/raid1/www/Hosts/bankrupt/TCREUR

/raid1/www/Hosts/bankrupt/TCREUR_Public/190118.mbx T R O U B L E D C O M P A N Y R E P O R T E R E U R O P E Friday, January 18, 2019, Vol. 20, No. 013 Headlines A Z E R B A I J A N PASHA BANK: S&P Affirms 'BB-' Long-Term ICR, Outlook Negative B E L G I U M VLM AIRLINES: Declared Bankrupt, Faces Liquidation C Y P R U S COBALTAIR LTD: Enters Into Voluntary Liquidation G R E E C E FOLLI FOLLIE: Appeal on Prohibition of Property Sale Rejected NAVIOS MIDSTREAM: Moody's Lowers Term Loan B Rating to B3 I T A L Y REKEEP SPA: S&P Affirms 'B' Issuer Credit Rating, Outlook Stable P O L A N D ALIOR BANK: S&P Assigns BB/B Issuer Credit Ratings U N I T E D K I N G D O M DEBENHAMS PLC: Moody's Affirms Caa1 CFR, Alters Outlook to Neg. FLYBE GROUP: Obtains GBP10-Million Bridging Loan HOURSTONS: Set to Close on February 7, 81 Jobs Affected PATISSERIE VALERIE: Taps KPMG to Explore Options for Business X X X X X X X X * BOOK REVIEW: EPIDEMIC OF CARE ********* =================== A Z E R B A I J A N =================== PASHA BANK: S&P Affirms 'BB-' Long-Term ICR, Outlook Negative ------------------------------------------------------------- S&P Global Ratings affirmed its 'BB-' long-term and 'B' short- term issuer credit ratings on Azerbaijan-based PASHA Bank. The outlook remains negative. S&P said, "The affirmation reflects our view that the bank's creditworthiness continues to benefit from its solid market position in Azerbaijan's corporate lending sector, better-than- peers' geographical business diversification, and ongoing capital and funding support from its shareholder, PASHA Holding. We believe these benefits largely offset sustained pressure on the bank's capital or potential risks associated with high lending growth." PASHA Bank continued its strategy of high business growth in Azerbaijan, Turkey and Georgia throughout 2018. S&P said, "We estimate that the bank's loan portfolio increased by about 25% last year, with growth in Azerbaijan of close to 32%. The bank's share in the system-wide corporate lending reached around 17% as of Sept. 30, 2018 (9% at end-2016), which is significant given the highly concentrated Azerbaijani banking sector. We expect PASHA Bank will continue above-average business growth in Azerbaijan to increase further its market share and business volumes in corporate banking. We view the bank's ample reported liquidity, lack of material legacy problems, strong brand, and significant investments in digital capabilities as its competitive advantages, which would likely enable the bank to fortify its business position in the country and improve its client diversity. We also note that overseas business in Turkey and Georgia, which now represent about 25% of the bank's loan portfolio, increases the geographical diversity of the bank's business model and supports its business stability. As such, we think that the competitive trends are favorable for PASHA Bank's business position and could facilitate improvements in the bank's creditworthiness in the coming 12-18 months." S&P said, "At the same time, we no longer consider the bank's capital position to be a rating strength, but rather a neutral factor. This is because we expect that the bank's capitalization reflected in our risk-adjusted capital (RAC) ratio will likely deteriorate to below 7% over the next 12 months due to high actual and expected lending growth, substantial foreign currency translation losses, increased economic risks in Turkey, and relatively aggressive dividend policy employed by PASHA Holding, among other factors. We expect that the bank's growth will continue to outpace its internal capital generation and weigh on its capital adequacy. Nevertheless, we note that regulatory capital ratios remain at comfortable levels for all of the bank's operating entities. "We think that PASHA Holding remains committed to providing capital support to the bank if needed. In 2018, PASHA Holding directly injected Turkish lira (TRY) 253 million (about $46 million) into PASHA Yatirim Bankasi, PASHA Bank's Turkish subsidiary. The shareholder also provided $11 million of subordinated debt to the bank, with a five-year maturity. This year, PASHA Holding may inject up to Azerbaijani manat (AZN) 27 million (approximately $16 million) of subordinated debt with high loss-absorption capacity features, which we would likely include in calculation of our RAC ratio. However, the shareholder will continue distributing 60% of the consolidated net income over the next two years. "We think that the bank's funding profile remains concentrated with top-20 depositors representing 67% of total customer deposits as of mid-year 2018 (versus 71% at end-2017). Nevertheless, we believe that a number of strengths in the bank's funding profile offset risks stemming from the excessive concentrations. We note that over the past four years, customer deposits have been relatively stable and the bank maintains a substantial liquidity buffer, which covered around 77% of all customer deposits as of June 30, 2018. Almost all the bank's funding and liquidity metrics look superior compared with peers, with stable funding ratio of close to 214% (versus about 120% average for peers) and loan-to-deposit ratio of below 50% over the past three years. Finally, we incorporate