---

       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

          Thursday, February 21, 2019, Vol. 20, No. 38

                           Headlines



F R A N C E

SOLOCAL GROUP: Fitch Places 'B-' Debt Rating & IDR on Watch Neg.


G E R M A N Y

NORDLB: EU Lawmakers Call for Probe Into Recapitalization


N O R W A Y

NORWEGIAN AIR: Shareholders Endorse Deeply Discounted Cash Call


P O L A N D

WISLA KRAKOW: Supporters Raise Funds to Rescue Team via Beesfund


R U S S I A

ARB-INKASS: Put on Provisional Administration, License Revoked
BANK OTKRITIE: Moody's Ups Sr. Unsec. Debt & Deposit Ratings to Ba2


U N I T E D   K I N G D O M

CARE UK: Moody's Withdraws Caa1 CFR on Senior Notes Repayment
FLYBE GROUP: Brushes Off US Consortium-Led Takeover Bid
GRIFONAS FINANCE NO. 1: Fitch Ups Class A Notes Rating to BB+sf
THOMAS COOK: S&P Cuts ICR to B on Weakened Trading, Outlook Neg.

                           - - - - -


===========
F R A N C E
===========

SOLOCAL GROUP: Fitch Places 'B-' Debt Rating & IDR on Watch Neg.
----------------------------------------------------------------
Fitch Ratings has downgraded SOLOCAL Group's debt instrument rating
of the EUR397.8 million senior secured note to 'B-'/'RR4' from
'B'/'RR3'. The company's Long-Term Issuer Default Rating (IDR)
remains at 'B-'. Both of these ratings have been placed on Rating
Watch Negative.

The IDR of 'B-' reflects the challenges facing the company as it
shifts the revenue mix towards the new digital businesses and
adjusts its cost base. Recurring 2018 EBITDA of EUR171 million
shows stabilisation after several years of decline, although
revenue remains under pressure.

The Rating Watch Negative is driven by liquidity concerns given the
limited cash headroom, with significant redundancy plan payments
due in 3Q19. There is a risk that the company's plan to
significantly reduce headcount may delay the growth of digital
services, in turn potentially affecting revenue and EBITDA. Fitch
aims to resolve the RWN after the company publishes its 1H19
financial results.

KEY RATING DRIVERS

Declining Revenue, Stabilised EBITDA: SOLOCAL's revenue has been
declining for several years as a result of a fading print and voice
business, while growth from digital revenue has been insufficient
to offset the fall. In 2015-2017, total revenue fell by a CAGR of
6.9%, led by print and voice (-28%) and by local digital search
business (-3.6%). Digital marketing grew 10% over the same period
(all figures before IFRS15 application). Revenue for 2018 confirms
this trend. EBITDA stabilised around 2017 levels, mainly due to the
cost-savings plan under which there has been an acceleration in
redundancies over the past months.

Ongoing Operating Cost Savings: The cost-saving plan that the
company announced in 2018 mainly involved redundancies, procurement
and real-estate cost cuts. Up to 1,000 members of staff have left
SOLOCAL since 3Q18, equivalent to more than 20% of the workforce.
The announced effect of the cuts, on a sustained basis, should be a
reduction in costs of around EUR120 million annually, of which
around EUR105 million pertains to staff reductions. Fitch's rating
case assumes a full effect of about EUR90 million of cost savings
by 2021. The plan requires cash payments up to 2020 as most of the
work force made redundant will receive monthly salaries until 3Q19,
when the peak of the liquidation payments is expected. Fitch
factors in a total future cash outflow of EUR200 million, with
EUR150 million of that in 2019 and EUR50 million of contingency
costs thereafter.

Liquidity Is Tight: For 2019, Fitch's operating and cash flow
assumptions result in a negative net cash flow of around EUR75
million, significantly affected by the EUR150 million restructuring
payments. Under its rating case, Fitch also assumes  a drawdown of
additional credit facilities by EUR25 million in total, within the
baskets allowed by the bond documentation. The resulting year-end
cash position of around EUR12 million leaves limited liquidity to
cushion the business from moderate shocks arising under the
execution of the complex restructuring plan.

Refinancing Risk: SOLOCAL's capacity to overcome the liquidity
challenges of 2019 is crucial also in light of the refinancing of
the around EUR400 million senior notes maturing in 1Q financial
year to end-December 2022 (FY22). A fully funded restructuring
plan, more favourable operating leverage and stable EBITDA will be
crucial to keep the debt markets' yield expectations at bay.

