cyclical industries, including commercial real estate, could make the bank's profitability more volatile through economic cycles. HSH's asset quality has improved significantly following the disposal and further run-down of non-core and non-performing assets. Fitch expects the gross non-performing loan (NPL) ratio to drop and stabilise at around 2%-3% in the next five years as NPLs fall to below EUR1 billion at end-2018 from EUR7.4 billion at end-2017. However, Fitch's assessment of asset quality also reflects concentration risk in HSH's commercial real estate and shipping credit exposures, and in the bank's corporates book remaining skewed towards the home regions in northern Germany. HSH's common equity tier 1 (CET1) ratio should improve substantially by end-2018 following the announced repurchase of hybrid Tier 1 silent participations well below par value. For the next four years, Fitch therefore expects the CET1 ratio to remain comfortably above 15%, which Fitch views as adequate given reduction in HSH's risk appetite and exposure on the bank's balance sheet. However, Fitch's assessment of capitalisation also factors in weak internal capital generation, given low net income expected in the coming years, which Fitch believes is vulnerable to cyclical performance swings. Fitch's assessment of funding and liquidity are based on the expectation that HSH will remain predominantly wholesale-funded and that its customer loans/deposits ratio will increase. Fitch believes that the agreement reached between the bank and the German banking association (Bundesverband Deutscher Banken; BdB) for a smooth transition to a senior membership in its voluntary deposit protection fund (DPF) of the private sector banks by 2022 should compensate the loss of funding benefits that HSH has had to date as a member in the institutional support scheme of the Landesbanken and savings banks. The reliance on wholesale funding is mitigated by the bank's plans to increase its retail deposits base and to raise about EUR8 billion retail deposits by 2022, representing over half of total deposits. HSH has already raised more than EUR3 billion retail deposits this year, which indicates that its target is realistic. HSH has access to other funding sources, including covered bonds, asset-backed financing and funding from development banks. Finally, the implementation of Bank Resolution and Recovery Directive (BRRD) 2 in Germany allows HSH to issue senior preferred debt, which ranks senior to senior non-preferred debt and should allow the bank to reduce funding costs. Fitch has also withdrawn the short-term ratings of HSH's senior unsecured debt that ranks pari passu with senior non-preferred debt, including the debt issuance programme, because these are no longer relevant for Fitch's coverage. SUPPORT RATING AND SUPPORT RATING FLOOR Following the privatisation, HSH's Support Rating and Support Rating Floor reflect Fitch's view on support from the authorities in case of need. Institutional support from HSH's former owners is no longer factored into the bank's ratings, and in its opinion, institutional support from the new private-sector owners, while possible, cannot be relied on. The Support Rating assessment of '5' and Support Rating Floor assessment of 'No Floor' reflect its view that, following the implementation of legislation and resolution tools pursuant to the BRRD in Germany in 2015, senior creditors can no longer rely on receiving full extraordinary support from the German sovereign, should HSH become non-viable. SENIOR PREFERRED, DERIVATIVE COUNTERPARTY RATING (DCR) AND DEPOSIT RATINGS Fitch rates HSH's debt that ranks pari passu with senior preferred debt, Deposit Ratings and DCR one notch above HSH's Long-Term IDR. Under German insolvency law, senior unsecured bonds that were issued prior to July 2018 and which are not deemed 'plain vanilla', rank senior to other senior unsecured bonds issued before that date and rank pari passu with senior preferred debt issued after that date. The debt ratings at one notch above the Long-Term IDR reflect its view that HSH's consolidated buffer of subordinated debt and debt that ranks pari passu with senior non-preferred debt is likely to be maintained well above 8% of the bank's risk-weighted assets (RWAs) and will therefore be sufficient to recapitalise the bank, preventing a default on other senior preferred liabilities, including deposits, upon resolution. STATE-GUARANTEED/GRANDFATHERED SECURITIES The rating of HSH's state-guaranteed and grandfathered senior debt and subordinated debt reflect the credit strength of the guarantor - the federal state of Schleswig Holstein and the City of Hamburg - and its view that they will continue to honour their guarantees after the sale of HSH. RATING SENSITIVITIES VR, IDRS, AND SENIOR DEBT HSH's VR, IDRS and senior debt ratings are primarily sensitive to the bank's ability to improve profitability and to maintain sound capitalisation. An upgrade of the ratings could follow a material improvement in operating profitability in line with the bank's business plan, driven by diversified income sources, adequate margins and achievement of cost and efficiency targets, which would translate into a proven record of sound organic capital generation. Downward pressure on ratings would arise from an increased risk appetite, which Fitch does not expect under its new owners, but which could be signalled by an increased focus on higher-risk structures or assets. Fitch expects NPLs to increase only gradually over the next years, and the bank's ratings would come under pressure if asset quality deteriorates more than expected, which could be caused by single-name losses. The ratings are also sensitive to the bank's ability to maintain a sound franchise in the funding market and to attract sufficient long-term funding from the wholesale market. SENIOR PREFERRED, DCR AND DEPOSIT RATINGS The ratings of HSH's senior preferred debt, DCR and deposit ratings are primarily sensitive to a decline of HSH's buffer of subordinated and senior non-preferred debt to below the bank's recapitalisation amount, which Fitch estimates at about 8% of RWAs. Fitch would downgrade these ratings and equalise them with the bank's IDRs if this buffer falls below the recapitalisation amount. The ratings are also sensitive to changes in the bank's IDRs. STATE-GUARANTEED/GRANDFATHERED SECURITIES The ratings of HSH's state-guaranteed/grandfathered senior debt, subordinated debt and market-linked securities are sensitive to changes in Fitch's view of the creditworthiness of the guarantors or to a change in the guarantors' propensity to provide support, which Fitch does not expect. The rating actions are as follows: HSH Nordbank AG Bank Long-Term IDR: downgraded to 'BB+' from 'BBB-', removed from RWN; Outlook Stable Short-Term IDR: downgraded to 'B' from 'F3', removed from RWN Support Rating: downgraded to '5' from '2', removed from RWN Support Rating Floor: assigned at No Floor Derivative Counterparty Rating: affirmed at 'BBB-(dcr)', removed from RWN Viability Rating: upgraded to 'bb+' from 'bb-', removed from RWP Long-term senior unsecured debt, including programme rating: downgraded to 'BB+' from 'BBB-', removed from RWN Long term senior preferred debt: affirmed at 'BBB-', removed from RWN Long term senior preferred debt issuance programme: assigned at 'BBB-' Short term senior preferred debt issuance programme: assigned at 'F3' Short-term senior unsecured debt, including programme rating: 'F3' withdrawn Long-term deposits: affirmed at 'BBB-', removed from RWN Short-term deposits: affirmed at 'F3', removed from RWN