in our funding assessment the ongoing support from the shareholder in the form of stable related parties' accounts, which further contributes to the stability of the bank's customer deposits. We note that the volumes of these accounts have been sustainably growing over the past three years, while the portion in corporate liabilities declined to 55% from 36%, reflecting growth in customer franchise. We therefore assess the bank's funding profile as a neutral rating factor." The bank's asset quality remains solid compared with local peers: Over the first half of 2018, the bank's nonperforming assets declined by AZN19.0 million to AZN89.3 million, representing 5.7% of the loan portfolio versus 7.7% at year-end 2017. In comparison, we estimate that problem assets represent close to 20%-23% in the system-wide loans in Azerbaijan. The bank also reduced the single-name concentration in its portfolio to 40% from 45% at year-end 2017, which is now comparable to those of peers in the Commonwealth of Independent States. S&P said, "We do not expect material impairments of the bank's portfolio in Turkey because of its short-term and secured nature, consisting mainly of factoring and trade finance loans. However, considering our expectation of elevated lending growth in the highly risky economic environment of Azerbaijan and Turkey, we can't exclude the increase of nonperforming loans and credit losses in 2019- 2020." S&P said, "The negative outlook on PASHA Bank reflects our view that the bank's concentrated business model, high lending growth, and high risks in Turkey and Azerbaijan may upset the sustainability of its business or asset quality. "We could lower the ratings in the next 12 months if saw that the bank's expanding market reach does not improve its client diversity. Greater volatility of revenues or earnings due to deteriorating economic conditions in Turkey may also prompt us to take a negative rating action. Finally, we would consider a downgrade if the bank's asset quality substantially deteriorates, for example, driven by higher problem assets and credit losses than we currently anticipate. "We could revise the outlook to stable if we saw that PASHA Bank's increasing market share in Azerbaijan improves its customer diversity and further strengthens its pricing power and business stability." ============= B E L G I U M ============= VLM AIRLINES: Declared Bankrupt, Faces Liquidation -------------------------------------------------- Bart Noeth at Aviation24.be, citing newspaper La Libre Belgique, reports that there is little to no chance that VLM Airlines N.V. (Brussels) will rise from the ashes. According to Aviation24.be, on December 18, 2018, the ACMI and charter carrier that operated from Brussels Airport was declared bankrupt. "I am afraid that the company will face liquidation," Aviation24.be quotes Dirk De Maeseneer, one of the three curators, as saying. Mr. De Maesenner said few elements plead in favor of potential buyers: eighty employees have been dismissed and VLM Airlines N.V. (Brussels) doesn't own any aircraft, Aviation24.be relates. Besides, the leasing contract with the only aircraft in the fleet has ended, Aviation24.be states. Furthermore, traffic rights are not transferable, Aviation24.be notes. =========== C Y P R U S =========== COBALTAIR LTD: Enters Into Voluntary Liquidation ------------------------------------------------ Stockwatch reports that Cobaltair Ltd. entered into voluntary liquidation on December 19, 2018. According to Stockwatch, Stephen Michaelides -- Stephen.Michaelides@cy.gt.com -- of Grant Thornton Specialist Services Limited was appointed Liquidator. Cobaltair was a Cypriot airline headquartered in Nicosia based out of Larnaca International Airport. =========== G R E E C E =========== FOLLI FOLLIE: Appeal on Prohibition of Property Sale Rejected ------------------------------------------------------------- Paul Tugwell at Bloomberg News reports that Folli Follie said in a stock exchange filing the Athens court rejected the company's appeals for the lifting of the prohibition of sale or disposal in any way of its property located in Agios Stefanos of Attica, Neo Psychiko, Koropi, Santorini and Glyfada. According to Bloomberg, the prohibition on the properties was imposed by virtue of two orders issued by the President of the Anti-Money Laundering Authority. Folli Follie reserves its right to take any further legal action for lifting of prohibition, upon signing the restructuring agreement it seeks to achieve with its creditors under relevant provisions of the bankruptcy code and will revert with a newer announcement, Bloomberg discloses. As reported by the Troubled Company Reporter-Europe on Nov. 19, 2018, Reuters related that troubled Greek jewelry maker Folli Follie said in a statement on Nov. 15 it had asked for protection from creditors in order to finalize a restructuring plan. It said management was in the process of producing a revised business plan together with Deloitte for the total restructuring of its operations, according to Reuters. Follie plunged into trouble when hedge fund Quintessential Capital Management said in a May report that it had overstated the number of its outlets, Reuters noted. NAVIOS MIDSTREAM: Moody's Lowers Term Loan B Rating to B3 --------------------------------------------------------- Moody's Investors Service downgraded the rating of the term loan B due 2020 issued by Navios Maritime Midstream L.P. to B3 from B2 and withdrew NAP's B2 corporate family and B2-PD probability of default ratings. This rating action concludes the review of NAP's ratings. Moody's further affirmed the corporate family rating of Navios Maritime Acquisition Corporation at B3, its probability of default rating at B3-PD and the rating on its $670 million senior secured notes due 2021 at B3. The outlook is negative. The rating action follows the announcement on December 14, 2018 that the acquisition of the publicly held units of Navios Maritime Midstream not already owned by NNA has been completed by NNA in a stock for units exchange as earlier contemplated with NAP becoming a wholly owned subsidiary of NNA. The downgrade of the Term Loan B rating reflects NAP's position as a wholly owned subsidiary of a larger entity and the resulting increase in the combined pro forma leverage to close to 12x from below 4.0x for NAP before the merger as a result of NNA's higher leverage. Although the Term loan B has access to stronger cash flows from NAP, its instrument rating also reflects interdependence between NAP and the rest of the group, and the fact that as a wholly-owned entity NAP is more likely to provide financial support to NNA. The downgrade also incorporates charter expirations for four out of six vessels owned by NAP in the first half of 2019 and the need to re-charter those ships in a potentially weak market. The affirmation of NNA's ratings reflects the company's elevated leverage of close to 12x on a pro forma basis which is still a reduction from almost 18x for the last twelve months ending September 30, 2018. The affirmation further reflects Moody's expectations that the leverage of the combined entity will decline to below 8.0x in 2019 as a result of gradual market improvement and two long term charters at NAP operating at higher historical rates. The transaction further increases and diversifies NNA's fleet to 43 vessels from 37 previously. RATINGS RATIONALE Navios Maritime Acquisition Corporation's B3 corporate family rating (CFR) reflects (1) diverse and modern fleet with a mix of crude oil and product tankers (2) low operating costs as a result of the low average age of its fleet and the fleet management contract signed with the technical management arm of NNA's main shareholder and sponsor, Navios Maritime Holdings, Inc. (B2 stable); (3) the company's leveraged capital structure with debt/EBITDA at close to 18x for the twelve months ending September 30, 2018 and expected to be close to 12x pro forma for the merger; (4) continuing uncertainty regarding tanker charter rates although recent trends have been positive. The combined entity will have somewhat weak liquidity supported by $68.7 combined cash balances at NNA and NAP as of September 30, 2018. Still, the company will face substantial maturities in 2020 and 2021 when the $195 million TLB and $670 million notes mature, respectively. Moody's expects these maturities to be refinanced on a secured basis. The negative rating outlook reflects continuing uncertainty with respect to the tanker market recovery as well as the combined entity's exposure to market rates. The rating outlook would likely be stabilized if Debt/EBITDA is sustained closer to 8.0x, the company generates positive free cash flow (after capex and dividends) and maintains adequate liquidity. The rating could be upgraded if debt/EBITDA ratio is maintained below 6.0x over several quarters and (Funds From Operations (FFO) + interest)/interest expense ratio rises above 2.5x on a sustainable basis. Sustained positive free cash flow and adequate liquidity would also be needed. Negative rating pressure would occur if (FFO + interest)/interest expense ratio falls below 1.5x for a prolonged period of time or from any liquidity challenges including covenant breaches. The principal methodology used in these ratings was Shipping Industry published in December 2017. Navios Maritime Acquisition Corporation (NYSE:NNA) is an owner and operator of tanker vessels focusing on the transportation of petroleum products (clean and dirty) and bulk liquid chemicals. In 2017, NNA reported revenues and adjusted EBITDA of $227 million and $108 million, respectively. Withdrawals: Issuer: Navios Maritime Midstream Partners LP Probability of Default Rating, Withdrawn , previously rated B2-PD Corporate Family Rating, Withdrawn , previously rated B2 Downgrades: Issuer: Navios Maritime Midstream Partners LP Senior Secured Bank Credit Facility, Downgraded to B3 from B2 Affirmations: Issuer: Navios Maritime Acquisition Corporation Probability of Default Rating, Affirmed B3-PD Corporate Family Rating, Affirmed B3 Senior Secured Regular Bond/Debenture, Affirmed B3 Outlook Actions: Issuer: Navios Maritime Acquisition Corporation Outlook, Remains Negative Issuer: Navios Maritime Midstream Partners LP Outlook, Changed To Negative From Rating Under Review ========= I T A L Y ========= REKEEP SPA: S&P Affirms 'B' Issuer Credit Rating, Outlook Stable ---------------------------------------------------------------- S&P Global Ratings affirms its 'B' long-term issuer credit rating on Rekeep. S&P is also affirming