Digital Growth with Low Entry Barriers: Fitch views as stable most
advertising-related sub-sectors, moderated by weak GDP growth in
Europe. Emerging mediums, such as digital media and mobile spaces,
are working off a small base and provide opportunities for
advertisers to address fragmentation, in a market that contains
multiple companies and has low barriers to entry. Under stable
economic conditions and with the development of measurement tools,
which are fundamental to monitoring the yield of every advertising
investment, emerging media can experience growing pricing patterns.
This is key in the case of re-converted directories businesses that
have proven low portability of prices from print to online
services.

Liquidation Approach to Recoveries: As with its previous review,
Fitch adopted a liquidation approach to recoveries, judging as
unlikely the possibility that SOLOCAL would be restructured under
the current liquidity circumstances and after two recent
procedures. Fitch could adopt a going-concern approach should the
company overcome the cash challenges of 2019, because certain
intangible assets (such as client portfolios) may be attractive to
trade buyers. Fitch rates the senior liabilities at 'RR4'/39%, as a
consequence of lower current assets on the 1H18 balance sheet and
the presence of the assumed EUR25 million additional credit
facilities in the debt waterfall.


DERIVATION SUMMARY

SOLOCAL's rating is underpinned by its transitioning business
model, refocusing from directories to a digital platform, by its
challenging liquidity for 2019, and by relatively low leverage,
although these could be challenging from a refinancing perspective.


SOLOCAL Group offers a range of services to enhance customers'
visibility on the web. It has developed these products through its
existing customer base, strong brands and on-the-ground sales
force, but its ability to remain competitive, and to stabilise
turnover and profits in a rapidly evolving digital landscape
remains uncertain. The capacity of the new management team to
deliver results under the challenging redundancy plan stands out as
a mitigating factor, together with the potential to take advantage
of a leaner organisational base should revenue growth restart.

In the 'B' rating category, a partial comparison can be made
between SOLOCAL and Software as a Service (SaaS) companies, such as
TeamSystem Holding S.p.A (B/Stable), that although highly levered
appear protected by higher barriers to entry, more cash-generative
businesses, and lower risks arising from the capital structure.
Moreover, compatibility can be seen with media businesses facing
similar secular declines, such as PRISA - Promotora de
Informaciones, S.A. (B/Stable) that compared to SOLOCAL appears
well-diversified, geographically and by business, and stronger from
a liquidity point of view.

KEY ASSUMPTIONS

Fitch's Key Assumptions Within Its Rating Case for the Issuer

  - FY18-21 top-line CAGR of -4%

  - Improvement in EBITDA towards EUR186 million in 2021, stable
for FY19

  - Annualised cost savings in excess of EUR90 million by FY21

  - Annual working capital outflows of about EUR15 million-20
million

  - Capital expenditure of EUR45 million-50 million a year over the
forecast period

RATING SENSITIVITIES

Developments That May, Individually or Collectively, Lead to
Positive Rating Action

  - Above-market growth in internet revenue (local search business
in particular) with a visibly improving market position;

  - Stabilisation of the customer base, with a transition towards a
recurring revenue-based model;

  - Completion of the cost-reduction programme, improving free cash
flow (FCF) margin to around 5%;

  - FFO adjusted gross leverage below 1.5x.

Developments That May, Individually or Collectively, Lead to
Negative Rating Action

  - Failure of the restructuring plan to stabilise the business, or
lack of EBITDA growth in the digital business over the next 12-18
months;

  - Failure to return to positive FCF generation in 2020;

  - Weakening liquidity, due either to operational issues or
corporate activity.

LIQUIDITY

Minimal liquidity headroom: Fitch expects SOLOCAL to incur costs of
around EUR150 million in 2019 relating to the restructuring plan.
With around EUR82 million cash on balance sheet (as of end-FY18),
Fitch expects these costs to constrain liquidity. The Group has
access to a EUR10 million working capital facility and will have
access to a new EUR15 million revolving credit facility.