State-guaranteed/grandfathered senior and subordinated debt: affirmed at 'AAA' SGL CARBON: S&P Alters Outlook to Stable & Affirms 'B-' ICR ----------------------------------------------------------- S&P Global Ratings revised its outlook on Germany-based graphite and carbon materials producer SGL Carbon SE to stable from positive. S&P affirmed the long-term issuer credit rating at 'B-'. S&P said, "The outlook revision reflects our expectation that SGL will take longer than previously expected to meet the thresholds for a higher rating, namely an S&P Global Ratings-adjusted debt to EBITDA of 4x and positive free operating cash flows. Under our base case, we project adjusted debt to EBITDA of about 4.5x in 2018-2019. We also anticipate another year of negative free operating cash flows (FOCF), of about EUR60 million-EUR70 million for 2018, excluding the final payment received in the first quarter in relation to the disposal of the Performance Products business segment for about EUR50 million. At the same time, we continue to assume healthy end-market demand, notably in batteries and automotive, will translate into high profitability in the coming 12 months. "The delay in SGL's deleveraging process stems from greater capital expenditure (capex) needs to fuel expansion. In our view, supportive market conditions and higher demand for SGL's main products have prompted the company to deliberately prioritize growth over deleveraging in the next few years. We understand that the company's capex in the coming years will be materially above its depreciation level (about EUR60 million), and that its investments will focus on expanding its automotive, LED, and semiconductor businesses. These projects should increase the company's utilization rates and therefore support higher cash flows going forward. We understand that the capex will be on numerous projects that can be shelved if the market turns sour. Although we have not factored investments in major projects into our base case, we don't rule them out as the company progresses with the current project pipeline. "We understand that management is committed to maintaining reported net debt to EBIDTA of less than 2.5x and gearing below 0.5x in normal industry conditions. Using end-September 2018 data as a starting point, under our calculation, hypothetical leverage of 2.5x would correspond to adjusted debt to EBITDA of about 4.25x. "We view SGL's two divisions -- namely carbon fibers and materials (CFM) and graphite materials and systems (GMS) -- as more diversified, customer-specific, and profitable, with an EBITDA margin of around 12%. We view favorably SGL's acquisition of Benteler's and BMW's shares in ACF, the joint venture dedicated to establishing the use of carbon as a lightweight construction material in the automotive industry. This acquisition will provide growth opportunities for SGL through developing new products and solutions for customers, which will better utilize ACF's capacity and potentially replace BMW's current demand in the medium and long term. "The stable outlook reflects our expectation that SGL will see higher profitability over the coming 12 months, thanks to increasing end-market demand, notably in batteries and automotive. "In our base case, we forecast adjusted debt to EBITDA of about 4.5x in 2018-2019, which is commensurate with the 4x-5x range for the current rating. In addition, we forecast negative FOCF of slightly more than EUR100 million in the coming two years. An upgrade is contingent on SGL's ability to translate healthy growth in its key markets into stronger demand for its products, higher profitability, and ultimately into positive FOCF. "For a 'B' rating, we would expect debt to EBTIDA to stand around 4.0x. Under our base-case scenario, we assume the company will reach this level by end-2020. In addition, for an upgrade, the company would need to maintain its financial policy (namely reported net debt to EBTIDA of 2.5x under normal industry conditions) and adequate liquidity. "At this stage, rating pressure is remote. We could lower the rating if we classified SGL's capital structure as unsustainable. This would occur if SGL experienced a sharp collapse in demand for its products, leading to meaningful negative FOCF and leverage ratios well above 5x." =========== G R E E C E =========== CAPITAL PRODUCT: S&P Puts BB- ICR on Watch Neg. Amid Spin-Off ------------------------------------------------------------- S&P Global Ratings said that it placed on CreditWatch with negative implications its 'BB-' long-term issuer credit rating on Marshall Islands-registered vessel owner and operator Capital Product Partners L.P. (CPLP). S&P subsequently withdrew the rating at the issuer's request. The CreditWatch negative listing reflects S&P's view that CPLP's announced spin-off of its crude and product tanker business will result in a weaker business risk profile due to the significant reduction in scale and diversity, which outweighs the benefit of the reduction in absolute debt. CPLP's crude oil and oil product shipping business is built around 25 tankers and accounts for about 45% of the group's EBITDA. After the spin-off, CPLP's fleet will reduce from 36 vessels to 11 (with an average vessel age of 6.5 years) and be concentrated on 10 containerships and one dry bulker. After the spin-off, CPLP will have an average charter duration of 5.3 years. Although several containerships benefit from long-term charters that will expire in 2025, certain vessels are subject to re-employment in 2020. Therefore, the group's cash flow stability will depend on future charter rates, which are volatile and subject to demand and supply conditions. S&P said, "We expect that following the transaction, CPLP's reported EBITDA will significantly diminish from about $140 million we forecast in 2018 to $75 million-$80 million in 2019. This will be followed by about $85 million reported EBITDA in 2020 thanks to additional premium from rubber fittings on five containerships. Overall, we believe that the smaller EBIDTA base after the spin-off will increase the group's susceptibility to adverse industry developments. "We understand that as part of the spin-off, CPLP's reported debt will significantly reduce to $290 million or less, from $459 million as of Sept. 30, 2018. After the spin-off, we forecast that the group would achieve S&P Global Ratings-adjusted funds from operations to debt of about 25% in 2019 and 30% in 2020. This is broadly in line with our previous forecasts." The spin-off is subject to regulatory approval and financing arrangement, and is expected to close early in the first quarter of 2019. ============= I R E L A N D ============= QUDOS: Enters Liquidation, 1,500+ Insurance Claims in Limbo ----------------------------------------------------------- Gavin McLoughlin at Independent.ie reports that more than 1,500 Irish insurance claims are in limbo after Danish insurance company Qudos was placed into liquidation. Patrona, an Irish insurance company providing administration services for Qudos, said there were 1,570 claims "ongoing" in which Qudos was involved, Independent.ie relates. According to Independent.ie, whether Qudos will be able to pay claims is in serious doubt after the company's liquidators put payouts on hold, saying they were gathering information on the business. It may turn out that Qudos claims will be paid in full -- but they may not, Independent.ie, notes. The Central Bank has "strongly" advised Qudos's 50,000 Irish customers to seek alternative cover in case they need to make a claim, Independent.ie discloses. Qudos was operating in the motor, commercial motor, logistics