its 'B' issue rating on the company's EUR 360 million senior secured notes and revising its recovery rating to '3' from '4' following a review of its general recovery assumptions in light of peer comparisons. The affirmation reflects the Jan. 11, 2019 decision by the State Council to suspend a six-month ban on Rekeep SpA tendering for public contracts. This was decided by the Italian Anti-Corruption Authority (ANAC) in relation to the Santobono Pausilipon case. The ban suspension follows an appeal by Rekeep, which we understand the State Council will further examine in the coming weeks. S&P said, "We do not factor in the enforcement of the ban in our base-case scenario as there is no visibility as to whether and when it would be enforced. We assume 1%-3% growth in Rekeep's revenues and stabilization of S&P Global Ratings-adjusted EBITDA margins at around 11.5%-12.0% in 2019 and 2020. This is in line with the gradual recovery in revenue growth and profitability exhibited by the company in 2018. "We believe Rekeep's operating performance provides some headroom at the current rating level. We expect the company to maintain its cash funds from operations (FFO) interest coverage above 2.0x and free operating cash flow (FOCF) above EUR 20 million in 2018 and 2019. This is despite the current uncertainty around the enforcement of the ban and the contract losses that could result from the associated reputational damage. Indeed, we understand the ban would not affect the contracts currently generating earnings or the backlog of awarded contracts, which stood at about EUR 2.7 billion in September 2018. We believe the company's large backlog and its large exposure to private customers and to the laundering and sterilization segment provide some relief around the reputational and direct effect that the ban would have on Rekeep's earnings generation if enforced." However, if the State Council decides to reject Rekeep's appeal and enforce the ban in 2019, it could lead S&P to revise our base-case assumptions. Significant losses resulting from Rekeep's exclusion from potential contract wins, along with reputation damage from ongoing litigation issues that reflect negatively on Rekeep's governance, could drive a material reduction in the company's earnings generation. Additionally, a ban could pressure the company's liquidity if it triggered large unexpected cash outflows or a worsening of credit terms. S&P said, "In addition to the Santobono Pausilipon case, we note that Rekeep is still involved in several other litigations, which could further hit the company's earnings generation and liquidity. "The stable outlook reflects our expectation that Rekeep's earnings and FOCF generation over the next 12 months will provide sufficient rating headroom to absorb the uncertainty related to the enforcement of the ban and any moderate negative impact on contract renewals associated with potential reputation damage. "We could lower the rating if the outcome of the Santobono Pausilipon case, or any other ongoing litigation, resulted in financial penalties or in a material contraction in revenues. In particular, pressure would arise if credit metrics deteriorated for a sustained period, resulting in FFO cash interest coverage below 2.0x or FOCF weakening to minimal levels. Additionally, a weakening of Rekeep's liquidity -- notably due to large unanticipated cash needs or a significant worsening of credit terms -- could put its liquidity under stress and lead us to downgrade Rekeep. "We consider an upgrade as unlikely due to the ongoing litigation cases and the effect they may have on Rekeep's contract backlog and ability to sign new contracts. We could consider a positive rating action if the company demonstrated improving credit metrics commensurate with an aggressive financial risk profile, namely FFO to debt above 17%. Rekeep operates as an integrated facility management company in Italy. It provides technical maintenance, landscaping, environmental hygiene, property management, and heat management services. It also offers specialty services such as laundering and sterilization for linen rental and industrial laundering, linen and surgical instrument sterilization for the health care field, and project and energy management. Rekeep serves public and private customers in the health care, public, corporate buildings, industry, retail and large-scale retail, and real estate sectors. In the 12 months to Sept. 30, 2018, Rekeep generated EUR 934 million of revenues with a reported normalized EBITDA of about EUR 100 million. Manutencoop SocietÖ Cooperativa owns the company. Although the enforcement of the ban could hurt future growth, S&P's base-case scenario assumptions remain unchanged, pending any outcomes from the litigation: -- Italian real GDP growth forecast of 1.0% in 2018 and 0.7% in 2019. -- About 2.0%-2.5% revenue growth in 2018 on the back of the start of the MIES2 framework and the renegotiation of some contracts in the private sector. Revenue growth is expected to remain at similar levels in 2019. -- Reported EBITDA of around EUR 90 million-EUR 95 million in 2018 and 2019, after deducting around EUR 4 million of provisions for risks and nonrecurring expenses. -- Capital expenditure (capex) of around EUR 30 million in 2018 and 2019. -- Working