FULL LIST OF RATING ACTIONS

SOLOCAL Group

  - IDR: 'B-'; placed on Rating Watch Negative;

  - EUR397.8 million senior secured bonds due 15 March 2022:
downgraded to 'B-'/'RR4' from 'B'/'RR3', placed on RWN



=============
G E R M A N Y
=============

NORDLB: EU Lawmakers Call for Probe Into Recapitalization
---------------------------------------------------------
Francesco Guarascio and Klaus Lauer at Reuters report that the
recapitalization of Germany's NordLB bank should be investigated by
the European Commission as it likely involved state aid that might
have violated European Union rules, two EU lawmakers said on Feb.
19.

The lender, which has been struggling for years due to its exposure
to the crisis-hit shipping industry, said in February that the
German regional state of Lower Saxony and Saxony Anhalt had decided
to go ahead with a recapitalization, also backed by German savings
banks, Reuters relates.

The intervention of the two states, which together own 65% of
NordLB, effectively sidelined a rival offer by private equity
groups Cerberus and Centerbridge, Reuters notes.

According to Reuters, a spokeswoman for the finance ministry of
Lower Saxony, the largest shareholder in the bank, said the lender
was seeking to have the deal recognized as "free of state aid" and
was discussing the issue with the EU Commission.

German green EU lawmaker Sven Giegold told Reuters it was likely
the deal was not on market terms as "no buyer was ready to pay a
positive net value for the bank."

He urged NordLB to notify Brussels about the deal and called on the
Commission to open an investigation to assess whether it was legal,
Reuters discloses.

Under EU rules, banks' shareholders, bondholders and, in extreme
cases, even depositors should pay for a rescue before public money
is used, according to Reuters.  State aid provided on terms that
are better than what the market would offer is considered illegal,
Reuters relays.

NordLB's owners could argue the rescue is not state aid, as the
capital is coming from existing shareholders, Reuters says.




===========
N O R W A Y
===========

NORWEGIAN AIR: Shareholders Endorse Deeply Discounted Cash Call
---------------------------------------------------------------
Terje Solsvik at Reuters reports that Norwegian Air's shareholders
overwhelmingly endorsed on Feb. 19 the lossmaking airline's plan
for a deeply discounted cash call to help bolster its finances,
Chairman Bjoern Kise said.

Norwegian Air said on Jan. 29 it would raise NOK3 billion (US$348
million) in a rights issue, just days after British Airways owner
IAG ruled out a bid for the budget carrier, Reuters relates.

In the rights issue, Norwegian's owners will get the right to buy
two new shares at NOK33 each for every share they own, compared
with the Feb. 18 closing price of NOK93 crowns, Reuters discloses.

According to Reuters, company officials said holders of more than
99% of Norwegian's equity backed the proposal at a meeting on Feb.
19.

By selling new shares far below the market price, Norwegian will
boost the value of each of the purchasing rights, which can be
bought and sold, Reuters notes.

Norwegian is trying to replicate on transatlantic flights the
low-cost model that dominates the short-haul market, exemplified by
the likes of Ryanair and easyJet, but is struggling to make the
business profitable, Reuters states.




===========
P O L A N D
===========

WISLA KRAKOW: Supporters Raise Funds to Rescue Team via Beesfund
----------------------------------------------------------------
Konrad Krasuski at Bloomberg News reports that when a 112-year-old
Polish soccer club with 13 national championship titles teetered
dangerously close to bankruptcy, its fans stepped in with funding.

Wisla Krakow SA supporters turned equity investors, saving their
beloved team and boosting an emerging niche capital market in the
process, Bloomberg discloses.  According to Bloomberg, they drummed
up PLN4 million (US$1.1 million) between 9,129 investors who bought
40,000 shares in less than two days earlier this year, using the
Beesfund crowdfunding platform.




===========
R U S S I A
===========

ARB-INKASS: Put on Provisional Administration, License Revoked
--------------------------------------------------------------
The Bank of Russia, by virtue of its Order No. OD-308, dated
February 15, 2019, revoked the banking license of Moscow-based
credit institution Non-bank Credit Institution Limited Liability
Company ARB-INKASS or NBCI LLC ARB-INKASS (Registration No.
3353-К) from February 15, 2019.  According to the financial
statements, as of January 1, 2019, the credit institution ranked
482nd by assets in the Russian banking system.  The credit
institution is not a member of the deposit insurance system.

The primary area of ARB-INKASS's activity was providing cash
collection services.  On the back of decreased demand for such
services on the part of the credit institution's customers, its
financial standing materially deteriorated.  As of the end of
January 2019, the equity of ARB-INKASS dropped below its authoried
capital, which evidenced the need for action to prevent the credit
institution's insolvency (bankruptcy).