and haulage, and household insurance sectors in Ireland. It did business via brokers, meaning that some customers may be unaware Qudos is their ultimate underwriter, Independent.ie states. ROCKFORD TOWER 2018-1: Moody's Assigns B2 Rating to Class F Notes ----------------------------------------------------------------- Moody's Investors Service announced that it has assigned the following definitive ratings to notes issued by Rockford Tower Europe CLO 2018-1 DAC: EUR218,000,000 Class A-1 Senior Secured Floating Rate Notes due 2031, Definitive Rating Assigned Aaa (sf) EUR30,000,000 Class A-2 Senior Secured Floating Rate Notes due 2031, Definitive Rating Assigned Aaa (sf) EUR36,000,000 Class B Senior Secured Floating Rate Notes due 2031, Definitive Rating Assigned Aa2 (sf) EUR28,000,000 Class C Senior Secured Deferrable Floating Rate Notes due 2031, Definitive Rating Assigned A2 (sf) EUR24,000,000 Class D Senior Secured Deferrable Floating Rate Notes due 2031, Definitive Rating Assigned Baa3 (sf) EUR22,800,000 Class E Senior Secured Deferrable Floating Rate Notes due 2031, Definitive Rating Assigned Ba2 (sf) EUR9,500,000 Class F Senior Secured Deferrable Floating Rate Notes due 2031, Definitive Rating Assigned B2 (sf) RATINGS RATIONALE Moody's definitive ratings of the rated notes reflect the risks from defaults on the underlying portfolio of loans given the characteristics and eligibility criteria of the constituent assets, the relevant portfolio tests and covenants, as well as the transaction's capital and legal structure. Furthermore, Moody's considers that the collateral manager Rockford Tower Capital Management, L.L.C. has sufficient experience and operational capacity and is capable of managing this CLO. The Issuer is a managed cash flow CLO. At least 90% of the portfolio must consist of senior secured obligations and up to 10% of the portfolio may consist of unsecured senior obligations, second-lien loans, mezzanine obligations and high yield bonds. The portfolio is expected to be approximately 73% ramped as of the closing date and to comprise of predominantly corporate loans to obligors domiciled in Western Europe. The remainder of the portfolio will be acquired during the six month ramp-up period in compliance with the portfolio guidelines. Rockford Tower will manage the CLO. It will direct the selection, acquisition and disposition of collateral on behalf of the Issuer and may engage in trading activity, including discretionary trading, during the transaction's 4.3 year reinvestment period. Thereafter, purchases are permitted using principal proceeds from unscheduled principal payments and proceeds from sales of credit risk obligations or defaulted obligations, and are subject to certain restrictions. In addition to the seven classes of notes rated by Moody's, the Issuer issued EUR 38.7 million of Subordinated Notes which will not be rated. The transaction will incorporate interest and par coverage tests which, if triggered, divert interest and principal proceeds to pay down the notes in order of seniority. Methodology underlying the rating action: The principal methodology used in these ratings was "Moody's Global Approach to Rating Collateralized Loan Obligations" published in August 2017. Factors that would lead to an upgrade or downgrade of the ratings: The rated notes' performance is subject to uncertainty. The notes' performance is sensitive to the performance of the underlying portfolio, which in turn depends on economic and credit conditions that may change. The collateral manager's investment decisions and management of the transaction will also affect the notes' performance. Moody's modeled the transaction using CDOEdge, a cash flow model based on the Binomial Expansion Technique, as described in Section 2.3 of the "Moody's Global Approach to Rating Collateralized Loan Obligations" rating methodology published in August 2017. Moody's used the following base-case modeling assumptions: Par Amount: EUR 400,000,000 Diversity Score: 43* Weighted Average Rating Factor (WARF): 2790 Weighted Average Spread (WAS): 3.35% Weighted Average Coupon (WAC): 4.75% Weighted Average Recovery Rate (WARR): 43.5% Weighted Average Life (WAL): 8.5 years * The covenanted base case diversity score is 44, however Moody's has assumed a diversity score of 43 as the transaction documentation allows for the diversity score to be rounded up to the nearest whole number whereas usual convention is to round down to the nearest whole number. Moody's has addressed the potential exposure to obligors domiciled in countries with local currency ceiling (LCC) of A1 or below. As per the portfolio constraints and the eligibility criteria, exposures to countries with LCC of A1 or below cannot exceed 10%, with exposures to LCC of Baa1 to Baa3 further limited to 5% and with exposures of LCC below Baa3 not greater than 0%. ROCKFORD TOWER 2018-1: Fitch Assigns B-sf Rating to Class F Debt ---------------------------------------------------------------- Fitch Ratings has assigned Rockford Tower Europe CLO 2018-1 DAC final ratings, as follows: Class A-1: 'AAAsf'; Outlook Stable Class A-2: 'AAAsf'; Outlook Stable Class B: 'AAsf'; Outlook Stable Class C: 'Asf'; Outlook Stable Class D: 'BBB-sf'; Outlook Stable Class E: 'BB-sf'; Outlook Stable Class F: 'B-sf'; Outlook Stable Subordinated notes: 'NRsf' Rockford Tower Europe CLO 2018-1 DAC is a securitisation of mainly senior secured loans and bonds (at least 90%) with a component of senior unsecured, mezzanine, high-yield bonds and second-lien assets. A total expected note issuance of EUR407 million is being used to fund a portfolio with a target par of EUR400 million. The portfolio is managed by Rockford Tower Capital Management, L.L.C.. The CLO envisages a 4.25-year reinvestment period and an 8.5-year weighted average life (WAL). KEY RATING DRIVERS 'B' Portfolio Credit Quality Fitch places the average credit quality of obligors in the 'B' range. The Fitch-weighted average rating factor (WARF) of the identified portfolio is 29.8. High Recovery Expectations At least 90% of the portfolio comprises senior secured obligations. Recovery prospects for these assets are typically more favourable than for second-lien, unsecured and mezzanine assets. The Fitch-weighted average recovery rating (WARR) of the identified portfolio is 68.9%. Diversified Asset Portfolio The transaction has different Fitch test matrices with different allowances for exposure to the 10 largest obligors (maximum 17% and 24%). The manager can then interpolate between these matrices. The transaction also includes limits on maximum industry exposure based on Fitch's industry definitions. The maximum exposure to the three largest (Fitch-defined) industries in the portfolio is covenanted at 40%. These covenants ensure that the asset portfolio will not be exposed to excessive concentration. Portfolio Management The transaction features a 4.25-year reinvestment period and includes reinvestment criteria similar to other European transactions. Fitch's analysis is based on a stressed-case portfolio with the aim of testing the robustness of the transaction structure against its covenants and portfolio guidelines. Cash Flow Analysis Fitch used a customised proprietary cash flow model to replicate the principal and interest waterfalls and the various structural features of the transaction, and to assess their effectiveness, including the structural protection provided by excess spread diverted through the par value and interest coverage tests. RATING SENSITIVITIES A 125% default multiplier applied to the portfolio's mean default rate, and with this increase added to all rating default levels, would lead to a downgrade of up to two notches for the rated notes. A 25% reduction in recovery rates would lead to a downgrade of up to four notches for the rated notes. DATA ADEQUACY The majority of the underlying assets or risk-presenting entities 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 groups within Fitch and/or other rating agencies to assess the asset portfolio information. 