capital dynamics in line with historical figures and equal to around EUR 40 million inflows for 2018, including the use of factoring. Based on these assumptions, S&P arrives at the following credit measures: -- Adjusted EBITDA margin of about 11.5%-12.0% for 2018 and 2019. -- Adjusted FFO to debt of about 10.5%-11.0% for 2018 and increasing by around 50 basis points in 2019. -- Adjusted debt to EBITDA of about 4.5x-5.0x in 2018 and decreasing to about 4.2x-4.7x in 2019. =========== P O L A N D =========== ALIOR BANK: S&P Assigns BB/B Issuer Credit Ratings -------------------------------------------------- S&P Global Ratings assigned its 'BB/B' long- and short-term issuer credit ratings to Poland-based Alior Bank S.A. (Alior). The outlook is stable. With a 5% asset share in the Polish banking sector, Alior is still a relatively small bank, but demonstrates sound franchise in consumer finance and commercial lending to small and midsized enterprises (SMEs). Its business model, focusing on higher risk segments and aggressive growth track record, has helped the bank achieve stronger average margins than peers. However, its revenues, capitalization, and risk profile can be more volatile and vulnerable to changes in operating conditions than those of most peers, such as larger and more diversified universal banks in Poland like Bank Polska Kasa Opieki S.A. (Bank Pekao; BBB+/Stable/A-2) or mBank (BBB+/Negative/A-2). Alior's history of aggressive organic and acquisition-driven growth has resulted in ongoing challenges in building necessary capital buffers, and difficulties in adhering to regulatory capital requirements. S&P said, "We expect Alior will now aim to stabilize its business and focus on an organic loan book generation, after fully replacing management board members over 2017-2018. We also anticipate that strong economic growth will support the bank's transformation. At the same time, we expect Alior's growth pace will remain above the domestic banking sector average, and that the bank's risk cost will remain higher than average, given it's unchanged focus on riskier lending segments." Reflecting its recent strong growth record and high costs of risks, Alior has relatively low capitalization. S&P said, "We expect moderating growth and a supportive economic environment in Poland will help the bank sustain a sufficient capital buffer above regulatory requirements, remaining commensurate with the current rating level. Alior targets operating with a relatively thin margin of 100-150 basis points above its current regulatory Tier 1 minimum capital requirement of 11.1%. However, we assume it will sustain a sufficient buffer, with some help from main shareholder PZU (A-/Stable/--) if needed. Following our projection of full 2018 profits retention and a 20%-25% pay-out ratio from 2019-2020 earnings, we estimate Alior's risk-adjusted capital (RAC) ratio, S&P Global Ratings' measurement of capital adequacy, will remain at 7.5-8.0% over the next 12-24 months." Alior's asset quality metrics and loan loss track record are weaker than those of its most domestic peers, and some of its foreign peers with a relatively similar product mix, e.g. MONETA Money Bank, a.s. (BBB/Stable/A-2) in the Czech Republic. Risk exposures are concentrated in the Polish market and to sensitive customer types, which tend to be more vulnerable to economic cycles. Positively, despite a few larger, problematic corporate loans, S&P notes that the bank's loan portfolio is granular overall, and single-name concentrations are marginal because of small individual loan sizes. An important factor in our overall capital and risk assessments for Alior is the Polish zloty (PLN) 5 billion, three-year portfolio guarantee line for unfunded credit protection granted by PZU in November 2017, which could allow the Alior to transfer some credit risk to the parent if needed. S&P notes the bank does not plan to use this guarantee, but believe it should mitigate any risk of Alior's capital ratios falling below or breaching the regulatory minimum requirements. S&P said, "We consider Alior's funding as in line with that of the Polish banking sector, and its liquidity as adequate owing to its customer deposit funding profile and lack of reliance on wholesale funding. Moreover, we believe PZU would provide liquidity support if required. Alior's stable funding ratio stood at about 120% as of Sept. 30, 2018, a level we expect it will maintain in 2019-2020. We note that Polish banks generally have elevated stable funding ratios, reflecting their deposit funding profiles. Our liquidity ratio, according to S&P Global Ratings' methodology, demonstrates a very high coverage level of the short-term wholesale funding by the bank's broad liquid assets (26x on Dec. 31, 2017), but has a limited relevance and demonstrates high volatility for Alior, given the bank's very low wholesale funding level and riskier business model specifics. We note that the bank's regulatory liquidity coverage ratio stood at 132% as of Sept. 30, 2018, sufficiently above the minimum regulatory requirement, which increased to 100% in 2018. "We assess Alior as of a moderately strategic importance to the PZU group and expect that there is potential for some support from the group in case of need, as demonstrated in the past. For