The Bank of Russia repeatedly (four times over the last 12 months)
applied measures against ARB-INKASS.

The management and owners of the credit institution failed to take
proper actions to bring its activities back to normal.  Under these
circumstances, the Bank of Russia took the decision to revoke
ARB-INKASS's banking license.

The Bank of Russia takes this extreme measure -- revocation of the
banking license -- because of the credit institution's failure to
comply with federal banking laws and Bank of Russia regulations,
due to repeated application within a year of measures envisaged by
the Federal Law "On the Central Bank of the Russian Federation
(Bank of Russia)".

The Bank of Russia, by virtue of its Order No. OD-309, dated
February 15, 2019, appointed a provisional administration to manage
ARB-INKASS 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.

The current development of the bank's status has been detailed in a
press statement released by the Bank of Russia.


BANK OTKRITIE: Moody's Ups Sr. Unsec. Debt & Deposit Ratings to Ba2
-------------------------------------------------------------------
Moody's Investors Service upgraded the long-term foreign and local
currency senior unsecured debt and deposit ratings of Bank Otkritie
Financial Corporation PJSC (BOFC) to Ba2 from B1, its long-term
counterparty risk ratings (CRRs) to Ba1 from Ba3 and its long-term
counterparty risk assessment (CR Assessment) to Ba1(cr) from
Ba3(cr). Concurrently, Moody's upgraded BOFC's baseline credit
assessment (BCA) as well as its adjusted BCA to b3 from caa1. The
outlook on the long-term debt and deposit ratings was changed to
Stable from Positive.

In addition, Moody's affirmed BOFC's short-term deposit ratings and
short-term CRRs of Not Prime, and the short-term CRA of Not
Prime(cr).

The rating actions were driven by the following developments: (1) a
significant reduction of the bank's exposures to problem assets
after the transfer of non-performing assets to National Bank Trust
(NBT) under the financial rehabilitation programme; (2) visible
progress in streamlining the group structure after its merger with
B&N Bank (unrated); (3) its return to profit under its new
strategy; and (4) very high demonstrated support from the Russian
government (Baa3 stable).

RATINGS RATIONALE

REDUCED EXPOSURE TO PROBLEM ASSETS

On November 15, 2018, BOFC transferred net assets of RUB 166
billion to NBT Bank (unrated), a vehicle run by the Central Bank of
Russia (CBR) for the management of problem and non-core assets of
failed banks.

The transfer of non-performing assets improved the quality of the
loan book and eased pressure on BOFC's capital. Moody's estimates
that the problem loans to gross loans ratio fell to below 30% at
end-2018 from over 60% before the transfer, and the ratio of
problem loans to tangible common equity and loan loss reserves
improved to below 50% at end-2018 from above 80% in previous
periods.

STREAMLINING OF THE GROUP STRUCTURE

The bank has made significant progress in streamlining its
non-banking and banking businesses. It completed its merger with
B&N Bank on January 1, 2019, and has consolidated several pension
funds and insurance assets over the course of 2018.

RETURN TO PROFIT IN 2018

The bank is now profitable for the first time since 2016, reporting
net income of RUB 31 billion for the nine months of 2018. Its
improved performance is a reflection of asset quality improvement
leading to better earnings generation in the bank's core business
lines, as well as its insurance business which is no longer
loss-making. Moody's expects that the combined bank will be able to
grow its franchise and increase earnings over the next 12-18
months. In addition, BOFC expects to undertake significant cost
reduction measures, which should improve its efficiency.

GOVERNMENT SUPPORT

Moody's incorporates a very high likelihood of support for BOFC's
debt and deposit ratings from the Russian government, resulting in
four notches of uplift from the BCA of b3. The support assumptions
are underpinned by (1) a track record of financial support from the
CBR, both in terms of capital and funding; (2) the CBR's almost
100% ownership of the bank; and (3) BOFC's status as a systemically
important bank with a significant market share by assets among the
10 largest Russian banks.

STABLE OUTLOOK

The stable outlook on the long-term debt and deposit ratings
reflects Moody's expectations that BOFC will maintain its recently
improved profitability and asset quality with capital and liquidity
remaining sound.