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. =================== K A Z A K H S T A N =================== TENGRI BANK: S&P Withdraws 'B-/B' Long-Term Issuer Credit Ratings ----------------------------------------------------------------- S&P Global Ratings said that it had withdrawn its 'B-/B' long- and short-term global scale issuer credit ratings on Tengri Bank JSC at the company's request as well as its 'kzBB' long-term Kazakhstan national scale rating on the bank. At the time of withdrawal, the outlook on the long-term global scale rating was stable. =============== P O R T U G A L =============== BANCO COMERCIAL PORTUGUES: Fitch Raises LT IDR to BB ---------------------------------------------------- Fitch Ratings has upgraded Banco Comercial Portugues, S.A.'s (BCP) Long-Term Issuer Default Rating (IDR) to 'BB' from 'BB-' and Viability Rating (VR) to 'bb' from 'bb-'. The Outlook is Stable. KEY RATING DRIVERS IDRS, VR AND SENIOR DEBT The upgrade of BCP reflects its stronger fundamentals, driven by in particular, its improving operating profitability and the meaningful progress in reducing problem assets. BCP's improved asset quality has resulted in reduced capital encumbrance by unreserved problem assets and lower, albeit still high, loan impairment charges, which have supported profitability during 2018. BCP's ratings primarily reflect the bank's still weaker asset quality metrics than some domestic peers' and international averages and the bank's capitalisation that Fitch views as being vulnerable to severe shocks, despite the observed improvements. They also reflect resilient underlying pre-impairment profitability due to BCP's franchise as the second-largest bank in Portugal, which allows it to exercise pricing power and good cost efficiency. Fitch expects the economic environment in Portugal to remain supportive of the bank's plan to reduce problem assets to more acceptable levels as well as of the bank's improving profitability. BCP's earnings are gradually recovering although during the last economic and interest rate cycle they have shown they can be highly volatile. Improvements have mainly resulted from lower loan impairment charges and better operating efficiency, due to the deep restructuring undertaken prior to 2017. Fitch expects loan impairment charges to decrease further in 2019, which should lead to better operating profitability and a gradual convergence with international peers'. BCP's pre-impairment operating profitability and cost efficiency compare well with domestic peers', offering some upside if and when BCP's loan impairment charges normalise. Asset quality has improved, but remains weak by international standards. BCP's IFRS 9 Stage 3 loans (impaired loans)-to-gross loans were a high 13.5% at end-June 2018. Fitch expects the ratio to reach 11%-12% by year-end. This compares with a peak of above 20% in 2014 (as per EBA standards). Loan loss allowance coverage of impaired loans of about 50% at end-June 2018 also improved but remains low compared with international peers', resulting in a high reliance on collateral and guarantees. The bank's capital position improved owing to a combination of a EUR1.3 billion equity increase in 2017 and risk-weighted assets (RWAs) reduction. BCP's capital buffers are moderate and Fitch views capital as highly vulnerable to severe asset quality shocks. At end-September 2018, the fully loaded common equity Tier 1 (CET1) and total capital ratios were respectively 11.8% and 13.4%. These ratios provide a moderate buffer relative to BCP's 2018 Supervisory Review and Evaluation Process requirements. The bank expects a manageable negative impact on its regulatory capital ratios from Polish subsidiary Millenium Bank's planned acquisition of Euro Bank in 2019 (less than 40bp on the group's fully loaded CET1 ratio). Its assessment of capitalisation considers BCP's exposure to risks arising from the bank's holdings of foreclosed assets and investments in corporate restructuring funds. Fitch estimates BCP's unreserved impaired loans and foreclosed assets were still high at about 90% of fully loaded CET1 at end-September 2018. Fitch expects the bank to continue strengthening its capitalisation on the back of earnings retention and further problem asset reductions. BCP's funding structure has generally been stable and the bank's liquidity position has benefited from substantial loan deleveraging over the past four years. Customer deposits are BCP's main funding source, at about 79% of total funding. The bank's reliance on wholesale funding is more limited, mostly in the form of senior, covered bonds and ECB funding through targeted longer-term refinancing operations. SUPPORT RATING AND SUPPORT RATING FLOOR The bank's Support Rating (SR) of '5' and Support Rating Floor (SRF) of 'No Floor' reflect Fitch's belief that senior creditors of the bank cannot rely on receiving full extraordinary support from the sovereign in the event that the bank become non-viable. The EU's Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism (SRM) for eurozone banks provide a framework for resolving banks that is likely to require senior creditors to participate in losses, if necessary, instead of - or ahead of - a bank receiving sovereign support. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES The ratings on subordinated debt and other hybrid capital issued by BCP are notched down from its VR in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles, which vary considerably. BCP's Tier 2 notes are rated 'BB-', one notch below the bank's VR for loss severity. BCP's preference shares are rated 'B-', four notches below the bank's 'bb' VR. The notching reflects higher expected loss severity (two notches) and non-performance risk relative to the VR (two notches). RATING SENSITIVITIES IDRS, VR AND SENIOR DEBT Further material reduction in BCP's stock of problem assets is key to an upgrade, since a sustained reduction in problem assets would result in lower loan impairment charges, stronger profitability and capital generation and ultimately reduce the capital's vulnerability to asset quality shocks. The improved economic environment in Portugal should support further reductions in impaired loan inflows, higher recoveries and impaired loan cures, thus facilitating portfolio sales. Downward rating pressure would arise from a failure to improve asset quality, weakening profitability or deterioration in the operating environment in Portugal. SUPPORT RATING AND SUPPORT RATING FLOOR An upgrade of the bank's SR and upward revision of the SRF would be contingent on a positive change in the sovereign's propensity to support the bank. While not impossible, this is highly unlikely, in Fitch's view. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES 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. The rating actions are as follows: BCP Long-Term IDR: upgraded to 'BB' from 'BB-'; Outlook Stable Short-Term IDR: affirmed at 'B' Viability Rating: upgraded to 'bb' from 'bb-' Support Rating: affirmed at '5' Support Rating Floor: affirmed at 'No Floor' Senior unsecured debt long-term rating upgraded to 'BB' from 'BB-' Senior unsecured debt short-term rating affirmed at 'B' Subordinated notes long-term rating upgraded to 'BB-' from 'B+' Preference shares long-term rating: affirmed at 'B-' CAIXA GERAL: Fitch Raises Long-Term IDR to BB, Outlook Positive --------------------------------------------------------------- Fitch Ratings has upgraded Caixa Geral de Depositos, S.A.'s (CGD) Long-Term Issuer Default Rating (IDR) to 'BB' from 'BB-' and Viability Rating (VR) to 'bb' from 'bb-'. The Outlook on the Long-Term IDR is Positive. KEY RATING DRIVERS IDR, VR AND SENIOR DEBT The upgrade reflects CGD's continuous progress on the execution of its restructuring plan over the past 12 months, which has led to notable improvements in asset quality, operating profitability and capital. Fitch believes the improved operating environment in Portugal has been supportive of problem assets reduction and has facilitated the achievement of CGD's strategic objectives to date. The Positive Outlook reflects Fitch's expectations that CGD will continue to deliver on the restructuring plan it agreed with the European Commission as part of the bank's recapitalisation in 2017. This plan includes ambitious asset quality, capital and profitability targets. CGD's ratings continue to reflect its weak asset quality and core profitability, although both elements have improved during the past 12-18 months, thanks to management's ability to deliver on stated targets. Further progress on the restructuring plan will be a key rating consideration. The ratings also take into account CGD's strengthened capitalisation and acceptable funding. CGD's asset quality remains weak by international standards, although improvements have continued throughout 2018 on the back of increased impaired loan sales, cures and write-offs. Fitch expects asset quality to improve further. The bank still had a high IFRS 9 stage 3 loans (impaired loans) to gross loans ratio of 11.6% at end-June 2018. Fitch expects this ratio to reach around 10% by end-2018, thanks to announced sizeable impaired loan sales in 2H18. The bank has agreed with the European Commission an ambitious impaired loan target of below 7% in 2020. CGD's loan loss allowance coverage had improved to about 63% at end-June 2018 and compares well with domestic peers. CGD has restored moderate capital buffers in 2017 and 2018. The bank concluded the last phase of its recapitalisation plan by issuing EUR500 million Tier 2 instruments to the market in June 2018. CGD's fully loaded common equity Tier 1 (CET1) and total capital ratios were 14.6% and 16.9%, respectively, at end- September 2018, providing moderate buffers relative to the regulatory requirements. Fitch expects capital ratios to benefit meaningfully from the agreed sale of CGD's Spanish and South African businesses in 2019. The bank remains exposed to risks arising from its holdings of foreclosed assets and investments in corporate restructuring funds. Capital encumbrance from unreserved problem assets (net impaired loans, foreclosed assets and investment properties) has improved materially in 2018 to reach a level Fitch estimates at about 54% of CET1 capital at end-September 2018. However, it remains high by international standards, making CGD vulnerable to delays in problem asset reductions. CGD's core profitability remains weak, although it has improved, with an operating profit to risk-weighted assets of about 1.5% in 1H18 versus 1.1% in 2017. The bank is progressing well towards its 2020 profitability targets. At end-September 2018, CGD was broadly on track on staff reduction and had already completed about 75% of its planned branch reduction, with limited market share erosion. Successfully executing its restructuring plan will be pivotal for the bank to improve its revenue and capital generation. CGD's funding is largely based on an ample retail deposit base that has been stable. Customer deposits accounted for about 89% of total funding at end-June 2018 and the loans to deposits ratio was about 90%. The bank reported a net stable funding ratio of 141% at end-June 2018 and liquidity coverage ratio of 253% at end-September 2018. Fitch views the bank's liquidity position as comfortable, due to low wholesale maturities in coming years, but still sensitive to confidence shocks in Portugal. SUPPORT RATING AND SUPPORT RATING FLOOR CGD's '4' Support Rating (SR) and 'B' Support Rating Floor (SRF) reflect Fitch's opinion that there remains a limited probability of extraordinary support being provided to CGD by the Portuguese state, under the provisions and limitation of the Bank Recovery and Resolution Directive and the Single Resolution Mechanism, without the bail-in of senior creditors. This potential support is based on full and willing state ownership and CGD's market leading position in the Portuguese market. SUBORDINATED AND HYBRID INSTRUMENTS Subordinated debt and other hybrid instruments issued by CGD are notched down from the VR, in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles, which vary considerably. Fitch rates CGD's subordinated (Tier 2) notes one notch below the bank's VR for loss severity. Fitch has affirmed CGD's preference shares at 'B-'. The rating on CGD's preference shares is four notches below CGD's VR. The notching reflects higher expected loss severity (two notches) relative to senior unsecured creditors and higher non-performance risk (two notches). Fitch has affirmed CGD's additional Tier 1 (AT1) notes at 'B-'. CGD's AT1 notes are rated four notches below the bank's VR. The notes have fully discretionary interest payments and are subject to partial or full write-down if CGD's consolidated or unconsolidated CET1 ratio falls below 5.125%. The notching reflects higher expected loss severity relative to senior unsecured creditors given their subordination (two notches) and higher non-performance risk given the fully discretionary coupon payment (two notches). At end-September 2018, CGD's phased-in CET1 ratio was 14.6% on a consolidated basis, which provides the bank with a buffer from the equity conversion trigger level and also to its 2018 CET1 Supervisory Review and Evaluation Process requirement of 8.875%. SUBSIDIARY The upgrade of Caixa Banco de Investimento (Caixa-BI), a wholly- owned subsidiary, mirrors the action on the parent bank. Caixa- BI's ratings are equalised with those of its parent, driven by the full ownership, its integration into its parent and the offering of investment banking products to CGD's clientele. Fitch does not assign a VR to the institution as Fitch does not view it as an independent entity that can be analysed meaningfully on its own right. The Positive Outlook on Caixa-BI's Long-Term IDR mirrors that on CGD's Long-Term IDR. RATING SENSITIVITIES IDRS, VR AND SENIOR DEBT Continued progress on the restructuring plan combined with sustained profitability improvements could lead to an upgrade of CGD's ratings in the next 18-24 months. Fitch expects a gradual reduction of problem assets, which combined with improved operating profitability, should reinforce capitalisation through capital generation and reduced vulnerability of capital to unexpected asset quality shocks. Downward rating pressure would arise from failing to improve asset quality metrics or operating efficiency, as well as from deterioration in the operating environment in Portugal. SUPPORT RATING AND SUPPORT RATING FLOOR An upgrade of the SR and upward revision of the SRF would be contingent on a positive change in the sovereign's propensity to support it. While not impossible, this is highly unlikely, in Fitch's view. SUBORDINATED AND HYBRID INSTRUMENTS The ratings of subordinated debt and other hybrid instruments are primarily sensitive