the current rating, we include one notch to the stand-alone credit profile (SACP) because of likely support from PZU, assigning a 'BB' issuer credit rating to Alior, one notch above our assessment of its SACP at 'bb-'. "We consider Alior as having low systemic importance in Poland, due to its relatively low market share, and currently believe that authorities would not necessarily choose a bail-in-led resolution of the bank, but rather a liquidation scenario in the hypothetical case of failure. We currently do not factor any additional potential support to the bank's SACP from any of Alior's additional loss-absorbing capital, but might reflect on this approach as more details regarding the potential resolution strategy are revealed. "The stable outlook reflects our expectation that Alior's new management will target a more moderate organic business growth in comparison with their strategy over the last few years, with no material acquisitions in the next 12 months. The outlook also reflects our expectation that Alior will remain moderately strategic to PZU and will receive support from the PZU group if needed. We anticipate the bank will maintain its adequate RAC ratio over the next 12-24 months, despite the negative equity effect from International Financial Reporting Standards 9 implementation. "We could take a negative rating action if, as a result of further aggressive growth or a larger dividend payout, Alior's capital ratios deteriorated significantly and the bank became at risk of breaching the regulatory minimum requirements. We could also consider a downgrade if we expected the RAC ratio to drop below 7% in our 12-to-24 month forecast. "We could also lower the rating if we saw Alior's role for PZU weaken over the next 12 months. This could result, for example, from a reduced expectation of support, or disinvestment plans. "We could upgrade Alior in the next 12 months if we believed that its current role for PZU had increased. This would involve there being a clear long-term strategy for Alior within the PZU group. We see a possible upward revision of Alior's SACP as more remote at this stage, because it would require a significantly higher build-up of capital, bringing our RAC ratio above 10%, and a sustainable improvement in asset quality metrics." =========================== U N I T E D K I N G D O M =========================== DEBENHAMS PLC: Moody's Affirms Caa1 CFR, Alters Outlook to Neg. --------------------------------------------------------------- Moody's Investors Service has changed to negative from stable the outlook on the Caa1 corporate family rating, Caa1-PD probability of default rating of Debenhams plc, as well as the Caa1 rating on the GBP200 million due 2021 senior unsecured notes issued by the company. Moody's has affirmed all the ratings. "The change in outlook reflects our view that there is a risk that refinancing negotiations may not result in a timely and cost effective solution and thus the process could ultimately culminate in losses for financial creditors", says David Beadle, a Moody's Vice President -- Senior Credit Officer and lead analyst for Debenhams. "However, notwithstanding this and the company's elevated leverage we continue to view Debenhams liquidity profile as adequate for the time being", he added. RATINGS RATIONALE Last week Debenhams published a Christmas trading update. Alongside weak operational performance, the company announced discussions have commenced with lenders in respect of the refinancing of its GBP320 million revolving credit facility (RCF), which is due to mature in June 2020. Pending the outcome of those discussions, which the company stated includes the option to bring new sources of finance into the business, asset disposals have been put on hold. Moody's had previously envisaged that a sale of the company's Danish business, Magasin du Nord, would be likely ahead of a refinancing. In the rating agency's view, this would have resulted in a more manageable ongoing borrowing requirement. Moody's understands that maximising value from disposals is difficult if potential buyers consider they are dealing with a 'forced seller'. However, the company's high debt burden and weak operating performance could hinder its ability to successfully conclude a timely and cost effective refinancing without a fresh injection of equity capital. The rating agency believes the company's prospects of access to fresh capital will have been hindered by the significant fall in Debenhams share price. The company's market capitalisation has declined from over GBP500 million in late 2017, to around GBP100 million at the time of its preliminary results announcement in October 2018, to less than GBP50 million at the time of writing. Furthermore, the company's largest shareholder, Sports Direct International has been publicly vocal in its dissatisfaction with board. Most recently this was evidenced at last week's AGM when shareholder votes led to the resignation of the Chairman and the removal of the CEO from the company's board. LIQUIDITY ANALYSIS Debenhams liquidity profile has historically been good. As at January 5, 2019 net debt of GBP286 million compared to GBP520 million of committed facilities, comprising the RCF and unsecured notes. The company's cessation of dividends and plans