WHAT COULD MOVE THE RATINGS UP/ DOWN

The bank's BCA could be upgraded if the bank proves the stability
and resilience of its business model while maintaining sound
profitability, asset quality, liquidity and capital. Moody's could
upgrade the deposit ratings if it upgraded the bank's BCA, but this
would also depend on an updated assessment of potential further
government support.

The ratings could be downgraded in the unlikely event that the CBR
appeared less likely to continue its support to BOFC, or if the
Russian government's overall capacity and propensity to render
support to systemically important financial institutions should
diminish. The BCA could be downgraded if the bank fails to remain
profitable or if asset quality, capital or liquidity deteriorated
meaningfully.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Banks published
in August 2018.

Issuer: Bank Otkritie Financial Corporation PJSC

Upgrades:

  - Adjusted Baseline Credit Assessment, Upgraded to b3 from caa1

  - Baseline Credit Assessment, Upgraded to b3 from caa1

  - Long-term Counterparty Risk Assessment, Upgraded to Ba1(cr)
from Ba3(cr)

  - Long-term Counterparty Risk Rating, Upgraded to Ba1 from Ba3

  - Senior Unsecured Regular Bond/Debenture, Upgraded to Ba2 from
B1, Outlook Changed to Stable from Positive

  - Long-term Bank Deposits, Upgraded to Ba2 from B1, Outlook
Changed to Stable from Positive

Affirmations:

  - Short-term Counterparty Risk Assessment, Affirmed NP(cr)

  - Short-term Counterparty Risk Rating, Affirmed NP

  - Short-term Bank Deposits, Affirmed NP

Outlook Action:

  - Outlook Changed To Stable From Positive



===========================
U N I T E D   K I N G D O M
===========================

CARE UK: Moody's Withdraws Caa1 CFR on Senior Notes Repayment
-------------------------------------------------------------
Moody's Investors Service has withdrawn Care UK Health & Social
Care Investments Limited (Care UK) corporate family rating (CFR) of
Caa1 and probability of default rating (PDR) of Caa1-PD. At the
time of withdrawal, there was no instrument rating outstanding.
Prior to the withdrawal the outlook on the ratings was stable.

RATINGS RATIONALE

Moody's has withdrawn the ratings following the recent repayment of
its senior secured notes.

FLYBE GROUP: Brushes Off US Consortium-Led Takeover Bid
-------------------------------------------------------
Charlie Taylor-Kroll at The Telegraph reports that Flybe has
brushed off a last-minute takeover attempt led by a US consortium
and backed by major shareholder -- and former Stobart boss --
Andrew Tinkler.

According to The Telegraph, the bid, understood to have been
written on a two-page document, is an attempt to ambush a takeover
deal from Connect Airways -- the consortium made up of Virgin
Atlantic and Stobart Group.

However, Flybe said that its current takeover arrangement with
Connect Airways remained its "only viable option" and "provides the
security that the business needs to continue to trade
successfully", The Telegraph relates.

Connect Airways has already released an emergency GBP15 million of
a GBP20 million credit facility to Flybe last month to allow the
airline to continue operating, The Telegraph discloses.

The Telegraph's LaToya Harding, citing Sky News, reports that US
airline Mesa Air has proposed a last-minute deal to takeover
struggling regional carrier Flybe.

The Arizona-based company is part of a consortium of investors
which has offered to inject GBP65 million into the troubled FTSE
250 carrier and pull the rug from Virgin Atlantic's takeover bid,
The Telegraph states.

The refinancing plan is reportedly being led by South African
aviation investment firm Bateleur Capital and US hedge fund Avenue
Capital, The Telegraph notes.

The group plans to inject GBP65 million of new equity at roughly
4.5p per share, a significantly higher offer than the 1p per share
from the Virgin-led consortium, according to The Telegraph.


GRIFONAS FINANCE NO. 1: Fitch Ups Class A Notes Rating to BB+sf
---------------------------------------------------------------
Fitch Ratings has upgraded Grifonas Finance No. 1 Plc's (Grifonas)
class A notes, affirmed the class B notes, downgraded the class C
notes and removed them from Rating Watch Evolving (RWE), as
follows:

Class A (XS0262719320): upgraded to 'BB+sf' from 'BB-sf'; off RWE;
Outlook Positive

Class B (XS0262719759): affirmed at 'BB-sf'; off RWE; Outlook
Positive

Class C (XS0262720252): downgraded to 'Bsf' from 'BB-sf'; off RWE;
Outlook Stable

The transaction was originated by Consignment Deposit & Loans Fund
(CDLF).