to a change in CGD'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 CGD's VR. This may reflect a change in the group's capital management or an unexpected shift in regulatory buffer requirements, for example. SUBSIDIARY Caixa-BI's ratings are sensitive to rating actions on CGD's IDRs. The rating actions are as follows: CGD: Long-Term IDR: upgraded to 'BB' from 'BB-'; Outlook Positive Short-Term IDR: affirmed at 'B' Viability Rating: upgraded to 'bb' from 'bb-' Support Rating: affirmed at '4' Support Rating Floor: affirmed at 'B' Senior unsecured debt long-term rating upgraded to 'BB' from 'BB-'; short-term rating affirmed at 'B' Senior unsecured certificate of deposit short-term rating affirmed at 'B' Commercial paper programme rating affirmed at 'B' Tier 2 subordinated debt long-term rating upgraded to 'BB-' from 'B+' Additional Tier 1 notes- long-term rating affirmed at 'B-' Preference shares long-term rating affirmed at 'B-' Caixa-BI: Long-Term IDR: upgraded to 'BB' from 'BB-'; Outlook Positive Short-Term IDR: affirmed at 'B' Support Rating: affirmed at '3' =========== R U S S I A =========== ZLATKOMBANK JSC: Put on Provisional Administration -------------------------------------------------- The Bank of Russia, by its Order No. OD-3125, dated December 6, 2018, revoked the banking license of Moscow-based credit institution Joint-stock Company Zlatkombank, further also referred to as the credit institution. According to its financial statements, as of November 1, 2018, the credit institution ranked 405th by assets in the Russian banking system. As JSC Zlatkombank has consistently underestimated credit risk assumed, the Bank of Russia has repeatedly requested that it create additional loan loss provisions. The credit institution's operations were found to be non- compliant with the law and Bank of Russia regulations on countering the legalization (laundering) of criminally obtained incomes and the financing of terrorism with regard to the timeliness, completeness and reliability of information provided to the authorized body about operations subject to mandatory control. Besides, JSC Zlatkombank was involved in dubious transit operations and transactions aimed at withdrawing funds overseas and/or converting them into cash. The Bank of Russia has repeatedly (4 times over the last 12 months) applied supervisory measures against JSC Zlatkombank, including two restrictions and one ban on household deposit taking. The credit institution's operations showed signs of misconduct by its executives who sought to withdraw liquid assets to the detriment of creditors' and depositors' interests. The Bank of Russia will submit information about the bank's transactions suggesting a criminal offence to law enforcement agencies. Under these circumstances, the Bank of Russia took the decision to revoke JSC Zlatkombank's banking license. The Bank of Russia took this decision due the credit institution's failure to comply with federal banking laws and Bank of Russia regulations, repeated violations within one year of the requirements stipulated by Article 7 (except for Clause 3 of Article 7) of the Federal Law "On Countering the Legalisation (Laundering) of Criminally Obtained Incomes and the Financing of Terrorism", and the requirements of Bank of Russia regulations issued in compliance with the indicated Federal Law, and taking into account repeated application within one year of measures envisaged by the Federal Law "On the Central Bank of the Russian Federation (Bank of Russia)". The Bank of Russia, by its Order No. OD-3126, dated December 6, 2018, appointed a provisional administration to JSC Zlatkombank for the period until the appointment of a receiver pursuant to the Federal Law "On Insolvency (Bankruptcy)" or a liquidator under Article 23.1 of the Federal Law "On Banks and Banking Activities". In accordance with federal laws, the powers of the credit institution's executive bodies were suspended. JSC Zlatkombank is a member of the deposit insurance system. The revocation of a banking license is an insured event as stipulated by Federal Law "On the Insurance of Household Deposits with Russian Banks" in respect of the bank's retail deposit obligations, as defined by law. The said Federal Law provides for the payment of indemnities to the bank's depositors, including individual entrepreneurs, in the amount of 100% of the balance of funds but no more than a total of RUR1.4 million per depositor. The current development of the bank's status has been detailed in a press statement released by the Bank of Russia. ============= U K R A I N E ============= ALFA-BANK JSC: Fitch Assigns B- Long-Term Issuer Default Ratings ---------------------------------------------------------------- Fitch Ratings has assigned Ukraine-based JSC Alfa-Bank's local Series S senior unsecured UAH300 million bond (ISIN UA4000198931) a 'B-' final debt rating and a 'AA(ukr)' National debt rating. The bond's Recovery Rating is 'RR4'. The bond's rating is at the same level as the bank's 'B-' Long- Term Local-Currency Issuer Default Rating (IDR) and 'AA(ukr)' National Long-Term Rating. The bond ranks pari passu with the bank's other senior unsecured obligations. The final maturity date is June 26, 2023. However, the bondholders have a put option exercisable once a year. The coupon is paid every three months (except for the first coupon) at the rate that is reset annually. The coupon for the period up to June 25, 2019 is 14%. Alfa-Bank is a medium-sized bank controlled by Luxembourg-based ABH Holdings S.A. which, in turn, is owned by Mikhail Fridman, German Khan, Alexey Kuzmichev, Petr Aven, Andrey Kosogov, UniCredit S.p.A. and The Mark Foundation for Cancer Research. RATING SENSITIVITIES The bond rating would likely change in tandem with the bank's Local Currency IDR and National Rating. An upgrade of the IDRs and Support Ratings would also require a strengthening of the bank's support track record. A significant weakening of the ability and/or propensity of shareholders to provide support could result in the downgrade of the IDRs and hence debt ratings. The other issuer ratings are unaffected and as follows: Long-Term Foreign- and Local-Currency IDRs: 'B-'; Outlook Stable Short-Term Foreign-Currency IDR: 'B' National Long-Term Rating: 'AA(ukr)'; Outlook Stable Viability Rating: 'ccc' Support Rating: '5' =========================== U N I T E D K I N G D O M =========================== FINSBURY SQUARE 2017-1: Fitch Affirms 'Bsf' on Class D Notes ------------------------------------------------------------ Fitch Ratings has upgraded Finsbury Square 2017-1's B and C notes as follows: Class A: affirmed at 'AAAsf'; Outlook Stable Class B: upgraded to 'AAAsf' from 'AAsf'; removed from Rating Watch Positive (RWP); Outlook Stable Class C: upgraded to 'A+sf' from 'Asf'; removed from RWP; Outlook Stable Class D: affirmed at 'Bsf'; removed from RWP; Outlook Stable Class X: affirmed at 'BB+sf'; removed from RWP; Outlook Stable This transaction is a securitisation of near-prime owner-occupied and buy-to-let (BTL) mortgages originated by Kensington Mortgage Company in the UK. KEY RATING DRIVERS Counterparty Criteria Updated Finsbury Square 2017-1 plc's class B, C, D and X were placed on RWP due to the updating of Fitch's Structured Finance and Covered Bonds Counterparty Rating Criteria published on August 1, 2018, in particular due to the change in the way commingling is addressed. As a result of this change Fitch now views commingling as an immaterial risk in this transaction, meaning losses are no longer sized for. This updated analysis based on the new criteria contributed to the