for reduced capital spending in fiscal 2019 should result in positive underlying free cash flow generation. As such, at this stage, Moody's believes that Debenhams liquidity will remain adequate even if some working capital absorption were to emerge in light of credit insurers' desire to limit their exposure to the UK retail sector. RATIONALE FOR THE NEGATIVE OUTLOOK The negative outlook reflects Moody's view that refinancing discussions with lenders, and in due course other key stakeholders, could lead to a loss to financial creditors. WHAT COULD CHANGE THE RATING UP/DOWN Positive rating pressure would develop in the event of a successful refinancing along with evidence of a path towards deleveraging. An expectation of sustained positive free cash flow would also likely be a prerequisite to any upgrade. Conversely, further negative rating pressure could occur if Debenhams fails to renew or refinance current debt facilities without loss to financial creditors. A deterioration in liquidity due to, for example, adverse development of working capital levels could also lead to a downgrade. COMPANY PROFILE Debenhams is the UK's largest department store group by number of stores (165 in fiscal 2018), and operates internationally through 11 stores in the Republic of Ireland, six owned stores in Denmark trading as Magasin du Nord, over 60 franchise stores in more than 20 countries that are owned and operated by local partners, and international online sales. The company is listed on the London Stock Exchange has a market capitalisation of approximately GBP40 million. Sports Direct International plc currently has a 29.7% stake in Debenhams. PRINCIPAL METHODOLOGY The principal methodology used in these ratings was Retail Industry published in May 2018. FLYBE GROUP: Obtains GBP10-Million Bridging Loan ------------------------------------------------- LaToya Harding at The Telegraph reports that the consortium bidding for Flybe has revised the terms of the deal after failing to reach agreement with the struggling airline's lenders. According to The Telegraph, Connect Airways, which includes Virgin Atlantic, Stobart Group and US private equity firm Cyrus Capital Partners, will release GBP10 million from a revised bridging loan to Flybe on Jan. 15 that will allow the airline to continue operating. A further GBP10 million will be released at a later date, The Telegraph states. Connect will also pump a further GBP80 million funding into the troubled business, The Telegraph notes. In return for the GBP10 million loan, Flybe will sell its two main subsidiaries, Flybe Limited and Flybe.com Limited, to the group, The Telegraph discloses. HOURSTONS: Set to Close on February 7, 81 Jobs Affected ------------------------------------------------------- BBC News reports that one of Ayr's oldest high street stores is to close after more than 100 years with the loss of 81 jobs. According to BBC, staff at Hourstons on Alloway Street were told on Jan. 7 that the department store would shut on Feb. 7. The shop, which first opened its doors in Ayr in 1896, is the latest in a series of town centre stores to close in recent years, BBC states. Hourstons is yet to make a public statement on the closure, BBC notes. PATISSERIE VALERIE: Taps KPMG to Explore Options for Business ------------------------------------------------------------- Oliver Gill and Jack Torrance at The Telegraph report that Patisserie Valerie lurched back towards the brink after hiring KPMG to prepare the business for "all options", including collapsing into an insolvency. The company warned on Jan. 16 its "devastating" accounting scandal was "significantly worse than first thought", The Telegraph relates. According to The Telegraph, parent company Patisserie Holdings said forensic accountants, believed to be PwC, have identified "thousands of false entries into the company's ledgers". Their analysis "revealed that the misstatement of its accounts was extensive". Patisserie Valerie was plunged into crisis in October after discovering a GBP40 million accounting black hole, The Telegraph recounts. =============== X X X X X X X X =============== * BOOK REVIEW: EPIDEMIC OF CARE ------------------------------- Author: George C. Halvorson George J. Isham, M.D. Publisher: Jossey-Bass; 1st edition Hardcover: 271 pages List Price: $28.20 Order your personal copy today at https://is.gd/0ChYOC Halvorson and Isham worked together as leaders of the Minneapolis health-care organization HealthPartners; Halvorson as chairman and CEO, and Isham as medical director and chief health officer. From their positions as leaders in the health-care field, they have gained a broad, thorough understanding of the structure, workings, and the problems of America's health-care system. Their "Epidemic of Care" written in a readable, lucid, jargon-free style is a timely work for anyone interested in the pressing matter of satisfactory health care in America. This includes government workers, politicians, executives of HMOs and hospitals, and critics of health care, to individuals making choices about their own health care. It is a notable work both practical and visionary that one hopes legislators and heads of HMOs will take in. For Halvorson and Isham make their way through the daunting complexities of today's health-care