KEY RATING DRIVERS

Sovereign Upgrade

The upgrade of the class A notes has been driven primarily by the
upgrade of Greece's Issuer Default Rating (IDR) to 'BB-' and the
revision of its Country Ceiling to 'BBB-' from 'BB-' on August 10,
2018. Fitch placed the ratings of all three tranches on Rating
Watch Positive (RWP) on 22 August 2018 following the sovereign
upgrade.

Error Correction

The downgrade of the class C notes has been driven primarily by the
correction of certain inconsistencies in Fitch's inputs to the EMEA
Cash Flow Model related to the swap economics. Fitch placed the
ratings of all three tranches on RWE on 6 February 2019 following
the identification of the error.

Stable Asset Performance

Asset performance has remained overall stable since the last
surveillance review in February 2018, and Fitch expects this trend
to continue. As at the cut-off date of the pool, loans with arrears
in excess of three payments stood at 8.5%, as calculated by Fitch.


Credit Support and Liquidity Mechanism

The transaction continues to amortise sequentially as its
non-amortising cash reserve is at target, resulting in increasing
credit support. The structure also features a stand-by liquidity
facility that provides adequate liquidity to support the timely
payment of the notes' interest and senior expenses. The facility is
non-amortising, due to breached triggers, which could be erosive to
the transaction's available funds given the commitment expenses
expressed as an interest rate on the facility amount.

RATING SENSITIVITIES

The notes' ratings are capped at 'BBB-sf'. Further changes to the
Greek sovereign IDR, Country Ceiling or structured finance rating
cap may result in corresponding changes to the tranches rated at
the cap.

Continued stable asset performance and increasing credit
enhancement could lead to further upgrades of the senior and
mezzanine tranches.

Asset deterioration beyond Fitch's expectations could lead to
negative rating action.

USE OF THIRD-PARTY DUE DILIGENCE PURSUANT TO RULE 17G-10

Form ABS Due Diligence-15E was not provided to, or reviewed by,
Fitch in relation to this rating action.

DATA ADEQUACY

Fitch has checked the consistency and plausibility of the
information it has received about the performance of the asset pool
and the transaction. There were no findings that affected the
rating analysis. Fitch has not reviewed the results of any
third-party assessment of the asset portfolio information or
conducted a review of origination files as part of its ongoing
monitoring.

Fitch did not undertake a review of the information provided about
the underlying asset pool ahead of the transaction's initial
closing. The subsequent performance of the transaction over the
years is consistent with the agency's expectations given the
operating environment and Fitch is therefore satisfied that the
asset pool information relied upon for its initial rating analysis
was adequately reliable.

Overall, Fitch's assessment of the information relied upon for the
agency's rating analysis according to its applicable rating
methodologies indicates that it is adequately reliable.

SOURCES OF INFORMATION

The following information was used in the analysis.

  - Investor report dated 28 August 2018 and updates provided by
the servicer (CDLF) as at 08 January 2019.

  - Loan Level Data dated 31 December 2018 were used to run the
relevant model and the relevant data sources were CDLF

  - Discussions/updates from servicer dated January 2019.

THOMAS COOK: S&P Cuts ICR to B on Weakened Trading, Outlook Neg.
----------------------------------------------------------------
U.K.-based tour operator Thomas Cook Group PLC's first quarter
trading update (Feb. 7) reflects weak trading and low visibility of
earnings and cash flows in the U.K. market. S&P has therefore
revised down its earnings and cash flow growth forecasts, and now
foresee slower deleveraging than it had previously anticipated.

S&P Global Ratings is lowering its long-term issuer credit rating
on Thomas Cook to 'B' from 'B+' and maintaining the negative
outlook. S&P is lowering its issue rating on the senior unsecured
notes to 'B' from 'B+', while its recovery rating on the debt
remains at '3'.

The downgrade reflects Thomas Cook's weak trading and reduced
liquidity flexibility, as well as its elevated leverage, combined
with significant Brexit-related uncertainty.