upgrades of the B and C notes. Increasing Credit Enhancement Credit enhancement has increased over the last months due to sequential amortisation of the notes alongside a non-amortising reserve fund. Credit enhancement rose to 19.4% (from 17%) for the class A notes, to 13.1% (from 11.4%) for the class B notes and to 6.1% (from 5.3%) for the class C notes. The increasing credit enhancement has also contributed to the upgrades of the class B and class C notes. Payment Interruption Risk The class C notes only have access to the general reserve fund for liquidity purposes. In high stress scenarios the general reserve fund may be depleted to cover losses and therefore not be available to cover payment interruption risk. Consequently the ratings of the class C note are constrained at 'A+sf'. In contrast, the class A and B notes also benefit from a specific liquidity reserve fund mechanism. Lender Adjustment Reduced A lender adjustment of 1.20x has been applied to the frequency of foreclosure analysis. This is reduced from the 1.45x adjustment applied previously for this transaction. This reduction is based on an updated assessment of the performance of post-crisis mortgages originated by Kensington since 2010. Rating Caps A number of the ratings are subject to caps. The class C notes are capped at 'A+sf,' due to the lack of access to the liquidity reserve fund, and as such vulnerable to payment interruption risk. The class D notes are capped at 'Bsf', due to the notes not having the reserve fund available for credit support, which makes the notes vulnerable to default. The class X notes are capped at 'BB+sf' as, being excess spread notes, they occupy a low position in the priority of payments and have a high sensitivity to stress scenarios. VARIATIONS FROM CRITERIA Self-employed Borrowers Kensington 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'. For owner-occupied mortgages, Fitch applied an increase of 30% to the foreclosure frequency for self-employed borrowers with verified income instead of the 20% increase, as per our criteria. RATING SENSITIVITIES The loans in the pool currently earn a predominantly fixed rate of interest and all will revert to an interest rate linked to Libor. Once this has occurred borrowers will be exposed to increases in market interest rates, which would put pressure on affordability, and potentially cause deterioration of asset performance. Should this result in defaults and losses on properties sold in excess of Fitch's expectations, Fitch may take negative rating action on the notes. Rating upgrades are limited by the rating caps described. 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. Prior to the transaction closing, 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. Prior to the transaction closing, Fitch conducted a review of a small targeted sample of Kensington'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 and together with the assumptions referred, 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. FISHING REPUBLIC: Directors Opt to File for Administration ---------------------------------------------------------- Fishing Republic on Dec. 6 disclosed that, further to the recent updates on its financial position, it has not been possible to raise sufficient equity or other funding for its immediate and future working capital requirements. As a consequence, the directors of Fishing Republic Trading Limited, the Company's 100% owned subsidiary, having taken advice from Leonard Curtis Recovery Limited ("Leonard Curtis"), on Dec. 6 filed an application to appoint administrators to this company. The filing of the administration application triggers a moratorium preventing most creditor or other third-party action against this company or its assets. The application is likely to be heard in Court next week at which point it is expected that Leonard Curtis will be appointed as administrators. Steps to appoint administrators to the Company's other 100% owned subsidiary, Fishing Republic Retail Limited, are likely to occur in due course. The directors and Leonard Curtis continue to explore options for Fishing Republic plc and no decision has yet been reached on whether it will be placed into administration. Leonard Curtis has received indicative offers from parties interested in acquiring some or all of the Group's assets. A further announcement will be made as soon as is practicable. The Company's shares remain suspended from trading on AIM. Status of Nominated Adviser As stated above, the Company has not been successful in its fundraising activity. Further to the announcement on Nov. 30, if the Company has failed to appoint a replacement Nominated Adviser by March 4, 2019, the admission of its AIM Securities will be cancelled. Fishing Republic Trading Limited is among the largest of UK fishing tackle shops. FOUR SEASONS: Set to Launch Formal Sale Process in Rescue Bid ------------------------------------------------------------- Christopher Williams at The Telegraph reports that the troubled care homes operator Four Seasons Health Care was expected to launch a formal sale process on Dec. 10 in the hope of attracting a rescuer, as a potential financial crunch looms. The company, which is owned by the private equity firm Terra Firma but under the effective control of its lenders, led by the US hedge fund H/2 Capital Partners, has been attempting to engineer a restructuring of its GBP525 million debt for more than two years, The Telegraph relates. Last month, H/2 swept aside Four Seasons' management to install its own team, which it said would prepare the empire of 343 care homes for sale, The Telegraph recounts. Insiders said that, if a buyer could not be found, the fate of the company, which cares for 17,000 people, was unclear, The Telegraph notes. LERNEN BONDCO: Moody's Affirms B3 CFR, Outlook Stable ----------------------------------------------------- Moody's Investors Service has affirmed Lernen Bondco Plc's B3 Corporate Family Rating and B3-PD Probability of Default rating. Lernen Bondco Plcis the parent company of Cognita Holdings Limited, the K-12 private education group. Concurrently, Moody's has affirmed the B2 instrument ratings on the GBP200 million Term Loan B, the upsized euro denominated GBP356 million equivalent TLB and the GBP100 million Revolving Credit Facility, all due 2025, borrowed by Lernen Bidco Limited. The outlook is stable. Moody's is withdrawing the Caa2 instrument rating on the euro denominated GBP225 million equivalent senior unsecured Notes due 2026 issued by Lernen Bondco Plc. This instrument has been replaced in the capital structure partly with the upsized TLB and partly with up to EUR160 million shareholder loan. The proceeds from the facilities have been used, together with c. GBP1.5 billion equity contribution, to finance the acquisition of the group by Jacobs Holding AG. Moody's rating action reflects the following drivers: - The transaction is largely leverage neutral given the group's ability and intention to raise subordinated debt to repay the shareholder loan in the next 12-18 months. Accordingly, Moody's expects leverage to remain at c.8x, as measured by Moody's- adjusted debt/EBITDA, with senior leverage reducing by half a turn in the process from the opening leverage of the transaction at closing. - Established player in the fragmented private-pay primary and secondary education market, with a geographically diversified portfolio of 71 schools in eight countries. - Exposure to changes in the political, legal and economic environment in emerging markets, which represent 68% of group EBITDA for the fiscal year 2018, ended August 31, 