system to put their finger on its core problems and offer practicable solutions to these. The two main problematic issues of contemporary health care are health-care costs and quality of care. These two authors offer solutions taking into consideration both of these. They put forth balanced proposals instead of the many one-sided ones which stress cutting costs at the expense of care or favor care regardless of costs, costs usually born by government from tax revenues. In the authors' comprehensive, balanced proposals, corporations and businesses of all sizes, government agencies, health-care organizations of all types, state and local governments and health organizations, and also individuals work together cooperatively for the goal of affordable, effective, and widespread up Before outlining their program for dealing with the problems in health care, which are only growing worse in the present system, the authors relate information on different parts of today's system most readers would not be aware of. Then they analyze it to focus in on what is causing the problems in the particular area of health care. In some cases, misconceptions held among the public are cleared up, paving the way toward agreement on what are the real problems and coming up with acceptable solutions for them. The percentage of the cost of HMO membership and insurance premiums going for administration is one such misconception. "People guess, in fact, that HMO and insurance administration costs are about 30 to 40 percent of premiums and that insurer profits add another 10 to 20 percent of the total cost." This means that anywhere from about 40 percent to 60 percent of payments for HMOs or insurance doesn't go for health care. The authors clear up this misconception giving rise to much confusion in trying to deal with the serious problems facing the health-care field, as well as a good deal of resentment against HMOs and insurance companies, by citing that "health plan administrative costs, including profits and marketing, average from 5 to 30 percent of total premium, depending on the plan." This leads to the conclusion that it is not a sudden rise in administrative costs or the greed of health-care providers that is mainly responsible for driving up the costs of health care and will continue to do so for the foreseeable future without effective change in the field. Rising costs of health care from new technologies, consumer expectations and demands, and also misuse of drugs and treatments making patients worse or prolonging their medical problems are the main reason for the rising costs. The frequent misuse of modern-day medicines and treatments cited by the authors is an issue that is starting to receive attention in the media. The price of prescription drugs is one health-care issue already receiving much attention that the authors address. In this discussion, they note that because of committees of physicians and pharmacologists set up by HMOs to identify which drugs were most effective for specific medical problems and set standards for prescribing these according to HMO policies, "all Americans benefited from the new focus on drugs that actually work." Before these committees, eighty-four percent of drugs developed by the pharmaceutical companies were what were know as "class C" drugs that were little better than placebos. As the authors note, in those days not so long ago, drugs were being developed and marketed more to generate sales than remedy medical conditions. The high cost Americans pay for prescription compared to buyers in other countries is another matter the two authors take up. In this, they take the position of American buyers of prescription drugs by making the point that they should not be singled out to bear the disproportionate share of the research and marketing costs going into the drug prices since numbers of persons in countries around the world gain health benefits from the drugs. The wasteful similarities between some prescription drugs, the misuse of some, and growing concerns over costs and use of the drugs with persons under sixty-five are other topics dealt with in the discussion and analysis of the issue of prescription drugs. Halvorson and Isham's fair-minded overview and critique of today's health-care field should be read by anyone with an interest in and concern about this field central to the quality of life of Americans and the economy. While they recognize that the field's dysfunctions have such deep roots and thorny complexities that "there is no single villain responsible for our troubles and no silver bullet to cure them," undoubtedly some and likely a number of the two authors' approaches to resolving particular troubles or even their solutions to certain problems will be adopted. There is just no way out of the current health- care crisis other than the clear-sighted, comprehensive, cooperative way Halvorson and Isham present. George Halvorson is currently chairman and CEO of Kaiser Permanente, one of the U. S.'s largest health-care organizations. Isham continues as medical director and chief health officer of HealthPartners. ********* 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 2019. 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. 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