For its first-quarter results, Thomas Cook announced
lower-than-expected bookings for winter and summer 2019 (partly due
to a prolonged heatwave in the second-half 2018), weaker gross
margins, and a higher-than-expected increase in debt. Revenue
growth in first-quarter 2019 was +1% on a like-for-like basis (-6%
on a reported basis) compared to +7% in first-quarter 2018. Gross
profit margins were lower than last year, reflecting ongoing highly
competitive market conditions in the U.K. at the end of the summer
season and weaker demand for winter holidays in the Nordics. Of its
summer 2019 program, 30% was sold (34% last year for summer 2018),
with tour operator bookings down 12% year-on-year, in line with the
company's targeted capacity reductions.

Thomas Cook has reduced capacity so as to avoid the same situation
that happened last year, when there was an oversupply of holidays
and tour operators had to cut prices to fill already-committed
summer capacity. By cutting capacity this year, Thomas Cook intends
to maintain or even increase margins. S&P said, "We believe,
however, that the tour operator market will remain slow in the key
markets of the U.K. and Northern Europe and very competitive given
that TUI A.G. is maintaining volumes and reducing prices. We
believe TUI has more flexibility to cut prices because it has
joint-venture arrangements with hotels. Moreover, we see a risk
that Thomas Cook will have to step in and start reducing prices at
some point to keep up with competition. With lower capacity in
place, it might not achieve the cash flows it anticipates."

Thomas Cook also reported a £292 million increase in net debt at
Dec. 31, 2018 to £1,588 million from £1,296 million at Dec. 31,
2017. This increase was due to lower cash inflows as a result of
fewer bookings. The first quarter is typically the year's lowest in
terms of cash because this is when the company pays its suppliers.
S&P said, "The working capital swing in the first quarter is
normally funded by the RCF; we believe the majority of this has
been drawn. Based on our calculations, while the company is
compliant with its two RCF covenants, we estimate that headroom
will be very tight for the second quarter. While we believe that
the company has identified contingencies it can use to protect its
covenant headroom during the next few quarters, we think it has
diminishing flexibility to face any operational challenges or
underperformance without the need for additional financing." Such
additional financing could include funds from the sale of the
airline, if it materializes as a result of the strategic review of
the airline business. The company is also exploring other measures
to improve liquidity, including aircraft financing transactions.

S&P said, "Based on this--and noting that it is difficult to
forecast trends in this industry at the start of the year--we now
expect our earnings and cash flow projections for Thomas Cook will
be weaker than we had initially thought. We now forecast S&P Global
Ratings-adjusted leverage above 5.0x (previously we projected it
would decline toward 4.5x–5.0x)."

The company has announced a strategic review of its airline
business and confirmed that funds raised from this potential
transaction would be used to deleverage the tour operator business.
S&P believes that although this transaction would help with
deleveraging by reducing the company's fixed-term debt, it carries
significant execution risk and it would diminish the company's
earnings diversification (the airline business accounts for about
52% of EBIT in FY2018 and 30% of EBIT in FY2017).

S&P said, "The negative outlook indicates that we could lower the
ratings if Thomas Cook was unable to restore its operating
performance during 2019 such that currently-weak earnings, cash
flows, and credit ratios improve materially or if liquidity
diminished further. The negative outlook also reflects the risk
that our base-case projections might not materialize due to the
uncertainty affecting the U.K. tour operator market, including
Brexit-related uncertainty, and to the ongoing challenges affecting
this event-prone industry."

Operating developments leading to significantly
weaker-than-anticipated earnings or credit ratios, or a substantial
and persistent tightening of covenant headroom below 10% could
trigger a negative rating action. Specifically, pressure on the
ratings could result from adjusted debt to EBITDA remaining above
6.0x and FOCF remaining either negative or negligible in the 2019
financial year (ending Sept. 30, 2019). Unexpected adverse events,
like a hard or difficult Brexit in March 2019, could also trigger a
negative rating action.

S&P said, "We could revise the outlook back to stable if Thomas
Cook reduced and maintained leverage close to 5.0x and generated
materially positive FOCF in FY2019 as a result of improved
operating performance and lower exceptional costs. Restoring the
covenant headroom to above 15% and improving liquidity to adequate
would also be necessary for the outlook to be revised to stable.

"An upgrade is unlikely over the next 12 months. Given the high
event risk in the tour operator industry, we estimate that for
Thomas Cook to be able to sustain a higher rating it would need to
decrease leverage to 4.0x-4.5x to provide headroom for unforeseen
external events."


                           *********


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.  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 * * *