2018. - Moody's expectation that the group will continue its strong performance in the next 12-18 months driven by EBITDA growth and fee increases above inflation in all countries. RATINGS RATIONALE The B3 Corporate Family Rating (CFR) reflects the following: (i) solid position as a larger player in a fragmented market, with a geographically diversified portfolio of 71 schools in eight countries; (ii) established track record of achieving revenue and EBITDA growth through organic and acquisitive student growth and tuition fee increases above cost inflation; (iii) barriers to entry through regulation, brand reputation and purpose-built real estate portfolio; (iv) strong revenue visibility from committed student enrolments. Conversely, the rating is constrained by: (i) high Moody's adjusted debt/EBITDA expected to be maintained at around 8x; (ii) aggressive debt-funded acquisition and capacity expansion strategy and resulting lack of deleveraging and free cash flow historically; (iii) concentration risk as the top ten schools represent 65% of group EBITDAR; (iv) reliance on its academic reputation and brand quality in a highly regulated environment; (v) exposure to changes in the political, legal and economic environment in emerging markets. LIQUIDITY PROFILE Moody's views Lernen's liquidity as adequate, supported by the undrawn GBP100 million RCF. There will be sizeable cash balances at closing (GBP65 million), but Moody's understands that those are held largely at local operations and in some cases not readily available to management, although can be repatriated via dividends. Although working capital is structurally negative at year end, there is considerable quarter-on-quarter seasonality, that may require the RCF to be drawn at times to sustain liquidity. There is a springing senior secured net leverage covenant set at 7.4x flat, tested if drawings under the RCF exceed 40%. Moody's expects the group to have sizeable headroom under the covenant. STRUCTURAL CONSIDERATIONS The B2 rating on the GBP200 million TLB and the euro denominated GBP356 million equivalent TLB and GBP100 million pari passu ranking RCF, one notch above the CFR, reflects its ranking ahead of the shareholder loan. Moody's treats the shareholder loan as debt, and it is expected to be refinanced by new subordinated debt ranking behind the senior secured facilities in the next 12- 18 months. The security package provided to the first lien lenders is relatively weak and limited to a pledge over shares, bank accounts, and intercompany receivables, as well as guarantees from operating companies (80% guarantor test) and a floating charge provided by the English borrower. RATING OUTLOOK The stable outlook reflects Moody's expectation that the group will continue to visibly grow EBITDA from both increased student numbers and tuition fee growth. Moody's expects that the group will pursue growth and acquisitions in a prudent manner and benefit from an adequate liquidity profile. The outlook also assumes that subordinated debt is issued to repay shareholder loans. FACTORS THAT COULD LEAD TO AN UPGRADE Upgrade pressure on the ratings could arise if Moody's adjusted debt/EBITDA declines below 7x and free cash flow generation is positive on a sustainable basis, with adequate liquidity. FACTORS THAT COULD LEAD TO A DOWNGRADE Downward pressure on the ratings could arise if the group is not able to grow EBITDA on a sustainable basis, resulting in leverage increasing above current levels or negative free cash flow generation during a sustained period of time, or liquidity weakens. Any material negative impact from a change in any of the group's schools regulatory approval status could also pressure the ratings. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016. CORPORATE PROFILE Headquartered in the UK, Lernen Bondco Plc is an international independent schools group offering primary and secondary private education in 71 schools across eight countries in Europe, Asia and Latin America. Founded in 2004, the group acquired schools in the United Kingdom, Spain, Brazil, Chile, Singapore, Hong Kong Thailand and Vietnam, and teaches around 43 thousand K-12 private-pay students. The group is owned by Jacobs Holding AG. ONE SELECT: Halts Trading, Ofgem to Select Supplier for Customers ----------------------------------------------------------------- Myles McCormick at The Financial Times reports that One Select has become the latest UK energy supplier to cease trading, after less than two years on the market. The company had 36,000 gas and electricity customers in England and Wales, the FT discloses. It stopped trading on Dec. 10, days after coming last in a Citizens Advice customer service ranking 34 suppliers, the FT relates. According to the FT, the energy regulator Ofgem will now select a new supplier to take on One Select's customers through its safety net procedure. ********* Monday's edition of the TCR delivers a list of indicative prices for bond issues that reportedly trade well below par. Prices are obtained by TCR editors from a variety of outside sources during the prior week we think are reliable. Those sources may not, however, be complete or accurate. The Monday Bond Pricing table is compiled on the Friday prior to publication. Prices reported are not intended to reflect actual trades. Prices for actual trades are probably different. Our objective is to share information, not make markets in publicly traded securities. Nothing in the TCR constitutes an offer or solicitation to buy or sell any security of any kind. It is likely that some entity affiliated with a TCR editor holds some position in the issuers' public debt and equity securities about which we report. Each Tuesday edition of the TCR contains a list of companies with insolvent balance sheets whose shares trade higher than US$3 per share in public markets. At first glance, this list may look like the definitive compilation of stocks that are ideal to sell short. Don't be fooled. Assets, for example, reported at historical cost net of depreciation may understate the true value of a firm's assets. A company may establish reserves on its balance sheet for liabilities that may never materialize. The prices at which equity securities trade in public market are determined by more than a balance sheet solvency test. Each Friday's edition of the TCR includes a review about a book of interest to troubled company professionals. All titles are available at your local bookstore or through Amazon.com. Go to http://www.bankrupt.com/booksto order any title today. ********* S U B S C R I P T I O N I N F O R M A T I O N Troubled Company Reporter-Europe is a daily newsletter co- published by Bankruptcy Creditors' Service, Inc., Fairless Hills, Pennsylvania, USA, and Beard Group, Inc., Washington, D.C., USA. Marites O. Claro, Rousel Elaine T. Fernandez, Joy A. Agravante, Julie Anne L. Toledo, Ivy B. Magdadaro, and Peter A. Chapman, Editors. Copyright 2018. All rights reserved. ISSN 1529-2754. This material is copyrighted and any commercial use, resale or publication in any form (including e-mail forwarding, electronic re-mailing and photocopying) is strictly prohibited without prior written permission of the publishers. Information contained herein is obtained from sources believed to be reliable, but is not guaranteed. The TCR Europe subscription rate is US$775 per half-year, delivered via e-mail. Additional e-mail subscriptions for members of the same firm for the term of the initial subscription or balance thereof are US$25 each. For subscription information, contact Peter Chapman at 215-945-7000. * * * End of Transmission * * *